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, 1996

                           Commission File No. 0-12968

                        INMEDICA DEVELOPMENT CORPORATION

           Utah                                         87-0397815
--------------------------------------------------------------------------------
(State of Incorporation)                    (I.R.S. Employer Identification No.)

                          60 South 600 East, Suite 150
                            Salt Lake City Utah 84102
                                 (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: $728,800

The  aggregate  market  value  of  voting  stock  held by  nonaffiliates  of the
registrant  as of March 17, 1997 was  approximately  $2,250,0001.  The number of
shares  outstanding of the issuer's  common stock,  $.001 par value, as of March
13, 1997 was 7,997,612.

DOCUMENTS INCORPORATED BY REFERENCE: None
--------
     1 - based on 5,113,787  non-affiliate  shares at $.44 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, (see "J & J
Medical Agreement and Principal  Products") and the refinancing of its debt (see
"Preferred Stock", "Bank Loan" and "Debentures").  During 1993-1994, the Company
considered,  but  did not  complete,  the  acquisition  of  Clinical  Innovation
Associates, Inc., a privately held company.

     MicroCor was  incorporated  in 1981 under the name Alta Systems,  Inc. as a
Utah  corporation  for the purpose of  designing,  manufacturing  and  marketing
hardware and software for the medical field, particularly relating to monitoring
functions.  The Company acquired MicroCor in 1985. MicroCor is presently engaged
in research and  development  of an  experimental  device to measure  hematocrit
non-invasively  (see  "Principal  Products").  MicroCor  has  historically  been
engaged in the  development  or sale of  certain  medical  technology  products.
Royalty  income  received by MicroCor from the  development  and sale of certain
technology  pursuant  to a contract  with  Johnson & Johnson  Medical,  Inc.  is
presently InMedica's only material revenue source (see "Principal Products").

     Change in  Control.  Effective  April 11,  1995,  Larry E. Clark  purchased
1,000,000  shares of common  stock of the  Company  from Allan L.  Kaminsky  for
$100,000.  The  acquisition of shares gave Mr. Clark a total stock  ownership of
1,143,000  shares.  (see "Security  Ownership of Certain  Beneficial  Owners and
Management").  Simultaneously  with the stock  purchase and sale,  Dr.  Kaminsky
resigned as an officer and director of the Company and Mr.  Clark was  appointed
by the board of  directors  as chairman of the board,  director,  president  and
chief executive officer of InMedica.

     Grant of Stock Options.  During the period October 1995 through April 1996,
the  Company  granted  stock  options to  officers,  directors  and  consultants
aggregating 1,100,000 shares. At a board meeting held July 31, 1996, the Company
reduced these options by 25%  effective  August 1, 1996,  reducing the total new
options outstanding to 825,000 (See "Legal Proceedings").

     Consulting Agreement. Effective September 3, 1996, the Company entered into
a consulting  contract with Ruben  Engineering,  Paul Ruben and Calvin Ruben for
engineering  consulting  services  relating to the development of its hematocrit
technology.  The  contract  grants  the  Rubens a total of  300,000  options  to
purchase the common stock of the Company for $1.16 per share. A block of 200,000
options become  exercisable  and vest 25,000 per quarter  beginning  December 1,
1996. An additional  100,000 options become  exercisable and  non-forfeitable on
the date  satisfactory  clinical  trials have been  completed on the  hematocrit
technology.  All options are immediately  exercisable and non-forfeitable if the


                                        2

<PAGE>



FDA  approves  the  Company's  hematocrit  technology  or if InMedica is sold or
acquired or the  non-invasive  hematocrit  technology  is sold or  acquired.  In
connection with the granting of the options the Company has recognized  $178,000
of consulting  expense which is being amortized over two years.  Pursuant to the
agreement,  the Rubens agreed to complete the construction of six prototypes for
the Company for the  previously  agreed upon price of $50,000 and to continue to
consult  with  InMedica  for a period of at least two years,  for a minimum of 8
hours  per  week at $80  per  hour.  The  Rubens  are  continuing  research  and
development efforts on the Company's technology.

     Preferred Stock. See footnote 5 to the financial statements for information
regarding the Preferred  Stock of the Company,  including a report of the number
of  preferred  shares  converted  to common  stock  during  the year.  Effective
September 30, 1996, the Company  extended from October 1, 1996 through  November
1, 1996, the period during which the preferred  stockholders of the Company were
entitled to convert  shares of the Series A preferred  stock to common  stock of
the Company at the rate of six shares of common for each share of preferred. The
Company presently has five remaining preferred stockholders who own an aggregate
of 25,356  shares of the Series A Preferred  Stock.  Total  aggregate  dividends
payable on the remaining preferred stock outstanding is $9,128 per year.

     Regulation  S  Offering.  During  October  1995,  the  Company  prepared  a
Regulation S offering to be used in seeking foreign  investors for approximately
900,000 shares of its Series A Preferred Stock. There were no offers to purchase
shares  pursuant  to  the  Regulation  S  offering  and  the  offering  has  now
terminated.

