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SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended September 30, 2004 Commission File No. 2-82655

INTERWEST MEDICAL CORPORATION


(Exact name of registrant as specified in its charter)
     
Oklahoma   75-1864474

 
 
 
(State or other jurisdiction
of incorporation or organization)
  (I.R.S. Employer Identification No.)

Arlington Heights Professional Office Building
3221 Hulen Street, Suite C, Fort Worth, TX 76107-6193


(Address of principal executive offices, zip code)

Registrant’s telephone number, including area code: (817)731-2743

Not Applicable


(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x                    No o                    

APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

(Not Applicable)

Yes x                    No o                    

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act)

Yes o                    No x                    

(APPLICABLE TO CORPORATE ISSUERS)

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the close of the period covered by this report. 20,000,000 shares of Common Stock, $0.001 Par Value.



 


TABLE OF CONTENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PART I — EXHIBIT I
Item 2. Management’s Discussion and Analysis of Financial Position and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults upon Senior Securities.
Item 4. Submission of Matters to a Vote of Securities Holders.
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
Section 302 Certification
Section 906 Certification


Table of Contents

INTERWEST MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEETS

                 
    September 30,   December 31,
    2004
  2003
    (unaudited)        
ASSETS
               
CURRENT ASSETS
               
Cash, including interest bearing accounts
  $ 2,100,919     $ 796,434  
Accounts receivable — trade, net of allowance for doubtful accounts and December 31,2003 $452,000
    2,992,583       3,655,364  
Investments — trading
    93,145       355,252  
Prepaid expenses and other receivables
    157,741       75,933  
 
   
 
     
 
 
Total current assets
    5,344,388       4,882,983  
PROPERTY AND EQUIPMENT, at cost
               
Land
    294,354       294,354  
Buildings and improvements
    4,164,206       4,147,464  
Equipment and furniture
    1,287,917       1,240,906  
Oil and gas properties (successful efforts method of accounting)
    195,068       170,489  
 
   
 
     
 
 
 
    5,941,545       5,853,213  
Less accumulated depreciation and depletion
    2,920,976       2,723,936  
 
   
 
     
 
 
 
    3,020,569       3,129,277  
OTHER ASSETS
               
Cash escrow accounts
    290,703       253,202  
Deferred financing costs, net
    76,028       78,569  
 
   
 
     
 
 
 
    366,731       331,771  
 
   
 
     
 
 
TOTAL ASSETS
  $ 8,731,688     $ 8,344,031  
 
   
 
     
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
CURRENT LIABILITIES
               
Current maturities of long-term debt
  $ 52,466     $ 50,539  
Accounts payable
    2,240,363       2,022,066  
Accrued expenses
    485,556       708,786  
 
   
 
     
 
 
Total current liabilities
    2,778,385       2,781,391  
LONG-TERM DEBT
    4,515,889       4,555,316  
STOCKHOLDERS’ EQUITY
               
Common stock, par value $0.001, authorized 50,000,000 shares, issued 20,000,000 shares
    20,000       22,000  
Additional paid-in capital
    4,883,587       5,096,745  
Retained earnings (deficit)
    (2,573,660 )     (3,059,187 )
 
   
 
     
 
 
 
    2,329,927       2,059,558  
Less cost of shares held in the treasury,
    892,513       892,234  
Notes receivable — officer
            160,000  
 
           
 
 
 
    1,437,414       1,007,324  
 
   
 
     
 
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 8,731,688     $ 8,344,031  
 
   
 
     
 
 

See Accompanying Notes to Condensed
Consolidated Financial Statements

 


Table of Contents

INTERWEST MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

                                 
    Three Months Ended   Nine Months Ended
    September 30,
  September 30,
    2004
  2003
  2004
  2003
REVENUES
                               
Patient service revenue
  $ 4,451,707     $ 4,249,385     $ 13,018,169     $ 11,672,121  
Other revenue
    6,933       13,518       24,250       36,150  
 
   
 
     
 
     
 
     
 
 
Total revenue
    4,458,640       4,262,903       13,042,419       11,708,271  
COSTS AND EXPENSES
                               
Professional care of patients
    2,438,723       2,381,610       7,265,499       6,921,145  
General services
    730,049       713,921       2,016,151       2,091,087  
Administrative services
    801,804       778,935       2,532,913       2,032,345  
Other costs
    4,251       3,702       10,126       12,614  
Depreciation, depletion and amortization
    52,967       70,931       184,327       212,793  
 
   
 
     
 
     
 
     
 
 
Income from operations
    430,846       313,804       1,033,403       438,287  
OTHER INCOME (EXPENSES)
                               
Investment income (loss)
          55,810       (45,928 )     127,536  
Interest income
    1,452       707       3,091       3,101  
Interest expense
    (85,000 )     (82,594 )     (258,889 )     (243,794 )
Other Financing Costs
            (349,320 )           (349,320 )
 
   
 
     
 
     
 
     
 
 
Income before taxes on income
    347,298       (61,593 )     731,677       (24,190 )
Provision for income taxes
    120,000             246,150        
 
   
 
     
 
     
 
     
 
 
Net income
  $ 227,298     $ (61,593 )   $ 485,527     $ (24,190 )
 
   
 
     
 
     
 
     
 
 
Weighted averages shares outstanding
    15,247,803       1,591,544       15,692,408       15,915,675  
 
   
 
     
 
     
 
     
 
 
Earnings per common share — basic and diluted
  $ 0.01     $ (0.00 )   $ 0.03     $ (0.00 )
 
   
 
     
 
     
 
     
 
 

See Accompanying Notes to Condensed
Consolidated Financial Statements

 


Table of Contents

INTERWEST MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

                 
    Nine Months Ended
    September 30,   September 30,
    2004
  2003
CASH FLOWS FROM OPERATING ACTIVITIES
  $ 1,476,556     $ (652,982 )
CASH FLOWS FROM INVESTING ACTIVITIES
               
Net Change in escrow accounts
    (37,501 )     151,675  
Net change in financing costs
            2,541  
Payments for acquisition of property
    (99,332 )     (32,191 )
 
   
 
     
 
 
Net cash used in investing activities
    (134,292 )     119,484  
CASH FLOWS FROM FINANCING ACTIVITIES
               
Purchase of treasury stock
    (279 )     (25 )
Proceeds on borrowings
          14,705  
Payments on borrowings
    (37,500 )     (43,460 )
 
   
 
     
 
 
Net cash used in financing activities
    (37,779 )     (28,780 )
 
   
 
     
 
 
Net increase (decrease) in cash
    1,304,485       (562,278 )
CASH, beginning of period
    796,434       1,004,795  
 
   
 
     
 
 
CASH, end of period
  $ 2,100,919     $ 442,517  
 
   
 
     
 
 

See Accompanying Notes to Condensed
Consolidated Financial Statements

 


Table of Contents

INTERWEST MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.   In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the Company’s financial position as of September 30, 2004, and its results of operations for the three and nine months ended September 30, 2004 and 2003, and cash flows for the nine months ended September 30, 2004 and 2003. The results of operations for the period presented are not necessarily indicative of the results to be expected for a full year.
 
2.   Income per share was computed by dividing the net income by the weighted average number of shares outstanding.
 
3.   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 representative.
 
    A summary of the status of the Company’s stock options for 2004 and 2003 is as follows:

                                 
    2004
  2003
            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 September 30, 2004, the 1,500,000 options have an exercise price of $0.15 per share and a weighted average remaining contractual life of 5.75 years.
 
4.   The treasury shares in the accompanying financial statements are owned by a subsidiary company, are issued and outstanding for all corporate purposes, but are treated as treasury shares only for the presentation of the accompanying financial statements.

