**U.S. SECURITIES AND EXCHANGECOMMISSION**

 

**Washington, D.C.  20549**

** **

 

**Form 10 - QSB**

** **

**Quarterly Report Under Section 13or 15 (d) of the Securities Exchange Act of 1934**

** **

**For the Quarterly Period Ended June 30, 2002**

** **

**Commission File No. 0-12968**

** **

| **INMEDICA  DEVELOPMENT CORPORATION**                                            |
|----------------------------------------------------------------------------------|
| (Exact name of small business issuer as specified in its charter)                |
|                                                                             |   |   |
| **Utah**                                                                         |   | **87–0397815** |
| (State or other jurisdiction of incorporation or organization)                   |   | (I.R.S. Employer Identification Number) |
|                                                                             |   |   |
| **825 N. 300 West, Suite N132, Salt  Lake City, Utah 84103**                     |
| (Address of principal executive offices)                                         |
|                                                                             |   |   |
| **Registrant’s telephone number  including area code  (801) 521-9300** |

 

Check whether the issuer (1) filed all reports required to be filed bysection 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for the past 90days:  Yes  ý  No  o

 

The number of shares outstanding of the registrant’s only class ofcommon stock, par value $.001 per share, as of August 6, 2002 was 15,984,613shares.

 

 

----

 

PART I - FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

INMEDICA DEVELOPMENTCORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCESHEET

 

ASSETS

 
|                                                                         |   | **As of  June 30,  2002** |       |
|------------------------------------------------------------------------------|--------|---------------------------|------------|
|                                                                         |   | **(Unaudited)**           |       |
|                                                                         |   |                      | ** ** |
| CURRENT ASSETS:                                                              |   |                      |       |
| Cash                                                                         |   | $                         | 39,664     |   |
| Securities  available for sale                                               |   | 2,196                     |       |
| Prepaid expenses  and other                                                  |   | 8,958                     |       |
| Note Receivable  from Chi Lin                                                |   | 150,000                   |       |
|                                                                         |   |                      |       |
| Total current  assets                                                        |   | 200,818                   |       |
|                                                                         |   |                      |       |
| EQUIPMENT AND  FURNITURE, at cost, less accumulated depreciation of $253,034 |   | 840                       |       |
|                                                                         |   |                      |       |
| Total assets                                                                 |   | $                         | 201,658    |   |

 

See notes to consolidatedfinancial statements.

 

2

----

 

INMEDICA DEVELOPMENTCORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCESHEET(CONTINUED)

 

LIABILITIESAND STOCKHOLDERS’ EQUITY

 
|                                                                                                                                                                            |   | **As Of  June 30,  2002** |    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|---------|
|                                                                                                                                                                            |   | **(Unaudited)**           |    |
|                                                                                                                                                                            |   |                      |    |
| CURRENT  LIABILITIES:                                                                                                                                                           |   |                      |    |
| Related party  consulting fees payable                                                                                                                                          |   | $                         | 30,000  |   |
| Note payable                                                                                                                                                                    |   | 4,000                     |    |
| Accounts payable                                                                                                                                                                |   | 2,300                     |    |
| Preferred stock  dividend payable                                                                                                                                               |   | 7,555                     |    |
|                                                                                                                                                                            |   |                      |    |
| Total current  liabilities                                                                                                                                                      |   | 43,855                    |    |
|                                                                                                                                                                            |   |                      |    |
| MINORITY  INTEREST                                                                                                                                                              |   | 154,949                   |    |
|                                                                                                                                                                            |   |                      |    |
| STOCKHOLDERS’  EQUITY:                                                                                                                                                     |   |                      |    |
| Preferred stock,  10,000,000 shares authorized; Series A preferred stock, cumulative and  convertible, $4.50 par value, 1,000,000 shares designated, 21,016 shares  outstanding |   | 94,573                    |    |
| Common stock,  $.001 par value; 20,000,000 shares authorized, 15,984,613 issued and  outstanding                                                                                |   | 15,985                    |    |
|                                                                                                                                                                            |   |                      |    |
| Stock  subscription receivable                                                                                                                                                  |   | (50,000                   | )       |
| Additional  paid-in capital                                                                                                                                                     |   | 8,024,258                 |    |
| Accumulated  deficit                                                                                                                                                            |   | (8,081,962                | )       |
|                                                                                                                                                                            |   |                      |    |
| Total  stockholders’ equity                                                                                                                                                |   | 2,854                     |    |
| Total  liabilities and stockholders’ equity                                                                                                                                |   | $                         | 201,658 |   |

 

See notes to consolidatedfinancial statements.

