1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 2000.
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
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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
----- ----
Indicate by check mark if disclosure of delinquent filers pursuant o
Item 405 of Regulation S-K is not contained herein,
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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 December 31, 2000, the aggregate market value of the 9,635,111
shares of voting Common Stock held by non-affiliates of the Company was
approximately $1,445,267 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 30, 2001
----------------- --------------------
Common Stock, 15,930,111
$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.
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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, 3221 Hulen Street, Fort
Worth, Texas 76107-6193. Its telephone number if (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's business is 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.
The Company owns and operates a 156-bed skilled nursing home located on
a nine-acre parcel of land in Colton, California. At December 31, 2000, the
Company had an undepreciated cost of $5,364,959 in such facility, including
equipment and furniture. In 2000, the Company had a net loss of ($2,512,242).
Item 3. Legal Proceedings.
In the opinion of management, all litigation pertaining to the
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.
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 2000, except for the election of directors at the annual
meeting of shareholders.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholders 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, 1999 $0.1500 $0.2200
2nd Quarter, 1999 $0.1870 $0.3700
3rd Quarter, 1999 $0.1400 $0.1900
4th Quarter, 1999 $0.1400 $0.2200
1st Quarter, 2000 $0.1400 $0.2200
2nd Quarter, 2000 $0.1400 $0.2000
3rd Quarter, 2000 $0.1300 $0.1800
4th Quarter, 2000 $0.1200 $0.1600
As of March 14, 2000, the approximate number of holders of Common Stock
was 1,835. No cash dividends had been paid as of December 31, 2000, 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.
2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ ------------
Operating
Revenues $ 12,391,483 $ 11,295,408 $ 11,316,121 $ 10,123,168 $ 9,283,774
Net income
(loss) (2,512,242) 1,657,032 1,305,551 609,112 (49,282)
Total Assets 9,966,256 13,247,657 10,137,541 9,522,248 8,333,614
Long-term
debt 4,388,104 4,435,560 4,558,274 4,530,234 4,545,653
Earnings
per common
share (0.16) 0.11 0.08 0.04 0.00
Cash
dividends
declared 0.00 0.00 0.00 0.00 0.00
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(a) Liquidity and Capital Resources:
During the year 1998, the Company's cash decreased from $1,458,281 at
the beginning of the period to $460,329 at the end of the period. Accordingly,
there was a net decrease in cash of ($997,952). This was attributable to the
purchase of Treasury stock and an increase in net cash used in investing
activities. During 1998, the Company purchased as treasury shares a total of
2,624,300 shares of its stock at an aggregate purchase price of $488,159.
During the year 1999, the Company's cash increased from $460,329 at the
beginning of the year to $947,420 at the end of the year. Accordingly, there was
an increase in cash of $487,091. This increase was caused by net cash provided
by investing activities.
During the year 2000, the Company's cash decreased from $947,420 to
$885,513. Accordingly, there was a decrease in cash of $61,907. Additionally,
the Company's trading assets decreased from $5,667,540 to $1,379,138, or a
decrease of $4,288,402. These decreases were the result of losses incurred in
investment trading 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
7 3/8% and is payable in monthly installments of $30,778. It is anticipated that
these payments will be made from revenues received by the operation of the
Company's nursing home.
(b) Results of Operations:
Operating profit for 1998, was $1,060,147, as compared to an operating
profit of $987,934 for 1997. The increase in profit was attributable to larger
revenues from the Company's long-term care facility. Net income was $1,305,551
in 1998, as compared to net income of $609,112 in 1997.
Operating profit for 1999 was $704,399, as compared to operating profit
of $1,060,147 for 1998. The decrease in operating income was attributable to an
increase in costs of administrative services and other costs. Net income in 1999
was
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$1,657,032, as compared to $1,305,551 in 1998. The increase was attributable to
an increase in Other Income.
Operating profit for 2000 was $564,770, as compared to operating profit
of $704,399 for 1999. Comprehensive income decreased from $2,153,584 for 1999 to
($2,512,242) for the year 2000. The decrease was the result of investment
trading losses.
(c) Effects of Inflation:
The Company is of the view that inflation did not affect its operations
in 2000 and should not in 2001.
Item 8. Financial Statements and Supplementary Data.
Page No.
