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, 1997
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.
The Issuer's revenues for the fiscal year ended September 30, 1997 were
$24,845,100.
As of December 11, 1997, 4,075,045 shares of the Issuer's common stock
were issued and outstanding of which 2,122,537 were held by non-affiliates. As
of December 11, 1997, the aggregate market value of shares held by
non-affiliates (based upon the closing price reported by the NASD's SmallCap
Market System of $ 3.50) was approximately $ 7,428,879.50
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Interest Home Medical, Inc. and subsidiaries ("Interwest" or the "Company")
provide a diversified range of home health care services and products. The
Company currently conducts its business from twenty- four (24) retail locations
in the States of Utah, Colorado, Idaho, Nevada, California and Alaska. 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 fifteen (15)
acquisitions during the previous twenty-four months. As a result of such
acquisitions and internal growth, Interwest Medical's operating revenues
increased from $22,425,988 for the year ended, September 30, 1996 to $24,845,100
for the year ended September 30, 1997. Current industry estimates indicate that
approximately 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. Most 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. All of the Company's offices are subject to
reaccreditation in 1998.
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History of the Company
From its inception in 1983 to February 1995, the Company was primarily
engaged in the management of certain real estate assets. In February 1995, the
Company acquired Interwest Medical Equipment Distributors, Inc., a Utah-based
regional provider of Home Medical Equipment products and services since 1957,
and became Interwest Home Medical, Inc.
Industry Overview
The importance of home health care is increasing as a result of
significant economic pressures within the health care industry. Total
expenditures within the health care industry, which have increased at twice the
rate of inflation in recent years, were approximately $1.1 trillion in 1995. The
ongoing pressure to contain health care costs, while maintaining high quality
care, is accelerating the growth of alternate site care, such as home health
care, that reduces hospital admissions and lengths of hospital stays. Home
health care, one of the fastest growing segments of the health care industry,
had total expenditures in 1995 of approximately $36.1 billion, including $22.0
billion for nursing and related patient services, $5.8 billion for infusion
therapy services, $5.0 billion for respiratory therapy services, and $1.9
billion for durable medical equipment. Approximately 17,000 providers currently
serve approximately 8 million patients per year in their homes.
The growth in home health care is also due to increased acceptance by
payors, patients and the medical community, including physicians, hospitals and
other providers. Home health care often results in lower costs, which is
increasingly important under managed care. In addition, home health care has
grown rapidly as a result of (i) advances in medical technology, which have
facilitated the delivery of services in alternate sites, (ii) demographic
trends, such as an aging population, and (iii) a strong preference among
patients to receive health care in their homes.
The home health care industry has been highly fragmented and characterized
by local providers that typically do not offer a comprehensive range of
cost-effective services and products. These local providers often do not have
the capital necessary to expand their operations or the range of services and
products offered, which limits their ability to compete for managed care
contracts and other referrals and to realize efficiencies in their operations.
As managed care has become more prevalent, payors increasingly are seeking home
health care providers that offer cost-effective, comprehensive services in each
market served, which further inhibits the ability of local providers to compete
effectively. As a result of these economic and competitive pressures, the home
health care industry is undergoing rapid consolidation, a trend the Company
expects to continue.
Strategy
The Company's objective is to be a leading provider of diversified home
health care services in the markets in which it operates. Management seeks to
establish a regional concentration of centers in order to develop the market
penetration and critical mass necessary to position the Company as a
cost-effective provider of comprehensive home health care services to managed
care and other third-party payors.
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:
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1997 1996 1995 1994 1993
-------- -------- -------- -------- ------
Revenues $24,845,100 $22,425,988 $17,828,810 $12,490,203 $10,264,496
Pre-tax Income $1,479,564 $697,060 $1,485,706 $591,306 $470,013
Before Accounting
Charge
Net Income $656,564 $595,060 $1,345,706 $421,306 $310,013
Currently, revenues are divided between sales and equipment rentals. For
the fiscal years ended September 30, 1997 and 1996 sales were 58% and 62% of
total revenues and rentals represented 42% and 38% 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 seven years, the Company's revenues increased by
approximately 275% from the $6,617,908 for the year ended September 30, 1991.
During fiscal 1997 Interwest Home Medical acquired the assets of six other
businesses and sold assets and operations of two businesses all of which
contributed to the 11% increase of fiscal 1997 revenues over fiscal 1996
revenues.
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 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 in part by acquiring some of these companies.
During fiscal 1997, the Company acquired substantially all the assets and
customer base of 6 companies engaged in the home health care business. The total
purchase price paid by the Company for such acquisitions was approximately $5.1
million paid in cash, notes, issuance of common stock and assumption of debt.
The operations acquired in 1997 had aggregate annualized revenues of
approximately $5.0 million at the time of acquisition. These acquisitions
resulted in the addition of 5 new branches.
During fiscal 1996, the Company acquired substantially all the assets and
customer base of 7 companies engaged in the home health care business. The total
purchase price paid by the Company for such acquisitions was approximately $3.0
million paid in cash, notes and assumption of debt. The operations acquired in
1996 had aggregate annualized revenues of approximately $3.5 million at the time
of acquisition.
These acquisitions resulted in the addition of 4 new branches.
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,
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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.
The following table sets forth the percentage of net revenues represented
by each line of business for the periods presented:
Percent of Revenues
1997 1996 1995
Home oxygen and respiratory care services 44 39 39
Rehabilitation products 27 33 31
Home medical equipment and supplies 29 28 30
-- -- --
Total 100 100 100
=== === ===
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 $3.0 billion in 1996, having grown
by an estimated 8% to 10% per year over the last five years. This growth
reflects the significant increase in the number of persons afflicted with
chronic obstructive pulmonary disease, which is attributable, to a large extent,
to the increasing proportion of the population over the age of 65.
The Company's home oxygen and respiratory care services primarily consist
of:
o Oxygen systems to assist patients with breathing. There are three
types of oxygen systems: (i) oxygen concentrators, which are
stationary units that filter ordinary air to provide a continuous
flow of oxygen; (ii) liquid oxygen systems, which are portable,
thermally-insulated containers of liquid oxygen; and (iii) high
pressure oxygen cylinders, which are used for portability with
oxygen concentrators. Oxygen systems are used to treat patients with
chronic obstructive pulmonary disease, cystic fibrosis and
neurologically-related respiratory problems.
o Nebulizers to deliver aerosol medications to patients. Nebulizers
are used to treat patients with asthma, chronic obstructive
pulmonary disease, cystic fibrosis and neurologically-related
respiratory problems.
o Home ventilators to sustain a patient's respiratory function
mechanically in cases of severe respiratory failure when a patient
can no longer breathe normally.
o Non-invasive positive pressure ventilation ("NPPV") to provide
ventilation support via a face mask for patients with chronic
respiratory failure. This new therapy enables patients to receive
positive pressure ventilation without the invasive procedure of
intubation.
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o Continuous positive airway pressure ("CPAP") therapy to force air
through respiratory passage-ways during sleep. This treatment is
used on adults with sleep apnea, a condition in which a patient's
normal breathing patterns are disturbed during sleep.
o Apnea monitors to monitor and to warn parents of apnea episodes in
newborn infants as a preventive measure against sudden infant death
syndrome.
o Home sleep screenings and studies to detect sleep disorders and the
magnitude of such
disorders.
o Home phototherapy which provides UV light to help newborn systems
eliminate above normal levels of bilirubin.
o 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.
Rehabilitation Products. 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 and stairway lifts has greatly increased.
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. In addition, the Company focuses upon pressure
management by providing specialized low air-loss and other low pressure beds for
rental in 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.
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 maintains retail stores and showrooms where
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customers may purchase or rent supplies and miscellaneous. The products offered
by the Company range in price from a few cents to $10,000.
Organization and Operations
Management. The Company is managed at the executive level as a portfolio
of local businesses. 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.
MIS. 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. Medicare and many
third-party payor claims are billed electronically, thereby facilitating the
collection of accounts receivable. The Company also focuses upon quickly
integrating the information systems of acquired businesses as a part of its
overall integration efforts.
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
Idaho Boise 1987
Idaho Falls 1991
Pocatello 1995
Twin Falls 1994
Nevada Las Vegas/Henderson 1992
Reno 1996
Fallon 1996
Utah Murray (Main Office) 1978
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Ogden 1989
Pleasant Grove 1983
Price 1988
Salt Lake Downtown 1995
Vernal 1994
St. George 1996
Cedar City 1997
California Quincy 1997
Chester 1997
Alaska Anchorage 1997 (Accounted for as a Pooling
of Interests)
Regional Interwest Home Pharmacy 1997
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 50 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 marketing targets 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.
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 approximately 100 preferred
provider agreements that are both local and regional in scope to provide home
medical equipment services and supplies to the beneficiaries of these managed
care entities. Total revenue generated from these agreements amounted to
approximately 19% and 18% of total revenues for the years ended September 30,
1997 and 1996.
The Company believes the JCAHO accreditation of its branch offices is an
important factor in its sales and marketing efforts. Accreditation by JCAHO (the
program began in 1988) 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. The Company was the first company located west of
the Mississippi River to complete its accreditation,
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which occurred in 1988. As of December 1997, most of the Company's locations are
accredited by JCAHO; the triennial survey of the Company is scheduled for
February 1998.
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, 1997, the Company's
revenues from these sources were allocated as follows:
Payor Percent of Total Revenues
1997 1996 1995
---- ---- ----
Medicare 30 28 33
Medicaid 6 9 6
Managed care organizations 20 18 17
Private insurance companies 20 19 18
Private pay (includes patient copays) 17 18 19
Over-the-counter sales 7 8 7
----- ---- ----
Total 100 100 100
=== === ===
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, produce clean claims
and obtain timely reimbursements by third-party payors. Currently, the Company
electronically submits over 45% of its billings to third party payors. 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.
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.
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Purchasing
Each branch office is responsible for determining its inventory needs and
submitting requisitions to a centralized purchasing department. Using this
input, personnel located at the Company's headquarters select and purchase
virtually all equipment and supplies. Purchased inventory is shipped by vendors
to the specific location instructed by the Company. In fiscal 1997, the Company
purchased products from over 800 suppliers. Approximately 28% of the amount of
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 four national providers and
approximately ten regional providers, the vast majority of the Company's
competition comes from 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 of care and service, 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.
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
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 licenses 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.
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Governmental Regulation
The Company's business is subject to extensive federal, state and local
regulation.
