U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 10-QSB
------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended December 31, 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 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 December 31, 1997 - 4,074,249 shares of no par value
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE>
FORM 10-QSB
FINANCIAL STATEMENTS AND SCHEDULES
INTERWEST HOME MEDICAL, INC.
For the Quarter Ended December 31, 1997
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--December 31, 1997. 3
Condensed Consolidated Statements of Income--for the three months
ended December 31, 1997 and 1996...................... 5
Condensed Consolidated Statements of Cash Flows--for the
three months ended December 31, 1997 and 1996.......... 6
Notes to Condensed Consolidated Financial Statements.... 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................... 10
PART II - OTHER INFORMATION
Page
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6(a)Exhibits 13
Item 6(b)Reports on Form 8-K
<PAGE>
INTERWEST HOME MEDICAL, INC.
Condensed Consolidated Balance Sheet
December 31, 1997
Assets 1997
Current assets:
Cash and cash equivalents $ 591,707
Marketable Securities 47,700
Accounts receivable - net 7,383,176
Current portion of long-term receivable 245,888
Accrued Interest 1,717
Inventory 3,203,726
Current deferred tax asset 241,000
Deposits and prepaid expense 65,648
------------
Total current assets 11,780,562
Note receivable 195,881
Investment in undeveloped real estate 124,934
Investment in office buildings - net 451,232
Property and equipment - net 5,133,152
Intangible assets - net 4,347,305
Other assets 406,959
------------
$22,440,025
===========
3
<PAGE>
Liabilities and Stockholders' Equity 1997
Current liabilities:
Checks written in excess of cash in bank $ 410,875
Current portion of long-term debt 2,135,212
Notes payable 3,549,435
Accounts payable 2,024,491
Accrued expenses 769,950
Income taxes payable 224,400
------------
Total current liabilities 9,114,363
Deferred income taxes 267,000
Long-term debt 4,875,674
------------
Total liabilities 14,257,037
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized, 300,000
shares issued and outstanding
Common stock, no par value, 50,000,000 shares
authorized, 4,074,249 shares issued and
outstanding 3,238,791
Retained earnings - (see note 1) 4,944,197
------------
Total stockholders' equity 8,182,988
------------
$22,440,025
===========
4
<PAGE>
INTERWEST HOME MEDICAL, INC.
Condensed Consolidated Statement of Income
Three months ended December 31,
1997 1996
--------- ----------
Revenue:
Net sales $3,537,578 3,582,861
Net rental income 2,694,333 2,440,524
----------- ----------
Total revenue 6,231,911 6,023,385
Cost of sales and rental 2,359,439 2,421,886
----------- ----------
Gross profit 3,872,472 3,601,499
----------- ----------
Operating expenses 3,298,065 3,288,054
----------- ----------
Income from operations 574,407 313,445
Other income (expense):
Interest expense (226,254) (178,936)
Interest income 25,785 8,272
Other (496) (12,341)
----------- ---------
Income before taxes 374,433 130,440
Income taxes 37,400 23,500
----------- ---------
Net income $337,033 106,940
=========== ==========
Net income per share $0.08 0.03
===== ====
Average number of shares
outstanding 4,074,000 3,912,000
=========== ===========
5
<PAGE>
INTERWEST HOME MEDICAL, INC.
Condensed Consolidated Statement of Cash Flows
Three Months Ended December 31, 1997 and 1996
Cash flows from operating activities: 1997 1996
---- ----
Reconciliation of net income to net cash
provided by operating activities:
Net income $337,033 106,940
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 312,821 294,739
(Increase) decrease in:
Accounts receivable (141,242) (189,803)
Current portion of notes receivable 5,000 56,304
Inventories 203,322 126,950
Prepaid expenses 59,294 36,245
Other assets 9367 (22,200)
Increase (decrease) in:
Checks written in excess of
cash in bank (531,565) 6.693
Accounts payable (312,645) (282,536)
Accrued expenses 182,828 (22,120)
Income tax payable 61,150 13,500
--------- ---------
Net cash provided from
operating activities 185,363 124,712
--------- ----------
Cash flows from investment activities:
Cash used in acquisition (60,000) (30,000)
Capital expenditures (537,641) (126,746)
Increase in long-term receivable 635 (71,294)
--------- ----------
Net cash used in
investing activities (597,006) (228,040)
---------- -----------
6
<PAGE>
INTERWEST HOME MEDICAL, INC.