     Bank Loan.  Effective  August 31,  1995,  the Board of  Directors  approved
borrowing funds from a commercial bank. During September 1995, the bank approved
a loan of  $500,000 to the Company  bearing  interest at prime plus 1 1/4%.  The
initial interest rate is 10% per annum.  Principal and interest payments are due
quarterly, with $12,500 principal plus accrued interest,  payable quarterly. The
entire  remaining unpaid balance of principal and interest is due and payable on
August 1, 1998.  Larry E. Clark,  President  and Director of the  Company,  is a
co-obligor on the loan.  Payment of the bank loan is secured by an assignment of
the Johnson & Johnson Medical, Inc. Agreement, which is available to the bank as
security  in the  event of a  Company  default  on the bank  loan.  The  Company
considers  the  loan to be well  secured  with  over  $1,000,000  of  additional
collateral supplied by the Company's president, Larry E. Clark. In consideration
of the  collateral  provided by Mr.  Clark,  the Board of Directors  granted Mr.
Clark,  effective  October 16, 1995,  non-qualified  options to purchase 500,000
shares of the Company's  common stock at a price of $.30 per share,  exercisable
for 10 years. The number of options was reduced to 375,000 as of August 1, 1996.
The Company  has also  granted  Mr.  Clark a security  interest in the Johnson &


                                        3

<PAGE>



Johnson Medical  Agreement to secure him for any liability or loss he may suffer
as a result of placing his collateral and credit at risk.

     Debentures.   See  Note  2  to  the  financial  statements  for information
regarding the retirement of the Company's Convertible Debentures.

     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 InMedica three months after the end of the quarterly period in
question.  In the event the technology  licensed by MicroCor  should be found to
infringe any valid patent  rights of others,  pursuant to an opinion of counsel,
then JJMI is  authorized to settle with such third parties and deduct the amount
of the  settlement  from  royalties due MicroCor,  not to exceed one half of the
royalties owing to MircoCor. In the event JJMI took a license or made a lump sum
settlement to settle any dispute, the amount of abatement of the royalty payable
to  MicroCor  would be  subject  to good faith  negotiation.  The new  Agreement
continues so long as JJMI sells  Dinamap PLUS  Monitors,  but may be  terminated
upon the dissolution,  winding up,  bankruptcy or material breach of contract of
either party.

     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 "J & J Medical
Agreement").

                                        4

<PAGE>



     For the past seven 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.  In November
1995,  the Company  purchased  for $200,000 a portable  prototype  for measuring
hematocrit   and  research   information   relating  to   measuring   hematocrit
non-invasively  from  Paul  Ruben  and Paul  Diehl.  Dr.  Diehl  is a  principal
shareholder of the Company.  Diehl and Ruben agreed not to compete with InMedica
and agreed not to disclose  the  information  they had sold for a period of five
years from the date of the agreement.

     During January 1996, the Company began  gathering data necessary to provide
calibration for the hematocrit  measuring device.  Based upon the results of the
first round and a subsequent  round of data  testing,  the Company  believes the
accuracy and  reliability  of the device can be  increased.  However there is no
guarantee that the instrument's performance will be improved and be reliable for
clinical  use.  The  prototype  is  not  yet  suitable  for   commercialization.
Additional  testing and research and  development  must be completed in order to
establish both the technical and commercial  viability of the proposed  product.
This will require  additional funding as to which the Company has no commitments
and no time frame can consequently be placed on when or if  commercialization of
the device will occur.  The Company has previously  announced its willingness to
consider strategic alliances and partnerships for the design,  manufacturing and
marketing of any products which may result from this non-invasive  blood testing
and monitoring technology.

     During December 1996, Company personnel traveled to Ireland to consult with
a team of six medical device experts at Ulster  University in Belfast,  Ireland.
The team is part of the Northern Ireland  Bio-Engineering Centre ("NIBEC").  The
engineering team is presently evaluating the Company's device.

     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


                                        5

<PAGE>



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.

     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  Expenses.  Research and development  expenses for
the two years ended  December 31, 1996 and 1995,  were  $155,885  and  $203,417,
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 employees as of
December 31, 1996.


Item 2.  Properties

     Office  Lease.  The Company  leases office space located in Salt Lake City,
Utah on a month to month basis. The monthly rental on the space is $456.25.  The
office  space  is  expected  to be  adequate  for  the  Company's  needs  in the
foreseeable future.

Item 3.  Legal Proceedings.

     During  the third quarter of 1996 a former officer of the Company, Allan L.
Kaminsky, threatened to bring legal proceedingsaffecting  the Company or a proxy

                                        6

<PAGE>




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
considered Dr. Kaminsky's demands and 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  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.  Dr.
Kaminsky  continues to be a principal  shareholder of the Company (see "Security
Ownership  of Certain  Beneficial  Owners  and  Management"),  however  upon his
resignation,  his options to purchase  435,000  shares of the  Company's  common
stock were cancelled.

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.



                                        7

<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, 1995                            .15       .03
June 30, 1995                             .40       .03
September 30, 1995                        .44       .09
December 31, 1995                         .35       .09

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

         As of March 13, 1997,  there were  approximately  545 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.  The  holders of the Series A Preferred  Stock are  entitled to
cumulative  cash  dividends  at the annual rate of eight  percent (8%) per annum
($.36 per share per annum) or $.09 per share per  quarter,  payable on or before
the following dates: January 31, April 30, July 31, and October 31 of each year.
The Company is current in all dividend payments to the Preferred Stockholders.



                                        8

<PAGE>




Item 6.  Management's Discussion and Analysis of Financial
Condition and Results of Operations.


Liquidity and Capital Resources

     For the years ended  December 31, 1996 and 1995,  liquidity  was  generated
from royalty income received from JJMI. This income source may not be sufficient
to provide  liquidity  needs over time and may be inadequate to retire bank debt
when it comes due in August 1998 and fund  continued  research and  development.
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 $422,500 bank debt.  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 has achieved  profitable  operations  during the last three years,
but has a  stockholders'  deficit  of  $63,203  and an  accumulated  deficit  of
$6,667,673 as of December 31, 1996.  In order for InMedica to continue  research
and development  activities,  it may require additional financing,  for which it
has no  commitments.  It is  impossible  to  estimate  the  amount  of the  JJMI
royalties which may be received in the future.

