U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1995
Commission File No. 0-12968
INMEDICA DEVELOPMENT CORPORATION
Utah 87-0397815
(State of Incorporation) (I.R.S. Employer Identification No.)
495 East 4500 South, Suite 230
Salt Lake City, Utah 84107
Telephone: (801) 261-5657
Securities Registered Pursuant to Section 12(g) of the Act:
Name of each Exchange
Title of Each Class on which Registered
Common Stock, $.001 par value None
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or Section 15(d) of the Exchange Act during the past
12 months, and (2) has been subject to such filing requirements for
the past 90 days. X yes no
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation SB contained in this form, and no
disclosures will be contained, to the best of registrant's
knowledge, in any definitive proxy or information statement
incorporated by reference in Part III of this Form 10-KSB or any
amendments to this Form 10-KSB [ ]
Issuer's Revenues for its most recent fiscal year: $693,440
The aggregate market value of voting stock held by nonaffiliates of
the registrant as of April 4, 1996 was approximately $5,295,020.
The number of shares outstanding of the issuer's common stock,
$.001 par value, as of April 4, 1996 was 7,483,903.
DOCUMENTS INCORPORATED BY REFERENCE: None
Item 1. Business General. InMedica Development Corporation
("InMedica") was incorporated as a Utah corporation on June 16,
1983. During the last three fiscal years, InMedica's primary
business activity has been the operation of the business of
MicroCor, Inc. ("MicroCor"), a wholly owned subsidiary, which was
acquired effective December 31, 1985 and the refinancing of its
debt. During 1993-1994, the Company considered, but did not
complete, the acquisition of a privately held company (See
"Expiration of Letter of Intent to Acquire Clinical Innovation
Associates, Inc.").
MicroCor was incorporated in 1981 under the name Alta Systems,
Inc. as a Utah corporation for the purpose of designing,
manufacturing and marketing hardware and software for the medical
field, particularly relating to monitoring functions. MicroCor is
presently engaged in research and development of an experimental
device to measure hematocrit non-invasively (see "Product
Development"). MicroCor has historically been engaged in the
development or sale of certain medical technology products.
Royalty income received by MicroCor from the development and sale
of certain technology pursuant to a contract with Johnson & Johnson
Medical, Inc. is presently InMedica's only material revenue source
(see "Principal Products").
Change in Control. Effective April 11, 1995, Larry E. Clark
purchased 1,000,000 shares of common stock of the Company from
Allan L. Kaminsky for $100,000. The acquisition of shares gave Mr.
Clark a total stock ownership of 1,143,000 shares or 15% of the
issued and outstanding stock of the Company. (See Item 11-
"Security Ownership of Certain Beneficial Owners and Management"
for a description of certain options subsequently granted to Mr.
Clark.) Simultaneously with the stock purchase and sale, Dr.
Kaminsky resigned as an officer and director of the Company and Mr.
Clark was appointed by the board of directors as chairman of the
board, director, president and chief executive officer of InMedica.
Dr. Kaminsky continues to work with the Company to provide
significant technical assistance.
Preferred Stock. Effective June 16, 1995, the shareholders of
the Company adopted Articles of Amendment to its Articles of
Incorporation authorizing the issuance of up to 10,000,000 shares
of Preferred Stock and authorizing the board of directors to fix
and determine the relative rights and preferences of the shares
including dividend rights, price of issuance, liquidation rights,
any redemption rights, conversion rights, and any voting rights.
Effective September 25, 1995, the Board of Directors authorized the
issuance of up to 1,000,000 shares of Preferred Stock, to be
designated "Series A", $4.50 par value (the "Series A Preferred
Stock") at a price of $4.50 per share. Shares of the Series A
Preferred Stock are convertible to common stock of the Company in
the following amounts during the time periods indicated: six common
shares per share of Series A Preferred Stock through October 1,
1996; three common shares per share of Series A Preferred Stock
from October 2, 1996 through October 1, 1997; and one and one half
common shares per share of Series A Preferred Stock after October
1, 1997. The holders of the Series A Preferred Stock are entitled
to cumulative cash dividends at the annual rate of eight percent
(8%) per annum ($.36 per share per annum) or $.09 per share per
quarter, payable on or before the following dates: January 31,
April 30, July 31, and October 31 of each year. Dividends on the
Preferred Stock are required to be fully paid or set aside before
any other dividend on any class or series of stock of the Company
is paid. If any dividends on the Series A Preferred Stock are not
paid or set apart when due, the deficiency is cumulative and is
required to be fully paid and set apart before any other dividend
is paid. In the event of any liquidation, dissolution or winding
up of the affairs of the Corporation, whether voluntary or
otherwise, after payment or provision for payment of the debts and
other liabilities of the Corporation (excluding accumulated
dividends payable on any class or series of stock), the holders of
the Series A Preferred Stock are entitled to receive, out of the
remaining net assets of the Corporation, the amount of $4.50 in
cash for each share of Series A Preferred Stock, plus an amount
equal to all dividends accrued and unpaid on each such share up to
the date fixed for distribution, before any distribution is made to
the holders of any class of the common stock of the Corporation.
The Company presently has outstanding an aggregate of 83,884 shares
of its Series A Preferred Stock, held by 15 Preferred Stockholders.
Regulation S Offering. During October, 1995, the Company
prepared a Regulation S offering to be used in seeking foreign
investors for approximately 900,000 shares of its Series A
Preferred Stock. If successful, the Company seeks to raise a
minimum of $1,000,000 and a maximum of approximately $4,026,393 and
monies raised would be used to fund research and development,
retire debt and to seek opportunities for acquisitions or mergers.
There are, however, no present plans, commitments or agreements to
engage in any acquisition, merger, consolidation or other
reorganization. To date, there are no offers to purchase shares
pursuant to the Regulation S offering.
Bank Loan. Effective August 31, 1995, the Board of Directors
approved borrowing funds from a commercial bank. During September,
1995, the bank approved a loan of $500,000 to the Company bearing
interest at prime plus 1 1/4%. The initial interest rate is 10%
per annum. Principal and interest payments are due quarterly, with
$12,500 principal plus accrued interest, payable at the end of each
quarter. The entire remaining unpaid balance of principal and
interest is due and payable on August 1, 1998. Larry E. Clark,
President and Director of the Company, is a co-obligor on the loan.
The Company expects debt service (including principal and interest
payments) during the first year to be approximately $95,000.
Payment of the bank loan is secured by an assignment of the Johnson
& Johnson Medical, Inc. Agreement, which is available to the bank
as security in the event of a Company default on the bank loan.
The Company considers the loan to be well secured with over
$1,000,000 of additional collateral supplied by the Company's
president, Larry E. Clark. In consideration of the collateral
provided by Mr. Clark, the Board of Directors has granted Mr.
Clark, effective October 16, 1995, non-qualified options to
purchase 500,000 shares of the Company's common stock at a price of
$.30 per share, exercisable for 10 years. The Company has also
granted Mr. Clark a security interest in the Johnson & Johnson
Medical Agreement to secure him for any liability or loss he may
suffer as a result of placing his collateral and credit at risk.
Debentures. The Company sold $300,000 of Series A convertible
debentures in 1990 and $800,000 of Series C convertible debentures
in 1991. Upon maturity, the Company was required to redeem 100
percent of the original purchase amount of the debentures plus any
unpaid accrued interest. These unsecured debentures bore an
interest rate of ten percent through September 30, 1992. On March
3, 1993, the Board of Directors authorized an increase in the
interest rate on the debentures to 15 percent effective October 1,
1992. The Series A debentures matured on December 31, 1993 and the
Series C debentures matured on June 30, 1994. During August, 1995,
the Company made an exchange offer with the debenture holders
pursuant to which it offered to exchange two shares of common stock
for each dollar of principal and interest owing on the debentures.
The offer was not accepted by any of the debenture holders.
During September and October, 1995, the Company made exchange
offers with the debenture holders pursuant to which it offered to
pay each debenture holder approximately 50% of the principal and
accrued interest owing on each debenture in cash and to satisfy the
balance by issuance of restricted shares of the Series A Preferred
Stock, offered pursuant to Regulation D of the regulations of the
Securities and Exchange Commission. Pursuant to the Company's
offers, 13 debenture holders made the exchange and received,
collectively, 67,633 shares of Preferred Stock and cash payments
totalling $304,356. Two other debenture holders settled litigation
against the Company over the debentures for an aggregate of 16,251
shares of Preferred Stock and aggregate payments of $73,129. An
additional debenture holder settled litigation as to his debentures
for a cash payment of $79,255 (80% of principal and accrued
interest owing). Another debenture holder settled his debenture
for a promissory note for 80% of the principal and accrued interest
owing on the debenture ($36,526) payable nine months from the date
of settlement.
Following these exchanges and settlements, the Company had
debenture indebtedness outstanding of $141,075, owing to four
persons. The Debentures were originally convertible to common
stock at the rate of $1.00 of accrued interest and principal owing
per one share of common stock. The conversion rate of the
remaining debentures, however, was adjusted to a lower rate of one
share of common stock per $.75 owed under the debentures based on
the issuance of the Series A Preferred Stock which carries a first
year conversion rate of $.75 per share (six common shares per
Preferred Share). Debenture Debt not converted to Preferred Stock
pursuant to the above described offering to debenture holders, is
consequently convertible to common stock at the rate of one share
per $.75 owing.
During March, 1996, the Company paid the full amount owing on
the debenture of Larry E. Clark by a cash payment of $23,337.60.
During March and April, 1996, the Company received notice of
conversion of debentures to common stock from the remaining three
debenture holders. The conversion notices are expected to result
in the issuance of an aggregate of 164,161 shares of common stock
in satisfaction of $123,121 in remaining debenture debt.
J & J Medical Agreement. The Company reached an agreement
dated June 15, 1995, with Johnson & Johnson Medical, Inc., a New
Jersey corporation, ("JJMI"). The Agreement replaced the
Company's agreement dated July 18, 1989 with Critikon, Inc. which
had obligated Critikon to pay a royalty to the Company based on
certain technology MicroCor had licensed to Critikon. The new
Agreement commits JJMI to pay a royalty to the Company for each
specified PLUS Vital Signs Monitor (the "Dinamap PLUS Monitor")
sold by JJMI to unaffiliated third parties. In consideration of
the royalty, the Company has granted JJMI nonexclusive worldwide
license to the technology. Under the terms of the new Agreement,
the Company expects to receive an increased per unit royalty rate
when compared to the prior agreement. The new royalty rate was
effective as of January 2, 1995.
Under the new Agreement, JJMI is obligated to retain records
for at least three years after the end of each royalty period.
MircoCor has the right to audit the records upon reasonable notice.
Sales are reported and royalties are paid quarterly to InMedica
three months after the end of the quarterly period in question. In
the event the technology licensed by MicroCor should be found to
infringe any valid patent rights of others, pursuant to an opinion
of counsel, then JJMI is authorized to settle with such third
parties and deduct the amount of the settlement from royalties due
MicroCor, not to exceed one half of the royalties owing to
MircoCor. In the event JJMI took a license or made a lump sum
settlement to settle any dispute, the amount of abatement of the
royalty payable to MicroCor would be subject to good faith
negotiation.
The new Agreement continues so long as JJMI sells Dinamap PLUS
Monitors, but may be terminated upon the dissolution, winding up,
bankruptcy or material breach of contract of either party.
Expiration of Letter of Intent to Acquire Clinical Innovation
Associates, Inc. On April 30, 1994, a Letter of Intent dated
September 29, 1993, to acquire Clinical Innovation Associates, Inc.
("Clinical Innovation"), expired of its own terms. Among other
things, completion of the acquisition was contingent upon the
elimination of certain indebtedness of InMedica, approval by
InMedica's shareholders and satisfactory due diligence by both
companies. Although shareholder approval was obtained, Clinical
Innovation determined, after much consideration, not to finalize
the transaction due to then uncompleted discussions between
InMedica and Critikon (now, JJMI) regarding royalty payments and
the then unknown impact of those discussions on the future royalty
income of InMedica.
