U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-14189
INTERWEST HOME MEDICAL, INC.
(Name of Small Business Issuer as specified in its charter)
Utah 87-0402042
State or other jurisdiction of (I.R.S. employer
incorporation or organization identification No.)
235 East 6100 South
Salt Lake City, UT
(Zip Code)
84107-7349
(Address of principal executive offices)
Issuer's telephone number, including area code: (801) 261-5100
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: No Par
Value Common Stock
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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
.
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of Issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. x/
The Issuer's revenues for the fiscal year ended September 30, 1996 were
$19,861,089
As of December 15, 1996, 3,283,941 shares of the Issuer's common stock were
issued and outstanding of which 1,412,850 were held by non-affiliates. As of
December 15, 1996, the aggregate market value shares held by non-affiliates
(based upon the closing price reported by the NASD's SmallCap Market System of $
4.00) was approximately $ 5,651,400.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
The Interest Home Medical, Inc., through its wholly-owned subsidiary,
Interwest Medical Equipment Distributors, Inc. ("nterwest Medical") provides a
diversified range of home health care services and products. (The Company and
Interwest Medical are sometimes hereafter jointly referred to as the "Cmpany").
The Company currently conducts its business from twenty-one (21) retail
locations in the States of Utah, Colorado, Idaho and Nevada. The Company divides
its products and services into three general categories:
1. Home Oxygen and Respiratory Care Services. The Company primarily
provides oxygen and other respiratory therapy services to patients in the home.
Interwest Home Medical has more than 18 respiratory therapists on staff whose
focus is training and monitoring patients in the proper use of home oxygen
equipment, nebulizers and unit dose medications, apnea monitors, sleep disorder
equipment, ventilators, home phototherapy, enteral nutrition care, and other
respiratory services.
2. Rehabilitation Services. The Company provides custom rehabilitation
equipment and services which include custom fitted and adaptive wheelchairs,
seating systems, vehicle adaptations, home and workplace lifts and adaptations,
specialized beds, and physical therapy equipment.
3. Home Medical Equipment and Supplies. The Company provides a wide variety
of other home medical equipment and supplies including items such as hospital
beds, standard wheelchairs, patient lifts, commodes, bathroom aids and safety
equipment, powered scooters, walkers, canes, orthopedic braces and supports,
wound care products, lymphedema and compression therapy, urinary incontinence
and ostomy supplies, and first aid supplies.
The Company's operating strategy is to expand its business operations in
existing and new markets by providing high quality service and products, by
focusing on high growth therapies, by aggressive marketing and by acquiring
other companies engaged in similar businesses. The Company has pursued an
aggressive acquisition strategy since 1994 which included nine (9) acquisitions
during the previous fifteen months. As a result of such acquisitions and
internal growth, Interwest Medical's operating revenues increased from
$15,523,115 for the year ended, September 30, 1995 to $19,861,089 for the year
ended September 30, 1996. Current industry estimates indicate that more than
half of the nation's home health care industry remains fragmented and is run by
either single operators or small, local chains. These smaller providers are the
Company's main competition and main acquisition opportunities. The Company plans
to continue to enter new home health care markets through acquisition or
start-up as competitive and pricing pressures encourage consolidation and
economies of scale.
Quality of service is emphasized throughout the Company's organization both
in the hiring and training of its clinical personnel and the manner in which its
home health care services are delivered. Quality assurance and training are
directed and monitored by a Director of Quality Improvement, who is an
experienced health care professional. All of the Company's offices have received
accreditation from the Joint Commission on Accreditation of Healthcare
Organizations ("JCAHO"), a nationally recognized, not- for-profit organization
that develops standards for various health care providers and monitors
compliance with such standards.
History of the Company
The Company was organized as Beacon Financial, Inc. under the laws of the
State of Utah on November 7, 1983 pursuant to the Trustee's Plan of
Reorganization and Order Confirming the Trustee's Plan of Reorganization In Re:
Grove Finance Company, a Utah corporation, a/k/a Pleasant Grove Finance Company,
Bankruptcy No. 80-01590, filed with the United States Bankruptcy Court for the
District of Utah, dated June 20, 1981. The Company was organized for the
principal purpose of acquiring and managing the assets and liabilities remaining
after the bankruptcy of Grove Finance Company. The original shareholders of the
Company were former depositors and creditors of Grove Finance Company. The
Company had no relationship with Interwest Medical prior to the merger which was
closed in February 1995.
From its inception in 1983 to February 1995, the Company was primarily
engaged in the management of certain real estate assets, all of which are
located within the State of Utah. During this period of time, the Company had
part-time management, had limited operations except for its operations of
certain income real property and had no active trading market in its common
stock. During this time period, the Company's income was limited to primarily
real estate rental income and interest. In recent years, the Company's Board of
Directors, as then constituted, determined that it was in the best interest of
the Company to commence operations in an active business venture through either
acquisition or merger. During 1994, the Company entered into a Letter of Intent
to acquire Interwest Medical, a Utah based company which was, and is, engaged in
the business of renting and selling home medical equipment, supplies and
services. On February 21, 1995, the Company held a Special meeting of
Shareholders to consider and vote upon a proposal to change the Company's
capital structure in order to effect the acquisition of Interwest Medical. The
Company's shareholders approved the recapitalization proposal and on February
22, 1995, the Company acquired Interwest Medical. (See "Acquisition of Interwest
Medical Equipment Distributors, Inc." below).
On May 2, 1995, another Special Meeting of the Company's Shareholders was
held for the purpose of voting upon a proposal to amend the Company's Articles
of Incorporation to, among other things, change the Company's name from Beacon
Financial, Inc. to Interwest Home Medical, Inc. The shareholders approved all of
the proposals voted upon at the Special Meeting and effective May 2, 1995, the
Company's name was changed to Interwest Home Medical, Inc.
On November 30, 1995, the Company held a Special Meeting of Shareholders to
vote upon a proposal to effect a 1-for-4 reverse split of the issued and
outstanding shares of the Company's common stock. The reverse split proposal was
approved by the Company's shareholders. On December 4, 1995, the 13,135,765
shares of the Company's common stock then issued and outstanding, were reverse
split to 3,283,941 shares and the trading price of the shares was
proportionately increased.
Acquisition of Interwest Medical Equipment Distributors, Inc.
On May 5, 1994, the Company entered into a Letter of Intent with Interwest
Medical relating to the proposed acquisition of Interwest Medical by the
Company. The acquisition was effected on February 22, 1995. As a result of the
Merger, Interwest Medical became a wholly-owned subsidiary of the Company.
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Prior to the Merger there were 5,343,893 shares of the Company's common
stock issued and outstanding. In the Merger, the Company issued 7,811,872 shares
of the Company's common stock to the shareholders of Interwest Medical and
granted options to purchase an additional 203,968 shares. Immediately following
the Merger, there were 13,135,765 shares of the Company's common stock issued
and outstanding, 60% of which were owned by the former shareholders of Interwest
Medical. (The numbers set forth above are calculated without giving effect to a
1-for-4 reverse stock split on December 4, 1995.)
Interwest Medical was formed under the name of Robinson's Medical Mart on
October 1, 1957. In October 1982, its name was changed to Interwest Medical
Equipment Distributors, Inc. in connection with a corporate reorganization.
During the past 12 years Interwest Medical has grown from one store to its
current twenty-one retail locations.
Strategy
The Company's revenues are generated from selling and renting home medical
equipment and supplies and from providing a variety of services to customers.
Revenues and income for the last five fiscal years were as follows:
1,996 1,995 1,994 1,993 1,992
Revenues $19,861,089 $15,523,115 $10,213,886 $9,417,087 $7,675,584
Net Income $608,402 $1,228,042 $272,498 $234,863 $295,438
Currently, revenues are divided between sales and equipment rentals. For
the fiscal years ended September 30, 1996 and 1995 sales were 62% and 64% of
total revenues and rentals represented 38% and 36% of total revenues,
respectively.
The Company's business strategy is to develop a broad based organization
that specializes in providing comprehensive home health care services and
products. The Company's future growth is projected to be derived from two
principal sources: (I) increased product sales and rentals from its existing
operations, and (ii) revenues generated by businesses which may be acquired in
the future. During the last six years, the Company's revenues increased by
approximately 200% from the $6,617,908 for the year ended September 30, 1991.
During fiscal 1996 Interwest Home Medical acquired the assets of seven other
businesses all of which contributed to the 28% increase of fiscal 1996 revenues
over fiscal 1995 revenues.
One of the reasons that Interwest Medical participated in the Merger with
the Company in February 1995, was to be able to utilize the Company's securities
to effect additional acquisition transactions. Application for such listing on
the NASDAQ SmallCap Market System was made in December 1995. The Company
believes that being listed on NASDAQ enhances its ability to use securities in
connection with future transactions. On March 4, 1996 the Company's application
for listing on the NASDAQ SmallCap Market System was approved.
The Company believes the home medical equipment services market is highly
fragmented on both a national and regional basis and most participants are "mom
and pop" companies with limited market share. The Company believes by combining
small participants into a single larger company, aggregate operations would be
more efficient and product purchasing, accounting, claims processing and
marketing
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could be centralized. The Company believes there are a number of home
medical product companies suitable and available for acquisition. The Company
intends to grow by acquiring some of these companies. During the last fiscal
year, the Company acquired substantially all the assets and customer base of
seven companies engaged in the home health care business. The total purchase
price paid by the Company for such acquisitions was approximately $2.7 million
paid in cash, notes and assumption of debt. Subsequent to September 30, 1996,
two additional acquisitions were completed. The acquisitions effected were as
follows:
<TABLE>
<CAPTION>
Name Acquisition Date Location Products
<S> <C> <C> <C>
Alpine Medical, Inc. February 1996 Greeley, Colorado Home Oxygen
Fort Morgan, Colorado
Poudre Valley Respiratory Care, May 1996 Fort Collins, Colorado Home Oxygen
Inc.
Mesa Medical, Inc. May 1996 Las Vegas, Nevada Rehabilitation Products
Western Medical Care Products, April 1996 Henderson, Nevada Home Oxygen/DME
Inc.
Mountain Air Health Care, Inc. October 1995 Salt Lake City, Utah Home Oxygen
NewAccess, Inc July 1996 Reno, Nevada Rehabilitation Products
Hops, Inc. August 1996 Reno, Nevada Home Oxygen
American Marketing Association, November 1996 Denver, Colorado Home Oxygen
Inc.
Resource Medical, Inc December 1996 Loveland, Colorado Oxygen Supplier for
L-T Care Facilitie
</TABLE>
Products and Services Offered to Customers
The Company provides a wide variety of home medical equipment products and
services on a sale or monthly rental basis. Its customers are primarily patients
who have been discharged from hospitals or convalescent homes or referred by a
physician or other medical professional. In all of its lines of business, the
Company provides its customers with a variety of products, supplies and related
services, most of which are prescribed by a physician as part of a patient
treatment plan. These services include delivering and installing medical
equipment, training patients and their care givers in the proper use of products
in the home, monitoring patient compliance with their individualized treatment
plan, reporting to the physician and/or managed care organization, maintaining
equipment and processing claims to third party payors. In the vehicle, home, and
worksite adaptation business, the Company must frequently bid competitively in
order to sell its products. The products and services offered by the Company
include the following:
Home Oxygen and Respiratory Care Services. The Company obtains its patients
by referrals from hospital discharge planners and/or case managers, agreements
with managed care organizations, and primary care physicians. In addition, the
Company focuses upon specialty pediatric services as a result of the above
average birth rates in most of its service areas. Industry-wide home respiratory
market revenues were an estimated $1.6 billion in 1994.
The Company's home oxygen and respiratory care services primarily consist
of:
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Oxygen concentrators which are stationary units that extract oxygen from
room air and generally provide the least expensive supply of oxygen for patients
who require a continuous supply of oxygen, are not ambulatory and who do not
require excessive flow rates.
Liquid oxygen systems which are thermally insulated containers of liquid
oxygen. The liquid oxygen is stored in a stationary unit that can be refilled at
the patient's home and be used to fill a portable device that permits greatly
enhanced patient mobility.
Nebulizers and associated respiratory medications which provide aerosolized
medications, allowing them to be inhaled directly into the patient's lungs.
Apnea monitors which provide respiratory and heart alarm systems for
infants at risk of sudden infant death syndrome.
