UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (Mark One) [ X ]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1997. 	OR 	 [ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 for the Transition Period From to . Commission file number		 No. 0-11881 					 	 INTERWEST MEDICAL CORPORATION 	(Exact name of registrant as specified in its charter) Oklahoma 			 75-1864474 (State or other jurisdiction of			(I. R. S. Employer incorporation or organization)			Identification No.) 3221 Hulen Street, Suite C Fort Worth, Texas 			 76107-6193 (Address of principal executive offices)	 (Zip Code) Registrant's telephone number, including area code: (817) 731-2743 Securities registered pursuant to Section 12(b) of the Act: 	NONE Securities registered pursuant to Section 12(g) of the Act: 	NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X 		No F-1 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. As of March 19, 1997, the aggregate market value of the 12,822,036 shares of voting Common Stock held by non-affiliates of the Company was approximately $1,442,479 based on the average bid and asked price on that date. APPLICABLE ONLY TO CORPORATE REGISTRANTS Indicate the number of shares outstanding of each of registrant's classes of Common Stock, as of the latest practicable date. Shares Outstanding Class 					as of March 31, 1998 Common Stock,						16,819,961 $0.001 Par Value 	DOCUMENTS INCORPORATED BY REFERENCE (a)	Prospectus dated June 6, 1983 - incorporated by reference in Part I. (b)	Exhibits to the Registration Statement No. 2-82655 on Form S-18 - Part IV. (c)	Form 8-K, dated July 2, 1990. F-2 	FORM 10-K 	INTERWEST MEDICAL CORPORATION 	PART I Item 1.	Business. InterWest Medical Corporation (the "Company") was incorporated under the laws of the State of Oklahoma on March 3, 1983. The principal office and place of business of the Company is located at Suite C, 322l Hulen Street, Fort Worth, Texas 76107-6193. Its telephone number is (817) 731-2743. The Company was organized to engage in the business of developing, operating and owning surgery centers itself and in association with others. The Company did not, however, develop any surgery centers. In April 1984, the Company commenced efforts to develop nursing homes in an effort to diversify its efforts. The Company built and sold to an unrelated purchaser a 187-bed skilled nursing home in Vista, California. The Company presently owns and operates a 156-bed skilled nursing home in Colton, California. The Company does not at this time have any plans to develop other nursing homes. The Company has invested funds in nursing homes, in residential real estate developments and in the oil business. All of the industries in which the Company has invested are extremely competitive in all phases. Many of its competitors, both public and private, possess and employ financial and personnel resources substantially greater than those which are currently available to the Company. Item 2.	Properties. Nursing Home Business The Company owns and operates a 156-bed skilled nursing home located on a 9 acre parcel of land in Colton, California. At December 31, 1997, the Company had a cost of $3,028,924 in such facility. In 1997, the facility had an operating income of $987,934. Residential Development The Company developed residential lots in Modesto, California, Miami County, Kansas and Douglas County, Kansas. This activity has been substantially completed and no further such development is presently planned. F-3 Oil Business The Company has acquired oil and gas leases and properties in the states of Texas, Oklahoma, Mississippi and Louisiana. At December 31, 1997, the Company had a cost of $477,276 in such properties. (a)	Oil and Gas Revenues. A description of the Company's net quantity of oil and gas reserves is contained in the unaudited Supplemental Information of the accompanying financial statements. Estimates of reserves are not presented as being based on estimates prepared or reviewed by independent consultants. All such estimates were made in accordance with regulations promulgated by the Securities and Exchange Commission. The referenced reserve reports are available for examination at the corporate headquarters. The Company has no long-term supply or similar agreements with foreign governments or authorities. No major discovery or other favorable or adverse event has caused a significant change in the estimated proved reserves. The Company has not filed with or included in reports to any federal authority or agency, other than the SEC, any estimate of total proved net oil and gas reserves. All of the Company's production, acreage and drilling activity is located in the United States. The changes in proved developed reserves for 1997, 1996 and 1995 were as follows: Petroleum	 Natural Liquids	 Gas (bbls) 	 (MCF) Reserves at December 31, 1994		 30,680	664,690 Production						( 6,654)	 ( 121,967) Revision of estimates				( 19,086)	 ( 97,677) Reserves at December 31, 1995		4,940	640,400 	Sales of reserves in place			( 30)	( 2,930) Production						 ( 1,070)	( 119,380) Revision of estimates				( 480)	( 101,080) Reserves at December 31, 1996		3,360	417,010 	Sales of reserves in place			( 10)	( 7,348) 	Production						( 1,012)	( 80,016) 	Revision of estimates				48,661	209,050 	Discoveries						 132	 73,429 Reserves at December 31, 1997			 51,131	 612,125 The standardized measure of discounted estimated future net cash flows, and changes therein, related to proved oil and gas reserves are as follows (thousands of dollars) for 1997, 1996 and 1995: F-4 	 1997 	 1996 	 1995 Future cash inflows	$2,131	$ 975	$1,251 Future development and production costs	1,255	587	621 Future income tax expense	 - 	 - 	 - Future net cash flows	876	587	621 10% annual discount	 275	 60	 159 Standardized measure of discounted future cash flows	$ 601	$ 328	$ 471 Primary changes in standardized measure of discounted future net cash flow: 	 1997 	 1996 	 1995 Net changes in prices and production costs	$ 20	$ 88	$ 218 Extensions, discoveries and improved recovery	111	- 	- Sale of reserves-in-place	( 3)	( 1)	- Sales of oil and gas, net of production costs	( 80)	( 78)	( 118) Revision of estimates	305	( 158)	( 12) Accretion of discount	33	39	40 Other	( 113)	( 33)	( 55) 	$ 273	($ 143)	$ 73 See the unaudited Supplemental Information in the accompanying financial statements for additional information. (b)	Past Production and Average Sales Price. Sales Price (1)	Net oil and gas production (in barrels and MCF, respectively) from registrant's properties in the United States, was as follows: Oil	 Gas Year Ended					 ( Bbls )	( MCF ) December 31, 1995	6,654	121,967 December 31, 1996	1,823	 97,034 December 31, 1997	1,012	80,016 F-5 (2)	Average sales price and production costs: Average		 Average Sales Price	Production Costs Year Ended			 ( Bbls ) ( MCF ) (Bbls) ( MCF ) December 31, 1995		 $16.84	 $1.71	$13.60	$0.78 December 31, 1996		 $22.19	 $1.80	$12.01	$1.06 December 31, 1997		 $16.24	 $2.08	$13.42	$1.11 (c)	Productive Wells and Producing Acres. Registrant's interest in gross and net productive wells located on its properties as of December 31, 1997, was as follows: Developed Acres Wells		Gross	Net		Gross	 Net Oil			 -0-	-0- -0- 	 -0- Gas	18	2,066		8,645.9	796.8 (d)	Undeveloped Acreage. Gross and net acres covered by registrant's undeveloped properties as of December 31, 1997, were as follows: Acres: Gross:	-0-	Net:	-0- (e)	Productive and Dry Net Wells Drilled During 1997. Exploratory Wells	 Development Wells Production Dry	 Productive Dry 1997			 -0-	 -0-	 -0-		-0- (f)	Wells drilling at December 31, 1997: Gross:	-0-	Net:	 -0- Item 3.	