 

3

----

 

INMEDICA DEVELOPMENTCORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTSOF OPERATIONS

 
|                                                 |   | **For the  Three  Months EndedJune 30,** |   | **For the  Six  Months EndedJune 30,** |   |
|------------------------------------------------------|--------|------------------------------------------|--------|----------------------------------------|--------|
|                                                 |   | **2002**                                 |   | **2001**                               |   | **2002** |   | **2001** |   |
|                                                 |   | **(Unaudited)**                          |   | **(Unaudited)**                        |   |
|                                                 |   |                                     |   |                                   |   |   |   |   |   |
| TOTAL ROYALTY  REVENUES                              |   | $                                        | — |                                   | $      | — |   | $ | — |   | $ | 640 |   |
|                                                 |   |                                     |   |                                   |   |   |   |   |   |
| OPERATING  EXPENSES:                                 |   |                                     |   |                                   |   |   |   |   |   |
| General and  administrative                          |   | 72,417                                   |   | 181,574                                |   | 164,345 |   | 241,600 |   |
| Research and  development                            |   | 2,537                                    |   | 2,430                                  |   | 5,406 |   | 7,664 |   |
|                                                 |   |                                     |   |                                   |   |   |   |   |   |
| Total operating  expenses                            |   | 74,954                                   |   | 184,004                                |   | 169,751 |   | 249,264 |   |
|                                                 |   |                                     |   |                                   |   |   |   |   |   |
| LOSS FROM  OPERATIONS                                |   | (74,954                             | )      | (184,004                               | )      | (169,751  | )  | (248,624 | )  |
|                                                 |   |                                     |   |                                   |   |   |   |   |   |
| OTHER INCOME  (EXPENSE):                             |   |                                     |   |                                   |   |   |   |   |   |
| Other income,  net                                   |   | 36                                       |   | 4                                      |   | 75 |   | 7 |   |
| Interest expense                                     |   | (161                                     | )      | (6,764                                 | )      | (402 | ) | (17,126 | ) |
|                                                 |   |                                     |   |                                   |   |   |   |   |   |
| Total other  expense, net                            |   | (125                                     | )      | (6,760                                 | )      | (327 | ) | (17,119 | ) |
|                                                 |   |                                     |   |                                   |   |   |   |   |   |
| LOSS BEFORE  MINORITY INTEREST                       |   | (75,079                             | )      | (190,764                               | )      | (170,078  | )  | (265,743 | )  |
|                                                 |   |                                     |   |                                   |   |   |   |   |   |
| MINORITY  INTEREST                                   |   | 10,503                                   |   | 7,056                                  |   | 20,918 |   | 7,056 |   |
|                                                 |   |                                     |   |                                   |   |   |   |   |   |
| NET LOSS                                             |   | (64,576                             | )      | (183,708                               | )      | (149,160  | )  | (258,687 | )  |
|                                                 |   |                                     |   |                                   |   |   |   |   |   |
| PREFERRED STOCK  DIVIDENDS                           |   | (1,892                                   | )      | (1,892                                 | )      | (3,783 | ) | (3,783 | ) |
|                                                 |   |                                     |   |                                   |   |   |   |   |   |
| NET LOSS  APPLICABLE TO COMMON STOCKHOLDERS          |   | (66,468                             | )      | (185,600                               | )      | (152,943  | )  | (262,470 | )  |
|                                                 |   |                                     |   |                                   |   |   |   |   |   |
| NET LOSS PER  COMMON SHARE (BASIC AND DILUTED)       |   | $                                        | — |                                   | $      | (.01  | ) | $ | (.01 | )  | $ | (.02 | )  |
|                                                 |   |                                     |   |                                   |   |   |   |   |   |
| Weighed average  number of common shares outstanding |   | 15,984,613                               |   | 13,124,963                             |   | 15,984,613 |   | 10,998,002 |   |

 

See notes to consolidatedfinancial statements.