 


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REVIEW BY INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

Weaver and Tidwell, L.L.P., Independent Certified Public Accountants, have performed a review of the condensed consolidated balance sheet as of September 30, 2004 and the condensed consolidated statements of operations for the three and nine months ended September 30, 2004 and 2003, and cash flows for the nine months ended September 30, 2004 and 2003, in accordance with established professional standards and procedures for such a review. All adjustments or additional disclosures proposed by Weaver and Tidwell, L.L.P. have been reflected in the data presented.

The report of Weaver and Tidwell, L.L.P. commenting upon their review is included as Part I — Exhibit I.

 


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
InterWest Medical Corporation

We have reviewed the condensed consolidated balance sheet of InterWest Medical Corporation as of September 30, 2004, and the related condensed consolidated statements of operations for the three and nine month periods ended September 30, 2004 and 2003, and cash flows for the nine months ended September 30, 2004 and 2003. These interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical review procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying interim condensed consolidated financial statements referred to above, for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of InterWest Medical Corporation as of December 31, 2003, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated March 19, 2004, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2003, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

(WEAVER AND TIDWELL, L.L.P. LOGO)

WEAVER AND TIDWELL, L.L.P.

Fort Worth, Texas
November 4, 2004

689

 


Table of Contents

PART I — EXHIBIT I

 


Table of Contents

Item 2.  Management’s Discussion and Analysis of Financial Position and Results of Operations.

Changes in Balance Sheet Accounts

Current assets were $5,344,388 and total assets were $8,731,688 at September 30, 2004 as compared to $4,882,983 current assets and $8,344,031 total assets at December 31, 2003. Current liabilities were $2,778,385 at September 30, 2004 as compared to $2,781,391 at December 31, 2003.

Results of Operations

For the three months ended September 30, 2004, operating revenue was $4,458,640, costs and expenses were $4,027,794, net income was $227,298 and interest income was $1,452, as compared to the three months ended September 30, 2003, operating revenue of $4,262,903, costs and expenses of $3,949,099, net income was $(61,593), and interest income of $707.

For the nine months ended September 30, 2004, operating revenue was $13,042,419, costs and expenses were $12,009,016, net income was $485,527 and interest income was $3,091, as compared to the nine months ended September 30, 2003, operating revenue of $11,708,271, costs and expenses of $11,269,984, net loss of $(24,190), and interest income of $3,101.

Cash Flows

For the nine months ended September 30, 2004, cash flows from operating activities were $1,476,556, cash flows from investing activities were $(134,292), cash flows from financing activities were $(37,779), net increase in cash was $1,304,485, cash at the beginning of the period was $796,434, and cash at the end of the period was $2,100,919, as compared to the nine months ended September 30, 2003, to cash flows from operating activities of $(652,982), cash flows from investing activities of $119,484, cash flows from financing activities of $(28,780), net decrease in cash of $(562,278), cash at the beginning of the period of $1,004,795 and cash at the end of the period of $442,517.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

The Company has not entered into any derivative financial instruments, derivative commodity instruments or other similar instruments during the quarter ended September 30, 2004.

Item 4.  Controls and Procedures

As of September 30, 2004, an evaluation was performed under the supervision and with the participation of the Company’s management, including the CEO, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the CEO, concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2004. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to September 30, 2004.

 


Table of Contents

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings.

      Not applicable.

Item 2.  Changes in Securities.

      Not applicable.

Item 3.  Defaults upon Senior Securities.

      Not applicable.

Item 4.  Submission of Matters to a Vote of Securities Holders.

      Not applicable.

Item 5.  Other Information

      Not applicable.

Item 6.  Exhibits and Reports on Form 8-K.

      (a) Exhibit 31 – Section 302 Certification
      (b) Exhibit 32 – Section 906 Certification

 


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its half by the undersigned thereunto duly authorized.
         
  INTERWEST MEDICAL CORPORATION
 
 
Date: November 5, 2004  By:   /s/ Arch B. Gilbert    
    Arch B. Gilbert, President,   
    Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer