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, 1997
Commission File No. 0-12968
INMEDICA DEVELOPMENT CORPORATION
Utah 87-0397815
- --------------------------------------------------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
825 North 300 West
Salt Lake City Utah 84103
(801) 521-9300
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 [X]
Issuer's revenues for its most recent fiscal year: $ 420,960
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of March 9, 1998 was approximately $2,357,752.1 The number of
shares outstanding of the issuer's common stock, $.001 par value, as of March 9,
1998 was 8,550,899.
DOCUMENTS INCORPORATED BY REFERENCE: None
- --------
1 - Based on 4,811,739 non-affiliate shares at $.49 per share, which was
the average of the bid and asked price on that date.
<PAGE>
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. 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 "Results of Operations").
Retirement of Certain Debt. During the fiscal years ended December 31,
1995 and 1996, the Company refinanced, settled or repaid $1,100,000 in debenture
debt by making cash payments of approximately $516,604 and issuing 25,356 shares
of preferred stock and 515,329 shares of restricted common stock (after
considering the conversion of 58,528 additional shares of preferred stock into
restricted common stock). In connection with the repayment of debenture debt,
the Company obtained a bank loan for $500,000 from First Interstate Bank secured
by the credit and assets of Larry E. Clark, Chief Executive Officer of the
Company, and by the royalty contract with Johnson & Johnson Medical, Inc.
During June 1997, Mr. Clark retired the outstanding balance of the
Company's bank loan (on which he was a co-obligor) with proceeds of a new loan
in the amount of $355,000 and the Company signed a note to Mr. Clark for the
amount of the pay-off and a Line of Credit Loan Agreement (the "Agreement")
pursuant to which Mr. Clark agreed to loan the Company up to $450,000, including
the amount of the pay-off. Loans by Mr. Clark to the Company pursuant to the
Agreement are to be upon terms not less favorable than the terms of a loan
obtained concurrently by Mr. Clark from Bank One Utah NA. In connection with the
refinancing of the Company's bank loan, all collateral securing the original
bank debt, including the J & J Medical, Inc. royalty contract dated June 15,
1995 and collateral which had been supplied by Mr. Clark, was released. The
Company then granted to Mr. Clark a security interest in the J & J Medical, Inc.
royalty agreement as security for repayment of loans from Mr. Clark pursuant to
the Agreement. The interest rate pursuant to the Agreement with Mr. Clark is
less than that previously paid by the Company on the bank loan. Following
periodic payments against the loan balance and a $135,000 payment on the loan
balance following the exercise of stock options by Mr. Clark (see "Executive
Compensation"), the outstanding balance on the loan owed to Mr. Clark by the
Company is $145,000 as of March 26, 1998.
Preferred Stock. See Note 4 to the Consolidated Financial Statements for
2
<PAGE>
information regarding the preferred stock of the Company. The Company has five
preferred stockholders holding an aggregate of 25,356 shares of the Series A
Preferred Stock. Total aggregate dividends payable on the preferred stock
outstanding is $9,128 per year.
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 prior agreement with Critikon, Inc. 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 a
nonexclusive worldwide license to the technology. Under the terms of the new
Agreement, the Company began receiving an increased per unit royalty rate
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 MicroCor 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.
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 Company's income is generated exclusively
from the agreement with Johnson & Johnson Medical, Inc. (see "Results of
Operations").
3
<PAGE>
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 eight 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.
For several years, the Company conducted research and development in-house,
under the direction of Dr. Allan Kaminsky, former president of the Company.
Subsequently, the Company engaged outside consultants to work on the project
including Paul W. Ruben and the Northern Ireland Bio-Engineering Centre.
During May, 1997, the Company employed Dr. Gail Billings, a bio-medical
researcher and, effective August 29, 1997, the Company engaged Medical Physics,
Inc., a biomedical research company located in Salt Lake City, Utah to conduct
further research and development on the project. The Company agreed to pay
Medical Physics $11,111 per month for nine months and granted options to Medical
Physics to purchase 54,000 shares of the common stock of the Company for $.73
per share, exercisable for three years. The Company also granted Medical Physics
options to purchase an additional 54,000 shares for $.73 per share for a period
of three years from the date, not later than May 30, 1998, on which Medical
Physics demonstrates a hematocrit measuring device to InMedica which measures
human hematocrit with an accuracy of plus or minus 3.5 hematocrit points through
all ranges from 20 to 60.