Legal Proceedings. In the opinion of management, all litigation pertaining to the Company's long-term health care operations is considered to be ordinary routine litigation incidental to its business and that the disposition of all outstanding legal actions will not have a material adverse effect on the Company. F-6 Item 4.	Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of security holders during the fourth quarter of 1997, except for the election of directors. F-7 	PART II Item 5.	Market for Registrant's Common Equity and Related Stockholder Matters. The Company's Common Stock is traded in the national over-the-counter market and is listed in the pink sheets. The high and low bid prices quoted for each quarter in the past two calendar years were as follows: Period 		Low Bid 			High Bid 1st Quarter, 1996		$0.10000			$0.1250 2nd Quarter, 1996		 0.10000			 0.1250 3rd Quarter, 1996		 0.10000			 0.1250 4th Quarter, 1996		 0.10000			 0.1250 1st Quarter, 1997		 0.10000			 0.1250 2nd Quarter, 1997		 0.10000			 0.1250 3rd Quarter, 1997		 0.10000			 0.1250 4th Quarter, 1997		 0.10000 			 0.1250 As of March 31, 1998, the approximate number of holders of Common Stock was 1,992. No cash dividends had been paid as of December 31, 1997, and the Company does not currently anticipate paying cash dividends in the foreseeable future. Item 6.	Selected Financial Data. The following table sets forth certain summary financial information concerning the Company. Year Ended December 31, 	 	 1997 	 1996 	 1995 	 1994 	 1993 Operating revenues	$10,123,168	$9,283,774	$9,102,349	$8,505,792	$8,105,469 Net income (loss)	609,112	( 49,282)	( 47,877)	( 53,452)	( 458,122) Total assets	9,522,248	8,333,614	8,580,878	8,690,373	9,417,999 Long-term debt	4,530,234	4,545,653	4,559,472	4,571,857	4,582,958 Per common share: $0.04 Net income (loss)	$0.00	($0.00)	($0.00)	($ 0.00)	($ 0.02) Cash dividends 	declared	$0.00	$0.00 	$0.00	$ 0.00	$ 0.00 F-8 Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations. (a)	Liquidity and Capital Resources: 	During the year 1995, the Company's cash increased from $1,807,951 at the beginning of the period to $2,096,886 at the end of the period. Accordingly, there was a net increase in cash of $288,935. This was attributable to an increase in cash provided by operating activities. 	During the year 1996, the Company's cash decreased from $2,096,886 at the beginning of the period to $2,094,563 at the end of the period. Accordingly, there was a net decrease in cash of ($2,323). This was attributable to a decrease in net cash provided by operating activities. 	During the year 1997, the Company's cash decreased from $2,096,886 at the beginning of the period to $2,094,563 at the end of the period. Accordingly, there was a net decrease in cash of ($2,323). This was attributable to an increase in net cash used in investing activities. 	The Company is not aware of any known trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the registrant's liquidity increasing or decreasing in any material way. 	In the Company's view, its short-term liquidity and short-term capital resources will be sufficient to cover its cash needs up to 12 months into the future. The Company does not presently anticipate material capital expenditures. The Company does not have any significant balloon payments. The Company's long-term debt consists of a mortgage loan bearing interest at the rate of 11% and is payable in monthly installments of $42,890. It is anticipated that these payments will be made from revenues received by the operation of the Company's nursing home. 	During 1997, the Company purchased as treasury shares a total of 297,075 shares of its stock at an aggregate purchase price of $36,571. (b)	Results of Operations: 	Operating profit for 1995 was $353,246, as compared to an operating profit of $268,766 for 1994. The increase in profit was attributed to larger revenues from the Company's long-term health care facility. Net loss was ($47,877) as compared to ($53,452) for 1994. 	Operating profit for 1996 was $360,059, as compared to an operating profit of $353,246 for 1995. The increase in profit was attributed to larger revenues from the Company's long-term F-9 health care facility. Net loss was ($49,282) in 1997 as compared to a loss of ($47,877) in 1995. 	Operating profit for 1997 was $987,934, as compared to an operating profit of $360,059 for 1996. The increase in profit was attributable to larger revenues from the Company's long-term health care facility. Net income was $609,112 in 1997 as compared to a net loss of ($49,282) in 1996. 	The revenues derived from each segment of the Company's businesses are as follows: Long-term health care - $9,773,756; real estate development and construction - $87,606 and oil and gas - $261,806. (c)	Effects of Inflation: 	The Company is of the view that inflation did not affect its operations in 1996 and should not in 1997. Item 8.	Financial Statements and Supplementary Data. 		Page No. Independent Auditor's Report	12 Consolidated Balance Sheets December 31, 1997 and 1996	14 Consolidated Statements of Operations for Years Ended December 31, 1997, 1996 and 1995	16 Consolidated Statements of Stockholders Equity for Years Ended December 31, 1997, 1996 and 1995	17 Consolidated Statements of Cash Flows for Years Ended December 31, 1997, 1996 and 1995	18 Notes to Consolidated Financial Statements	20 Supplementary Information	31 F-10 Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. There have been no disagreements with accountants on any matter of accounting principles or practices or financial statement disclosures during the twenty-four (24) month period ended December 31, 1997. F-11 	INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Shareholders InterWest Medical Corporation We have audited the accompanying consolidated balance sheets of InterWest Medical Corporation and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three year period ended December 31, 1997. Our audits also included the financial statement schedule II for each of the years in the three year period ended December 31, 1997. These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule 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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of InterWest Medical Corporation and subsidiaries as of December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the years in the three year period ended December 31, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedule II when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. WEAVER AND TIDWELL, L.L.P. Fort Worth, Texas March 10, 1998 3038 F-12 	INTERWEST MEDICAL CORPORATION	(1 of 2) 	CONSOLIDATED