UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
------------------
or
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to_________________
Commission File Number: 0-37159
IOMED, Inc.
(Exact name of registrant as specified in its charter)
Utah 87-0441272
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3385 West 1820 South, Salt Lake City, Utah 84104
(Address of principal executive offices) (Zip Code)
(801) 975-1191
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) [ X ] Yes [ ] No, and (2) has been
subject to such filing requirements for the past 90 days [ ] Yes [ X ] No.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. As of May 30, 1998 :
Classes of Common Stock Number of shares outstanding
Common Stock, no par value 6,499,400
<PAGE>
IOMED, Inc.
------------
INDEX TO FORM 10-Q
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) Page
Condensed Consolidated Balance Sheets --
March 31, 1998 and June 30, 1997......................................3
Condensed Consolidated Statements of Operations -Three months ended
March 31, 1998 and 1997 and
Nine months ended March 31, 1998 and 1997 ............................4
Condensed Consolidated Statements of Cash Flows --
Nine months ended March 31, 1998 and 1997.............................5
Notes to Condensed Consolidated Financial Statements..................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.........................9
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Not applicable
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................................14
<PAGE>
<TABLE>
<CAPTION>
IOMED, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
June 30, March 31,
1997 1998
(unaudited)
------------- -------------
Current Assets:
<S> <C> <C>
Cash and cash equivalents ................................ $ 6,346,000 $ 4,843,000
Accounts receivable ...................................... 1,189,000 1,409,000
Inventories .............................................. 714,000 878,000
Prepaid expenses ......................................... 12,000 15,000
------------ ------------
Total current assets ................................. 8,261,000 7,145,000
Equipment and furniture, net .................................. 385,000 617,000
Other assets .................................................. 18,000 916,000
------------ ------------
Total Assets ......................................... $ 8,664,000 $ 8,678,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Trade accounts payable ................................... $ 171,000 $ 377,000
Accrued liabilities ...................................... 944,000 810,000
Current portion of long-term obligations ................. 2,000 --
------------ ------------
Total current liabilities ............................ 1,117,000 1,187,000
Commitments ................................................... -- --
Minority interest ............................................. 898,000 --
Redeemable, convertible preferred shares ...................... 900,000 720,000
Subordinated, convertible debt ................................ 15,240,000 16,096,000
Shareholders' equity (deficit)
Common shares ............................................ 12,047,000 12,901,000
Accumulated deficit ...................................... (21,538,000) (22,226,000)
------------ ------------
Total shareholders' equity (deficit) ...................... (9,491,000) (9,325,000)
------------ ------------
Total Liabilities and Shareholders' Equity (Deficit) ...... $ 8,664,000 $ 8,678,000
============ ============
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
IOMED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------------------------------------------------
1997 1998 1997 1998
----------------- ---------------------------------- -----------
Revenues:
<S> <C> <C> <C> <C>
Product sales ............................ $ 1,725,000 $ 2,028,000 $ 5,344,000 $ 6,099,000
Contract research revenue, royalties
and license fees ....................... 383,000 420,000 1,425,000 1,332,000
------------ ------------ ------------- ------------
Total revenues ....................... 2,108,000 2,448,000 6,769,000 7,431,000
Operating costs and expenses:
Cost of products sold .................... 797,000 968,000 2,448,000 2,738,000
Research and development ................. 346,000 382,000 1,139,000 1,109,000
Selling, general and administrative ...... 925,000 1,440,000 2,512,000 3,647,000
Non-recurring charges .................... 15,059,000 -- 15,059,000 --
------------ ------------ ------------- --------------
Total costs and expenses ............. 17,127,000 2,790,000 21,158,000 7,494,000
------------ ------------ ------------- --------------
Income (loss) from operations ................. (15,019,000) (342,000) (14,389,000) (63,000)
Interest expense .............................. -- 281,000 2,000 855,000
Interest income and other, net ................ 92,000 73,000 218,000 241,000
------------ ------------ ------------- ----------
Income (loss)from continuing operations
before income taxes and minority interest .. (14,927,000) (550,000) (14,173,000) (677,000)