Beginning December, 1997, the Company began paying Medical Physics
approximately $15,000 per month for research services. Effective March 1, 1998,
the Company and Medical Physics modified their agreement to provide that Medical
Physics do the following: (1) accept a total of 25,000 restricted shares of
common stock and $10,000 per month as compensation during the period March,
4
<PAGE>
April and May 1998, and (2) conduct such demonstrations of the hematocrit device
during April and May 1998 as InMedica may direct. Dr. Billings and Medical
Physics continue work on the research and development of the project and there
is no assurance that a commercially viable hematocrit measuring device can be
developed.
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 and the Patent issued on June 18, 1996 and has
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". The
second patent has been allowed and is expected to issue in due course. The
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, 1997 and 1996, were $165,803 and $155,885,
respectively. None of the expenses were incurred on customer-sponsored research
activities relating to the development of new products.
Employees. InMedica and MicroCor had three part time and one full time
employee(s) as of December 31, 1997. Effective May 9, 1997, InMedica Development
Corporation (the "Company") employed Robert Gail Billings to conduct research
and development on the Company's hematocrit project. The Company paid Dr.
Billings $8,333.33 per month for his services through February 1998. During
March 1998, Dr. Billings agreed to receive compensation of $4,000 cash per month
and a total of 20,000 restricted shares of common stock as the balance of his
compensation for the months of March, April and May 1998.
5
<PAGE>
Item 2. Properties
----------
Office. The Company presently uses facilities provided by Medical Physics,
Inc., at no cost, for its offices.
Item 3. Legal Proceedings.
------------------
During the third quarter of 1996 a former officer of the Company, Allan L.
Kaminsky, threatened to bring legal proceedings affecting the Company or a proxy
contest to obtain control of the Company. Among other things, Dr. Kaminsky
objected to the number of options issued to officers, directors, employees and
consultants of the Company. At a board meeting held July 31, 1996, the Company
voluntarily reduced the number of options by 25% effective August 1, 1996,
bringing the total options granted down from 1,100,000 to 825,000. Dr. Kaminsky
thereafter offered to continue to be associated with the Company on terms which
were subsequently rejected by the Board of Directors after due consideration. On
September 17, 1996, Dr. Kaminsky advised the Company that his offer to negotiate
had expired, that he had no further association (employment, consulting or
advisory) with InMedica/MicroCor, other than being a passive shareholder and
that his action was permanent and irreversible.
At the Company's annual shareholder meeting held August 29, 1997, Company
personnel advised the shareholders that they believed notice of meeting had been
inadequate due to inadvertent failure to mail notice to beneficial owners of
stock held in street name, although there appeared to be sufficient shares
present to constitute a quorum and ballots were accepted at the meeting. The
following week the Company mailed a letter to shareholders advising them that
the meeting would be rescheduled.
Following the mailing, Dr. Kaminsky demanded through his attorney that the
Company disclose the results of the tallies of the August 29, 1997 ballots and
proxies under threat of litigation. He also claimed the meeting was valid and
that proper notice had been given. After reviewing the matter, the Company
disclosed the results of the meeting and concluded that the incumbent Board of
Directors had been re-elected at the meeting by a plurality of the shares
present and voting at the meeting. Dr. Kaminsky continues to be a principal
shareholder of the Company (see "Security Ownership of Certain Beneficial Owners
and Management").
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.
6
<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, 1996 $ 1.00 $ .13
June 30, 1996 1.88 1.00
September 30, 1996 1.69 .81
December 31, 1996 1.00 .50
March 31, 1997 .75 .34
June 30, 1997 .44 .34
September 30, 1997 .47 .25
December 31, 1997 .38 .25
As of March 9, 1998, there were approximately 509 record holders of
InMedica Common Stock. Such record holders do not include individual
participants in securities position listings. The Company also has 5 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, 1997 and 1996, liquidity was generated
from royalty income received from Johnson & Johnson Medical, Inc. ("JJMI").
7
<PAGE>
This income source may not be sufficient to provide liquidity needs over time
and may be inadequate to retire debt when it comes due and fund continued
research and development. The Company's line of credit agreement with its Chief
Executive Officer expires on June 22, 1998, however the agreement is expected to
be extended for an additional year. InMedica intends to continue to look for
other funding sources as to which it has no commitments.
A principal asset of the Company, the royalty agreement with JJMI, has been
pledged to secure repayment of the $170,000 debt owed to the Company's Chief
Executive Officer (which was reduced to $145,000 after fiscal year end). Funds
invested in other potential assets of the Company such as the hematocrit device
have been expensed as research and development and the ability of the Company to
use the device as a means of securing funding for the Company is totally
dependent upon the success of further research and development efforts in
producing a viable device suitable for commercialization.