 

4

----

 

INMEDICA DEVELOPMENTCORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTSOF CASH FLOWS

 
|                                                                         |   | **For the  Six Months Ended  June 30,** |     |
|------------------------------------------------------------------------------|--------|-----------------------------------------|----------|
|                                                                         |   | **2002**                                |     | **2001** |   |
|                                                                         |   | **(Unaudited)**                         |     |   |   |
|                                                                         |   |                                    |     |   |   |
| **CASH FLOWS FROM OPERATING ACTIVITIES:**                                    |   |                                    |     |   |   |
|                                                                         |   |                                    |     |   |   |
| Net loss                                                                     |   | $                                       | (149,160 | ) | $ | (258,687 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities- |   |                                    |     |   |   |
| Depreciation and  amortization                                               |   | 43                                      |     | 32 |   |
| Issuance of  stock for consulting fees                                       |   | —                                  |     | 105,450 |   |
| Minority interest  in losses                                                 |   | (20,918                                 | )        | (7,056 | ) |
| Change in assets  and liabilities-                                           |   |                                    |     |   |   |
| Prepaid expenses  and other                                                  |   | 11,248                                  |     | 9,000 |   |
| Related party  consulting fee payable                                   |   | 12,000                                  |     | — |   |
| Accounts payable                                                             |   | (1,329                                  | )        | (59,558 | ) |
| Accrued payroll                                                              |   | (4,292                                  | )        | (6,983 | ) |
| Note payable                                                                 |   | (10,000                                 | )        | (13,210 | ) |
|                                                                         |   |                                    |     |   |   |
| Net cash used in  operating activities                                       |   | (162,408                                | )        | (231,012 | ) |
|                                                                         |   |                                    |     |   |   |
| CASH FLOWS USED  IN INVESTING ACTIVITIES -                                   |   |                                    |     |   |   |
| Purchase of  equipment and furniture                                         |   | (884                                    | )        | — |   |
|                                                                              |        |                                         |          |  |  |  |  |

 

See notes to consolidatedfinancial statements.

 

5

----

 
|                                                                           |   | **For the  Six Months Ended  June 30,** |   |
|--------------------------------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                                           |   | **2002**                                |   | **2001** |   |
|                                                                           |   | **(Unaudited)**                         |   |
|                                                                           |   |                                    |   |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                         |   |                                    |   |   |   |
|                                                                           |   |                                    |   |   |   |
| Proceeds from  stock subscription receivable                                   |   | 50,000                                  |   | 225,000 |   |
| Proceeds from  note receivable from Chi Lin                                    |   | 50,000                                  |   | 225,000 |   |
| Proceeds from  borrowing on notes payable and notes payable to related parties |   | —                                  |   | 58,000 |   |
| Preferred stock  dividend                                                      |   | (3,783                                  | )      | — |   |
| Payments on  related-party notes payable and interest                          |   | —                                  |   | (132,537 | ) |
|                                                                           |   |                                    |   |   |   |
| Net cash  provided by financing activities                                     |   | 96,217                                  |   | 375,463 |   |
|                                                                           |   |                                    |   |   |   |
| NET INCREASE  (DECREASE) IN CASH                                               |   | (67,075                                 | )      | 144,451 |   |
|                                                                           |   |                                    |   |   |   |
| CASH AT  BEGINNING OF THE PERIOD                                               |   | 106,739                                 |   | 9,096 |   |
|                                                                           |   |                                    |   |   |   |
| CASH AT END OF  THE PERIOD                                                     |   | $                                       | 39,664 |   | $ | 153,547 |   |
|                                                                                |        |                                         |        |  |  |  |  |

 

See notes toconsolidated financial statements.

