-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KQXGvSQonjCdgqFPJbbH8MeUqaGmXj+XzDpLCruwvBL3oYiOha+yH5OjOXgi0ojP g7sjILdvmXqnR4Z9alSqKA== 0000950134-02-002491.txt : 20020415 0000950134-02-002491.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950134-02-002491 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERWEST MEDICAL CORP CENTRAL INDEX KEY: 0000717197 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 751864474 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-11881 FILM NUMBER: 02582694 BUSINESS ADDRESS: STREET 1: 3221 HULEN ST STE C STREET 2: ARLINGTON HEIGHTS PROFESSIONAL OFF BLDG CITY: FORT WORTH STATE: TX ZIP: 76107-6193 BUSINESS PHONE: 8177312743 MAIL ADDRESS: STREET 1: 3221 HULEN STREET STREET 2: STE C CITY: FORT WORTH STATE: TX ZIP: 76107-6193 FORMER COMPANY: FORMER CONFORMED NAME: SURGERY CENTERS CORP DATE OF NAME CHANGE: 19850808 10-K 1 d95268e10-k.txt FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 2001 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, 2001. 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 [ ] 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, 1 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, 2001, the aggregate market value of the 9,629,611 shares of voting Common Stock held by non-affiliates of the Company was approximately $1,227,775 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 December 31, 2001 ----- ----------------------- Common Stock, $0.001 Par Value 15,924,611
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. 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, 3221 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'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, 2001, the Company had an undepreciated cost of $3,330,279 in such facility, including equipment and furniture. In 2001, the Company had a net loss of $(1,175,523). 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. 3 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 2001, except for the election of directors at the annual meeting of shareholders. 4 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, 2000 $0.1400 $0.2200 2nd Quarter, 2000 $0.1400 $0.2001 3rd Quarter, 2000 $0.1300 $0.1800 4th Quarter, 2000 $0.1200 $0.1600 1st Quarter, 2001 $0.1200 $0.1600 2nd Quarter, 2001 $0.1100 $0.1500 3rd Quarter, 2001 $0.1100 $0.1500 4th Quarter, 2001 $0.1000 $0.1300
As of March 12, 2002, the approximate number of holders of Common Stock was 1,789. No cash dividends had been paid as of December 31, 2001, 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.
2001 2000 1999 1998 1997 ------------ ------------ ------------ ------------ ------------ Operating Revenues $ 13,347,836 $ 12,391,483 $ 11,295,408 $ 11,316,121 $ 10,123,168 Net income (loss) (822,941) (2,512,242) 1,657,032 1,305,551 609,112 Total Assets 9,119,421 9,966,256 13,247,657 10,137,541 9,522,248 Long-term debt 4,340,814 4,388,104 4,435,560 4,558,274 4,530,234 Earnings per common share (0.05) (0.16) 0.11 0.08 0.04 Cash dividends declared 0.00 0.00 0.00 0.00 0.00
5 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. (a) Liquidity and Capital Resources: 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. During the year 2001, the Company's cash increased from $885,513 to $ 1,412,024. Accordingly, there was an increase in cash of $526,511. Additionally, the Company's trading assets increased from $1,379,138 to $1,477,949, or a increase of $ 98,811. These increases were the result of operations and 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 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 $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. 6 Operating profit for 2001 was $ 230,370, as compared to operating profit of $564,770 for 2000. Comprehensive income (loss) decreased from $(2,512,242) to $(822,941) for the year 2001. The decrease was the result of a reduction in investment trading losses. (c) Effects of Inflation: The Company is of the view that inflation did not affect its operations in 2001 and should not in 2002. Item 8. Financial Statements and Supplementary Data.