Results of Operations
InMedica achieved profitable operations during the years ended December 31,
1996, 1995 and 1994, but had an accumulated deficit of $
d December 31, 1997 and 1996 royalty revenue totaled $420,960 and $728,800,
respectively. InMedica cannot predict how long and how much royalty revenue it
may receive from JJMI. Future royalty revenue is dependent upon the continued
sales of the product line by JJMI which includes MicroCor's base technology.
Royalties during the last year declined 42% when compared with 1996.
The net loss of $153,609 for the year ended December 31, 1997 compared to
the net income of $159,381 for 1996, resulted primarily from a $307,840 decrease
in royalty revenues and from recording $103,400 of expense related to stock
options issued as compensation for services rendered as described above.
However, the Company did meet all its debt service, research and development and
administrative expenditure requirements from existing cash, cash flows from
operating activities, and proceeds from issuance of common stock. Both general
and administrative and research and development expenses remained relatively
constant from 1996 to 1997.
8
<PAGE>
Item 7. Financial Statements Beginning at Page
-------------------- -----------------
Report of Independent Public Accountants F-1
Consolidated Balance Sheet as of December 31, 1997 F-2
Consolidated Statements of Operations for the
years ended December 31, 1997 and 1996 F-3
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1997 and 1996 F-4
Consolidated Statements of Cash Flows for the
years ended December 31, 1997 and 1996 F-5
Notes to Consolidated Financial Statements F-7
9
<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,
1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years ended December 31, 1997 and 1996. 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, 1997, and the results of their
operations and their cash flows for the years ended December 31, 1997 and 1996
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, the Company generated a net loss of $153,609
during 1997 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. As of December 31, 1997, the Company had an
accumulated deficit of $6,830,410. 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.
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
March 16, 1998
F-1
<PAGE>
<TABLE>
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
<CAPTION>
ASSETS
CURRENT ASSETS:
<S> <C>
Cash $ 138,429
Royalties receivable 67,200
Prepaid expenses and other 18,463
---------------------
Total current assets 224,092
EQUIPMENT AND FURNITURE, at cost, less accumulated
depreciation of $250,555 2,434
OTHER ASSETS 2,196
---------------------
Total assets $ 228,722
=====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to related party $ 170,000
Consulting fees payable to related party 21,665
Accrued interest payable to related party 4,752
Accrued payroll 6,944
Accounts payable 1,031
---------------------
Total current liabilities 204,392
---------------------
COMMITMENTS AND CONTINGENCIES (Notes 1 and 6)
STOCKHOLDERS' EQUITY:
Preferred stock, 10,000,000 shares authorized; Series A preferred stock,
cumulative and convertible, $4.50 par value, 1,000,000 shares designated,
25,356 shares outstanding
(aggregate liquidation preference of $114,102) 114,102
Common stock, $.001 par value; 20,000,000 shares authorized;
8,550,899 shares outstanding 8,551
Additional paid-in capital 6,732,087
Accumulated deficit (6,830,410)
---------------------
Total stockholders' equity 24,330
=====================
Total liabilities and stockholders' equity $ 228,722
=====================
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of this
consolidated balance sheet.
F-2
<PAGE>
<TABLE>
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<CAPTION>
1997 1996
------------------ ------------------
<S> <C> <C>
ROYALTY REVENUES $ 420,960 $ 728,800
------------------ ------------------
OPERATING EXPENSES:
General and administrative 381,183 361,757
Research and development 165,803 155,885
------------------ ------------------
Total operating expenses 546,986 517,642
------------------ ------------------
(LOSS) INCOME FROM OPERATIONS (126,026) 211,158
------------------ ------------------
OTHER INCOME (EXPENSE):
Interest (28,768) (50,140)
Miscellaneous 1,185 (1,637)
------------------ ------------------
Total other expense, net (27,583) (51,777)
------------------ ------------------
NET (LOSS) INCOME (153,609) 159,381
PREFERRED STOCK DIVIDENDS (9,128) (22,005)
------------------ ------------------
NET (LOSS) INCOME APPLICABLE TO COMMON STOCKHOLDERS
$ (162,737) $ 137,376
================== ==================
NET (LOSS) INCOME PER COMMON SHARE $ (.02) $ .02
(BASIC AND DILUTED)
================== ==================
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of this
consolidated balance sheet.