Condensed Consolidated Statement of Cash Flows - Continued
Three Months Ended December 31, 1997 and 1996
1997 1996
Cash flows from financing activities:
Net proceeds from notes payable 126,935 115,833
Principal payments on long-term debt (25,112) (271,996)
--------- ---------
Net cash provided from
(used in) financing activities 101,823 (156,163)
--------- ---------
Net decrease in cash (309,820) (259,491)
Cash, beginning of period 901,527 539,264
--------- ---------
Cash, end of period $ 591,707 279,773
========== =========
Supplemental schedule of non-cash investing and financing activities
During the three months ended December 31, 1997, the Company acquired
certain assets from an unrelated Utah based company. The purchased assets were
funded by cash and owner financing. The assets purchased consisted of the
following:
Accounts receivable $ 26,710
Capital equipment 23,200
Intangible assets 70,090
-------------
Net assets purchased 120,000
Less owner financed portion 60,000
-------------
Net cash invested $ 60,000
=============
During the three months ended December 31, 1997, the company sold a
portion of its rehab business to a former owner. The sold assets were finance
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
================
7
<PAGE>
INTERWEST HOME MEDICAL, INC.
Condensed Consolidated Statement of Cash Flows - Continued
Three Months Ended December 31, 1997 and 1996
During the three months ended December 31, 1996, the Company acquired
certain assets and assumed certain liabilities from companies in Colorado. The
purchased net assets were funded by bank debt and cash. The assets purchased
consisted of the following:
Accounts receivable $ 88,137
Capital equipment 558,550
Intangible assets 1,104,943
Capital leases (241,630)
----------
Net assets purchased 1,510,000
Less amount financed with debt 1,480,000
----------
Net cash investment $ 30,000
==============
8
<PAGE>
INTERWEST HOME MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
(1) 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 December 31, 1997 and the results of operations and cash flows for
the three month periods ended December 31, 1997 and 1996. The results of
operations for the three months ended December 31, 1997 and 1996 are not
necessarily indicative of the results to be expected for the entire year.
During 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 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.
(2) Income per common share is based on the weighted average number of shares
outstanding during the period.
9
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 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
Operating Revenue is comprised of sales and rental revenue. Net revenues
increased 4% to $6,231,911 compared to $6,023,385 for the three months ended
December 31, 1997 and 1996, respectively. Net sales decreased from $3,582,861
for the three months ended December 31, 1996, to $3,537,578 for the three months
ended December 31, 1997, a decrease of 1%. Net rental revenue increased from
$2,440,524 to $2,694,333 for the three months ended December 31, 1996 and 1997,
an increase of 10%. The increase in revenue in 1997 was due to growth from
existing Company locations and acquisition activities.
Rental revenue as a percentage of total revenue were 43% for the three
months ended December 31, 1997 compared to 40% for the three months ended
December 31, 1996. Sales revenue had a corresponding reduction to 57% from 60%
for the three months ended December 31, 1997 and 1996, respectively. 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. Sales
revenue has decreases as a result of this marketing shift and the sales of
certain lines of its business in Nevada.
Gross margins were 62% and 60% for the three months ended December 31,
1997 and 1996, respectively. The increase is primarily due to increases in
rental revenue, which traditionally have higher margins, as percentage of total
revenue. Such increases were partially offset by lower managed care contract
rates on rental revenue. The managed care market fosters competition which has
had an adverse effect on reimbursement rates.