Minority interest ............................. (12,000) -- 26,000 11,000
Income tax expense ............................ 7,000 -- 5,000 --
Income (loss) from continuing operations ...... (14,922,000) (550,000) (14,204,000) (688,000)
Income from discontinued operations, net of
income taxes ............................... -- -- 44,000 --
------------ ------------ ------------- -------------
Net income (loss) ............................. $(14,922,000) $ (550,000) $(14,160,000) $ (688,000)
Basic and diluted income (loss) per common
share:
Income (loss) from continuing operations ...... $ (4.76) $ (0.16) $ (4.58) $ (0.21)
Income from discontinued operations ........... -- -- 0.01 --
Net income (loss) ............................. $ (4.76) $ (0.16) $ (4.57) $ (0.21)
============ ============ ============= ============
Shares used in computing per share amounts:
3,134,368 3,377,113 3,101,131 3,266,793
============= =========== ============ ============
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IOMED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
March 31,
1997 1998
-------------- -------------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) .................................... $(14,160,000) $ (688,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ................... 213,000 186,000
Write-off of in-process research and development 15,059,000 --
Non-cash interest expense ....................... -- 855,000
Minority interest and other non-cash charges .... 37,000 11,000
Changes in assets and liabilities:
Accounts receivable ......................... (293,000) (221,000)
Inventories ................................. (317,000) (164,000)
Prepaid expenses and other assets ........... (29,000) (3,000)
Trade accounts payable ...................... 212,000 206,000
Other current liabilities ................... (15,000) (479,000)
------------ ------------
Net cash provided by (used in) operating activities .. 707,000 (297,000)
Cash flows from investing activities:
Purchases of equipment and furniture ................. (135,000) (408,000)
Purchase of patent license ........................... -- (214,000)
Proceeds from sale of discontinued operations ........ 1,000,000 --
------------ ------------
Net cash provided by (used in) investing activities .. 865,000 (622,000)
Cash flows from financing activities:
Proceeds from issuance of common shares .............. 255,000 21,000
Payments on term loans and capital lease obligations . (28,000) (3,000)
Redemptions of redeemable preferred stock ............ (70,000) (180,000)
Other ................................................ 4,000 (422,000)
------------ ------------
Net cash provided by (used in) financing activities .. 161,000 (584,000)
Net increase (decrease) in cash and cash equivalents . 1,733,000 (1,503,000)
Cash and cash equivalents at beginning of period ..... 4,507,000 6,346,000
============ ============
Cash and cash equivalents at end of period ........... $ 6,240,000 $ 4,843,000
============ ============
</TABLE>
See accompanying notes.
<PAGE>
IOMED, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
March 31, 1998
1. Summary of Significant Accounting Policies
Description of Business
IOMED, Inc., a Utah corporation (the "Company"), develops,
manufactures and commercializes controllable drug delivery systems
using proprietary iontophoretic technology. Iontophoresis is a method
of enhancing and controlling the transport of drugs through the skin
utilizing a low level electrical current.
Discontinued Operations
On December 31, 1996, the Company sold the assets of its
Motion Control Division, which was engaged in the research,
development, manufacture and sale of advanced myoelectric prosthetic
devices. Accordingly, the consolidated statements of operations for the
nine months ended March 31, 1997, present the results of operations of
the Motion Control Division as a discontinued operation. There were no
remaining assets or liabilities related to discontinued operations
reflected in the financial statements as of March 31, 1998, or June 30,
1997.
Basis of Presentation
In the opinion of management, the accompanying condensed
consolidated financial statements contain all normal recurring
adjustments necessary to present fairly the financial position of the
Company as of March 31, 1998, and the results of its operations and
cash flows for the interim periods ended March 31, 1998, and 1997. The
operating results for the interim periods are not necessarily
indicative of the results for a full year. These statements should be
read in conjunction with the Company's audited consolidated financial
statements for the year ended June 30, 1997, included in the Company's
Registration Statement on Form S-1, dated April 23, 1998.
Earnings (Loss) Per Share
The Company's net income (loss) per share is based upon the
weighted average number of common shares outstanding during the
periods. Common share equivalents (stock options, warrants, convertible
preferred shares and convertible debt), as determined using the
treasury stock method, have been excluded from the computations in
those periods where their inclusion would have an anti-dilutive effect.
2. Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. Inventories consisted
of the following at June 30, 1997, and March 31, 1998:
June 30, March 31,
1997 1998
---------- -------
Raw Materials .. $568,000 $709,000
Work-in-progress 31,000 35,000
Finished Goods . 115,000 134,000
-------- --------
$714,000 $878,000
======== ========
<PAGE>
IOMED, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
March 31, 1998
3. Discontinued Operations
In December 1996, the Company sold the assets of its Motion
Control Division, which was engaged in the research, development,
manufacture and sale of myoelectric prosthetic devices. In connection
with this transaction, the Company granted a worldwide, exclusive
license to certain patent rights covering the products manufactured by
the division to the purchaser. Proceeds from the sale, which closed in
January 1997, were $1,000,000 and the Company is entitled to receive
royalties on future product sales of the purchaser. The Company
recognized no significant gain or loss on the sale. The results of
operations of the Motion Control Division prior to its sale have been
classified as discontinued operations in the accompanying statements of
operations. No interest expense has been allocated to discontinued
operations and income taxes have been allocated based upon statutory
rates. A summary of the results of discontinued operations is as
follows:
Six Months Ended
December 31, 1996
Net product sales ................. $957,000
Income tax expense ................ $ 26,000
Income from discontinued operations $ 44,000
--------
4. Significant Events
Reverse Stock Split
On November 7, 1997, pursuant to a vote of the shareholders,
the Company effected a one for 4.8 reverse share split for each common
and preferred share then outstanding, and amended and restated its
Articles of Incorporation. Among other things, these amendments changed
the par value of the Company's common and preferred shares from $0.001
per share to no par value common and preferred shares; increased the
number of authorized common shares from 40,000,000 shares to
100,000,000 shares; and increased the number of authorized preferred
shares from 4,215,618 shares to 10,000,000 shares. For comparative
purposes, all share amounts in the accompanying financial statements
and related footnotes have been retroactively restated to reflect the
effects of the reverse stock split and the increases in the authorized
shares of the Company's common and preferred shares.
Novartis Exchange Agreement
Effective November 1, 1997, the Company entered into an
Exchange Agreement with Novartis Pharmaceuticals Corporation. Among
other things, the Exchange Agreement provided for the exchange of
Novartis' 20% minority interest in Dermion, the Company's research and
development subsidiary, for 238,541 common shares of the Company and
warrants to purchase, under certain conditions, through November 1,
2002, an additional 18,750 common shares at a price equal to $21.60 per
share. As a result of this transaction, Dermion became a wholly owned
subsidiary of the Company. In addition, the Company and Novartis
amended their research and development agreement to, among other
things, expand IOMED's rights to conduct research and development in
areas other than in the areas of acute local inflammation and local
dermal anesthesia.
<PAGE>
IOMED, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
March 31, 1998
5. Adoption of New Accounting Pronouncement
In 1997, the FASB issued SFAS No. 128-Earnings Per Share,
which replaced the calculation of primary and fully diluted earnings
per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previous calculation of fully
diluted earnings per share. All earnings per share amounts for all
periods have been presented, and where appropriate, restated to conform
to the SFAS 128 requirements.
Earnings (loss) from continuing operations as presented on the
statement of operations represents the numerator used in calculating
both basic and diluted earnings per share. The shares used in the
computation of basic and diluted earnings per share for all interim
periods set forth on the condensed consolidated statements of
operations represent the average number of common shares outstanding
during the periods. Due to their anti-dilutive effect, no dilutive
securities were included in the computations of diluted earnings per
share in any of the periods presented.
At March 31, 1998, the following securities were outstanding,
but were not included in the computation of diluted earnings per share
due to their anti-dilutive effect: options to purchase 339,158 common
shares at a weighted average exercise price of $4.86 per share;
warrants to purchase 169,792 common shares at a weighted average price
of $18.04 per share; 28,800 redeemable, convertible Series C preferred
shares, with a mandatory redemption value of $720,000, convertible on a
share for share basis into common shares; and $16 million in
convertible debt, including accrued interest, convertible into
approximately 2.1 million common shares or preferred shares (see Note 6
-- Subsequent Events).