 

6

----

 

 

INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

1.             Basisof Presentation

 

The accompanying unaudited consolidated financial statements ofInMedica Development Corporation (“InMedica”) and its majority ownedsubsidiary, MicroCor, Inc. (“MicroCor”) (collectively, the “Company”) have beenprepared on a going concern basis which contemplates the realization of assetsand satisfaction of liabilities that might be necessary should the Company beunable to continue as a going concern. The Company generated net losses of $149,160  and $258,687  for the sixmonths ended June 30, 2002 and 2001, respectively, and negative cash flows fromoperations of $162,408 and $231,012 for the six month periods ended June 30,2002 and 2001, respectively.  As of June30, 2002, the Company has an accumulated deficit of $8,081,962.  At June 30, 2002, the Company had stockholders’equity of $2,854.  These conditionsraise substantial doubt as to the Company’s ability to continue as a goingconcern.  The Company’s continuedexistence is dependent upon its ability to execute its operating plan and toobtain additional debt or equity financing. There can be no assurance that the necessary debt or equity financingwill be available, or will be available on terms acceptable to theCompany.  Management’s operating planincludes pursuing additional strategic alliances and licensing agreements, andif warranted, preparation for clinical trials required for FDA approval for anymedical product that might be developed using the Non-invasive HematocritTechnology.

 

The accompanying consolidated financial statements of the Company areunaudited.  However, in management’sopinion, all adjustments, consisting only of normal recurring adjustmentsnecessary for fair presentation of results for the interim periods shown, havebeen made.  Results for interim periodsare not necessary indicative of those to be expected for the full year.  These consolidated financial statementsshould be read in conjunction with audited consolidated financial statementsand notes to consolidated financial statements included in the Company’s annualreport on form 10-KSB for the year ended December 31, 2001.

 

2.             Summaryof Significant Accounting Policies

 

Principles of Consolidation - The consolidated financial statementsinclude the accounts of InMedica and MicroCor. All material inter-company accounts and transactions have beeneliminated.

 

7

----

 

Use of Estimates - The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period.  Actual results could differ from thoseestimates.

 

3.             SubsequentEvents

 

On July 1, 2002, InMedica and MicroCor each received payments of$50,000 from Chi Lin in accordance with the May 10, 2001 Stock PurchaseAgreement.

 

4.             NoteReceivable

 

In June, 2000, the Company licensed its technology toan unrelated entity in exchange for a note receivable of $150,000, due June 19,2001.   On June 19, 2001, the entitydefaulted on the note and the Company requested and received a secured notereceivable from the entity for $165,000 which represents principle and accruedinterest as of December 19, 2001.   Thesecured note receivable bears interest at 10% annually and was due on June 19,2002.  However, the entity againdefaulted on the note and the Company is in the process of extending the duedate. The note is secured by all tangible and intangible assets of theentity.   Because collectibility of thenote is uncertain, the note receivable has been fully reserved in theaccompanying consolidated financial statements.

 

8

----

 

Item 2.  MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATION

 

**Liquidityand Capital Resources**

 

For the three and six month periods ended June 30,2002 liquidity was provided by proceeds received as a result of the sale ofstock during 2001. Pursuant to a stock Purchase Agreement, InMedica DevelopmentCorporation, (the “Company”) issued 5,328,204 shares of its restricted commonstock to Chi Lin Technologies, Inc. (“Chi Lin”).  The Company’s subsidiary, MicroCor, Inc. (“MicorCor”) issued anadditional 29,420 shares of its restricted common stock to Chi Lin.  In consideration of the stock issuances, ChiLin gave InMedica promissory notes to pay InMedica and MicroCor a total of$500,000 each according to the following schedule:  $150,000 to each company on or before May 31, 2001, $75,000 toeach company on or before July 1, 2001, $75,000 to each company on or beforeOctober 31, 2001, $50,000 to each company on or before January 1, 2002, $50,000to each company on or before April 1, 2002, $50,000 to each company on orbefore July 1, 2002 and $50,000 to each company on or before October 1,2002.  As of June 30, 2002, InMedica andMicroCor had each received payments of $400,000 from Chi Lin. The aggregatepurchase price of the InMedica and MicroCor stock was $1,000,000.