Principal Products. During the years 1986 and 1987, MicroCor
developed, manufactured and marketed a portable electrocardiograph
("ECG") monitor. About 450 units were manufactured and sold. In
July 1989, MicroCor signed a research and development contract with
Critikon (predecessor to JJMI), to develop a medical instrument
which would incorporate and enhance the technologies already
developed in the MicroCor portable ECG monitor and combine them
with technologies developed by Critikon. The research and
development portion of the contract was completed in July 1990, and
resulted in the design of a new product line. Critikon
manufactures and markets the new product line under the name
Dinamap Plus(TM). MicroCor is the beneficiary of royalty income
based upon a specified amount per unit sold.
The chart below details sources of total operating revenues of
InMedica for each of the three years in the period ended December
31, 1995. Royalty revenues were generated exclusively from the
agreement with Johnson & Johnson Medical, Inc. See "J & J Medical
Agreement" for a description of a royalty contract of the Company
and Johnson & Johnson Medical, Inc.
1995 1994 1993
Royalty revenue $693,440 $650,000 $389,250
Sales of ECG products - - 2,964
Total Operating Revenues $693,440 $650,000 $392,214
======== ======== ========
The 1994 figures shown above include royalties for five quarterly
periods as compared to four quarterly periods for the 1995 and 1993
totals; see Item 6, Management's Discussion and Analysis - Results
of Operations.
Government Regulation. Medical products may be subject to
regulation by the Food and Drug Administration (the "FDA") pursuant
to the Federal Food, Drug and Cosmetic Act and other federal and
state laws regarding the regulation, manufacture and marketing of
products in which InMedica may be involved. The laws of foreign
nations may also apply to any international marketing of such
products. To the extent InMedica has acquired or developed an
interest in medical products or the companies manufacturing such
products, InMedica's business may be indirectly affected by such
regulation. As the manufacturer of the Dinamap Plus(TM) (see
"Principal Products") Critikon was responsible for obtaining FDA
510(K) approval on that new product line. Testing of the Company's
non-invasive hematocrit technology is subject to prior approval and
supervision of an Internal Review Board of a medical facility
overseeing the testing. Marketing of any new product line which
might be developed based on the Company's non-invasive hematocrit
device would be subject to prior approval by the FDA.
Product Development. For the past six years, the Company has
conducted research on a method for measuring hematocrit non-
invasively (without drawing blood) and has applied for patents
covering this technology. Hematocrit is the percentage of blood
volume made up by red blood cells and is a common laboratory test
currently performed invasively by drawing a blood sample from the
patient. More than a year ago, Dr. Paul J. Diehl, a principal
shareholder of the Company, hired an electrical engineer, Paul W.
Ruben, to conduct additional research and development on the
Company's non-invasive hematocrit technology. After evaluating
Ruben's engineering work, and after review and negotiations, the
Company determined that the research had resulted in significant
progress and agreed to purchase the technology. The Company made
the purchase for $200,000 on November 6, 1995. In exchange, Dr.
Diehl and Mr. Ruben transferred a portable prototype and their
research information relating to measuring hematocrit non-
invasively to the Company. They agreed not to compete with
InMedica and agreed not to disclose the information for a period of
five years from the date of the agreement. Further, Mr. Ruben
agreed to consult with InMedica on an ongoing hourly basis in
continued research and development of the project, at the Company's
direction. The Company paid Dr. Diehl and Mr. Ruben $98,000 total
at the closing and signed a promissory note for an additional
$102,000, total, payable in four equal quarterly installments
beginning January 15, 1996. Dr. Allan Kaminsky, former President
InMedica, and Mr. Ruben are continuing to work on the development
and calibration of the working prototype and on additional medical
applications of this technology.
During January, 1996, the Company began gathering data
necessary to provide calibration for its hematocrit measuring
device. The device is an enhancement of the Company's patented
technology and the purpose of the data gathering was to
authenticate engineering expectations arising from the development
of the device. The first round of data acquisition involved 351
known hematocrit records, primarily distributed in the range of
normal, healthy individuals. The device recorded an average error
of less than two hematocrit points with a correlation coefficient
of 0.86 on a test sample of 125 hematocrits. Although the number
of data records considered in the first round was small, the
results were considered encouraging. The Company intends to
initiate a second round of data acquisition to both increase the
number of data records over the normal range and to extend the
range to incorporate the entire spectrum of hematocrit values that
may be encountered in a clinical situation.
Based on the results of this first round of data testing, the
Company believes the accuracy and reliability of the device can be
increased. However there is no guarantee that the instrument's
performance will be improved and be reliable for clinical use. If
the second round of calibration and data testing is successful, it
will then be necessary to enter into formal clinical validation
studies. The prototype is not yet suitable for commercialization.
Testing as outlined above, must be completed in order to establish
both the technical and commercial viability of the proposed
product. This will require additional funding as to which the
Company has no commitments and no time frame can consequently be
placed on when or if commercialization of the device will occur.
The Company has previously announced its willingness to consider
strategic alliances and partnerships for the design, manufacturing
and marketing of any products which may result from this non-
invasive blood testing and monitoring technology.
Patents. As of December 12, 1995, the Company's application
for a patent entitled "Method and Apparatus for Non-Invasively
Determining Hematocrit," was allowed by the U.S. Patent Office.
The Patent is expected to issue within a few months as a matter of
course and should be valid for a term of 17 years. The Company has
filed an application for an additional patent which claims priority
from October 4, 1990, the date of filing of the Company's "Method
and Apparatus for Non-Invasively Determining Hematocrit. If the
second patent is granted, its patent term is expected to run from
October 4, 1990 for a period of 17 years.
Raw Materials. Materials and electronic components used in
the production and development of ECG monitors and like products
are components readily available through various suppliers.
Competition. InMedica is not presently a significant factor
in the medical products industry and does not presently compete
directly in the medical products field. The medical products
industry is dominated by large and well established corporations
with vastly greater financial and personnel resources than those of
InMedica. There can be no assurance that the companies and
products in which InMedica has an interest will be able to compete
profitably in the marketplace. Further, there is no assurance that
the Company will be able to complete research, development and
marketing of its hematocrit technology prior to any competitors who
may be developing competing technologies.
Research and Development Costs. Research and development
costs for the two years ended December 31, 1995 and 1994, were
$ 203,417 and $ 0, respectively. None of the expenses shown were
incurred on customer-sponsored research activities relating to the
development of new products.
Employees. InMedica and MicroCor had four part time employees
as of December 31, 1995.
Item 2. Properties
Office Lease. The Company has leased an 1,100 square foot
office space located in Murray, Utah for a one year term, beginning
July 1, 1995, with an option to renew the lease for two additional
one year terms. The monthly rental on the space is $1,054.17,
subject to adjustment in subsequent terms according to increases in
the Consumer Price Index.
Item 3. Legal Proceedings.
Effective September 25, 1995, the Company settled litigation
with Clinton B. Newman and J. Lynn Smith by issuing them 5,243 and
11,008 shares of its Series A Preferred Stock, respectively, and
paying them $23,595 and $49,534, respectively in exchange for
settlement of their lawsuit on the debentures and full satisfaction
of their debentures. Newman and Smith have delivered Stipulations
of Dismissal with respect to the suit to the Company. As
additional consideration for their participation in the settlement
agreement, the Company agreed to issue to Newman and Smith,
additional shares of common stock of the Company equal to the
number of conversion shares they received upon exercise of their
conversion rights under the Series A Preferred Shares during the
period October 1, 1996 through October 1, 1997. The right to
receive such additional shares expires if the parties do not
exercise their conversion rights during the period in question.
Effective September 27, 1995, the Company paid Eric Welling $79,255
to settle outstanding debenture obligations of $99,069 owing to him
and the lawsuit he had brought to collect amounts owing to him.
Dr. Welling also delivered a Stipulation of Dismissal of the
litigation he had brought against the Company, in connection with
the settlement.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted during the fourth quarter of
the fiscal year covered by this report to a vote of security
holders.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters.
(a) Price Range of Common Stock.
The Common Stock of InMedica is traded in the over-the-counter
market and is quoted on the "NASD OTC Bulletin Board". The
following table sets forth, for the calendar quarters indicated,
the high and low closing bid prices for the InMedica Common Stock
as reported by the NASD OTC Bulletin Board. These quotations
represent prices between dealers without adjustment for retail
markups, markdowns or commissions and may not represent actual
transactions.
Bid Price
Quarter Ended High Low
March 31, 1994 .69 .25
June 30, 1994 .44 .13
September 30, 1994 .22 .06
December 31, 1994 .16 .03
March 31, 1995 .15 .03
June 30, 1995 .40 .03
September 30, 1995 .44 .09
December 31, 1995 .35 .09
March 31, 1996 1.00 .13
As of March 20, 1996, there were approximately 560 record
holders of InMedica Common Stock. Such record holders do not
include individual participants in securities position listings.
The Company also has 15 holders of its Series A Preferred Stock.
There is no public market for the Series A Preferred Stock (See
"Preferred Stock").
InMedica has not paid any cash dividends on its Common Stock
since organization. For the foreseeable future, InMedica expects
that earnings, if any, will be retained for use in the business or
be used to retire obligations of the Company. For information as
to the Company's obligation to pay dividends on Preferred Stock,
see "Preferred Stock."
Item 6. Management's discussion and analysis of financial
condition and results of operations.
Liquidity and Capital Resources. For the years ended December
31, 1995 and 1994, operating revenues were generated from royalty
income received from J & J Medical Inc. This revenue may not be
sufficient to sustain operations over time and may be inadequate to
retire bank debt when it comes due (See "Business - General").
InMedica intends to continue to look for other funding sources.
InMedica achieved profitable operations for the first time
since its organization during the last two fiscal years, but has a
stockholders' deficit of $397,640 as of December 31, 1995. In
order for InMedica to continue its research and development
activities, it may require additional financing, for which it has
no commitments. It is impossible to estimate the amount of the J
& J Medical royalties which may be received in the future.
Results of Operations. Significant operating revenues have
been derived only from royalties during the two-year period ended
December 31, 1995. During the years ended December 31, 1995 and
1994 royalty revenue totaled $693,440 and $650,000, respectively.
Pursuant to the Company's revenue recognition policy and as a
result of the timing of the receipt of the Company's royalties, the
Company included five quarterly royalty payments in 1994 as
compared with four quarterly royalty payments in 1995. Revenues
during the year ended December 31, 1995 increased when compared to
the same period in 1994 as a result of royalties paid based on
sales by J & J Medical, Inc. of the DINAMAP (TM) PLUS vital signs
monitor. InMedica cannot, however, predict how long and how much
royalty revenue it may receive from J & J Medical, Inc. Future
royalty revenue is dependent upon the continued sales of the
product line by J & J Medical, Inc. which includes MicroCor's base
technology.
The net income of $331,704 for the year ended December 31,
1995, resulted primarily from increased royalties from J & J
Medical, Inc. and a $197,901 extraordinary gain during the year
from the settlement of payables related to payroll and consulting
fees and convertible debenture debt. The net income of $301,239
for the year ended December 31, 1994 resulted from increased
royalties from J & J Medical, Inc. while at the same time the
Company curtailed operations and research and development
expenditures due to cash flow restrictions.
General and administrative expenses were higher during the
year ended December 31, 1995 ($216,264) as compared to the year
ended December 31, 1994 ($163,946), due primarily to expenses
associated with the elimination of debt, the cost of new office
space and other administrative expense associated with the expanded
activity of the Company. Research and development expenses were
$203,417 and $0 for the years ended December 31, 1995 and 1994,
respectively. Insufficient cash flow precluded research and
development activity during 1994. During 1995, the Company
purchased certain research and development efforts completed by
third parties (see "Product Development") for $200,000. <PAGE>
Item 7. Financial Statements. Page(s)
Report of Independent Public Accountants 13
Consolidated Balance Sheet as of December 31, 1995 14
Consolidated Statements of Operations for the
years ended December 31, 1995 and 1994 15
Consolidated Statements of Stockholders' Deficit
for the years ended December 31, 1995 and 1994 16
Consolidated Statements of Cash Flows for the
years ended December 31, 1995 and 1994 17,18
Notes to Consolidated Financial Statements 19-26<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To InMedica Development Corporation:
We have audited the accompanying consolidated balance sheet of
InMedica Development Corporation (a Utah corporation) and
subsidiary as of
December 31, 1995, and the consolidated statements of operations,
stockholders' deficit and cash flows for the years ended December
31, 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of InMedica Development Corporation and subsidiary as of December
31, 1995, and the results of their operations and their cash
flows for the years ended December 31, 1995 and 1994 in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the consolidated financial
statements, while the Company generated net income in 1995 and
1994, historically it has not achieved profitability and there
can be no assurance of profitability in the future. The
Company s sole source of revenue is a royalty arrangement which
is based upon marketing and sales activity of a third party and
there can be no assurance as to continuing royalty receipts.