     Significant operating revenues have been derived only from royalties during
the two-year period ended December 31, 1996. During the years ended December 31,
1996 and 1995  royalty  revenue  totaled  $728,800 and  $693,440,  respectively.
Revenues during the year ended December 31, 1996 increased when compared to 1995
as a result of additional  royalties  paid based on sales by JJMI of the DINAMAP
(TM) PLUS vital signs  monitor.  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.

     The net income of $159,381 for the year ended December 31, 1996 compared to
$133,803 (before extraordinary gain) for 1995, resulted primarily from increased
royalties from JJMI ($35,360),  a reduction of interest expense  ($87,170) and a
decrease in total research and  development  expense  ($47,532)  which more than
offset  the  increase  in  general  and   administrative  expense  of  $145,493.

                                        9

<PAGE>



Although  research and development  expense  decreased  during 1996, most of the
research and development expense in 1995 was due to the purchase of a hematocrit
device, while the 1996 expense related to ongoing research and development.

     General  and  administrative  expenses  were  higher  during the year ended
December  31, 1996  ($361,757)  as compared to the year ended  December 31, 1995
($216,264),  due primarily to expenses  associated with the elimination of debt,
resolving a dispute with a former  officer,  increased  consulting  expenses and
stock  option  expense and other  administrative  expenses  associated  with the
expanded activity of the Company.

                                       10

<PAGE>




Item 7.               Financial Statements.                  Page

   Report of Independent Public Accountants                   F-1

   Consolidated Balance Sheet as of December 31, 1996         F-2

   Consolidated Statements of Operations for the
   years ended December 31, 1996 and 1995                     F-3

   Consolidated Statements of Stockholders' Deficit
   for the years ended December 31, 1996 and 1995             F-4

   Consolidated Statements of Cash Flows for the
   years ended December 31, 1996 and 1995                     F-5

   Notes to Consolidated Financial Statements                 F-7

                                       11

<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,
1996,  and the related  consolidated  statements  of  operations,  stockholders'
deficit and cash flows for the years  ended  December  31, 1996 and 1995.  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, 1996,  and the results of their
operations  and their cash flows for the years ended  December 31, 1996 and 1995
in conformity with generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated  financial  statements,  while the Company  generated net income in
1996 and 1995,  historically it has not achieved  profitability and there can be
no  assurance  of  profitability  in the future.  The  Company's  sole source of
revenue  is a  royalty  arrangement  which is based  upon  marketing  and  sales
activity of a third party and there can be no assurance as to continuing royalty
receipts.  As of December 31, 1996,  the Company had an  accumulated  deficit of
$6,667,673 and a total stockholders' deficit of $63,203.  These conditions raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's  plans in regard to these matters also are discussed in Note 1. The
consolidated financial statements do not include any adjustments relating to the
recoverability  and  classification  of asset carrying amounts or the amount and
classification  of liabilities that might result should the Company be unable to
continue as a going concern.


ARTHUR ANDERSEN LLP


Salt Lake City, Utah
  March 7, 1997

                                      F-1

<PAGE>


                 INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEET

                             AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>


                                     ASSETS

 CURRENT ASSETS:
<S>                                                                                                   <C>       
   Cash                                                                                               $  177,586
   Royalties receivable                                                                                  209,280
   Prepaid expenses and other                                                                             22,340
                                                                                                      ----------
          Total current assets                                                                           409,206

 EQUIPMENT AND FURNITURE, at cost, less accumulated
   depreciation of $249,761                                                                                4,728

 OTHER ASSETS                                                                                              2,196
                                                                                                      ----------

           Total assets                                                                               $  416,130
                                                                                                      ==========
<CAPTION>

                                       LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
<S>                                                                                                   <C>       
  Current portion of notes payable                                                                    $   50,000
  Consulting fees due to related party                                                                    39,000
  Accrued interest                                                                                         9,212
  Accrued payroll                                                                                          8,621
                                                                                                      ----------
          Total current liabilities                                                                      106,833
                                                                                                      ----------

NOTES PAYABLE, less current portion                                                                      372,500
                                                                                                      ----------

COMMITMENTS AND CONTINGENCIES (Notes 1, 2 and 7)

STOCKHOLDERS' DEFICIT:
  Common stock, $.001 par value; 20,000,000 shares
    authorized; 7,999,232 shares outstanding                                                               7,999
  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                                                                                          114,102
  Additional paid-in capital                                                                           6,482,369
  Accumulated deficit                                                                                 (6,667,673)
                                                                                                      ----------
          Total stockholders' deficit                                                                    (63,203)
                                                                                                      ----------

          Total liabilities and stockholders' deficit                                                 $  416,130
                                                                                                      ==========
</TABLE>


           The accompanying notes to consolidated financial statements
            are an integral part of this consolidated balance sheet.


                                       F-2
<PAGE>




                 INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>


                                                                                    1996                  1995
                                                                                 ----------            ----------

<S>                                                                              <C>                   <C>       
ROYALTY REVENUES                                                                 $  728,800            $  693,440
                                                                                 ----------            ----------

OPERATING EXPENSES:
  General and administrative                                                        361,757               216,264
  Research and development                                                          155,885               203,417
                                                                                 ----------            ----------
          Total operating expenses                                                  517,642               419,681
                                                                                 ----------            ----------

INCOME FROM OPERATIONS                                                              211,158               273,759
                                                                                 ----------            ----------

OTHER EXPENSES:
  Interest                                                                          (50,140)             (137,310)
  Miscellaneous                                                                      (1,637)               (2,646)
                                                                                 ----------            ----------
          Total other expenses                                                      (51,777)             (139,956)
                                                                                 ----------            ----------

INCOME BEFORE EXTRAORDINARY GAIN                                                    159,381               133,803

EXTRAORDINARY GAIN FROM EXTINGUISHMENT OF DEBT,
  net of applicable income taxes of $0 (Note 9)                                           -               197,901
                                                                                 ----------            ----------