Continuous positive airway pressure (CPAP) devices which maintain open
airways in patients suffering from obstructive sleep apnea by providing airflow
at prescribed pressures during sleep.
Non-invasive bi-level ventilation which provides nocturnal ventilatory
support for neuromuscular and chronic obstructive pulmonary disease patients in
order to improve daytime function and decrease incidents of acute illness.
Ventilator therapy which is used for the individual that suffers from
respiratory failure by mechanically assisting the individual to breathe.
The Company's respirator therapists also provide the following related
services:
Home phototherapy which provides UV light to help newborn systems eliminate
above normal levels of bilirubin.
Enteral nutrition therapy which provides prescribed levels of nutrients to
patients with limited capacity for normal ingestion.
The Company provides technicians who deliver and/or install the respiratory
care equipment, instruct the patient in its use, refill the high pressure and
liquid oxygen systems as necessary and provide continuing maintenance of the
equipment. Approximately 39% of the Company's revenues for the year ended
September 30, 1996 were for respiratory care services.
Rehabilitation Services. The Company is one of a limited number of
providers of adaptive rehabilitation equipment. Its rehabilitation technology
specialists work in conjunction with physicians, physical and occupational
therapists, special education teachers, case managers and association personnel
to design and adapt wheelchairs and other therapy equipment for use by
physically challenged persons. In 1994, the Americans with Disabilities Act
("ADA") became fully functional. This law has frequently been referred to as the
civil rights act for disabled persons. Since some of its provisions require
improved access to businesses and governmental facilities, the interest in home
and worksite lifts, elevators, stairway lifts and vehicle adaptations has
greatly increased.
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The Company's rehabilitation services include custom fitting, adapting and
repairing wheelchairs and related seating systems for persons affected with
cerebral palsy, muscular dystrophy and its related conditions, spinal cord
injuries, head injuries, arthritis, and other disabling diseases. Home
elevators, stairway lifts and vertical lifts are also installed and maintained
by a number of trained service technicians who are certified through a national
dealer organization. The Company also sells and installs specialized wheelchair
elevators and stairway lifts in commercial buildings primarily through
successful competitive bids. Vehicles may be adapted with hand controls, ramps,
trunk lifts, van lifts, wheelchair fastening safety devices and other
modifications to make vehicles more accessible to disabled persons. In addition,
the Company focuses upon pressure management by providing specialized low
air-loss and other low pressure beds for rental in hospitals, convalescent
centers and homes. Most of the Company's facilities include a national
"Certified Repair Center" which provides warranty, maintenance and repair
services for most home medical equipment. Approximately 33% of the Company's
revenues for the year ended September 30, 1996 were for its rehabilitation
products and services.
Home Medical Equipment and Supplies. The Company provides a full line of
home medical equipment and supplies. The Company sells and rents more than
15,000 different products for home use. These products include patient room
equipment (such as hospital beds, patient lifts and commodes), ambulatory aids
(such as wheelchairs, walkers, and canes), bathroom aids and safety equipment,
orthopedic braces and supports, urinary incontinence and ostomy supplies, wound
care products, compression therapy and lymphedema pumps and first aid supplies.
The Company sells and rents these products from all of its twenty-one (21)
rental/service locations and services customers in four states. The products
offered by the Company range in price from a few cents to $10,000. Approximately
28% of the Company's revenues for the fiscal year ended September 30, 1996 were
for home medical equipment and supplies.
Organization and Operations
Interwest Home Medical currently provides home health care services through
a network of twenty- one (21) branch locations in four (4) states. The Company
seeks to address the local market needs of the home health care industry through
its branch office network. Each branch office conducts local marketing efforts,
negotiates contracts with local referral sources, recruits personnel and
coordinates patient care. Since the provision of home health care services is
generally a local business, the Company provides its branch office managers with
training, comprehensive policies and procedures and standardized operating
systems, while allowing them sufficient autonomy to address local needs.
Incentive plans are designed to reward performance based upon revenue increases,
earnings contribution and accounts receivable collection primarily for branch
teams. The central corporate office provides support in marketing, sales and
staff training, contracting with managed care organizations, purchasing and
accounting functions.
Each of the Company's branch locations are equipped with computer systems
that are on-line with the central corporate computer. This system has enabled
the company to standardize operating processes, track operating performance by
branch, control and manage accounts receivable, process customer orders, improve
inventory management, reduce administrative overhead, facilitate interbranch
communications and gather statistical data in order to provide patient
management information to managed care organizations.
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The Company currently sells and rents equipment and/or provides services
from the following retail locations:
Year Opened
State City Or Acquired
Colorado Colorado Springs 1995
Denver 1994
Greeley 1996
Fort Collins 1996
Fort Morgan 1996
Loveland 1996
Idaho Boise 1987
Idaho Falls 1991
Pocatello 1995
Twin Falls 1994
Nevada Las Vegas 1992
Henderson 1996
Reno 1996
Utah Midvale (Van, elevator center) 1994
Murray (Main Office) 1978
Ogden 1989
Pleasant Grove 1983
Price 1988
Salt Lake Downtown 1995
Vernal 1994
St. George 1996
Sales and Marketing
The Company believes the sales and marketing skills of its employees have
been instrumental in its growth to date and are critical to its future success.
The Company emphasizes to its employees the importance of patient base growth
and retention by providing quality service to physicians and their patients.
Approximately 16% of the Company's employees are actively involved in sales and
marketing either in full or in part, of the Company's products to health care
organizations and other customers. Key customers include but are not limited to
managed care organizations, hospital-based health care professionals, physicians
and their staffs, home care agencies, private practice therapists and case
managers. Sales representatives are afforded necessary clinical and technical
training to represent the Company's major product lines of products and
services. The Company's products and services are marketed primarily through its
branch office personnel, print advertising, mailings to existing customers and
manufacturers' specific promotions.
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Given the shift toward managed health care, an integral component of the
Company's overall sales strategy is to seek preferred provider contracts with
various managed care organizations. Managed care organizations have grown
substantially in terms of the percentage of the population covered by such plans
and their influence over an increasing portion of the health care economy. These
contracts typically designate the Company as one of a limited number of
preferred providers of certain services in selected areas but do not establish
an exclusive relationship. The Company currently has preferred provider
contracts that are both local and regional in scope to provide home medical
equipment services and supplies to the beneficiaries of over forty (40) managed
care insurance companies. Total revenue generated from these agreements amounted
to approximately 18% of total revenues for the year ended September 30, 1996.
The Company believes the JCAHO accreditation of its branch offices is an
important factor in its sales and marketing efforts. Accreditation by JCAHO is
one of the few indicators that referral sources have for judging the standard of
quality of a home health care provider and is increasingly being considered a
prerequisite for entering into contracts with managed care organizations at
every level. The Company was the first company located west of the Mississippi
River to complete its accreditation in 1988. As of December 1996, all of the
company's locations have been accredited by JCAHO.
Reimbursement for Services
A substantial percentage of the Company's revenues are derived from
payments made by third party payors including Medicare, Medicaid and private
insurance companies. For the year ended September 30, 1996, the Company's
revenues from these sources were allocated as follows:
Percent of
Payor Total Revenue
Medicare 28 %
Medicaid 9 %
Managed care organizations 18 %
Private insurance companies 19 %
Private pay (includes patient copays) 18 %
Over-the-counter sales 8 %
Total 100 %
Reimbursement is a complicated process which involves submission of claims
to multiple payors, each having its own claims documentation requirements. The
Company has substantial expertise at processing claims and continues to create
and improve systems to manage third-party reimbursements and to produce clean
claims and obtain timely reimbursements by third-party payors. Currently, the
Company submits over 40% of its billings to third party payors electronically.
The billing and claims processing departments work closely with reimbursement
officers at branch locations and third-party payors and are responsible for the
review of patient coverage, the adequacy and timeliness of documentation and the
follow- up with third-party payors to expedite reimbursement payments.
Reimbursement from the Medicare program as a percentage of the Company's total
operating revenue approximated 38% for fiscal 1993, 36% for fiscal 1994, 33% for
fiscal 1995 and 28% for fiscal 1996.
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The Company has achieved increased operating revenue in home respiratory
and other medical equipment operations despite increased regulation and certain
reimbursement reductions. While the increased regulation tends to reduce the
amount of reimbursement from government sources for individual cases, the
Company believes the continued increased regulation also benefits the Company by
reducing the competition from joint ventures and fee revenue sharing
arrangements, which the Company has historically avoided.
The Company's levels of operating revenue and profitability, like other
health care companies, are affected by the continuing efforts of third-party
payors to contain or reduce health care costs by lowering reimbursement rates,
increasing case management review of services and negotiating reduced contract
pricing. Home health care, which is generally less costly to third-party payors
than hospital-based care, has benefitted from those cost containment objectives.
However, as expenditures in the home health care market continue to grow,
initiatives aimed at reducing the health care delivery costs at non-hospital
sites are increasing. Changes in reimbursement policies by third-party payors,
or the reduction in or elimination of such reimbursement programs, could have a
material adverse impact on the Company's revenues. Various state and federal
health care reform initiatives may lead to additional changes in reimbursement
programs.
Purchasing
Each branch office is responsible for determining its inventory needs and
submitting requisitions to a centralized purchasing department. Using this input
virtually all equipment and supplies are selected and purchased by personnel
located at the Company's headquarters. Inventory purchased is shipped by vendors
to the specific location instructed by the Company. In fiscal 1996, the Company
purchased products from over 800 suppliers. Approximately 24% of the products
purchased were purchased from Sunrise Medical and Invacare, including
wheelchairs, respiratory equipment, scooters, crutches and other goods.
The Company is an authorized dealer of The MED Group, Lubbock, Texas, a
national organization of home medical equipment service providers. The MED Group
arranges national pricing agreements with certain manufacturers, assists with
national networks and contracting with managed care organizations, conducts
specialty training programs and provides certain marketing materials and other
services for its dealers. The arrangement is annually renewable and may be
canceled by either party with sixty (60) days written notice. The Company
intends to continue its participation for the foreseeable future.
Interest Home Medical has no long-term contracts for the purchase of
inventory although it has pricing agreements with several suppliers, many of
which are arranged through its affiliation with The MED Group. The Company
believes its relationships with suppliers are good and that alternative sources
of supply exist, at similar costs and on similar terms for most of the products
purchased.
Competition
The home medical equipment product and services market is highly
competitive and fragmented. The barriers to enter into the market are low and,
accordingly, competition is intense. While there are two national providers and
approximately ten regional providers, the vast majority of the Company's
competition are small, locally owned firms. The principal competitive factors in
the market are the ability to develop and maintain contractual relationships
with managed care organizations, price of services, ease of doing business with
the provider, quality, the mix of products and services offered and the
reputation with referring persons. The Company believes it competes effectively
in each of its lines of business with respect to these factors.
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Other types of health care providers including hospitals, home health
agencies, physicians and new health "super stores" have entered, and may
continue to enter, the Company's various lines of business. However, the Company
believes its wide variety of home medical equipment products and services
broadens its appeal to managed care organizations and local health care
professionals.
The entire health care and medical product and service market is under
various pressure to reduce costs and increase efficiencies. The Company intends
to attempt to reduce costs and increase efficiencies through its growth
strategy. The Company believes it currently competes effectively in the market
and will continue to take all action necessary to remain competitive. Certain of
the Company's competitors and potential competitors have significantly greater
financial, technical and marketing and sales resources than the Company and may,
in certain locations, possess licensee or certificates that permit them to
provide services that the Company cannot currently provide. There can be no
assurance that the Company will not encounter increased competition in the
future that could limit the Company's ability to maintain or increase its
business which could adversely affect the Company's operating results.
Governmental Regulation
Approximately 37% of the Company's revenues are generated from payments
from Medicare and Medicaid. The Company is subject to a number of requirements
relating to (I) selling and renting products to Medicare and Medicaid patients
and (ii) billing and collecting from Medicare and Medicaid. The Company is
required to be licensed in order to sell and rent products to Medicare and
Medicaid patients. Strict compliance with applicable Medicare and Medicaid rules
and regulations is absolutely required in the Company's business. Failure to
comply with all the rules and regulations would have an adverse effect on the
Company's business operations.
