U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10 - QSB
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1996
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 (I.R.S. Employer Identification
incorporation of organization) Number)
60 South 600 East, Suite 150, Salt Lake City
Utah 84102 (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 by section
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 such reports), and
(2) has been subject to such filing requirements for the past 90 days:
Yes X No
The number of shares outstanding of the registrant's only class of common stock,
par value $.001 per share, as of November 1, 1996 was 7,745,570 shares.
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PART I - FINANCIAL INFORMATION Page 1 of 2
- ------------------------------
Item 1. Financial Statements
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
ASSETS
September 30,
1996
(Unaudited)
CURRENT ASSETS:
Cash $ 161,812
Prepaid expenses 6,255
------------
Total current assets 168,067
EQUIPMENT AND FURNITURE,
at cost, less accumulated
depreciation of $249,713 34,777
OTHER ASSETS 2,196
Total assets $ 205,040
============
See notes to condensed consolidated financial statements.
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Page 2 of 2
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
LIABILITIES AND STOCKHOLDERS' DEFICIT
September 30,
1996
(Unaudited)
CURRENT LIABILITIES:
Current portion of note
payable $ 50,000
Accounts payable and
accrued interest 12,072
Related party notes
payable 25,500
Total current liabilities 87,572
NOTE PAYABLE, less
current portion 385,000
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value;
20,000,000 shares authorized,
7,745,570 shares outstanding 7,746
Preferred stock, 10,000,000
shares authorized; Series A
preferred stock, cumulative
and convertible, $4.50 par
value, 1,000,000 shares
designated, 67,633 shares
outstanding 304,349
Additional paid-in
capital 6,225,018
Accumulated deficit (6,804,645)
Total stockholders'
deficit ( 267,532)
Total liabilities and
stockholders' deficit $ 205,040
==========
See notes to condensed consolidated financial statements.
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INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
ROYALTIES $ 210,080 179,840 $ 336,480 $ 321,054
----------- ----------- ----------- -----------
OPERATING EXPENSES:
General and
administrative 76,734 64,761 189,148 164,642
Research and
development 21,386 -0- 86,179 -0-
----------- ---------- ---------- ----------
Total operating expenses 98,120 64,761 275,327 164,642
----------- ----------- ----------- ----------
INCOME FROM OPERATIONS 111,960 115,079 61,153 156,412
----------- ----------- ----------- ----------
OTHER (EXPENSE) INCOME:
Interest and other income 489 16 519 16
Gain from sale of assets -0- 5,728 -0- 5,728
Interest expense (12,193) (38,311) (41,545) (119,521)
------------ ---------- ----------- --------
Total other expense, net (11,704) (32,567) (41,026) (113,777)
---------- ---------- ----------- --------
INCOME BEFORE
EXTRAORDINARY GAIN 109,256 82,512 20,127 42,635
EXTRAORDINARY GAIN FROM
DEBT EXTINGUISHMENT -0- 19,723 -0- 188,770
----------- ----------- ---------- -----------
NET INCOME 101,256 102,235 20,127 231,405
----------- ----------- ----------- ---------
Less preferred
stock dividends (6,087) -0- (19,723) -0-
----------- ----------- --------- --------
NET INCOME APPLICABLE
TO COMMON SHARES $ 94,169 $ 102,235 $ 404 $ 231,405
=========== ========= ========== ========
NET INCOME PER
COMMON SHARE:
Income before
extraordinary gain $ .01 $ .01 $ .00 $ .01
Extraordinary gain .00 .00 .00 .02
----------- ----------- ---------- ---------
Net income per common share $ .01 $ .01 $ .00 $ .03
=========== =========== ========== =========
Weighted average number
of common shares outstanding 8,560,292 7,475,919 8,560,292 7,475,919
=========== =========== =========== ===========
See notes to condensed consolidated financial statements.