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Independent Auditor's Report F-1
Consolidated Balance Sheets
December 31, 2000 and 1999 F-2
Consolidated Statements of
Operations and Comprehensive
Income for the Years Ended
December 31, 2000, 1999 and 1998 F-4
Consolidated Statements of
Stockholders' Equity for Years Ended
December 31, 2000, 1999 and 1998 F-5
Consolidated Statements of
Cash Flows for the Years
Ended December 2000, 1999 and 1998 F-6
Notes to Consolidated
Financial Statements F-8
Schedule II - Valuation
and Qualifying Accounts F-17
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, 2000.
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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, 2000 and 1999, and the
related consolidated statements of operations and comprehensive income,
stockholders' equity and cash flows for each of the years in the three year
period ended December 31, 2000. Our audits also included the financial statement
schedule II for each of the years in the three year period ended December 31,
2000. 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 auditing standards generally accepted
in the United States of America. 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, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
years in the three year period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. 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 5, 2001
3569
F-1
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(1 of 2)
INTERWEST MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
2000 1999
------------ ------------
ASSETS
CURRENT ASSETS
Cash, including interest bearing accounts,
2000 $828,677; 1999 $860,807 $ 885,513 $ 947,420
Accounts receivable - trade, net of allowance for
doubtful accounts, 2000 $52,932; 1999 $71,688 2,485,753 2,436,376
Income tax receivable 898,736 --
Investments - trading 1,379,138 5,667,540
Prepaid expenses and other receivables 85,095 65,006
Deferred tax asset 305,077 --
------------ ------------
Total current assets 6,039,312 9,116,342
PROPERTY AND EQUIPMENT, at cost
Land 294,354 294,354
Buildings and improvements 3,958,924 3,958,924
Equipment and furniture 1,111,681 1,040,724
Oil and gas properties
(successful efforts method of accounting) 166,949 414,150
------------ ------------
5,531,908 5,708,152
Less accumulated depreciation and depletion 2,038,847 2,009,519
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3,493,061 3,698,633
OTHER ASSETS
Cash escrow accounts 59,213 45,337
Deferred financing costs, net 374,670 387,345
------------ ------------
433,883 432,682
------------ ------------
TOTAL ASSETS $ 9,966,256 $ 13,247,657
============ ============
The Notes to Consolidated Financial Statements
are an integral part of these statements.
F-2
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(2 of 2)
INTERWEST MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
2000 1999
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 43,938 $ 123,544
Accounts payable 1,561,384 1,368,813
Accrued salaries 655,499 672,640
Income taxes payable -- 705,715
Deferred tax liability - current -- 70,540
------------ ------------
Total current liabilities 2,260,821 2,941,252
DEFERRED TAX LIABILITY 95,550 106,257
LONG-TERM DEBT 4,388,104 4,435,560
STOCKHOLDERS' EQUITY
Common stock, par value $0.001,
authorized 50,000,000 shares;
issued 22,000,000 shares 22,000 22,000
Additional paid-in capital 5,096,745 5,096,745
Retained earnings (deficit) (846,975) 1,665,267
------------ ------------
4,271,770 6,784,012
Less cost of shares held in the treasury,
2000 - 6,069,889 shares; 1999 - 5,816,139 shares 889,989 859,424
Notes receivable - officer 160,000 160,000
------------ ------------
3,221,781 5,764,588
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,966,256 $ 13,247,657
============ ============
The Notes to Consolidated Financial Statements
are an integral part of these statements.
F-3
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INTERWEST MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
------------ ------------ ------------
REVENUES
Patient service revenue $ 12,241,496 $ 11,174,046 $ 11,085,259
Other revenue 149,987 121,362 230,862
------------ ------------ ------------
Total revenue 12,391,483 11,295,408 11,316,121
COSTS AND EXPENSES
Professional care of patients 7,038,613 6,159,646 6,069,402
General services 2,449,933 2,154,722 2,008,394
Administrative services 1,996,709 1,923,349 1,776,102
Other costs 70,226 85,593 148,505
Depreciation, depletion and amortization 271,232 267,699 253,571
------------ ------------ ------------
564,770 704,399 1,060,147
OTHER INCOME (EXPENSES)
Gain (loss) on sale of securities (3,662,353) 2,192,307 603,753
Interest income 90,579 73,239 37,696
Interest expense (500,601) (408,304) (344,202)
------------ ------------ ------------
Income (loss)
before taxes on income (3,507,605) 2,561,641 1,357,394
Provision (benefit) for income taxes (995,363) 904,609 51,843
------------ ------------ ------------
Net income (loss) (2,512,242) 1,657,032 1,305,551
Other comprehensive income, net of tax
Unrealized holding gains on securities -- 851,352 220,038
Reclassification adjustment for
gains included in net income -- (354,800) (569,400)
------------ ------------ ------------
Comprehensive income (loss) $ (2,512,242) $ 2,153,584 $ 956,189
============ ============ ============
Weighted averages shares outstanding 16,192,803 15,689,508 16,205,378
============ ============ ============
Earnings per common share -
basic and diluted $ (0.16) $ 0.11 $ 0.08
============ ============ ============
The Notes to Consolidated Financial Statements
are an integral part of these statements.