The operations of the Company's branches are subject to federal and state
laws covering the repackaging and dispensing of drugs (including oxygen),
operating of pharmacies and regulating of interstate motor-carrier
transportation. Certain of the Company's employees are subject to state laws and
regulations governing the professional practice of respiratory therapy, pharmacy
and nursing.
As a provider of services under the Medicare and Medicaid programs, the
Company is subject to the Medicare and Medicaid fraud and abuse laws. These
laws, among other things, prohibit any payment, kickback or rebate in return for
the referral of Medicare or Medicaid patients. Violations of these provisions
may result in civil and criminal penalties and exclusion from participation in
the Medicare and Medicaid programs.
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 established fixed payment rates for oxygen service as well as
a 15-month rental ceiling on certain medical equipment. An interim final rule
implementing the payment methodology under the fee schedules recently 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. The Balanced Budget Act of 1997, enacted
in August 1997, reduces the Medicare national payment limits for oxygen and
oxygen equipment used in home respiratory therapy by 30%, with 25% effective
January 1, 1998 and an additional 5% effective January 1, 1999 from the 1997 fee
schedule. Compounding these reductions is a freeze on reimbursement rates for
all other equipment and supplies through 2002. Approximately 15% of the
Company's total revenues for the year ended September 30, 1997 were derived from
the provision of oxygen services to Medicare patients. Additionally, the Company
will be required to have surety bonds of at least $50,000 for each durable
medical equipment company that it operates. 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.
Management believes that the Company operations are in material compliance
with applicable laws. The Company, however, is unable to predict what additional
government regulations, if any, affecting its business may be enacted in the
future, how existing or future laws and regulations might be interpreted or
whether the Company will be able to comply with such laws and regulations either
in the markets in which it presently conducts, or wishes to commence, business.
The Company also is subject to routine and periodic surveys and audits by
various governmental agencies.
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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 1997, the Company had approximately 250 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 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.
12
<PAGE>
Other Retail and Office Facilities
In addition to first headquarters, the Company leases twenty-three (23)
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 five acres of undeveloped property in Provo, Utah,
approximately 40 miles south of Salt Lake City.
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.
The leases are net leases whereby the tenants pay monthly rents which total
approximately $6,000 per month, and the Company pays taxes and insurance.
The Company intends to sell these properties and use the proceeds as
working capital..
ITEM 3. LEGAL PROCEEDINGS
The Company is not party to any legal actions as of the date of this Form
10-KSB.
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, 1997.
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 increases 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:
Bid Price
1997(1)
High Low
First Quarter $5.75 $3.75
Second Quarter $4.63 $3.75
Third Quarter $4.25 $3.25
Fourth Quarter $5.63 $3.25
13
<PAGE>
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
(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 a 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. In August 1997, these preferred stock
shares were converted to 112,500 shares of common stock.
In January 1997, the Company issued 105,140 shares of common stock
for $450,000 and warrants to purchase an additional 105,140 shares to
Merlin G. Kirby, M.D., in connection with an Option Agreement executed in
November 1996.
In August 1997, the Company issued 465,000 shares of common stock in
connection with the acquisition of Northwest Homecare, Inc.
In September 1997, the Company completed issuance of 57,126 shares
of common stock for $244,500 and warrants to purchase an additional 57,126
shares to Jerry D. Kennett, M.D., in connection with an Option Agreement
executed in November 1996.
In September 1997, the Company issued 50,992 shares of common stock
for $20,000 to James U. Jensen in connection with a Stock Option Agreement
purchased from Interwest Medical Equipment Distributors, Inc., a
predecessor company, in November 1987.
Holders
As of December 23, 1997, there were 4,024,053 shares of common stock
outstanding and approximately 858 stockholders of reacord of common stock. The
number of stockholders of record does not include an indeterminate number of
stockholders whose shares are held by brokers in "street name." Management
believes there are in excess of 950 beneficial stockholders of the Company's
common stock.
14
<PAGE>
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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The Company revenue and income are derived from a diversified range of
home health care products and services. The Company divides its products and
services into three general categories: (1) home oxygen and respiratory care
services, (2) rehabilitation services and (3) home medical equipment and
supplies. In August 1997, the Company completed a merger with Northwest Homecare
(Northwest) by exchanging 465,000 shares of the Company's common stock for all
of the issued and outstanding common stock of Northwest. The transaction was
accounted for as a pooling-of-interests and as such, the consolidated financial
statements presented have been restated to present those of Company for the year
ended September 30, 1997 and 1996 and Northwest for the nine months ended
September 30, 1997 and twelve months ended December 31, 1996.
Results of Operations
Operating Revenue is comprised of sales and rental revenue. Net revenues
increased 11% to $24,845,100 in 1997 from $22,425,988 in 1996. Net sales
increased from $13,823,134 in 1996 to $14,495,448 in 1997, an increase of 5%.
Net rental revenue increased from $8,602,854 in 1996 to $10,349,652 in 1997, an
increase of 20%. The increase in revenue in 1997 was due to growth from existing
Company locations and acquisition activities. Internal growth from existing
product lines of approximately 12% was derived from increased marketing efforts
and increased utilization of the Company service and products under
non-exclusive managed care contracts. Approximately $1.0 million or 4.5% of
vehicle and building adaptation operating revenues were sold during the year
resulting in a net internal growth rate of 7%. Approximately $0.9 million or 4%
of the increase in revenues was contributed by acquired companies.
Rental revenue as a percentage of total revenue were 42% at 1997
compared to 38% at 1996. Sales revenue had a corresponding reduction to 58% in
1997 from 62% in 1996. The Company's strategy has been to increase its rental
revenue because of higher gross margins. Management has targeted acquisitions
whose product mix is primarily respiratory rental revenue. Additionally, the
Company has expanded its marketing staff, emphasizing development of the
respiratory rental market.
Home oxygen and respiratory care services, rehabilitation products and
home medical equipment revenues represent 44%, 27% and 29%, respectively, in
1997 compared to 39%, 33%, and 28%, respectively, in 1996 and increased
(decreased) at rates of 41%, (7%) and 12%, respectively, during 1997.
Increases in home oxygen and respiratory care services and home medical
equipment product lines are due primarily to increased strategic focus on these
segments in both marketing and acquisitions.
Gross margins were 59.9% in 1997 and 58.7% in 1996. Gross margin from
net rental revenue was 82% in 1997 compared to 85% in 1996. Gross margin from
net sales revenue was 42% in 1997 compared to 41% in 1996. The increase is
primarily due to increases in rental revenue, with higher margins, as percentage
of total revenue partially offset by lower margins on rental revenue. The
managed care market
15
<PAGE>
fosters competition which has had an adverse effect on reimbursement rate with
resultant decrease in margins on rental revenue.
Selling, general and administrative expenses have increased 10% to
$13,137,592 for 1997 compared to $11,940,676 for 1996. Selling, general and
administrative expenses decreased as a percentage of net revenues from 53.2% in
1996 to 52.9% in 1997 due to the Company's implementation of cost containment
initiatives and because certain selling general and administrative expenses did
not increase proportionately to increases in net revenue.
During the third quarter of fiscal 1997, the Company sold, for $780,000,
approximately 40 acres of undeveloped real estate, with a basis of $217,500.
After commissions and closing costs, the Company recognized a non-recurring gain
of $516,290.
Interest expense increased 43.2% to $880,321 in 1997 compared to
$614,918 in 1996. Interest expense as a percentage of revenue increased to 3.5%
for 1997 from 2.7% for 1996.The Company's interest expense consists of interest
on borrowings under its bank credit agreement, its capital equipment line of
credit and bank/seller financing agreements to fund acquisitions. The increase
was primarily attributable to approximately $3.1 million of new and assumed
borrowings to fund acquisition activities.
During the fourth quarter of fiscal 1997, the Company adopted Statement
of Financial accounting Standards No. 121 - "Accounting for Impairment of
Long-Lived Assets to be Disposed of FAS 121." The statement requires that
long-lived assets and certain intangibles be analyzed to determine if estimated
future cash flows is less than the carrying value of the asset. The Company has
determined that an impairment exists for goodwill recorded as part of certain
acquisitions. Accordingly, the Company has recognized a pretax charge of
$750,000 as a reduction of the net carrying value of goodwill. The impairment is
primarily due to an alleged breach of certain non-compete agreements,
anticipation of a 30% (25% and 5% reduction effective January 1, 1998 and 1999,
respectively) reduction in Medicare oxygen reimbursement as a result of
enactment of The Balanced Budget Act of 1997, and less than anticipated results
from certain acquired operation.
Financial Condition
The Company's primary needs for capital are to fund acquisition,
purchase rental equipment, and cover debt service payments. For the year ended
September 30, 1997, net cash provided by operating activities was $1,232,462 as
compared to $1,331,829 for the year ended September 30, 1996, a decrease of
$99,367 or 7.5%. Significantly contributing to cash provided from operations
were increased income and non cash expenses of amortization and depreciation and
a one-time charge for impaired assets. For the year ended September 30, 1997,
cash flow from operations, proceeds from sales of undeveloped real estate in the
amount of $168,590 and collection of $686,648 of notes receivable contributed to
overall cash flow supporting purchases of $1,923,345 of capital equipment,
primarily patient rental equipment. For the year ended September 30 1996, cash
flow from operations and collection of $422,195 of notes receivable contributed
to overall cash flow supporting purchases of $1,664,782 of capital equipment,
primarily patient rental equipment.
At September 30, 1997 and 1996 the Company's working capital was
$2,645,008 and $2,447,294, respectively, an increase of $197,714 or 7.5%. The
increase is primarily due to a 11% increase in revenue
16
<PAGE>
during 1997 resulting in increases in accounts receivable and inventory from
acquisition activities and expanded market share.
Accounts receivable increased 32% to $7,215,224 at 1997 from $5,458,878
at 1996. 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
1997. Billing delays contributed to the Company's average days sales in
receivables increasing from 87 days to 101 days at September 30, 1996 and 1997,
respectively.
Inventory was $3,444,212 and $3,345,200 an increase of 3% and 49% at
September 30, 1997 and 1996, respectively. Inventory levels increased $99,012
during 1997 to support sales revenue growth. Year to year percentage increases
in inventory levels have declined as a results of a shift in product mix toward
rentals revenue which requires lower inventory levels.
At September 30, 1997, the Company had notes receivable of $447,404
compared to $578,652 at September 30, 1996. The notes receivable originated from
the sale of undeveloped real estate and an apartment complex.
At September 30, 1997, the Company held property and equipment, net of
depreciation, used in its business amounting to $5,005,563 compared to
$4,154,901 at September 30, 1996. The increase in property and equipment is
attributable to the fair market value of assets acquired in acquisition
activities and patient rental equipment purchased to support increased rental
revenue.
