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 March 31, 1997
--- 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
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification NO.)
870 Gold Flat Road, Nevada City, CA 95959
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(Address of Principal Executive Offices)
(916) 478-0740 (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
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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
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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: 5,554,337 Common Shares and
622,065 Series B Preferred Shares all at $.01 par value were outstanding as of
April 30, 1997.
<PAGE>
CREATIVE MEDICAL DEVELOPMENT, INC.
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
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
March 31, 1997 and 1996
ASSETS
------
Current Assets 1997 1996
- -------------- ----------- -----------
Cash $ 4,905 $ --
Accounts receivable, less allowance
for doubtful accounts; -- 121,196
Investment securities 1,469,084
Net assets of discontinued operations
807,873
Net assets held for sale 1,178,739 1,205,128
----------- -----------
Total assets $ 2,652,728 $ 2,134,197
=========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY (DEFICIT)
------------------------------
Current Liabilities
Bank overdraft $ -- $ 13,006
Notes payable due within one year 134,640 651,108
Accounts payable 32,418 358,951
Accrued liabilities 41,116
----------- -----------
Total current liabilities 167,058 1,064,181
Notes payable due after one year 1,218,623 1,234,060
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Total liabilities 1,385,681 2,298,241
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Shareholders' equity:
Convertible Preferred stock; $.01 par value;
5,000,000 shares authorized; shares
outstanding:
810,000 in 1997 and 1996 8,100 8,100
Common stock; $.01 par value; 10,000,000 shares
authorized; shares outstanding: 2,108,145 and
2,046,159 in 1997 and 1996 respectively 21,081 20,461
Additional paid-in capital 4,843,149 4,818,626
Unrealized loss on available-for-sale
investment securities (182,629)
Accumulated deficit (3,422,653) (5,011,231)
----------- -----------
Total shareholders' equity (deficit) 1,267,048 (164,044)
----------- -----------
$ 2,652,728 $ 2,134,197
=========== ===========
The accompanying notes are an integral part of these financial statements
1
<PAGE>
<TABLE>
<CAPTION>
CREATIVE MEDICAL DEVELOPMENT, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For The Six Months Ended March 31, 1997 and March 31, 1996
Six Months Ended Three Months Ended
March 31, March 31,
1997 1996 1997 1996
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Assets held for sale
Loss from operations
of assets held for sale $ (19,589) $ (30,069) $ (36,553) $ (11,157)
Discontinued operations
Loss from discontinued operations (143,766) (68,583) (102,267) (37,566)
----------- ----------- ----------- -------------
Net loss $ (163,355) $ (98,652) $ (138,820) $ (48,723)
=========== =========== =========== =============
Net loss per share
Loss before
discontinued operations $ (0.01) $ (0.02) $ (0.02) $ (0.00)
Loss from
discontinued operations $ (0.07) $ (0.03) $ (0.05) $ (0.02)
----------- ----------- ----------- -------------
Total loss per share $ (0.08) $ (0.05) $ (0.07) $ (0.02)
=========== =========== =========== =============
Shares used in
computations 2,108,145 2,046,159 2,108,145 2,046,159
=========== =========== =========== =============
The accompanying notes are an integral part of these financial statements.
2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CREATIVE MEDICAL DEVELOPMENT, INC.
UNAUDITED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
For The Quarters Ended March 31, 1997 and 1996
Unrealized
Loss
on Available-
Preferred Stock Common Stock Additional for-Sale Total
---------------- ---------------------- Paid-in Accumulated Investment Shareholders'
Shares Amount Shares Amount Capital Deficit Securities Equity(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 (98,652) (98,652)
------- ------ ---------- --------- ----------- ----------- --------- -----------
Balances, March 31, 1996 810,000 $ 8,100 2,046,159 $ 20,461 $ 4,818,626 $(5,011,231) $ -- $ (164,044)
------- ------- ---------- --------- ----------- ----------- --------- -----------
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 1,751,933 1,751,933
------- ------ ---------- --------- ----------- ----------- ---------- ----------
Balances, September 30, 1996 810,000 $ 8,100 2,084,745 $ 20,847 $ 4,837,533 $(3,259,298) $ (228,229) $ 1,378,953
Issuance of common stock
for services 23,400 234 5,616 5,850
Realized loss on available
for-sale investment
securities 45,600 45,600
Net loss (163,355) (163,355)
------- ------- --------- --------- ----------- ----------- --------- ------------
Balances, March 31, 1997 810,000 $ 8,100 2,108,145 $ 21,081 $ 4,843,149 $(3,422,653) $(182,629) $ 1,267,048
======= ======= ========== ========= =========== =========== ========= ===========
The accompanying notes are an integral part of these financial statements.