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Page 1 of 2
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
For the For the
Nine Months Nine Months
Ended Ended
September 30, 1996 September 30, 1995
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,127 $ 231,405
Adjustments to reconcile net
income to net cash provided
by operating activities-
Non-cash consulting expense 6,584
Depreciation 668 24,517
Extraordinary gain from debt
extinguishment -0- (188,770)
Gain from sale of assets -0- (5,728)
Change in assets and liabilities-
Decrease in royalties receivable 227,520 301,375
Decrease in prepaid expenses 20,461 20,024
Decrease in accounts payable (3,461) (6,961)
Increase (decrease) in
accrued liabilities 573 (148,866)
Decrease in related party payable (113,026) -0-
Net cash provided by
operating activities 159,446 226,996
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets -0- 6,200
Purchase of equipment and furniture (31,375) (3,466)
Net cash (used in) provided
by investing activities (31,375) 2,734
------------ -------
See notes to condensed consolidated financial statements.
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Page 2 of 2
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
For the For the
Nine Months Nine Months
Ended Ended
September 30, 1996 September 30, 1995
(Unaudited) (Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on
convertible debentures $ (22,768) $ (233,453)
Preferred stock dividends paid (19,723) -0-
Principal payments on note payable (37,500) -0-
Proceeds from bank loan -0- 150,000
Proceeds from issuance of common stock -0- 338
Net cash used in financing
activities (79,991) (83,115)
---------- ---------
NET INCREASE IN CASH 48,080 146,615
CASH AT BEGINNING OF PERIOD 113,732 3,080
--------- --------
CASH AT END OF PERIOD $ 161,812 $149,695
========= ========
See notes to condensed consolidated financial statements.
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INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note A--Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310b of
Regulation SB. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. These consolidated statements include the accounts of
InMedica Development Corporation and its wholly owned subsidiary, MicroCor, Inc.
("MicroCor"). All material intercompany accounts and transactions have been
eliminated.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for fair presentation have been included.
Operating results for the three and nine month periods ended September 30, 1996
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. For further information, refer to the consolidated
financial statements included in the Company's Form 10-KSB for the year ended
December 31, 1995.
Note B--Reduction and Grant of Certain Stock Options
During the period October 1995 through April 1996, the Company granted
stock options to officers, directors and consultants aggregating 1,100,000
shares. At a board meeting held July 31, 1996, the Company reduced these options
by 25% effective August 1, 1996, reducing the total options granted and
outstanding to 825,000.
Effective September 3, 1996, the Company entered into a consulting contract
with Ruben Engineering, Paul Ruben and Calvin Ruben for engineering consulting
services relating to the development of the Company's hematocrit technology. The
contract grants the Rubens options to purchase a total of 300,000 shares of the
common stock of the Company for $1.16 per share. A block of 200,000 options
become exercisable and vest 25,000 per quarter beginning December 1, 1996. An
additional 100,000 options become exercisable and non-forfeitable only upon the
date satisfactory clinical trials have been completed on the hematocrit
technology. All options are immediately exercisable and non-forfeitable if the
FDA approves the Company's hematocrit technology or if InMedica is sold or
acquired or the non-invasive hematocrit technology is sold or acquired. In
connection with the granting of these options the Company has recognized
$178,000 of consulting expenses of which
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$171,416 has been deferred until the services have been provided.
Effective September 17, 1996, Dr. Allan Kaminsky severed his employment
relationship with the Company resulting in the cancellation of his options to
purchase 435,000 shares of the Company's common stock.
NOTE C--Extension of Preferred Stock Conversion Exercise Period
Effective September 30, 1996, the Company extended from October 1, 1996 through
November 1, 1996, the period during which the preferred stockholders of the
Company are entitled to convert shares of the Series A preferred stock to common
stock of the Company at the rate of six shares of common for each share of
preferred.
NOTE D--Subsequent Event
During October 1996, eight of the Company's Series A preferred stockholders
converted an aggregate of 42,277 shares of par value $4.50 Series A Convertible
preferred stock to an aggregate of 253,662 shares of common stock of the
Company. The conversion rate was six shares of common stock for each share of
preferred. The Company presently has five remaining preferred stockholders.