Further, as of December 31, 1995, the Company had an accumulated
deficit of $6,805,049 and a total stockholders deficit of
$397,640. These conditions raise substantial doubt about the
Company s ability to continue as a going concern. Management s
plans in regard to these matters also are discussed in Note 1.
The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to
continue as a going concern.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
March 27, 1996
<PAGE>
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1995
ASSETS
CURRENT ASSETS:
Cash
$ 113,732
Royalties receivable
227,520
Prepaid expenses and other current assets
26,716
- -----------
Total current assets
367,968
EQUIPMENT AND FURNITURE, at cost, less accumulated
depreciation of $249,045
4,070
OTHER ASSETS
2,196
- -----------
$ 374,234
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Related-party notes payable
$ 138,526
Current portion of notes payable
50,000
Convertible debentures due to related parties
22,768
Convertible debentures
118,306
Accrued interest
8,723
Accrued payroll
7,399
Accounts payable
3,652
- -----------
Total current liabilities
349,374
- -----------
NOTES PAYABLE, less current portion
422,500
- -----------
COMMITMENTS AND CONTINGENCIES (Notes 1, 2 and 7)
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value; 20,000,000 shares
authorized;
7,483,903 shares outstanding
7,484
Preferred stock, 10,000,000 shares authorized;
Series A preferred
stock, cumulative and convertible, $4.50 par
value, 1,000,000
shares designated, 83,884 shares outstanding
377,478
Additional paid-in capital
6,022,447
Accumulated deficit
(6,805,049)
- -----------
Total stockholders' deficit
(397,640)
- -----------
$ 374,234
===========
The accompanying notes to consolidated financial statements
are an integral part of this consolidated balance sheet.
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995
1994
ROYALTY REVENUES
$ 693,440
$ 650,000
- ----------
- ----------
OPERATING EXPENSES:
General and administrative
216,264
163,946
Research and development
203,417
-
- ----------
- ----------
Total operating expenses
419,681
163,946
- ----------
- ----------
INCOME FROM OPERATIONS
273,759
486,054
- ----------
- ----------
OTHER EXPENSE:
Interest expense
(137,310)
(186,328)
Miscellaneous (expense) income
(2,646)
1,513
- ----------
- ----------
Total other expense, net
(139,956)
(184,815)
- ----------
- ----------
INCOME BEFORE EXTRAORDINARY GAIN
133,803
301,239
EXTRAORDINARY GAIN FROM EXTINGUISHMENT
OF DEBT,
net of applicable income taxes of $0
(Note 9)
197,901
-
- ----------
- ----------
NET INCOME
$ 331,704
$ 301,239
==========
==========
NET INCOME PER COMMON SHARE:
Income before extraordinary gain from
extinguishment of debt
$ .02
$ .04
Extraordinary gain from
extinguishment
of debt
.02
-
- ----------
- ----------
NET INCOME PER COMMON SHARE
$ .04
$ .04
==========
==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
7,822,194
7,442,668
==========
==========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Common
Stock
Shares
Amount
Series A
Preferred
Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulate
d
Deficit
Total
Stockholder
s'
Deficit
BALANCE,
December 31,
1993
7,238,339
$7,238
-
$ -
$5,992,700
$(7,430,442
)
$(1,430,504)
Stock options
exercised
236,064
236
-
-
27,669
-
27,905
Net income
-
-
-
-
-
301,239
301,239
- ---------
- ------
- ------
- --------
- ----------
- -----------
- -----------
BALANCE,
December 31,
1994
7,474,403
7,474
-
-
6,020,369
(7,129,203
)
(1,101,360)
Stock options
exercised
4,500
5
-
-
333
-
338
Issuance of
Series A
preferred
stock
-
-
83,884
377,478
-
-
377,478
Stock issued
as
compensation
for
services
rendered
5,000
5
-
-
1,745
-
1,750
Dividends paid
on
preferred
stock
-
-
-
-
-
(7,550)
(7,550)
Net income
-
-
-
-
-
331,704
331,704
- ---------
- ------
- ------
- --------
- ----------
- -----------
- -----------
BALANCE,
December 31,
1995
7,483,903
$7,484
83,884
$377,478
$6,022,447
$(6,805,049
)
$ (397,640)
=========
======
======
========
==========
===========
===========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
Page 1 of 2
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Increase (Decrease) in Cash
1995
1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
$ 331,704
$ 301,239
Adjustments to reconcile net income
to net
cash provided by (used in)
operating activities-
Depreciation and amortization
31,526
27,351
Expense related to stock issued
as
compensation for services
rendered
1,750
-
Gain on sale of equipment and
furniture
(5,727)
-
Extraordinary gain from
extinguishment of debt
(197,901)
-
Issuance of note payable to
related party
in connection with payment for
research and
development efforts
102,000
-
Change in assets and liabilities-
Decrease (increase) in
royalties receivable
73,855
(301,375)
Decrease in inventory
-
1,200
(Increase) decrease in prepaid
expenses
and other
(1,692)
2,453
Decrease in other assets
-
6,895
(Decrease) increase in accounts
payable
(52,949)
15,941
(Decrease) increase in accrued
payroll
10,998
(23,940)
Decrease in accrued interest
(134,679)
(127,624)
Decrease in royalties payable
-
(5,698)
- -----------
- -----------
Net cash provided by (used
in)
operating activities
158,885
(103,558)
- -----------
- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment and
furniture
6,200
-
Purchase of equipment and furniture
(4,449)
- -----------
- -----------
Net cash provided by
investing activities
1,751
-
- -----------
- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock
338
27,905
Principal payments on convertible
debentures
(454,254)
-
Principal payments on convertible
debentures
due to related parties
(61,018)
(2,936)
Preferred stock dividends paid
(7,550)
-
Proceeds from issuance of note
payable
485,000
-
Principal payments on notes payable
(12,500)
-
- -----------
- -----------
Net cash (used in) provided
by
financing activities
(49,984)
24,969
- -----------
- -----------
NET INCREASE (DECREASE) IN CASH
110,652
(78,589)
CASH AT BEGINNING OF THE YEAR
3,080
81,669
- -----------
- -----------
CASH AT END OF THE YEAR
$ 113,732
$ 3,080
===========
===========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
Page 2 of 2
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for
interest
$ 273,821
$ 313,952
===========
===========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND
FINANCING ACTIVITIES:
During 1995, certain holders of convertible debentures
converted $377,478 of
principal and accrued interest related to the debentures
into 83,884 shares
of Series A preferred stock (see Note 2).
During 1995, the Company paid $98,000 in cash and issued a
note payable for
$102,000 to a stockholder and another individual to
purchase certain
technology that enhanced the Company s existing development
efforts with
respect to its Non-Invasive Hematocrit Technology.
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF THE BUSINESS AND
SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business
InMedica Development Corporation ( InMedica ) and its wholly
owned subsidiary, MicroCor, Inc. ( MicroCor ) (collectively the
Company ) historically have engaged in the research, development
and sale of medical technology and fund raising to support such
activity. During the years 1986 and 1987, MicroCor developed and
marketed a portable electrocardiograph ( ECG ) monitor and
manufactured and sold about 450 units. In July 1989, MicroCor
signed a research and development contract with a predecessor of
Johnson and Johnson Medical, Inc. ( Johnson and Johnson ), for
further development of the ECG technology. As a result of the
agreement, Johnson and Johnson now manufactures and markets a
product line under the name of Dinamap Plus (TM) which
incorporates the Company s ECG technology. During 1995, the
Company completed what it believes was a favorable renegotiation
of the Johnson and Johnson agreement. As a result of increased
royalty revenues received, the issuance of preferred stock and a
bank loan secured with collateral provided by the Company s
president and chief executive officer, the Company was able to
retire or refinance most of its debt during 1995.
Since 1989, the Company has also engaged in research and
development of a device to measure hematocrit non-invasively (the
Non-Invasive Hematocrit Technology ). The Company s patent
application on certain aspects of its Non-Invasive Hematocrit
Technology was allowed on December 12, 1995 and other patent
applications are expected to be filed in 1996. Hematocrit is the
percentage of red blood cells in a given volume of blood. At the
present time, the test for hematocrit is performed invasively by
drawing blood from the patient and testing the blood sample in
the laboratory. Initial testing of the Company s Non-Invasive
Hematocrit Technology on limited samples has been favorable.
However commercialization of the Non-Invasive Hematocrit
Technology is dependent upon additional testing, Food and Drug
Administration approval, financing of further research and
development and, if warranted, financing of manufacture and
marketing.
Royalties received from the Johnson and Johnson agreement are
presently the Company s sole source of revenue and the Company is
not able to estimate the duration or amount of future royalties
from the Johnson and Johnson agreement. Accordingly, there can
be no assurance as to continuing royalty receipts. As of
December 31, 1995, the Company had an accumulated deficit of
$6,805,049 and a stockholders deficit of $397,640. These
conditions raise substantial doubt as to the Company s ability to
continue as a going concern. The Company s continued existence
is dependent upon its ability to achieve a viable operating plan.
Management s operating plan includes continuing to search for
financing alternatives, including the formation of strategic
alliances or partnerships to continue research and if warranted,
the manufacture and sale of products developed from the Non-
Invasive Hematocrit Technology. However, at present, the Company
has no commitments related to these matters.
<PAGE>
Principles of Consolidation
The consolidated financial statements include the accounts of
InMedica and MicroCor. All material intercompany accounts and
transactions have been eliminated.
Revenue Recognition
Royalty revenues are recognized as sales information is received
from Johnson and Johnson and cash receipts are assured.
Equipment and Furniture
Property and equipment are recorded at cost and depreciated using
the straight-line method over the estimated useful lives of the
assets. The asset cost and accumulated depreciation for property
retirements and disposals are eliminated from the respective
accounts, and any resultant gain or loss is included in the
determination of net income. The cost of major additions and
improvements is capitalized while the cost of maintenance and
repairs is charged to expense as incurred.
Equipment and furniture consisted of the following at
December 31, 1995.
Equipment
$ 242,260
Furniture
10,855
- ---------
253,115
Less accumulated
depreciation
(249,045)
- ---------
$ 4,070
=========
Depreciation has been computed using the straight-line method
over the three to five year useful lives of the related assets.
Included in equipment and furniture is approximately $249,000 of
fully depreciated equipment and furniture. Management plans to
dispose of these assets as soon as circumstances permit.
Net Income Per Common Share
The net income per common share computation is based on the
weighted average number of shares of common stock outstanding
during each year after giving effect to dilutive common stock
equivalents.
Income Taxes
The Company has adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes. SFAS No. 109 requires that income tax accounts be
computed using the liability method. Deferred taxes are
determined based on the estimated future tax effects of
differences between the financial reporting and tax reporting
bases of assets and liabilities given the provisions of currently
enacted tax laws.
<PAGE>
Recent Accounting Pronouncement
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ( SFAS ) No. 121,
Accounting for the Impairment of Long-Lived Assets and Long-
Lived Assets to Be Disposed Of (effective for years beginning
after December 15, 1995). SFAS No. 121 addresses the accounting
for: (i) impairment of long-lived assets, certain identifiable
intangibles and goodwill related to assets to be held and used,
and (ii) long-lived assets and certain identified intangibles to
be disposed of. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity
be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. If the sum of the expected future cash flows
from the use of the asset and its eventual disposition
(undiscounted and without interest charges) is less than the
carrying amount of the asset, an impairment loss is recognized.
Management of the Company does not expect that the adoption of
SFAS No. 121 will have a material impact on the Company s
financial position or results of operations.
