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