Total aggregate dividends payable on the remaining preferred stock outstanding
is $9,128 per year.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
During the nine months ended September 30, 1996, the Company recognized
royalty revenues from two payments received from J & J Medical, Inc. totalling
$336,480, up slightly from the same period in 1995. The Company's revenue
recognition policy of recording revenues only after the cash is received results
in the Company reporting royalty revenues one quarter in arrears during the
first three quarters of each year. The Company's sole source of revenue is
royalty payments received from J & J Medical, Inc., which are paid to the
Company on a quarterly basis. Royalty revenues being received by the Company may
be insufficient to sustain research and development costs, fund operations and
retire indebtedness when it comes due. InMedica consequently continues to look
for funding sources.
InMedica achieved profitable operations during the fiscal years ended
December 31, 1995 and 1994. Profitable operations resulted from increased
royalty receipts coupled with expense reductions and the suspension of research
and development efforts in 1994, and an extraordinary gain in 1995. However, the
Company has a total stockholders' deficit of $267,532 and an accumulated deficit
of $6,804,645 as of September 30, 1996. In order for InMedica to continue its
research and development activities and meet its obligations, it must secure
additional financing, for which it has no commitments. It is impossible to
estimate the amount of the J & J Medical, Inc. royalties which may be received
in the future. Such royalty revenue is dependent upon the continued sales of a
certain product line by J & J Medical Inc. which includes the Company's base
technology upon which the royalty is paid.
Results of Operations
See "Liquidity and Capital Resources" for an explanation as to the
reporting of two quarters of revenue receipts during the first three quarters of
the year. The net income from operations decreased to $20,127 for the nine
months ended September 30, 1996 compared to $42,635 for the comparable nine
months of the prior year due to an increase in general and administrative
expenses and research and development expenses.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None
Item 2. Changes in Securities: See Note C to the financial statements for
information on a change in the exercise period for certain conversion
rights of the preferred stockholders.
Item 3. Defaults Upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
None
Item 5. Other Information:
During August 1996, Dr. Allan Kaminsky (a former President, Chief Executive
Officer, Director and key employee of the Company) orally advised a member of
the Company's board of directors that he would no longer pursue obtaining
control of the Company by a proxy contest or litigation. Dr. Kaminsky
subsequently sent a letter dated September 6, 1996 to Mr. Larry E. Clark
offering his continued efforts on behalf of the Company, without cash
compensation, in exchange for certain commitments by the Company, which included
a right exercisable by Dr. Kaminsky to appoint five persons to the Board of
Directors (in the event he was able to develop a device which could measure
hematocrit within certain ranges) and rights for Dr. Kaminsky to purchase one
million or more shares of stock in the Company at 50% of market value (in the
event the Company achieved the ability to fabricate a marketable product or
executed a merger/acquisition). The letter advised the Company that if Dr.
Kaminsky did not receive a reply from the Company by September 16, 1996 that he
would "irreversibly" sever any association with the Company (employment,
consulting and advisory). After considering Dr. Kaminsky's proposal, the Company
determined to make no response to the letter and considers its association with
Dr. Kaminsky to be terminated and that his 435,000 options have expired. On
September 17, 1996, Dr. Kaminsky advised the Company that his offer to negotiate
had expired, that he had no association (employment, consulting, advisory) with
InMedica/MicroCor, other than being a passive shareholder and that his action
was permanent and irreversible. Dr. Kaminsky continues to be a principal
shareholder of the Company; see Form 10-KSB for the year ended 1995, "Principal
Shareholders".
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Item 6. Exhibits and reports on Form 8-K:
Exhibits:
(1) Agreement dated September 3, 1996 between InMedica Development Corporation
and Paul Ruben dba Ruben Engineering and Calvin Ruben, incorporated by reference
to the Exhibits to Form 8-K dated September 20, 1996.
(2) Form of conversion agreement executed by eight Preferred stockholders during
October 1996 to convert Series A preferred to common stock of the Company.
