<PAGE> 1
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 SEPTEMBER 30, 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), and (2) has been subject to such
filing requirements for the past 90 days [ X ] Yes [ ] 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 OCTOBER 31,
1998:
CLASSES OF COMMON STOCK NUMBER OF SHARES OUTSTANDING
-------------------------- ----------------------------
Common Stock, no par value 6,499,518
<PAGE> 2
IOMED, INC.
------------
INDEX TO FORM 10-Q
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements (unaudited) Page
----
<S> <C>
Condensed Consolidated Balance Sheets --
September 30, 1998 and June 30, 1998 3
Condensed Consolidated Statements of Operations --
Three months ended September 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows --
Three months ended September 30, 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 8
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Not applicable
PART II - OTHER INFORMATION
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
Page 2 of 13
<PAGE> 3
IOMED, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1998
------------- -------------
<S> <C> <C>
Current assets: (unaudited)
Cash and cash equivalents $ 16,261,000 $ 16,709,000
Accounts receivable 1,412,000 1,570,000
Inventories 1,076,000 876,000
Prepaid expenses 52,000 53,000
------------ ------------
Total current assets 18,801,000 19,208,000
Equipment and furniture, net 756,000 783,000
Other assets 201,000 210,000
------------ ------------
TOTAL ASSETS $ 19,758,000 $ 20,201,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 323,000 $ 626,000
Accrued liabilities 514,000 687,000
Current portion of long-term obligations 53,000 50,000
------------ ------------
Total current liabilities 890,000 1,363,000
Long-term obligations 171,000 187,000
Commitments -- --
Shareholders' equity:
Common shares 34,408,000 34,408,000
Convertible preferred shares 6,881,000 6,881,000
Accumulated deficit (22,592,000) (22,638,000)
------------ ------------
Total shareholders' equity 18,697,000 18,651,000
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 19,758,000 $ 20,201,000
============ ============
</TABLE>
See accompanying notes.
Page 3 of 13
<PAGE> 4
IOMED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------------
1998 1997
------------ -------------
(unaudited)
<S> <C> <C>
Revenues:
Product sales $ 2,155,000 $ 1,997,000
Contract research revenue, royalties and license fees 428,000 503,000
----------- -----------
Total revenues 2,583,000 2,500,000
Operating costs and expenses:
Cost of products sold 986,000 893,000
Research and development 376,000 375,000
Selling, general and administrative 1,397,000 1,061,000
----------- -----------
Total costs and expenses 2,759,000 2,329,000
----------- -----------
Income (loss) from operations (176,000) 171,000
Interest expense 6,000 287,000
Interest income 228,000 80,000
----------- -----------
Net income (loss) $ 46,000 $ (36,000)
=========== ===========
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE $ 0.01 $ (0.01)
=========== ===========
</TABLE>
See accompanying notes.
Page 4 of 13
<PAGE> 5
IOMED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
----------- ------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 46,000 $ (36,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 102,000 57,000
Non-cash interest expense -- 287,000
Other non-cash charges -- 11,000
Changes in assets and liabilities:
Accounts receivable 158,000 (102,000)
Inventories (200,000) (5,000)
Prepaid expenses and other assets 1,000 (131,000)
Trade accounts payable (303,000) 43,000
Other current liabilities (170,000) (318,000)
------------ ------------
Net cash provided by (used in) operating activities (366,000) (194,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and furniture (69,000) (60,000)
------------ ------------
Net cash provided by (used in) investing activities (69,000) (60,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options -- --
Payments on long-term obligations (13,000) (2,000)
Redemptions of redeemable preferred stock -- (180,000)
Other -- --
------------ ------------
Net cash provided by (used in) financing activities (13,000) (182,000)
Net increase (decrease) in cash and cash equivalents (448,000) (436,000)
Cash and cash equivalents at beginning of period 16,709,000 6,346,000
------------ ------------
Cash and cash equivalents at end of period $ 16,261,000 $ 5,910,000
============ ============
</TABLE>
See accompanying notes.
Page 5 of 13
<PAGE> 6
IOMED, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
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 September 30, 1998, and the results of its operations and
cash flows for the interim periods ended September 30, 1998, and 1997.
The operating results for the interim periods are not necessarily
indicative of the results for a full year. Certain information and
footnote disclosures normally included in financial statements in
accordance with generally accepted accounting principles have been
condensed or omitted. Therefore, these statements should be read in
conjunction with the Company's audited consolidated financial statements
for the year ended June 30, 1998, included in the Company's Annual
Report on Form 10-K, dated September 28, 1998.