F-4
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INTERWEST MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Accumulated
Other
Comprehensive
Income
(Unrealized
Holding
Gains/Losses
Common Stock on Securities
------------------------- Additional Retained Available
Number of Par Paid-in Earnings for Sale) Treasury
Shares Value Capital (Deficit) Net of Tax Stock
----------- ----------- ----------- ----------- -------------- -----------
BALANCE,
December 31, 1997 20,000,000 $ 20,000 $ 4,798,745 $(1,297,316) $ (147,190) $ (369,095)
Net income -- -- -- 1,305,551 -- --
Purchase of
2,624,300 shares
of common stock -- -- -- -- -- (488,159)
Other compre-
hensive income -- -- -- -- (349,362) --
----------- ----------- ----------- ----------- -------------- -----------
BALANCE,
December 31, 1998 20,000,000 20,000 4,798,745 8,235 (496,552) (857,254)
Net income -- -- -- 1,657,032 -- --
Issuance of
common stock 2,000,000 2,000 298,000 -- -- --
Purchase of
11,800 shares
of common stock -- -- -- -- -- (2,170)
Other compre-
hensive income -- -- -- -- 496,552 --
----------- ----------- ----------- ----------- -------------- -----------
BALANCE,
December 31, 1999 22,000,000 22,000 5,096,745 1,665,267 -- (859,424)
Net loss -- -- -- (2,512,242) -- --
Purchase of
253,750 shares
of common stock -- -- -- -- -- (30,565)
----------- ----------- ----------- ----------- -------------- -----------
BALANCE,
December 31, 2000 22,000,000 $ 22,000 $ 5,096,745 $ (846,975) $ -- $ (889,989)
=========== =========== =========== =========== ============== ===========
The Notes to Consolidated Financial Statements
are an integral part of these statements.
F-5
12
INTERWEST MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
------------ ------------ ------------
CASH FLOWS FROM
OPERATING ACTIVITIES
Cash received from customers/patients $ 12,300,318 $ 10,944,141 $ 11,332,989
Interest received 90,579 66,039 37,696
Cash paid to suppliers and employees (11,367,724) (10,018,761) (9,846,913)
Investments - net 626,049 (4,708,588) --
Interest paid (500,601) (408,304) (344,202)
Income taxes paid (1,000,000) (65,000) (8,940)
------------ ------------ ------------
Net cash provided by
(used in) operating activities 148,621 (4,190,473) 1,170,630
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of property and equipment (123,025) (264,432) (597,487)
Proceeds from sale of assets 84,000 9,682,051 3,849,990
Purchase of investments -- (4,604,569) (4,905,289)
Mortgage escrow deposits, net (13,876) (13,624) (14,420)
------------ ------------ ------------
Net cash provided by
(used in) investing activities (52,901) 4,799,426 (1,667,206)
CASH FLOWS FROM
FINANCING ACTIVITIES
Financing costs paid -- -- (146,361)
Loan proceeds -- -- 168,000
Payments on debt (127,062) (119,692) (34,856)
Purchase of treasury stock (30,565) (2,170) (488,159)
------------ ------------ ------------
Net cash used in financing activities (157,627) (121,862) (501,376)
------------ ------------ ------------
Net increase (decrease) in cash (61,907) 487,091 (997,952)
CASH, beginning of period 947,420 460,329 1,458,281
------------ ------------ ------------
CASH, end of period $ 885,513 $ 947,420 $ 460,329
============ ============ ============
The Notes to Consolidated Financial Statements
are an integral part of these statements.