6. Subsequent Events
On April 23, 1998, the Company consummated an initial
registered public offering pursuant to which the Company issued
1,700,000 common shares and raised approximately $10.5 million, net of
underwriters' discounts and estimated expenses of $1.4 million. On May
27, 1998, the underwriters exercised a portion of their over-allotment
option and the Company issued an additional 150,000 common shares and
raised approximately $1.0 million, net of underwriters' discounts.
In other transactions related to the initial public offering,
(i) the Company granted warrants to purchase 170,000 common shares to
the underwriters, exercisable after April 23, 1999, at an initial
exercise price of $9.38 per share; (ii) Elan Corporation plc purchased
1,206,391 common shares and 893,801 shares of newly created Series D
preferred shares, at the initial public offering price of $7.50 per
share, for an aggregate purchase price of $15,751,438, which amount
equaled the amounts, including interest, outstanding under the
Company's notes payable to Elan. Simultaneously, the Company used the
proceeds to repay the notes; (iii) the 28,800 Series C preferred shares
of the Company which were outstanding immediately prior to the offering
were automatically converted, on a share for share basis, into common
shares; and (iv) the Company issued an additional 29,697 common shares
to Laboratoires Fournier, pursuant to the anti-dilution provisions of a
prior stock purchase agreement between the companies.
<PAGE>
IOMED, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
March 31, 1998
The Series D preferred shares are non-voting, have no
liquidation or dividend preference over common shares and are
convertible on a share for share basis into common shares at any time,
at the option of the holder.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Company's
Condensed Consolidated Financial Statements and Notes thereto included elsewhere
in this report and with the Company's Registration Statement on Form S-1 dated
April 23, 1998. This Management's Discussion and Analysis of Financial Condition
and Results of Operations and other parts of this report contain forward-looking
statements, as defined in section 21E of the Securities and Exchange Act of
1934, that involve risks and uncertainties. The Company's actual results may
differ significantly from the results discussed in the forward-looking
statements.
Overview
The Company develops, manufactures and commercializes controllable drug
delivery systems using iontophoretic technology. The majority of the Company's
revenues have been generated through the sale of its iontophoretic drug delivery
products in the physical therapy market for use in the delivery of dexamethasone
sodium phosphate and contract research revenues. The Company recently introduced
Numby Stuff(TM), its local dermal anesthesia product, into the marketplace and,
to date, has not realized significant revenue from the sales of such products.
Since its inception, the Company has generally incurred operating losses and it
expects to incur additional operating losses over the next several years as a
result of anticipated costs associated with a significant increase in internally
funded research, development and clinical trial activities relating to new
applications for its iontophoretic drug delivery technologies, development of a
dedicated sales force and the consolidation and equipping of its facilities. As
of March 31, 1998, the Company's accumulated deficit was approximately $22.2
million. The Company's ability to achieve and sustain profitability will depend
on its ability to achieve market acceptance and successfully expand sales of its
existing products, as well as successfully complete the development of, receive
regulatory approvals for, and successfully manufacture and market, its products
under development, as to which there can be no assurance.
The Company's results of operations may vary significantly from quarter
to quarter and depend, among other factors, on the signing of new product
development agreements, the timing of contract research revenues and milestone
payments made by collaborative partners, the progress of clinical trials,
product sales levels and costs associated with the manufacturing processes. The
timing of the Company's research and development revenues may not match the
timing of the associated expenses. The amount of revenue in any given period is
not necessarily indicative of future revenue.
<PAGE>
Results of Operations
Three Months Ended March 31, 1997 and 1998
Revenues. Product sales increased 18% from $1.7 million in the three
months ended March 31, 1997 to $2.0 million in the three months ended March 31,
1998. The increase can be attributed to higher sales of the Company's
iontophoretic drug delivery products for the treatment of local inflammatory
conditions resulting from overall growth in this market.
Contract research revenues, royalties and license fees increased 10%
from $383,000 in the three months ended March 31, 1997 to $420,000 in the three
months ended March 31, 1998. This increase can be attributed to the Company's
receipt of royalty revenues in the fiscal 1998 interim period pursuant to the
sale of its Motion Control division.