F-3
<PAGE>
<TABLE>
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<CAPTION>
Series A
Common Stock Preferred Stock
Shares Amount Shares Amount
--------------------------- --------------------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995 7,483,903 $ 7,484 83,884 $ 377,478
Conversion of preferred stock to
common stock 351,168 351 (58,528) (263,376)
Conversion of debentures to common
stock 164,161 164 - -
Issuance of options to nonemployees
- - - -
Preferred stock dividends - - - -
Net income - - - -
--------------- ----------- ------------ -------------
BALANCE, December 31, 1996 7,999,232 7,999 25,356 114,102
Stock options exercised 551,667 552 - -
Stock options granted for
services rendered - - - -
Preferred stock dividends - - - -
Net loss - - - -
--------------- ----------- ------------ -------------
BALANCE, December 31, 1997 8,550,899 $ 8,551 25,356 $ 114,102
=============== =========== ============ =============
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity (Deficit)
------------------- ------------------- ---------------------
<S> <C> <C> <C>
BALANCE, December 31, 1995 $ 6,022,447 $ (6,805,049) $ (397,640)
Conversion of preferred stock to
common stock 263,025 - -
Conversion of debentures to common
stock 122,955 - 123,119
Issuance of options to nonemployees
73,942 - 73,942
Preferred stock dividends - (22,005) (22,005)
Net income - 159,381 159,381
------------------- ------------------- ---------------------
BALANCE, December 31, 1996 6,482,369 (6,667,673) (63,203)
Stock options exercised 146,318 - 146,870
Stock options granted for
services rendered 103,400 - 103,400
Preferred stock dividends - (9,128) (9,128)
Net loss - (153,609) (153,609)
------------------- ------------------- ---------------------
BALANCE, December 31, 1997 $ 6,732,087 $ (6,830,410) $ 24,330
=================== =================== =====================
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of this
consolidated balance sheet.
F-4
<PAGE>
<TABLE>
<CAPTION>
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Increase (Decrease) in Cash
1997 1996
------------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (153,609) $ 159,381
Adjustments to reconcile net (loss) income to net cash provided by
operating activities-
Depreciation and amortization 1,494 716
Expense related to stock options issued as compensation for services
rendered 103,400 73,942
Gain on sale of equipment and furniture (700) -
Change in assets and liabilities-
Decrease in royalties receivable 142,080 18,240
Decrease in prepaid expenses and other 3,877 4,376
Increase (decrease) in accounts payable 1,031 (3,652)
Increase (decrease) in accrued payroll (2,294) 1,222
Increase (decrease) in accrued interest (3,843) 552
Increase (decrease) in consulting fees payable
to related party (17,335) 39,000
------------------- ------------------
Net cash provided by operating activities 74,101 293,777
------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment and furniture 1,500 -
Purchase of equipment and furniture - (1,374)
------------------- ------------------
Net cash provided by (used in) investing activities 1,500 (1,374)
------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 146,870 -
Principal payments on note payable to related parties (185,000) (138,526)
Principal payments on notes payable (67,500) (50,000)
Preferred stock dividends (9,128) (22,005)
Principal payments on convertible debentures due
to related parties - (18,018)
------------------- ------------------
Net cash used in financing activities (114,758) (228,549)
------------------- ------------------
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of this
consolidated balance sheet.
F-5
<PAGE>
<TABLE>
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Increase (Decrease) in Cash
<CAPTION>
1997 1996
------------------- ------------------
<S> <C> <C>
NET (DECREASE) INCREASE IN CASH $ (39,157) $ 63,854
CASH AT BEGINNING OF THE YEAR 177,586 113,732
------------------- ------------------
CASH AT END OF THE YEAR $ 138,429 $ 177,586
=================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 32,611 $ 49,588
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During 1997, the Company's President paid a $355,000 note payable owed by the
Company to a bank in exchange for the Company entering into a note
agreement for the same amount with the President.
During 1996, certain holders of convertible debentures converted $123,119 of
principal and accrued interest related to the debentures into 164,161
shares of common stock.
During 1996, certain holders of Series A preferred stock converted 58,528
shares of preferred stock into 351,168 shares of common stock.
The accompanying notes to consolidated financial
statements are an integral part of this
consolidated balance sheet.
F-6
<PAGE>
INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
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.
Since 1989, the Company has engaged in research and development of a device to
measure hematocrit non-invasively (the "Non-Invasive Hematocrit Technology").
During 1996, the Company was issued patent No. 5526808 related to certain
aspects of its Non-Invasive Hematocrit Technology. Additionally, a patent
application was allowed in November 1996 related to this technology. 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. Commercialization of the
Non-Invasive Hematocrit Technology is dependent upon favorable testing, Food and
Drug Administration approval, financing of further research and development and,
if warranted, financing of manufacturing and marketing activities.
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. The
Company generated a net loss of $153,609 during 1997 and as of December 31,
1997, the Company had an accumulated deficit of $6,830,410. 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.
F-7
<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
Equipment and furniture 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 or loss. The costs of major
additions and improvements are capitalized while the cost of maintenance and
repairs are charged to expense as incurred.