Page No. ------- Independent Auditor's Report F-1 Consolidated Balance Sheets December 31, 2001 and 2000 F-2 Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2001, 2000 and 1999 F-4 Consolidated Statements of Stockholders' Equity for Years Ended December 31, 2001, 2000 and 1999 F-5 Consolidated Statements of Cash Flows for the Years Ended December 2001, 2000 and 1999 F-6 Notes to Consolidated Financial Statements F-8 Schedule II - Valuation and Qualifying Accounts F-16
7 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, 2001. 8 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, 2001 and 2000, 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, 2001. Our audits also included the financial statement schedule II for each of the years in the three year period ended December 31, 2001. 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, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the years in the three year period ended December 31, 2001 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 February 18, 2002 F-1 (1 of 2) INTERWEST MEDICAL CORPORATION CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2001 AND 2000
2001 2000 ---------- ---------- ASSETS CURRENT ASSETS Cash, including interest bearing accounts, 2001 $1,026,469; 2000 $828,677 $1,412,024 $ 885,513 Accounts receivable - trade, net of allowance for doubtful accounts, 2001 $174,195; 2000 $52,932 2,359,104 2,485,753 Income tax receivable 4,641 898,736 Investments - trading 1,477,949 1,379,138 Prepaid expenses and other receivables 86,637 85,095 Deferred tax asset -- 305,077 ---------- ---------- Total current assets 5,340,355 6,039,312 PROPERTY AND EQUIPMENT, at cost Land 294,354 294,354 Buildings and improvements 3,960,924 3,958,924 Equipment and furniture 1,236,298 1,111,681 Oil and gas properties (successful efforts method of accounting) 170,489 166,949 ---------- ---------- 5,662,065 5,531,908 Less accumulated depreciation and depletion 2,272,882 2,038,847 ---------- ---------- 3,389,183 3,493,061 OTHER ASSETS Cash escrow accounts 27,888 59,213 Deferred financing costs, net 361,995 374,670 ---------- ---------- 389,883 433,883 ---------- ---------- TOTAL ASSETS $9,119,421 $9,966,256 ========== ==========
F-2 (2 of 2) INTERWEST MEDICAL CORPORATION CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2001 AND 2000
2001 2000 ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt $ 47,290 $ 43,938 Accounts payable 1,736,400 1,561,384 Accrued salaries 596,627 655,499 ------------ ------------ Total current liabilities 2,380,317 2,260,821 DEFERRED TAX LIABILITY -- 95,550 LONG-TERM DEBT 4,340,814 4,388,104 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) (1,669,916) (846,975) ------------ ------------ 3,448,829 4,271,770 Less cost of shares held in the treasury, 2001 - 6,075,389 shares; 2000 - 6,069,889 shares 890,539 889,989 Notes receivable - officer 160,000 160,000 ------------ ------------ 2,398,290 3,221,781 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,119,421 $ 9,966,256 ============ ============
F-3 INTERWEST MEDICAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999 ------------ ------------ ------------ REVENUES Patient service revenue $ 13,284,809 $ 12,241,496 $ 11,174,046 Other revenue 63,027 149,987 121,362 ------------ ------------ ------------ Total revenue 13,347,836 12,391,483 11,295,408 COSTS AND EXPENSES Professional care of patients 7,775,638 7,038,613 6,159,646 General services 2,436,208 2,449,933 2,154,722 Administrative services 2,621,360 1,996,709 1,923,349 Other costs 16,782 70,226 85,593 Depreciation, depletion and amortization 267,478 271,232 267,699 ------------ ------------ ------------ 230,370 564,770 704,399 OTHER INCOME (EXPENSES) Gain (loss) on sale of securities (690,316) (3,662,353) 2,192,307 Interest income 64,407 90,579 73,239 Interest expense (352,209) (500,601) (408,304) ------------ ------------ ------------ Income (loss) before taxes on income (747,748) (3,507,605) 2,561,641 Provision (benefit) for income taxes 75,193 (995,363) 904,609 ------------ ------------ ------------ Net income (loss) (822,941) (2,512,242) 1,657,032 Other comprehensive income, net of tax Unrealized holding gains on securities -- -- 851,352 Reclassification adjustment for gains included in net income -- -- (354,800) ------------ ------------ ------------ Comprehensive income (loss) $ (822,941) $ (2,512,242) $ 2,153,584 ============ ============ ============ Weighted averages shares outstanding 15,929,353 16,192,803 15,689,508 ============ ============ ============ Earnings per common share - basic and diluted $ (0.05) $ (0.16) $ 0.11 ============ ============ ============
F-4 INTERWEST MEDICAL CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
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, 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) Net loss -- -- -- (822,941) -- -- Purchase of 5,500 shares of common stock -- -- -- -- -- (550) ----------- ----------- ----------- ----------- ------------- ----------- BALANCE, December 31, 2001 22,000,000 $ 22,000 $ 5,096,745 $(1,669,916) $ -- $ (890,539) =========== =========== =========== =========== ============= ===========