BALANCE SHEETS 	DECEMBER 31, 1997 AND 1996 	 1997 	 1996 ASSETS CURRENT ASSETS Cash, including interest bearing accounts, 1997 - $1,090,686 ; 1996 - $1,954,527	$1,458,281	$2,094,563 Accounts receivable - trade, net of allowance for doubtful accounts, 1997 - $54,844; 1996 - $51,178	2,225,183	1,631,439 Investments available for sale	1,955,961	- Prepaid expenses and other receivables	 60,165	 73,335 Total current assets	5,699,590	 3,799,337 REAL ESTATE DEVELOPMENT AND CONSTRUCTION COSTS	33,582	121,582 PROPERTY AND EQUIPMENT, at cost Land			191,442	176,442 Buildings and improvements	3,789,419	3,786,294 Equipment and furniture	827,302	645,876 Oil and gas properties (successful efforts method of accounting)	 477,276	 997,083 	5,285,439	5,605,695 Less accumulated depreciation and depletion	 1,779,239	 1,501,730 	3,506,200	 4,103,965 OTHER ASSETS Cash escrow accounts 	17,293	34,975 Deferred financing costs, net	 265,583	 273,755 	 282,876	 308,730 TOTAL ASSETS	$9,522,248	$8,333,614 F-13 	INTERWEST MEDICAL CORPORATION	(2 of 2) 	CONSOLIDATED BALANCE SHEETS 	DECEMBER 31, 1997 AND 1996 	 1997 	 1996 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt	$ 15,418	$ 13,818 Accounts payable	1,196,289	508,621 Accrued salaries	633,144	543,697 Other accrued liabilities	 142,019	 142,032 Total current liabilities	1,986,870	1,208,168 LONG-TERM DEBT 	4,530,234	4,545,653 STOCKHOLDERS' EQUITY Common stock, par value $0.001, authorized 50,000,000 shares; issued 20,000,000 shares	20,000	20,000 Additional paid-in capital	4,798,745	4,798,745 Retained deficit	( 1,297,316)	( 1,906,428) Net unrealized depreciation on 	securities available for sale	( 147,190)	 - 	 	3,374,239	2,912,317 Less cost of shares held in the treasury, 1997 - 3,180,039 shares; 1996 - 2,882,964 shares	 369,095	 332,524 	 3,005,144	 2,579,793 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$9,522,248	$8,333,614 F-14 	INTERWEST MEDICAL CORPORATION 	CONSOLIDATED STATEMENTS OF OPERATIONS 	YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 	 1997 	 1996 	 1995 REVENUES 	Net patient service revenue	$ 9,773,756	$8,903,359	$8,758,711 	Other revenue	 349,412	 380,415	 343,638 Total revenue	10,123,168	9,283,774	9,102,349 COSTS AND EXPENSES Professional care of patients	5,413,364	4,796,723	4,497,782 General services	1,822,532	1,783,758	1,578,723 Administrative services	1,352,709	1,320,204	1,550,293 Other costs	220,938	731,981	737,377 Depreciation, depletion and amortization	 325,691	 291,049	 384,928 Income from operations	987,934	360,059	353,246 OTHER INCOME (EXPENSES) Equity in joint venture operations	- 	12,313	28,530 Interest income	122,045	80,638	73,705 Interest expense	( 500,867)	( 502,292)	( 503,358) Income (loss) before 	taxes on income	609,112	( 49,282)	( 47,877) Provision for income taxes 	 - 	 - 	 Net income (loss)	$ 609,112	($ 49,282)	($ 47,877) Weighted average shares outstanding	 16,954,926	 17,385,664	 18,462,536 Earnings per common share	$ .04	($ - )	($ ) F-15 	INTERWEST MEDICAL CORPORATION 	CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 	YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 					Net 					Unrealized 					Depreciation 					on 	 Common Stock 	Additional		Securities 	Number of 	Par 	Paid-in 	Retained 	Available 	Treasury 	 Shares 	 Value 	 Capital 	 Deficit 	 for Sale 	 Stock Balance, December 31, 1994	20,000,000	$20,000	$4,798,745	($1,809,269)	 $ - 	($151,574) Net loss				( 47,877) Purchase of 217,000 shares of common stock	 	 	 	 	 - 	( 26,508) Balance, December 31, 1995	20,000,000	20,000	4,798,745	( 1,857,146) 	- 	( 178,082) Net loss				( 49,282) Purchase of 1,237,000 shares of common stock	 - 	 - 	 - 	 - 	 - 	( 154,442) Balance, December 31, 1996	20,000,000	20,000	4,798,745	( 1,906,428) 	- 	( 332,524) 	Net income				609,112 	Purchase of 		297,075 shares 		of common stock						( 36,571) 	Change in 		unrealized 		depreciation on 		securities 		available for sale	 - 	 - 	 - 	 - 	( 147,190)	 - Balance, 	December 31, 1997	20,000,000	$20,000	$4,798,745	($1,297,316)	($ 147,190)	 ($369,095) F-16 INTERWEST MEDICAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 	 1997 	 1996 	 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers/patients	$9,450,649	$9,045,079	$9,244,777 Interest received	122,045	80,638	73,705 Cash paid to suppliers and employees	( 7,916,683)	( 8,220,967)	( 7,975,413) Interest paid	( 500,880)	( 502,292)	( 503,358) Net cash provided by operating activities	1,155,131	402,458	839,711 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment	( 315,427)	( 352,675)	( 586,159) Proceeds from sale of property	659,873	55,595	- Purchase of investments	( 2,103,151)	- 	- Mortgage escrow deposits, net	17,682	854	( 13,808) Receipts from joint ventures	 - 	 58,273	 86,799 Net cash used in investing activities	( 1,741,023)	( 237,953)	( 513,168) CASH FLOWS FROM FINANCING ACTIVITIES: Payments on debt	( 13,819)	( 12,386)	( 11,100) Purchase of treasury stock	( 36,571)	( 154,442)	( 26,508) Net cash used in financing activities	( 50,390)	( 166,828)	( 37,608) Net (decrease) increase in cash	( 636,282)	( 2,323)	288,935 CASH, beginning of period	 2,094,563	 2,096,886	 1,807,951 CASH, end of period	$1,458,281	$2,094,563	$2,096,886 F-17 	INTERWEST MEDICAL CORPORATION 	CONSOLIDATED STATEMENTS OF CASH FLOWS 	YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 	 1997 	 1996 	 1995 RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net income (loss)	$ 609,112	($ 49,282)	($ 47,877) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Gain on sale of property	( 78,775)	( 36,034)	- Depreciation and amortization	325,691	291,049	384,928 Abandonments	14,575	332,027	394,319 Equity in joint venture operations	- 	( 12,313)	( 28,530) Changes in assets and liabilities: Accounts receivable	( 593,744)	( 202,661)	142,428 Prepaid expenses and 	other receivables	13,170	5,749	( 15,127) Real estate development costs	88,000	105,077	23,580 	Other investments	- 	- 	10,000 	Accounts payable	687,668	( 109,253)	( 139,631) Accrued liabilities	 89,434	 78,099	 115,621 Net cash provided by operating activities	$1,155,131	$402,458	$839,711 NONCASH INVESTING AND FINANCING ACTIVITIES: Included in prepaid expenses and other receivables at December 31, 1996 is $28,750 due from the president of the Company on the sale of common stock investments. F-18 	INTERWEST MEDICAL CORPORATION 	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES The accounting policy relative to property and equipment is shown on the accompanying balance sheets. Other significant accounting policies are as follows: Basis of Presentation The consolidated financial statements include the accounts of InterWest Medical Corporation and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. Investments in joint ventures are accounted for on the equity basis of accounting. Reclassifications Certain reclassifications have been made to 1996 and 1995 captions to conform to the 1997 presentation. Depreciation Depreciation of long-term health care property and equipment is provided principally on the straight-line method over the estimated useful lives of the depreciable assets. Estimated useful lives of depreciable assets are as follows: Buildings and improvements	