Equipment and furniture consisted of the following at December 31, 1997.
Equipment $ 242,260
Furniture 10,729
---------------------
252,989
Less accumulated depreciation (250,555)
---------------------
$ 2,434
=====================
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 $248,700 of fully
depreciated equipment and furniture.
Net Income (Loss) Per Common Share
The net income (loss) 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. Preferred stock dividends
are deducted from net income (loss) in calculating net income (loss) per common
share.
Basic net income per common share ("Basic EPS") excludes dilution and is
computed by dividing net income by the weighted-average number of common shares
outstanding during the year. Diluted net income per common share ("Diluted EPS")
reflects the potential dilution that could occur if stock options or other
common stock equivalents were exercised or converted into common stock. The
F-8
<PAGE>
computation of Diluted EPS does not assume exercise or conversion of securities
that would have an antidilutive effect on net income per common share.
At December 31, 1997 and 1996, there were outstanding options to purchase
862,500 and 338,500 shares of common stock, respectively, which were not
included in the computation of Diluted EPS because they would be anti-dilutive.
The following is a reconciliation of the components of the weighted average
number of common shares outstanding for the years ended December 31, 1997 and
1996.
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
<S> <C> <C>
Weighted average number of common shares
outstanding for Basic EPS 8,164,527 7,728,803
Effect of stock options - 684,467
----------------- -----------------
Weighted average number of common shares
outstanding for Diluted EPS 8,164,527 8,413,270
================= =================
</TABLE>
Income Taxes
The Company accounts for income taxes 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.
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.
Fair Value of Financial Instruments
The book value of the Company's financial instruments approximates fair value.
The estimated fair values have been determined using appropriate market
information and valuation methodologies.
F-9
<PAGE>
2. INCOME TAXES
As of December 31, 1997, deferred income tax assets consisted of the following:
Net operating loss carryforwards $ 1,057,374
Future deductible temporary differences
related to compensation, reserves and
accruals 174,232
Less: valuation allowance (1,231,606)
---------------------
Net deferred income tax asset $ -
=====================
At December 31, 1997, the Company has consolidated net operating loss
carryforwards ("NOLs") for federal income tax purposes of approximately
$2,643,000. These NOLs expire at various dates through December 31, 2009. 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 NOLs.
For example, limitations are imposed on the utilization of NOLs if certain
ownership changes have taken place or will take place. A valuation allowance is
provided when it is more likely than not that all or some portion of the
deferred income tax asset will not be realized. Due to the uncertainty with
respect to ultimate realization, the Company established a valuation allowance
for the entire deferred income tax asset.
The Company utilized approximately $159,000 of NOLs in 1996, and therefore,
recorded no federal or state income tax provisions for 1996.
3. STOCK OPTIONS
With respect to employees and directors, the Company accounts for its stock
incentive plan, formula stock option plan and certain options granted outside
the plans under APB Opinion No. 25. Had compensation cost for these plans been
determined consistent with Statement on Financial Accounting Standards ("SFAS")
No.
123, the Company's net (loss) income and Basic and Diluted EPS would have been
amended as follows:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
<S> <C> <C>
Net (loss) income applicable to common stock:
As reported $ (162,737) $ 137,376
Pro forma (183,362) 137,376
Basic and diluted EPS:
As reported (.02) .02
Pro forma (.02) .02
</TABLE>
F-10
<PAGE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997: risk-free interest rate of 6.04 percent; no
expected dividend yield; expected life of 3 years; expected volatility of 111
percent. There were no employee option grants in 1996.
Stock Incentive Plan
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 the Internal Revenue Code 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, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
-------------------------------- -------------------------------
Wtd. Avg. Wtd. Avg.
Exercise Prices Exercise Prices
Shares Shares
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Shares under option, beginning of year, at prices
ranging from $.08 to $1.00 per share 152,445 $ .26 587,445 $ .51
Options granted at a price of $.60 per share 31,500 .60 - -
Options exercised at prices ranging from $.08 to $.15
per share (101,667) .12 - -
Options forfeited at prices ranging from $.15 to $.60
per share (50,778) .55 (435,000) .60
---------------- ---------------
Shares under option, end of year, ( $.60 per share for
1997) 31,500 $ .60 152,445 $ .26
================ ===============
</TABLE>
All of the 31,500 options outstanding and exercisable at December 31, 1997 have
exercise prices at $.60 and a remaining contractual life of 4.5 years.
F-11
<PAGE>
At December 31, 1997, options for the purchase of 1,031,547 shares were
available for granting under the Stock Incentive Plan.
Formula Stock Option 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 or exercised under the Formula Plan during the
years ended December 31, 1997 and 1996. At December 31, 1997, there were no
shares under option under the Formula Plan and options for the purchase of
95,500 shares were available for granting.
