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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-14189
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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 84107
-------------------------------------------------
(Address of principal executive offices)
Registrant's telephone no., 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
.
Common Stock outstanding at June 30, 1998 - 4,088,795 shares of no par value
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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<PAGE>
FORM 10-QSB
FINANCIAL STATEMENTS AND SCHEDULES
INTERWEST HOME MEDICAL, INC.
For the Quarter Ended June 30, 1998
The following financial statements and schedules of the registrant and its
consolidated subsidiaries are submitted herewith:
PART I - FINANCIAL INFORMATION
Page of
Form 10-Q
---------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet--June 30, 1998 3
Condensed Consolidated Statements of Income--for the nine months
and three months ended June 30, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows--for the
nine months ended June 30, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II - OTHER INFORMATION
Page
--------
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6(a)Exhibits 15
Item 6(b)Reports on Form 8-K 15
2
<PAGE>
INTERWEST HOME MEDICAL, INC.
Condensed Consolidated Balance Sheet
June 30, 1998
Assets 1998
Current assets:
Cash and cash equivalents $ 1,004,603
Marketable securities 47,700
Accounts receivable 10,312,129
Current portion of long-term receivable 250,888
Inventory 3,672,960
Current deferred tax asset 241,000
Deposits and prepaid expenses 80,698
-------------
Total current assets 15,609,978
Note receivable 109,885
Investment in undeveloped real estate 75,595
Investment in office buildings - net 497,435
Property and equipment - net 6,603,325
Intangible assets - net 4,921,626
Other assets 401,218
-------------
$28,219,062
==============
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Liabilities and Stockholders' Equity 1998
-------
Current liabilities:
Checks written in excess of cash in bank $ 1,130,397
Current portion of long-term debt 2,535,212
Notes payable 4,659,950
Accounts payable 2,613,760
Accrued expenses 869,923
Income taxes payable 506,838
---------------
Total current liabilities 12,316,080
Deferred income taxes 267,000
Long-term debt 6,686,700
---------------
Total liabilities 19,269,780
Stockholders' equity:
Common stock, no par value, 50,000,000 shares
authorized, 4,088,795 shares issued
and outstanding 3,292,890
Additional paid-in capital -
Retained earnings 5,656,392
--------------
Total stockholders' equity 8,949,282
--------------
$28,219,062
===========
4
<PAGE>
INTERWEST HOME MEDICAL, INC.
Condensed Consolidated Statement of Income
Nine months ended June 30, Three months ended June 30,
1998 1997 1998 1997
Revenue:
Net sales $11,481,086 10,862,939 4,100,597 3,835,666
Net rental income 9,488,130 7,703,203 3,623,502 2,711,798
---------- ---------- --------- ---------
Total revenue 20,969,216 18,566,142 7,724,099 6,547,464
Cost of sales and rental 7,913,326 7,510,157 2,848,621 2,633,346
---------- ----------- ---------- ---------
Gross profit 13,055,890 11,055,985 4,875,478 3,914,118
---------- ---------- --------- ---------
Operating expenses 10,968,529 9,968,480 4,038,597 3,352,315
---------- ---------- --------- ---------
Income from operations 2,087,361 1,087,505 836,881 561,803
Other income (expense):
Interest expense (733,661) (653,580) (287,548) (251,100)
Interest income 97,900 68,910 43,221 36,293
Other (4,372) (22,452) 436 (13,943)
Gain on sale of asset - 575,193 - 575,193
---------- ---------- --------- ---------
Income before taxes 1,447,228 1,055,576 592,990 908,246
Income taxes 398,000 116,000 231,722 102,500
---------- ---------- ---------- ----------
Net income $ 1,049,228 939,576 361,268 805,746
============ ========== ========== ==========
Net income per share:
Basic $0.26 0.24 0.09 0.21
============ ========== ========== ==========
Fully Diluted $0.26 0.24 0.09 0.21
============ ========== ========== ==========
5
<PAGE>
INTERWEST HOME MEDICAL, INC.