Current liabilities increased 25% to $9,580,485 at September 30, 1997
compared to $7,662,503 at September 30, 1996. Correspondingly, current assets
grew 22% to $12,225,493. The increase is primarily due to increases in current
portion of long-term debt and checks written in excess of cash in bank. Such
increases are related to current portion of new borrowings to fund acquisitions
and checks drawn against the Company's revolving operating line of credit to
fund current operations including the purchase of patient rental equipment.
The Company has a $4.0 million revolving operating line of credit with
its principal bank expiring on January 31, 1998. The Company is currently
negotiating the renewal of its operating line of credit. Borrowing under the
Company's line of credit are secured and limited to 75% of eligible accounts
receivable and 50% of inventory. Interest on $2.0 million of this debt is
payable monthly at the London Interbank offered Rate ("Libor") plus 275 basis
points. The remaining $2.0 million of debt is payable monthly at the bank's
primary lending rate. As of September, 30, 1997 and 1996, $3,362,500 and
$3,169,144, respectively, were outstanding under the line of credit. The
increase is primarily due to increases in inventory and accounts receivable
which contributed to additional borrowings under the Company's working capital
credit facility.
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 optionees 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 $4.28 within 180
days. During the current year the optionees exercised the option by paying
$694,500 in exchange for 162,266 share
17
<PAGE>
of the Company common stock and issuance of a warrant for 162,266 share of
common stock exercisable at $4.28 with a term of three years. Additionally, a
member of the board of directors exercised an option to purchase 50,992 shares
of common stock at a total exercise price of $20,000. The total equity of
$714,500 was raised from these transaction.
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 statements. 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 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.
There have been no other significant changes in capitalization or
financial status during the past two 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 Interwest Home Medical. However, management
believes the net effect of inflation on operations has been minimal during the
past three years.
Recent Accounting Pronouncements
There are no recent accounting pronouncements that will 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, 1997 and 1996
Consolidated Statements of Income.....................................23
Years ended September 30, 1997 and 1996
18
<PAGE>
Consolidated Statements of Stockholders' Equity.......................24
Years ended September 30 , 1997 and September 30, 1996
Consolidated Statements of Cash Flows.................................25
Years ended September 30, 1997 and 1996
Notes to Consolidated Financial Statements............................28
19
<PAGE>
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, 1997 and 1996, 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,
1997 and 1996, and the results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
As discussed in Note 15 to the consolidated financial statements, in 1997 the
Company adopted Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of.
TANNER + CO.
Salt Lake City, Utah
December 29, 1997
20
<PAGE>
INTERWEST HOME MEDICAL, INC.
Consolidated Balance Sheet
September 30, 1997 and 1996
- ------------------------------------------------------------------------------
1997 1996
-------------------------
Assets
Current assets:
Cash and cash equivalents $ 901,527 $ 541,856
Accounts receivable (net of allowance for
doubtful accounts of $593,411 and $459,620 7,215,224 5,458,878
Inventories 3,444,212 3,345,200
Current portion of notes receivable 250,888 382,311
Prepaid expenses 124,942 89,852
Deferred tax asset 241,000 134,000
Other current assets 47,700 47,700
------------------------
Total current assets 12,225,493 9,999,797
Notes receivable 196,516 196,341
Investment in undeveloped real estate 124,934 332,234
Investment in office buildings, net of
depreciation of $160,885 and $145,669 451,232 466,448
Property and equipment - net 5,005,563 4,154,901
Intangible assets (net of accumulated
amortization of $262,718 and $135,578 4,369,618 2,910,389
Other assets 168,043 139,602
------------------------
$22,541,399 $18,199,712
=========================
- ------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 21
<PAGE>
INTERWEST HOME MEDICAL, INC.
Consolidated Balance Sheet
September 30, 1997 and 1996
- ------------------------------------------------------------------------------
1997 1996
------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Checks written in excess of cash in bank $ 942,440 $ 526,789
Current portion of long-term debt 2,188,037 1,309,358
Notes payable 3,362,500 3,169,144
Accounts payable 2,337,136 2,093,952
Accrued expenses 587,122 441,315
Income taxes payable 163,250 121,945
------------------------
Total current liabilities 9,580,485 7,662,503
------------------------
Deferred income taxes 267,000 320,000
Long-term debt 4,847,961 3,742,320
------------------------
Total liabilities 14,695,446 11,724,823
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares
issued and outstanding 0 shares and 30,000,000 shares - 3,000
Common stock, no par value; 50,000,000 shares
authorized 4,074,249 shares and 3,748,941 shares
issued and outstanding 3,238,791 2,074,291
Additional paid-in capital - 447,000
Retained earnings 4,607,162 3,950,598
------------------------
Total stockholders' equity 7,845,953 6,474,889
------------------------
$ 22,541,399 $18,199,712
========================
- ------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 22
<PAGE>
INTERWEST HOME MEDICAL, INC.
Consolidated Statement of Income
Years Ended September 30, 1997 and 1996
- ------------------------------------------------------------------------------
1997 1996
--------------------------
Revenue:
Net sales 14,495,448 13,823,134
Net rental income 10,349,652 8,602,854
--------------------------
Total revenue 24,845,100 22,425,988
Cost of sales and rental 9,964,773 9,259,292
--------------------------
Gross profit 14,880,327 13,166,696
--------------------------
Selling, general and administrative expenses 13,137,592 11,940,678
--------------------------
Income from operations 1,742,735 1,226,018
Other income (expense):
Gain on sale of undeveloped real estate 516,290 -
Interest income 100,860 85,960
Interest expense (880,321) (614,918)
Impairment of assets charge (750,000) -
--------------------------
Income before income taxes 729,564 697,060
Income tax benefit (expense):
Current (233,000) (70,000)
Deferred 160,000 (32,000)
--------------------------
Total income taxes (73,000) (102,000)
--------------------------
Net income $ 656,564 $ 595,060
==========================
Net income per share $ .17 $ .16
==========================
- ------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 23
<PAGE>
INTERWEST HOME MEDICAL, INC.
Consolidated Statement of Stockholders' Equity
Years Ended September 30, 1997 and 1996
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
-------------------------------------------- Paid-in Retained
Shares Amount Shares Amount Capital Earnings
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1995 as
previously reported 300,000 $3,000 3,283,491 $1,894,002 $ 447,000 $2,995,288
Pooling of interests with
Northwest Home Care - - 465,000 180,289 - 360,250
----------------------------------------------------------------------
Balance, October 1, 1995 as
restated 300,000 3,000 3,748,941 2,074,291 447,000 3,355,538
Net income - - - - - 595,060
----------------------------------------------------------------------
Balance, September 30, 300,000 3,000 3,748,941 2,074,291 447,000 3,950,598
1996
Conversion of preferred
stock to common (300,000) (3,000) 112,500 450,000 (447,000) -
Issuance of common stock - - 213,258 714,500 - -
Net income - - - - - 656,564
----------------------------------------------------------------------
Balance, September 30, - $ - 4,074,249 $3,238,791 $ - $4,607,162
1997
======================================================================
</TABLE>
- ------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 24
<PAGE>
INTERWEST HOME MEDICAL, INC.
Consolidated Statement of Cash Flows
Years Ended September 30, 1997 and 1996
- ------------------------------------------------------------------------------
1997 1996
------------------------
Cash flows from operating activities:
Reconciliation of net income to net cash
provided by operating activities:
Net income $ 656,564 $ 595,060
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,495,807 1,059,784
Write off of impaired assets 750,000 -
(Gain) loss on disposal of assets (55,919) 282,043
Gain on sale of undeveloped real estate (516,290) -
(Increase) decrease in:
Accounts receivable (1,626,649) (627,641)
Inventories (43,467) (924,116)
Prepaid expenses (35,090) (41,887)
Other assets (28,441) (24,749)
Deferred tax asset (107,000) 30,000
Increase (decrease) in:
Checks written in excess of cash in bank 415,651 280,126
Accounts payable 243,184 799,407
Accrued expenses 95,807 12,323
Income taxes payable 41,305 (110,521)
Deferred income taxes (53,000) 2,000
------------------------
Net cash provided by
operating activities 1,232,462 1,331,829
------------------------
Cash flows from investment activities:
Collection of notes receivable 686,248 422,195
Proceeds from sale of undeveloped real estate 168,590 -
Proceeds from sale of equipment 456,082 12,731
Purchase of property and equipment (1,923,345) (1,664,782)
Purchase of intangible assets (4,600) (18,295)
------------------------
Net cash used in
investing activities (617,025) (1,248,151)
------------------------
- ------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 25
<PAGE>
INTERWEST HOME MEDICAL, INC.
Consolidated Statement of Cash Flows
Continued
- ------------------------------------------------------------------------------
1997 1996
------------------------
Cash flows from financing activities:
Net changes in notes payable 193,356 545,471
Proceeds from long-term debt 473,811 311,501
Net cash received in merger/acquisition (55,000) (743,884)
Principal payments (1,582,433) (286,600)
Issuance of common stock 714,500 -
------------------------
Net cash (used in)
financing activities (255,766) (173,512)
------------------------
Net (decrease) increase in cash 359,671 (89,834)
Cash, beginning of year 541,856 631,690
------------------------
Cash, end of year $ 901,527 $ 541,856
========================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 858,019 $ 607,767
========================
Income taxes $ 181,695 $ 174,038
========================
- ------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 26
<PAGE>
INTERWEST HOME MEDICAL, INC.
Consolidated Statement of Cash Flows
Continued
- ------------------------------------------------------------------------------
Supplemental schedule of non-cash investing and financing activities
1997
During the year ended September 30, 1997, the Company acquired assets and
assumed certain liabilities from companies in Utah, California, Nevada, and
Colorado for cash and notes. The net assets purchased consisted of the
following:
Accounts receivable $ 129,697
Inventory 55,545
Property and equipment 680,931
Intangible assets 2,281,769
Debt (283,879)
------------
Net assets purchased 2,864,063
Less amount financed with debt 2,809,063
------------
Net cash investment $ 55,000
============
The Company also sold property during the year ended September 30, 1997,
receiving as part of the proceeds a $555,000 note receivable.
1996
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.
- ------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 27
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
- ------------------------------------------------------------------------------
1. Organization and Summary of Significant Accounting Policies
Description of Business.
Interwest Home Medical Equipment, Inc., and subsidiaries ("Interwest" or the
"Company") provides a diversified range of home health care services and
products. The Company currently conducts its business from twenty-four (24)
retail locations in the States of Utah, Colorado, Idaho, Nevada, California, and
Alaska. The Company divides its products and services into three general
categories: (1) home oxygen and respiratory care services, (2) rehabilitation
services, and (3) home medical equipment and supplies.
Business Combination and Basis of Presentation.
In July 1997, Interwest completed a merger with Northwest Home Care (Northwest)
by exchanging 465,000 shares of Interwest's restricted common stock for all of
the issued and outstanding common stock of Northwest.
The merger constituted a tax-free reorganization and has been accounted for as
pooling of interests under Accounting Principles Board Opinion No. 16.
Accordingly, all prior period consolidated financial statements presented have
been restated to include the combined results of operations, financial position
and cash flows of Northwest as though it had always been a part of Interwest.
The year end of Northwest was December 31 and, therefore, the consolidated
financial statements have been restated to present those of Interwest for the
years ended September 30, 1997 and 1996 and Northwest for the nine months ended
September 30, 1997 and 12 months ended December 31, 1996.
There were no transactions between Interwest and Northwest prior to the
combination. All merger related costs were included in a general and
administrative expense. See note 2.
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.
- ------------------------------------------------------------------------------
28
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements
Continued
- ------------------------------------------------------------------------------
1. Organization and Summary of Significant Accounting Policies (Continued)
Inventories.
Inventories consist of medical equipment and supplies held for sale and are
stated at the lower of average cost (FIFO basis) or market.
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 one parcel of undeveloped land and a
house. The parcel of undeveloped land is 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 ranging from 3 to 35
years.
- ------------------------------------------------------------------------------
29
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements
Continued
- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
30
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements
Continued
- ------------------------------------------------------------------------------
1. Organization and Summary of Significant Accounting Policies (Continued)
Revenue Recognition.
The Company is involved in the business of providing respiratory services and
equipment sales and the sale of rehabilitation and adaptive equipment.
Revenues are accounted for as follows:
o 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.
o Other revenues are recognized as the services are rendered or
the sales are made.
Net Income Per Share.
Net income per share is based on weighted average shares outstanding of
approximately 3,961,000 shares for the year ended September 30, 1997 and
3,783,000 shares for the year ended September 30, 1996. 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.
- ------------------------------------------------------------------------------
31
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements
Continued
- ------------------------------------------------------------------------------
1. Organization and Summary of Significant Accounting Policies (Continued)
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 1996 have been reclassified to
conform with the current year presentation.
2. Pooling of Interests
The results of operations for the separate companies of Interwest and Northwest
and the combined accounts presented in the consolidated financial statements are
as follows:
Interwest Northwest Combined
--------------------------------------------
Total Revenue 1997
Year ended
September 30, 1997 $23,201,380 $ - $23,201,380
Nine months ended
September 30, 1997 - 1,643,720 1,643,720
--------------------------------------------
Total $23,201,380 $1,643,720 $24,845,100
============================================
Interwest Northwest Combined
--------------------------------------------
Net Income 1997
Year ended
September 30, 1997 $593,366 $ - $ 593,366
Nine months ended
September 30, 1997 - 63,198 63,198
--------------------------------------------
Total $593,366 $ 63,198 $ 656,564
============================================
- ------------------------------------------------------------------------------
32
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements
Continued
- ------------------------------------------------------------------------------
2. Pooling of Interests (Continued)
Interwest Northwest Combined
------------------------------------------------
Total Revenue 1996
Year ended
September 30, 1996 $19,861,089 $ - $19,861,089
Year ended
December 31, 1996 - 2,564,899 2,564,899
------------------------------------------------
$19,861,089 $ 2,564,899 $22,425,988
================================================
Interwest Northwest Combined
------------------------------------------------
Net Income 1996
Year ended
September 30, 19$6 608,402 $ - $608,402
Year ended
December 31, 1996 - (13,342) (13,342)
------------------------------------------------
$ 608,402 $(13,342) $ 595,060
================================================
3. Notes Receivable.
Notes receivable consist of the following at September 30, 1997 and 1996:
1997 1996
---------------------------
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 $ 248,709 $ 300,000
Mortgage receivable, due in
monthly installments of $1,765,
including interest at 9.5%,
maturing March 1, 2000, secured
by apartment building 198,695 198,752
- ------------------------------------------------------------------------------
33
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements
Continued
- ------------------------------------------------------------------------------
3. Notes Receivable (Continued)
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
-----------------------------
447,404 578,652
Less current portion 250,888 382,311
-----------------------------
$ 196,516 $ 196,341
=============================
4. Property and Equipment
Property and equipment at September 30, 1997 and 1996 consisted of the
following:
1997 1996
-------------------------------
Rental equipment $ 7,681,162 $ 6,055,654
Equipment and signs 837,619 766,487
Furniture and fixtures 453,376 387,022
Vehicles 699,845 569,290
Leasehold improvements 245,493 213,098
-------------------------------
9,917,495 7,991,551
Less accumulated depreciation
and amortization 4,911,932 3,836,650
-------------------------------
$ 5,005,563 $ 4,154,901
===============================
- ------------------------------------------------------------------------------
34
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements
Continued
- ------------------------------------------------------------------------------
5. Notes Payable
Notes payable at September 30, 1997 and 1996, consisted of the following:
1997 1996
-----------------------------
Line of credit in the amount of
$4,000,000 payable to a financial
institution due January 31, 1998;
with interest payments at the
bank's prime rate (8.50% at
September 30, 1996) plus 0.25%
payable monthly; secured by
accounts receivable and inventory $2,763,300 $2,753,944
Line of credit in the amount of
$500,000 payable to a financial
institution due October 4, 1997,
with interest at 9.75% payable
monthly; secured by accounts
receivable and inventory 599,200 415,200
-------------------------------
$3,362,500 $3,169,144
===============================
- ------------------------------------------------------------------------------
35
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements
Continued
- ------------------------------------------------------------------------------
6. Long-term Debt
Long-term debt at September 30, 1997 and 1996, consisted of the following:
1997 1996
----------------------------
Notes payable to a bank requiring
aggregate monthly payments of
$101,594 including interest at a
rate of prime (8.50% at
September 30, 1997) plus 0.25%
to prime plus 1.25%, secured by
accounts receivable, inventory and
equipment $ 3,696,116 $ 2,893,231
Notes payable to individuals in
connection with the acquisition
of companies requiring aggregate
monthly payments of $33,171
including interest at a rate of 8.0%
to 9.0%, secured by property and
equipment 989,806 813,424
Note payable to an individual in
connection with the acquisition of a
company requiring annual
payments of $200,000 plus interest
at a rate of 8.00%, secured by
property and equipment 600,000 -
Notes payable to a bank requiring
aggregate monthly payments of $10,132
including interest at prime to 9.75%,
secured by accounts receivable, inventory
and equipment 448,151 243,508
- ------------------------------------------------------------------------------
36
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements
Continued
- ------------------------------------------------------------------------------
6. Long-term Debt (Continued)
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 437,128 618,527
Notes payable to a company requiring
aggregate monthly payments of $13,400,
including interest from 15%
to 18% secured by equipment 164,881 156,201
Installment contracts payable in
monthly installments totaling $2,487
including interest ranging from 5.9%
to 10.99%, secured by vehicles 60,799 63,721
Notes payable to a company requiring
aggregate monthly payments of
$11,090 including interest from 13.5%
to 15.5%, secured by equipment 60,259 67,824
Installment contracts payable in
aggregate monthly installments
totaling $2,126 including interest
ranging from 6.95% to 1.5%, secured
by vehicles 55,984 36,404
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
- ------------------------------------------------------------------------------
37
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements
Continued
- ------------------------------------------------------------------------------
6. Long-term Debt (Continued)
Mortgages due financing companies
in aggregate monthly installments of
$992, including interest at 8.75%,
secured by real estate - 9,730
Capital lease obligations (see note 8) 522,874 82,423
--------------------------
7,035,998 5,051,678
Less current portion 2,188,037 1,309,358
--------------------------
Long-term debt $4,847,961 $3,742,320
==========================
Future maturities of long-term debt at September 30, 1997 were as follows:
Year ending September 30:
1998 $ 2,188,037
1999 1,898,796
2000 1,635,049
2001 1,084,576
2002 229,540
------------
$ 7,035,998
============
7. Income Taxes
The provisions for income taxes differ from the amount computed at federal
statutory rates as follows:
1997 1996
--------------------------
Tax at statutory rates $ (248,000) $ (232,000)
State tax (45,000) (56,000)
Change in valuation allowance 221,000 219,000
Other (1,000) (33,000)
--------------------------
$ (73,000) $ (102,000)
==========================
- ------------------------------------------------------------------------------
38
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements
Continued
- ------------------------------------------------------------------------------
7. Income Taxes (Continued)
The deferred income tax benefit (liability) for the years ended September 30,
1997 and 1996 is as follows:
1997 1996
-------------------------
Short-term:
Allowance for bad debts $ 237,000 $ 170,000
Employee benefits 45,000 33,000
Deferred gain (62,000) (69,000)
Accrued expenses 21,000 -
-------------------------
$ 241,000 $ 134,000
=========================
1997 1996
------------------------------
Long-term:
Depreciation $ (526,000) $ (320,000)
Net operating loss 882,000 1,103,000
carryforward
Valuation allowance (882,000) (1,103,000)
Impairment write down 259,000 -
-------------------------------
$ (267,000) $ (320,000)
===============================
At September 30, 1997, the Company has approximately $2,500,000 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.
- ------------------------------------------------------------------------------
39
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements
Continued
- ------------------------------------------------------------------------------
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, 1997 and 1996, the total cost of all assets currently
under capital lease is $623,162 and $106,873, respectively. Accumulated
depreciation at that date amounted to $10,488 and $23,671, respectively. The
following summarizes future minimum lease payments under leases at September 30,
1997:
Operating Capital
Year Ending September 30: Leases Leases
-------------------------
1998 $ 486,000 $ 234,528
1999 497,000 198,948
2000 431,000 156,051
2001 132,000 5,154
2002 and thereafter 1,026,000 -
-------------------------
$ 2,572,000 594,681
===========
Less amounts representing interest 71,807
------------
Present value of future minimum
lease payments $ 522,874
============
Total rent expense for operating leases was approximately $827,000 and $553,000
for the years ended September 30, 1997, and 1996, respectively.
- ------------------------------------------------------------------------------
40
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements
Continued
- ------------------------------------------------------------------------------
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, 1997 and 1996, 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 no contributions in 1997 and 1996.
11.Stock Option Plans
The Company has 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 vest at varying rates, 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. At September 30, 1997, 225,750 options
have been granted under this agreement.
- ------------------------------------------------------------------------------
41
<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. At September 30, 1997, 211,500 options remained unexercised under
this agreement.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS
123) which established financial accounting and reporting standards for
stock-based compensation. The new standard defines a fair value method of
accounting for an employee stock option or similar equity instrument. This
statement gives entities the choice between adopting the fair value method or
continuing to use the intrinsic value method under Accounting Principles Board
(APB) Opinion No. 25 with footnote disclosures of the pro forma effects if the
fair value method had been adopted. The Company has opted for the latter
approach. Accordingly, no compensation expense has been recognized for the stock
option plans. Had compensation expense for the Company's stock option plan been
determined based on the fair value at the grant date for awards in 1997 and 1996
consistent with the provisions of FAS No. 123, the Company's results of
operations would have been reduced to the pro forma amounts indicated below:
September 30,
------------------------
1997 1996
------------------------
Net Income - as reported $ 656,564 $ 595,060
Net Income - pro forma $ 370,780 $ 573,923
Earnings per share - as report$d $ .17 $ .16
Earnings per share - pro forma$ $ .10 $ .15
------------------------
- ------------------------------------------------------------------------------
42
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements
Continued
- ------------------------------------------------------------------------------
11.Stock Option Plan (Continued)
The fair value of each option grant is estimated in the date of grant using the
Black-Scholes option pricing model with the following assumptions:
September 30,
-----------------------
1997 1996
-----------------------
Expected dividend yield $ - $ -
Expected stock price volatility 66 % 66 %
Risk-free interest rate 4.5% 4.5%
Expected life of options 1-5 years 5 years
========================
The weighted average fair value of options granted during 1997 and 1996 are
$2.42 and $2.82, respectively.
The following table summarized information about fixed stock options outstanding
at September 30, 1997:
Options Outstanding Options Exercisable
------------------------------------------------------------------
Weighted
Average
Number Remaining Weighted Number Weighted
Range of Outstanding Contractual Average Exercisable Average
Exercise at Life Exercise at Exercise
Prices 9/30/97 (Years) Price 9/30/97 Price
- -------------------------------------------------------------------------------
$3.25 to 367,750 4.7 $3.92 136,500 $4.19
4.75
5.00 to 69,500 5.1 5.29 67,000 5.28
5.50
- -------------------------------------------------------------------------------
$3.25 to 437,250 4.8 $4.13 203,500 $4.55
5.50
===============================================================================
- ------------------------------------------------------------------------------
43
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements
Continued
- ------------------------------------------------------------------------------
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, 1997 and 1996, 6,031 shares and 820 shares,
respectively, of common stock had been cumulatively 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 $153,833 at September 30, 1996.
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.
14. Preferred Stock
During the year ended September 30, 1997, the holder of the preferred stock
converted the 300,000 shares of preferred stock to 112,500 shares of common
stock. The conversion was made under terms of the preferred stock.
- ------------------------------------------------------------------------------
44
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Consolidated Financial Statements
Continued
- ------------------------------------------------------------------------------
15.Adoption of Accounting Change
In the fourth quarter of fiscal 1997, the Company adopted Statement of Financial
Accounting Standards No. 121 - "Accounting for Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed of FAS 121." This statement requires that
long-lived assets and certain intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. When such events or
changes in circumstances indicate as asset may not be recoverable, a company
must estimate the future cash flows expected to result from the use of the asset
and its eventual disposition. If the sum of such expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is required to be recognized in an amount by which
the asset's net book value exceeds its fair market value. For purposes of
assessing impairment under this standard, assets are required to be grouped at
the lowest level for which there are separately identifiable cash flows.
To comply with the new standard, the Company identified all long-lived assets
where there has been, or there is expected to be, a change in use in the recent
past or foreseeable future which could affect the recoverability of such
long-lived assets and intangible assets.
The Company has determined that impairment exists for goodwill recorded as part
of certain acquisitions. That impairment in the value is primarily due to an
alleged breach of certain noncompete agreements anticipation of a 30% (25% in
1998 and 5% in 1999) reduction in Medicare oxygen reimbursement and less than
anticipated results from certain acquired operations. In evaluating the recovery
values of these assets in accordance with the adoption of FAS 121, the Company
recorded a pretax charge of $750,000. The charge is reflected as a reduction of
the net carrying value of goodwill and those long-term assets acquired in the
acquisitions.
16.Recent Accounting Pronouncements
There are no recent accounting pronouncements that will have a material impact
on the Company's financial statements.
- ------------------------------------------------------------------------------
45
<PAGE>
ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
NONE.
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 46 CEO /President/Chairman
James U. Jensen 53 Director
Dr. Jeffrey F. Poore 49 Director
Jerald L. Nelson 55 Director
Que H. Christensen 42 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
46
<PAGE>
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.
Jeffrey F. Poore D.D.S. Dr. Poore has been a director of the Company since
February 1995. Presently, Dr. Poore is President, CEO, and Chairman of the Board
of Healthchair Group, Inc. Dr. Poore was previously President of CompHealth. He
is also 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.
Jerald L. Nelson Ph.D. Mr. Nelson served as a director of the Company from
April 1990 to February 1995, and was reappointed a director in August, 1995. In
1996, he was instrumental in starting a long distance phone company, Family
Telecommunications, Inc., which was recently sold to I-Link, Inc., a Utah based,
publicly traded telecommunications firm where he serves as Vice President -
Corporate Development. He graduated from the University of Utah with a B.A. in
business and holds a Ph.D. in Economics from North Carolina State University.
Dr. Nelson has over twenty-five years of experience as an economist, business
executive and financial analyst. His career began in 1972 in NYC with TWA. Later
he advised Fortune 500 firms as a consultant with Date Resources, Inc. and then
directed planning efforts at U.S. Industries, Inc. 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.
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.
47
<PAGE>
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,
1997, Dr. Poore was granted options to purchase shares of the Company's
common stock; one option grant was reported within the required period and
one option grant was reported but not within the required period.
Jerald L. Nelson Ph.D. During the fiscal year ended September 30,
1997, Dr. Nelson was granted options to purchase shares of the Company's
common stock; one option grant was reported within the required period and
one option grant was reported but not within the required period.
James U. Jensen. During the fiscal year ended September 30, 1997,
Mr. Jensen was granted options to purchase shares of the Company's common
stock; one option grant was reported within the required period and one
option grant was reported but not within 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 $100,000:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
Commissions Restrict
and Other Annual Stock Options/
Bonuses Compensation Awards SAR's
Name and Principal Position Year Salary ($) ($) ($) (#)
- ----------------------------- ------ ---------- ---------- ---------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
James E. Robinson 1997 $150,000 $15,750 (2) -0- 50,000(1)
President/CEO 1996 $150,000 $16,875 (2) -0- -0-
1995 $135,000 $12,273 (2) -0- 62,500(1)
Que H. Christensen 1997 $ 95,000 $ 9,975 (2) -0- 25,000(1)
Chief Financial Officer(3) 1996 $ 95,000 $10,688 (2) -0- -0-
1995 $ 90,000 $ 8,188 (2) -0- 31,250(1)
</TABLE>
48
<PAGE>
(1) These Options were granted under the Company's 1995 Employee Stock Option
Plan. No SAR's have been granted by the Company.
(2) Does not include the value of perquisites provided to certain executive
officers which in the aggregate did not exceed the lesser of $50,000 or 10%
of such officer's salary and bonus.
(3) In December 1997, Mr. Christensen was promoted to Vice President and Chief
Operating Officer (COO).
Stock Options
The following table sets forth certain information concerning stock
options granted during fiscal 1997 to the named executive officers.
Options Grants in the Year Ended September 30, 1997
<TABLE>
<CAPTION>
Percentage
Number of of Total Exercise or
Securities Options Granted Base Price
Underlying Employees in Per Share Expiration
Name Options Granted (#) Fiscal Year ($) Date
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James E. Robinson 50,000(1) 60% $3.25 6/30/2002
Que H. Christensen 25,000(1) 30% $3.25 6/30/2002
</TABLE>
(1) Consists of stock options granted on July 1, 1997, under the Company's 1995
Employee Stock Option Plan.
The following table sets forth information concerning the number and value
of options held at September 30, 1997 by each of the named executive officers.
No options held by such executive officers were exercised during 1997.
Option Values at September 30, 1997
Number of Unexercised Value of Unexercised
Options at In-the-Money Options
September 30, 1997 (#) At September 30, 1997($)(1)
- -------------------------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------
James E. Robinson 62,500 -0- $ 15,625 -0-
-0- 50,000 -0- $ 50,000
Que H. Christensen 31,250 -0- $ 7,183 -0-
-0- 25,000 -0- $ 25,000
(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, 1997
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, 1997. The price per share was $4.25.
49
<PAGE>
1995 Employee Stock Purchase Plan
On November 6, 1995, the Company's Board of Directors adopted 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, 1997, 6,031 shares of
common stock had been purchased under the plan.
1995 Employee Stock Option Plan
On February 24, 1995, the Company's Board of Directors adopted the
Company's 1995 Stock Option Plan (the "Plan") which provides for the issuance of
a maximum 312,500 shares of common stock 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 144,250 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. As of April 1997, the annual grant was terminated and
each non-employee director was granted an option to purchase 40,000 shares at
$4.00 per share with one-third of the shares vesting at March 31, 1998 and each
additional one-third vesting in the two subsequent years. 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
50
<PAGE>
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.
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 incentives. The Agreement
contains a 12 month non-competition restriction following termination and
provisions relating to death and disability during the term of employment.
51
<PAGE>
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 December 15, 1997 by: (i) 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) 1,276,916 29.78%
235 East 6100 South
Salt Lake City, UT 84107
James U. Jensen(3) 148,917 3.47%
420 Chipeta Way
Salt Lake City, UT 84108
Dr. Jeffrey F. Poore(4) 40,500 .94%
4021 South 700 East, Suite 300
Salt Lake City, UT 84107
Jerald L. Nelson(5) 65,564 1.53%
32 Algonquin Court
Wayne, PA 19087
Que H. Christensen(6) 150,161 3.50%
235 East 6100 South
Salt Lake City, UT 84107
I-Med Shareholders(7) 398,968 9.31%
Share Purchase Trust
235 East 6100 South
Salt Lake City, UT 84107
All Officers and Directors 1,682,057 39.23%
as a Group (5 Persons)
52
<PAGE>
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.
(1) As of December 15, 1997, there were 4,075,742 shares of the Company's
common stock issued and outstanding. There are also outstanding options to
purchase 407,250 shares of the Company's common stock which are owned by
officers and directors. Therefore, for purposes of the above set forth
chart, 4,482,295 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) 898,798 shares owned by J&J Medical
Investments, Ltd., (iii) 293,118 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 purchased through a stock option and 39,500 shares
which may be issued pursuant to other stock options.
(4) Includes 39,500 shares which may be acquired pursuant to stock options
which are currently exercisable and 1,000 shares owned of record by Dr.
Poore.
(5) Includes 39,500 shares which may be issued pursuant to stock options
which are currently exercisable and 26,064 shares which are owned of
record by Mr. Nelson's spouse.
(6) 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 (iv) 31,250 shares
which may be acquired pursuant to a stock option which is currently
exercisable.
(7) 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.
53
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
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 was a director of the Company from 1990 to 1996. 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 was payable in full on or before March 31,
1997. A title dispute has postponed the final payment on the note; however, the
Company continues to receive payments as lots sell. As of December 15, 1997, the
principal balance of the note was $249,095.
Board of Directors Stock Option Purchase Plan
On September 30, 1997, the Company's Board of Directors adopted a
financing Plan which provides a stock purchase right and warrant purchase right
to each of its three non-employee directors (the "Holders"). The maximum number
of shares issuable under the Plan is 66,000 shares per Holder, of which up to
33,000 shares per Holder may be purchased as "Purchase Shares" and up to 33,000
shares per Holder may be purchased as "Warrant Shares". This Plan is modeled on
a simliar financing arrangement earlier negotiated between the Company and third
party investors. The Plan for the non-employee directors is intended to
encourage long term investment in the Company by the non-employee directors but
is not considered by the Company as "compensation" to the non-employee
directors. The prices and terms provided are deemed fair market value because
the Plan uses substantially the same prices and terms as were previously
negotiated in good faith between the Company and third party investors.
By October 30, 1997, each of the Holders had purchased the first option
right (the "First Purchase Right") by paying the required $1,000. This purchase
of the First Purchase Right entitles each Holder to purchase up to 8,250 shares
of the Company's common stock (the "First Purchase Shares") at a price of $4.28
per share if purchased on or before April 5, 1998, when the First Purchase Right
expires. To the extent the Holder purchases shares of the First Purchase Shares
on or before December 29, 1997, however, (rather that waiting until the end of
the First Purchase Period, April 5, 1998) the Holder is then entitled to
exercise a warrant (the "First Purchase Warrant") to purchase the same number of
shares (up to 8,250 shares, the "First Warrant Shares") during the ensuing three
year period at prices of $4.28 per share during the first year, $4.75 in the
second year, and $5.25 per First Warrant Share during the third year.
The Plan repeats this arrangement for three additional Purchase Periods,
for a total of four such purchase periods. The following Table show the basic
content of the non-employee director financing Plan.
54
<PAGE>
<TABLE>
<CAPTION>
Last Date for Last Date to Last Date
Exercise Price Shares Option Fee Obtain Warrants without Warrant Prices
Warrants
<S> <C> <C> <C> <C> <C> <C>
First Option 4.28 8,250 10/30/97 12/29/97 4/5/98 4.28, 4.75, 5.25
Second Option 4.78 8,250 1/28/98 Date Option Fee 6/9/98 4.78, 5.25, 5.75
paid + 90 days
Third Option 5.50 8,250 4/26/98 Date Option Fee 9/7/98 5.50, 6.00, 6.50
paid + 90 days
Fourth Option 6.00 8,250 7/25/98 Date Option Fee 12/6/98 6.00, 6.50, 7.00
paid + 90 days
</TABLE>
* Warrant prices change on the annual anniversary of the date the Option
Fee is paid.
As of January 8, 1998, Dr. Poore had purchased 8,250 shares, Dr. Nelson
had purchased 500 shares, and Mr. Jensen had purchased 5,000 shares. Each
director received warrants equal to the number of shares purchased.
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 by reference are set forth in the Exhibits Index which appears on
page 36.
B. The Company filed no Form 8-K during the fiscal year ended September 30,
1997.
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)
55
<PAGE>
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
10.8 Non-employee Director Stock Option Purchase Agreement 58
11.1 Schedule of Weighted Average Shares 67
21.1 Subsidiaries of Registrant 68
23.1 Consent of Independent Accountant 69
*Incorporated by reference to Form 10-KSB for year ended September 30, 1995.
56
<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: January 9, 1998 By /s/ James E. Robinson
------------------------------
James E. Robinson
President/CEO
Date: January 9, 1998 By /s/ Que H. Christensen
----------------------
Que H. Christensen
Vice President/CFO
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 January 9, 1998
- ------------------------------
James E. Robinson
/s/ James U. Jensen Director January 9, 1998
- ------------------------------
James U. Jensen
/s/ Dr. Jeffrey F. Poore Director January 9, 1998
- ------------------------------
Dr. Jeffrey F. Poore
/s/ Jerald L. Nelson Director January 9, 1998
- ------------------------------
Jerald L. Nelson
57
Exhibit 10.8.
NON-EMPLOYEE DIRECTOR
STOCK OPTION PURCHASE AGREEMENT
Agreement entered into this ______ day of ___________, 1997, by and
between Interwest Home Medical, Inc., a Utah corporation (the "Company") and
Jerald L. Nelson, a non-employee member of the Company's Board of Directors
("Nelson").
RECITALS
The Company's business plan calls for it to expand its operations through
the acquisition of other companies engaged in similar businesses. The material
nature of these acquisitions limit the periods in which the Company's Board of
Directors may purchase or sale shares of the Company's common stock.
The Company has primarily funded its acquisitions with cash obtained from
its working capital, through lines of credit and through the sale of its
securities. The Company requires additional working capital and additional funds
for future acquisitions.
In November 1996, the Company entered into a "Letter Agreement for a Stock
Purchase Option" with a group of non-affiliates for the purpose of raising
additional capital through the sale of shares of the Company's common stock. The
Company desires to offer its non-employee Directors an opportunity to purchase
shares of common stock on terms and conditions which are similar to those
provided in such Letter Agreement.
The Company believes that it is in the best interest of the Company and
its public shareholders if the Company's Directors own shares of the Company's
common stock purchased with their own funds.
The Company believes that by entering into this Agreement, and similar
agreements with other non-employee Directors, it can reward, retain and motivate
its Directors and provide a mechanism by which the Company may obtain additional
capital without significant capital raising expenses.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency are hereby acknowledged, the parties agree as follows:
AGREEMENT
1. First Stock Option, Upon the terms and conditions of this Section 1,
the Company shall grant Nelson the right to purchase shares of the Company's
common stock (the "First Stock Option"). The First Stock Option shall terminate
and shall be of no force or effect unless Nelson pays to the Company a
non-refundable option fee of One Thousand Dollars ($1,000) (the "First Option
Fee") within thirty (30) days from the Effective Date (as defined below) . Any
part of the First Option not purchased within thirty (30) days from the
Effective Date, shall expire.
-58-
<PAGE>
1.1 If Nelson pays the First Option Fee to the Company within
thirty (30) days from the Effective Date, the Company shall grant him the right
to purchase 8,250 shares of the Company's common stock ("Shares") as adjusted
for all stock splits or stock dividends from and after the date hereof, if any,
(hereinafter referred to as the "First Option Shares").
1.2 The First Stock Option shall be exercisable by Nelson for a
period of one hundred ninety (190) days from the Effective Date if Nelson has
paid the First Option Fee.
1.3 The total purchase price for all of the First Option Shares
shall be Thirty Five Thousand Three Hundred Ten Dollars ($35,310) (the "First
Exercise Price"). The per share purchase price for each of the First Option
Shares is Four and 28/100 Dollars ($4.28). The First Option Fee shall be
credited to the First Exercise Price. The First Option Fee is non-refundable.
1.4 If all or any part of the First Option Shares are purchased
within ninety (90) days of the Effective Date, each Share purchased shall
entitle Nelson to the simultaneous issuance by the Company of warrants
("Warrants") to purchase one Share (i.e., a maximum total of an additional Eight
Thousand Two Hundred and Fifty (8,250) Shares), as adjusted for all stock splits
or stock dividends from and after the date hereof, if any. The Warrants shall be
for a term of three years commencing on the date of the payment of the First
Option Fee and shall be exercisable at a price of Four and 28/100 Dollars
($4.28) per Share if exercised during the first Warrant year, Four and 75/100
Dollars ($4.75) per Share if exercised during the second Warrant year and Five
and 25/100 Dollars ($5.25) per Share if exercised during the third Warrant year.
The Warrants shall be in the form of and have such benefits and restrictions as
set forth in Exhibit "A" attached hereto.
1.5 The First Option Shares shall have certain restrictions as
further set forth herein.
2. Second Stock Option. Upon the terms and conditions of this Section 2,
the Company shall grant Nelson the right to purchase shares of the Company's
common stock (the "Second Stock Option"). The Second Stock Option shall
terminate and shall be of no force or effect unless Nelson pays to the Company a
non-refundable option fee of One Thousand Dollars ($1,000) (the "Second Option
Fee"), within one hundred twenty (120) days from the Effective Date.
2.1. If Nelson pays the Second Option Fee to the Company, the
Company shall grant him the right to purchase 8,250 Shares, as adjusted for all
stock splits or stock dividends from and after the date hereof, if any,
(hereinafter referred to as the "Second Option Shares").
2.2 The Second Stock Option shall be exercisable by Nelson for a
period of one hundred thirty five (135) days commencing on the date of the
payment of the Second Option Fee by Nelson.
2.3 The total purchase price for all of the Second Option Shares
shall be Thirty Nine Thousand Four Hundred Thirty Five Dollars ($39,435) (the
"Second Exercise Price"). The per share purchase price for each of the Second
Option Shares is Four and 78/100 Dollars ($4.78). The Second Option Fee shall be
credited to the Second Exercise Price. The Second Option Fee is non-refundable.
2.4 If all or any part of the Second Option Shares are purchased
within ninety (90) days from the payment of the Second Option Fee, each Share
purchased shall entitle Nelson to the simultaneous issuance by the Company of
Warrants to purchase one Share (i.e., a maximum total of an additional Eight
Thousand Two Hundred and Fifty (8,250) Shares), as adjusted for all stock
-59-
<PAGE>
splits or stock dividends from and after the date hereof, if any. The Warrants
shall be for a term of three years commencing on the date of the payment of the
Second Option Fee and shall be exercisable at a price of Four and 78/100 Dollars
($4.78) per Share if exercised during the first Warrant year, Five and 25/100
Dollars ($5.25) per Share if exercised during the second Warrant year and Five
and 75/100 Dollars ($5.75) per Share if exercised during the third Warrant year.
The Warrants shall be in the form of and have such benefits and restrictions as
set forth in Exhibit "A" attached hereto.
2.5 The Second Option Shares shall have certain restrictions as
further set forth herein.
3. Third Stock Option. Upon the terms and conditions of this Section 3,
the Company shall grant Nelson the right to purchase Shares of the Company's
common stock (the "Third Stock Option"). The Third Stock Option shall terminate
and shall be of no force or effect unless Nelson pays to the Company a
non-refundable option fee of One Thousand Dollars ($1,000) (the "Second Option
Fee"), within two hundred ten (210) days from the Effective Date.
3.1 If Nelson pays the Third Option Fee to the Company, the Company
shall grant him the right to purchase 8,250 Shares as adjusted for all stock
splits or stock dividends from and after the date hereof, if any, (hereinafter
referred to as the "Third Option Shares").
3.2 The Third Stock Option shall be exercisable by Nelson for a
period of one hundred thirty five (135) days commencing on the date of the
payment of the Third Option Fee by Nelson.
3.3 . The total purchase price for all the Third Option Shares
shall be Forty Five Thousand Three Hundred Seventy Five Dollars ($45,375) (the
"Third Exercise Price"). The per share purchase price for each of the Third
Option Shares is Five and 50/100 Dollars ($5.50). The Third Option Fee shall be
credited to the Third Exercise Price. The Third Option Fee is non-refundable.
3.4 If all or any part of the Third Option Shares are purchased
within ninety (90)days of the payment of the Third Option Fee, each Share
purchased shall entitle Nelson to the simultaneous issuance by the Company of
Warrants to purchase one Share (i.e., a maximum total of an additional Eight
Thousand Two Hundred Fifty (8,250) Shares), as adjusted for all stock splits or
stock dividends from and after the date hereof, if any. The Warrants shall be
for a term of three years commencing on the date of the payment of the Third
Option Fee and shall be exercisable at a price of Five and 50/100 Dollars
($5.50) per Share if exercised during the first Warrant year, Six Dollars
($6.00) per Share if exercised during the second Warrant year and Six and 50/100
Dollars ($6.50) per Share if exercised during the third Warrant year. The
Warrants shall be in the form of and have such benefits and restrictions as set
forth in Exhibit "A" attached hereto.
3.5 The Third Option Shares shall have certain restrictions as
further set forth herein.
4 Fourth Stock Option. Upon the terms and conditions of this Section 4,
the Company shall grant Nelson the right to purchase shares of the Company's
common stock (the "Fourth Stock Option"). The Fourth Stock Option shall
terminate and shall be of no force or effect unless Nelson pays to the Company a
non-refundable option fee of One Thousand Dollars ($1,000) (the "Fourth Option
Fee") within three hundred (300) days from the Effective Date.
-60-
<PAGE>
4.1. If Nelson pays the Fourth Option Fee to the Company, the
Company shall grant him the right to purchase 8,250 Shares as adjusted for all
stock splits or stock dividends from and after the date hereof, if any,
(hereinafter referred to as the "Fourth Option Shares").
4.2 The Fourth Stock Option shall be exercisable for a period of
one hundred thirty five (135) days commencing on the date of the payment of the
Fourth Option Fee.
4.3 The total purchase price for all of the Fourth Option Shares
shall be Forty Nine Thousand Five Hundred Dollars ($49,500) (the "Fourth
Exercise Price"). The per Share purchase price for the Fourth Option Shares is
Six and no/100 Dollars ($6.00). The Fourth Option Fee shall be credited to the
Fourth Exercise Price. The Fourth Option Fee is non-refundable.
4.4 If all or any part of the Fourth Option Shares are purchased
within ninety (90) days of the payment of the Fourth Option Fee, each Share
purchased shall entitle Nelson to the simultaneous issuance by the Company of
Warrants to purchase one share (i.e., a maximum total of an additional Eight
Thousand Two Hundred Fifty (8,250)Eight Thousand Two Hundred Fifty (8,250
Shares), as adjusted for all stock splits or stock dividends from and after the
date hereof, if any. The Warrants shall be for a term of three years commencing
on the date of the payment of the Fourth Option Fee and shall be exercisable at
a price of Six Dollars ($6.00) per Share if exercised during the first Warrant
year, Six and 50/100 Dollars ($6.50) per Share if exercised during the second
Warrant year and Seven Dollars ($7.00) per Share if exercised during the third
Warrant year. The Warrants shall be in the form of and have such benefits and
restrictions as set forth in Exhibit "A" attached hereto.
4.5 The Fourth Option Shares shall have certain restrictions as
further set forth herein.
5. Rule 144 Restrictions, The First Option Shares, the Second Option
Shares, the Third Option Shares, and the Fourth Option Shares (collectively the
"Option Shares") and shares purchased by the exercise of Warrants, if any, shall
be "restricted securities" as such term is defined in Rule 144 ("Rule 144")
promulgated under the Securities Act of 1933, as amended, ("The Securities Act")
and the certificates representing such securities shall bear a legend as
follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR THE SECURITIES
LAW OF ANY STATE. NO TRANSFER OF THIS CERTIFICATE OR ANY INTEREST HEREIN
MAY BE MADE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT AND THE LAWS OF SUCH STATES UNDER WHOSE LAWS A TRANSFER OF
SECURITIES WOULD BE SUBJECT TO A REGISTRATION REQUIREMENT, UNLESS THE
COMPANY AND ITS COUNSEL HAVE RECEIVED A SATISFACTORY OPINION OF COUNSEL
THAT SUCH TRANSFER DOES NOT REQUIRE REGISTRATION UNDER THE ACT OR THE
SECURITIES LAWS OF SUCH STATES."
6. Registration Rights, The Shares purchased by Nelson upon the exercise
of the Options or the exercise of Warrants shall have the registration rights
provided for in this Section 6. The Company has, and will, grant similar
registration rights to other persons. Any and all shares purchased upon the
exercise of the Options or Warrants by Nelson or by other persons under other
agreements, are hereafter referred to as the "Registrable Stock" and the record
owners of such Registrable Stock are hereafter referred to as the "Holders".
-61-
<PAGE>
6.1 Right to Piggyback, Whenever the Company proposes to register
any of its securities under the Securities Act and the registration form to be
used may be used for the registration of any of the Registrable Stock in
connection with the resale thereof by the Holders (a "Piggyback Registration"),
the Company will (i) give no less than fifteen (15) days prior written notice to
all Holders of its intention to effect such a registration (the "Registration
Notice"), and (ii) include in such registration all Registrable Stock issued
prior to the date fifteen (15) days following the date of the Registration
Notice in accordance with the priorities set forth in Sections 6.3 and 6.4
below. The obligations of the Company to register a particular share of
Registrable Stock shall expire on the date which is two (2) years after such
share of Registrable Stock was issued to a Holder provided that the Company has
filed all reports required to be filed by it pursuant to the Securities Act and
the Securities Exchange Act of 1934, as amended, and has taken such other action
as any Holder may reasonably request, all to the extent required to enable
Holders to sell Registrable Stock pursuant to Rule 144 adopted by the Securities
and Exchange Commission ("SEC") (as such rule may be amended from time to time)
or any similar rule or regulation hereafter adopted by the SEC.
6.2 Piggyback Expenses. All expenses incident to the Company's
performance of or compliance with this Section 6, including, without limitation,
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery expenses,
and fees and disbursements of counsel for the Company and all independent
certified public accountants, underwriters (excluding discounts and commissions
relating to Registrable Stock) and other persons or entities retained by the
Company in connection with any Piggyback Registration will be paid by the
Company. Holders shall pay for fees and disbursements of counsel retained by
Holders (or any of them) and, if the Piggyback Registration is an underwritten
offering, shall pay all underwriting discounts and commissions relating to the
sale of Registrable Stock.
6.3 Priority on Primary Registrations. If a Piggyback Registration
is an underwritten primary registration on behalf of the Company and the
managing underwriters advise the Company in writing that in their opinion the
number of securities to be included in such registration exceeds the number
which can be sold in such offering, the Company will include in such
registration (i) first, the securities that the Company proposes to sell and
Registrable Stock prorata among the Company and the Holders on the basis of the
number of shares which the Company proposes to register and the number of shares
of Registrable Stock issued to Holders prior to the date of the Registration
Notice; provided, however, that in no event will the Registrable Stock issued to
the Holders prior to the date of the Registration Notice exceed forty percent
(40%) of the securities being sought for underwritten primary registration if
the Company is unable to register all of the securities for which the Company
sought underwritten primary registration.
6.4 Priority on Secondary Registration. If a Piggyback Registration
is an underwritten secondary registration on behalf of holders of the Company's
securities and the managing underwriters advise the Company in writing that in
their opinion the number of securities to be included in such registration
exceeds the number which can be sold in such offering, the Company will include
in such registration (i) first, the Registrable Stock of the Holders acquired
pursuant to this Letter Agreement prior to the date of the Registration Notice
prorata among the Holders, (ii) second, the securities requested to be included
therein by the other holders (other than the Holders) requesting such
registration, and (iii) third, the other securities requested to be included in
such registration, if any.
6.5 Mandatory Registration. If Holders purchase all of the First
Option Shares and all of the Second Option Shares, the Company hereby agrees,
notwithstanding any provision
-62-
<PAGE>
herein to the contrary, to (i) file a registration statement relating to all
such First Option Shares and Second Option Shares purchased no later than one
hundred eighty (180) days after the date the last of said First Option Shares
and said Second Option Shares are purchased by the Holders (the "Mandatory
Registration") and (ii) register all additional Third Option Shares and Fourth
Option Shares and shares purchased by the Holders by the exercise of Warrants,
if any, purchased prior to the date of the filing of said Mandatory
Registration.
6.6 Selection of Underwriters. The Holders shall have no right to
select or participate in the selection of any investment banker(s) or manager(s)
to administer any offering.
7 . Holdback Agreements.
7.1 In connection with any underwritten Piggyback Registration,
Nelson agrees not to effect any public sale or distribution of equity securities
of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven (7) days prior to and the
ninety (90) day period beginning on the effective date of any such underwritten
Piggyback Registration in which any shares of Registrable Stock are included,
unless the underwriters managing the registered public offering otherwise agree
and such sale or distribution otherwise complies with Regulation ss.240.10b-6 of
the Exchange Act; provided, however, that the Nelson may elect, at his option,
to not have the underwriter sell the Registrable Stock Nelson has registered and
to otherwise determine the method and timing of the sale of the securities so
registered without regard to the holdback provisions hereof.
7.2 It is expressly understood that the rights of Nelson hereunder
are expressly subject to any agreements by and between Nelson and the Company
concerning the transfer or sale of any Option Shares and shares purchased by the
exercise of Warrants, if any, (including Sections 10 and 11 below), or any
interest therein, whether contained herein, in the Company's Articles of
Incorporation on file prior hereto or other constituent documents on file and
specifically disclosed to Nelson by the Company prior to the Effective Date
hereof, or otherwise on file and specifically disclosed to Nelson by the Company
prior to the Effective Date hereof.
8. Registration Procedures. Whenever Registrable Stock will be registered
pursuant to this Agreement, the Company will use its best efforts to effect the
registration and the sale of such Registrable Stock in accordance with the
intended method of disposition thereof, and pursuant thereto, the Company will
as expeditiously as possible:
8.1 Prepare and file with the SEC a registration statement filed
pursuant to the Securities Act on Form S-1, S-2, S-3, SB-1 or SB-2 or any
similar registration statement pursuant to which Registrable Stock may be
registered (a "Registration Statement") with respect to such Registrable Stock
and use its best efforts to cause such Registration Statement to become
effective (provided that, no less than ten (10) days before filing a
Registration Statement or prospectus or any amendments or supplements thereto,
the Company will furnish to the counsel of Nelson copies of all such documents
proposed to be filed);
8.2 Prepare and file with the SEC such amendments and supplements
to such Registration Statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for a period
of not less than two (2) years and comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
Registration Statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such Registration
Statement;
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<PAGE>
8.3 Furnish Nelson, such number of copies of such Registration
Statement, each amendment and supplement thereto, the prospectus included in
such Registration Statement (including each preliminary prospectus) and such
other documents as he may reasonably request in order to facilitate the
disposition of the Registrable Stock owned by Nelson.
8.4 Use its best efforts to register or qualify such Registrable
Stock under such other securities or blue sky laws of such jurisdictions as
Nelson reasonably requests and do any and all other acts and things which may be
reasonably necessary or advisable to enable Nelson to consummate the disposition
in such jurisdictions of Registrable Stock owned by Nelson (provided that the
Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
subparagraph, (ii) subject itself to taxation in any such jurisdiction, or (iii)
consent to general service of process in any such jurisdiction);
8.5 Notify Nelson, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such Registration
Statement contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading, and, at the request of
Nelson, the Company will prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of Registrable Stock such
prospectus will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading;
8.6 Cause all such Registrable Stock to be listed on each
securities exchange on which similar securities issued by the Company are then
listed, if any; and
8.7 Provide a transfer agent and registrar for all such Registrable
Stock not later than the effective date of such Registration Statement;
8.8 Make available for inspection during normal business hours by
Nelson, any underwriter participating in any disposition pursuant to such
Registration Statement, and any attorney, accountant or other agent retained by
any such Nelson or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by Nelson, underwriter, attorney, accountant or
agent in connection with such Registration Statement.
9. Indemnification,
9.1 The Company agrees to indemnify, to the extent permitted by
law, Nelson against all losses, claims, damages, liabilities and expenses caused
by any untrue or alleged untrue statement of material fact contained in any
Registration Statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein, except insofar as the same are caused by or
contained in any information furnished to the Company by Nelson expressly for
his use therein or which Nelson failed to provide after being so requested or by
Nelson's failure to deliver a copy of the Registration Statement or prospectus
or any amendments or supplements thereto after the Company has furnished such
Nelson with a sufficient number of copies of the same or which is otherwise
attributable of the negligence or willful misconduct of any Nelson.
-64-
<PAGE>
9.2 In connection with any Registration Statement in which any
Nelson is participating, Nelson will furnish to the Company in writing, within
fifteen (15) days after written request therefor, such information and
affidavits as the Company reasonably requests for use in connection with any
such Registration Statement or prospectus and, to the extent permitted by law,
will indemnify the Company, its directors and officers, each person or entity
who controls the Company (within the meaning of the Securities Act), against any
losses, claims, damages, liabilities and expenses resulting from any untrue or
alleged untrue statement of material fact contained or required to be contained
in the Registration Statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only to the extent that such untrue statement or
omission is contained or required to be contained in any information or
affidavit so furnished or required to be so furnished in writing by Nelson.
9.3 Any person or entity entitled to indemnification hereunder will
(i) give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification, and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim, with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without the indemnifying party's consent (but such
consent will not be unreasonably withheld). An indemnifying party who is not
entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim.
9.4 The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling person
or entity of such indemnified party and will survive the transfer of securities.
The Company and Nelson also agree to make such provisions, as are reasonably
requested by any indemnified party, for contribution to such party in the event
the Company's or Nelson's indemnification, as the case may be, is unavailable
for any reason.
10. Purchased Option Shares Possibly Subject to 180 Day Lock-Up
Restrictions. Nelson, shall, if requested by an underwriter of a primary
offering of the Company's securities, agree that he will not sell or otherwise
transfer or dispose of his shares of the Company's common stock during the
period beginning seven days prior to and ending 180 days following the effective
date of a registration statement of the Company filed under the Securities Act
of 1933, as amended.
11. Investor Suitability. Nelson hereby represents that he (i) has
reviewed the Company's financial information to his full satisfaction, including
all portions deemed relevant by Nelson of the Company's public filings with the
SEC, (ii) has had access to all information necessary for him to make an
informed decision with respect to this Letter Agreement, (iii) was not solicited
by the Company or any representative of the Company in connection with this
Agreement, and (iv) is capable of bearing the risks of loss of any investment in
the Company as provided this Agreement.
12. Effective Date. The Effective Date of this Agreement shall be
___________, 1997.
13. Term. This Agreement shall remain in effect from and after the
Effective Date until the expiration of any remaining unexercised stock purchase
rights conferred hereunder.
-65-
<PAGE>
14. Entire Agreement: Definitive Agreement. This Agreement and exhibits
constitutes the whole and entire agreement among the Company and Nelson with
respect to the matters set forth herein and this Agreement shall not be modified
or amended in any respect except by a written instrument executed by the Company
and Nelson.
15. Benefit. This Agreement is binding upon and inures to the benefit of
the Company and Nelson and their respective heirs, personal representatives,
successors and assigns; provided, however, the options granted hereunder shall
not be transferable by Nelson to any person or entity without the consent of the
Company in its sole discretion.
16. Severability. If any provision or term of this Agreement shall be
held or determined to be unenforceable, the balance of this Agreement shall
nevertheless continue in full force and effect, unaffected by such holding or
determination. In addition, in any such event, the parties agree that it is
their intention and agreement that any such provision or term which is held or
deter-mined to be unenforceable as written, shall nonetheless be enforced and
binding to the fullest extent permitted by law as though such provision or term
had been written in such a manner to such an extent as to be enforceable under
the circumstances.
17. Law Governing. This Agreement shall be governed and interpreted under
the laws of the State of Utah.
18. Further Assurances. Each party agrees that he or it will, whenever and
as often as he or it shall be required by any other party, execute, acknowledge
and deliver such further instruments and documents as may be necessary in order
to complete the agreements herein provided and to do any and all other acts and
to acknowledge, execute and deliver any and all other documents which may be
requested in order to reasonably carry out the intent and purposes of this
Agreement.
19. Construction of Agreement. The parties hereto agree that this
Agreement shall not be construed against any party hereto by reason of the party
or parties responsible for its preparation. The parties mutually agree that each
has had full access to the advice of legal counsel and that this Agreement
represents the culmination of negotiations between the Company and Nelson and
their representatives. Any previous correspondence amongst the parties hereto
and all such negotiations are superseded hereby in all respects are of no
further force and effect.
20. Notices. All notices hereunder shall be given in writing and shall be
sent by overnight courier, sent by facsimile transmission (with the original
forwarded in accordance with this Section) or sent by certified mail, postage
prepaid and return receipt requested. Notice shall be considered received by the
addressee two (2) days after deposit in the United States Mail (by certified
mail, postage prepaid and return receipt requested), or by facsimile
transmission, or by overnight courier. The parties hereto may change the address
at which they wish to receive notices by providing notice of the new address to
the other parties hereto. Unless either party receives notice of a change of
address in the manner provided in this Section, notices shall be addressed to
the last known address of the party to whom notice is sent.
IN WITNESS WHEREOF, the parties have executed this Agreement, the date and
year indicated under their signature below.
INTERWEST HOME MEDICAL, INC. Nelson
By:__________________________ ___________________________
Its: President Jerald L. Nelson
Date:________________________ Date:_______________________
-66-
Exhibit 11.1.
INTERWEST HOME MEDICAL, INC.
Schedule of Weighted Average Shares
1997 1996
----------- ----------
Weighted average shares:
Issued common shares 3,898,000 3,749,000
Common stock equivalents 63,000 34,000
----------- -----------
Total weighted average per share 3, 961,000 3,783,000
=========== ===========
-67-
Exhibit 21.1
Subsidiaries of Registrant
Interwest Medical Equipment Distributors, Inc.
Interwest Home Pharmacy, Inc.
Northwest Homecare, Inc.
Interwest Home Medical - Arizona, Inc.
-68-
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-6049) 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 December 29, 1997 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, 1997.
Tanner + Company
Salt Lake City, Utah
January 12, 1998
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTS FROM
INTERWEST HOME MEDICAL, INC.'S FINANCIAL STATEMENTS AND IS QUALIRIFED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> 901,527
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 901,527
<SECURITIES> 0
<RECEIVABLES> 7,808,635
<ALLOWANCES> 593,411
<INVENTORY> 3,444,212
<CURRENT-ASSETS> 12,225,493
<PP&E> 10,529,612
<DEPRECIATION> 5,072,817
<TOTAL-ASSETS> 22,541,399
<CURRENT-LIABILITIES> 9,580,485
<BONDS> 0
0
0
<COMMON> 3,238,791
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 22,541,399
<SALES> 2,484,510
<TOTAL-REVENUES> 2,484,510
<CGS> 9,964,773
<TOTAL-COSTS> 13,137,592
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,217,000
<INTEREST-EXPENSE> 880,321
<INCOME-PRETAX> 729,564
<INCOME-TAX> 73,000
<INCOME-CONTINUING> 656,564
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 656,564
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
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