Other Stock Options
During 1995, the Company granted nonqualified options for the purchase of
1,050,000 shares of common stock at prices ranging from $.30 to $.39 with a
weighted average exercise price of $.32. The options were granted 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 a Company
bank loan described in Note 5. All options granted during 1995 vested
immediately upon granting and are exercisable through 2005. During 1996, these
option grants were reduced to 788,500 by resolution of the board of directors of
the Company. During 1997, 450,000 options were exercised at $.30 per share and
the Company received $135,000. As of December 31, 1997, 338,500 options are
outstanding and exercisable with exercise prices ranging from $.30 to $.39, with
a weighted average exercise price of $.33 and a weighted average remaining
contractual life of 7.8 years.
During 1996, the Company granted nonqualified options for the purchase of
338,500 shares of common stock at prices ranging from $1.16 to $1.22 per share
with a weighted average exercise price of $1.17. The shares were issued to
consultants to the Company. A total of 38,500 of these nonqualified options
vested immediately upon granting and are exercisable through 2006. A total of
300,000 of these nonqualified options were issued in consideration for
engineering work related to the Company's Non-Invasive Hematocrit Technology. A
total of 200,000 of the 300,000 shares vest through September 1, 1998. The
remaining 100,000 options vest upon completion of satisfactory clinical trials
related to the Company's Non-Invasive Hematocrit Technology. At December 31,
1997, 125,000 of the 300,000 options were vested. The Company recorded
compensation expense in 1997 and 1996 of $89,000 and $73,942, respectively,
related to the granting of the 338,500 options. Total compensation expense to be
recorded over the vesting period of two years is $222,275. The weighted average
remaining contractual life of these options is 4.2 years.
F-12
<PAGE>
During 1997, the Company granted to consultants and one employee nonqualified
options for the purchase of a total of 154,000 shares of common stock with an
exercise price of $.73. A total of 100,000 of the 154,000 options vested
immediately upon granting. The remaining 54,000 options become exercisable for a
period of three years from the completion date (not later than May 30, 1998) of
satisfactory clinical trials related to the Company's Non-Invasive Hematocrit
Technology. During 1997, the Company recorded $14,400 in expense related to the
options issued to consultants. The options expire in August 2000.
4. 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 have the right to convert each share
of Series A Preferred to the Company's common stock at $3.00 per common share.
During 1996, certain Series A Preferred stockholders converted 58,528 shares of
preferred stock to 351,168 shares of common stock.
5. NOTE PAYABLE TO RELATED PARTY
During 1997, the Company's President paid a $355,000 note payable owed by the
Company to a bank (on which the President was the co-obligor) and the Company
entered into a line of credit loan agreement (the "Agreement") with the
President, and borrowed an initial amount thereunder of $355,000. The Agreement
provides for the Company to borrow up to a maximum amount of $450,000 through
June 22, 1998. Borrowings under the Agreement carry terms that are not less
favorable than the terms of a loan that the President has with a bank which loan
was used by the President to fund the advance under the Agreement to the
Company. As of December 31, 1997, outstanding principal and interest under the
Agreement was $170,000 and $4,752, respectively. All outstanding borrowings
accrue interest at a bank's prime rate (8.5 percent at December 31, 1997) plus
.25 percent. The Company is required to make minimum principal payments of
$12,500 and any unpaid balance is due June 22, 1998. The Agreement is secured by
the Company's royalty stream from the Johnson and Johnson agreement (see Note
1).
6. COMMITMENTS
During 1997 and 1996, the Company granted stock options to consultants which
vest upon the consultants demonstrating satisfactory achievements related to the
development of the Company's Non-Invasive Hematocrit Technology (see Note 3).
Under one of the consulting agreements, the Company has agreed to pay
approximately $60,000 in cash for services to be rendered through May 1998.
F-13
<PAGE>
7. RELATED-PARTY TRANSACTIONS
During 1997, the Company incurred interest expense of $11,011 on a related party
note payable (see Note 5).
The Company has a consulting arrangement with an entity owed by the Company's
President whereby the Company paid $4,333 per month during 1997. The arrangement
can be terminated by either party at any time. As of December 31, 1997, $21,665
was owed under the arrangement.
During 1996, the Company paid $569 of interest to holders of related-party
convertible debentures.
8. SUBSEQUENT EVENT
Effective March 1, 1998, the Company issued 45,000 shares of restricted common
stock for services. Of the total shares issued, 20,000 shares were issued to an
employee as compensation, and the remaining 25,000 shares were issued to a
consultant for research and development services.