(3) Financial Data Schedule
Form 8-K:
The Company filed a Form 8-K dated September 20, 1996.
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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.
INMEDICA DEVELOPMENT CORPORATION
/s/ Larry E. Clark
By Larry E. Clark, CEO
/s/ Richard Bruggeman
Date: November 18, 1996 By Richard Bruggeman, Treasurer
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EXHIBITS
Exhibits filed with the Form 10-QSB of InMedica Development
Corporation, SEC File No. 0-12968:
Exhibit No. SB Item No. Description
(10) Agreement dated September 3, 1996 between
InMedica Development Corporation and Paul
Ruben dba Ruben Engineering and Calvin Ruben,
incorporated by reference to the Exhibits to
Form 8-K dated September 20, 1996.
1 (10) Form of conversion agreement
executed by eight preferred stockholders during
October 1996 to convert Series A preferred to
common stock of the Company.
2 (27) Financial Data Schedule
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Exhibit 1
CONVERSION AGREEMENT
AN AGREEMENT made the day of , 1996 by and between the Preferred
Stockholder (hereinafter "Holder") whose name is subscribed below and whose
name, address and shareholdings are identified on Appendix I attached hereto,
and InMedica Development Corporation, a Utah corporation, with its principal
place of business at 60 South 600 East, Suite 150, Salt Lake City, Utah,
(hereinafter, "InMedica" or the "Company").
RECITALS
Whereas the Preferred Stock of the Company by its terms is presently
convertible to common stock of the Company at the conversion rate of six shares
of common stock per one share of Preferred Stock; and
Whereas the Company desires to afford the Holder the opportunity to
consider and give notice of conversion as required by the Articles of
Incorporation of the Company if the Holder desires to do so; and
Whereas the undersigned Holder is knowledgeable regarding the business, and
affairs of the Company, has had opportunity to ask and receive answers to
questions regarding the Company, and has reviewed or had opportunity to review
disclosure documents regarding the Company and now considers himself to be fully
informed and in possession of every material fact he deems necessary in order to
consider the exercise of his conversion rights with respect to the Preferred
Stock;
NOW THEREFORE, in consideration of the mutual agreements contained herein,
the parties agree as follows:
1. Notice and Exchange. Holder hereby gives notice of conversion of
his Preferred shares to common stock of the Company on the basis of six common
shares per each Preferred share presently outstanding. Holder will deliver a
signed copy of this agreement and his Preferred Stock Certificate endorsed in
blank to the Company.
2. Issuance of Shares. Upon receipt by the Company of this signed
Agreement and the Preferred Stock certificate of the Holder, the Company will
issue to Holder six restricted common shares, $.001 par value, of the Company
for each preferred share presently outstanding in the preferred shareholder's
name.
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3. Effective Date and Dividends. Holder and the Company agree that the
exchange transaction contemplated by this Agreement, shall be effective as of
November 1, 1996, upon the acceptance by the Company of the Holders' Agreement,
notwithstanding the actual date of delivery of the stock certificate
representing the Shares. The parties further agree that the Company shall pay
dividends on the preferred stock to Holder only through the third quarter of
1996.