Pervasiveness of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(2) CONVERTIBLE DEBENTURES
The Company sold $300,000 of Series A convertible debentures in
1990 and $800,000 of Series C convertible debentures in 1991.
These unsecured debentures bore an interest rate of ten percent
through September 30, 1992. On March 3, 1993, the Board of
Directors authorized an increase in the interest rate on the
debentures to 15 percent effective October 1, 1992. The Series A
debentures matured on December 31, 1993 and the Series C
debentures matured on June 30, 1994. Due to inadequate cash
flows, the Company was unable to satisfy the maturity of either
the Series A debentures or the Series C debentures. Accordingly,
events of default occurred under the Series A and Series C
debenture agreements.
During 1995, the Company satisfied the majority of the Series A
and Series C convertible debenture obligations and related
accrued interest through the issuance of 83,884 shares of Series
A preferred stock and cash payments of $377,485. In addition,
one debenture holder agreed to exchange his debenture instrument
for a cash payment of $79,255 (80 percent of principal and
accrued interest owing). Another debenture holder agreed to
exchange his debenture instrument for a promissory note for 80
percent of the principal and accrued interest owing on the
debenture ($36,526) payable nine months from the date of
settlement. During 1995, the Company recorded an extraordinary
gain in the amount of approximately $28,000 related to
convertible debentures that were settled for less than the
principal and interest owing.
The debentures were originally convertible to common stock at the
rate of $1.00 of principal and accrued interest owing for one
share of common stock. However, during 1995, the conversion rate
of the remaining debentures, was adjusted to a lower rate of $.75
of principal and accrued interest owing under the debentures for
one share of common stock based on the issuance of the Series A
preferred stock which carries a first year conversion rate of
$.75 per share (six common shares for one preferred share).
As of December 31, 1995, convertible debentures totaling $141,074
were outstanding and in default. Management anticipates that
during 1996, the remaining convertible debentures will be
satisfied through the payment of cash or conversion to common
stock (at the discretion of the debenture holder). Management
believes its current resources are sufficient to satisfy these
obligations in cash if the debenture holders should so elect.
(3) INCOME TAXES
As of December 31, 1995, deferred taxes consisted of the
following:
Net operating loss carryforward $ 1,085,551
Future deductible temporary
differences related to
compensation, reserves
and accruals 259,731
Less: valuation allowance (1,345,282)
-----------
Net deferred tax asset $ -
===========
The Company utilized approximately $338,000 and $301,000 of net
operating loss carryforwards in 1995 and 1994, respectively, and
therefore recorded no federal or state income tax provisions for
the years ended December 31, 1995 and 1994.
At December 31, 1995, the Company has consolidated net operating
loss carryforwards for federal income tax purposes of
approximately $2,714,000. These net operating loss carryforwards
expire at various dates through December 31, 2008. An NOL
generated in a particular year will expire for federal tax
purposes if not utilized within 15 years. Additionally, the
Internal Revenue Code contains other provisions which could
reduce or limit the availability and utilization of these NOLs.
For example, limitations are imposed on the utilization of NOLs
if certain ownership changes have taken place or will take place.
In accordance with SFAS No. 109, a valuation allowance is
provided when it is more likely than not that all or some portion
of the deferred tax asset will not be realized. Due to the
uncertainty with respect to the ultimate realization of the NOLs,
the Company established a valuation allowance for the entire
deferred tax asset of approximately $1,345,000.
(4) COMMON STOCK
The Company has in place an incentive stock option plan (the
"Stock Incentive Plan") for eligible directors and key employees
of the Company, covering 1,350,000 shares of the Company's common
stock. Under the terms of the Stock Incentive Plan, the options
granted may be either incentive stock options as defined in
Section 422 of the Internal Revenue Code of 1986, as amended, or
nonqualified stock options. A committee composed of
disinterested members of the Board of Directors has authority to
determine, among other matters, which eligible key employees and
directors are to receive options, the price at which the
nonqualified options will be granted, the period in which the
options are exercisable and the type of options to be granted.
The exercise price for the incentive stock options may not be
less than 100 percent of the fair market value of the common
stock on the date of the grant. The Stock Incentive Plan
contains antidilution provisions which provide for adjustments to
option prices or quantities in the event of certain changes in
the number of outstanding shares of common stock or the
capitalization of the Company.
The following table presents the aggregate options granted and
exercised under the Stock Incentive Plan during the years ended
December 31, 1995 and 1994.
1995
1994
Shares under option, beginning of
year
788,445
1,213,009
Options exercised at a prices
ranging
from $.08 to $.15 per share
-
(236,064)
Options forfeited at prices ranging
from
$.60 to $1.00 per share
(201,000)
(188,500)
- --------
- ---------
Shares under option, end of year,
at prices ranging from $.08 to
$.60 per share
587,445
788,445
========
=========
At December 31, 1995, options for the purchase of 526,491 shares
were available for granting and options for the purchase of
587,445 shares were exercisable under the Stock Incentive Plan.
The Company has in place a formula stock option plan (the
"Formula Plan") for eligible directors of the Company, covering
100,000 shares of common stock. A committee of the Board of
Directors has the authority to determine, among other matters,
the term of the options and the period during which the options
are exercisable. Under the terms of the Formula Plan, each
member of the committee which administers the Stock Incentive
Plan is eligible to receive nonqualified stock options pursuant
to a formula set forth in the Formula Plan. The exercise price
for options granted shall be 30 percent of the fair market value
of the common stock on the date of the grant. The Formula Plan
contains antidilution provisions which provide for adjustments to
option prices or quantities in the event of certain changes in
the number of outstanding shares of common stock or the
capitalization of the Company.
There were no options granted under the Formula Plan during the
years ended December 31, 1995 and 1994. During 1995, options for
the purchase of 4,500 shares of common stock were exercised at
prices ranging from $.04 to $.15 per share. At December 31,
1995, there were no shares under option under the Formula Plan
and options for the purchase of 95,500 shares were available for
granting.
At December 31, 1995, the Company has reserved 1,209,436 common
shares for the exercise of options under the two stock option
plans described above.
During 1995, the Company granted nonqualified options for the
purchase of 1,050,000 shares of common stock at prices ranging
from $.30 to $.385 per share to officers, directors, employees
and consultants to the Company. A total of 500,000 of these
nonqualified options were issued to the Company s president and
chief executive officer in consideration of collateral provided
by him with respect to the Company s bank loan described in Note
6. All options granted during 1995 vested immediately upon
granting and are exercisable through 2005.
(5) PREFERRED STOCK
During 1995, the Company amended its articles of incorporation to
authorize 10,000,000 shares of preferred stock. The Company s
board of directors designated 1,000,000 shares of this preferred
stock as Series A Cumulative Convertible Preferred Stock ("Series
A Preferred") with a par value of $4.50 per share. Holders of
the Series A Preferred receive annual cumulative dividends of
eight percent, payable quarterly, which dividends are required to
be fully paid or set aside before any other dividend on any class
or series of stock of the Company is paid. Holders of the Series
A Preferred receive no voting rights but do receive a liquidation
preference of $4.50 per share, plus accrued and unpaid dividends.
Series A Preferred stockholders also have the right to convert
each share of Series A Preferred to the Company's common stock
according to the following schedule: $.75 per common share on or
before October 1, 1996; $1.50 per common share on or before
October 1, 1997 and $3.00 per common share after October 1, 1997.
During 1995, the Company issued 83,884 shares of Series A
Preferred related to the complete or partial satisfaction of a
significant portion of its convertible debentures (see Note 2).
During October 1995, the Company prepared a Regulation S offering
to be used in seeking foreign investors for approximately 900,000
shares of its Series A Preferred. If successful, the Company
seeks to raise a minimum of $1,000,000 and a maximum of
approximately $4,026,000. Funds raised would be used to fund
research and development, retire debt and to seek opportunities
for acquisitions or mergers. There are, however, no present
plans, commitments or agreements to engage in any acquisition,
merger, consolidation or other reorganization. To date, there
are no offers to purchase shares pursuant to the Regulation S
offering.
(6) NOTES PAYABLE AND RELATED-PARTY NOTES PAYABLE
At December 31, 1995, notes payable and related-party notes
payable consisted of the following:
Loan agreement with a bank, interest
at prime (8.5 percent at December
31, 1995) plus 1.25 percent (see
discussion below)
$ 472,500
Related-party note payable,
unsecured, 10 percent interest, due
on September 28, 1996
36,526
Related-party note payable to a
stockholder and another individual,
unsecured, 10 percent interest,
principal and interest due in four
installments during 1996
102,000
- ---------
611,026
Less current portion
(188,526)
- ---------
$ 422,500
=========
<PAGE>
During September 1995, the Company entered into a loan agreement
with a bank. The loan agreement provided for the Company to
borrow up to a maximum amount of $500,000 through October 22,
1995. Subsequent to that date, no further advances were
available and repayments are to be made in quarterly principal
installments of $12,500 plus accrued interest beginning November
22, 1995. The loan agreement is secured by the Company s royalty
stream from Johnson and Johnson and a personal guarantee from and
real estate owned by the Company s Chief Executive Officer and
President. The entire unpaid principal and interest balance is
due in full on August 1, 1998.
As of December 31, 1995, the scheduled principal maturities of
notes payable and related-party notes payable are as follows:
Year Ending December 31,
1996
$188,526
1997
50,000
1998
372,500
--------
$611,026
========
(7) COMMITMENTS
Operating Lease
During 1995, the Company entered into a one-year, noncancelable
operating lease for office space. Total rent expense for office
space during 1995 was $6,325. The lease expires in June 1996.
The Company has options to extend the lease for two additional
years. Commitments for future minimum rental payments under the
lease total $6,325 in 1996.
(8) RELATED-PARTY TRANSACTIONS
As discussed in Note 2, the Company sold $300,000 of convertible
debentures during the year ended December 31, 1990. Directors
and officers of the Company purchased $200,000 of these
debentures. Subsequently, certain of these individuals became
unrelated parties through their resignation as directors and/or
officers of the Company. As of December 31, 1995, approximately
$23,000 of convertible debentures are due to the Company s
president and chief executive officer.
On November 6, 1995, the Company purchased certain technology
that enhanced the Company s existing development efforts with
respect to its Non-Invasive Hematocrit Technology from two
individuals, one of whom was a principal shareholder of the
Company. The technology acquired was accounted for as purchased
research and development and expensed accordingly. Of the
$200,000 purchase price, $98,000 was paid in cash at closing and
a promissory note was signed for the remaining $102,000 payable
in four equal installments beginning January 16, 1996 (see Note
6).
During 1995 and 1994, the Company paid interest on the related-
party convertible debentures in the amounts of $45,821 and
$57,616, respectively.
During 1995, the Company paid $30,600 to a director of the
Company and $7,200 to a stockholder and former director of the
Company for consulting services performed in 1985 and 1986.<PAGE>
(9)
EXTRAORDINARY GAIN FROM EXTINGUISHMENT OF DEBT
During 1995, the Company settled certain payroll liabilities
which had been accrued in prior years and as a result, the
Company recognized an extra-ordinary gain of approximately
$170,000. Additionally, the Company recognized an extraordinary
gain of approximately $28,000 on the settlement of amounts owed
under certain convertible debentures (see Note 2).
Item 8. Disagreements With Accountants on Accounting and
Financial Disclosures.
There have been no changes in or disagreements with accountants
on accounting and financial disclosure, as provided in Regulation
S-B, Item 304.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act.
Directors and Executive Officers of InMedica. The following
table furnishes information concerning the executive officers and
directors of InMedica and their business backgrounds for at least
the last five years.
Name Age Director Since
Larry E. Clark 74 1995
John R. Merendino 57 1995
David L. Dingman 59 1995
Richard Bruggeman 40 1995
LARRY E. CLARK - Chairman, Principal Executive Officer and
Director of InMedica. Mr. Clark was president of Clark-Knoll &
Associates, Inc., a Denver, Colorado, management consulting firm
specializing in mergers and acquisitions from 1963 to 1969. He
served as president of Petro-Silver, Inc., a small public company
based in Salt Lake City, Utah, which engaged in the oil and gas
business from 1970 to 1975. From 1975 to 1981 Mr. Clark was
president of Larry Clark & Associates, a private company which
engaged in a corporate mergers and acquisitions business. In
1981, Mr. Clark formed Hingeline-Overthrust Oil & Gas, Inc., a
Utah public company, which merged with Whiting Petroleum
Corporation of Denver, Colorado in December, 1983. Mr. Clark
served as a director of Whiting Petroleum from 1983 until 1992
when Whiting Petroleum merged with IES Industries and Mr. Clark
returned to full time employment as president of Larry Clark &
Associates. He is presently also president, principal
shareholder and director of The Bud Financial Group, Inc., an
inactive public company. Mr. Clark graduated from the U.S.