F-14
<PAGE>
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 76 1995
John R. Merendino 59 1995
David L. Dingman 61 1995
Richard Bruggeman 42 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
10
<PAGE>
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.
ROBERT GAIL BILLINGS - Dr. Billings, age 63, has been employed by the Company
since May 1997, to conduct research and development on its hematocrit project.
From 1992 until 1997, Dr. Billings was employed as Vice President for Research
and Development of Utah Medical Products, Inc., a Salt Lake City based publicly
held company specializing in medical technology. Prior to that time, he was
employed as an engineer for Utah Medical in research and development. From 1976
until 1990, he was Vice President of Research and Development for Tenet
Information Services of Salt Lake City, which was engaged in the development of
computer systems and software for pulmonary function test analysis. During the
11
<PAGE>
period 1971-1976, he conducted medical research for Primary Children's Medical
Center, Salt Lake City, Utah as a graduate student and later as a post-doctoral
fellow. Prior to that time he was employed for 15 years in the aerospace
industry. He holds a BS in Electrical Engineering from the University of Utah
(1956), an MS in Electrical Engineering from Utah State University (1965) and a
PhD in Biophysics from the University of Utah (1975).
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, 1997 all Section 16(a) filing requirements applicable to
officers, directors and greater than ten percent shareholders were complied
with.
Item 10. Executive Compensation.
-----------------------
Executive Compensation. No executive officer of the Company has received
compensation during the three fiscal years ended December 31, 1997, except as
disclosed in the table below:
<TABLE>
<CAPTION>
Annual Compensation
Long Term
Compensation Awards
Name Year Salary Bonus Common Stock underlying Options Other
---- -------- ----- ------------------------------- -----
<S> <C> <C> <C> <C> <C>
Larry E. Clark (CEO) 1997 $ - - - $51,996*
Larry E. Clark (CEO) 1996 $39,000 - - -
Larry E. Clark (CEO) 1995 $ - - 450,000 -
</TABLE>
* - includes consulting fees paid ($30,331) and consulting fees accrued
($21,665) for payment to a corporation owned by Larry E. Clark.
Director Compensation. Directors may be compensated at the rate of $100 for
attendance at each board meeting, but did not receive compensation for meetings
in 1997 and 1996.
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
12
<PAGE>
(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.
The following tables show certain information regarding stock options
granted to and exercised by officers named in the executive compensation table:
OPTIONS GRANTED IN THE LAST FISCAL YEAR
% of Total
Options
Granted to Exercise
Options Employees in Price Expiration
Name Granted FY 1997 ($/Share) Date
---- ------- ------------ --------- ----
None
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
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
---- ------------ ------------ ------------- -------------
Larry E.
Clark 450,000 0 0/0 $ 0/0/0
13
<PAGE>
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.
14
<PAGE>
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 March 9,
1998:
Nature of Number of
Name and Position Ownership Shares Owned Percent
----------------- --------- ------------ -------
Larry E. Clark Direct 1,593,000 18.6%
Allan L. Kaminsky Direct 798,875 9.3%
4602 S. Fortuna Way
S.L.C., Utah 84124
Principal Shareholder
Paul J. Diehl Direct 719,2302 8.4%
2963 E. Fallentine Rd. & Indirect
Sandy, Utah 84092
Principal Shareholder
J. Lynn Smith Direct 452,0483 5.3%
5770 S. 250 East #115 & Indirect
Murray, Utah 84107-8100
Principal Shareholder
John R. Merendino Options 75,000 0.9%
Director
David L. Dingman Options 75,000 0.9%
Director
Richard Bruggeman Direct 174,3874 2.0%
Director, Chief & Indirect
Financial Officer Options 106,500 1.2%
-------
Total 280,887 3.2%
=======
All Executive Officers Direct 1,767,387 20.7%
and Directors as a & Indirect
group (4 persons) Options 265,500 3.0%
--------- ----
Total 2,032,887 23.1%
=========
- --------
2 - Includes 639,599 shares held by the Paul J. Diehl, M.D. P.C. profit
sharing plan, one share held by Paul J. Diehl, P.C. and 79,630 shares held by
Dr. Diehl as custodian for his wife's daughter, Shanon.
3 - Includes 186,048 shares held directly by Dr. Smith and 266,000 shares
held by the J. Lynn Smith Family Limited Partnership.
4 - Includes 400 shares held in individual retirement accounts and 4,620
shares held in a family trust of which Mr. Bruggeman is Trustee.
15
<PAGE>
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 of options, to which the
percentage relates. Percentages calculated for totals assume the exercise of
options comprising such totals.
Item 12. Certain Relationships and Related Transactions.