31 years Equipment and furniture	7 years 	Investments in Securities The Company has adopted Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, issued by the Financial Accounting Standards Board. In accordance with Statement No. 115, the Company's investments in securities are classified as follows: Trading Securities - Investments in debt and equity securities held principally for resale in the near term are classified as trading securities and recorded at their fair values. Unrealized gains and losses on trading securities are included in other income. The Company does not, nor does it intend to, trade investments that it owns. F-19 	INTERWEST MEDICAL CORPORATION 	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES - continued 	Investments in Securities - continued Securities to be Held to Maturity - Debt securities for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for amortization of premiums and accretion of discounts which are recognized in interest income using the interest method over the period to maturity. Securities Available for Sale - Securities available for sale consist of its debt and equity securities not classified as trading securities nor as securities to be held to maturity. Unrealized holding gains and losses on securities available for sale are reported as a net amount in a separate component of stockholders' equity until realized. Gains and losses on the sale of securities available for sale are determined using the specific identification method. Oil and Gas Property and Equipment The Company utilizes the "successful efforts" method of accounting for costs incurred in the exploration and development of oil and gas properties. Accordingly, costs incurred in the acquisition and exploratory drilling of oil and gas properties are accumulated and subsequently either expensed, if the properties are determined not to have proved reserves or capitalized as a depletable asset if proved reserves are discovered. Costs of drilling development wells are capitalized. Geological, geophysical and carrying costs are charged to expenses as incurred. Acquisition costs relating to producing oil and gas properties are amortized on a prospect by prospect basis using the units-of-production method based on engineers' estimates of proven oil and gas reserves. Depletion and depreciation of producing oil and gas properties (other than acquisition costs) are amortized by prospect using the units-of-production method based on estimated proved developed reserves. F-20 	INTERWEST MEDICAL CORPORATION 	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES - continued Use 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 these estimates. Financial Instruments Financial instruments of the Company consist of cash, accounts receivable, investments and debt. Recorded values of cash and accounts receivable approximate fair values due to the short maturities of the instruments. For information on the fair value of investments, see Note 2. The fair value of debt is estimated as its carrying value at December 31, 1997 plus refinancing costs paid in February 1998. See Note 6. 	Carrying 	Fair 	 Amount 	 Value Long-term debt - 1997	$4,545,652	$4,689,652 Long-term debt - 1996	$4,559,471	$5,198,252 Revenue Patient service revenue is reported at the estimated net realizable amounts from patients, third-party payors, and others for service rendered. Revenue under third-party payor agreements is subject to audit and retroactive adjustment. Provisions for estimated third-party payor settlements are provided in the period the related services are rendered. Differences between the estimated amounts accrued and interim and final settlements are reported in operations in the year of settlement. F-21 	INTERWEST MEDICAL CORPORATION 	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES - continued Income Taxes The Company provides for deferred taxes resulting from temporary differences between the basis of assets and liabilities for financial and tax reporting purposes. Such differences result principally from the use of the direct write-off method for bad debts for tax reporting purposes and nondeductible write-downs of real estate development costs to net realizable value. Earnings Per Common Share The Company has adopted Statement No. 128, Earnings Per Share, issued by the Financial Standards Accounting Board. Adoption of Statement No. 128 had no effect upon 1997, 1996 or 1995 earnings per share computations. Basic earnings per common share was computed based on the weighted average number of common shares outstanding for the period. Diluted earnings per share have not been presented since the inclusion of common stock equivalents would be antidilutive. Cash Flows Presentation For purposes of the statement of cash flows, the Company considers cash to include unrestricted cash and all highly liquid investments with initial maturities of ninety days or less from the date of purchase. Amortization Costs of obtaining financing are amortized over the term of the financing. Credit Risk The Company regularly maintains cash in bank deposit and brokerage accounts which exceed FDIC/SPIC insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. F-22 	INTERWEST MEDICAL CORPORATION 	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES - continued Stock-based Compensation The Company recognizes compensation costs for stock-based compensation plans based on the difference, if any, between the quoted market price of the stock and the amount an employee must pay to acquire the stock. Dates that quoted market prices are determined may vary depending on whether the terms of an award are fixed or variable. The Financial Accounting Standards Board has issued Statement No. 123 establishing a fair value based method of accounting for stock-based compensation plans. As permitted under Statement No. 123, the Company does not intend to adopt the recognition or accounting requirements of the statement. No awards have been granted in 1997, 1996 or 1995. 	Accounting Changes The Financial Accounting Standards Board has issued the following Statements of Financial Accounting Standards effective for fiscal years beginning after December 15, 1997: No. 130 - Reporting Comprehensive Income Requires that all items are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. No. 131 - Disclosures About Segments of an Enterprise 			 and Related Information Requires disclosure of operating segments based upon information used internally for evaluating segment performance and allocating resources. No. 132 - Employers' Disclosures About Pensions 			and Other Post-retirement Benefits Revises employers' disclosures about pensions and other post-retirement plans. The Company will adopt the above standards effective January 1, 1998. Adoption is not expected to have a significant effect upon current financial statements. F-23 	INTERWEST MEDICAL CORPORATION 	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. INVESTMENT SECURITIES Investment securities consist entirely of equity securities. The cost and market values of investment securities available for sale at December 31, 1997 were: 	Market value		