1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 -------------------- FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended September 30, 1999 Commission File No. 2-82655 ------------------ ------- INTERWEST MEDICAL CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Oklahoma 75-1864474 - --------------------------------- ------------------------------------ (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) Arlington Heights Professional Office Building 3221 Hulen Street, Suite C, Fort Worth, TX 76107-6193 ----------------------------------------------------- (Address of principal executive offices, zip code) Registrant's telephone number, including area code: (817)731-2743 ------------- Not Applicable ----------------------------------------------------- (Former name, former address, and former fiscal year, if changed since last report) 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 the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. (Not Applicable) Yes [X] No [ ] (APPLICABLE TO CORPORATE ISSUERS) Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report. 16,184,861 shares of Common Stock, $0.001 Par Value. 2 INTERWEST MEDICAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the Company's financial position as of September 30, 1999, and its results of operations for the three and nine months ended September 30, 1999 and 1998, and cash flows for the nine months ended September 30, 1999 and 1998. The results of operations for the period presented are not necessarily indicative of the results to be expected for a full year. 2. Income per share was computed by dividing the net income by the weighted average number of shares outstanding. 3 REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Weaver and Tidwell, L.L.P., Independent Certified Public Accountants, have performed a review of the condensed consolidated balance sheet of InterWest Medical Corporation as of September 30, 1999 and the condensed consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 1999 and 1998, and cash flows for the nine months ended September 30, 1999 and 1998, in accordance with established professional standards and procedures for such a review. All adjustments or additional disclosures proposed by Weaver and Tidwell, L.L.P. have been reflected in the data presented. The report of Weaver and Tidwell, L.L.P. commenting upon their review is included as Part I - Exhibit I. 4 INDEPENDENT ACCOUNTANT'S REVIEW REPORT To the Board of Directors InterWest Medical Corporation We have reviewed the condensed consolidated balance sheet of InterWest Medical Corporation as of September 30, 1999, and the related condensed consolidated statements of operations and comprehensive income for the three and nine month periods ended September 30, 1999 and 1998, and cash flows for the nine months ended September 30, 1999 and 1998. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists of obtaining an understanding of the system for the preparation of interim financial information, applying analytical review procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated statements referred to above, for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1998, and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended (not presented herein); and in our report dated, March 18, 1999, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1998, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. /s/ WEAVER AND TIDWELL, L.L.P. WEAVER AND TIDWELL, L.L.P. Fort Worth, Texas November 8, 1999 5 INTERWEST MEDICAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS September 30, December 31, 1999 1998 ------------ ------------ (unaudited) ASSETS CURRENT ASSETS Cash $ 3,422,777 $ 460,329 Investments available for sale 958,952 3,230,320 Accounts receivable - trade 2,193,049 2,108,315 Prepaid expenses 57,113 116,300 Deferred tax asset 113,070 47,255 ------------ ------------ Total current assets 6,744,961 5,962,519 ------------ ------------ REAL ESTATE DEVELOPMENT AND CONSTRUCTION COSTS 7,113 7,113 ------------ ------------ PROPERTY AND EQUIPMENT, at cost Land 214,681 214,681 Buildings and improvements 3,838,788 3,789,419 Equipment and furniture 1,284,171 1,117,081 Oil and gas properties (successful effort method of accounting) 539,949 532,869 ------------ ------------ 5,877,589 5,654,050 Less accumulated depreciation 2,153,710 1,890,769 ------------ ------------ 3,723,879 3,763,281 ------------ ------------ OTHER ASSETS Cash escrow accounts 41,316 31,713 Deferred financing costs, net 400,020 400,020 ------------ ------------ 441,336 431,733 ------------ ------------ TOTAL ASSETS $ 10,917,289 $ 10,164,646 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt $ 120,522 $ 120,522 Accounts payable 1,176,219 1,260,371 Accrued liabilities 436,255 709,402 Income taxes payable 282,293 42,903 ------------ ------------ Total current liabilities 2,015,289 2,133,198 ------------ ------------ LONG-TERM DEBT 4,453,724 4,558,274 ------------ ------------ STOCKHOLDERS' EQUITY Common stock, par value $0.001 authorized 50,000,000 shares; issued 20,000,000 shares 22,000 20,000 Additional paid-in capital 4,956,745 4,798,745 Retained deficit 599,111 8,235 Notes receivable from shareholder (160,000) Accumulated other comprehensive income (110,306) (496,552) ------------ ------------ 5,307,550 4,330,428 Less shares held in the treasury 1999, 5,815,139 shares; 1998, 3,570,839 shares 859,274 857,254 ------------ ------------ 4,448,276 3,473,174 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,917,289 $ 10,164,646 ============ ============ See Accompanying Notes to Condensed