Costs of Products Sold. Costs of products sold increased 21% from
$797,000 in the three months ended March 31, 1997 to $968,000 in the three
months ended March 31, 1998, reflecting increased material and labor costs
associated with higher unit sales volumes as well as engineering, tooling and
other non-recurring costs associated with new commercial product introductions.
Research and Development Expense. Research and development expenditures
increased 10% from $346,000 in the three months ended March 31, 1997 to $382,000
in the three months ended March 31, 1998. This increase reflects differences in
the timing of certain expenditures on internally financed product development
projects of the Company.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 56%, from $925,000 in the three months ended
March 31, 1997 to $1.4 million in the three months ended March 31, 1998. The
increase in the current period can be attributed primarily to the recruiting,
personnel and other sales and marketing costs associated with the Company's
investment in the market introduction of Numby Stuff. In addition, the Company
realized increased costs associated with the maintenance of the patent portfolio
acquired from Elan.
Non-Recurring Charges. In March 1997, the Company entered into certain
agreements with Elan Corporation plc. (the "Elan Agreements"), pursuant to which
the Company acquired certain rights to Elan's in-process research and
development relating to iontophoretic drug delivery, including issued and
pending United States and foreign patents, know-how and clinical data. As a
result of this transaction, the Company recorded a non-recurring charge of
approximately $15.1 million.
Other Costs and Expenses. Interest expense increased to $281,000 in the
three months ended March 31, 1998. This increase can be attributed to the
recognition of non-cash interest expense on $15.0 million in notes issued to
Elan in connection with the Elan Agreements. Interest income and other
miscellaneous income was $92,000 in the three months ended March 31, 1997,
compared to $73,000 in the three months ended March 31, 1998, reflecting higher
interest earnings on invested cash balances during the prior period.
The Company has substantial net operating loss carryforwards which,
under the current "change of ownership" rules of the Internal Revenue Code of
1986, as amended, may be subject to substantial annual limitation. Income taxes
for the three months ended March 31, 1997, reflect the Company's effective
income tax rate for fiscal 1997. No income tax expense was recognized for the
three months ended March 31, 1998, which reflects management's estimate of the
Company's fiscal 1998 tax position.
Income (loss) from Continuing Operations. The Company recognized a loss
from continuing operations of $14.9 million in the three months ended March 31,
1997, compared to a loss from continuing operations of $550,000 in the three
months ended March 31, 1998. The loss in the fiscal 1997 interim period can be
attributed to the non-recurring charge resulting from the write-off of
in-process research and development the Company acquired from Elan. The loss in
the fiscal 1998 interim period can be primarily attributed to the non-cash
interest charges on the Elan indebtedness and the Company's investment in the
sales and marketing of Numby Stuff, which, to date, has not generated
significant revenues.
<PAGE>
Nine Months Ended March 31, 1997 and 1998
Revenues. Product sales increased 14% from $5.3 million in the nine
months ended March 31, 1997, to $6.1 million in the nine months ended March 31,
1998. The increase can be attributed to higher sales of the Company's
iontophoretic drug delivery products for the treatment of local inflammatory
conditions resulting from overall growth in this market.
Contract research revenues, royalties and license fees decreased 7%
from $1.4 million in the nine months ended March 31, 1997, to $1.3 million in
the nine months ended March 31, 1998. Contract revenues during the nine months
ended March 31, 1997, included a milestone payment from Novartis and during the
nine months ended March 31, 1998, included the Company's receipt of royalty
revenues pursuant to the sale of its Motion Control division.
Costs of Products Sold. Costs of products sold increased 12% from $2.4
million in the nine months ended March 31, 1997, to $2.7 million in the nine
months ended March 31, 1998, reflecting increased material and labor costs
associated with higher unit sales volumes. Costs of products sold decreased
slightly as a percent of product sales due to productivity gains which were
offset, in part, by the engineering, tooling and other non-recurring costs
incurred in connection with new commercial product introductions.
Research and Development Expense. Research and development expenditures
were approximately $1.1 million in both the nine months ended March 31, 1997,
and March 31, 1998. The fiscal 1998 interim period includes a higher proportion
of expenditures on internally financed product development projects of the
Company.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 45%, from $2.5 million in the nine months
ended March 31, 1997, to $3.6 million in the nine months ended March 31, 1998.
This increase can be attributed primarily to the recruiting, personnel and other
sales and marketing costs associated with the Company's investment in the market
introduction of Numby Stuff. In addition, the Company realized increased costs
associated with the maintenance and prosecution of the patent portfolio it
acquired from Elan.
Non-Recurring Charges. In March 1997, the Company entered into the Elan
Agreements pursuant to which the Company acquired certain rights to Elan's
in-process research and development relating to iontophoretic drug delivery,
including issued and pending United States and foreign patents, know-how and
clinical data. As a result of this transaction, the Company recorded a
non-recurring charge of approximately $15.1 million.
Other Costs and Expenses. Interest expense increased from $2,000 in the
nine months ended March 31, 1997, to $855,000 in the nine months ended March 31,
1998. This increase can be attributed to the recognition of non-cash interest
expense on $15.0 million in notes issued to Elan in connection with the Elan
Agreements. Interest income and other miscellaneous income was $218,000 in the
nine months ended March 31, 1997, compared to $241,000 in the nine months ended
March 31, 1998, reflecting higher interest earnings on invested cash balances
during the current interim period.
The Company has substantial net operating loss carryforwards which,
under the current "change of ownership" rules of the Internal Revenue Code of
1986, as amended, may be subject to substantial annual limitation. Income taxes
for the nine months ended March 31, 1997, reflect the Company's effective income
tax rate for fiscal 1997. No income tax expense was recognized for the nine
months ended March 31, 1998, which reflects management's estimate of the
Company's fiscal 1998 tax position.
<PAGE>
Income (loss) from Continuing Operations. The Company's loss from
continuing operations of $14.2 million in the nine months ended March 31, 1997,
compares to a loss from continuing operations of $688,000 in the nine months
ended March 31, 1998. The loss in the fiscal 1997 interim period can be
primarily attributed to the non-recurring charge resulting from the write-off of
in-process research and development acquired from Elan. The loss in the fiscal
1998 interim period can be attributed to the non-cash interest charges on the
Elan indebtedness and the Company's investment in the sales and marketing of
Numby Stuff, which, to date, has not generated significant revenues.
Liquidity and Capital Resources
Prior to July 1996, the Company funded its operating losses primarily
through private equity financing, convertible debt arrangements, capital lease
financing, and collateralized bank loans. Beginning in July 1996, the Company's
operating and research activities have been internally funded, primarily as a
result of the research and development revenues and license fees the Company has
received from Novartis.
As of March 31, 1998, the Company had cash and cash equivalents
totaling approximately $4.8 million. Cash in excess of immediate requirements is
invested in a manner which is intended to maximize liquidity and return while
minimizing investment risk, and, whenever possible, the Company seeks to
minimize the potential effects of concentration of credit risk.
In the nine month period ended March 31, 1997, the Company generated
$707,000 in cash from operating activities, compared to a use of cash of
approximately $297,000 in the nine month period ended March 31, 1998. After
adjusting both periods for significant non-cash charges relating to the Elan
transactions, the decrease in cash flow can be attributed to the increased net
loss resulting from the Company's investment in the sales and marketing of Numby
Stuff and to changes in its net working capital.
Historically, the Company's operations have not been capital intensive
and, therefore, its investment in property, plant and equipment during the
interim periods presented has not been significant. The Company anticipates,
however, that its investment in facilities and equipment will increase in the
future, due to the Company's desire to consolidate its manufacturing,
administrative and research and development facilities and the need to increase
the automation of its electrode manufacturing processes to meet higher expected
sales volumes. The Company's expenditures for equipment and furniture were
$135,000 and $408,000 for the nine month periods ended March 31, 1997, and 1998,
respectively.
During the nine months ended March 31, 1998, the Company purchased a
license to certain iontophoretic drug delivery technology at a cost of $214,000,
including transaction expenses, and satisfied a $180,000 mandatory redemption
requirement on its Series C preferred shares. In addition, during the same
interim period the Company recorded over $763,000 in costs associated with
certain capital transactions, including costs associated with the initial public
offering. These costs, of which over $418,000 were paid in cash as of March 31,
1998, have been deferred and are included in other assets at March 31, 1998. At
the completion of the initial public offering, these deferred costs and other
associated costs were offset against the proceeds of the offering.
During the fiscal 1997 interim period, the Company generated $255,000
in cash from the private placement of its common shares and satisfied a $70,000
mandatory redemption requirement on its Series A preferred shares.
The Company expects to continue to incur substantial costs associated
with the expansion of its research and development activities, including
clinical trials, development of a dedicated sales force and consolidating and
equipping its facilities. The Company anticipates that the net proceeds of its
initial public offering (described below), together with existing cash balances
and cash generated from operations, will be sufficient to fund the operations of
the Company for approximately the next 15 months. However, the Company may be
required or may elect to raise additional capital before that time. The
Company's actual capital requirements will depend on many factors, some of which
are outside of the Company's control.
<PAGE>
Initial Public Offering
On April 23, 1998, the Company consummated an initial registered public
offering of its common shares, pursuant to which the Company issued 1,700,000
common shares and raised approximately $10.5 million, net of underwriters'
discounts and estimated expenses of approximately $1.4 million. On May 27, 1998,
the underwriters exercised a portion of their over-allotment option and the
Company issued an additional 150,000 common shares and raised approximately $1.0
million, net of underwriters' discounts.
In other transactions related to the initial public offering, (i) the
Company granted warrants to purchase 170,000 common shares to the underwriters,
exercisable after April 23, 1999, at an initial exercise price of $9.38 per
share; (ii) Elan Corporation plc purchased 1,206,391 common shares and 893,801
Series D preferred shares at the initial public offering price of $7.50 per
share, for an aggregate purchase price of $15,751,438, which amount equaled the
amounts, including interest, then outstanding under the Company's notes payable
to Elan. Simultaneously, the Company used the proceeds to repay the notes; (iii)
the 28,800 Series C preferred shares of the Company which were outstanding
immediately prior to the offering were automatically converted, on a share for
share basis, into common shares and (iv) the Company issued an additional 29,697
common shares to Laboratoires Fournier, pursuant to the anti-dilution provisions
of a prior stock purchase agreement between the companies.
Discontinued Operations
Prior to January 1997, the Company provided state-of-the-art
prosthetics products to amputees through its Motion Control division. Motion
Control's principal products were the Utah Artificial Arm and the ProControl II,
advanced myoelectric prostheses for above and below the elbow amputees.
In December 1996, the Company sold the assets of the Motion Control
division for $1.0 million and granted the purchaser an exclusive, worldwide
license and sublicense to the patents, trademarks, know-how and other
intellectual property of the Company relating to the Motion Control products.
Under the terms of that sublicense agreement, the Company will receive license
fees and royalties on future sales of the Motion Control products. The Company
recognized no significant gain or loss on the sale. Where applicable, the
results of operations of the Motion Control division, exclusive of any corporate
allocations, are reported as discontinued operations in the condensed
consolidated statements of operations.
Impact of Year 2000
Many computer systems experience problems handling dates beyond the
year 1999. The Company continues to evaluate its computer systems and believes,
based upon representations from its software suppliers, that its operating
systems are substantially year 2000 compliant. In addition, the Company is
implementing validation procedures designed to evaluate the year 2000 exposures
of its significant suppliers and other vendors whose systems may impact the
Company's operations.
<PAGE>
IOMED, Inc.
------------
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule for the nine months ended March
31, 1998.
(b) No reports were filed on Form 8-K during the period covered by
this report.
<PAGE>
IOMED, Inc.
------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IOMED, Inc.
(Registrant)
Date: June 5, 1998 By: /s/ Ned M. Weinshenker, Ph.D.
-----------------------------
Ned M. Weinshenker, Ph.D.
President and
Chief Executive Officer
Date: June 5, 1998 By: /s/ Robert J. Lollini
---------------------
Robert J. Lollini
Vice President, Finance and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
IOMED, INC. CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
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<NAME> IOMED, INC.
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