-----------------------------------------------
See "Retirement of Certain Debt" for a description of transactions 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
- ----------- ------- -----------
(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
(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
16
<PAGE>
(10) Agreement dated September 3, 1996 between InMedica
Development Corporation and Paul Ruben dba Ruben Engineering
and Calvin Ruben, incorporated by reference to the Exhibits
to Form 8-K dated September 20, 1996.
(10) Loan Agreement between Larry E. Clark and the InMedica
Development Corporation dated June 23, 1997, incorporated by
reference to Exhibits of Form 10QSB for the Quarter ended
June 30, 1997.
(10) Hematocrit Development and Option Agreement between InMedica
Development Corporation and Medical Physics, dated August
29, 1997 incorporated by reference to Exhibits of Form 10QSB
for the Quarter September 30, 1997.
1 (10) First Amendment to the Hematocrit Development and Option
Agreement between InMedica Development Corporation and
Medical Physics, dated March 1, 1998.
(11) Statement regarding Computation of Per Share Loss (see
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996
(21) Subsidiaries of the Company (MicroCor, Inc., a Utah
corporation)
2 (27) Financial Data Schedule
(b) No reports on Form 8-K were filed during the fourth quarter of the year
ended December 31, 1997.
17
<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/ Larry E. Clark
----------------------------------
Date: March 27, 1998 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
---------------------------------
March 27 , 1998 LARRY E. CLARK
- ---------- Director
President and Principal
Executive Officer
/s/ John R. Merendino
---------------------------------
March 17, 1998 JOHN R. MERENDINO
- ---------- Director
/s/ Richard Bruggeman
---------------------------------
March 18, 1998 RICHARD BRUGGEMAN
- ---------- Director
/s/ David L. Dingman
---------------------------------
March 24, 1998 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 12/31/97:
Exhibit No. SB Item No. Description
- ----------- ----------- -----------
1 (10) First Amendment to the
Hematocrit Research and
Development Agreement
2 (27) Financial Data Schedule
19
First Amendment to the
HEMATOCRIT DEVELOPMENT AND OPTION AGREEMENT
An Amendment made as of the 27th day of February, 1998 by and between
InMedica Development Corporation, a Utah corporation doing business at 60 South
600 East, Suite 150, Salt Lake City, Utah 84102 (hereinafter called "InMedica")
and Medical Physics, Inc., a Utah corporation doing business at 825 North 300
West, Salt Lake City, Utah 84103 (hereinafter called "Medical Physics").
RECITALS
Whereas InMedica and Medical Physics have previously entered into an
agreement dated August 29, 1997 relating to the conduct of certain work on
InMedica's non-invasive hematocrit project (the "Agreement"); and
Whereas the parties now desire to amend the Agreement in certain respects;
Now therefore, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Phase I Grant Application. Preparation and filing of the Phase I grant
application referred to in paragraph 2 (1) of the Agreement shall be in the
discretion and at the expense of Medical Physics. If the Phase I funding is
received, providing the $100,000 of matching funds referred to in paragraph 2
(1) of the Agreement, shall be in the discretion of InMedica.
2. Payment for Services under the Agreement. Medical Physics agrees that
InMedica may compensate it in part for services rendered under the Agreement by
payment in restricted common stock of InMedica, valued at $.60 per share during
the months of March, April and May, 1998 by immediately issuing to Medical
Physics 25,000 shares of its restricted common stock. In addition, InMedica
agrees to pay Medical Physics $10,000 cash per month during March, April and
May, 1998. The foregoing compensation arrangement shall be in lieu of the
$11,111 monthly payment obligation referred to in the Agreement. Medical Physics
agrees to execute a stock issuance agreement relating to the issuance of the
common stock in the form attached hereto as Exhibit A, which is incorporated
herein by reference.
3. Demonstration of Prototype. Medical Physics agrees to be prepared to
demonstrate a prototype of the hematocrit measuring device on or before April 1,
20
<PAGE>
1998 and to conduct such demonstations of the device as InMedica shall direct
during the months of April and May, 1998. InMedica acknowledges that the
engineering of the prototype box need not be completed so long as the technology
is reasonably portable to locations where demonstrations may occur.
4. Reaffirmation of Agreement. Except as modified herein, the Agreement is
reaffirmed by the parties.
IN WITNESS WHEREOF the parties have executed this agreement as of the
date first above written.
INMEDICA DEVELOPMENT CORPORATION
/s/ Larry E. Clark
By Larry E. Clark, President
MEDICAL PHYSICS, INC.
/s/ Justin S. Clark
Justin S. Clark, President
21
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DECEMBER 31, 1997
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<FISCAL-YEAR-END> DEC-31-1997
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