NET INCOME                                                                          159,381               331,704

PREFERRED STOCK DIVIDENDS                                                            22,005                 7,550
                                                                                 ----------            ----------

NET INCOME APPLICABLE TO COMMON STOCKHOLDERS                                     $  137,376            $  324,154
                                                                                 ==========            ==========
NET INCOME PER COMMON SHARE:
  Income before extraordinary gain from
    extinguishment of debt                                                       $      .02            $      .02
  Extraordinary gain from extinguishment
    of debt                                                                               -                   .02
                                                                                 ----------            ----------

NET INCOME PER COMMON SHARE                                                      $      .02            $      .04
                                                                                 ==========            ==========
WEIGHTED AVERAGE NUMBER OF COMMON
  SHARES OUTSTANDING                                                              8,413,270             7,822,194
                                                                                 ==========            ==========
</TABLE>
           The accompanying notes to consolidated financial statements
              are an integral part of these consolidated statements



                                       F-3


<PAGE>


                                    


                 INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>

                                                                   Series A         Additional                          Total
                                          Common Stock        Preferred   Stock       Paid-in       Accumulated     Stockholders'
                                         Shares    Amount       Shares   Amount       Capital         Deficit          Deficit
                                        ---------  ------      -------- --------    -----------     -----------     ------------

        BALANCE,
<S>                                     <C>         <C>         <C>        <C>      <C>           <C>               <C>         
          December 31, 1994             7,474,403   $7,474           -     $    -   $6,020,369    $(7,129,203)      $(1,101,360)

          Stock options exercised           4,500        5           -          -          333              -               338

          Issuance of Series A
            preferred stock                     -        -      83,884    377,478            -              -           377,478

          Stock issued as
            compensation for
            services rendered               5,000        5           -          -        1,745              -             1,750

          Preferred stock
             dividends                          -        -           -          -            -         (7,550)           (7,550)

          Net income                            -        -           -          -            -        331,704           331,704
                                        ---------   ------      ------   --------   ----------    -----------       -----------
        BALANCE,
          December 31, 1995             7,483,903    7,484      83,884    377,478    6,022,447     (6,805,049)         (397,640)

          Conversion of preferred
            stock to common stock         351,168      351     (58,528)  (263,376)     263,025              -                 -

          Conversion of
            convertible debentures
            to common stock               164,161      164           -          -      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             7,999,232   $7,999      25,356   $114,102   $6,482,369    $(6,667,673)      $   (63,203)
                                        =========   ======      ======   ========   ==========    ===========       ===========

</TABLE>
           The accompanying notes to consolidated financial statements
            are an integral part of this consolidated balance sheet.


                                       F-4
<PAGE>



                                                                               
                                     

                 INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

                           Increase (Decrease) in Cash
<TABLE>
<CAPTION>

                                                                                   1996                     1995
                                                                                ----------               ---------

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                              <C>                     <C>      
  Net income                                                                     $ 159,381               $ 331,704
  Adjustments to reconcile net income to net
    cash provided by operating activities-
      Depreciation and amortization                                                    716                  31,526
      Expense related to common stock and stock
        options issued as compensation for services
        rendered                                                                    73,942                   1,750
      Gain on sale of equipment and furniture                                            -                  (5,727)
      Extraordinary gain from extinguishment of debt                                     -                (197,901)
      Issuance of note payable to related party
        in connection with payment for research and
        development efforts                                                              -                 102,000
      Change in assets and liabilities-
        Decrease in royalties receivable                                            18,240                  73,855
        Decrease (increase) in prepaid expenses
          and other                                                                  4,376                  (1,692)
        Decrease in accounts payable                                                (3,652)                (52,949)
        Increase in accrued payroll                                                  1,222                  10,998
        Increase (decrease) in accrued interest                                        552                (134,679)
        Increase in consulting fees due to
          related party                                                             39,000                       -
                                                                                 ---------               ---------

          Net cash provided by operating activities                                293,777                 158,885
                                                                                 ---------               ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of equipment and furniture                                          -                   6,200
  Purchase of equipment and furniture                                               (1,374)                 (4,449)
                                                                                 ---------               ---------
          Net cash (used in) provided by investing
            activities                                                              (1,374)                  1,751
                                                                                 ---------               ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of common stock                                                 -                     338
  Principal payments on convertible debentures                                           -                (454,254)
  Principal payments on convertible debentures
    due to related parties                                                         (18,018)                (61,018)
  Preferred stock dividends                                                        (22,005)                 (7,550)
  Proceeds from issuance of note payable                                                 -                 485,000
  Principal payments on notes payable                                              (50,000)                (12,500)
  Principal payments on notes payable to related
    parties                                                                       (138,526)                      -
                                                                                 ---------               ---------

           Net cash used in financing activities                                  (228,549)                (49,984)
                                                                                 ---------               ---------
</TABLE>
           The accompanying notes to consolidated financial statements
            are an integral part of this consolidated balance sheet.


                                       F-5

<PAGE>

                                     
                                                                      
                 INMEDICA DEVELOPMENT CORPORATION AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

                           Increase (Decrease) in Cash
<TABLE>
<CAPTION>


                                                                                   1996                  1995
                                                                                ----------            ----------

<S>                                                                              <C>                   <C>      
NET INCREASE IN CASH                                                             $  63,854             $ 110,652

CASH AT BEGINNING OF THE YEAR                                                      113,732                 3,080
                                                                                 ---------             ---------

CASH AT END OF THE YEAR                                                          $ 177,586             $ 113,732
                                                                                 =========             =========


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

  Cash paid during the year for interest                                         $  49,588             $ 273,821
                                                                                 =========             =========
</TABLE>

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
  FINANCING ACTIVITIES:

    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 (see Note 2).