$1,955,961 	Amortized cost		 2,103,151 	Unrealized loss		($ 147,190) Unrealized appreciation (depreciation) in investment securities available for sale are included in stockholders' equity, net of income tax effect. There were no sales of securities in 1997. The Company had no investment securities at December 31, 1996. NOTE 3. CAPITAL STOCK The Company has adopted a Stock Option Plan which provides for the granting of options to officers and other key employees for the purchase of common stock of the Company. The Plan reserves 1,500,000 shares of common stock for the granting of such options. Options are subjected to adjustment upon any change in the capital structure of the Company such as a stock dividend, stock split or other similar events. Options may be granted at not less than 100% of the fair market value of the Company stock at the date of grant, and are exercisable during a term of ten years from the date of grant at any time in whole or in part, and are subject to continued employment and other conditions as set forth in the option agreement. Options are exercisable only by the participants and are not assignable during their lifetime and must be exercised within one year of the death of the participant by his legal representatives. Nine hundred, seventy-five thousand (975,000) shares exercisable at $0.15 per share were granted under the Plan. All options expired unexercised in 1997. F-24 	INTERWEST MEDICAL CORPORATION 	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4. RELATED PARTY TRANSACTIONS During the years ended December 31, 1997, 1996 and 1995 Arch B. Gilbert, a Professional Corporation, whose sole stockholder is president of the Company, was paid $5,000, $9,000 and $21,500, respectively, for legal services rendered. During the years ended December 31, 1997, 1996 and 1995, the above corporation was reimbursed $37,126, $47,068, and $56,056, respectively, for expenses incurred on behalf of the Company. Included in other receivables at December 31, 1996 is $28,750 due from the Company's president from the sale of common stock investments to the president. No gain or loss was recognized from the sale. Included in accounts payable at December 31, 1997 is approximately $36,000 of advances from the Company's president. NOTE 5. FEDERAL INCOME TAXES The Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," effective January 1, 1996. Adoption of this standard did not materially impact the Company's consolidated financial statements. The Company had no income tax provision in 1997, 1996 or 1995, and no significant differences between the tax provisions and the amounts computed using statutory rates. At December 31, 1997, the Company had unused operating loss carryforwards available to offset future income for tax reporting purposes of approximately $1,235,000 which ultimately expires in 2012. All income (loss) since inception relates to domestic activity. F-25 	INTERWEST MEDICAL CORPORATION 	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5. FEDERAL INCOME TAXES - continued The tax effects of net operating loss carryforwards and temporary differences at December 31, 1997 and 1996 that give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows: 	 1997 	 1996 Deferred tax assets Net operating loss carryforwards	$419,399	$610,386 Unrealized loss on marketable securities	50,045	- Real estate valuations	- 	17,480 Other	 18,646	 17,400 	488,090	645,266 Deferred tax liabilities	- 	- Valuation allowance	( 488,090)	( 645,266) Total deferred taxes, net	$ - 	$ - 	 During 1997 and 1996, the valuation allowance (decreased) increased ($157,176) and $16,401, respectively. NOTE 6. LONG-TERM DEBT Long-term debt consisted of the following at December 31: 	 1997 	 1996 Mortgage loan for financing of a nursing home constructed in Colton, California. The mortgage loan bears interest at 11%, is due in monthly installments of $42,890 (principal and interest), matures in June, 2030 and is secured by real estate	$4,545,652	$4,559,471 Less current maturities	 15,418	 13,818 	$4,530,234	$4,545,653 F-26 	INTERWEST MEDICAL CORPORATION 	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6. LONG-TERM DEBT - continued Aggregate maturities of long-term debt for each of the succeeding five years and thereafter is as follows: 1998		$ 15,418 1999		17,202 2000		19,192 2001		21,413 2002		23,891 Thereafter		4,448,536 In February 1998, the above mortgage loan was restructured to reduce the mortgage interest rate to 7.375% effective February 1, 1998. In connection with the restructuring, the Company paid approximately $144,000 of debt issue costs in 1998. NOTE 7. SEGMENTED INFORMATION The Company's operations are classified into three principal industry segments: Long-term Health Care	-	Operation of convalescent centers involving skilled nursing care in southern California Real Estate Development and Construction	-	Construction and sale of single family housing Oil and Gas	-	Oil and gas exploration and development Following is a summary of segmented information for 1997, 1996 and 1995: 	 1997 		Real Estate 	Long-term 	Development 	Health 	and 	Oil and 	 	 Care 	 Construction 	 Gas 	Consolidated Sales to unaffiliated customers	$9,773,756	$ 87,606	$261,806	$10,123,168 Operating income (loss)	$1,173,269	($ 394)	$ 48,571	$ 1,221,446 Other income				122,045 General corporate expenses				( 233,512) Interest expenses				( 500,867) Income before income taxes				$ 609,112 F-27 NOTE 7. SEGMENTED INFORMATION - continued 	 1997 		Real Estate 	Long-term 	Development 	Health 	and 	Oil and 	 	 Care 	 Construction 	 Gas 	Consolidated Identifiable assets	$5,829,421	$ 49,725	$180,361	$6,059,507 Corporate assets				 3,462,741 Total Assets at 12/31/97				$9,522,248 Capital expenditures	$ 199,551	$ - 	$115,876	$ 315,427 Depreciation, depletion and amortization	$ 245,394	$ - 	$ 80,297	$ 325,691 		 1996 	 		Real Estate 	Long-term 	Development 	Health 	and 	Oil and 	 	 Care 	 Construction 	 Gas 	Consolidated Sales to unaffiliated customers	$8,903,359	$ 104,533	$275,882	$ 9,283,774 Operating income (loss)	$1,003,417	($ 40,375)	($387,787)	$ 575,255 Other income				92,951 General corporate expenses				( 215,196) Interest expenses				( 502,292) Loss before income taxes				($ 49,282) Identifiable assets	$5,356,666	$ 121,582	$731,961	$ 6,210,209 Corporate assets				 2,123,405 Total Assets at 12/31/96				$ 8,333,614 Capital expenditures	$ 85,867	$ - 	$266,808	$ 352,675 Depreciation, depletion and amortization	$ 222,625	$ - 	$ 68,424	$ 291,049 F-28 	INTERWEST MEDICAL CORPORATION 	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7. SEGMENTED INFORMATION - continued 		 1995 	 		Real Estate 	Long-term 	Development 	Health 	and 	Oil and 	 	 Care 	 Construction 	 Gas 	Consolidated Sales to unaffiliated customers	$8,758,711	$ 22,091	$321,547	$ 9,102,349 Operating income (loss)	$1,143,251	($ 9,844)	($549,500)	 $ 583,907 Other income				102,235 General corporate expenses				( 230,661) Interest expenses				( 503,358) Loss before income taxes				($ 47,877) Identifiable assets	$5,318,673	$ 272,619	$863,795	$ 6,455,087 Corporate assets				 2,125,791 Total Assets at 12/31/95				$ 8,580,878 Capital expenditures	$ 33,865	$ - 	$552,294	$ 586,159 Depreciation, depletion and amortization	$ 219,323	$ - 	$165,605	$ 384,928 The Company did not have any intersegment sales. Operating loss is total revenues less operating expenses for each segment and excludes general corporate expenses, interest expense and other income of a corporate nature. Identifiable assets by segment are those assets that are used in the Company's operations within that industry. Corporate assets consist principally of cash. NOTE 8. CONTINGENCIES The Company is involved in litigation pertaining to its long-term health care operations. It is the Company's opinion that any loss incurred would be adequately covered by insurance and the ultimate liability, if any, should not have a material adverse effect on the Company's consolidated financial position. NOTE 9. EMPLOYEES RETIREMENT PLAN The Company has a retirement plan, established in 1996, covering substantially all of its employees. Contributions to the plan in 1997 and 1996 totaled $35,440 and $21,216, respectively. F-29 	INTERWEST MEDICAL CORPORATION 	SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Column A 	 Column B 		 Column C 	 Column E 	 Column F 			 Additions 		Charged 	 	Balance at	to Costs 	Charged 	Beginning 	and 	to Other 		Balance at 	 of Period 	Expenses	Accounts	Deductions	End of Period Allowance for doubtful accounts Year ended December 31, 1995	$ 40,273	$ 40,496	$ - 	$ 37,131	 $ 43,638 Year ended December 31, 1996	$ 43,638	$ 14,348	$ - 	$ 6,808	 $ 51,178 	Year ended 		December 31, 1997	$ 51,178	$ 27,458	$ - 	$ 23,792	 $ 54,844 F-30 INTERWEST MEDICAL CORPORATION SUPPLEMENTAL INFORMATION (unaudited) The SEC defines proved oil and gas reserves as those estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Estimates of petroleum reserves have been made by independent engineers. The valuation of proved reserves may be revised in the future on the basis of new information as it becomes available. Estimates of proved reserves are inherently imprecise. All of the reserves of the Company represent proved developed reserves. Estimated quantities of oil and gas reserves of the Company (all of which are located in the United States) are as follows: 	Petroleum	Natural 	Liquids 	Gas 	 (bbls) 	 (MCF) December 31, 1995 - proved developed reserves	4,940	640,400 December 31, 1996 - proved developed reserves	3,360	417,010 	December 31, 1997 - proved developed reserves	51,131	612,125 F-31 INTERWEST MEDICAL CORPORATION SUPPLEMENTAL INFORMATION (unaudited) The changes in proved developed reserves for 1995, 1996 and 1997 were as follows: 	Petroleum	Natural 	Liquids 	Gas 	 (bbls) 	 (MCF) Reserves at December 31, 1994	30,680	664,690 Production	( 6,654)	( 121,967) Revision of estimates	( 19,086)	 97,677 Reserves at December 31, 1995	 4,940	 640,400 		Sales of reserves-in-place	( 30)	( 2,930) 		Production	( 1,070)	( 119,380) 		Revision of estimates	( 480)	( 101,080) Reserves at December 31, 1996	 3,360	 417,010 	Sales of reserves-in-place	( 10)	( 7,348) 	Production	( 1,012)	( 80,016) 	Revision of estimates	48,661	209,050 	Discoveries	 132	 73,429 Reserves at December 31, 1997	 51,131	 612,125 The standardized measure of discounted estimated future net cash flows, and changes therein, related to proved oil and gas reserves (thousands of dollars) for 1997, 1996 and 1995 are as follows: 	 1997 	 1996 	 1995	 Future cash inflows	$ 2,131	$ 975	$1,251 Future development and production costs	 1,255	587	621 Future income tax expense	 - 	 - 	 - 	 Future net cash flows	876	388	630 10% annual discount	 275	 60	 159 Standardized measure of discounted future cash flows	$ 601	$ 328	$ 471 F-32 INTERWEST MEDICAL CORPORATION SUPPLEMENTAL INFORMATION (unaudited) Primary changes in standardized measure of discounted future net cash flow: 	 1997 	 1996 	 1995 Net changes in prices and production costs	$ 20	$ 88	$ 218 Extensions, discoveries and improved recovery	111	- 	- Sale of reserves-in-place	( 3)	( 1)	- Sales of oil and gas, net of production costs	( 80)	( 78)	( 118) Revision of estimates	305	( 158)	( 12) Accretion of discount	33	39	40 Other	( 113)	( 33)	( 55) 	$ 273	($ 143)	$ 73 Estimated future cash inflows are computed by applying year end prices of oil and gas to year end quantities of proved developed reserves. Estimated future development and production costs are determined by estimating the expenditures to be incurred in developing and producing the proved oil and gas reserves in future years, based on year end costs and assuming continuation of existing economic conditions. Estimated future income tax expenses are calculated by applying year end statutory tax rates (adjusted for permanent differences, tax credits and tax carryforwards) to estimated future pretax net cash flows related to proved oil and gas reserves, less the tax basis of the properties involved. These estimates are furnished and calculated in accordance with requirements of the Financial Accounting Standards Board and the SEC. Because of unpredictable variances in expenses and capital forecasts, crude oil and natural gas price changes, and the fact that the bases for such estimates vary significantly, management believes the usefulness of these projections is limited. Estimates of future net cash flows do not necessarily represent management's assessment of future profitability or future cash flow to the Company. F-33 	INTERWEST MEDICAL CORPORATION 	SUPPLEMENTAL INFORMATION (unaudited) The aggregate amounts of capitalized costs relating to oil and gas producing activities and the related accumulated depletion and depreciation as of December 31, 1997, 1996 and 1995 were as follows (thousands of dollars): 	 1997 	 1996 	 1995 	 Proved properties	$ 477	$ 488	$ 656 Unproved properties, including wells in progress	- 	509	576 Accumulated depletion and depreciation	( 340)	( 301)	( 406) Net capitalized costs	$ 137	$ 696	$ 826 The costs, both capitalized and expensed, incurred in oil and gas producing activities during the three years ended December 31, 1997, 1996 and 1995 were as follows (thousands of dollars): 	 1997 	 1996 	 1995 Property acquisition costs	$ 83	$ 240	$ 431 Exploration costs	32	43	170 Development costs	- 	- 	- Results of oil and gas operations in the aggregate for the three years ended December 31, 1997, 1996 and 1995 were as follows: 	 1997 	 1996 	 1995 Revenues	$261,806	$216,072	$321,547 Production costs	102,828	138,120	203,803 Exploration expense	30,110	332,027	501,639 Depreciation and depletion	80,297	68,424	165,605 Income taxes	- 	- 	- Other	 - 	 65,288	 - 	 	 213,235	 603,859	 871,047 Net oil and gas income (loss)	$ 48,571	($387,787)	($549,500) F-34 INTERWEST MEDICAL CORPORATION SUPPLEMENTAL INFORMATION (unaudited) Past Production and Average Sales Price: (a)	Net oil and gas production (in barrels and MCF, respectively) from Registrant's properties in the United States was as follows: 	Oil 	Gas 	 (Bbls) 	 (MCF) Year Ended December 31, 1995		6,654	121,967 December 31, 1996		1,823	97,034 December 31, 1997		1,012	80,016 (b)	Average sales price and production costs: 		 Average		 Average 		 Sales Price 		 Production Costs 	 (Bbls) 	(MCF)	 (Bbls) 	(MCF) Year Ended December 31, 1995	$16.84	$1.71	