4. Conditions. The consummation of the exchange transaction
contemplated by this Agreement is expressly conditioned upon the satisfaction or
waiver of the following conditions precedent and subsequent:
4.1 The full and due execution and delivery of this Agreement by
Holder and the Company;
4.2 The execution and delivery by Holder of the Questionnaire attached to this
Agreement as Exhibit "F" and made a part hereof;
4.3 The continued accuracy and validity of the representations and warranties of
Holder set forth in Section 5 and elsewhere in this Agreement;
4.4 The approval of this Agreement by InMedica;
5. Representations and Warranties of Holder. Holder hereby agrees,
represents and, to the extent the context shall require, warrants to the Company
as set forth below and agrees that such agreements, representations and
warranties shall expressly survive the consummation of the exchange transaction
contemplated hereby and shall be unaffected by any investigation made by any
party at any time;
5.1 Holder understands that the Preferred Stock is being exchanged and the
Shares are being issued without registration under the Federal Securities Act of
1933, as amended (the "Federal Act"), in reliance upon an exemption or
exemptions available under the Federal Act, including those available under
Section 3(a)(9) and/or Section 4(2) and/or Regulation D thereof. Holder further
understands that the Preferred Stock is being exchanged and the Shares are being
issued pursuant to an exemption from the registration provisions of the
applicable state laws and understands that the availability of the exemption or
exemptions from registration and qualification under the Federal Act and the
state laws depend in part upon the accuracy of certain of the representations,
declarations and warranties contained herein, and those which are made in the
Questionnaire attached as Exhibit "F" hereto, executed by Holder with the intent
that the same may be relied upon by the Company in determining Holder's
suitability as
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an investor in the Company. Holder further acknowledges that this transaction
has not been and will not be reviewed by the Securities and Exchange Commission
nor by the securities administrator of any state.
5.2 Holder is a resident and domiciliary, not a temporary or transient resident,
of the State shown as part of Holder's address in Holder's Questionnaire.
5.3 Holder is acquiring the Shares to be issued for investment and not with a
view to the public resale or distribution thereof. The undersigned has no
contract, undertaking, agreement or arrangement with any person to sell,
transfer or pledge to such person or anyone else the Shares or any portion
thereof or interest therein, and the undersigned has no present plans to enter
into such contract, undertaking, agreement or arrangement.
5.4 Holder acknowledges that the certificate evidencing the Shares, and any and
all replacements thereof, shall bear and be subject to legends in substantially
the following form affecting the transferability of the Shares and that the
Company will place appropriate stop transfer orders with its transfer agent:
"The shares of stock evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended, and have been issued in reliance
upon one or more exemptions from the requirements for such registration
including an exemption for non-public offerings. Accordingly, the sale,
transfer, pledge, hypothecation or other disposition of the shares evidenced
hereby or any portion thereof or interest therein may not be accomplished in the
absence of an effective registration statement under that act, or an opinion of
counsel satisfactory in form and substance to the Company to the effect that
such a registration is not required."
5.5 Holder further understands and agrees that if he desires to make any
transfer of the Shares, the Company is in a position to impede such transfer
through prior stop orders placed with its transfer agent or otherwise and that
the Company will promptly remove such impediments placed by it only when:
(i) The Company has received a satisfactory opinion of counsel to the effect
that the proposed transfer does not require registration or qualification
pursuant to the Federal Act or the state laws by reason of an exemption provided
thereunder and a representation and agreement of the proposed transferee in form
and substance satisfactory to the Company, and the Company shall have advised
Holder that such opinion, representation and agreement are satisfactory to the
Company; or
(ii) The Company has received a satisfactory opinion of counsel to the effect
that the proposed transfer complies with the provisions
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of Rule 144 under the Federal Act and the Company shall have advised the Holder
that such counsel and such opinion are satisfactory to the Company; or
(iii) A Registration statement covering the proposed transfer has been filed
with the Securities and Exchange Commission and has been declared effective.
5.6 Holder agrees that, in any event, Holder will not attempt to dispose of the
Shares or any portion or interest therein, unless and until the Company has
determined to its satisfaction that the proposed disposition does not violate
the registration or qualification requirements of the Federal Act or applicable
state laws.
5.7 Holder understands that the Company has no obligation or intention to
register or qualify the Shares in order to permit sales thereof in accordance
with the registration or qualification provisions of the Federal Act or the
applicable state laws.
5.8 Holder hereby agrees to indemnify the Company and its officers, directors,
agents and attorneys and to hold the Company and such persons harmless from any
liability, costs or expenses (including reasonable attorneys' fees) arising as a
result of the sale or distribution of the Shares or any portion thereof or
interest therein by him in violation of the Federal Act or applicable state
laws.