Merchant Marine Academy with a degree in Naval Science in 1943
and received a degree in Business Administration from the
University of Wyoming in 1948.
JOHN R. MERENDINO, M.D. - Director and Nominee for Director
of InMedica. Dr. Merendino obtained a D.A. in chemistry from
Lafayette College, Pennsylvania in 1960 and an M.D. degree from
New Jersey College of Medicine and Dentistry in 1964. He
completed his internship and residency at Monmouth Medical Center
in New Jersey. From 1976 to 1984 he was an Associate Clinical
Professor at the University of Utah School of Medicine. He also
served as a member of the residency committee of the University
of Utah School of Medicine from 1978 to 1984. He was Chairman of
the Division of Orthopedics at Holy Cross Hospital, Salt Lake
City, Utah from 1977 to 1984 and Chairman (or Chairman elect) of
the Department of Surgery, Holy Cross Hospital. Since 1984, he
has been engaged in private practice in Orthopedics and Sports
Medicine. He also acts as an independent consultant to the
Honolulu Athletic Club, Alta View Sports Medicine Clinic and
Diversified Tech Inc. He is also a Director of the Snowbird
Clinic, physician to the U.S. Ski Team and a member of the Board
of Advisors to Nautilus Physical Fitness Centers. He previously
served as the Team Physician to the Salt Lake Golden Eagles and
the Salt Lake Gulls, professional sports teams.
DAVID L. DINGMAN, M.D. - Director of the Company. Dr.
Dingman is a Professor of Surgery, Emeritus, at the University of
Utah Medical Center. He was Associate Professor and Professor of
Surgery from 1989-1993. He was an Attending Staff Surgeon at the
Veterans Administration Medical Center, Salt Lake City, Utah from
1984-1989. He also served as Chairman of the Department of
Surgery at Holy Cross Hospital in Salt Lake City, Utah from 1986-
1989 and as Chairman of the Department of Plastic Surgery at Holy
Cross Hospital from 1982-1985. From 1972-1989 he was a Clinical
Associate Professor of Surgery at the University of Utah Medical
Center. He graduated in pre-med from Dartmouth College in 1957
and received his M.D. degree from the University of Michigan in
1961.
RICHARD BRUGGEMAN - Director and Secretary/Treasurer and
Chief Financial Officer of the Company. Since 1993, he has been
employed as Controller of Kitchen Specialties, Inc., a Salt Lake
City firm distributing kitchen appliances in the United States
and Canada. From 1986 until 1993 he was employed by the
Company's subsidiary, MicroCor, Inc. as financial manager.
During the period 1983-1985, he was a sole practitioner in
accounting and from 1981-1983 he was employed by the Salt Lake
City public accounting firm of Robison Hill & Co. He graduated
from the University of Utah in 1981 with a B.S. degree in
accounting.
ALLAN L. KAMINSKY, Ph.D., M.D. - Significant employee of
InMedica. He holds a B.S. degree in Electrical Engineering from
Newark College of Engineering (June, 1966), M.S. in Electrical
Engineering from Columbia University (June, 1967), Ph.D. in
Electrical Engineering and Computer Science from Columbia
University (April, 1970), and M.D. from the University of
Colorado School of Medicine (March, 1976). Dr. Kaminsky is a
licensed anesthesiologist practicing medicine and currently
affiliated with Cottonwood Hospital Medical Center, Salt Lake
City, Utah. From 1985 until 1995 he was Chairman and Chief
Executive Officer and Director of MicroCor and InMedica. From
March 1976, through January 1979, he conducted a research study
for CitiBank, N.A., and also acted as an independent consultant.
During 1974, he was a Senior Member of the Technical Staff
designing a Pascal Compiler for Control Data Corporation and was
an independent contractor in the Mauchly-Wood Systems
Corporation. From 1972-1974, he was Chief Scientist and Director
of the Gemini Systems Corporation. He was also an Assistant
Professor of Electrical Engineering and Computer Science while at
the University of Colorado. He has been an Assistant Professor
in the College of Medicine of the University of Utah. He was the
founder of MicroCor and is principally responsible for developing
the technology and the application of the technology currently
used by MicroCor in its ECG Monitor and its ancillary products.
Each director serves until the next annual meeting of
shareholders or until a successor is elected and qualified.
Officers serve at the pleasure of the board of directors.
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's directors and executive officers, and persons who
own more than ten percent of a registered class of the Company's
equity securities to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in
ownership of equity securities of the Company. Officers,
directors and greater than ten percent shareholders are required
to furnish the Company with copies of all Section 16(a) forms
they file. To the Company's knowledge, based solely on review of
the copies of such reports furnished to the Company, during the
fiscal year ended December 31, 1995 all Section 16(a) filing
requirements applicable to officers, directors and greater than
ten percent shareholders were complied with, except that Director
David L. Dingman late filed his report of the acquisition of
stock options from the Company.
Item 10. Executive Compensation.
Executive Compensation. No executive officer of the Company
has received compensation during the three fiscal years ended
December 31, 1995, except as disclosed in the table below:
Annual Compensation
Long Term
Compensation Awards
Name Year Salary Bonus Common Stock underlying Options Other
Larry E. Clark (CEO)1995 $ - - 600,000 -
Allan L. Kaminsky(CEO)1994 $ - - - -
Allan L. Kaminsky(CEO)1993 $ - - - -
Director Compensation. Directors may be compensated at the
rate of $100 for attendance at each board meeting, but did not
receive compensation for meetings attended in 1995 and 1994. The
Board of Directors has granted non-qualified stock options to
Directors Clark, Merendino and Bruggeman to purchase 100,000
shares each of common stock of the Company for $.30 per share
exercisable for a period of 10 years. The options are
immediately exercisable and become non-forfeitable after each
director has completed one year of service and thereafter are not
cancelled if the Director leaves the service of the Company. The
Board of Directors also granted a similar option to Director
Dingman, exercisable at $.385 per share.
Compensation Committee Interlocks and Insider Participation.
Compensation of officers and employees is determined by the Board
of Directors. Mr. Larry E. Clark, chief executive officer, is
chairman of the Board of Directors.
Other Compensation Plans. On December 6, 1991, the Company
adopted a stock incentive plan (the "Stock Incentive Plan") and a
formula stock option plan (the "Formula Plan"). On May 30, 1992,
at the annual shareholder meeting, the shareholders approved the
Stock Incentive Plan and the Formula Plan.
The Stock Incentive Plan covers 1,350,000 shares of the
Company's common stock. Under the terms of the plan, the options
granted to eligible key employees and directors, shall be either
incentive stock options as defined in Section 422 of the Internal
Revenue Code of 1986, as amended, or non-qualified stock options.
A committee composed of disinterested members of the Board of
Directors has authority to determine, among other matters, which
eligible key employees and directors are to receive options, the
price at which the non-qualified options will be granted, the
period in which the options are exercisable and the type of
options granted. The exercise price for the incentive stock
options shall not be less than 100 percent of the fair market
value of the common stock on the date of the grant.
The Formula Plan covers 100,000 shares of common stock.
Under the terms of the plan each member of the committee which
administers the Stock Incentive Plan is eligible to receive non-
qualified stock options pursuant to a formula set forth in the
plan. The exercise price for options granted shall be 30 percent
of the fair market value of the common stock on the date of the
grant. A committee of the Board of Directors has the authority
to determine, among other matters, the term of options and the
period during which the options are exercisable.
OPTIONS GRANTED IN THE LAST FISCAL YEAR
% of Total
Options
Granted to Exercise
Options Employees in Price Expiration
Name Granted FY 1995 ($/Share) Date
Larry E. Clark 600,000 57% $.30 10/31/2005
Richard Bruggeman 100,000 10% $.30 10/31/2005
See "Bank Loan" and "Director Compensation" for a
description of the terms of the 600,000 options granted to Larry
E. Clark.
The Board of Directors has granted non-qualified stock
options to Pearl World, corporate assistant secretary, and to
Scott R. Jenkins, outside counsel for the Company, in the amounts
of 50,000 and 100,000 shares, respectively. The options are
exercisable for $.385 per share for a period of 10 years. The
options are immediately exercisable and become non-forfeitable
after completion of one year of service and thereafter are not
cancelled if the grantee leaves the service of the Company.
AGGREGATED OPTIONS EXERCISED IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Value of Unexercised
Number of In-The-Money
Unexercised Options Options at Fiscal
Shares at Fiscal Year End Year End
Aquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
Larry E.
Clark 0 0 600,000/0 $36,000/0
Richard
Bruggeman 0 0 233,167/0 $30,725/0
The Company presently has no plan for the payment of any
annuity or pension retirement benefits to any of its officers or
directors, and no other remuneration payments, contingent or
otherwise, are proposed to be paid in the future to any officer
or director, directly or indirectly.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
The following table furnishes information concerning the
common stock ownership of directors, officers, and principal
shareholders as of April 4, 1996:
<PAGE>
Nature of Number of
Name and Position Ownership Shares Owned Percent
Larry E. Clark Direct 1,143,000 15.3%
Chairman, CEO Options 600,000 7.4%
Total 1,743,000 21.6%
=========
Allan L. Kaminsky Direct 808,875 10.8%
4602 S. Fortuna Way Options 435,000 5.6%
S.L.C., Utah 84124 Total 1,243,875 15.7%
Principal Shareholder =========
Paul J. Diehl Direct & Indirect 719,230 9.6%
2963 E. Fallentine Rd.
Sandy, Utah 84092
Principal Shareholder
Stephen Castleton Direct & Indirect 394,898 5.2%
3468 E. Brockbank Dr.
Holladay, Utah 84124
Principal Shareholder
John R. Merendino Options 100,000 1.3%
Director
David L. Dingman Options 100,000 1.3%
Director
Richard Bruggeman Direct & Indirect 72,720 1.0%
Director, Chief Options 233,167 3.0%
Financial Officer Total 305,887 4.0%
=======
All Executive Officers Direct & Indirect 1,215,720 16.3%
and Directors as a Options 1,033,167 12.1%
group (4 persons) Total 2,248,887 26.4%
=========
Shares shown in the forgoing table as directly owned are
owned beneficially and of record, and such record shareholder has
sole voting, investment, and dispositive power. Calculations of
the percentage of ownership of shares outstanding in the
foregoing table assumes the exercise or conversion of options, to
which the percentage relates. Percentages calculated for totals
assume the conversion or exercise of options, comprising such
totals.
Item 12. Certain Relationships and Related Transactions.