$13.60	$ .78 December 31, 1996	$22.19	$1.80	$12.01	$1.06 		December 31, 1997	$16.24	$2.08	$13.42	$1.11 F-35 INTERWEST MEDICAL CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Column A 	 Column B 	 Column C 	 Column E	Column F 		 Additions 		Charged 			Balance 	Balance at	to Costs 	Charged 		 at End	Beginning 	and 	to Other 		 of 	of Period	Expenses	Accounts	Deductions	Period Allowance 	for 	doubtful 	accounts Year ended December 31, 1995	$ 40,273	$ 40,496	$ - 	$ 37,131	$ 43,638 Year ended December 31, 1996	$ 43,638	$ 14,348	$ - 	$ 6,808	$ 51,178 Year ended December 31, 1995	$ 59,600	$ 19,499	$ - 	$ 38,826	$ 40,273 F-36 INTERWEST MEDICAL CORPORATION SUPPLEMENTAL INFORMATION The SEC defines proved oil and gas reserves as those estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Estimates of petroleum reserves have not been made by independent engineers. The valuation of proved reserves may be revised in the future on the basis of new information as it becomes available. Estimates of proved reserves are inherently imprecise. All of the reserves of the Company represent proved developed reserves. Estimated quantities of oil and gas reserves of the Company (all of which are located in the United States) are as follows: 	Petroleum	Natural 	Liquids 	Gas 	 (bbls) 	 (MCF) December 31, 1995 - 	proved developed reserves	4,940	640,400 December 31, 1996 - 	proved developed reserves	3,360	417,010 December 31, 1997 - 	proved developed reserves F-37 INTERWEST MEDICAL CORPORATION SUPPLEMENTAL INFORMATION The changes in proved developed reserves for 1995, 1996 and 1997 were as follows: 	Petroleum	Natural 	Liquids 	Gas 	 (bbls) 	 (MCF) Reserves at December 31, 1994	30,680	664,690 Production	( 6,654)	( 121,967) Revision of estimates	( 19,086)	 97,677 Reserves at December 31, 1995	 4,940	 640,400 		Sales of reserves-in-place	( 30)	( 2,930) 		Production	( 1,070)	( 119,380) 		Revision of estimates	( 480)	( 101,080) Reserves at December 31, 1996	 3,360	 417,010 Extensions and discoveries	225	12,662 Purchases of reserves-in-place	26,345	- Sale of reserves-in-place	( 131)	( 3,616) Production	( 3,525)	( 180,696) Revision of estimates	( 1,331)	( 207,800) 	Reserves at December 31, 1997 The standardized measure of discounted estimated future net cash flows, and changes therein, related to proved oil and gas reserves (thousands of dollars) for 1997, 1996 and 1995 are as follows: 	 1997 	 1996 	 1995 Future cash inflows		$ 975	$1,251 Future development and 	production costs		587	621 Future income tax expense		 - 	 - Future net cash flows		388	630 10% annual discount		 60	 159 Standardized measure of discounted future cash flows		$ 328	$ 471 F-38 INTERWEST MEDICAL CORPORATION SUPPLEMENTAL INFORMATION Primary changes in standardized measure of discounted future net cash flow: 	 1997 	 1996 	 1995 Net changes in prices 	and production costs		$ 88	$ 218 Extensions, discoveries and improved recovery		- 	- Purchases of reserves-in-place		- 	- Sale of reserves-in-place		( 1)	- Sales of oil and gas, net of production costs		( 78)	( 118) Net change in income taxes			- Revision of estimates		( 158)	( 12) Accretion of discount		39	40 Other		( 33)	( 55) 		($ 143)	$ 73 Estimated future cash inflows are computed by applying year end prices of oil and gas to year end quantities of proved developed reserves. Estimated future development and production costs are determined by estimating the expenditures to be incurred in developing and producing the proved oil and gas reserves in future years, based on year end costs and assuming continuation of existing economic conditions. Estimated future income tax expenses are calculated by applying year end statutory tax rates (adjusted for permanent differences, tax credits and tax carryforwards) to estimated future pretax net cash flows related to proved oil and gas reserves, less the tax basis of the properties involved. These estimates are furnished and calculated in accordance with requirements of the Financial Accounting Standards Board and the SEC. Because of unpredictable variances in expenses and capital forecasts, crude oil and natural gas price changes, and the fact that the bases for such estimates vary significantly, management believes the usefulness of these projections is limited. Estimates of future net cash flows do not necessarily represent management's assessment of future profitability or future cash flow to the Company. F-39 INTERWEST MEDICAL CORPORATION SUPPLEMENTAL INFORMATION The aggregate amounts of capitalized costs relating to oil and gas producing activities and the related accumulated depletion and depreciation as of December 31, 1997, 1996 and 1995 were as follows (thousands of dollars): 	 1997 	 1996 	 1995 Proved properties		$ 488	$ 656 Unproved properties, including wells in progress		509	576 Accumulated depletion and depreciaton		( 301)	( 406) Net capitalized costs		$ 696	$ 826 The costs, both capitalized and expensed, incurred in oil and gas producing activities during the three years ended December 31, 1997, 1996 and 1995 were as follows (thousands of dollars): 		 1997 	 1996 	 1995 Property acquisition costs		$ 240	$ 431 Exploration costs		43	170 Development costs		- 	- Results of oil and gas operations in the aggregate for the three years ended December 31, 1997, 1996 and 1995 were as follows: 		 1997 	 1996 	 1995 Revenues		$216,072	$321,547 Production costs		138,120	203,803 Exploration expense		332,027	501,639 Depreciation and depletion		68,424	165,605 Income taxes		- 	- Other		 65,288	 - 			 603,859	 871,047 Net oil and gas loss		($387,787)	($549,500) F-40 INTERWEST MEDICAL CORPORATION SUPPLEMENTAL INFORMATION Past Production and Average Sales Price: (a)	Net oil and gas production (in barrels and MCF, respectively) from Registrant's properties in the United States was as follows: 		Oil 	Gas 		 (Bbls) 	 (MCF) Year Ended December 31, 1995		6,654	121,967 December 31, 1996		1,823	97,034 December 31, 1997 (b)	Average sales price and production costs: 		 Average	 Average 		 Sales Price 		Production Costs 	 (Bbls) 	(MCF)	 (Bbls) 	(MCF) Year Ended December 31, 1995	$16.84	$1.71	$13.60	$ .78 December 31, 1996	$22.19	$1.80	$12.01	$1.06 December 31, 1997 F-41 PART III Item 10.	