Some products sold and rented by the Company are subject to regulation by
the Food and Drug Administration (FDA). Interest Home Medical dispenses and
delivers oxygen to its customers as prescribed by physicians. The FDA requires
that all oxygen deliveries must be tracked by a lot number provided by the
manufacturer of the oxygen. Additionally, Interest Home Medical sells and rents
life support equipment. In 1993, the FDA required that certain categories of
life support equipment be tracked and monitored by serial number to facilitate
identifying the location of the equipment within three days if required. The
Company currently has processes in place to meet or exceed all FDA requirements.
The home care industry is subject to extensive governmental regulation at
the federal level through the Medicare program and at the state level through
the Medicaid program. Medicare is a federally funded health insurance program
which provides health insurance coverage for persons age 65 and older and
certain disabled persons, and generally provides reimbursement at specified
rates for sales and rentals of specified medical equipment and supplies,
provided such equipment and supplies are determined to be medically necessary by
the treating physician. Medicaid is a health insurance program administered by
state governments which provides reimbursements for health care for certain
financially or medically needy persons regardless of age.
The Company is subject to government audits of its Medicare and Medicaid
reimbursement claims and has not, to date, experienced any material loss as a
result of any such government audits. Under existing federal law, the knowing
and willful offer or payment of any remuneration (including any kickback, bribe
or rebate) of any kind to another person to induce the referral of Medicare or
Medicaid beneficiaries for whom medical supplies and services may be reimbursed
by the Medicare or Medicaid programs is prohibited
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and could subject the parties to such an arrangement to substantial
criminal and civil penalties, including exclusion from participation in these
programs, for Medicare or Medicaid fraud. The Office of Inspector General of the
Department of Health and Human Services ("OIG") has promulgated regulatory "safe
harbors" that describe certain practices and business arrangements that comply
with Medicare and Medicaid regulations. The OIG and law enforcement authorities
have recently increased their investigatory efforts to determine whether various
business practices constitute remuneration for, or to induce, referrals. Certain
states have also passed statutes and regulations that prohibit payments for
referral of patients. These laws vary significantly from state to state. The
result of legislative and regulatory efforts is a challenging compliance
situation.
The types of services and products delivered by the Company, the required
quality of such services and products and the manner in which such services and
products are delivered and billed are each subject to significant and complex
regulations promulgated, interpreted and administered by the appropriate federal
or state governmental agency. Although the Company believes its products,
services and procedures comply in all respects with such regulations applicable
to reimbursement eligibility, the unavailability of advance formal
administrative rulings in most regulated areas subjects the Company to possible
subsequent adverse interpretations and rulings which may affect the eligibility
of some or all of the Company's services and products for reimbursement. Such an
adverse interpretation or ruling could have a substantial adverse impact on the
Company's business.
Health care is an area of extensive and dynamic regulatory change. Changes
in the law or new interpretations of existing laws can have a dramatic effect on
permissible activities, the relative costs associated with doing business, and
the amount of reimbursement by government and third-party payors. The Omnibus
Budget Reconciliation Act of 1987 ("OBRA 1987") created six categories of
durable medical equipment for purposes of reimbursement under the Medicare Part
B program. There is a separate fee schedule for each category. OBRA 1987 also
controls whether durable medical equipment products will be paid for on a rental
or sale basis and establishes fixed payment rates for oxygen services as well as
a 15- month rental ceiling on certain medical equipment. An interim final rule
implementing the payment methodology under the fee schedules was published in
the Federal Register. Payment based on the fee schedules is effective with
covered items furnished on or after January 1, 1989. Generally, Medicare pays
80% of the lower of the supplier's actual charge for the item or the fee
schedule amount, after adjustment for the annual deductible amount. OBRA 1990
made changes to Medicare Part B reimbursement that were implemented in 1991. The
substantive change was the standardization of Medicare rates for certain
equipment categories. Laws and regulations often are adopted to regulate new
products, services and industries. There can be no assurances that either the
states or the federal government will not impose additional regulations upon the
Company's activities which might adversely affect the Company's business.
Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change. Although Congress has
failed to pass comprehensive health care reform legislation thus far, the
Company anticipates that Congress and state legislatures will continue to review
and assess alternative health care delivery and payment systems and may in the
future propose and adopt legislation effecting fundamental changes in the health
care delivery system and in the amount and circumstance under which federally
funded payments such as Medicare and Medicaid are made. Legislative debate is
expected to continue in the future, and the Company cannot predict what impact
the adoption of any federal or state health care reform measures or future
private sector reform may have on its industry or business.
11
<PAGE>
The Company is also subject to many other laws, rules and regulations to
which businesses are subject including, but not limited to, the commercial laws,
employment laws, zoning laws, etc. Compliance with applicable laws, rules and
regulations is expensive and requires a significant amount of time be devoted by
the Company's employees including Management.
Insurance
In recent years, participants in the health care market have become subject
to an increasing number of malpractice and product liability lawsuits, many of
which involve large claims and significant defense costs. As a result of the
liability risks inherent in the Company's lines of business, including the risk
of liability due to the negligence of health care professionals employed by or
otherwise under contract to the Company, the Company maintains liability
insurance intended to cover such claims. There can be no assurance the coverage
limits of the Company's insurance policies will be adequate, or that the Company
can obtain liability insurance in the future on acceptable terms or at all.
The Company currently has in force general liability insurance, including
professional and products liability, with coverage limits of $4.0 million per
occurrence and in the aggregate annually (with no deductible either per
occurrence or in the aggregate annually). The Company's insurance policies
provide coverage on an "occurrence" basis, have certain exclusions from coverage
and are subject to annual renewal.
Environmental Matters
Medical facilities are subject to a wide variety of federal, state and
local environmental and occupational health and safety laws and regulations,
such as air and water quality control requirements, waste management
requirements and requirements for training employees in the proper handling and
management of hazardous materials and wastes. The typical branch office facility
operations include, but are not limited to, the handling, use, storage,
transportation, disposal and/or discharge of hazardous, toxic, infectious,
flammable and other hazardous materials, wastes, pollutants or contaminates.
These activities may result in injury to individuals or damage to property or
the environment and may result in legal liability, damages, injunctions, fines,
penalties or other governmental agency actions. The Company is not aware of any
pending or threatening claim, investigation or enforcement action regarding
environmental issues which if determined adversely to the Company, would have an
adverse effect upon the capital expenditures, earnings, or competitive position
of the Company.
Employees
As of December 1996, the Company had approximately 216 full-time equivalent
employees. The Company's employees are not currently represented by a labor
union or other labor organization. As the Company's business grows, it will hire
additional employees as may be reasonably necessary to conduct its business. The
Company believes the relations between its management and its employees are
good.
ITEM 2. PROPERTIES
Headquarters
The Company's headquarters and retail facilities are located in Salt Lake
City, Utah. The Company leases a 26,000 square foot facility at 235 East 6100
South. The facilities are leased from a third party pursuant to a lease expiring
December 21, 2008. The Company has options to renew the lease for an
12
<PAGE>
additional 15 years. Rent is currently $13,601 per month on a triple net
basis and increases to $18,000 per month in July 2007.
Other Retail and Office Facilities
In addition to first headquarters, the Company leases twenty (20) other
facilities which range in size from 3,000 square feet to 8,000 square feet. Most
of these leases are for terms of three-to five years and most have renewal
options.
Real Property Owned
The Company owns the following undeveloped properties, all of which are
located within Utah County, Utah: (I) the Searle Property consisting of 39.275
undeveloped acres located in Alpine, Utah, approximately 20 miles South of Salt
Lake City; and (ii) the Heritage Property consisting of five acres located in
Provo, Utah, approximately 40 miles South of Salt Lake City. An offer with
substantial contingencies has been accepted for the Searle Property.
The Company owns a three-level office building known as the Securities
Savings and Loan Building located at 170 South Main Street, Pleasant Grove,
Utah. The building consists of approximately 9,500 square feet and was
originally used as a bank. Presently, the building is leased to various tenants
pursuant to one year leases which expire on December 13, 1996, with options for
renewal. The leases are net leases whereby the tenants pay monthly rents which
total $4,000 per month, and the Company pays taxes and insurance.
The Company intends to sell these properties and use the proceeds to fund
its growth plan.
ITEM 3. LEGAL PROCEEDINGS
The Company is not subject to any pending material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the Company's shareholders for a vote during
the last quarter of the year ended September 30, 1996.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's common stock is currently traded in the over-the-counter
market and is quoted on the National Association of Security Dealer's SmallCap
Market System under the Symbol IWHM. Currently there is only limited trading
activity in the Company's common stock and the quotations set forth below
reflect such activity. There can be no assurance that quotations will not
fluctuate greatly in the future in the event trading activity increase or
decreases. The information contained in the following table was obtained from
the NASD and from various broker-dealers and shows the range of representative
bid prices for the Company's common stock for the periods indicated. The prices
represent quotations between dealers and do not include retail mark, mark-down
or commission and do not necessarily represent actual transactions:
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<PAGE>
Bid Price
1996(1)
High Low
First Quarter $5.00 $4.75
Second Quarter $7.75 $4.75
Third Quarter $7.56 $4.12
Fourth Quarter $5.75 $4.00
1995(1)
High Low
First Quarter $ .44 $ .40
Second Quarter $6.00 $4.00
Third Quarter $6.50 $5.75
Fourth Quarter $5.00 $4.50
(1) Calendar Quarters.
Shares Issued in Unregistered Transactions
During the last three fiscal years, the Company issued its securities in
non-registered transactions pursuant to the exemption provided by Section 4(2)
of the Securities Act of 1933, as amended. The Company did not pay an commission
or any finders fees in connection with such transactions. The securities issued
in such transactions were as follows:
In February 1995, the Company issued 7,811,872 shares of common stock to
acquire Interest Medical Equipment Distributors, Inc.
In March 1995, the Company issued 300,000 shares of Series "A" preferred
stock in connection with the acquisition of Mountain Rehabilitation Equipment,
Inc.
Holders
The number of record holders of the Company's common stock as of December
27, 1996 was 883.
Dividends
The Company has not paid any cash dividends to date and does not anticipate
or contemplate paying dividends in the foreseeable future. It is the present
intention of management to utilize all available funds for the development of
the Company's business.
14
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The Company's income is currently derived from rental and sales revenue in
three lines of business: home oxygen and respiratory care services,
rehabilitation services and home medical equipment and supplies. Generally,
revenue from sales of medical equipment accounts for a greater percentage of
gross revenue, but generates smaller margins than revenue from rentals of
medical equipment. Over the last five years, the Company's total revenues have
increased by 159% from $7,675,584 in fiscal 1992 to $19,861,089 in fiscal 1996.
Net earnings increased over the same period by 106% from $295,438 in fiscal,
1992 to $608,438 in fiscal 1996. The growth is primarily due to an increased
size of the Company due to acquisition and internal growth.
Results of Operations
Fiscal Year Ended September 30, 1996 Compared to Fiscal Year Ended
September 30, 1995.
Operating Revenue. The Company's revenue is comprised of sales and rental
income. Net Sales increased from $9,981,879 in 1995 to $12,353,911 in 1996 an
increase of 24%. Approximately $1.1 million (46%) of the increase is due to
sales generated from acquired companies. The remaining increase in sales revenue
of $1.3 million (54%) is principally due to increase market share in products
and services in its existing market area. Rental revenue increased from
$5,541,236 in 1995 to $7,507,178 in 1996 an increase of 35%. Approximately $1
million (51%) of the increase in rental revenue was generated from acquired
companies. The remaining 49% increase in rental revenue is primarily due to
increased market share from successfully marketing services with managed care
organization, physicians and other referral sources.
Cost of Sales and Rentals. Cost of sales and rentals was $8,351,779 for
fiscal 1996 and $6,116,512 for fiscal 1995, a 37% increase. The cost of sales
component was 37% of total revenues for fiscal 1996, increasing from 35% in
fiscal 1996. The cost of rentals component, which includes depreciation on
rental equipment, was 5% in fiscal 1996, compared to 4% in fiscal 1995. Increase
in cost of sales and rentals was primarily due to vendor price increases without
corresponding increases in reimbursement due to managed care and contractual
relationships.
Selling Expense. Along with expansion of revenues, total operating expenses
have increased over prior years at rates of 24% and 43% for 1996 and 1995.
Consequently, operating expenses as a percentage of revenue decreased 54% in
1995 to 52% in 1996. The Company was able to control operating expenses while
spreading overhead over a larger base of revenues. Management expects the ratio
of operating expenses to revenues to decline as further economies of scale are
realized as the Company continues its acquisition strategy.
Interest Expense. Total interest expense increased 54% to $541,920 for
fiscal 1996 from $352,780 for fiscal 1995. Interest expense as a percentage of
revenue increased to 2.7% for fiscal 1996 from 2.3% for fiscal 1995. The
Company's interest expense consists of interest on borrowings under its bank
credit agreement, its capital equipment line of credit and agreements to fund
acquisitions. The increase was primarily attributable to increase bank debt to
fund acquisitions partially offset by decreases in negotiated borrowing rates.
15
<PAGE>
Net Income. Net income for fiscal 1996 was $608,402, a 50.5% decrease from
income of $1,228,042 in fiscal 1995. The decrease is primarily due to a $572,696
(net of taxes) one-time gain of sale of real estate and costs related to four
acquisitions completed during the last 4 months of fiscal 1996. Accordingly, net
income per share decreased from $0.42 for fiscal 1995 to $0.18 for fiscal 1996
on weighted number of shares outstanding of approximately 2,937,000 in fiscal
1995 compared to 3,318,000 shares outstanding in fiscal 1996, an increase of
12%.
Financial Condition
The Company's primary needs for capital are to fund acquisitions, purchase
rental equipment, and cover debt service payments. Expansion into new geographic
markets results in increased accounts receivable, inventory and equipment
balances. For the year ended September 30, 1996, net cash provided by operating
activities was $1,132,495 as compared to $ 381,067 for the year ended September
30, 1995, an increase of approximately $751,428 or 197%. The increase was
principally due to an increase in current liabilities of $346,130 and non-cash
expenses of $1,277,279.
The 1996 net cash flow from operating activities of $1,132,495 and was used
to finance capital expenditures of $1,143,996, principally new rental equipment.
During 1996, the Company's financing activities included new borrowings of
$2,701,256 to acquire the net assets of various companies.
At September 30, 1996, the Company's working capital was $2,453,014, and
increase of $411,585, or 20%, over working capital of $2,041,429 at September
30, 1995. The increase is primarily due to a 28% increase in total revenue
during fiscal 1996 resulting in increases in accounts receivable and inventory
from acquisition activities and expanded market share
Accounts receivable increased 21% to $4,704,497 at September 30, 1996 from
$3,888,273 at September 30, 1995. The increase was due to acquired receivables,
revenue growth from existing stores during the year and billing delays
encountered integrating trade receivables from acquisition activities during the
fourth quarter of fiscal 1996. Billing delays contributed to the Company's
average days sales in receivables increasing from 83 days at September 30, 1995
to 84 days at September 30, 1996.
Inventories increased 40% to $2,763,937 at September 30, 1996 form
$1,969,927 at September 30, 1995.by $562,597 or 40% in 1995. The increase was
due to acquired inventories and the need to carry higher product levels to
service higher sales volumes and provide minimum stocking levels at new branch
locations.
Intangible assets, net of amortization, increased by $1,312,742 in 1996.
The increase in intangible assets is due to the total purchase price of combined
acquisitions exceeding the fair market value of the acquired assets.
At September 30,1996, the Company had notes receivable of $578,652 compared
to $920,947 at September 30, 1995. The notes receivable originated from the sale
of land, apartment building and small office building. The decrease is primarily
due to $420,000 in payments on the note related to the sale of land partially
offset by a new note receivable in the amount of $79,900 from the sale of a
small office building.
At September 30, 1996, the Company held property and equipment, net of
depreciation, used in its business amounting to $3,166,462 compared to
$2,454,005 at September 30, 1995. The increase in property
16
<PAGE>
and equipment is attributable to the fair market value of assets obtained
from acquisition activities and rental equipment purchased to service increase
rental business.
Current liabilities increased 22% to $6,154,982 at September 30, 1996
compared to $5,036,729 at September 30, 1995. The increase is primarily due to
increases in current portion of new long-term debt, borrowings under its
revolving line of credit agreement and amounts payable to vendors and supplier.
Such increases are related to acquisition growth and increased inventory levels
to satisfy higher sale volumes.
The Company has a $3.5 million revolving operating line of credit with its
principal bank expiring on January 31, 1997. Borrowings under the Company's line
of credit are secured and are limited to 75% of eligible accounts receivable and
50% of inventory. Interest on this debt is payable monthly at the bank's primary
lending rate plus 0.25%. As of September 30, 1996 and 1995, $2,753,944 and
$2,503,419, respectively, were outstanding under the line of credit. The
increase is primarily due to increases in inventory and accounts receivable from
acquisitions which contributed to additional borrowings under Company's working
capital credit facility.
Long-term debt, including current portion, increased by $2,006,503 or 79%
in 1996. The increase is primarily a result of $2.7 million of new borrowings to
acquire various companies offset by principal payments on long term debt of
$743,884.
On December 9, 1996, the Company entered into an option agreement with
eight private investors. The terms of the agreement provide the investors the
right to purchase, pursuant to options and warrants, up to an aggregate of
1,170,714 newly issued common shares at prices ranging from $4.28 to $7.00 per
share. If the investors elect to exercise their rights in full, the total
proceeds to the Company would be approximately $5.9 to $6.5 million. On December
19, 1996, the investors paid $100,000 option fee providing the right to exercise
options to purchase 162,500 shares of common stock at a price of $4.28 within
180 days. The $100,000 option fee will be credited towards the purchase price of
shares subsequently purchased by the investors. If any of the options are
exercised within the first 90 days the investors are entitled to issuance of
162,500 warrants with a term of three years. The agreement will terminate upon
failure of the investors to pay option fees or purchase shares of stock within
time frames established in the agreement The investors are not obligated to
purchase any shares from the Company.
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological development, new products, research and development
activities and similar matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to comply
with the terms of the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in any of the
Company's forward- looking statement. The risks and uncertainties that may
affect the operations, performance, development and results of the Company's
business include, but are not limited to, the following: (I) the failure to
obtain additional capital for acquisitions and expansion; (ii) adverse changes
in federal and state laws, rules and regulations relating to the home health
care industry, to government reimbursement policies, to private industry
reimbursement policies and to other matters affecting the Company's industry and
business; and (iii) continued consolidation by the Company's local, regional and
national competitors resulting in increased competition.
17
<PAGE>
There have been no other significant changes in capitalization or financial
status during the past three years that are not reflected in the financial
statements.
Inflation
Inflation continues to apply moderate upward pressure on the cost of goods
and services provided by Interest Medical. However, management believes the net
effect of inflation on operations has been minimal during the past three years.
Recent Account Pronouncements
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard No. 119 "Disclosure About Derivative Financial Instruments"
and Statement No. 121, "Accounting for Long Lived Assets." Statement No. 119 is
effective for years beginning after December 15, 1994 and Statement No. 121 is
effective for years beginning after December 15, 1995. The effect of adoption
Statement Nos. 119 and 121 will not have a material impact on the Company's
financial statements.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Interest Home Medical, Inc. Financial Statements Page
Report of Independent Accountants ..................................20
Consolidated Balance Sheets.........................................21
September 30, 1996 and 1995
Consolidated Statements of Operations...............................23
Years ended September 30, 1996 and 1995
Consolidated Statements of Stockholders' Equity.....................24
Years ended September 30 , 1996 and September 30, 1995
Consolidated Statements of Cash Flows...............................25
Years ended September 30, 1996 and 1995
Notes to Consolidated Financial Statements..........................29
18
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INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
Interwest Home Medical, Inc.
We have audited the accompanying consolidated balance sheet of Interwest
Home Medical, Inc., as of September 30, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of September 30,
1996 and 1995, and the results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
Tanner + Co.
November 22, 1996
19
<PAGE>
INTERWEST HOME MEDICAL, INC.
Consolidated Balance Sheet
September 30, 1996 and 1995
1996 1995
Assets
Current assets:
Cash and cash equivalents $ 539,264 578,362
Marketable securities 47,700 47,700
Accounts receivable (net of allowance
for doubtful accounts of
$356,620 and $277,002) 4,704,497 3,888,273
Inventories 2,763,937 1,969,927
Current portion of notes receivable 382,311 422,179
Prepaid expenses 74,287 40,717
Deferred tax asset 96,000 131,000
_________ _________
Total current assets 8,607,996 7,078,158
Notes receivable 196,341 498,768
Investment in undeveloped real estate 332,234 332,234
Investment in office buildings, net of
of depreciation of $145,669 and $150,947 466,448 541,670
Property and equipment - net 3,166,462 2,454,005
Intangible assets (net of accumulated
amortization of $135,578 and $72,568) 2,910,389 1,597,647
Other assets 109,091 74,919
_________ _________
$15,788,961 12,577,401
=========== ==========
20
<PAGE>
1996 1995
Liabilities and Stockholders' Equity
Current liabilities:
Checks written in excess of cash in bank $ 482,452 246,663
Current portion of long-term debt 1,084,265 593,667
Notes payable 2,753,944 2,503,419
Accounts payable 1,484,905 1,218,795
Accrued expenses 333,061 335,309
Income taxes payable 16,355 138,876
___________ _________
Total current liabilities 6,154,982 5,036,729
Deferred income taxes 259,000 290,000
Long-term debt 3,427,287 1,911,382
___________ _________
Total liabilities 9,841,269 7,238,111
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized, 300,000
shares issued and outstanding 3,000 3,000
Common stock, no par value; 50,000,000 shares
authorized; 3,283,941 shares issued
and outstanding 1,894,002 1,894,002
Additional paid-in capital 447,000 447,000
Retained earnings 3,603,690 2,995,288
__________ _________
Total stockholders' equity 5,947,692 5,339,290
$15,788,961 12,577,401
=========== ==========
See notes to consolidated financial statements.
21
<PAGE>
INTERWEST HOME MEDICAL, INC.
Consolidated Statement of Income
Years Ended September 30, 1996 and 1995
1996 1995
Revenue:
Net sales $12,353,911 9,981,879
Net rental income 7,507,178 5,541,236
___________ __________
Total revenue 19,861,089 15,523,115
Cost of sales and rental 8,351,779 6,116,512
___________ __________
Gross profit 11,509,310 9,406,603
___________ __________
Selling, general and administrative
expenses 10,373,311 8,350,169
___________ __________
Income from operations 1,135,999 1,056,434
Other income (expense):
Gain on sale of undeveloped real estate - 633,321
Interest income 76,323 21,067
Interest expense (541,920) (352,780)
____________ _________
Income before income taxes 670,402 1,358,042
Income tax benefit (expense):
Current (58,000) (133,000)
Deferred (4,000) 3,000
Total income taxes (62,000) (130,000)
Net income $ 608,402 1,228,042
============== ==========
Net income per share $.18 .42
See notes to consolidated financial statements.
22
<PAGE>
INTERWEST HOME MEDICAL, INC.
Consolidated Statement of Stockholders' Equity
Years Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Number Number Additional
Of Of Paid in Retained
Shares Amount Shares Amount Capital Earnings
<S> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1994 - $ - 1,952,968 121,120 - 1,767,246
Acquisition of Interwest
Medical Equipment
Distributors, Inc. - - 1,335,973 1,802,882 - -
Issuance of
preferred stock 300,000 3,000 - - 447,000 -
Retirement of common
stock - - (5,000) (30,000) - -
Net income - - - - - 1,228,042
Balance, September 30, 1995 300,000 3,000 3,283,941 1,894,002 447,000 2,995,288
Net income - - - - - 608,402
Balance, September 30, 1996 300,000 $3,000 3,283,941 1,894,002 447,000 3,603,690
See notes to consolidated financial statements.
23
<PAGE>
INTERWEST HOME MEDICAL INC.
Consolidated Statement of Cash Flows
Years Ended September 30, 1996 and 1995
1996 1995
Cash flows from operating activities:
Reconciliation of net income to net cash
provided by operating activities:
Net income $ 608,402 1,228,042
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 915,981 613,625
Bad debt expense 79,255 43,700
Loss on disposal of assets 282,043 338,601
Gain on sale of undeveloped real
estate - (633,321)
(Increase) decrease in:
Accounts receivable (450,411) (1,004,124)
Inventories (616,163) (220,260)
Prepaid expenses (33,570) 28,954
Other assets (34,172) (14,812)
Deferred tax asset 35,000 -
Increase (decrease) in:
Checks written in excess of
cash in bank 235,789 (121,151)
Accounts payable 266,110 (57,584)
Accrued expenses (2,248) 141,363
Income taxes payable (122,521) 41,034
Deferred income taxes (31,000) (3,000)
Net cash provided by
operating activities 1,132,495 381,067
Cash flows from investment activities:
Collection of notes receivable 422,195 1,014
Proceeds from sale of undeveloped real estate - 300,000
Proceeds from sale of equipment 12,731 -
Purchase of undeveloped real estate - (75,737)
Purchase of property and equipment (1,143,996) (1,130,729)
Purchase of intangible assets (18,295) -
___________ ___________
Net cash used in
investing activities (727,365) (905,452)
___________ ___________
24
<PAGE>
INTERWEST HOME MEDICAL, INC.
Consolidated Statement of Cash Flows - Continued
1996 1995
Cash flows from financing activities:
Net changes in notes payable 250,525 1,159,149
Proceeds from long-term debt 49,131 232,308
Principal payments on long-term debt (743,884) (463,948)
Net cash received in merger/acquisition - 136,136
Net cash provided by (used in)
financing activities (444,228) 1,063,645
_________ _________
Net (decrease) increase in cash (39,098) 539,260
Cash, beginning of year 578,362 39,102
_________ _________
Cash, end of year $539,264 578,362
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
1996 1995
Interest $534,769 350,157
======== =======
Income taxes $174,038 -
======== =======
See notes to financial statements
25
<PAGE>
INTERWEST HOME MEDICAL, INC.
Consolidated Statement of Cash Flows - Continued
Supplemental schedule of non-cash investing and financing activities
During the year ended September 30, 1996, the Company through debt of
$2,701,256 acquired assets from companies in Nevada and Colorado and began
operations at those locations. The net assets purchased consisted of the
following:
Accounts receivable $ 445,068
Inventory 177,847
Property and equipment 720,883
Intangible assets 1,357,458
___________
Net assets purchased $2,701,256
==========
The Company also sold property during the year ending September 30, 1996,
receiving as part of the proceeds a $79,900 note receivable.
During the year ended September 30, 1995, the Company acquired assets and
assumed certain liabilities from companies in Utah and Colorado for cash, notes
and securities. The net assets purchased consisted of the following:
Accounts receivable $ 292,097
Inventory 342,336
Property and equipment 524,615
Intangible assets 1,152,109
Checks written in excess of cash on hand (88,701)
Accounts payable (360,550)
Accrued expenses (15,746)
Debt (298,125)
Net assets purchased 1,548,035
Less preferred stock issued 450,000
Less amount financed with debt 900,000
_________
Net cash investment $ 198,035
=========
26
<PAGE>
INTERWEST HOME MEDICAL, INC.
Consolidated Statement of Cash Flows - Continued
On February 22, 1995, Beacon Financial, Inc. acquired Interwest Medical in
a merger transaction. For accounting purposes the merger transaction was treated
as a reverse merger whereby Interwest Medical is deemed to be the acquiring and
surviving entity of the acquisition transaction. Beacon issued 1,952,968 shares
of its common stock for 100% of Interwest's common stock. The net assets
acquired through the combination are as follows:
Marketable securities $ 47,700
Notes receivable 201,962
Prepaid expenses 29,591
Real estate investments - undeveloped property 673,176
Office buildings 547,881
Property and equipment 5,150
Accounts payable (11,480)
Long-term debt (25,269)
Common stock (1,802,882)
Net cash received $ 334,171
===========
The Company also sold property during the year ending September 30, 1995,
receiving as proceeds a $720,000 note receivable and 5,000 shares of the
Company's common stock, valued at $30,000. The common stock was retired.
27
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements
September 30, 1996 and 1995
(1) Organization and Summary of Significant Accounting Policies
Organization
Interwest Medical Equipment Distributors, Inc., (Company) was incorporated
under the laws of the State of Utah on October 1, 1957. On February 22, 1995,
the Company entered into an agreement whereby the shareholders of the Company
exchanged 100 percent of their common stock for 1,952,968 shares of common stock
of Beacon Financial Inc. (Beacon). Inasmuch as the 1,952,968 shares of common
stock is in excess of 60 percent of the total outstanding common stock of
Beacon, the transaction is accounted for as a reverse acquisition. The Company
is, therefore, deemed to have acquired Beacon. On that same date, the name of
the Company was changed to Interwest Home Medical, Inc. The consolidated
financial statements are those of the Company prior to the acquisition of Beacon
on February 22, 1995 and those of the Company and its subsidiary subsequent to
February 1995.
Separate statements of operations showing the results of operations as if
the companies had been combined prior to the acquisition have not been presented
since the amounts are not materially different than those presented.
The primary business of the Company is to rent and sell medical equipment
and supplies.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the
Company considers all short-term securities purchased with a maturity of three
months or less to be cash equivalents.
Marketable Securities
The Company classifies its marketable debt and equity securities as "held
to maturity" if it has the positive intent and ability to hold the securities to
maturity. All other marketable debt and equity securities are classified as
"available for sale." Securities classified as "available for sale" are carried
in the financial statements at fair market value. Realized gains and losses,
determined using the specific identification method, are included in earnings;
unrealized holding gains and losses are reported as a separate component of
stockholders' equity. Securities classified as held to maturity are carried at
amortized cost.
For both categories of securities, declines in fair value below amortized
cost that are other than temporary are included in earnings.
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<PAGE>
Inventories
Inventories consist of medical equipment and supplies held for sale and are
stated at the lower of average cost (FIFO basis) or market.
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements - Continued
(1) Organization and Summary of Significant Accounting Policies - Continued
Investments in Undeveloped Real Estate
Investments in undeveloped real estate are recorded at the lower of cost or
market. When it is determined that future estimated cash flows are lower than
recorded values for long- term investments, these investments are written down
to estimated net fair market value and the amount of the write-down is accounted
for as a current period loss.
Investment in real estate consists of two parcels of undeveloped land and a
house. The two parcels of undeveloped land total approximately 44 acres and are
located in the state of Utah in Utah County.
Depreciable Assets
Depreciable assets are stated at cost. Depreciation and amortization is
computed using the straight-line method over estimated useful lives or lease
terms as follows:
Office building 35 years
Leasehold improvements 3-5 years
Furniture and fixtures 5-10 years
Rental equipment 3-10 years
Equipment and signs 5 years
Vehicles 3 years
Intangible Assets
Intangible assets, consisting of purchased customer lists, supplier lists,
non-competition agreements and goodwill are stated at cost. Amortization is
computed using the straight-line method over five years to forty years or the
term of the agreement.
Income Taxes
The Company accounts for income taxes under the provision of SFAS 109
"Accounting for Income Taxes." This method requires the recognition of deferred
tax liabilities and assets for the expected future tax consequences of temporary
differences between tax bases and financial reporting bases of other assets and
liabilities.
Revenue Recognition
The Company is involved in the business of providing respiratory services
and equipment sales and the sale of rehabilitation and adaptive equipment.
29
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements - Continued
Revenues are accounted for as follows:
* Patient revenues are recognized net of contractual adjustments related
to third party payers when services are rendered. The amount paid by
third party payor is dependent upon the benefits included in the
patient's policy.
* Other revenues are recognized as the services are rendered or the
sales are made.
(1) Organization and Summary of Significant Accounting Policies - Continued
Net Income Per Share
Net income per share is based on weighted average shares outstanding of
approximately 3,318,000 shares for the year ended September 30, 1996 and
2,937,000 shares for the year ended September 30, 1995. There is no difference
on earnings per share on a fully diluted basis.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist primarily of trade receivables. In the
normal course of business, the Company provides credit terms to its customers.
Accordingly, the Company performs ongoing credit evaluations of its customers
and maintains allowances for possible losses which, when realized, have been
within the range of management's expectations.
The Company's customer base consists primarily of individuals in the
Western United States. Substantially all revenues and accounts receivable are
from these customers.
Use of Estimates in the preparation of Financial Statements
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 those estimates.
Reclassification
Certain amounts in the financial statements for 1995 have been reclassified
to conform with the current year presentation.
30
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements - Continued
(2) Marketable Securities
At September 30, 1996 and 1995 the market value approximated the cost of
the marketable securities and therefore, no unrealized holding gains or losses
have been recorded.
(3) Note Receivable
Note receivable consist of the following at September 30, 1996 and 1995:
1996 1995
Note receivable in connection with
the sale of property. The note is
due in three installments, the last
of which is due in March 1997, including
interest of 9%, secured by real estate $300,000 720,000
Mortgage receivable, due in monthly
installments of $1,765, including
interest at 9.5%, maturing March 1,
2000, secured by apartment building 198,752 200,948
Note receivable in connection with
the sale of property. The note is due
in January 1997, including interest of
8%, secured by real estate 79,900 -
578,652 920,948
Less current portion 382,311 422,179
$196,341 498,768
======== =======
(4) Property and Equipment
Property and equipment at September 30, 1996 and 1995 consisted of the
following:
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INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements - Continued
1996 1995
Rental equipment $5,116,691 4,143,803
Equipment and signs 634,527 580,253
Furniture and fixtures 387,022 350,184
Vehicles 471,917 346,968
Leasehold improvements 146,007 116,481
__________ _________
6,756,164 5,537,689
Less accumulated depreciation
and amortization 3,589,702 3,083,684
__________ _________
Property and equipment - net $3,166,462 2,454,005
========== =========
(5) Notes Payable
Notes payable at September 30, 1996 and 1995, consisted of the following:
1996 1995
Line of credit in the amount of $3,500,000 payable
to a financial institution due January 31, 1997;
with interest payments at the bank's prime rate
(8.25% at September 30, 1996) plus 0.25% payable
monthly; secured by accounts receivable
and inventory $2,753,944 2,503,419
(6) Long-term Debt
Long-term debt at September 30, 1996 and 1995, consisted of the following:
1996 1995
Notes payable to a bank requiring aggregate
monthly payments of $69,178 including interest
at a rate of prime (8.25% at September 30,
1996) plus 0.25% to prime plus 1.25%,
secured by accounts receivable, inventory
and equipment $2,893,231 928,406
32
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements - Continued
Notes payable to individuals in connection with
the acquisition of companies requiring aggregate
monthly payments of $21,006 including interest at a
rate of 8.0% to 8.5%, secured by property and
equipment 813,424 579,815
Notes payable to a financial institution,
payable aggregate monthly installments of
$22,500 including interest at 8.25% to prime
plus .25%, secured by certain pieces of
property and equipment 618,527 711,247
Note payable to a company requiring
monthly payments of $1,476 including
interest at a rate of 11.25%, secured
by real estate 66,685 77,770
(6) Long-term Debt - Continued
1996 1995
Installment contracts payable in monthly
installments totaling $1,158 including
interest ranging from 6.95% to prime plus
1.5%, secured by vehicles 36,404 80,362
Mortgages due financing companies in
aggregate monthly installments of $992,
including interest at 8.75%, secured
by real estate 9,730 19,216
Capital lease obligations (see note 73,551 108,233
4,511,552 2,505,049
Less current portion 1,084,265 593,667
_________ _______
Long-term debt $3,427,287 1,911,382
========== =========
Future maturities of long-term debt at September 30, 1996 were as follows:
33
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements - Continued
Year ending September 30:
1997 $1,084,265
1998 1,151,890
1999 1,026,338
2000 783,924
2001 465,135
__________
$4,511,552
==========
(7) Income Taxes
The provisions for income taxes differs from the amount computed at federal
statutory rates as follows:
1996 1995
Tax at statutory rates $(228,000) (462,000)
State tax (43,000) (58,000)
Change in valuation allowance 219,000 377,000
Other (10,000) 13,000
__________ _________
$ (62,000) (130,000)
========== =========
The deferred income tax benefit (liability) for the years ended September
30, 1996 and 1995 is as follows:
1996 1995
Short-term:
Allowance for bad debts $ 132,000 103,000
Employee benefits 33,000 28,000
Deferred gain (69,000) -
___________ _________
$ 96,000 131,000
=========== =========
Long-term:
Depreciation $ (259,000) (166,000)
Deferred gain - (124,000)
Net operating loss carryforward 1,103,000 1,322,000
Valuation allowance (1,103,000) (1,322,000)
____________ ___________
$ (259,000) (290,000)
============ ===========
34
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements - Continued
(7) Income Taxes - Continued
At the time the Company acquired Beacon, Beacon had a deferred tax asset
for a net operating loss for income taxes of approximately $3,200,000. However,
due to limitations as a result of more than a 50 percent change in ownership,
the actual amount available for future use was reduced to approximately
$1,699,000. A valuation allowance was provided at September 30, 1994 for the
entire loss since Beacon did not have a history of profitable operations. During
1996 and 1995, approximately $219,000 and $377,000, respectively, of the
benefits from the loss were realized.