    During 1996,  certain holders of Series A preferred  stock converted  58,528
      shares of preferred  stock into  351,168  shares of common stock (see Note
      5).

    During 1995, certain holders of convertible debentures converted $377,478 of
      principal  and  accrued  interest  related to the  debentures  into 83,884
      shares of Series A preferred stock (see Note 2).

    During 1995,  the Company paid $98,000 in cash and issued a note payable for
      $102,000 to a  stockholder  and  another  individual  to purchase  certain
      technology that enhanced the Company's existing  development  efforts with
      respect to its Non-Invasive Hematocrit Technology.


           The accompanying notes to consolidated financial statements
            are an integral part of 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. As a result
of increased  royalty revenues  received,  the issuance of preferred stock and a
bank loan secured with collateral  provided by the Company's president and chief
executive officer, the Company was able to retire or refinance its debt.

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.  Initial testing of the
Company's  Non-Invasive  Hematocrit  Technology  on  limited  samples  has  been
favorable. However,  commercialization of the Non-Invasive Hematocrit Technology
is dependent upon additional  testing,  Food and Drug  Administration  approval,
financing of further  research and development  and, if warranted,  financing of
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. As of
December 31, 1996,  the Company had an  accumulated  deficit of $6,667,673 and a
stockholders' deficit of $63,203. 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.  The cost of major  additions and
improvements is capitalized while the cost of maintenance and repairs is charged
to expense as incurred.

Equipment and furniture consisted of the following at December 31, 1996.


              Equipment                          $ 242,260
              Furniture                             12,229
                                                 ---------
                                                   254,489
              Less accumulated depreciation       (249,761)
                                                 ---------

                                                 $   4,728
                                                 =========


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 Per Common Share

The net income per common share  computation  is based on the  weighted  average
number of shares of common  stock  outstanding  during  each year  after  giving
effect to dilutive  common stock  equivalents.  Preferred  stock  dividends  are
deducted from net income in calculating net income per common share.


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.


                                      F-8

<PAGE>


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.


(2)      CONVERTIBLE DEBENTURES

Due to inadequate cash flows, the Company defaulted on its Series A and Series C
debenture  agreements.  During 1995,  the Company  satisfied the majority of the
Series A and Series C  convertible  debenture  obligations  and related  accrued
interest  through the issuance of 83,884 shares of Series A preferred  stock and
cash payments of $377,485. In addition,  one debenture holder agreed to exchange
his debenture  instrument for a cash payment of $79,255 (80 percent of principal
and accrued  interest  owing).  Another  debenture holder agreed to exchange his
debenture  instrument for a promissory  note for 80 percent of the principal and
accrued interest owing on the debenture  ($36,526)  payable nine months from the
date of settlement.  During 1995, the Company recorded an extraordinary  gain in
the amount of approximately $28,000 related to convertible  debentures that were
settled for less than the principal and interest owing.

During 1996,  the Company  satisfied  the remainder of the Series A and Series C
convertible  debenture obligations through the conversion of debentures totaling
$123,119 to 164,161  shares of the Company's  common stock and a cash payment of
$18,018.


(3)      INCOME TAXES

As of December 31, 1996, deferred income tax assets consisted of the following:

         Net operating loss carryforwards             $ 1,025,399

         Future deductible temporary
           differences related to
           compensation, reserves
           and accruals                                   115,478

         Less:  valuation allowance                    (1,140,877)
                                                      -----------

         Net deferred income tax asset                $       -
                                                      ===========

The Company utilized  approximately  $159,000 and $338,000 of net operating loss
carryforwards ("NOLs") in 1996 and 1995, respectively, and therefore recorded no
federal or state income tax provisions for the years then ended.

                                      F-9
<PAGE>

At December 31, 1996, the Company has  consolidated  NOLs for federal income tax
purposes of approximately $2,563,000. These NOLs expire at various dates through
December 31, 2008. An NOL generated in a particular year will expire for federal
tax purposes if not utilized within 15 years. Additionally, the Internal Revenue
Code contains other  provisions which could reduce or limit the availability and
utilization of 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 of $1,140,877.


(4)      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  25. Had  compensation  cost for these  plans been
determined  consistent with FASB Statement No. 123, the Company's net income and
earnings per share would have been amended to the following pro forma amounts:

                                                       1996            1995
                                                     --------        --------

        Net income          As reported              $159,381        $331,704
                            Pro forma                 159,381          87,959

        Primary EPS         As reported                  .02            .04
                            Pro forma                    .02            .01


Because  the  Statement  No. 123 method of  accounting  has not been  applied to
options  granted prior to January 1, 1995, the resulting pro forma  compensation
cost may not be representative of that to be expected in future years.

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 1995: risk-free interest rate of 5.94 percent; no
expected dividend yield;  expected life of 8 years;  expected  volatility of 141
percent.

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 Section 422 of the  Internal  Revenue  Code of 1986,  as amended,  or
nonqualified stock options. A committee composed of disinterested members of the
Board of  Directors  has  authority to  determine,  among other  matters,  which
eligible key employees and directors are to receive options,  the price at which
the  nonqualified  options will be granted,  the period in which the options are
exercisable  and the type of options to be granted.  The exercise  price for the
incentive  stock  options  may not be less than 100  percent of the fair  market
value of the common  stock on the date of the grant.  The Stock  Incentive  Plan
contains antidilution  provisions which provide for adjustments to option prices
or  quantities  in the event of certain  changes  in the  number of  outstanding
shares of common stock or the capitalization of the Company.