Directors and Executive Officers of the Registrant. (a)	Identification of Directors: The directors of the Company are elected annually to serve until the next Annual Meeting and until their successors are elected and qualified. Year First Became a Director of Name					Age	 Company 	Position Arch B. Gilbert		64		1983 (1)	President, Secretary, Treasurer & Director Terry M. Gallagher, M.D.	59		1983 (1)	Director 	(1) Date of incorporation (b)	Identification of Executive Officers: Name					Position		Age Arch B. Gilbert		President,		64 Secretary, Treasurer 	 Officers serve at the discretion of the Board of Directors. Arch B. Gilbert received his B.A. and LL.B. degrees from the University of Oklahoma in 1955 and 1957 respectively. He also received his LL.M. degree from Southern Methodist University in 1963. Since August 1, 1979, Mr. Gilbert has been a member of the law firm of Arch B. Gilbert, A Professional Corporation. From February 1, 1962 to August 1, 1979, Mr. Gilbert was a member of the law firm of Brooks, Tarlton, Gilbert, Douglas & Kressler, Fort Worth, Texas. Terry M. Gallagher, M.D. received his M.D. degree from the University of Michigan Medical School in 1964 and his Master of Science degree from Rackham Graduate School in 1969. He did his residency at the University of Michigan Hospital in 1970. From 1970 to 1972, he was a medical officer in the Air Force. In 1971, he received his Board Certification from the American Board-Otolaryngology. From 1972-1974, he was an Assistant Professor of Surgery (Otolaryngology) at the University of Missouri Medical School, Columbia, Missouri. Since 1974, he has been in private practice (Otolaryngology) in Fort Worth, Texas. He is a diplomat of American Board- Otolaryngology, Head and Neck Surgery, a Fellow of American F-42 College of Surgeons and a Clinical Assistant Professor of Surgery (Otolaryngology) at the University of Texas Medical School, San Antonio, Texas. He is a member of the Tarrant County Medical Association, Texas Medical Association and American Medical Association. He is an organizer and member of the Fort Worth Day Surgery Center. There is no family relationship between any director or executive officer of the Company. No personal meetings of the directors took place in 1997. All resolutions of the directors were taken by written consent. (c)	Compliance With Section 16(a) of The Exchange Act. Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors, executive officers and persons who own more than 10% of the Company's outstanding Common Stock to file with the Securities and Exchange Commission reports of changes in ownership of the Common Stock of the Company held by such persons. Officers, directors and greater than 10% shareholders are also required to furnish the Company with copies of all forms they file under this regulation. To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company, during the two fiscal years ended December 31, 1996, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% shareholders were complied with. Item 11.	Executive Compensation. During the fiscal year ended December 31, 1997, Arch B. Gilbert received cash compensation of $80,000. All executive officers as a group (2 persons) received cash remuneration in fiscal year 1997 of $80,000. This does not include legal fees paid to the law firm of the President or reimbursement of expenses paid to it. See Item 13. Directors do not receive any compensation for their services as directors. The Company has established an Incentive Stock Option Plan (the "Plan") which reserved 1,500,000 shares of Common Stock for the exercise of options which may be granted to directors, officers, employees and others. No options are presently outstanding. F-43 Item 12.	Security Ownership of Certain Beneficial Owners and Management. (a) The following table sets forth, as of March 19, 1997, certain information regarding all persons known to the Company to be the beneficial owners (as determined in accordance with the Rules under the Securities Exchange Act of 1934) of more than 5% of the Company's Common Stock: Name and Address			 Shares of					Beneficially Beneficial Owner			 Owned 		Percent Arch B. Gilbert			4,295,000 (1)		 25.54% 3221 Hulen Street, Suite C Fort Worth, Texas 76107 (1)	Includes 100,000 shares owned by Arch B. Gilbert, A Professional Corporation. Includes 6,000 shares owned by Jo Anne Gilbert, Mr. Gilbert's wife. Does not include 252,000 shares owned by Shannon Gilbert, Mr. Gilbert's adult daughter and 252,000 shares owned by Devon Gilbert, Mr. Gilbert's adult daughter, which beneficial ownership Mr. Gilbert disclaims. (b) The following table sets forth as of March 31, 1998 certain information concerning shares beneficially owned by all directors and all directors and officers of the registrant as a group: 	Amount and Name of	Nature of Beneficial	Beneficial	Percent Title of Class 	 Owner 	Ownership 	of Class Common Stock	Arch B. Gilbert	4,295,000	25.54% $0.001 Par Value Common Stock	Terry M. Gallagher, M.D.	-0-	0.00% $0.001 Par Value Common Stock	All Officers and	4,295,000	25.54% $0.001 Par Value	Directors as a Group (2 persons) Item 13.	Certain Relationships and Related Transactions. The Registrant shares the offices of Arch B. Gilbert, consisting of approximately 1,400 square feet, for which it paid total rent in the year 1997 of $15,600. The Registrant also reimbursed Mr. Gilbert for 50% of his office and administrative expenses for the year ending December 31, 1997 and for direct out-of-pocket expenses incurred on behalf of F-44 the Company. The total amount of such reimbursement was $37,126. For the year 1997, Arch B. Gilbert, A Professional Corporation, whose sole stockholder is the President of the Company, was paid $5,000 for legal services rendered. In 1998, Mr. Gilbert may perform legal services on behalf of the Registrant although there are no present plans, agreements or understandings in regard to any such legal services. If any such legal services are performed by Mr. Gilbert on behalf of the Company, he will be compensated at his usual hourly rates. In 1997, Mr. Gilbert's wife performed consulting services for the Company for which she received total cash compensation of $36,000. The Company is not informed as to whether payments made to Mr. Gilbert and his wife were on terms as favorable as the Registrant might have obtained from unaffiliated parties. F-45 PART IV Item 14.	Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) 1.	Financial Statements. The following financial statements of the Company are included in Part II, Item 8: Independent Auditor's Report Consolidated Balance Sheets December 31, 1997 and 1996 Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996, and 1995 Notes to Consolidated Financial Statements Supporting Schedules 2.	Financial Statement Schedules. Financial Statement Schedule II is included in Part II, Item 8. All other schedules are omitted because they are not applicable, not required or because the required information is included in the financial statements or the notes thereto. 3. Exhibits. The exhibits listed in the accompanying index to exhibits on Page 10 are filed as part of this report. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the last quarter of the period covered by this report. F-46 INTERWEST MEDICAL CORPORATION INDEX TO EXHIBITS ITEM 14(a) Exhibit	Description	Page 3	Articles of Incorporation, Bylaws	 * 4	Instruments defining the right of securities holders, including debentures	 * 10	Material contracts	 * *Pursuant to Rule 12b-32 under the Securities Exchange Act of 1934, the Registrant hereby incorporates by reference its Registration Statement No. 2-82655 on Form S-18 and Exhibits to such Registration Statement, and which contains these documents which are also required to be filed as Exhibits to this Form 10-K. F-47 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INTERWEST MEDICAL CORPORATION By: Arch B. Gilbert, President, Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer Date: Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: Arch B. Gilbert, Director Date: By: Terry M. Gallagher, Director Date: