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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB/A
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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 March 31, 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
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(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 March 31, 1998 - 4,088,795 shares of no par value
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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<PAGE>
FORM 10-QSB/A
FINANCIAL STATEMENTS AND SCHEDULES
INTERWEST HOME MEDICAL, INC.
For the Quarter Ended March 31, 1998
The following financial statements and schedules of the registrant and its
consolidated subsidiaries are submitted herewith:
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Page of
Form 10-Q
Item 1. Financial Statements:
<S> <C>
Condensed Consolidated Balance Sheet--March 31, 1998 3
Condensed Consolidated Statements of Income--for the six
months and three months ended March 31, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows--for the
six months ended March 31, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 9
</TABLE>
<TABLE>
<S> <C>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
</TABLE>
<TABLE>
<CAPTION>
PART II - OTHER INFORMATION
Page
<S> <C> <C>
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
</TABLE>
<PAGE>
INTERWEST HOME MEDICAL, INC.
Condensed Consolidated Balance Sheet
March 31, 1998
Assets 1998
Current assets:
Cash and cash equivalents $ 834,480
Marketable securities 47,700
Accounts receivable - net 9,158,125
Current portion of long-term note receivable 205,888
Accrued Interest Income 1,717
Inventory 4,008,279
Current deferred tax asset 241,000
Deposits and prepaid expense 80,698
---------------
Total current assets 14,577,887
Note receivable 198,449
Investment in undeveloped real estate 75,595
Investment in office buildings - net 502,505
Property and equipment - net 6,431,747
Intangible assets - net 4,961,647
Other assets 402,033
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$ 27,149,863
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3
<PAGE>
Liabilities and Stockholders' Equity 1998
Current liabilities:
Checks written in excess of cash in bank $ 955,285
Current portion of long-term debt 2,135,212
Notes payable 4,181,012
Accounts payable 2,075,126
Accrued expenses 869,617
Income taxes payable 305,278
-----------
Total current liabilities 10,521,530
Deferred income taxes 267,000
Long-term debt 7,773,320
Total liabilities 18,561,850
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized, 300,000
shares issued and outstanding
Common stock, no par value, 50,000,000 shares
authorized, 4,074,249 shares issued and
outstanding 3,292,890
Retained earnings - (see note 1) 5,295,123
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Total stockholders' equity 8,588,013
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$ 27,149,863
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4
<PAGE>
INTERWEST HOME MEDICAL, INC.
Condensed Consolidated Statement of Income
For the Periods Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
Six months ended Three months ended
March 31, March 31,
1998 1997 1998 1997
------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Net sales $7,380,489 7,027,273 3,842,911 3,444,412
Net rental income 5,864,629 4,991,405 3,162,424 2,550,881
----------- --------- ---------- ----------
Total revenue 13,245,118 12,018,678 7,005,335 5,995,293
Cost of sales and rental 5,064,705 4,876,811 2,705,267 2,454,925
----------- ---------- ---------- ---------
Gross profit 8,180,413 7,141,867 4,300,068 3,540,368
----------- ---------- ---------- -----------
Operating expenses 6,929,933 6,616,165 3,631,867 3,328,111
----------- ---------- ---------- -----------
Income from operations 1,250,480 525,702 668,201 212,257
Other income (expense)
Interest expense (446,112) (402,480) (219,858) (223,544)
Interest income 54,679 32,617 28,895 24,345
Other (4,810) 1,491 (5,305) 13,832
------------ ----------- ----------- ----------
Income before taxes 854,237 157,330 471,933 26,890
Income taxes 166,278 23,500 128,878 -
------------ ----------- ----------- ----------
Net income $ 687,959 133,830 343,055 26,890
============ =========== =========== ===========
Net income per share $ 0.17 0.03 0.08 0.01
============ =========== =========== ===========
Average number of shares
outstanding 4,081,500 3,912,000 4,089,000 3,912,000
============ =========== =========== ===========
</TABLE>
5
<PAGE>
INTERWEST HOME MEDICAL, INC.