Condensed Consolidated Statement of Cash Flows
Nine Months Ended June 30, 1998 and 1997
Cash flows from operating activities: 1998 1997
---- ----
Reconciliation of net income to net cash
provided by (used in) operating
activities:
Net income $1,049,228 $939,576
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,503,068 991,645
Gain from sale of undeveloped real
estate - (536,304)
(Increase) decrease in:
Accounts receivable (1,918,478) (941,258)
Inventories 165,185 (224,615)
Prepaid expenses 67,544 11,194
Other assets 15,108 (77,222)
Intangible assets - -
Accrued interest - (11,250)
Current portion of long term
receivables - 136,952
Increase in:
Accounts payable 252,526 261,580
Accrued expenses 275,328 82,599
Income tax payable 343,588 71,701
----------- ----------
Net cash provided by
operating activities 1,753,097 704,598
Cash flows from investment activities:
Collection of notes receivable 99,633 -
Cash used in acquisition (195,826) (300,068)
Capital expenditures (1,584,937) (846,126)
Proceeds from sale of undeveloped real
estate - 188,605
------------- -----------
Net cash used in
investing activities (1,681,130) (957,589)
------------- -----------
6
<PAGE>
INTERWEST HOME MEDICAL, INC.
Condensed Consolidated Statement of Cash Flows - Continued
Nine Months Ended June 30, 1998 and 1997
1998 1997
---- ----
Cash flows from financing activities:
Checks written in excess of cash in bank 187,957 140,201
Borrowings from notes payable 11,690,940 8,534,386
Payments on notes payable (10,455,708) (8,388,339)
Issuance of common stock 54,099 500,000
Principal payments on long-term debt (1,508,397) (873,007)
------------ --------------
Net cash provided from
(Used in) financing activities (31,109) (86,759)
------------ --------------
Net (decrease) increase
in cash 103,076 (339,750)
Cash, beginning of period 901,527 539,264
------------- -------------
Cash, end of period $ 1,004,603 $199,514
============== =============
Supplemental schedule of non-cash investing and financing activities
During the nine months ended June 30, 1998, the Company acquired, in
unrelated acquisitions, certain assets of four companies. Each acquisition was
accounted for as a purchase. The results of the acquired companies are included
in the accompanying consolidated statements of operations since the respective
date of acquisition. The purchased assets were funded by cash and owner
financing. The assets purchased consisted of the following:
Accounts receivable $ 1,176,710
Inventories 431,098
Note receivable 13,000
Capital equipment 1,433,200
Intangible assets 844,400
Other assets 23,300
--------------
3,921,708
Less accounts payable 24,098
Less accrued expenses 7,473
--------------
Net assets purchased 3,890,137
Less owner/bank financed
portion 3,694,311
--------------
Net cash invested $ 195,826
=============
7
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During the nine months ended June 30, 1998, the company sold a portion
of its rehab business to a former owner. The sold assets were financed with a
note receivable to the buyer. The assets sold consisted of the following:
Inventory $ 37,163
Property and equipment 22,535
Intangible assets 190,302
-----------
Net assets sold 250,000
Note receivable 250,000
-----------
Net cash received $ 0
================
8
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
(1) Presentation
The consolidated unaudited financial statements include the accounts of
Interwest Home Medical, Inc., (Interwest) and subsidiaries and include all
adjustments (consisting of normal recurring items) which are, in the
opinion of management, necessary to present fairly the financial position
as of June 30, 1998 and the results of operations and cash flows for the
periods ended June 30, 1998 and 1997. The results of operations for the
periods ended June 30, 1998 and 1997 are not necessarily indicative of the
results to be expected for the entire year.
(2) Acquisition and proforma information
During August 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 was accounted for as pooling of interest 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.
There were no transactions between Interwest and Northwest prior to the
combination. All merger related costs were included in a general and
administrative expenses.
During the nine months ended June 30, 1998, the Company acquired, in
unrelated transactions, certain assets of four companies. See supplemental
schedule of non-cash investing and financing activities for additional
disclosure.