F-6
13
INTERWEST MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(CONTINUED)
2000 1999 1998
------------ ------------ ------------
RECONCILIATION OF NET INCOME
(LOSS) TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES
Net income (loss) ($ 2,512,242) $ 1,657,032 $ 1,305,551
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities
(Gain) loss on sale of securities 3,662,353 (2,192,307) (603,753)
Other gains (41,788) -- --
Depreciation and amortization 271,232 267,699 253,571
Abandonments 27,828 4,056 86,835
Stock issuance for compensation -- 140,000 --
Deferred taxes (386,324) 149,692 --
Changes in assets and liabilities
Accounts receivable (49,377) (328,061) 116,868
Prepaid expenses
and other receivables (20,089) 58,407 (56,135)
Trading securities, net of transfer 626,049 (4,708,588) --
Real estate development costs -- -- 26,469
Accounts payable 192,571 108,334 64,082
Accrued liabilities (17,141) (36,654) (65,761)
Income taxes payable (receivable) (1,604,451) 689,917 42,903
------------ ------------ ------------
Net cash provided by
(used in) operating activities $ 148,621 ($ 4,190,473) $ 1,170,630
============ ============ ============
NON-CASH INVESTING
AND FINANCING ACTIVITIES
In April 1999, the Company issued 2,000,000 shares of common stock to
an officer for a note receivable of $160,000. The note bears interest
at 6% annually, principal is due at maturity, April 1, 2004. Interest
accrued on the note was $9,600 and $7,200 in 2000 and 1999,
respectively.
The Notes to Consolidated Financial Statements
are an integral part of these statements.
F-7
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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.
RECLASSIFICATIONS
Certain reclassifications have been made to 1999 and 1998 captions to
conform to the 2000 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'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.
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.
F-8
15
INTERWEST MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INVESTMENTS IN SECURITIES - CONTINUED
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. All
of the Company's investments in securities are classified as
available for sale.
Unrealized holding gains and losses on securities available for sale
are reported as a net amount in accumulated other comprehensive income
in stockholders' equity until realized.
Gains and losses on the sale of securities available for sale are
determined using the specific identification method.
Prior to October 1, 2000, the Company classified all investment
securities as available for sale. Effective October 1, 2000, all
investment securities were transferred to the trading category.
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.
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
F-9
16
INTERWEST MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
USE OF ESTIMATES - CONTINUED
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, 2000 and 1999, based upon current interest rates of similar debt
which approximates the Company's mortgage interest rate.
REVENUE
The Company operates an acute care facility in Colton, California.
Patient service revenue is reported at the estimated net realizable
amounts from patients, third-party payers, and others for service
rendered. The Company derives a significant portion of its revenues from
third party payers (health maintenance organizations, Medicare and
Medi-Cal). Approximately 50% of 2000 revenue was derived from a contract
with one health maintenance organization.
Revenue under third-party payer agreements is subject to audit and
retroactive adjustment. Provisions for estimated third-party payer
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.
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 unrealized losses on investment securities.
F-10
17
INTERWEST MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
EARNINGS PER COMMON SHARE
Basic earnings per common share was computed based on the weighted
average number of common shares outstanding for the period. The Company
had no potential common shares outstanding in 1998. In 1999, the effect
of dilutive common shares was immaterial. Dilutive earnings per share
have not been presented for 2000 since the inclusion of potential common
stock 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.
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.
F-11
18
INTERWEST MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. INVESTMENT SECURITIES
Investment securities consist entirely of equity securities.
The Company had no sale of securities classified as available for sale in
1998. Realized sales of available for sale securities in 1999 are
summarized as follows:
Proceeds from sale $9,682,051
Gross realized gains 1,103,775
Gross realized losses (566,200)
Included in gain (loss) on sale of investments for 2000 is $488,228 of
unrealized loss on trading securities still held at December 31, 2000.
Included in gain (loss) on sale of investments for 1999 is $279,158 of
unrealized gain on trading securities still held at December 31, 1999.
Effective October 1, 1999, the Company's investment securities, previously
classified as available for sale were transferred to the trading category.
Unrealized losses at that date of $223,376 have been recognized in the
accompanying 1999 financial statements.
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.