                                      F-10
<PAGE>


The following  table presents the aggregate  options granted and exercised under
the Stock Incentive Plan during the years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>

                                                                        1996                           1995
                                                              ------------------------       ------------------------
                                                                             Wtd. Avg.                      Wtd. Avg.
                                                                             Exercise                       Exercise
                                                               Shares         Prices           Shares        Prices
                                                              --------      ----------        --------     ----------
<S>                                                           <C>             <C>             <C>             <C>  
Shares under option, beginning of
  year, at prices ranging from
  $.08 to $1.00 per share                                      587,445        .51              788,445        .59

Options forfeited at prices ranging
  from $.60 to $1.00 per share                                (435,000)       .60             (201,000)       .80
                                                              --------                        --------
Shares under option, end of year,
  at prices ranging from $.08 to
  $.60 per share                                               152,445        .26              587,445        .51
                                                              ========                        ========
</TABLE>

All of the 152,445 options outstanding and exercisable at December 31, 1996 have
exercise prices ranging from $.08 to $.60 with a weighted average exercise price
of $.26 and a weighted average remaining contractual life of one year.

At December 31, 1996,  options for the purchase of 961,491 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, 1996 and 1995.  At December  31,  1996,  there were no
shares  under  option  under the Formula  Plan and  options for the  purchase of
95,500 shares were available for granting.

At December 31, 1996, the Company has reserved  1,209,436  common shares for the
exercise of options under the two stock option plans described above.

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 the
Company's bank loan described in Note 6. All options  granted during 1995 vested

                                      F-11
<PAGE>

immediately upon granting and are exercisable  through 2005.  During 1996, these
option  grants were reduced by 25 percent to 787,500 by  resolution of the board
of directors of the Company.

All of the 787,500 options outstanding and exercisable at December 31, 1996 have
exercise  prices  ranging from $.30 to $.39,  with a weighted  average  exercise
price of $.32 and a weighted average remaining contractual life of 8.8 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 and a weighted average remaining
contractual  life of 5.2 years.  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, 1996, 25,000 of the 300,000
options  were  vested.  The  Company  recorded  compensation  expense in 1996 of
$73,942  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.


(5)      PREFERRED STOCK

During  1995,  the Company  amended its articles of  incorporation  to authorize
10,000,000   shares  of  preferred  stock.  The  Company's  board  of  directors
designated  1,000,000  shares of this  preferred  stock as  Series A  Cumulative
Convertible Preferred Stock ("Series A Preferred") with a par value of $4.50 per
share.  Holders of the Series A Preferred receive annual cumulative dividends of
eight percent, payable quarterly,  which dividends are required to be fully paid
or set aside  before any other  dividend  on any class or series of stock of the
Company is paid.  Holders of the Series A Preferred receive no voting rights but
do receive a liquidation  preference of $4.50 per share, plus accrued and unpaid
dividends.  Series A Preferred  stockholders also have the right to convert each
share of Series A Preferred  to the  Company's  common  stock  according  to the
following  schedule:  $.75 per common share on or before October 1, 1996;  $1.50
per common  share on or before  October 1, 1997 and $3.00 per common share after
October 1, 1997.  During  1995,  the Company  issued  83,884  shares of Series A
Preferred  related to the  complete  or partial  satisfaction  of a  significant
portion of its convertible  debentures (see Note 2). During 1996, certain Series
A Preferred  stockholders  converted 58,528 shares of preferred stock to 351,168
shares of common stock.


                                      F-12

<PAGE>


(6)  NOTES PAYABLE

At December 31, 1996, notes payable consisted of the following:

       Loan agreement  with a bank,  interest at prime (8.25 percent at December
         31, 1996) plus 1.25 percent (see discussion below)

                                               $422,500

       Less current portion                     (50,000)
                                               --------

                                               $372,500
                                               ========


During  September  1995, the Company  entered into a loan agreement with a bank.
The loan agreement  provided for the Company to borrow up to a maximum amount of
$500,000 through October 22, 1995.  Subsequent to that date, no further advances
were  available and repayments are due in quarterly  principal  installments  of
$12,500 plus accrued interest beginning November 22, 1995. The loan agreement is
secured by the Company's  royalty stream from Johnson and Johnson and a personal
guarantee from and real estate owned by the Company's  chief  executive  officer
and president.  The entire unpaid  principal and interest balance is due in full
on August 1, 1998.

As of December 31, 1996, the scheduled principal maturities of notes payable are
as follows:

       Year Ending December 31,

                    1997                       $ 50,000
                    1998                        372,500
                                               --------

                                               $422,500
                                               ========


(7)  COMMITMENTS

Operating Lease

During 1995, the Company entered into a one-year,  noncancelable operating lease
for office  space.  Total rent expense for office space during 1996 and 1995 was
$16,019 and $6,325, respectively. The lease expired in June 1996 and at December
31, 1996 the lease continues on a month-to-month basis.


(8) RELATED-PARTY TRANSACTIONS

On November 6, 1995, the Company purchased certain  technology that enhanced the
Company's  existing   development  efforts  with  respect  to  its  Non-Invasive
Hematocrit  Technology  from  two  individuals,  one  of  whom  was a  principal
stockholder  of the  Company.  The  technology  acquired  was  accounted  for as
purchased research and development and expensed. Of the $200,000 purchase price,
$98,000  was paid in cash at closing  and a  promissory  note was signed for the
remaining  $102,000  payable in four equal  installments  beginning  January 16,
1996. The note was paid in full during 1996.

                                      F-13
<PAGE>


During 1996 and 1995, the Company paid interest on the related-party convertible
debentures in the amounts of $569 and $45,821, respectively.