Condensed Consolidated Statement of Cash Flows
For the Six Months Ended March 31, 1998 and 1997
Cash flows from operating activities: 1998 1997
---- ----
Reconciliation of net income to net cash
provided by operating activities:
Net income $687,959 133,830
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 868,897 681,492
(Increase) decrease in:
Accounts receivable (766,191) (700,945)
Current portion of notes receivable 45,000 380,132
Inventories (170,133) (66,319)
Prepaid expenses 67,544 64,909
Other assets 14,294 (12,295)
Increase (decrease) in:
Checks written in excess of
cash in bank 12,845 (34,468)
Accounts payable (286,108) (134,306)
Accrued expenses 275,022 (47,067)
Income tax payable 142,028 13,500
---------- ----------
Net cash provided from
operating activities 891,157 278,463
---------- ----------
Cash flows from investment activities:
Cash used in acquisition (135,826) (300,068)
Capital expenditures (824,279) (412,253)
Increase in long-term receivable 11,067 (305,860)
---------- ----------
Net cash used in
investing activities (949,038) (1,018,181)
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6
<PAGE>
INTERWEST HOME MEDICAL, INC.
Condensed Consolidated Statement of Cash Flows - Continued
For the Six Months Ended March 31, 1998 and 1997
1998 1997
---- ----
Cash flows from financing activities:
Net proceeds from notes payable 758,512 115,833
Principal payments on long-term debt (821,777 (271,996)
Issuance of Common Stock 54,099 -
---------- ---------
Net cash provided from
(used in) financing activities (9,166) (156,163)
--------- ---------
Net decrease in cash (67,047) (259,491)
Cash, beginning of period 901,527 539,264
----------- ----------
Cash, end of period $ 834,480 279,773
=========== ==========
Supplemental schedule of non-cash investing and financing activities
During the six months ended March 31, 1998, the Company acquired
certain assets from unrelated companies. 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 3,754,311
Net cash invested $ 135,826
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7
<PAGE>
During the six months ended March 31, 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) 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 March 31, 1998 and the results of operations and cash flows for the
periods ended March 31, 1998 and 1997. The results of operations for the
periods ended March 31, 1998 and 1997 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
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 products and
services into three general categories: (1) home oxygen and respiratory care
services, (2) home medical equipment and supplies and (3) 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
Six month periods ended March 31, 1998 and 1997
Net revenues increased 10% to $13,245,118 compared to $12,018,678 for the
six months ended March 31, 1998 and 1997, respectively. Gross profits were 62%
and 59% for the six months ended March 31, 1998 and 1997 respectively. Operating
expenses as a percentage of total revenues decreased from 55% to 52% for the six
months ended March 31, 1997 and 1998, respectively. Net income increased from
$133,830 to $687,959 for the six months ended March 31, 1997 and 1998,
respectively, an increase of $554,129. These changes are further discussed in
the following paragraphs.
Three month periods ended March 31, 1998 and 1997
Operating revenue is comprised of sales and rental revenue. Net revenues
increased 17% to $7,005,335 compared to $5,995,293 for the three months ended
March 31, 1998 and 1997, respectively. Net sales increased from $3,444,412 for
the three months ended March 31, 1997, to $3,842,911 for the three months ended
March 31, 1998, an increase of 12%. Net rental revenue increased from $2,550,881
to $3,162,424 for the three months ended March 31, 1997 and 1998, respectively,
an increase of 24%. The increase in revenue in 1998 was due to growth from
existing Company locations and acquisition activities.
Rental revenue as a percentage of total revenue were 45% for the three
months ended March 31, 1998 compared to 43% for the three months ended March 31,
1997. Sales revenue had a corresponding reduction to 55% from 57% for the three
months ended March 31, 1998 and 1997, 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 decreased as a
result of this marketing shift and the sale of certain lines of its business in
Nevada.
Gross profits were 61% and 59% for the three months ended March 31, 1998
and 1997, respectively. The increase is primarily due to increases in rental
revenue, which traditionally has 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.