F-12
19
INTERWEST MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. CAPITAL STOCK - CONTINUED
No options were issued in 1998. A summary of the status of the Company's
stock options for 2000 and 1999 are as follows:
2000 1999
Weighted Weighted
Average Average
Shares Exercise Shares Exercise
(000) Price (000) Price
------- --------- ------- --------
Outstanding, beginning 1,500 $ .15 -- $ --
Granted -- -- 1,500 .15
Exercised -- -- -- --
Forfeited -- -- -- --
----- ----- ----- -----
Outstanding, ending 1,500 $ .15 1,500 $ .15
===== ===== ===== =====
Options exercisable
at year end 1,500 $ .15 1,500 $ .15
===== ===== ===== =====
Weighted average fair
value of options
granted during the year $ -- $ .13
===== =====
At December 31, 2000, the 1,500,000 options have an exercise price of $0.15
per share and a weighted average remaining contractual life of 8.25 years.
Had compensation cost for the Company's stock options been determined based
on the fair value at the grant date, the Company's net income and income per
share for 1999 would have been $1,528,332 and $0.10, respectively.
Compensation cost under the fair value method was estimated using the
Black-Scholes model with the following assumptions: dividend yield of 0%;
expected life of 5 years; expected volatility of 138.25% and a risk-free
interest rate of 6.0%.
NOTE 4. RELATED PARTY TRANSACTIONS
During the years ended December 31, 2000, 1999 and 1998, Arch B. Gilbert, a
Professional Corporation, whose sole stockholder is president of the
Company, was paid $330,000, $141,700 and $61,000, respectively, for legal
services rendered.
F-13
20
INTERWEST MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. RELATED PARTY TRANSACTIONS - CONTINUED
During the years ended December 31, 2000, 1999 and 1998, the above
corporation was reimbursed $35,352, $35,352 and $29,400, respectively, for
expenses incurred on behalf of the Company.
During 2000, the wife of the Company's president performed consulting
services for the Company for which she received total cash compensation of
$36,000.
NOTE 5. FEDERAL INCOME TAXES
The Company's tax provision (benefit) for 2000, 1999 and 1998 consists of
the following:
2000 1999 1998
--------- --------- ---------
Current payable (receivable) ($609,039) $ 754,917 $ 51,843
Deferred taxes (386,324) 149,692 411,332
Re-evaluation of valuation allowance
on beginning temporary differences -- -- (411,332)
--------- --------- ---------
($995,363) $ 904,609 $ 51,843
========= ========= =========
The 2000, 1999 and 1998 tax provision (benefit) differs from the amount
calculated by applying statutory tax rates to pre-tax income as follows:
2000 1999 1998
----------- ----------- -----------
Tax at statutory rates ($1,192,586) $ 870,958 $ 461,514
Re-evaluation of valuation allowance
on beginning temporary differences -- -- (411,332)
Valuation allowance on
ending temporary differences 222,249 -- --
Other (25,026) 33,651 1,661
----------- ----------- -----------
($ 995,363) $ 904,609 $ 51,843
=========== =========== ===========
All income (loss) since inception relates to domestic activity.
F-14
21
INTERWEST MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. FEDERAL INCOME TAXES - CONTINUED
The tax effects of temporary differences at December 31, 2000 and 1999 that
give rise to significant portions of deferred tax assets and deferred tax
liabilities are as follows:
2000 1999
--------- ---------
Deferred tax assets
Unrealized loss on marketable securities $ 165,998 $ --
Expenses deduction in future periods 17,997 24,374
Capital loss carryforward 343,331 --
--------- ---------
527,326 24,374
Deferred tax liabilities
Depreciation and depletion (95,550) (106,257)
Unrealized gain on marketable securities -- (94,914)
Valuation allowance (222,249) --
--------- ---------
Total deferred tax asset (liabilities), net $ 209,527 ($176,797)
========= =========
During 2000, the valuation allowance increased $222,249. The valuation
allowance decreased $157,527 in 1999.
The Company has a capital loss carryforward of approximately $1,000,000
expiring in 2005.