See "Bank Loan" for a description of a transaction between
the Company's President, Larry E. Clark, and the Company.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. S-K No. Description
(2) Letter of Intent dated September 29, 1993
between the Company and Clinical Innovation
Associates, Inc., incorporated by reference
to Form 8-K dated as of October 8, 1993
(2) Amendments to Letter of Intent dated as of
December 23, 1993 and March 11, 1994
(3) Articles of Incorporation and Bylaws
incorporated by reference to the exhibits to
Form 10-K for the year ended December 31,
1983
(3) Articles of Amendment to the Articles of
Incorporation of the Company changing the
Company's name to "InMedica Development
Corporation" incorporated by reference to
Exhibit 1 to Form 10-K for the year ended
December 31, 1984
(4) Articles of Amendment, dated June 16, 1995 to
the Articles of Incorporation of the Company
adopting a class of Preferred Stock,
incorporated by reference to Exhibit 1 to
Form 10-QSB for the period ended September
30, 1995
(4) Articles of Amendment, dated September 25,
1995 to the Articles of Incorporation of the
Company adopting a Series A Preferred Stock,
incorporated by reference to Exhibit 2 to
Form 10-QSB for the period ended September
30, 1995
(4) Convertible subordinated debenture dated June
28, 1991 incorporated by reference to Exhibit
1 to Form 10-K for the year ended December
31, 1991
(4) Convertible subordinated debenture dated
December 21, 1990 incorporated by reference
to Exhibit 1 to Form 10-K for the year ended
December 31, 1990
(10) Debenture Purchase Agreement between the
Company and purchasers dated June 28, 1992
incorporated by reference to Exhibit 2 to
Form 10-K for the year ended December 31,
1991
(10) Development and license agreement between
subsidiary MircoCor, Inc. and Critikon, Inc.,
dated July 18, 1989, incorporated by
reference to Exhibit 3 to Form 10-K for the
year ended December 31, 1991
(10) Debenture purchase agreement between the
Company and Paul J. Diehl, Randall J. Olson,
M.D. P.C., Retirement Trust, J. Lynn Smith,
David R. Thrasher, Eric C. Welling dated
December 21, 1990 incorporated by reference
to Exhibit 2 to Form 10-K for the year ended
December 31, 1990
(10) Plan and Agreement of Reorganization with
MicroCor dated June 21, 1985 incorporated by
reference to Exhibit 2 to the Company's Form
10-K for the year ended December 31, 1984
(10) Agreement for Capital Investment dated
December 12, 1984, with Alta Systems, Inc.
(now MicroCor, Inc.) incorporated by
reference to exhibits to the Company's 10-K
for the year ended December 31, 1984
(10) Agreement for Capital Investment dated
September 23, 1983 with Endotek Development
Laboratories, Inc. incorporated by reference
to exhibits to the Company's Form 10-K for
the year ended December 31, 1983
(10) Agreement for Capital Investment dated
November 21, 1983 with Bunnall, Inc.,
incorporated by reference to exhibits to the
Company's Form 10-K for the year ended
December 31, 1983
(10) Agreement between Raffensperger, Hughes & Co.
Incorporated and the Company and
Indemnification accepted June 13, 1994,
incorporated by reference to the Company's
Form 10QSB for the quarter ended June 30,
1994
(10) Agreement between MicroCor, Inc. and Johnson
& Johnson Medical, Inc. dated June 15, 1995,
incorporated by reference to Form 8-K dated
June 30, 1995
(10) Office Building Lease between InMedica
Development Corporation and PGP, LLC,
incorporated by reference to Form 8-K dated
June 30, 1995
(10) Settlement Agreement between Eric Welling and
InMedica Development Corporation dated
September 27, 1995, incorporated by reference
to Exhibit 3 of Form 10-QSB for the quarter
ended September 30, 1995
(10) Settlement Agreement between Clint Newman and
InMedica Development Corporation dated
September 25, 1995 and Addendum, incorporated
by reference to Exhibit 4 of Form 10-QSB for
the quarter ended September 30, 1995
(10) Settlement Agreement between J. Lynn Smith
and InMedica Development Corporation dated
September 25, 1995 and Addendum, incorporated
by reference to Exhibit 5 of Form 10-QSB for
the quarter ended September 30, 1995
(10) Commercial Security Agreement of Larry E.
Clark and InMedica Development Corporation,
incorporated by reference to Exhibit 6 of
Form 10-QSB for the quarter ended September
30, 1995
(10) Purchase and Settlement Agreement between
InMedica Development Corporation, Paul J.
Diehl, and Paul W. Ruben dated November 6,
1995, incorporated by reference to Exhibit 7
of Form 10-QSB for the quarter ended
September 30, 1995
1 (10) Settlement Agreement and Mutual Release
between Paul J. Diehl and InMedica
Development Corporation dated December 28,
1995
2 (10) Commercial Security Agreement dated September
15, 1995, of Larry E. Clark and InMedica
Development Corporation as Borrowers and
First Interstate Bank of Utah, N.A. as Lender
3 (10) Promissory Note of Larry E. Clark and
InMedica Development Corporation to First
Interstate Bank of Utah, N.A. dated August
22, 1995
4 (10) Agreement of InMedica Development Corporation
with Jordan Richard Assoc. dated March 21,
1996
5 (10) Conversion Agreement of InMedica Development
Corporation and Randall J. Olsen, M.D. dated
as of April 1, 1996
6 (10) Conversion Agreement of InMedica Development
Corporation and Les Berthy dated as of April
1, 1996
7 (10) Conversion Agreement of InMedica Development
Corporation and Donald Hodurski dated as of
April 10, 1996
(11) Statement regarding Computation of Per Share
Loss (see Consolidated Statements of
Operations for the years ended December 31,
1995 and 1994
(16) Letter regarding change in independent public
accountant incorporated by reference to
exhibit to the Company's Form 8-K filed
December 27, 1990
(21) Subsidiaries of the Company (MicroCor, Inc.,
a Utah corporation)
8 (27) Financial Data Schedule
(99) Proxy statement dated March 4, 1994 mailed to
shareholders in connection with a Special
Meeting called to consider the proposed
acquisition of Clinical Innovation
Associates, Inc., incorporated by reference
to the Company's Form 10-KSB for the year
ended December 31, 1993
(b) No reports on Form 8-K were filed during the fourth quarter
of the year ended December 31, 1995.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the Registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
INMEDICA DEVELOPMENT
CORPORATION
By /s/ Larry E. Clark
LARRY E. CLARK, President
/s/ Richard Bruggeman
Date: April 10 , 1996 RICHARD BRUGGEMAN,
Chief Financial Officer
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
/s/ Larry E. Clark
April 10, 1996 LARRY E. CLARK
Director
President and Principal
Executive Officer
/s/John R. Merendino
April 10 , 1996 JOHN R. MERENDINO
Director
/s/ Richard Bruggeman
April 10 , 1996 RICHARD BRUGGEMAN
Director
/s/David L. Dingman
April 10 , 1996 DAVID L. DINGMAN
Director
<PAGE>
EXHIBITS
Exhibits filed with the Form 10-KSB of InMedica Development
Corporation, SEC File No. 0-12968, for the year ended 12/31/95:
Exhibit No. SB Item No. Description
1 (10) Settlement Agreement and
Mutual Release between Paul J.
Diehl and InMedica Development
Corporation dated December 28,
1995
2 (10) Commercial Security Agreement
of Larry E. Clark and InMedica
Development Corporation as
Borrowers and First Interstate
Bank of Utah, N.A. as Lender.
3 (10) Promissory Note of Larry E.
Clark and InMedica Development
Corporation to First
Interstate Bank of Utah, N.A.
dated August 22, 1995.
4 (10) Agreement of InMedica
Development Corporation with
Jordan Richard Assoc. dated
March 21, 1996.
5 (10) Conversion Agreement of the
Company and Randall J. Olsen,
M.D. and the Company dated as
of April 1, 1996.
6 (10) Conversion Agreement of the
Company and Les Berthy and the
Company dated as of April 1,
1996.
7 (10) Conversion Agreement of the
Company and Donald Hodurski
and the Company dated as of
April 10, 1996.
8 (27) Financial Data Schedule<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schudule contains summary financial information extracted from the
financial statements of InMedica Development Corporation for the year ended
December 31, 1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 113732
<SECURITIES> 0
<RECEIVABLES> 227520
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 367968
<PP&E> 253115
<DEPRECIATION> (249045)
<TOTAL-ASSETS> 374234
<CURRENT-LIABILITIES> 349374
<BONDS> 422500
0
377478
<COMMON> 7484
<OTHER-SE> (782602)
<TOTAL-LIABILITY-AND-EQUITY> 374234
<SALES> 0
<TOTAL-REVENUES> 693440
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 494327
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137310
<INCOME-PRETAX> 133803
<INCOME-TAX> 0
<INCOME-CONTINUING> 133803
<DISCONTINUED> 0
<EXTRAORDINARY> 197901
<CHANGES> 0
<NET-INCOME> 331704
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
EXHIBIT 1
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
AN AGREEMENT made the 28th day of December, 1995 by and
between Paul J. Diehl, an individual, residing at 2963 E.
Fallentine Road, Salt Lake City, Utah 84092, (hereinafter "Diehl"
or "Holder") and InMedica Development Corporation, a Utah
corporation, with its principal place of business at 495 East
4500 South, Suite 230, Salt Lake City, Utah, (hereinafter,
"InMedica" or the "Company").
RECITALS
Whereas Diehl holds a Series A Convertible Debenture, in the
original face amount of $50,000, which he purchased from InMedica
(the "Debenture"); and
Whereas the Debenture by its terms is convertible to common
stock of the Company and such derivative rights to acquire common
stock of the Company are sufficient when aggregated with common
stock beneficially owned by Diehl, to require that Diehl be
subject to the reporting requirements of Section 16 of the
Securities Act of 1934 as a 10% or greater shareholder of the
Company; and
Whereas Diehl desires to surrender and immediately cancel
the Debenture and all derivative securities rights incident
thereto for the purpose of divesting himself of sufficient
ownership in InMedica to relieve him of the obligation to report
pursuant to the requirements of Section 16 of the Securities Act
of 1934 and is willing to accept in lieu of the Debenture, the
contractual obligation of the Company to pay him a settlement sum
of cash in exchange for the surrender of the Debenture; and
Whereas the Series A Debenture matured and was due and
payable on December 31, 1993 and the Company had insufficient
assets to retire the Debenture when due and the same is now due
and payable; and
Whereas the total principal amount owing to Diehl on the
Series A Debenture is $44,007, plus accrued interest of $1,650 as
of December 27, 1995; and
Whereas InMedica has numerous financial obligations and
Diehl desires to obtain a settlement of amounts owing to him on
the Debenture and is willing to compromise and settle the amounts
owing to him in consideration of the commitment of InMedica to
pay the sum provided herein within the time period allowed
herein; and
Whereas the Company and Diehl now desire to fully compromise
and settle all amounts owing under the Debenture and to grant a
mutual release to one another; and
Whereas Diehl 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
cancel the Debenture (including all Debenture conversion rights
with respect to common stock of the Company) and enter into this
settlement agreement and mutual general release provided herein;
NOW THEREFORE, in consideration of the mutual agreements
contained herein and the payment to be made by InMedica, the
parties agree as follows:
1. Settlement of Debenture Indebtedness. InMedica agrees
to pay Diehl $36,526 (80% of current outstanding principal and
accrued interest balance) not later than nine months from the
date of signing of this Settlement Agreement and Diehl agrees to
accept the $36,526 payment as full and complete satisfaction of
all sums owing to him under the Series A Debenture held by him,
including, but not limited to, full and complete settlement of
all principal and accrued interest owing to him. InMedica
further agrees to pay Diehl 10% (ten percent) interest on the
unpaid balance of the settlement payment until paid in full.
Diehl further agrees that the Series A Debenture held by him is
canceled effective as of his signature of this Agreement.
2. Mutual General Release. In consideration of the
foregoing commitment of InMedica and satisfaction of the Series A
Debenture, each party hereto unconditionally releases the other
from any and all claims, liabilities, damages, responsibilities
and obligations of every kind and nature, whatsoever, which
either of them had, have, may have or which may hereafter be
discovered against the other arising out of their relationship to
the date of this Agreement, including, but not limited to, any
and all claims which Diehl has based on his ownership of the
Series A Debenture; provided however, that the commitments and
obligations of InMedica and Diehl pursuant to this Agreement and
pursuant to that certain Purchase and Settlement Agreement
between them, which is dated November 6, 1995 are exempted from
the foregoing Mutual General Release. This Mutual General
Release on the part of Diehl extends to the officers, directors,
employees, subsidiaries, accountants, attorneys and agents of the
Company.
3. Disclosure Documents. Attached hereto are the following
documents constituting the publicly available disclosure and
additional material information regarding the Company:
Form 10-KSB for the Year Ended 12/31/94 ..........Exhibit A
Form 10-QSB for the Quarter Ended 9/30/95.........Exhibit B
Proxy Statement mailed May 25, 1995...............Exhibit C
Form 8-K Dated June 30, 1995, including Agreement
with Johnson and Johnson Medical, Inc.............Exhibit D
Articles of Incorporation of InMedica Development
Corporation, including Series "A"
Preferred Stock Amendment.........................Exhibit E
Bylaws of InMedica Development Corporation........Exhibit F
Form of Series A Debenture........................Exhibit G
Additional Material Information...................Exhibit H
4. General. (a) This agreement contains the entire
agreement between the parties on the subject matter hereof and
may only be changed or modified by written agreement between the
parties.
(b) This agreement may be executed in one or more
counterparts each of which shall be deemed to be an original and
all of which taken together shall constitute one and the same
agreement.
(c) Nothing herein shall be construed or interpreted to
support a finding that this Agreement is a security. The parties
hereto mutually agree that Diehl does not by this Agreement
acquire any right to profit or share in any profit derived from a
transaction in the securities of the Company and that this
Agreement does not afford him any direct or indirect pecuniary
interest in the equity securities of the Company.
IN WITNESS WHEREOF the parties have executed this agreement
as of the date first above written.
InMedica Development Corporation
/s/ Larry E. Clark
Larry E. Clark, President
/s/ Paul J. Diehl
Paul J. Diehl
<PAGE>
EXHIBIT 2
COMMERCIAL SECURITY AGREEMENT
Borrower: Larry E. Clark (SSN:###-##-####)
InMedica Development Corporation
1036 Oak Hills Way
Salt Lake City, Utah 84108
Lender: First Interstate Bank of Utah, N.A.
Corporate Banking
180 South Main Street
P.O. Box 30169 (84142)
Salt Lake City, Utah 84101
Grantor: InMedica Development Corporation (TIN:)
1036 Oak Hills Way
Salt Lake City, Utah 84108
THIS COMMERCIAL SECURITY AGREEMENT is entered into among
Larry E. Clark and InMedica Development Corporation (referred to
below as "Borrower"); InMedica Development Corporation (referred
to below as Grantor); and FIRST INTERSTATE BANK OF UTAH, N.A.
(referred to below as "Lender"). For valuable consideration,
Grantor hereby grants, conveys, assigns, and pledges to Lender as
collateral, a security interest in Grantor's entire interest in
the Collateral, whether now existing or hereafter acquired, to
secure the indebtedness and agrees that Lender shall have the
rights stated in this Agreement with respect to the Collateral,
in addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following
meanings when used in this Agreement. Terms not otherwise
defined in this Agreement shall have the meanings attributed to
such terms in the Uniform Commercial Code. All references to
dollar amounts shall mean amounts in lawful money of the United
States of America.
Agreement. The word "Agreement" means this Commercial
Security Agreement, as this Commercial Security Agreement
may be amended or modified from time to time, together with
all exhibits and schedules attached to this Commercial
Security Agreement from time to time.
Borrower. The word "Borrower" means each and every
person or entity signing the Note, including without
limitation Larry E. Clark and InMedica Development
Corporation.
Collateral. The word "Collateral" means the following
described property of Grantor, whether now owned or
hereafter acquired, whether now existing or hereafter
arising, and wherever located:
A certain licensing agreement between InMedica
Development Corporation and Johnson & Johnson Medical,
Inc. dated June 15, 1995.
In addition, the word "Collateral" includes the following,
whether now owned or hereafter acquired, whether now
existing or hereafter arising, and wherever located:
(a) All attachments, accessions, accessories, tools,
parts, supplies, increases, and additions to and all
replacements of and substitutions for any property
described above.
(b) All products and produce of any property described
in this Collateral section.
(c) All accounts, contract rights, general intangibles,
instruments, rents, monies, payments, and all other
rights, arising out of a sale, lease, or other
disposition of any of the property described in this
Collateral Section.
(d) All proceeds (including insurance proceeds) from
the sale, destructions, loss or other disposition of
any of the property described in this Collateral
section.
(e) All records and data relating to any of the
property described in this Collateral section, whether
in the form of a writing, photograph, microfilm,
microfiche, or electronic media, together with all of
Grantor's right, title and interest in and to all
computer software required to utilize, create,
maintain, and process any such records or data on
electronic media.
Event of Default. The words "Event of Default" mean
and include without limitation any of the Events of Default
set forth below in the section titled "Events of Default."
Grantor. The word "Grantor" means InMedica Development
Corporation. Any Grantor who signs this Agreement, but does
not sign the Note, is signing this Agreement only to grant a
security interest in Grantor's interest in the Collateral to
Lender and is not personally liable under the Note except as
otherwise provided by contract or law (eg., personal
liability under a guaranty or as a surety).
Guarantor. The word "Guarantor" means and includes
without limitation each and all of the guarantors, sureties,
and accommodation parties in connection with the
indebtedness.
Indebtedness. The word "Indebtedness" means the
indebtedness evidenced by the Note, including all principal
and interest, together with all other indebtedness and costs
and expenses for which Grantor or Borrower is responsible
under this Agreement or under any of the Related Documents.
Lender. The word "Lender" means FIRST INTERSTATE BANK
OF UTAH, N.A., its successors and assigns.
Note. The word "Note" means the note or credit
agreement dated September 15, 1995, in the principal amount
of $500,000.00 from Borrower to Lender, together with all
renewals of, extensions of, modifications of refinancings
of, consolidations of and substitutions for the note or
credit agreement.
Related Documents. The words "Related Documents" mean
and include without limitation all promissory notes, credit
agreements, loan agreements, environmental agreements,
guaranties, security agreements, mortgages, deeds of trust,
and all other instruments, agreements and documents, whether
now or hereafter existing, executed in connection with the
indebtedness.
BORROWER'S WAIVERS AND RESPONSIBILITIES. Except as otherwise
required under this Agreement or by applicable law, (a) Borrower
agrees that Lender need not tell Borrower about any action or
inaction Lender takes in connection with this Agreement; (b)
Borrower assumes the responsibility for being and keeping
informed about the Collateral; and (c) Borrower waives any
defenses that may arise because of any action or inaction of
Lender, including without limitation any failure of Lender to
realize upon the Collateral or any delay by Lender in realizing
upon the Collateral; and Borrower agrees to remain liable under
the Note no matter what action Lender takes or fails to take
under this Agreement.
GRANTOR'S REPRESENTATIONS AND WARRANTIES. Grantor warrants that:
(a) this Agreement is executed at Borrower's request and not at
the request of Lender; (b) Grantor has the full right, power and
authority to enter into this Agreement and to pledge the
Collateral to Lender; (c) Grantor has established adequate means
of obtaining from Borrower on a continuing basis information
about Borrower's financial condition; and (d) Lender has made no
representation to Grantor about Borrower or Borrower's
creditworthiness.
GRANTOR'S WAIVERS. Grantor waives all requirements of
presentment, protest, demand and notice of dishonor or non-
payment to Grantor, Borrower, or any other party to the
Indebtedness or the Collateral. Lender may do any of the
following with respect to any obligation of any Borrower, without
first obtaining the consent of Grantor; (a) grant an extension of
time for any payment, (b) grant any renewal, (c) permit any
modification of payment terms or other terms, or (d) exchange or
release any Collateral or other security. No such act or failure
to act shall affect Lender's rights against Grantor or the
Collateral.
If now or hereafter (a) Borrower shall be or become insolvent,
and (b) the indebtedness shall not at all times until paid be
fully secured by collateral pledged by Borrower, Grantor hereby
forever waives and relinquishes in favor of Lender and Borrower,
and their respective successors, any claim or right to payment
Grantor may now have or hereafter have or acquire against
Borrower, by subrogation or otherwise, so that at no time shall
Grantor be or become a "creditor" of Borrower within the meaning
of 11 U.S.C. Section 547(b), or any successor provision of the
Federal Bankruptcy laws.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual
possessory security interest in and hereby assigns, conveys,
delivers, pledges, and transfers all of Grantor's right, title
and interest in and to Grantor's accounts with Lender (whether
checking, savings, or some other account), including all accounts
held jointly with someone else and all accounts Grantor may open
in the future, excluding however all IRA, Keogh, and trust
accounts. Grantor authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all indebtedness against any
and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender
as follows:
Organization. Grantor is a corporation which is duly
organized, validly existing, and in good standing under the
laws of the State of Utah.
Authorization. The execution, delivery and performance
of this Agreement by Grantor has been duly authorized by all
necessary action by Grantor and do not conflict with, result
in a violation of, or constitute a default under (a) any
provision of its articles of incorporation or organization,
or bylaws, or any agreement or other instrument binding upon
Grantor of (b) any law, governmental regulation, court
decree, or order applicable to Grantor.
Perfection of Security Interest. Grantor agrees to
execute such financing statements and to take whatever other
actions are requested by Lender to perfect and continue
Lender's security interest in the Collateral. Upon request
of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and
Grantor will note Lender's interest upon any and all chattel
paper if not delivered to Lender for possession by Lender.
Grantor hereby appoints Lender as its irrevocable attorney-
in-fact for the purpose of executing any documents necessary
to perfect or to continue the security interest granted in
this Agreement. Lender may at any time, and without further
authorization from Grantor, file a carbon, photographic or
other reproduction of any financing statement or of this
Agreement for use as a financing statement. Grantor will
reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest
in the Collateral. Grantor promptly will notify Lender
before any change in Grantor's name including any change to
the assumed business names of Grantor.
No Violation. The execution and delivery of this
Agreement will not violate any law or agreement governing
Grantor or to which Grantor is a party, and its certificate
or articles of incorporation and bylaws do not prohibit any
term or condition of this Agreement.
Enforceability of Collateral. To the extent the
Collateral consists of accounts, chattel paper, or general
intangibles, the Collateral is enforceable in accordance
with its terms, is genuine, and complies with applicable
laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the
Collateral have authority and capacity to contract and are
in fact obligated as they appear to be on the Collateral.
Location of the Collateral. Grantor, upon request of
Lender, will deliver to Lender in form satisfactory to
Lender a schedule of real properties and Collateral
locations relating to Grantor's operations, including
without limitation the following: (a) all real property
owned or being purchased by Grantor; (b) all real property
being rented or leased by Grantor; (c) all storage
facilities owned, rented, leased, or being used by Grantor;
and (d) all other properties where Collateral is or may be
located. Except in the ordinary course of its business,
Grantor shall not remove the Collateral from its existing
locations without the prior written consent of Lender.
Removal of Collateral. Grantor shall keep the
Collateral (or to the extent the Collateral consists of
intangible property such as accounts, the records concerning
the Collateral) at Grantor's address shown above, or at such
other locations as are acceptable to Lender. Except in the
ordinary course of its business, including the sales of
inventory, Grantor shall not remove the Collateral from its
existing locations without the prior written consent of
Lender. To the extend that the Collateral consists of
vehicles, or other titled property, Grantor shall not take
or permit any action which would require application for
certificates of title for the vehicles outside the State of
Utah, without the prior written consent of Lender.
Transactions Involving Collateral. Except for
inventory sold or accounts collected in the ordinary course
of Grantor's business, Grantor shall not sell, offer to
sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement,
Grantor may sell inventory, but only in the ordinary course
of its business and only to buyers who qualify as a buyer in
the ordinary course of business. A sale in the ordinary
course of Grantor's business doe not include a transfer in
partial or total satisfaction of a debt or any bulk sale.
Grantor shall not pledge, mortgage, encumber or otherwise
permit the Collateral to be subject to any lien, security
interest, encumbrance, or charge, other than the security
interest provided for in this Agreement, without the prior
written consent of Lender. This includes security interests
even if junior in right to the security interests granted
under this Agreement. Unless waived by Lender, all proceeds
from any disposition of the Collateral (for whatever reason)
shall be held in trust for Lender and shall not be
commingled with any other funds; provided however, this
requirement shall not constitute consent by Lender to any
sale or other disposition. Upon receipt, Grantor shall
immediately deliver any such proceeds to Lender.
Title. Grantor represents and warrants to Lender that
it holds good and marketable title to the Collateral, free
and clear of all liens and encumbrances except for the lien
of this Agreement. No financing statement covering any of
the Collateral is on file in any public office other than
those which reflect the security interest created by this
Agreement or to which Lender has specifically consented.
Grantor shall defend Lender's rights in the Collateral
against the claims and demands of all other persons.