Operating expenses, which consist of selling, general and administrative
expenses have increased 9% to $3,631,867 for the three months ended March 31,
1998, compared to $3,328,111 for the three months ended March 31, 1997. Selling,
general and administrative expenses decreased as a percentage of net revenues
from 56% for the
10
<PAGE>
three month period ended March 31, 1997 to 52% for the same period ended 1998,
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 decreased 2% to $219,858 for the three months ended March
31, 1998 compared to $223,544 for the same period ended March 31, 1997. Interest
expense as a percentage of revenue decreased to 3.1% for the three month period
ended 1998 from 3.7% for the three month period ended 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.
Financial Condition
The Company's primary needs for capital are to fund acquisition, purchase
rental equipment, and cover debt service payments. For the six months ended
March 31, 1998, net cash provided by operating activities was $891,157 as
compared to $278,467 for the same period ended 1997, an increase of $612,690 or
220%. Significantly contributing to cash provided from operations were increased
income and non-cash expenses of amortization and depreciation.
During the six month period ended March 31, 1998 the Company acquired
certain Home Medical Equipment ("HME") assets of a Phoenix, Arizona based
company and Medico, the Utah HME operations of Columbia/HCA. The Arizona Company
has been in business for 37 years providing home oxygen and HME services. Its
revenues are approximately $3 million annually. Medico has been in business
approximately 12 years providing home oxygen and HME services. Its revenues are
approximately $2.5 million annually. Medico has been in business approximately
12 years providing home oxygen and HME services.
On March 31, 1998, the Company's working capital was $4,056,358 compared
to $2,645,008 at September 30, 1997, an increase of $1,411,350 or 53%. The
increase is primarily due to an increase in revenues for the six months ended
March 31, 1998 resulting in increased accounts receivable and from acquisition
activities and expanded market share.
Accounts receivable increased 27% to $9,158,125 for the six months ended
March 31, 1998 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 $4,008,279 at March 31, 1998 compared to $3,444,212 at
September 30,1997, an increase of 16%. Inventory levels have increased primarily
due to acquisitions.
At March 31, 1998, the Company held property and equipment, net of
depreciation, used in its business amounting to $6,431,747 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 increased 10% to $10,521,529 at March 31, 1998
compared to $9,580,485 at September 30, 1997. Current assets increased 19% to
$14,577,887 from $12,225,493 at September 30, 1997. The increases are primarily
due to acquisitions completed during the quarter.
The Company has a $4.35 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 March 31, 1998, and December 31,
1997, $3,571,012 and $3,549,435, respectively, were
11
<PAGE>
outstanding under the line 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 $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.
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.
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.
Item 2. Changes in Securities. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. On April 8, 1998,
the Company held its Annual Shareholders Meeting. The following
proposals were considered and ratified:
1. Election of the Board of Directors
Nominees For Against Abstain
-------------------------------------------------------------
a. James E. Robinson 2,895,676 202,816 384,512
b. James U. Jensen 2,896,126 202,366 384,512
c. Dr. Jeffrey F. Poore 2,895,676 202,816 384,512
d. Jerald L. Nelson 2,896,126 202,366 384,512
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: May 14, 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
14
<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> 834,480
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 834,480
<SECURITIES> 47,700
<RECEIVABLES> 9,158,125
<ALLOWANCES> 0
<INVENTORY> 4,008,279
<CURRENT-ASSETS> 14,577,887
<PP&E> 6,431,747
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,149,863
<CURRENT-LIABILITIES> 10,521,530
<BONDS> 0
0
0
<COMMON> 3,292,890
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 27,149,863
<SALES> 7,380,489
<TOTAL-REVENUES> 13,245,118
<CGS> 5,064,705
<TOTAL-COSTS> 6,929,933
<OTHER-EXPENSES> 4,810
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 446,112
<INCOME-PRETAX> 854,237
<INCOME-TAX> 166,278
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 687,959
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