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CREATIVE MEDICAL DEVELOPMENT, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Six Months Ended March 31, 1997 and March 31, 1996
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(163,355) $ (98,652)
Reconciliation to net cash used for operating activities:
Depreciation and amortization 16,041 17,900
Issuance of common stock for services 5,850 16,839
Recognition of Unrealized Loss on Stock 45,600
Changes in assets and liabilities:
Accounts receivable 9,422 120,795
Net assets of discontinued operations (99,366)
Notes payable (194,722)
Accounts payable (10,277) 47,320
Accrued liabilities (5,356) (14,066)
--------- ---------
Net cash used for operating activities (296,797) (9,230)
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Cash flows for investing activities:
Sale of investments 302,686
Acquisition of property and equipment (646)
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Net cash provided by investing activities 302,040 --
--------- ---------
Cash flows from financing activities:
Bank overdraft 13,006
Repayment of notes payable (6,250) (6,801)
--------- ---------
Net cash provided by financing activities (6,250) 6,205
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Decrease in cash (1,007) (3,025)
Cash:
Beginning of period 5,912 3,025
--------- ---------
End of period $ 4,905 $ 0
========= =========
Supplemental disclosure of cash flow information:
Interest paid $ 84,188 $ 75,969
========= =========
The accompanying notes are an integral part of these financial statements.
4
</TABLE>
<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 March 31, 1997 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 March 31, 1996, net losses
related to sales of approximately $48,990 and expenses of approximately
$198,377 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.
(4) SUBSEQUENT EVENTS
On April 17, 1997, the Company entered into a definitive Merger Agreement
and Plan of Reorganization ("Merger Agreement") among the Company, its
wholly owned subsidiary OMNI Acquisition, Inc., formed specifically for the
transaction, and OMNI International Rail Products, Inc.("OMNI"). The merger
and reorganization closed according to its terms and became effective on
April 30, 1997. Pursuant to the terms of the Merger Agreement, the Company
has issued 3,446,192 shares of its common stock and 352,065 shares of its
Series B preferred stock to the former OMNI shareholders; further, the
holders of all 810,000 shares of Series A preferred stock exchanged them
for 270,000 shares of Series B preferred stock.
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 March 31, 1997.
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, approximately $125,000,
have been charged to discontinued operations. That amount with net interest
expense related to the bank credit line and loss on the sale of Gish stock
represents 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 March 31,
1996, was accounted for as a discontinued operation and the results of
operations were netted against operating funds advanced by Gish. General
and administrative expenses for the discontinued operations for the quarter
ended March 31, 1996 were $32,849.
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 is understated by approximately $11,000. In addition, property
taxes of approximately $15,500 and utilities, repair and maintenance
expenses of approximately $16,000 were incurred or adjusted to more
accurately reflect
6
<PAGE>
the real estate operating costs. The result is a loss of $36,553 on the
real estate held for sale for the quarter ended March 31, 1997, compared to
an $11,157 loss for the same quarter last year.
Liquidity and Capital Resources
-------------------------------
Cash on hand and in money market investments at March 31, 1997 was $4,905
as compared to a bank overdraft of $13,006 at March 31, 1996.
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. During
the quarter ended March 31, 1997, the Company sold 48,000 shares of Gish
stock and drew a total of $95,000 on its margin account in which the Gish
stock is held to pay off the bank credit line and fund working capital
needs. The Company expects to margin or liquidate additional Gish stock to
meet any immediate cash flow needs pending sale of the real estate and
consolidation with OMNI.
On April 17, 1997, the Company entered into a definitive Merger Agreement
and Plan of Reorganization ("Merger Agreement") among the Company, its
wholly owned subsidiary OMNI Acquisition, Inc., formed specifically for the
transaction, and OMNI International Rail Products, Inc.("OMNI"). The merger
and reorganization closed according to its terms and became effective on
April 30, 1997. Pursuant to the terms of the Merger Agreement, the Company
has issued 3,446,192 shares of its common stock and 352,065 shares of its
Series B preferred stock to the former OMNI shareholders; further, the
holders of all 810,000 shares of Series A preferred stock exchanged them
for 270,000 shares of Series B preferred stock.
The Company's stock is traded on the OTC Electronic 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
7
<PAGE>
Item 5. Other Information
- -------------------------
See Note (4) to Financial Statements above concerning merger transaction.
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
---------
27.03 Financial Data Schedule - March 31, 1997.
(b) Reports on Form 8-K
--------------------
Not applicable
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
April 30, 1997 /s/ RONALD J. GANGEMI
- --------------- -------------------------
Date Ronald J. Gangemi
Chief Executive Officer
April 30, 1997 /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 March 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1997
<CASH> 4,905
<SECURITIES> 1,469,084
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,473,989
<PP&E> 1,178,739
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,652,728
<CURRENT-LIABILITIES> 167,058
<BONDS> 0
0
8,100
<COMMON> 21,081
<OTHER-SE> 1,267,048
<TOTAL-LIABILITY-AND-EQUITY> 2,652,728
<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> (36,553)
<DISCONTINUED> (102,267)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (138,820)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
