U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934
For the quarterly period ended December 31, 1996
------------------
- --- Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
--------------- ------------------
Commission file number Securities Act Registration No. 33-75276
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Creative Medical Development, Inc.
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(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 68-0281098
- ------------------------------- ----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
870 Gold Flat Road, Nevada City, CA 95959
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(Address of Principal Executive Offices)
(916) 478-0740
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 2,084,745 Common Shares and
810,000 Series A Preferred Shares all at $.01 par value were outstanding as of
January 31, 1997.
<PAGE>
CREATIVE MEDICAL DEVELOPMENT, INC.
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
INDEX
PART I. FINANCIAL
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets...................... 1
Unaudited Consolidated Statements of Operations............ 2
Unaudited Consolidated Statements of
Shareholders' Equity....................................... 3
Unaudited Consolidated Statements of Cash Flows............ 4
Notes to Unaudited Consolidated Financial
Statements................................................. 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............... 6
PART II. OTHER INFORMATION........................................... 7
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES............................................................... 8
<PAGE>
CREATIVE MEDICAL DEVELOPMENT, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
------
Current Assets 1996 1995
- -------------- ---- ----
Cash $ 9,414 $ -
Accounts Receivable, less
allowance for doubtful accounts; 9,422 232,907
Investment securities 1,771,771
Net assets of discontinued operations 774,910
Net assets held for sale 1,186,759 1,215,579
----------- -----------
Total assets $ 2,977,366 $ 2,223,396
=========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY (DEFICIT)
------------------------------
Current Liabilities
- -------------------
Bank overdraft $ - $ 57,175
Notes payable due within one year 351,824 787,406
Accounts Payable 49,332 223,846
Accrued liabilities 35,295
----------- -----------
Total current liabilities 401,156 1,103,722
Notes payable due after one year 1,221,792 1,234,995
----------- -----------
Total liabilities 1,622,948 2,338,717
----------- -----------
Shareholders' equity:
Convertible Preferred stock; $.01 par value;
5,000,000 shares authorized;
December 31, 1995, shares outstanding:
810,000 in 1996 and 1995 8,100 8,100
Common stock; $.01 par value; 10,000,000
shares authorized; shares outstanding:
2,084,745 and 2,046,159 in 1996 and
1995 respectively 20,847 20,461
Additional paid-in capital 4,837,533 4,818,626
Unrealized loss on available-for
sale investment securities (228,229)
Accumulated equity (deficit) (3,283,833) (4,962,508)
----------- ----------
Total shareholders' equity 1,354,418 (115,321)
----------- ----------
$2,977,366 $2,223,396
========== ==========
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
CREATIVE MEDICAL DEVELOPMENT, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For The Quarters Ended December 31, 1996 and December 31, 1995
1996 1995
---- ----
Assets held for sale
Gain (Loss) from operations of
assets held for sale $ 16,964 $ (18,912)
Discontinued operations
Loss from discontinued operations (41,499) (31,017)
-------- ---------
Net loss $(24,535) $ (49,929)
======== =========
Net loss per share $ (0.01) $ (0.01)
======== =========
Shares used in computations 2,084,745 2,046,159
========= =========
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
CREATIVE MEDICAL DEVELOPMENT, INC.