At September 30, 1996, the Company has approximately $3,462,000 of net
operating losses to use to offset future income. These net operating losses
expire in the years 1996 through 2009. If certain substantial changes in the
Company's ownership should occur, there would be an annual limitation of the
amount of net operating loss carryforwards which could be utilized.
It is not possible to estimate the utilization of carrying forward the
available net operating losses to future periods to offset income. The amount of
the net operating losses which can be used are limited by the future operations
and the tax laws in effect at the time of the utilization. Consequently, a
valuation allowance has been established to offset any tax asset.
(8) Lease Obligations
The Company leases certain equipment under terms accounted for as capital
leases. The Company also leases small equipment under noncancellable operating
leases. At September 30, 1996 and 1995, the total cost of all assets currently
under capital lease is $94,503 and $116,168, respectively. Accumulated
depreciation at that date amounted to $22,051 and $19,231, respectively. The
following summarizes future minimum lease payments under leases at September 30,
1996:
Operating Capital
Leases Leases
Year ending September 30:
1997 $619,527 $ 23,889
1998 501,423 23,889
1999 440,588 23,889
2000 372,762 23,889
2001 and thereafter 1,414,271 -
_________ ________
$3,348,571 95,556
==========
Less amounts representing interest (22,005)
________
Present value of future minimum lease $ 73,551
payments =========
35
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements - Continued
Total rent expense for operating leases was approximately $553,000 and
$368,000 for the years ended September 30, 1996, and 1995, respectively.
(9) Fair Value of Financial Instruments
None of the Company's financial instruments are held for trading purposes.
The Company estimates that the fair value of all financial instruments at
September 30, 1996 and 1995, does not differ materially from the aggregate
carrying values of its financial instruments recorded in the accompanying
balance sheet. The estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies. Considerable judgement is necessarily required in interpreting
market data to develop the estimates of fair value, and, accordingly, the
estimates are not necessarily indicative of the amounts that the Company could
realize in a current market exchange.
(10) 401(K) Savings Plan
The Company has a contributory 401(K) savings plan covering all employees
who are at least 21 years of age, work at least 1,000 hours per year, and have a
minimum of one year of service to the Company. All contributions by the Company
are fully discretionary. The Company made contributions of $-0- and $26,725 in
1996 and 1995, respectively.
(11) Stock Option Plan
Employee Options
In February 1995, the Company adopted a stock option plan. Under the plan,
stock options aggregating 312,500 shares of common stock may be granted to
employees and other persons to purchase the Company's common stock. No
individual may be granted stock options exceeding $100,000 fair market value in
any one year. The stock options are exercisable within the time or upon the
events determined by the option agreement and terminate after five years from
the date of grant for stockholders owing more than 10 percent of all classes of
stock and after 10 years for all others. The options cannot be exercised until
such time as the Company earns a profit of at least $1,500,000 for the period
beginning February 22, 1995.
Options outstanding at September 30, 1996 are as follows:
Shares
Under Option Expiration
Option Price Date
125,000 shares $4.00 2000
15,000 shares 5.50 2000
2,500 shares 4.88 2001
6,000 shares 6.00 2002
______________
148,500 shares
==============
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<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements - Continued
(11) Stock Option Plan - Continued
Director Options
In February 1995, the Company adopted a stock option plan. Under the plan,
stock options aggregating 75,000 shares of common stock may be granted to
non-employee directors to purchase the Company's common stock. No individual may
be granted more than one stock option, nor more than 11,000 shares on the
exercise of all options granted pursuant to this agreement. The stock options
are exercisable within six months after the grant date and terminate after five
years from the date of grant. The exercise price of an option shall be between
$4.00 and $6.00 for the 25,000 options granted during the year ended September
30, 1995 and fair market value of the Company's common stock for options granted
thereafter. The options cannot be exercised until such time as the Company earns
a profit of at least $1,500,000 for the period beginning February 22, 1995.
During the year ended September 30, 1995 an option to purchase 5,000 shares of
the Company's common stock was surrendered as a term of another agreement
involving the sale of land. At September 30, 1996, 31,500 options remained
unexercised under this agreement.
In April 1990, the Company entered into a stock options purchase agreement
with a member of the board of directors for consideration of $400. Under the
plan, the individual may purchase 50,992 shares of the Company's common stock
for $.40 per share or a total exercise price of $19,998. The option is
exercisable any time prior to November 15, 1997. At September 30, 1996, no part
of this option had been exercised.
(12) Employee Stock Purchase Plan
During the year ended September 30, 1996, the Company adopted a Stock
Purchase Plan (the "Plan"). The Plan is designed to provide employees of the
Company with an opportunity to purchase shares of the Company's common stock
through accumulated payroll deductions. The purchase price may be established at
85% of the fair market price. The number of shares which may be purchased under
the Plan is 500,000. At September 30, 1996, 820 shares of common stock had been
purchased under the plan.
(13) Commitments and Contingencies
In October 1991, an officer of the Company retired and a trust was created
which purchased 429,544 shares of the Company's common stock from the officer.
In exchange for the stock, a note was entered into between the trust and the
retired officer in the principal amount of $305,000. The note requires monthly
payments over ten years of $3,676, including principal and interest at an annual
rate of 8 percent. Certain employees of the Company have entered into an
agreement to purchase the shares of stock from the trust under similar terms. At
the employees' option, shares can be issued as they are purchased. The Company
has guaranteed the collectibility of amounts due the trust by the employees. The
outstanding balance of the note was approximately $184,303 at September 30,
1996.
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<PAGE>
(14) Preferred Stock
The Company has outstanding 300,000 shares of preferred stock. The
preferred stock has voting rights of one vote for one share. The preferred stock
is convertible at the option of the holder into common stock based upon the
trading value of the common stock. The conversion rate varies from one share for
one share up to receiving three shares of common stock for one share of common
stock. The holder is not entitled to receive more than the one share for one
share until March 1997.
(15) Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard No. 123 Accounting and Disclosure of Stock-based
Compensation and Statement No. 121, "Accounting for Long Lived Assets."
Statement No. 123 and 121 are effective for years beginning after December 15,
1995. It is not expected that the adoption Statement Nos. 123 and 121 will have
a material impact on the Company's financial statements.
(16) Subsequent Events
The Company has entered into an agreement to sell up to 1,170,714 shares of
common stock to an investment group at varying prices over several years. The
block purchase price varies from $4.28 per share to $7.00 per share.
38
<PAGE>
ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
The Company changed accountants as a result of its acquisition of Interest
Medical Equipment Distributors. Inc. This change of accountants was previously
reported upon and was not the result of any dispute or disagreement with the
previous accountants over any matter.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
A. Identification of Directors and Executive Officers. The current
directors and officers of the Company, who will serve until the next annual
meeting of shareholders or until their successors are elected or appointed and
qualified, are set forth below:
Name Age Position
James E. Robinson 45 CEO /President/Chairman
James U. Jensen 52 Director
Dr. Jeffrey F. Poor 48 Director
Dr. Michael C. Romn 56 Director
Daniel L. Richards 47 Director
Jerald L. Nelson 54 Director
Val D. Christianson 45 Vice President
Que H. Christensen 41 Chief Financial Officer/
Secretary
James E. Robinson. Mr. Robinson has been president and a director of the
Company since February 1995. Mr. Robinson has been President (CEO) and Chairman
of the Board of Interest Medical since October 1982. He also acted as Treasurer
until 1990. Mr. Robinson graduated from Brigham Young University with a Master
of Accountancy degree in 1975. He worked until July 1977 with Haskins & Sells at
which time he joined Robinson's Medical Mart (a predecessor company to Interest
Medical) as its Vice President and Treasurer. Mr. Robinson was elected to the
Board of Directors of the National Association of Medical Equipment Suppliers
(NAMES) in 1984 where he served as Treasurer from 1986 until 1990, Chair from
1990 to 1991, Immediate Past-Chairman from 1991 to 1992, and continues as an
"Ex-Officer" Board member. He was also elected to the Board of Directors of
Medical Equipment Distributors, Inc. (The MED Group) in 1985 and served as its
Chair from 1988 until 1992. Mr. Robinson has been active in many local,
regional, and national organizations which represent individuals with
disabilities. He is currently serving as the Chair of the Utah Assistive
Technology Foundation (UATF).
James U. Jensen. Mr. Jensen has been a director of the Company since
February 1995. Mr. Jensen has been Vice President, Corporate Development and
Legal Affairs for NPS Pharmaceutical since July 1991. He has been Secretary and
a director of Interest Medical since 1987. From 1988 to July 1991 Mr. Jensen was
a partner in the law firm of Woodbury, Jensen, Kesler & Swinton, P.C.
concentrating on technology transfer and licensing and corporate finance. From
1983 until July 1985 he served as outside general counsel for a software
company. From July 1985 to October 1986 he served as it's Chief Financial
Officer. From 1980 to 1983 Mr. Jensen served as General Counsel and Secretary of
Dictaphone Corporation, a subsidiary of Pitney Bowes, Inc. He serves as a
director of NPS Pharmaceuticals, Inc., a public company and of Wasatch Advisors
Funds, Inc., a publicly registered investment company. Mr. Jensen received a
B.S. in English/Linguistics from the University of Utah and a J.D. and an M.B.A.
degree from Columbia University.
38
<PAGE>
Jeffrey F. Poore D.D.S. Dr. Poore has been a director of the Company since
February 1995. Dr. Poore is President of CompHealth and is a 20-year veteran of
the health care industry and an early champion of the concept of managed care.
Prior to joining CompHealth, he coordinated mergers, acquisitions and
development in the office of the CEO at FHP International, Inc., a health
maintenance organization. During his tenure at FHP he also directed staff in the
organization's operational finance, financial services, marketing, sales,
medical, PPO/IPA, and contracting divisions. He also has experience as a health
care lobbyist and provider. He was in private dental practice for many years. He
earned his DDS from Loyola Medical Center in 1976, and a BA in Economics from
Brigham Young University in 1971.
Michael C. Romney, M.D. Dr. Romney has been a director of the Company since
April, 1995. Dr. Romney graduated Cum Laude from the University of Utah in 1962
with a B.S. in Medical Biology and received his Medical Degree from the
University of Utah College of Medicine in 1966. After service as a General
Medical Officer in the Army at Ft. Wainwright, Alaska, Dr. Romney returned to
Salt Lake City to begin practicing as an emergency physician. Currently, Dr.
Romney maintains privileges at Salt Lake Regional Medical Center and South
Peninsula Hospital in Homer, Alaska. He is board-prepared in Emergency Medicine
and is certified in Advanced Trauma Life Support. Dr. Romney's clinical
experience includes general practice and emergency medicine as well as currently
serving as the Medical Director of Emergency Services at Salt Lake Regional
Medical Center. He played a major role in the formation of the Holy Cross
Hospital Cardiac Emergency Center and the development of three local free
standing urgent care and industrial emergency clinics. He has served on the
clinical faculty at the University of Utah and is currently an Assistant
Clinical Professor in the Department of Family and Community Medicine. Dr.
Romney is currently a board member of Premier Medical Group, Quality Physician
Network, Blue Cross/Blue Shield of Utah and is Board Chairman of American Family
Care of Utah. He has been active in many committees both as a member and in
administrative capacities.
Daniel L. Richards. Mr. Richards has been a director of the Company since
April 1990. Mr Richards graduated from Utah State University in 1970 with a
degree in Business Administration. From 1971 to the present, Mr. Richard has
been a general contractor and project manager of several major projects in Utah,
Colorado and Arizona. From 1979 to 1990, he was general manager of Tri-City
Medical Clinic, managing the business of four doctors. Since 1982 he has served
as President of GAR Medical Management, Inc., a management corporation involved
with pension funds and providing medical advice for convalescent centers. From
1980 to the present, Mr. Richards has served as President of A.D.C. Corporation,
a private general construction company involved in construction, development,
property management and real estate sales.