Selling, general and administrative expenses have increased less than 1/2
of 1% to $3,298,065 for the three months ended December 31, 1997, compared to
$3,288,054 for the three months ended December 31, 1996. Selling, general and
administrative expenses decreased as a percentage of net revenues from 55% for
the three month period ended December 31, 1996 to 53% for the same period ended
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.
Interest expense increased 26% to $226,254 for the three months ended 1997
compared to $178,936 for the same period ended 1996. Interest expense as a
percentage of revenue increased to 4% for the three month period ended 1997 from
3% for the three month period ended 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 new and assumed borrowings from
acquisition activities.
10
<PAGE>
Financial Condition
The Company's primary needs for capital are to fund acquisition, purchase
rental equipment, and cover debt service payments. For the three months ended
December 31, 1997, net cash provided by operating activities was $185,363 as
compared to $124,712 for the same period ended 1996, a increase of $60,651 or
49%. Significantly contributing to cash provided from operations were increased
income and non cash expenses of amortization and depreciation.
For the three months December 31, 1997, the Company's working capital was
$2,666,199 compared to $2,645,008 at September 30, 1997, an increase of $21,191
or 1%. The increase is primarily due to an increase in revenues for the three
months ended December 31, 1997 resulting in increased accounts receivable from
acquisition activities and expanded market share.
Accounts receivable increased 2% to $7,383,176 for the three months ended
December 31, 1997 from $7,215,224 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 $3,203,726 at December 31, 1997 compared to $3,444,212 at
September 30,1997, a decrease of 7%. Inventory levels have declined as a results
of a shift in product mix toward rentals revenue which requires lower inventory
levels.
At December 31, 1997, the Company held property and equipment, net of
depreciation, used in its business amounting to $5,133,152 compared to
$5,005,563 at September 30, 1997. 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 decreased 5% to $9,114,363 at December 31, 1997
compared to $9,580,485 at September 30, 1997. Correspondingly, current assets
decreased 4% to $11,780,562. The decrease is primarily due to reductions of
checks written in excess of cash in bank.
The Company has a $4.0 million revolving operating line of credit with its
principal bank which was renewed effective January 31, 1998. Borrowing under the
Company's line of credit are secured and limited to 75% of eligible accounts
receivable and 50% of inventory. Interest on this debt is payable monthly at the
bank's primary lending rate minus .5%. As of December 31, 1997, and September
30, 1997, $3,549,435 and $3,362,500, respectively, were outstanding under the
line of credit. The increase is primarily due to increased volume resluting 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 $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 1997, the optionees exercised the option by paying $694,500 in
exchange for 162,266 share 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.
Subsequent to December 31, 1997 the Company acquired certain assets of a
Phoenix, Arizona based company. The Company has been in business for 37 year
providing oxygen and HME services. Its revenues are approximately $3,000.000
annually.
11
<PAGE>
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.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None.
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
13
<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: February 13, 1997 INTERWEST HOME MEDICAL, INC.
By /s/ James E. Robinson
James E. Robinson
President
Principal Executive Officer
By /s/ Que H. Christensen
Que H. Christensen
Principal Financial Officer
14
<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> 591,707
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 591,707
<SECURITIES> 47,700
<RECEIVABLES> 783,176
<ALLOWANCES> 0
<INVENTORY> 3,203,726
<CURRENT-ASSETS> 11,780,562
<PP&E> 5,133,152
<DEPRECIATION> 312,821
<TOTAL-ASSETS> 22,440,025
<CURRENT-LIABILITIES> 9,114,363
<BONDS> 0
0
0
<COMMON> 3,238,791
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 22,440,025
<SALES> 6,231,911
<TOTAL-REVENUES> 6,231,911
<CGS> 2,359,439
<TOTAL-COSTS> 3,298,065
<OTHER-EXPENSES> 496
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 226,254
<INCOME-PRETAX> 374,433
<INCOME-TAX> 37,400
<INCOME-CONTINUING> 374,433
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 337,033
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