Collateral Schedules and Locations. Insofar as the
Collateral consists of inventory, Grantor shall deliver to
Lender, as often as Lender shall require, such lists,
descriptions, and designations of such Collateral as Lender
may require to identify the nature, extend and location of
such Collateral. Such information shall be submitted for
Grantor and each of its subsidiaries or related companies.
Maintenance and Inspection of Collateral. Grantor
shall maintain all tangible Collateral in good condition and
repair. Grantor will not commit or permit damage to or
destruction of the Collateral or any part of the Collateral.
Lender and its designated representatives and agents shall
have the right at all reasonable times to examine, inspect,
and audit the Collateral whenever located. Grantor shall
immediately notify Lender of all cases involving the return,
rejection, repossession, loss or damage of or to any
Collateral; of any request for credit or adjustment or of
any other dispute arising with respect to the Collateral;
and generally of all happenings and events affecting the
Collateral or the value or the amount of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when
due all taxes, assessments and liens upon the Collateral,
its use or operation, upon this Agreement, upon any
promissory note or notes evidencing the indebtedness, or
upon any of the other Related Documents. Grantor may
withhold any such payment or may elect to contest any lien
if Grantor is in good faith conducting an appropriate
proceeding to contest the obligation to pay and so long as
Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a
lien which is not discharged within fifteen (15) days,
Grantor shall deposit with Lender cash, a sufficient
corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of
the lien plus any interest, costs, reasonably attorneys'
fees or other charges that could accrue as a result of
foreclosure or sale of the Collateral. In any contest
Grantor shall defend itself and Lender and shall satisfy any
final adverse judgment before enforcement against the
Collateral. Grantor shall name Lender as an additional
obligee under any surety bond furnished in the contest
proceedings.
Compliance with Governmental Requirements. Grantor
shall comply promptly with all laws, ordinances, rules and
regulations of all governmental authorities, including
without limitation all environmental laws, ordinances, rules
and regulations, now or hereafter in effect, applicable to
the ownership, production, disposition, or use of the
Collateral. Grantor may contest in good faith any such law,
ordinance or regulation and withhold compliance during any
proceeding, including appropriate appeals, so long as
Lender's interest in the Collateral, in Lender's opinion, is
not jeopardized.
Hazardous Substances. Grantor represents and warrants
that the Collateral never has been, and never will be so
long as this Agreement remains a lien on the Collateral,
used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened
release of any hazardous waste or substance, as those terms
are defined in the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, 42
U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-
499 ("SARA), the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801, et seq. the Resource Conservation and
Recovery Act, 49 U.S.C. Section 6901, et seq., or other
applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. The terms
"hazardous waste" and "hazardous substance" shall also
include, without limitation, petroleum and petroleum by-
products or any fraction thereof and asbestos. The
representations and warranties contained herein are based on
Grantor's due diligence in investigating the Collateral for
hazardous wastes and substances. Grantor hereby (a)
releases and waivers any future claims against Lender for
indemnity or contribution in the event Grantor becomes
liable for cleanup or other costs under any such laws and
(b) agrees to indemnify and hold harmless Lender against any
and all claims and losses resulting from a breach of this
provision of this Agreement. This obligation to indemnify
shall survive the payment of the Indebtedness and the
satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall
procure and maintain all risks insurance, including without
limitation fire, theft and liability coverage together with
such other insurance as Lender may require with respect to
the Collateral, in form, amounts, coverages and basis
reasonably acceptable to Lender and issued by a company or
companies reasonably acceptable to Lender. Grantor, upon
request of Lender, will deliver to Lender from time to time
the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that
coverages will not be canceled or diminished without at
least ten (10) days' prior written notice to Lender and not
including any disclaimer of the insurer's liability for
failure to give such notice. Each insurance policy also
shall include an endorsement providing that coverage in
favor of Lender will not be impaired in any way by any act,
omission or default of Grantor or any other person. In
connection with all policies covering assets in which lender
holds or is offered a security interest, Grantor will
provide Lender with such loss payable or other endorsements
as Lender may require. If Grantor at any time fails to
obtain or maintain any insurance as required under this
Agreement, Lender may (but shall not be obligated to) obtain
such insurance as Lender deems appropriate, including if it
so chooses "single interest insurance," which will cover
only Lender's interest in the Collateral.
Application of Insurance Proceeds. Grantor shall
promptly notify Lender of any loss or damage to the
Collateral. Lender may make proof of loss if Grantor fails
to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including
accrued proceeds thereon, shall be held by Lender as part of
the Collateral. If Lender consents to repair or replacement
of the damaged or destroyed Collateral, Lender shall, upon
satisfactory proof of expenditure, pay or reimburse Grantor
from the proceeds for the reasonably cost of repair or
restoration. If Lender does not consent to repair or
replacement of the Collateral, Lender shall retain a
sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any
proceeds which have not been disbursed within six (6) months
after their receipt and which Grantor has not committed to
the repair or restoration of the Collateral shall be used to
repay the Indebtedness.
Insurance Reserves. Lender may require Grantor to
maintain with Lender reserves for payment of insurance
premiums, which reserves shall be created by monthly
payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the
premium due date, amounts at least equal to the insurance
premiums to be paid. If fifteen (15) days before payment is
due, the reserve funds are insufficient, Grantor shall upon
demand pay any deficiency to Lender. The reserve funds
shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may
satisfy by payment of the insurance premiums required to be
paid by Grantor as they become due. Lender does not hold
the reserve funds in trust for Grantor, and Lender is not
the agent of Grantor for payment of the insurance premiums
required to be paid by Grantor. The responsibility of the
payment of premiums shall remain Grantor's sole
responsibility.
Insurance Reports. Grantor, upon request of Lender,
shall furnish to Lender reports on each existing policy of
insurance showing such information as Lender may reasonably
request including the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy
(d) the property insured; (e) the then current value on the
basis of which insurance has been obtained and the manner of
determining that value; and (f) the expiration date of the
policy. In addition, Grantor shall upon request by Lender
(however not more often than annually) have an independent
appraiser satisfactory to Lender determine, as applicable,
the cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have
possession of the tangible personal property and beneficial use
of all the Collateral and may use it in any lawful manner not
inconsistent with this Agreement or the Related Documents,
provided that Grantor's right to possession and beneficial use
shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's
security interest in such Collateral. If Lender at any time has
possession of any Collateral, whether before or after an Event of
Default, Lender shall be deemed to have exercised reasonable care
in the custody and preservation of the Collateral if Lender takes
such action for that purpose as Grantor shall request or as
Lender, in Lender's sole discretion, shall deem appropriate under
the circumstances, but failure to honor any request by Grantor
shall not of itself be deemed to be a failure to exercise
reasonable care. Lender shall not be required to take any steps
necessary to preserve any rights in the Collateral against prior
parties, nor to protect, preserve or maintain any security
interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due,
Lender may (but shall not be obligated to) discharge or pay any
amounts required to be discharged or paid by Grantor under this
Agreement, including without limitation all taxes, liens,
security interests, encumbrances, and other claims, at any time
levied or place on the Collateral. Lender also may (but shall
not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or
paid by Lender for such purposes will then bear interest at the
rate charged under the Note from the date incurred or paid by
Lender to the date of repayment by Grantor. All such expenses
shall become a part of the indebtedness and, at Lender's option,
will (a) be payable on demand, (b) be added to the balance of the
Note and be apportioned among and be payable with any installment
payments to become due during either (i) the term of any
applicable insurance policy or (ii) the remaining term of the
Note, or (c) be treated as a balloon payment which will be due
and payable at the Note's maturity. This Agreement also will
secure payment of these amounts. Such right shall be in addition
to all other rights and remedies to which Lender may be entitled
upon the occurrence of an Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an
Event of Default under this agreement:
Default on Indebtedness. Failure of Borrower to make
any payment when due on the Indebtedness.
Environmental Default. Failure of any party to comply
with or perform when due any term, obligation, covenant or
condition contained in any environmental agreement executed
in connection with any Loan.
Other Defaults. Failure of Grantor or Borrower to
comply with or to perform any other term, obligation,
covenant or condition contained in this Agreement or in any
of the Related Documents or failure of Borrower to comply
with or to perform any term, obligation, covenant or
condition contained in any other agreement between Lender
and Borrower.
Death or Insolvency. The death of Grantor or Borrower
or the dissolution or termination of Grantor or Borrower's
existence as a going business, the insolvency of Grantor or
Borrower, the appointment of a receiver for any part of
Grantor or Borrower's property, any assignment for the
benefit of creditors, any type of creditor workout, or the
commencement of any proceeding under any bankruptcy or
insolvency laws by or against Grantor or Borrower.
Creditor or Forfeiture Proceedings. Commencement of
foreclosure or forfeiture proceedings, whether by judicial
proceeding, self-help, repossession or any other method, by
any creditor of Grantor or Borrower or by any governmental
agency against the Collateral or any other collateral
securing the Indebtedness. This includes a garnishment of
any of Grantor or Borrower's deposit accounts with Lender.
Events Affection Guarantor. Any of the preceding
events occurs with respect to any Guarantor of any of the
Indebtedness or such Guarantor dies or becomes incompetent.
Adverse Change. A material adverse change occurs in
Borrower's financial condition, or Lender believes the
prospect of payment or performance of the Indebtedness is
impaired.
Insecurity. Lender, in good faith, deems itself
insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs
under this Agreement, at any time thereafter, Lender shall have
all the rights of a secured party under the Utah Uniform
Commercial Code. In addition and without limitation, Lender may
exercise any one or more of the following rights and remedies:
Accelerate Indebtedness. Lender may declare the entire
Indebtedness, including any prepayment penalty which
Borrower would be required to pay, immediately due and
payable, without notice.
Assemble Collateral. Lender may require Grantor to
deliver to Lender all or any portion of the Collateral and
any and all certificates of title and other documents
relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a
place to be designated by Lender. Lender also shall have
full power to enter upon the property of Grantor to take
possession of and remove the Collateral. If the Collateral
contains other goods not covered by this Agreement at the
time of repossession, Grantor agrees Lender may take such
other goods, provided that Lender makes reasonable efforts
to return them to Grantor after repossession.
Sell the Collateral. Lender shall have full power to
sell, lease, transfer, or otherwise deal with the Collateral
or proceeds thereof in its own name or that of Grantor.
Lender may sell the Collateral at public auction or private
sale. Unless the Collateral threatens to decline speedily
in value or is of a type customarily sold on a recognized
market, Lender will give Grantor reasonable notice of the
time after which any private sale or any other intended
disposition of the Collateral is to be made. The
requirements of reasonably notice shall be met if such
notice is given at least ten (10) days before the time of
the sale or disposition. All expenses relating to the
disposition of the Collateral, including without limitation
the expenses of retaking, holding, insuring, preparing for
sale and selling the Collateral, shall become a part of the
Indebtedness secured by this Agreement and shall be payable
on demand, with interest at the Note rate from date of
expenditure until repaid.
Appoint Receiver. To the extent permitted by
applicable law, Lender shall have the following rights and
remedies regarding the appointment of a receiver: (a) Lender
may have a receiver appointed as a matter of right, (b) the
receiver may be an employee of Lender and may hereto are the following
documents constituting the publicly available disclosure and
additional material information regarding the Company:
Form 10-KSB for the Year Ended 12/31/94 ..........Exhibit A
Form 10-QSB for the Quarter Ended 9/30/95.........Exhibit B
Proxy Statement mailed May 25, 1995...............Exhibit C
Form 8-K Dated June 30, 1995......................Exhibit D
Articles of Incorporation of InMedica Development
Corporation, including Series "A"
Preferred Stock Amendment.........................Exhibit E
Bylaws of InMedica Development Corporation........Exhibit F
Form of Series A or C Debenture..................Exhibit G
Additional Material Information/Risk Factors......Exhibit H
3. General. (a) This agreement contains the entire
agreement between the parties on the subject matter hereof and
may only be changed or modified by written agreement between the
parties.
(b) This agreement may be executed in one or more
counterparts each of which shall be deemed to be an original and
all of which taken together shall constitute one and the same
agreement.
IN WITNESS WHEREOF the parties have executed this agreement
as of the date first above written.
InMedica Development Corporation
/s/ Donald F. Hodurski /s/ Larry E. Clark
Holder Larry E. Clark, President<PAGE>