5.9 Holder agrees to indemnify the Company and its officers and directors,
agents and attorneys and to hold the Company and such persons harmless from and
against any and all loss, damage, liabilities, costs or expenses (including
reasonable attorneys' fees) to which they may be put or which they may have
incurred by reason of or in connection with any misrepresentation made by
Holder, for any breach of any of Holder's warranties or Holder's failure to
fulfill any of Holder's covenants or agreements under this Agreement.
5.10 Holder hereby confirms that all statements in the Holder's Questionnaire
attached as Exhibit "F" hereto were and remain true and correct and undertakes
to immediately notify the Company of any material changes occurring thereto
prior to consummation of this exchange transaction.
5.11 Holder acknowledges that Holder and/or Holder's professional advisor have
had the opportunity to ask questions of, and receive answers from the Company,
and has/have had access to all information concerning the terms and conditions
of this exchange and the financial and operating condition of the Company and to
obtain additional information to verify the accuracy of such information.
Further, Holder has reviewed the disclosure materials included herewith,
including the financial statements contained
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therein and is familiar with their contents and further
acknowledges that Holder has had the opportunity and access to
obtain further information from the Company regarding such
financial, business and management information. Disclosure
materials attached hereto are as follows:
Form 10-KSB for the Year Ended 12/31/95 ..........Exhibit A
Articles of Incorporation of InMedica Development
Corporation, including Series "A" Preferred Stock
Amendment........................................Exhibit B
Bylaws of InMedica Development Corporation........Exhibit C
Additional Material Information...................Exhibit D
Risk Factors......................................Exhibit E
Questionnaire.....................................Exhibit F
Form 10-QSB for the Quarter Ended 6/30/96.........Exhibit G
Form 8-K dated September 20, 1996.................Exhibit H
5.12 Holder understands that, as indicated above, the Shares to be issued will
be restricted securities and, as such, and in addition to the other restrictions
described above, the Shares may be subsequently transferred only in accordance
with the provisions of Rule 144 under the Federal Act which requires, among
other things, that the Shares be held for not less than two years, known as the
"holding period", including the tacking of any prior holding period permitted by
Rule 144.
5.13 Holder understands that by its terms, this exchange is made at the option
of the Holder, and the Holder, is free to accept or reject this Conversion
Agreement.
5.14 The number of shares of the Preferred Stock held by Holder as of the date
shown, is accurate and represents the full number of shares of the Preferred
Stock held by the Holder and that all dividends owning on the Preferred Stock
have been paid in full and Holder waives and forever relinquishes any dividends
on the Preferred Stock accruing following the third quarter of 1996 and
thereafter.
5.15 Holder understands that Larry E. Clark, the Company's Chief Executive
Officer, purchased from Allan L. Kaminsky, then CEO of the Company, 1,000,000
shares of the Company's common stock for $100,000 ($.10 per share) during April,
1995 and that other transactions or exchanges in the securities of the Company
have occurred in which the common stock of the Company was valued at
substantially less than the arbitrary $.75 per share conversion ratio utilized
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in this transaction (see Exhibit A, Form 10-KSB for the year ended December 31,
1995, "Preferred Stock," "Debentures" and "Price Range for Common Stock").
5.16 Holder acknowledges that the Company makes no representations or assurances
as to the federal or state income tax implications, either to the Holder or the
Company, of this Exchange Agreement. The Company has offered no opinion or
advice in this respect and Holder acknowledges that the Company and its
management have urged Holder to consult with his professional advisors with
respect to any such tax implications.
5.17 Holder acknowledges that no representations or assurances have been given
to Holder by the Company or anyone acting in its behalf as to the continued
operations of the Company or the financial or other success thereof and Holder
recognizes that the Shares represent a speculative investment and involve risk
factors including, but not limited to, those set forth in the Exhibits hereto
including the risk of loss of Holder's entire investment in the Company.