F-5 INTERWEST MEDICAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers/patients $ 13,474,485 $ 12,300,318 $ 10,944,141 Interest received 62,955 90,579 66,039 Cash paid to suppliers and employees (12,735,386) (11,367,724) (10,018,761) Investments - net (789,127) 626,049 (4,708,588) Interest paid (352,209) (500,601) (408,304) Income taxes paid (refunded) 1,028,429 (1,000,000) (65,000) ------------ ------------ ------------ Net cash provided by (used in) operating activities 689,147 148,621 (4,190,473) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (150,925) (123,025) (264,432) Proceeds from sale of assets -- 84,000 9,682,051 Purchase of investments -- -- (4,604,569) Mortgage escrow deposits, net 32,777 (13,876) (13,624) ------------ ------------ ------------ Net cash provided by (used in) investing activities (118,148) (52,901) 4,799,426 CASH FLOWS FROM FINANCING ACTIVITIES Payments on debt (43,938) (127,062) (119,692) Purchase of treasury stock (550) (30,565) (2,170) ------------ ------------ ------------ Net cash used in financing activities (44,488) (157,627) (121,862) ------------ ------------ ------------ Net increase (decrease) in cash 526,511 (61,907) 487,091 CASH, beginning of period 885,513 947,420 460,329 ------------ ------------ ------------ CASH, end of period $ 1,412,024 $ 885,513 $ 947,420 ============ ============ ============
F-6 INTERWEST MEDICAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (continued)
2001 2000 1999 ------------ ------------ ------------ RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Net income (loss) $ (822,941) $ (2,512,242) $ 1,657,032 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities (Gain) loss on sale of securities 690,316 3,662,353 (2,192,307) Other gains -- (41,788) -- Depreciation and amortization 267,478 271,232 267,699 Abandonments -- 27,828 4,056 Stock issuance for compensation -- -- 140,000 Deferred taxes 209,527 (386,324) 149,692 Changes in assets and liabilities Accounts receivable 126,649 (49,377) (328,061) Prepaid expenses and other receivables (1,542) (20,089) 58,407 Trading securities, net of transfer (789,127) 626,049 (4,708,588) Accounts payable 175,016 192,571 108,334 Accrued liabilities (58,872) (17,141) (36,654) Income taxes payable (receivable) 894,095 (1,604,451) 689,917 Other (1,452) -- -- ------------ ------------ ------------ Net cash provided by (used in) operating activities $ 689,147 $ 148,621 $ (4,190,473) ============ ============ ============
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 in 2001 and 2000,and $ 7,200 in 1999. F-7 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 2000 and 1999 captions to conform to the 2001 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. 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 accumulated other comprehensive income in stockholders' equity until realized. F-8 INTERWEST MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED INVESTMENTS IN SECURITIES - CONTINUED Gains and losses on the sale of securities available for sale are determined using the specific identification method. Prior to October 1, 1999, the Company classified all investment securities as available for sale. Effective October 1, 1999, 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 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, 2001 and 2000, based upon current interest rates of similar debt which approximates the Company's mortgage interest rate. F-9 INTERWEST MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 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 52% of 2001 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. EARNINGS PER COMMON SHARE In 1999, the effect of dilutive common shares was immaterial. Dilutive earnings per share have not been presented for 2001 and 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. F-10 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. The 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. NOTE 2. INVESTMENT SECURITIES Investment securities consist entirely of equity securities. 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 2001 and 2000 is $ 418,728 and $488,228, respectively, of unrealized loss on trading securities still held at December 31, 2001 and 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. F-11 INTERWEST MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3. CAPITAL STOCK 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. A summary of the status of the Company's stock options for 2001 and 2000 is as follows:
2001 2000 ----------------- ----------------- Weighted Weighted Average Average Shares Exercise Shares Exercise (000) Price (000) Price ------ -------- ------ -------- Outstanding, beginning 1,500 $ .15 1,500 $ .15 Granted -- -- -- 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 $ -- $ -- ======== ========
At December 31, 2001, the 1,500,000 options have an exercise price of $0.15 per share and a weighted average remaining contractual life of 7.25 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, 2001, 2000 and 1999, Arch B. Gilbert, a Professional Corporation, whose sole stockholder is president of the Company, was paid $225,326, $330,000 and $141,700, respectively, for legal services rendered. F-12 INTERWEST MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4. RELATED PARTY TRANSACTIONS - CONTINUED During the years ended December 31, 2001, 2000 and 1999, the above corporation was reimbursed $50,273, $35,352 and $35,352, respectively, for expenses incurred on behalf of the Company. During 2001 and 2000, the wife of the Company's president performed consulting services for the Company for which she received annual cash compensation of $36,000. NOTE 5. FEDERAL INCOME TAXES The Company's tax provision (benefit) for 2001, 2000 and 1999 consists of the following:
2001 2000 1999 ---------- ---------- ---------- Current payable (receivable) $ (134,334) $ (609,039) $ 754,917 Deferred taxes -- (386,324) 149,692 Re-evaluation of valuation allowance on beginning temporary differences 209,527 -- -- ---------- ---------- ---------- $ 75,193 $ (995,363) $ 904,609 ========== ========== ==========
The 2001, 2000 and 1999 tax provision (benefit) differs from the amount calculated by applying statutory tax rates to pre-tax income as follows:
2001 2000 1999 ------------ ------------ ------------ Tax at statutory rates $ (254,234) $ (1,192,586) $ 870,958 Re-evaluation of valuation allowance on beginning temporary differences 209,527 -- -- Losses not providing benefits 119,855 222,249 -- Other 45 (25,026) 33,651 ------------ ------------ ------------ $ 75,193 $ (995,363) $ 904,609 ============ ============ ============
All income (loss) since inception relates to domestic activity. F-13 INTERWEST MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5. FEDERAL INCOME TAXES - CONTINUED The tax effects of temporary differences at December 31, 2001 and 2000 that give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows:
2001 2000 ---------- ---------- Deferred tax assets Unrealized loss on marketable securities $ 142,367 $ 165,998 Expenses deduction in future periods 59,226 17,997 Capital loss carryforward 429,720 343,331 ---------- ---------- 631,313 527,326 Deferred tax liabilities Depreciation and depletion (100,269) (95,550) Unrealized gain on marketable securities -- -- Valuation allowance (531,044) (222,249) ---------- ---------- Total deferred tax asset (liabilities), net $ -- $ 209,527 ========== ==========
During 2001, the valuation allowance increased $308,795. The valuation allowance increased $222,249 in 2000. The Company has a capital loss carryforward of approximately $1,264,000 expiring in 2006. NOTE 6. LONG-TERM DEBT Long-term debt consisted of the following at December 31:
2001 2000 ---------- ---------- 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 $4,388,104 $4,432,042 Less current maturities 47,290 43,938 ---------- ---------- $4,340,814 $4,388,104 ========== ==========
Aggregate maturities of long-term debt for each of the succeeding five years and thereafter is as follows: 2002 $ 47,290 2003 50,898 2004 54,782 2005 58,961 2006 63,460 Thereafter 4,112,713
F-14 INTERWEST MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 covering substantially all of its employees. Contributions to the plan in 2001, 2000 and 1999 totaled $79,518, $53,579 and $32,279, respectively. F-15 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, 1999 $ 58,495 $128,924 $ -- $ 115,731 $ 71,688 ========== ======== ======== ========== ============= Year ended December 31, 2000 $ 71,688 $ 9,696 $ -- $ 24,480 $ 52,932 ========== ======== ======== ========== ============= Year ended December 31, 2001 $ 52,932 $129,127 $ -- $ 7,864 $ 174,195 ========== ======== ======== ========== =============
F-16 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 68 1983(1) President, Secretary, Treasurer & Director
(1) Date of incorporation (b) Identification of Executive Officers:
Name Position Age - ---- -------- --- Arch B. Gilbert President, 68 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 2001. 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% 9 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, 2000, 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, 2001, Arch B. Gilbert did not receive any direct remuneration. All executive officers as a group (1 person) received cash remuneration in fiscal year 2001 of $0. 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. 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
10 (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. (b) The following table sets forth as of December 31, 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 39.5% Common Stock All Officer and 6,295,000 39.5% $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 2001 of $24,000. The Registrant also reimbursed Mr. Gilbert for 50% of his office and administrative expenses for the year ending December 31, 2001 and for direct out-of-pocket expenses incurred on behalf of the Company. The total amount of such reimbursement was $26,273.60. For the year 2001, Arch B. Gilbert, A Professional Corporation, whose sole stockholder is the President of the Company, was paid $225,326 for legal services rendered. In 2002, 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 2001, 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 11 of 6% per annum will be payable annually and the entire balance and any accrued interest will be payable on April 1, 2004. 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, 2001 and 1999 Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2001, 1999 and 1998 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2001, 1999, and 1998 Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 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. 12 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. 13 INTERWEST MEDICAL CORPORATION INDEX TO EXHIBITS ITEM 14(a)
Exhibit number 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. 14 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 -------------------------------------- Arch B. Gilbert, President Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer Date: March 22, 2002 ----------------------------- 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 ------------------------------- Arch B. Gilbert, Director Date: March 22, 2002 ----------------------------- 15 -----END PRIVACY-ENHANCED MESSAGE-----