NOTE 6. LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
2000 1999
---------- ----------
Unsecured note payable to a bank with interest at 10%, due in monthly
installments of $9,244 beginning March 1999 until paid
in full, retired $ -- $ 86,238
Mortgage loan for financing of a nursing home constructed in
Colton, California. The mortgage loan bears interest at
7.375%, is due in monthly installments of $30,778 (principal
and interest), matures in June, 2030 and is secured by real
estate 4,432,042 4,472,866
---------- ----------
4,432,042 4,559,104
Less current maturities 43,938 123,544
---------- ----------
$4,388,104 $4,435,560
========== ==========
F-15
22
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:
2001 $ 43,938
2002 47,290
2003 50,898
2004 54,782
2005 58,961
Thereafter 4,176,173
NOTE 7. 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 8 EMPLOYEES RETIREMENT PLAN
The Company has a retirement plan, established in 1998, covering
substantially all of its employees. Contributions to the plan in 2000, 1999
and 1998 totaled $53,579, $32,279 and $37,515, respectively.
F-16
23
INTERWEST MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1998 $ 54,844 $ 30,063 $ -- $ 26,412 $ 58,495
======== ======== ======= ======== ========
Year ended
December 31, 1999 $ 58,495 $128,924 $ -- $115,731 $ 71,688
======== ======== ======= ======== ========
Year ended
December 31, 2000 $ 71,688 $ 9,696 $ -- $ 24,480 $ 52,932
======== ======== ======= ======== ========
F-17
24
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 67 1983 (1) President,
Secretary,
Treasurer &
Director
(1) Date of incorporation
(b) Identification of Executive Officers:
Name Position Age
- ---- -------- ---
Arch B. Gilbert President, 67
Secretary,
Treasurer
Officers serve at the discretion of the Board of Directors.
Arch B. Gilbert received his B.A. and his LL.B. degrees from the
University of Oklahoma in 1955 and 1957 respectively. He also his 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.
There is no family relationship between any director or executive
officer of the Company.
No personal meetings of the directors took place in 1999. 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%
7
25
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, 1999, 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, 2000, Arch B. Gilbert did not
receive any direct remuneration.
All executive officers as a group (1 person) received cash remuneration
in fiscal year 2000 of $0. This does not include legal fees paid to the law firm
of the President of 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. Mr. Gilbert was granted
an option to purchase 1,500,000 shares of stock at $.15 per share on April 1,
1999. The option is for a period of 10 years.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) The following table sets forth, as of March 23, 2001,
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 6,295,000 (1) 38.9%
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 shares owned by Shannon Gilbert Moten
or Devon Vrana, Mr. Gilbert's adult daughters, which beneficial
ownership Mr. Gilbert disclaims. Does not include options to purchase
1,500,000 shares.
8
26
(b) The following table sets forth as of March 23, 2001 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 6,295,000 38.9%
Common Stock All Officer and 6,295,000 38.9%
$0.001 Par Value Directors as a Group
(1 person)
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 2000
of $15,600.00. The Registrant also reimbursed Mr. Gilbert for 50% of his office
and administrative expenses for the year ending December 31, 2000 and for direct
out-of-pocket expenses incurred on behalf of the Company. The total amount of
such reimbursement was $19,752. For the year 2000, Arch B. Gilbert, A
Professional Corporation, whose sole stockholder is the President of the
Company, was paid $330,000 for legal services rendered.
In 2001, Mr. Gilbert may perform legal services on behalf of the
Registrant although there are no present plans, agreement 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
rate.
In 2000, 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.
On April 1, 1999, the Company sold Arch B. Gilbert 2,000,000
unregistered shares of Common Stock at a price of $0.08 per share. Mr. Gilbert
gave the Company a five year non-recourse $160,000 note for such shares. The
note provides that interest of 6% per annum will be payable annually and the
entire balance and any accrued interest will be payable on April 1, 2004.
9
27
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,
2000 and 1999
Consolidated Statements of Operations and
Comprehensive Income for the Years Ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Stockholders'
Equity for the Years Ended December 31,
2000, 1999, and 1998
Consolidated Statements of Cash Flows for
the Years Ended December 31, 2000, 1999,
and 1998
Note to Consolidated Financial Statements
Supporting Schedule
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 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.
10
28
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.
11
29
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: /s/ ARCH B. GILBERT, President
-------------------------------------
Arch B. Gilbert, President
Chief Executive Officer,
Chief Financial Officer and
Chief Accounting Officer
Date: 4-6-01
-----------------------------
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: /s/ ARCH B. GILBERT, Director
-------------------------------
Arch B. Gilbert, Director
Date: 4-6-01
-----------------------------
12