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