Jerald L. Nelson Ph.D. Mr. Nelson was a director of the Company from April
1990 to February 1995, and was reappointed a director in August, 1995. Mr.
Nelson holds a Ph.D. in Economics from North Carolina State University and a
B.A. in business from the University of Utah. Dr. Nelson has over twenty years
of experience as a business consultant and financial analyst. Dr. Nelson's
career began with TWA in New York City in 1972. Later assignments included
consulting with Date Resources, Inc., and for eight years with U.S. Industries
in market research and financial analysis. He has served on numerous Boards of
Directors including Arrow Dynamics, Gentner Communications and One-2-One
Communications where he also served as Chairman and CEO. Since 1993, Mr. Nelson
has been the President and Chief Operating officer of Tenant Information
Services, Inc. located in Salt Lake City, Utah.
Val D. Christianson. Mr. Christianson was appointed an officer of the
Company in February 1995. Mr. Christianson was elected to the Board of Interest
Medical in October 1982. He served as Secretary until 1987 and Vice President
since 1987. Mr. Christianson received a Bachelor of Science degree in Computer
Science form the University of Utah in 1975. He joined Robinson's Medical Mart
in 1978 as a branch manager and has been active in the management of the company
since then. Mr. Christianson has served three terms as President of the Utah
Association for Medical Equipment Services (UTAMES) and has served on the Board
of UTAMES since 1988. He also is the elected
39
<PAGE>
Utah delegate to the House of Delegates (HOD) to the National Association
for Medical Equipment Services (NAMES) where he chairs the State Sales Tax
Committee.
Que H. Christensen, CPA. Mr. Christensen was appointed an officer of the
Company in February 1995. Mr. Christensen joined Interest Medical as the
controller in October 1990. He has been treasurer (CFO) and director of Interest
Medical since October 1991. From 1980 to 1988 he worked as a CPA for Main
Hurdman and KPMG Peat Marwick. From 1988 to 1990 he was vice president of a Utah
based financial institution. Mr. Christensen graduated from the University of
Utah with a Bachelor of Science degree in Accounting in 1980.
B. Significant Employees. None
C. Family Relationships. There are no family relationships among the
Company's officers and directors.
D. Other Involvement in Certain Legal Proceedings. There have been no
events under any bankruptcy act, no criminal proceedings and no judgments or
injunctions material to the evaluation of the ability and integrity of any
director or executive officer during the last five years.
E. Compliance With Section 16(a). Section 16 of the Securities Exchange Act
of 1934 requires the filing of reports for sales of the Company's common stock
made by officers, directors and 10% or greater shareholders. A Form 4 must be
filed within ten days after the end of the calendar month in which a sale or
purchase occurred. Based upon the review of the Form 4's filed with the Company,
the following disclosure is required in this Form 10-KSB:
Jeffrey F. Poore, D.D.S. During the fiscal year ended September 30, 1996,
Dr. Poore was granted an option to purchase shares of the Company's common stock
on one occasion which was not reported in a timely manner. The transaction was
reported, but not within the required period.
Michael C. Romney, M.D. During the fiscal year ended September 30, 1996,
Dr. Romney was granted an option to purchase shares of the Company's common
stock on one occasion which was not reported in a timely manner. The transaction
was reported, but not within the required period.
Jerald L. Nelson. During the fiscal year ended September 30, 1996, Mr.
Nelson was granted an option to purchase shares of the Company's common stock on
one occasion which was not reported in a timely manner. The transaction was
reported, but not within the required period.
Daniel L. Richards. During the fiscal year ended September 30, 1996, Mr.
Richards was granted an option to purchase shares of the Company's common stock
on one occasion which was not reported in a timely manner. The transaction was
reported, but not within the required period.
James U. Jensen. During the fiscal year ended September 30,1996, Mr. Jensen
was granted an option to purchase shares of the Company's common stock on one
occasion which was not reported in a timely manner. The transaction was
reported, but not with the required period.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid by the
Company for services rendered during the last three years to the Company's Chief
Executive Officer and to the Company's most highly compensated executive
officers other than the CEO, whose annual salary and bonus exceeded $100,000:
40
<PAGE>
SUMMARY COMPENSATION TABLE
Annual Compensation
<CAPTION>
Commissions Restrict
and Other Annual Stock Options/
Bonuses Compensation Awards SAR's
Name and Principal Position Year Salary ($) ($) ($) (#)
<S> <C> <C> <C> <C> <C> <C>
James E. Robinson 1996 $150,000 $16,801(2) -0- -0-
President/CEO 1994 $135,000 $16,875 $15,637(2) -0- 62,500(1)
1993 $106,000 $14,538(2) -0- -0-
$12,273
Val D. Christianson 1995 $ 95,000 $ 4,972(3) -0- -0-
Vice President 1994 $ 93,500 $26,261 $ 4,370(3) -0- 31,250(1)
1993 $ 78,100 $ 4,191(3) -0- -0-
Que H. Christensen 1995 $ 95,000 $10,688 $ 4,439(4) -0- -0-
Chief Financial Officer 1994 $ 90,000 $ 3,808(4) -0- 31,250(1)
1993 $ 72,400 $16,289 $ 3,638(4) -0- -0-
$18,157
$
8,188
$
9,363
$16,642
</TABLE>
(1) These Options were granted under the Company's 1995 Employee Stock
Option Plan. These options are not exercisable until such time as the Company's
cumulative before-tax income, commencing February 22, 1995, totals $1,500,000.
No SAR's have been granted by the Company.
(2) Other compensation included health insurance, vehicle income and life
insurance premiums paid for a split dollar life insurance policy. For 1996,
other compensation also included $819 contributed by the Company to Mr.
Robinson's 401(k) account.
(3) Other compensation included health insurance and vehicle income. For
1996, other compensation also included $566 contributed by the Company to Mr.
Christianson's 401(k) account.
(4) Other compensation consisted of health insurance premiums. For 1996,
other compensation also included $550 contributed by the Company to Mr.
Christensen's 401(k) account.
41
<PAGE>
Stock Options
During the year ended September 30,1996, there were no stock options
granted to the executive officers. The following table sets forth certain
information in connection with stock option grants during the year ended
September 30, 1995, to each of the named executive officer.
Options Grants in the Year Ended September 30, 1995
<TABLE>
<CAPTION>
Percentage
Number of of Total Exercise or
Securities Options Granted Base Price
Underlying to Employees in Per Share Expiration
Name Options Granted (#) Fiscal Year ($) Date
<S> <C> <C> <C> <C>
James E. Robinson 62,500(1) 42% $4.00 2/23/2000
Val Christianson 31,250(1) 21% $4.00 2/23/2000
Que H. Christensen 31,250(1) 21% $4.00 2/23/2000
</TABLE>
(1) Consists of stock options granted on February 24, 1995, under the
Company's 1995 Employee Stock Option Plan.
The following table sets forth information concerning the number and value
of options held at September 30, 1996 by each of the named executive officers.
No options held by such executive officers were exercised during 1996.
Option Values at September 30, 1996
Number of Unexercised Value of Unexercised
Options at In-the-Money Options
September 30, 1996 (#) At September 30, 1996($)(1)
Name Exercisable Unexercisable Exercisable Unexercisable
James E. Robinson 62,500 -0- $ 23,438 -0-
Val Christianson 31,250 -0- $ 11,719 -0-
Que H. Christensen 31,250 -0- $ 11,719 -0-
(1) An "In-the-Money" stock option is an option for which the market price
of the Company's common stock underlying the option on September 30, 1995 exceed
the option price. The value shown represents stock price appreciation since the
date of grant. The market price was based upon the closing price of the
Company's common stock on the NASD SmallCap Market on September 30, 1996. The
price per share was $4.38.
1995 Employee Stock Purchase Plan
On November 6, 1995, the Company's Board of Directors adopted, subject to
shareholder approval, the Company's 1995 Stock Purchase Plan (the "Plan"). The
Plan is designed to provide employees of the Company with an opportunity to
purchase shares of the Company's common stock through accumulated payroll
deductions. The purchase price may be established at 85% of the fair market
price. The number of shares which may be purchased under the Plan is 500,000. At
December 15, 1996, 2,081 shares of common stock had been purchased under the
plan.
42
<PAGE>
1995 Employee Stock Option Plan
On February 24, 1995, the Company's Board of Directors adopted, subject to
shareholder approval, the Company's 1995 Stock Option Plan (the "Plan") which
provides for the issuance of a maximum 312,500 pursuant to the exercise of
options granted under the Plan. The Options granted under the Plan may be
Incentive Stock Options pursuant to Section 422 of the Internal Revenue Code of
1986 ("ISO's") or Non-Qualified Stock Options ("NSO's"). The Plan is
administered by the Board of Directors Compensation Committee. The Option price
and terms is to be set for each Option by the Committee administering the Plan.
NSO options granted under the Plan may have a term not exceeding ten years. ISO
options granted under the Plan may have a term not exceeding five years. The
Committee may grant options to employees (including officers and directors, or
consultants. Options to purchase 150,000 shares of stock, have been granted.
Compensation of Directors
The Company's non-employee directors are paid $500 for each Board of
Directors meeting attended or $400 for each Committee Meeting attended. On
February 24, 1995, the Company adopted, subject to shareholder approval, the
1995 Non-Employee Director's Stock Option Plan. The Plan provides that each
non-employee director who was a director as of February 24, 1995, or who became
a director thereafter, was and will be issued an option to purchase 5,000 shares
of the Company's common stock at $4.00 per share (calculated the 1-for-4 reverse
stock split effected on December 4, 1995). Additionally, each non-employee
director is automatically granted an option to purchase (1,500 shares calculated
after the 1-for-4 reverse split) at market prices on April 1st of each year
commencing April 1, 1996. No initial options granted by the Company under this
plan in 1995 may be exercised until the Company achieves cumulative before-tax
income of $1,500,000, commencing February 22, 1995.
Employment Agreements
The Company is currently a party to the following Employment Agreements:
James E. Robinson. On May 3, 1995, the Company entered into an Employment
Agreement with its President/CEO, James E. Robinson. The Agreement replaced and
superseded a previously executed agreement. The Agreement may be terminated by
the Company without notice and without cause. The Agreement may be terminated by
Mr. Robinson upon thirty day written notice. The Agreement provides for a base
annual salary of $150,000 and incentive salary based upon pre-tax profits,
revenue growth and acquisition incentives. The Agreement contains a 12 month
non-competition restriction following termination and provisions relating to
death and disability during the term of employment.
Val D. Christianson. On May 3, 1995, the Company entered into an Employment
Agreement with its Vice President, Val D. Christianson. The Agreement replaced
and superseded a previously executed agreement. The Agreement may be terminated
by the Company without notice and without cause. The Agreement may be terminated
by Mr. Christianson upon thirty day written notice. The Agreement provides for a
base annual salary of $95,000 and incentive salary based upon pre-tax profits,
revenue growth and acquisition incentives. The Agreement contains a 12 month
non-competition restriction following termination and provisions relating to
death and disability during the term of employment.
Que H. Christensen. On May 3, 1995, the Company entered into an Employment
Agreement with its Chief Financial Officer, Que H.. Christensen. The Agreement
replaced and superseded a previously executed agreement. The Agreement may be
terminated by the Company without notice and without cause. The Agreement may be
terminated by Mr. Christensen upon thirty day written notice. The Agreement
provides for a base annual salary of $95,000 and incentive salary based upon
pre-tax profits, revenue growth and acquisition
43
<PAGE>
incentives. The Agreement contains a 12 month non-competition restriction
following termination and provisions relating to death and disability during the
term of employment.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
The following table sets forth information regarding shares of the
Company's common stock beneficially owned as of January 10, 1996 by: (1) each
officer and director of the Company; (including the officers and directors of
USCF) (ii) all officers and directors as a group (including the officers and
directors of USCF); and (iii) each person known by the Company to beneficially
own 5 percent or more of the outstanding shares of the Company's common stock.