Unaudited pro forma supplemental information on the results of operations
for the nine months ended June 30, 1998 and June 30, 1997 are provided
below and reflect the acquisitions as if they had been combined at the
beginning of each respective period.
Nine months ended June 30,
1998 1997
Net Revenues $22,909,000 $18,566,000
=========== ===========
Net Income $1,437,000 $939,576
=========== ===========
Net Income per common share:
Basic $0.35 $0.24
===== =====
Diluted $0.35 $0.24
===== =====
The unaudited pro forma financial information is not necessarily
indicative of either the results of operations that would have occurred
had the transactions been effected at the beginning of the respective
preceding periods or of future results of operations of the combined
companies.
(3) Lines of Credit
The Company has lines of credit of $4.3 million and $.8 million available
as of June 10, 1998. At that date $4,659,950 was outstanding on those
lines.
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<PAGE>
(4) Legal
On April 22, 1998, Link Medical, Inc. (a.k.a. Resource Medical, Inc.) filed a
complaint in the District Court, County of Arapaho, State of Colorado, against
the Company's subsidiary, Interwest Home Medical Equipment Distributors, Inc.
("IMED"), and several other defendants. The facts surrounding the case involve
the purchase of the plaintiff's assets by IMED, the breach of non-competition
agreements by plaintiff and its shareholders and other matters. In January 1997,
IMED purchased the plaintiff's assets for cash and a note. As part of the asset
purchase transaction, plaintiff and its shareholders agreed not to compete in
the business which IMED had purchased from plaintiff. IMED believes that the
plaintiff and some of its shareholders not only competed in violation of the
non-competition agreement, but conspired, prior to IMED's purchase of the
assets, to induce IMED to purchase the assets and then continue in competition
with IMED. The total purchase price to be paid by IMED for plaintiff's assets
was $1,100,000 of which IMED has paid $500,000. The remaining $600,000 was due
in three annual installments of $200,000 each. IMED did not make the $200,000
installment which was due in January 1998 because of the breaches of the asset
purchase agreement by the plaintiff and some of its shareholders. The plaintiff
has also named as defendants in the suit, two of its own shareholders and two
companies with whom such shareholders are now affiliated. IMED intends to
vigorously defend this lawsuit and will file a counterclaim against the
plaintiff and a cross claim against the other defendants. The $600,000 balance
on the note is reflected as $400,000 in current portion of long-term debt and
$200,000 in long-term debt. The financial statements do not reflect any
additional accrued liability as the Company believes that the resolution of this
matter will not result in any additional material liability.
(5) Weighted Average
Income per common share is based on the weighted average number of shares
outstanding during the period. Weighted average shares are as follows:
Nine months ended June 30, Three months ended June 30,
1998 1997 1998 1997
-------------------------- ---------------------------
Weighted average number
of common shares
outstanding:
Basic 4,089,000 3,815,000 4,089,000 3,865,000
========= ========= ========= =========
Fully Diluted 4,093,000 3,912,000 4,099,000 3,912,000
========= ========= ========= =========
10
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company revenue and income are derived from a diversified range of home
health care products and services. The Company divides its revenues into two
categories types: (1) Rentals, which include home oxygen and respiratory care
services and home medical equipment, and (2) Sales, which include home
respiratory products, home medical equipment and supplies, and rehabilitation
services. 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 merger was
accounted for as pooling of interest 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.
Results of Operations
The following table sets forth for the period indicated a summary of the
Company's net revenues by type:
For the Three Months For the Nine Months
Ended June 3 Ended June 30
-------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
Rentals $3,623 $2,712 $9,488 $7,703
Sales 4,101 3,835 11,481 10,863
----- ----- ------ ------
Total $7,724 $6,547 $20,969 $18,566
====== ====== ======= =======
Operating revenue is comprised of sales and rental revenue. Net revenues
for the three months ended June 30, 1998 increased 18% to approximately
$7,724,000 compared with the three months ended June 30, 1997. Net revenues for
the nine months ended June 30, 1998 increased 13% to approximately $20,969,000
compared with the nine months ended June 30, 1997. Approximately $964,000 of the
net revenue increase for the three months ended June 30, 1998 and $1,910,000 for
the nine months ended June 30, 1998, is attributable to acquisitions, while net
revenue increases of $213,000 for the three months ended June 30, 1998, and net
revenue increases of $493,000 for the nine months ended June 30, 1998 reflects
internal growth. Internal growth was reduced by products and services (marginal
operations) which the company no longer considered profitable and therefore
refocused its resources. Those marginal operations had revenue of approximately
$750,000 for the three months ended June 30, 1998, and $1,500,000 for the nine
months ended June 30, 1998.
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. Same
store sales revenue has increased at a slower rate as a result of this marketing
shift, the sale of certain marginal lines of its business in Nevada and the
elimination of certain marginal lines of its business in Colorado.
On August 5, 1997, the Balanced Budget Act of 1997 ("BBA") was signed into
law. The legislation, among other things, reduces Medicare expenditures by $115
billion over five years. The BBA reduces Medicare payment amounts for oxygen and
oxygen equipment furnished after January 1, 1998 to 75 percent of the fee
schedule amounts in effect during 1997. Payment amounts for oxygen and oxygen
equipment furnished after January 1, 1999, and each subsequent year are reduced
to 70 percent of the fee schedule amounts in effect during 1997.
11
<PAGE>
The BBA freezes the Consumer Price Index (U.S. urban average) update for
covered items of durable medical equipment for each of the years 1998 through
2002. The BBA reduces payments for covered drugs and biologicals to 95 percent
of the average wholesale price of such covered items for each of the years 1998
through 2002.
The BBA authorizes the Department of Health and Human Services ("HHS") to
conduct up to five competitive bidding demonstration projects for the
acquisition of durable medical equipment and requires that one such project be
established for oxygen and oxygen equipment. Each demonstration project is to be
operated over a three-year period and is to be conducts in not more than three
competitive acquisition areas. As of August 12, 1998, HHS had announced one
demonstration project to be conducted in Polk County, Florida. The Company does
not provide any services in Florida. The BBA also included provisions designated
to reduce health care fraud and abuse including a surety bond requirement for
durable medical equipment providers.
Gross profits as a percentage of net revenues were 63% and 60% for the
three months ended June 30, 1998 and 1997, respectively. Gross profits as a
percentage of net revenues were 62% and 60% for the nine months ended June 30,
1998 and 1997, respectively. The increases are primarily due to increases in
rental revenue, which traditionally has higher margins, as percentage of total
revenue and to reductions in sales revenue from the sale and elimination of
certain marginal lines of business. Such increases were partially offset by
reduced reimbursements from Medicare as described above.
Operating expenses, which consist of selling, general and administrative
expenses, increased as a percentage of net revenues to 52% from 51% for the
three months ended June 30, 1998 and 1997, respectively. The increase is
primarily due to the effects of the reduced reimbursements from Medicare as
described above. Operating expenses decreased as a percentage of net revenues to
52% from 54% for the nine months ended June 30, 1998 and 1997, respectively. The
decrease is primarily due to the Company's successful integration of acquired
businesses into its existing locations and to the Company's efforts to reduce
its costs in line with reduced reimbursements from Medicare as described above.
Interest expense increased to $287,548 for the three months ended June 30,
1998 compared to $251,100 for the same period ended June 30, 1997. Interest
expense as a percentage of revenue decreased to 3.7% for the three month period
ended June 30, 1998 from 3.8% for the three month period ended June 30, 1997.
Interest expense increased to $733,661 for the nine months ended June 30, 1998
compared to $653,580 for the same period ended June 30, 1997. Interest expense
as a percentage of revenue remained at 3.7% for both nine month periods ended
June 30, 1998 and 1997. 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 decrease was
primarily attributable to decreased borrowing rates and the increase in net
revenues.
Financial Condition
The Company's primary needs for capital are to fund acquisitions, purchase
rental equipment, and cover debt service payments. Currently, the Company has no
material commitments for capital expenditures. For the nine months ended June
30, 1998, net cash provided by operating activities was $1,941,054 as compared
to $844,799 for the same period ended 1997, an increase of $1,096,255 or 230%.
Significantly contributing to cash provided from operations were increased
income and non-cash expenses of amortization and depreciation.
During the nine month period ended June 30, 1998 the Company acquired
certain assets of a Henderson, Nevada based pharmacy, a Vernal, Utah based
company, a Phoenix, Arizona based company and Medico, the Utah Home Medical
Equipment ("HME") operations of Columbia/HCA. The Henderson pharmacy has been in
business for 5 years providing respiratory medications and other
pharmaceuticals. Its respiratory medications revenues are approximately $400,000
annually. The Vernal company has been in business for 4 years providing home
oxygen and HME services. Its revenues are approximately $400,000 annually. The
Arizona company has been in business for 37 years providing home oxygen and HME
services. Its revenues are approximately $3,000,000 annually. Medico has been in
business approximately 12 years providing home oxygen and HME services. Its
revenues are approximately $2,500,000 annually.
On June 30, 1998, the Company's working capital was approximately
$3,294,000 compared to approximately $2,645,000 at September 30, 1997, an
increase of approximately $1,049,000 or 25%. The increase is primarily due to an
increase in revenues for the nine months ended June 30, 1998 resulting in
increased accounts receivable and
12
<PAGE>
from acquisition activities. The Company received payments on the note
receivable which is currently past due of approximately $99,000 during the nine
months ended June 30, 1998.
Accounts receivable increased 43% to approximately $10,312,000 for the
nine months ended June 30, 1998 from approximately $7,215,000 at September 30,
1997. 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.
Inventory was approximately $3,673,000 at June 30, 1998 compared to
approximately $3,444,000 at September 30, 1997, an increase of 7%. Inventory
levels have increased primarily due to acquisitions although the amount has been
offset by lines of business either sold or eliminated.
At June 30, 1998, the Company held property and equipment, net of
depreciation, used in its business amounting to approximately $6,603,000
compared to approximately $5,006,000 at September 30, 1997, an increase of 32%.
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 29% to approximately $12,316,000 at June 30,
1998 compared to approximately $9,580,000 at September 30, 1997. Current assets
increased 28% to approximately $15,610,000 from approximately $12,225,000 at
September 30, 1997. The increases are primarily due to acquisitions completed
during the nine month period.
The Company has a $4.35 million revolving operating line of credit with
its principal bank which was renewed effective January 31, 1998. The Company
also has a $.8 million revolving operating line of credit with its principal
bank which was renewed effective October 4, 1998. Borrowing under the Company's
lines of credit are secured and limited to 75% of eligible accounts receivable
and 50% of inventory. Interest on these lines of credit is payable monthly at
the bank's primary lending rate minus .5%. As of June 30, 1998, and September
30, 1997, $4,659,950 and $3,362,500, respectively, were outstanding under the
lines of credit and are included in notes payable in the accompanying balance
sheet. The increase is primarily due to increased volume resulting in greater
working capital requirements.
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 a $100,000 option fee providing the right to
exercise options to purchase 162,500 shares of common stock at $4.28 per share
within 180 days. During 1997, the optionees exercised the option by paying an
additional $694,500 in exchange for 162,266 shares of the Company common stock
and issuance of warrants for 162,266 shares of common stock exercisable at
$4.28/$4.75/$5.25 per share during the respective warrant year with a term of
three years. Also during 1997, the optionees paid a $100,000 option fee
providing the right to exercise options to purchase 142,857 shares of common
stock at $4.78 per share within 180 days. The Company has extended the exercise
period.
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.
During the nine months ended June 30, 1998 under a previously approved
plan the company sold to certain members of the board of directors an aggregate
of 14,546 shares of its common stock at an average price of $3.72 per share.
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.
Year 2000
The Company has ordered software upgrades for its accounting and data
processing systems to be installed in the fourth fiscal quarter of 1998 that are
warranted by the vendor to be Y2K compatible. In addition, the Company
13
<PAGE>
has determined that some of its telephone systems require software upgrades and
has begun efforts to upgrade its telephone systems or purchase compatible
systems as necessary. The aggregate costs to upgrade systems for Y2K compliance
appear to be below $100,000 and will be amortized over five years. There do not
appear to be any other material internal issues at this time.
The Company has communicated with its primary vendors and has determined
that all are making significant progress toward their Y2K compliance, and that
the Company has sufficient alternatives to obtain the necessary products and
services.
The Company has not yet been able to determine the Y2K compliance of its
customers nor its payers (e.g., Medicare, various state Medicaid programs,
insurance companies, etc.). Their inability to adequately prepare their systems
could materially affect their payment to the Company for services provided. The
financial institutions with whom the Company has its material relationships have
represented to the Company that their Y2K compliance programs are substantially
under way with final testing to begin in October-November of 1998.
Forward Looking Statements
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: (a) the failure to
obtain additional borrowed and/or equity capital on favorable terms for
acquisitions and expansion; (b) 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; (C) the availability of
appropriate acquisition candidates and the successful completion of
acquisitions; (d) the demand for the Company's products and services; and (v)
other risks detailed in the Company's Securities and Exchange Commission
filings.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On April 22, 1998, Link Medical, Inc. (aka Resource Medical, Inc.)
filed a complaint in the District Court, County of Arapahoe, State of Colorado,
against the Company's subsidiary, Interwest Home Medical Equipment Distributors,
Inc. ("IMED"), and several other defendants. The facts surrounding the case
involve the purchase of the plaintiff's assets by IMED, the breach of
non-competition agreements by plaintiff and its shareholders and other matters.
In January 1997, IMED purchased the plaintiff's assets for cash and a note. As
part of the asset purchase transaction, plaintiff and its shareholders agreed
not to compete in the business which IMED had purchased from plaintiff. IMED
believes that the plaintiff and some of its shareholders not only competed in
violation of the non-competition agreement, but conspired, prior to IMED's
purchase of the assets, to induce IMED to purchase the assets and then continue
in competition with IMED. The total purchase price to be paid by IMED for
plaintiff's assets was $1,100,000 of which IMED has paid $500,000. The remaining
$600,000 was due in three annual installments of $200,000 each. IMED did not
make the $200,000 installment which was due in January 1998 because of the
breaches of the asset purchase agreement by the plaintiff and some of its
shareholders. The plaintiff has also named as defendants in the suit, two of its
own shareholders and two companies with whom such shareholders are now
affiliated. IMED intends to vigorously defend this lawsuit and will file a
counterclaim against the plaintiff and a cross claim against the other
defendants. The $600,000 balance on the note is reflected as $400,000 in current
portion of long-term debt and $200,000 in long-term debt. The financial
statements do not reflect any additional accrued liability as the Company
believes that the resolution of this matter will not result in any additional
material liability.
Item 2. Changes in Securities. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None
Item 6(a)Exhibits. None.
Item 6(b)Reports on Form 8-K. None
15
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Dated: August 13, 1998 INTERWEST HOME MEDICAL, INC.
By /s/ James E. Robinson
James E. Robinson
President
Principal Executive Officer
By /s/ Bret A. Hardy
Bret A. Hardy
Principal Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
INTERWEST HOME MEDICAL, INC.'s FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> 1,004,603
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 1,004,603
<SECURITIES> 47,700
<RECEIVABLES> 10,312,129
<ALLOWANCES> 0
<INVENTORY> 3,672,960
<CURRENT-ASSETS> 15,609,978
<PP&E> 7,176,355
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,219,062
<CURRENT-LIABILITIES> 12,316,080
<BONDS> 0
0
0
<COMMON> 3,292,890
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 28,219,062
<SALES> 11,481,086
<TOTAL-REVENUES> 20,969,216
<CGS> 7,913,326
<TOTAL-COSTS> 10,968,529
<OTHER-EXPENSES> 4,372
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 733,661
<INCOME-PRETAX> 1,447,228
<INCOME-TAX> 398,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,049,228
<EPS-PRIMARY> .026
<EPS-DILUTED> .026
</TABLE>