(9)  EXTRAORDINARY GAIN FROM EXTINGUISHMENT OF DEBT

During 1995, the Company  settled  certain  payroll  liabilities  which had been
accrued in prior years and  recognized an  extraordinary  gain of  approximately
$170,000.   Additionally,  the  Company  recognized  an  extraordinary  gain  of
approximately   $28,000  on  the   settlement  of  amounts  owed  under  certain
convertible debentures (see Note 2).


                                      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          75                   1995

     John R. Merendino       58                   1995

     David L. Dingman        60                   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


                                       12

<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.

         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


                                       13

<PAGE>



than ten percent shareholders are required to furnish the Company with copies of
all Section 16(a) forms they file. To the Company's  knowledge,  based solely on
review of the copies of such reports furnished to the Company, during the fiscal
year ended December 31, 1995 all Section 16(a) filing requirements applicable to
officers,  directors  and greater than ten percent  shareholders  were  complied
with.


Item 10.  Executive Compensation.

     Executive  Compensation.  No executive  officer of the Company has received
compensation  during the three fiscal years ended  December 31, 1996,  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)    1996    $ 39,000*     -                   -                        -
Larry E. Clark    (CEO)    1995    $   -         -                450,000**                   -
Allan L. Kaminsky (CEO)    1994    $   -         -                   -                        -
</TABLE>

*accrued in 1996 and paid in January 1997.
**600,000 options were originally granted,  but subsequently were reduced to the
figure shown


         Director Compensation. Directors may be compensated at the rate of $100
for  attendance  at each board  meeting,  but did not receive  compensation  for
meetings attended in 1996 and 1995. The Board of Directors granted non-qualified
stock options to Directors  Clark,  Merendino and Bruggeman to purchase  100,000
shares each of common stock of the Company for $.30 per share  exercisable for a
period  of  10  years.  The  options  are  immediately  exercisable  and  become
non-forfeitable  after each  director  has  completed  one year of  service  and
thereafter are not cancelled if the Director  leaves the service of the Company.
The  Board of  Directors  also  granted a similar  option to  Director  Dingman,
exercisable  at $.385 per  share.  The  options  were  reduced  to  75,000  each
effective August 1, 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.  See  Note  4  to  the  financial  statements for
information  regarding the Company's Stock Incentive Plan,  Formula Stock Option
Plan and Other Stock Options.

                     OPTIONS GRANTED IN THE LAST FISCAL YEAR

                                      % of Total
                                      Options
                                      Granted to    Exercise
                        Options       Employees in  Price        Expiration
       Name             Granted       FY 1995       ($/Share)    Date
       ----             -------       ------------  ---------    ----
       None

                                       14

<PAGE>



                      AGGREGATED OPTIONS EXERCISED IN LAST
                  FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>

                                                                         Value of Unexercised
                                                     Number of           In-The-Money
                                                     Unexercised Options Options at Fiscal
                         Shares                      at Fiscal Year End  Year End2
                         Acquired on   Value         Exercisable/        Exercisable/
                Name     Exercise (#)  Realized ($)  Unexercisable       Unexercisable

<S>                          <C>           <C>       <C>                    <C>   
              Larry E.
                Clark        0             0          450,000/0             $315,000/0

              Richard
                Bruggeman    0             0          208,167/0             $145,717/0
</TABLE>

         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.

--------
     2 - Fiscal year ended December 31, 1996. The average high and low bid price
of the Company's stock that day on the over the counter market was approximately
$.70. "In the money" options are  exercisable at less than the fair market value
of the stock.

                                       15

<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 17,
1997:

                          Nature of          Number of
   Name and Position      Ownership       Shares Owned    Percent

   Larry E. Clark            Direct            1,143,000    14.3%
   Chairman, CEO             Options             450,000
                                               ---------
                             Total             1,593,000    18.9%
                                               =========

   Allan L. Kaminsky*        Direct              798,875     9.9%
   4602 S. Fortuna Way       Options                 0
                                               -------
   S.L.C., Utah 84124        Total               798,875     9.9%
                                               =========

   Paul J. Diehl*            Direct & Indirect   719,230(3)  9.0%
   2963 E. Fallentine Rd.
   Sandy, Utah   84092

   John R. Merendino         Options              75,000     0.9%
   Director

   David L. Dingman          Options              75,000     0.9%
   Director

   Richard Bruggeman         Direct & Indirect    72,720(4)  0.9%
   Director, Chief           Options             208,167
   Financial Officer         Total               280,887     3.4%
                                                 =======

   All Executive Officers    Direct & Indirect 1,351,167    16.9%
   and Directors as a        Options             808,167
                                               ---------
   group (4 persons)         Total             2,159,334    24.5%
                                               =========
* Principal Shareholder

     Shares shown in the forgoing table as directly owned are owned beneficially
and of record,  and such record  shareholder  has sole voting,  investment,  and

--------
     3 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.
     4 - includes  400  shares  held in individual retirement accounts and 4,620
shares held in a family trust of which Mr. Bruggeman is Trustee.

                                       16

<PAGE>



dispositive  power.  Percentages  calculated  for totals in the foregoing  table
assume the exercise of options included in such totals.


Item 12.  Certain Relationships and Related Transactions.

     See "Bank Loan" for a description  of a  transaction  between the Company's
President, Larry E. Clark, and the Company.

Item 13.  Exhibits and Reports on Form 8-K.