UNAUDITED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
For The Quarters Ended December 31, 1996 and 1995
Unrealized
Loss
on Available- Total
Preferred Stock Common Stock Additional for-Sale Sharholders'
------------------ ---------------------- Paid-in Accumulated Investment Equity
Shares Amount Shares Amount Capital Deficit Securities (Deficit)
------ ------ ------ ------ ------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, September 30, 1995 810,000 $ 8,100 2,012,480 $ 20,125 $4,802,123 $(4,912,579) $ - $ (82,231)
Issuance of common stock
for services 33,679 336 16,503 16,839
Net loss (49,929) (49,929)
------- ------- --------- -------- ---------- ----------- -------- ----------
Balances, December 31, 1995 810,000 $ 8,100 2,046,159 $ 20,461 $4,818,626 $(4,962,508) $ - $ (115,321)
------- ------- --------- -------- ---------- ----------- -------- ----------
Issuance of common stock
for services 38,586 386 18,907 19,293
Unrealized loss on
available-for-sale
investment securities,
net of taxes (228,229) (228,229)
Net income 1,703,210 1,703,210
------- ------- --------- -------- ---------- ----------- -------- ---------
Balances, September 30, 1996 810,000 $ 8,100 2,084,745 $ 20,847 $4,837,533 $(3,259,298) $(228,229) $1,378,953
Net loss (24,535) (24,535)
------- ------- --------- -------- ---------- ----------- --------- ----------
Balances, December 31, 1996 810,000 $ 8,100 2,084,745 $ 20,847 $4,837,533 $(3,283,833) $(228,229) $1,354,418
======= ======= ========= ========= ========== =========== ========= ==========
The accompanying notes are an integral part of these financial statements.
3
</TABLE>
<PAGE>
CREATIVE MEDICAL DEVELOPMENT, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Quarters Ended December 31, 1996 and December 31, 1995
1996 1995
---- ----
Cash flows from operating activities:
Net loss $(24,535) $ (49,929)
Reconciliation to net cash used
for operating activities:
Depreciation and amortization 8,020 8,950
Issuance of common stock for services 16,839
Changes in assets and liabilities:
Accounts receivable 9,084
Net assets of discontinued operations (3,471)
Accounts payable 7,783 (17,169)
Accrued liabilities (6,501) (19,887)
-------- --------
Net cash used for operating activities (15,232) (55,583)
-------- --------
Cash flows from investing activities:
Acquisition of property and equipment (646)
-------- --------
Cash flows from financing activities:
Bank overdraft 57,175
Issuance of notes payable 22,462
Repayment of notes payable (3,081) (4,617)
-------- --------
Net cash provided by financing activities 19,382 52,558
-------- --------
Increase (Decrease) in cash 3,502 (3,025)
Cash:
Beginning of period 5,912 3,025
-------- --------
End of period $ 9,414 $ 0
======== ========
Supplemental disclosure of cash flow information:
Interest paid $ 42,663 $ 35,833
======== ========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CREATIVE MEDICAL DEVELOPMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) INTERIM FINANCIAL INFORMATION
The accompanying unaudited consolidated financial statements of Creative
Medical Development, Inc. have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and
regulations. In the opinion of Management, the consolidated financial
statements include all adjustments necessary in order to make the
consolidated financial statements not misleading. Results for the period
ended December 31, 1996 are not necessarily indicative of the results that
may be expected for the fiscal year ending September 30, 1997. For further
information, refer to the consolidated financial statements and footnotes
thereto, for the fiscal year ended September 30, 1996, included in the
Company's Form 10-KSB.
(2) DISCONTINUED OPERATIONS
On September 13, 1995, the Company entered into an agreement with Gish
Biomedical, Inc. (Gish) to sell substantially all of its operating assets
and technology for $600,000 cash and shares of Gish common stock valued at
$2,000,000 (240,240 shares). Upon closing, April 17, 1996, the Company
entered into a one year lease with Gish for the portion of the building
which the Company currently occupied.
Under terms of the agreement, from September 13, 1995, through the closing
date, the Company's manufacturing operations were operated for the benefit
of Gish. Accordingly, for the quarter ended December 31, 1995, net losses
related to sales of approximately $219,310 and expenses of approximately
$418,390 were offset against operating advances to the Company by Gish.
(3) ASSETS HELD FOR SALE
The real estate owned by the Company was not included in the Gish
transaction. It is currently being operated as a commercial rental property
and being offered for sale.
5
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
Background
From its founding in July, 1992, through completion of the Initial Public
Offering (IPO), May 13, 1994, the Company's operations have been funded
primarily by equity capital and debt financing provided by principal
shareholders and private investors. During the Company's development stage
and through the end of the fiscal year ended September 30, 1995, losses
were incurred as costs of designing, developing, testing, producing and
marketing the Company's initial products and administrative overhead
exceeded revenues generated from product sales.
