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Mac Rumors reports that in a commentary on the latest rumors of Apple planning to release a 7-inch iPad model early next year, The Loop's Jim Dalrymple notes that such a device has existed in Apple's labs for quite some time, having been developed alongside the 9.7-inch model



The fact is, Apple already has a 7-inch iPad. They have had one of the smaller devices since they started making the 9.7-inch iPad that we have now.

To be clearer, the two devices were developed at the same time. They have pretty much the same specs, except, of course, the 9.7-inch model has a higher density screen than its smaller counterpart.
  Apple Said to Have Developed 7-Inch iPad Alongside Current Model