Name Amount
and Address and Nature Percent
of Beneficial of Beneficial of Class(1)
Owner Ownership Ownership
James E. Robinson (2) 1,218,818 35.74%
235 East 6100 South
Salt Lake City, UT 84107
James U. Jensen(3) 115,917 3.23%
420 Chipeta Way
Salt Lake City, UT 84108
Dr. Michael C. Romney(4) 8,500 *
109 East South Temple, # 8C
Salt Lake City, UT 84111
Daniel L. Richards(5) 54,665 1.52%
146 West 700 North
Pleasant Grove, UT 84003
Dr. Jeffrey F. Poore(6) 7,000 *
4021 South 700 East, Suite 300
Salt Lake City, UT 84107
Jerald L. Nelson(7) 32,564 *
32 Algonquin Court
Wayne, PA 19087
Val Christianson(8) 450,459 12.55%
235 East 6100 South
Salt Lake City, UT 84107
44
<PAGE>
Que H. Christensen(9) 150,161 4.18%
235 East 6100 South
Salt Lake City, UT 84107
I-Med Shareholders(10) 404,551 11.36%
Share Purchase
235 East 6100 South
Salt Lake City, UT 84107
All Officers and Directors
as a Group (8 Persons) 2,100,583 58.54%
Unless otherwise indicated in the footnotes below, the Company has been
advised that each person above has sole voting power over the shares indicated
above. All of the individuals listed above are officers and directors of the
Company.
* Less than 1%
(1) As of December 15, 1996, there were 3,283,941 shares of the Company's
common stock issued and outstanding. There is also outstanding options to
purchase 229,492 shares of the Company's common stock which are owned by
officers and directors. Additionally, there are 300,000 shares of Series "A"
Preferred Stock, issued and outstanding which may be converted into 75,000
shares of common stock (which may be increased to approximately 112,360 shares
of common stock). Therefore, for purposes of the above set forth chart,
3,588,433 shares are deemed to be issued and outstanding in accordance with Rule
13d-3 adopted by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended. This amount does not include options owned by
officers and directors which are not currently exercisable.
(2) Includes (I) 22,500 shares owned of record by the five children of Mr.
Robinson (4,500 shares each); (ii) 900,000 shares owned by J&J Medical
Investments, Ltd., (iii) 341,318 shares owned of record by Mr. Robinson and (iv)
62,500 shares which may be acquired by Mr. Robinson pursuant to a stock option.
(3) Includes 58,425 shares which are beneficially owned through the I-Med
Shareholder Share Purchase Trust. The shares indicated as owned also include
50,992 shares issuable at $.40 per share underlying currently a exercisable
option and 6,500 shares which may be issued pursuant to other stock options.
(4) Includes 5,000 shares which may be acquired pursuant to a stock option
which is currently exercisable.
(5) Includes 25,606 shares owned of record and 27,559 shares beneficially
owned. The shares beneficially owned are owned of record by various family
members and entitles affiliated with Mr. Richards. Mr. Richards votes all of
such shares. Also includes 1,500 shares which may acquired pursuant to a stock
option.
(6) Includes 6,500 shares which may be acquired pursuant to a stock option
which is currently exercisable.
(7) Includes 6,500 shares which may be issued pursuant to a stock option.
26,064 shares are owned of record by Mr. Nelson's spouse.
(8) Includes (I) 241,599 shares which are owned of record by Mr.
Christianson; (ii) 165,110 shares beneficially owned through the I-Med
Shareholders Share Purchase Trust; and (iii) 12,500 shares owned of record by
the five children of Mr. Christianson (2,500 shares each) and (iv) 31,250 shares
which may be acquired pursuant to a stock option.
(9) Includes (I) 15,000 shares owned of record by Mr. Christensen; (ii)
93,911 shares which are beneficially owned through the I-Med Shareholders Share
Purchase Trust; and (iii) 10,000 shares owned of record by the four children of
Mr. Christensen (2,500 shares each) and 31,250 shares which may be acquired
pursuant to a stock option.
45
<PAGE>
(10) The I-Med Shareholders Share Purchase Trust was established in October
1991 to purchase shares of Interwest Medical Equipment Distributors, Inc. common
stock from a retiring officer/employee. The Trust's shares were exchanged for
the Company's shares in connection with a merger effected February 22, 1995. The
purchase price is payable in 120 monthly payments. The purchase price for the
shares is funded by Trust participants who contribute monthly payments to
purchase a pro-rata portion of such shares. There are currently 10 persons
purchasing shares pursuant to the Trust arrangement. These persons have the
right to vote the shares attributable to their pro-rata portion of the total
shares being purchased from the Trust. It is anticipated that the Trust will
distribute shares paid for to the Trust beneficiaries from time-to-time as
requested by purchasers. Interwest Medical has guaranteed payment of the unpaid
balance of the purchase price for the shares purchased by the Trust.
Security Ownership of Management
See Item 4(a) above.
Changes in Control
No changes in control of the Company are currently contemplated.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Acquisition of Interwest Medical Equipment Distributors, Inc.
In February 1995, the Company issued a total of 1,952,968 shares of its
common stock (calculated after the December 4, 1995 reverse split) and options
to purchase 50,992 shares of its common stock (calculated after the December 4,
1995 reverse split) to the shareholders of Interwest Medical in connection with
the Merger. The following table sets forth information about the shares of the
Company's common stock issued in the acquisition.
Company Shares
Shareholder To be Owned
James E. Robinson 1,218,818
Que H. Christensen (1) 118,911
Val D. Christianson (2) 419,209
James U. Jensen (3) 109,417
I-MED Shareholders
Share Purchase Trust (4) 429,552
All other shareholders 38,000
Total 1,952,968
(1) Includes 15,000 shares which were owned of record by Mr. Christensen,
10,000 shares owned of record by his children and 93,911 shares owned by the
I-Med Shareholder Purchase Trust.
(2) Includes 241,559 shares which were owned of record by Mr. Christianson,
165,110 shares which were beneficially owned through the I-MED Shareholders
Share Purchase Trust and 12,500 shares owned of record by his five children.
(3) Includes 58,425 shares which were owned through the I-Med Shareholder
Share Purchase Trust. This also includes 50,992 shares underlying an option.
(4) The I-Med Shareholders Share Purchase Trust was established in October
1991 to purchase 77,500 shares of Interwest Medical common stock from a retiring
officer/employee. The purchase price for all of such shares was $305,000 of
which $5,000 was paid at the time of closing and $300,000 was payable in 120
monthly payments. The purchase price for the shares is funded by Trust
participants who contribute monthly payments to purchase a pro-rata portion of
such shares. There are currently 10 persons purchasing shares pursuant to the
Trust arrangement. These persons have the right to vote the shares attributable
to their pro-rata portion of the total shares being purchased by the Trust. The
shares purchased by the Trust are currently allocated to the following persons:
46
<PAGE>
Trust Participants Shares
Val D. Christianson 165,110
Que H. Christensen 118,911
James U. Jensen 58,425
Doug Wankier 28,805
Ray Denos 11,684
Ray Richens 11,684
Charolette Brewer 5,432
William F. Cafferty 17,116
Jodie Hanson 19,455
Roger Spade 5,432
The Trust was the initial record owner of the shares of the Company's
Common Stock issued in the Merger but it is anticipated that the Trust will
distribute shares paid for to the Trust beneficiaries from time-to-time as
requested by purchasers. The above listed persons will be the beneficial owners
of such shares. Interwest Medical has guaranteed payment of the unpaid balance
of the purchase price for the shares purchased by the Trust.
Other Transactions
On September 29, 1995, the Company sold a parcel of real property
consisting of approximately 33 acres located in Utah County, State of Utah, to
American Springs Development Company, an affiliate of Daniel L. Richards. Mr.
Richards is, and has been since 1990, a director of the Company. The total sales
price for the property was $1,050,000. The sales price was paid as follows: (I)
$300,000 cash; (ii) $20,000 by Mr. Richards transferring some of his shares of
the Company's common stock to the Company for cancellation; (iii) $10,000 by Mr.
Richards transferring an option to purchase shares of the Company's common stock
to the Company for cancellation; and (iv) $720,000 by way of a promissory note
secured by the property. The note is payable in full on or before March 31,
1997. As of December 15, 1996, the principal balance of the note was $$299,560.
Parents of Company
The only parents of the Company, as defined in Rule 12b-2 of the Exchange
Act, are the officers and directors of the Company. For information regarding
the share holdings of the Company's officers and directors, see Item 11.
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
A. The Exhibits which are filed with this Report or which are incorporated
herein be reference are set forth in the Exhibits Index which appears on page
36.
B. The Company filed no Form 8-K during the last quarter of the fiscal year
ended September 30, 1995.
47
<PAGE>
Exhibits to Form 10-KSB
Sequentially
Exhibit Numbered
Number Exhibit Page
2.1 Agreement and Plan of Merger - N/A
Interwest Medical Equipment Distributors, Inc.
effective February, 1995.
(Incorporated by reference to Form 8-K filed
February 1995)
2.2 Agreement and Plan of Merger - N/A
Mt Rehabilitation Services
May 1995 (Incorporated by reference
to Form 8-K dated May 1995)
3.1 Amended and Restated Articles of Incorporation* N/A
3.2 Bylaws* N/A
10.1 Form of 1995 Stock Option Plan* N/A
10.2 Form of 1995 Non-Employee Directors'
Stock Option Plan* N/A
10.3 Form of 1995 Stock Purchase Plan* N/A
10.4 Employment Agreement - James E. Robinson* N/A
10.5 Employment Agreement - Val D. Christianson* N/A
10.6 Employment Agreement - Que H. Christensen* N/A
10.7 Loan Documentation* N/A
11.1 Earnings per Share Calculation _____
21.1 Subsidiaries of Registrant _____
23.1 Consent of Independent Accountant _____
*Incorporated by reference to Form 10-KSB for year ended September 30,
1995.
48
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Interwest Home Medical, Inc.
Date: December 27, 1996 By/s/ James E. Robinson
James E. Robinson
Chief Executive Officer
Date: December 27, 1996 By/s/ Que H. Christensen
Que H. Christensen
Secretary/Treasurer
Principal Financial Officer
In accordance with the Securities Exchange Act, this report has been signed
below by the following persons on behalf of the Company and in the capacities
and on the dates indicated.
Signature Capacity Date
/s/ James E. Robinson CEO/Director December 27, 1996
James E. Robinson
/s/ James U. Jensen Director December 27, 1996
James U. Jensen
/s/ Dr. Michael C. Romney Director December 27, 1996
Dr. Michael C. Romney
/s/ Daniel L. Richards Director December 27, 1996
Daniel L. Richards
/s/ Dr. Jeffrey F. Poore Director December 27, 1996
Dr. Jeffrey F. Poore
/s/ Jerald L. Nelson Director December 27, 1996
Jerald L. Nelson
49
Exhibit 11.1
Earnings per Share Calculation
Weighted Average Shares
1996 1995
Weighted average shares per
number of outstanding shares 3,284,000 2,937,000
Average shares per exercise 34,000 0
of stock options
___________ ___________
Weighted average number of shares 3,318,000 2,937,000
=========== ==========
Exhibit 21.1
Subsidiaries of Registrant
Interwest Medical Equipment Distributors, Inc.
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-16049) pertaining to the Interwest Home Medical, Inc. 1995
Stock Option Plan; 1995 Non-Employee Director Stock Option Plan; and 1995 Stock
Purchase Plan of our report dated November 22, 1996, with respect to the
consolidated financial statements of Interwest Home Medical, Inc., included in
the Annual Report (Form 10-KSB) for the year ended September 30, 1996.
Tanner + Co.
Salt Lake City, Utah
December 27, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
INTERWEST HOME MEDICAL, INC. SEPTEMBER 30, 1996 FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000789092
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 539,264
<SECURITIES> 47,700
<RECEIVABLES> 5,061,117
<ALLOWANCES> 356,620
<INVENTORY> 2,763,937
<CURRENT-ASSETS> 8,607,996
<PP&E> 6,756,164
<DEPRECIATION> 3,589,702
<TOTAL-ASSETS> 15,788,961
<CURRENT-LIABILITIES> 6,154,982
<BONDS> 0
0
3,000
<COMMON> 1,894,002
<OTHER-SE> 4,050,690
<TOTAL-LIABILITY-AND-EQUITY> 15,788,961
<SALES> 19,861,089
<TOTAL-REVENUES> 19,937,412
<CGS> 8,351,779
<TOTAL-COSTS> 18,725,090
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 541,920
<INCOME-PRETAX> 670,402
<INCOME-TAX> 62,000
<INCOME-CONTINUING> 608,402
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 608,402
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