 

The remaining $100,000 due to InMedica on thesubscription is reflected in the consolidated financial statements as a $50,000stock subscription receivable and a $50,000 note receivable.  The remaining $100,000 due MicroCor isreflected as a note receivable in the consolidated financial statements.

 

The remaining $200,000 due from Chi Lin is expected to provide minimumcash requirements for Company operations during the next six months.

 

**Resultsof Operations**

 

InMedica incurred net losses during the three and sixmonth periods ended June 30, 2002 and 2001. The Company had an accumulated deficit of $8,081,962 as of June 30,2002.  During the six month periodsended June 30, 2002 and 2001, royalty revenue totaled $0 and $640 respectively.No revenues from operations were received during the three month periods endedJune 30, 2002 and 2001.  No furtherroyalty revenues are expected from the J&J Medical, Inc. contract.  The net loss for the six month period endedJune 30, 2002 decreased to $149,160 compared to the net loss of $258,687 forthe same period in 2001, primarily due to costs incurred in 2001 associatedwith issuance of restricted common stock in satisfaction of accrued consulting

 

9

----

 

fees and accrued interest.  Thenet loss for the three month period ended June 30, decreased from $183,708 in2001 to $64,576 in 2002 primarily due to the same costs associated withsatisfaction of accrued fees and interest. All other costs, for the three andsix month periods ended  June 30, 2002,remained relatively constant in comparison to costs for the three and six monthperiods ended June 30, 2001

 

**PART II - OTHER INFORMATION**

 

Item 1.                 LegalProceedings:

None

 

Item 2.                 Changes inSecurities:

None

 

Item 3.                 DefaultsUpon Senior Securities:

None

 

Item 4.                 Submissionof Matters to a Vote of Security Holders:

None

 

Item 5.                 OtherInformation:

 

The Company has received theresignation of Dr. Ke-shieng Yang as a member of the Board of Directors of theCompany effective August 2, 2002.  ChiLin Technologies Co., Ltd. of Taiwan (“Chi Lin”), the Company’s affiliate inthe development of the hematocrit technology, has also advised that Dr. Yangresigned as head of the biomedical research division of Chi Lin and left theemployment of Chi Lin.  The Company andChi Lin are working to select a replacement to lead the project.

 

Item 6.                 Exhibitsand reports on Form 8–K:

None

 

10

----

 

SIGNATURES

 

In accordance with the requirements of the ExchangeAct, the registr­ant caused this report to be signed on its behalf by theundersigned, thereun­to duly authorized.

 
|                         | INMEDICA DEVELOPMENT CORPORATION       |
|------------------------------|----------------------------------------|
|                         |                                   |
|                         | /s/ Ralph Henson                       |   |
|                         | By  Ralph  Henson, President      |
|                         |                                   |
|                         | /s/ Richard Bruggeman                  |   |
| Date:  August  12, 2002 | By  Richard  Bruggeman, Treasurer |

 

 

# CERTIFICATION PURSUANT TO

18 U.S.C.SECTION1350

AS ADOPTEDPURSUANT TO

SECTION 906 OF THESARBANES-OXLEY ACT OF 2002

 

Each of the undersigned hereby certifies in hiscapacity as an officer of InMedica Development Corporation (the “Company”) thatthe Quarterly Report of the Company on Form 10QSB for the periods ended June30, 2002 fully complies with the requirements of Section 13(a) of theSecurities Exchange Act of 1934 and that the information contained in suchreport fairly presents, in all material respects, the financial condition ofthe Company at the end of such periods and the results of operations of theCompany for such periods.

 

 
| /s/ Ralph Henson                           |   |   |   |
|--------------------------------------------|--------|--------|--------|
| Ralph Henson, Chief Executive Officer      |   |   |   |
|                                       |   |   |
|                                       |   |   |
| /s/ Richard Bruggeman                      |   |   |   |
| Richard Bruggeman, Chief Financial Officer |   |   |
|                                            |        |        |        |  |  |

 

11

----