(a) Exhibits

Exhibit No.   S-K No.               Description


                           (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  orm  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


                          (10)      Settlement  Agreement  between  Eric Welling
                                    and InMedica  Development  Corporation dated
                                    September   27,   1995,    incorporated   by
                                    reference  to  Exhibit 3 of Form  10-QSB for
                                    the quarter ended September 30, 1995


                                       17

<PAGE>



                          (10)      Settlement  Agreement  between  Clint Newman
                                    and InMedica  Development  Corporation dated
                                    September    25,    1995    and    Addendum,
                                    incorporated  by  reference  to Exhibit 4 of
                                    Form 10-QSB for the quarter ended  September
                                    30, 1995

                          (10)      Settlement  Agreement  between J. Lynn Smith
                                    and InMedica  Development  Corporation dated
                                    September    25,    1995    and    Addendum,
                                    incorporated  by  reference  to Exhibit 5 of
                                    Form 10-QSB for the quarter ended  September
                                    30, 1995

                          (10)      Commercial  Security  Agreement  of Larry E.
                                    Clark and  InMedica Development Corporation,
                                    incorporated  by  reference  to Exhibit 6 of
                                    Form 10-QSB for  the quarter ended September
                                    30, 1995

                          (10)      Purchase  and  Settlement  Agreement between
                                    InMedica  Development  Corporation,  Paul J.
                                    Diehl,  and  Paul W. Ruben dated November 6,
                                    1995, incorporated by reference to Exhibit 7
                                    of  Form  10-QSB  for  the   quarter   ended
                                    September 30, 1995

                          (10)      Settlement  Agreement  and   Mutual  Release
                                    between    Paul   J.   Diehl   and  InMedica
                                    Development  Corporation  dated December 28,
                                    1995, incorporated by reference to Exhibit 1
                                    of  Form  10K-SB for the year ended December
                                    31, 1995

                          (10)      Commercial    Security    Agreement    dated
                                    September  15,  1995,  of Larry E. Clark and
                                    InMedica    Development    Corporation    as
                                    Borrowers and First Interstate Bank of Utah,
                                    N.A. as Lender  incorporated by reference to
                                    Exhibit 2 of Form  10K-SB for the year ended
                                    December 31, 1995

                          (10)      Promissory  Note  of  Larry  E.  Clark   and
                                    InMedica  Development  Corporation  to First
                                    Interstate  Bank  of Utah, N.A. dated August
                                    22,  1995  incorporated   by   reference  to
                                    Exhibit 3 of Form  10K-SB for the year ended
                                    December 31, 1995

                          (10)      Conversion Agreement of InMedica Development
                                    Corporation and Randall J. Olsen, M.D. dated
                                    as   of   April  1,  1996   incorporated  by
                                    reference  to  Exhibit  5 of Form 10K-SB for
                                    the year ended December 31, 1995

                          (10)      Conversion Agreement of InMedica Development
                                    Corporation and Les Berthy dated as of April

                                       18

<PAGE>



                                    1, 1996 incorporated by reference to Exhibit
                                    6 of Form 10K-SB for the year ended December
                                    31, 1995

                          (10)      Conversion Agreement of InMedica Development
                                    Corporation  and Donald Hodurski dated as of
                                    April 10, 1996 incorporated by reference  to
                                    Exhibit 7 of Form 10K-SB for the year  ended
                                    December 31, 1995

                          (10)      Conversion   Agreement   between    InMedica
                                    Development   Corporation   and   Clinton B.
                                    Newman dated April 23, 1996, incorporated by
                                    reference  to  Exhibit  1 of Form 10Q-SB for
                                    the quarter ended March 31, 1996.

                          (10)      Conversion   Agreement    between   InMedica
                                    Development  Corporation  and J. Lynn  Smith
                                    dated   June  11,  1996,   incorporated   by
                                    reference  to  Exhibit 1 of  Form 10Q-SB for
                                    the quarter ended June 30, 1996.

                          (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)      Form  of  conversion  agreement  executed by
                                    eight   Preferred   stockholders   (L.  Gene
                                    Tanner, Barbara M. Coble, Karilyn R. Moores,
                                    Paul Chase, Roger D. Chase, Trustee, Kenneth
                                    J. Wool,  C.U.  Partners,  and  Perry  Lane)
                                    during  October  1996  to  convert  Series A
                                    preferred  to  common  stock of the Company,
                                    incorporated by reference to the Exhibits of
                                    Form  10QSB  for the Quarter ended September
                                    30, 1996.

                          (11)      Statement regarding Computation of Per Share
                                    Loss   (see   Consolidated   Statements   of
                                    Operations for the  years ended December 31,
                                    1996 and 1995

                          (21)      Subsidiaries of the Company (MicroCor, Inc.,
                                    a Utah corporation)

                          (27)      Financial Data Schedule

(b) No  reports on Form 8-K were  filed  during  the fourth  quarter of the year
ended December 31, 1996.

                                       19

<PAGE>



                                   SIGNATURES


     In accordance  with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                        INMEDICA DEVELOPMENT CORPORATION



                                   By /s/ Larry E. Clark
                                      ---------------------------
                                      LARRY E. CLARK, President



                                      /s/ Richard Bruggeman
                                      ---------------------------  
Date:  April 11, 1997                 RICHARD BRUGGEMAN,
                                      Chief Financial Officer



         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  Registrant and in the capacities and
on the dates indicated.



                                       /s/ Larry E. Clark
                                       --------------------------
April 11, 1997                         LARRY E. CLARK
                                       Director
                             President and Principal
                                       Executive Officer


                                       /s/ John R. Merendino
                                       --------------------------
April 11, 1997                         JOHN R. MERENDINO
                                       Director



                                       /s/ Richard Bruggeman
                                       --------------------------
April 11, 1997                         RICHARD BRUGGEMAN
                                       Director



                                       /s/ David L. Dingman
                                       --------------------------
April 11, 1997                         DAVID L. DINGMAN
                                       Director




<PAGE>



                                    EXHIBITS


Exhibits  filed with the Form 10-KSB of InMedica  Development  Corporation,  SEC
File No. 0-12968, for the year ended 12/31/95:


Exhibit No.      SB Item No.       Description

1

                    (27)           Financial Data Schedule

                                       21