On September 13, 1995, the Company entered into an Asset Purchase Agreement
with Gish Biomedical, Inc. ("Gish") for sale of the EZ Flow Pump technology
and product line. Under its terms, substantially all of the Company's
manufacturing related assets (with a net book value of $680,957) were sold
for $600,000 cash and $2,000,000 of Gish Stock (240,240 shares). At a
special meeting of stockholders held February 21, 1996, the transaction was
approved and it closed April 17, 1996.
Results of Operations
Because of the sale of assets to Gish, the Company had no manufacturing
operations or sales during the quarter ended December 31, 1996.
However, the company had general and administrative expenses in connection
with the audit of its books for fiscal 1996, management of its real estate,
accounting, corporate governance and compliance matters and the
investigation and evaluation of corporate opportunities.
All of the general and administrative expenses, $34,018, have been charged
to discontinued operations. That amount with net interest expense related
to the bank credit line represent the total amount shown as Loss from
discontinued operations. From September 13, 1995 to the Closing, the
Company's manufacturing business was being operated for the benefit of and
at the risk of Gish. Accordingly, the operation of the manufacturing
business through December 31, 1995, was accounted for as a discontinued
operation and the results of operations were netted against operating funds
advanced Gish. General and administrative expenses for the discontinued
operations for the quarter ended December 31, 1995 were $31,017.
Rental operations of the real estate are segregated from the discontinued
operations and shown as operations of assets held for sale. Because two
tenants paid their January 1997 rent in December, rental income for the
quarter and rental operations profit are overstated by approximately
$11,000. Because the building is fully occupied, there is a slight profit
on rental operations compared to an $18,912 loss for the same quarter last
year.
6
<PAGE>
Liquidity and Capital Resources
Cash on hand and in money market investments at December 31, 1996 was
$9,414 as compared to a bank overdraft of $57,175 at December 31, 1995.
Because the Gish stock received at the closing of the Gish transaction was
unregistered, the Company secured a bank credit line to pay delinquent
accounts payable from the discontinued operations and fund the general and
administrative expenses pending the registration of those securities. The
registration of those securities became effective November 22, 1996. Since
January 1, 1997, the Company has sold 41,500 shares of Gish stock at an
average net price of $6.90 per share and has paid $200,000 principal on the
bank credit line, leaving a balance of approximately $114,000. The Company
expects to margin or liquidate additional Gish stock to pay the bank credit
line and meet any immediate cash flow needs pending sale of the real estate
and determination of the future business of the Company.
The Company's stock is traded on the OTC Bulletin Board.
OTHER INFORMATION - PART II
Item 1. Legal Proceedings
- -------------------------
Not applicable
Item 2. Changes in Securities
- -----------------------------
Not applicable
Item 3. Defaults on Senior Securities
- -------------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
Not applicable
Item 5. Other Information
- -------------------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
--------
27.02 Financial Data Schedule December 31, 1996
(b) Reports on Form 8-K
-------------------
Not applicable
7
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Creative Medical Development, Inc.
Registrant
2/17/97 /S/ RONALD J. GANGEMI
- ------------------------- -------------------------------
Date Ronald J. Gangemi
Chief Executive Officer
2/17/97 /S/ JOHN E. HART
- -------------------------- -------------------------------
Date John E. Hart
Treasurer
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE QUARTER ENDED 12/31/96 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 9,414
<SECURITIES> 1,771,771
<RECEIVABLES> 9,422
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,790,607
<PP&E> 1,186,759
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,977,366
<CURRENT-LIABILITIES> 401,156
<BONDS> 0
0
8,100
<COMMON> 20,847
<OTHER-SE> 1,354,418
<TOTAL-LIABILITY-AND-EQUITY> 2,977,366
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 16,964
<DISCONTINUED> (41,499)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,535)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