Consolidated Financial Statements 6 INTERWEST MEDICAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ---------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Net patient service revenue $ 2,724,678 $ 2,820,197 $ 8,272,803 $ 8,404,461 Other revenue 33,785 36,231 80,963 99,188 ------------ ------------ ------------ ------------ Total revenue 2,758,463 2,856,428 8,353,766 8,503,649 COSTS AND EXPENSES Professional care of patients 1,626,824 1,635,345 4,582,254 4,567,638 General services 585,027 553,644 1,648,742 1,529,550 Administrative services 347,276 346,882 1,180,061 1,168,741 Other costs 133,086 16,090 152,887 39,695 Depreciation, depletion and amortization 48,014 83,539 207,941 231,055 ------------ ------------ ------------ ------------ Income from operations 18,236 220,928 581,881 966,970 OTHER INCOME (EXPENSES) Interest income 31,253 5,274 42,727 23,802 Interest expense (80,951) (88,335) (266,917) (272,737) Gain (loss) on sale of investments (155,189) 27,778 537,575 395,973 ------------ ------------ ------------ ------------ Income (loss) before taxes on income (186,651) 165,645 895,266 1,114,008 Provision (benefit) for income taxes (63,462) -- 304,390 -- ------------ ------------ ------------ ------------ Net income (loss) (123,189) 165,645 590,876 1,114,008 OTHER COMPREHENSIVE INCOME Unrealized losses on securities 439,834 (628,525) 386,246 (924,017) ------------ ------------ ------------ ------------ Comprehensive income $ 316,645 ($ 462,880) $ 977,122 $ 189,991 ============ ============ ============ ============ See Accompanying Notes to Condensed Consolidated Financial Statements 7 INTERWEST MEDICAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ---------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Per share of common stock Weighted average number of shares outstanding 16,188,528 16,485,411 14,858,484 16,721,487 ============ ============ ============ ============ Net income (loss) per share ($ 0.01) $ 0.01 $ 0.04 $ 0.07 ============ ============ ============ ============ See Accompanying Notes to Condensed Consolidated Financial Statements 8 INTERWEST MEDICAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, ---------------------------- 1999 1998 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES $ 172,788 $ 945,246 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of investments 9,682,051 1,836,640 Purchase of marketable securities (6,552,679) (3,316,189) Payments for acquisition of property (223,539) (413,128) Net changes in escrow accounts (9,603) (9,603) ------------ ------------ Net cash used in investing activities 2,896,230 (1,902,280) CASH FLOWS FROM FINANCING ACTIVITIES Financing costs paid -- (146,361) Purchase of treasury stock (2,020) (87,419) Payments on borrowings (104,550) (39,099) ------------ ------------ Net cash used in financing activities (106,570) (272,879) ------------ ------------ Net change in cash 2,962,448 (1,229,913) CASH, beginning of period 460,329 1,458,281 ------------ ------------ CASH, end of period $ 3,422,777 $ 228,368 ============ ============ See Accompanying Notes to Condensed Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Position and Results of Operations. Changes in Balance Sheet Accounts Current assets were $6,744,961 and total assets were $10,917,289 at September 30, 1999 as compared to $5,962,519 current assets and $10,164,646 total assets at December 31, 1998. Current liabilities were $2,015,289 at September 30, 1999 as compared to $2,133,198 at December 31, 1998. Results of Operations For the Three Months Ended September 30, 1999, operating revenue was $2,758,463; costs and expenses were $2,740,227, net loss was ($123,189) and interest income was $31,253, as compared to the Three Months Ended September 30, 1998, operating revenue of $2,856,428, costs and expenses of $2,635,500, net income of $165,645 and interest income of $5,274. For the Nine Months Ended September 30, 1999, operating revenue was $8,353,766; costs and expenses were $7,771,885, net income was $590,876 and interest income was $42,727, as compared to the Nine Months Ended September 30, 1998, operating revenue of $8,503,649, costs and expenses of $7,536,679, net income of $1,114,008 and interest income of $23,802. Cash Flows For the Nine Months Ended September 30, 1999, cash flows from operating activities were $172,788, cash flows from investing activities were $2,896,230, cash flows from financing activities were ($106,570), net increase in cash was $2,962,448, cash at the beginning of the period was $460,329, and cash at the end of the period was $3,422,777 as compared to the Nine Months Ended September 30, 1998, to cash flows from operating activities of $945,246, cash flows from investing activities of ($1,902,280), cash flows from financing activities of ($272,879), net decrease in cash of ($1,229,913), cash at the beginning of the period of $1,458,281 and cash at the end of the period of $228,368. 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings. Not applicable. Item 2. Changes in Securities. Not applicable. Item 3. Defaults upon Senior Securities. Not applicable. Item 4. Submission of Matters to a Vote of Securities Holders. Not applicable. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K. (a) None. (b) None. 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its half by the undersigned thereunto duly authorized. INTERWEST MEDICAL CORPORATION /s/ ARCH B. GILBERT By: Arch B. Gilbert, President, Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer Date: November 9, 1999 12 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27 Financial Data Schedule