5.18 Holder has not assigned or transferred the Preferred Stock or any interest
therein and the exchange thereof by Holder under this Agreement, to the
knowledge of Holder, will not result in any breach of any of the terms,
conditions or provisions of, or constitute a default under, or result in the
creation of any lien, charge or encumbrance on, the Preferred Stock or the
Shares pursuant to any agreement, contract or other instrument to which the
Holder or the Preferred Stock is or may be bound.
5.19 Holder acknowledges that the conversion ratio for the Exchange of the
Preferred Stock for the Shares has been arbitrarily determined by the Company
and bears no relationship to book value, present or future tangible or
intangible assets of the Company or earnings of the Company or any usual
investment criteria.
6. Loss of Priority. Holder acknowledges that under the terms of the
Preferred Stock, conversion is at the option of the Preferred Stockholder. If
the Holder does not convert and execute this Exchange Agreement, then the
Preferred Stock will continue to pay or accrue dividends at the rate of 8% per
annum and the Preferred Stock would have a preference in any liquidation of the
Company over the common stockholders. If the Holder exchanges the Holder's
Preferred Stock, the Holder forever relinquishes any priority the Holder would
have had as compared to the common shareholders in a liquidation of the Company.
7. Further Assurances. Each party shall, at any time and from time to time,
at the other's request, execute, acknowledge and deliver any instrument that may
be necessary or proper to carry out the provisions of this Agreement.
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8. Time of the Essence. Time shall be of the essence in satisfying the
terms and conditions of this Agreement.
9. Attorneys' Fees. In the event a dispute arises with respect to this
Agreement, and such dispute is not resolved prior to final judicial
determination, the party prevailing in such dispute shall be entitled to recover
all expenses, including, without limitation, reasonable attorneys' fees and
expenses.
10. Complete Agreement of the Parties. This Agreement supersedes any and
all other agreements, either oral or in writing, between the parties with
respect to the subject matter hereof and contains all of the covenants and
agreements between the parties with respect to such subject matter in any manner
whatsoever. Each party to this Agreement acknowledges that no representations,
inducements, promises or agreements, oral or otherwise, have been made by any
party, or anyone herein, and that no other agreement, statement or promise not
contained in this Agreement shall be valid or binding. This Agreement may be
changed or amended only by an amendment in writing signed by all of the parties
or their respective successors in interest.
11. Assignment. This Agreement and the rights and obligations of Holder
hereunder are personal to Holder and may not be transferred or assigned without
the prior written consent of the Company.
12. Binding. Subject to the provisions of Section 11 hereof, this Agreement
shall be binding upon and inure to the benefit of the successors in interest,
assigns and personal representatives of the respective parties.
13. Number and Gender. Whenever the singular number is used in this
Agreement and when required by the context, the same shall include the plural,
and the masculine gender shall include the feminine and neuter genders and the
word "person" shall include corporation, firm, partnership or other form of
association.
14. Failure to Object Not a Waiver. The failure of either party to this
Agreement to object to, or to take affirmative action with respect to, any
conduct of the other which is in violation of the terms of this Agreement, shall
not be construed as a waiver of the violation or breach or of any future
violation, breach or wrongful conduct.
15. Unenforceable Terms. Any provision hereof prohibited by law or
unenforceable under any applicable law of any jurisdiction shall as to such
jurisdiction be ineffective without affecting any other provision of this
Agreement. To the full extent, however, that the provisions of such applicable
law may be waived, they are hereby waived to the end that this Agreement be
deemed to be a valid and binding enforceable agreement in accordance with its
terms
20
<PAGE>
16. Miscellaneous Provisions. The various headings and numbers herein and
the groupings of provisions of this Agreement into separate articles and
paragraphs are for the purpose of convenience only and shall not be considered a
part hereof. The language in all parts of this Agreement shall in all cases be
construed in accordance to its fair meaning as if prepared by all parties to the
Agreement and not strictly for or against any of the parties.
EXECUTED AS OF THE DATE FIRST ABOVE WRITTEN
INMEDICA DEVELOPMENT CORPORATION
(Holder Signature)
(Print Name) By Larry E. Clark, President
21
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> SEP-30-1996 SEP-30-1995
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