Earnings (Loss) Per Share
For all periods presented, basic and diluted earnings per share
are computed in accordance with Statement of Financial Accounting
Standards (SFAS) No. 128-Earnings per Share.
Net income (loss) as presented in the condensed consolidated
statements of operations represents the numerator used in computing both
basic and diluted earnings per share and the following table sets forth
the computation of the weighted average shares representing the
denominator used in determining basic and diluted earnings per share:
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Denominator for basic earnings per share -- weighted
average shares outstanding 6,500 3,134
Dilutive securities: preferred stock and certain stock
options 928 --
----- -----
Denominator for diluted earnings per share -- adjusted
weighted average shares outstanding and assumed
conversions 7,428 3,134
===== =====
</TABLE>
At September 30, 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 280,270 common
shares at a weighted average exercise price of $5.04 per share; and
warrants to purchase 339,792 common shares at a weighted average price
of $13.70 per share. Due to their anti-dilutive effect, no dilutive
securities were included in the computation of diluted earnings per
share for the three month period ended September 30, 1997.
Page 6 of 13
<PAGE> 7
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reverse Stock Split
On November 7, 1997, pursuant to a vote of the shareholders, the
Company effected a one for 4.8 reverse share split for each common and
preferred share then outstanding. For comparative purposes, all share
amounts in the accompanying financial statements and related footnotes
have been retroactively restated to reflect the effects of the reverse
stock split.
Reclassifications
Certain reclassifications have been made to the prior year's
financial statements to conform to the financial statement presentation
included herein.
2. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. Inventories consisted
of the following at September 30, 1998, and June 30, 1998:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1998
------------ -------------
<S> <C> <C>
Raw materials ......................$ 873,000 $ 687,000
Work-in-progress ................... 10,000 30,000
Finished goods ..................... 193,000 159,000
------------ -------------
$ 1,076,000 $ 876,000
============ =============
</TABLE>
3. RESEARCH AND DEVELOPMENT
In July 1995, the Company entered into various research and
development agreements (the "R&D Agreements") with Ciba-Geigy
Corporation ("Ciba") to evaluate the feasibility of delivering a number
of Ciba compounds utilizing the Company's iontophoretic drug delivery
technologies. In 1997, Ciba was merged with Sandoz Corporation to form
Novartis Pharma A.G. ("Novartis").
Although the Company met all of the essential development
objectives under the R&D Agreements, in July 1998, Novartis advised the
Company that it would not renew the R&D Agreements beyond the scheduled
December 31, 1998, expiration date. The Company is currently devoting
the majority of its research and development capabilities to the
development of systems for Novartis and will continue to do so through
the term of the agreement. Novartis will also continue to fund research
through the remainder of the term.
In connection with their collaboration, the Company granted
Novartis a perpetual, non-exclusive, royalty bearing license to certain
of the Company's iontophoretic technology which will survive the
termination of the collaboration. Novartis may, pursuant to the
royalty-bearing license, independently develop products using the
licensed technology, including products which may compete directly with
those currently marketed or under development by the Company.
Page 7 of 13
<PAGE> 8
3. RESEARCH AND DEVELOPMENT (CONTINUED)
Following the expiration of the R&D Agreements, Novartis' rights
to exclusivity in those fields covered by the agreements will terminate,
and IOMED will be free to apply the technologies it developed for
Novartis to any available drug candidates, either independently or on
behalf of other parties. The Company believes the application of these
technologies may shorten the Company's future product development
cycles.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Condensed
Consolidated Financial Statements and the related Notes thereto included
elsewhere in this Report. The following Management's Discussion and Analysis of
Financial Condition and Results of Operations contains forward-looking
statements, within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, that involve risks and
uncertainties. The Company's actual results of operations could differ
significantly from those anticipated in such forward-looking statements as a
result of numerous factors including those discussed herein. Additional risks
and uncertainties are described in the Company's most recent Annual Report on
Form 10-K for its fiscal year ended June 30, 1998. This discussion should be
read in conjunction with such report, copies of which are available upon
request.
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
and contract research revenues from the Company's collaboration with Novartis.
The Company recently introduced its local dermal anesthesia products into the
market place 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 may incur additional operating losses over the next several
years as a result of anticipated costs associated with increases in internally
funded research, development and clinical trial activities relating to new
applications for its iontophoretic drug delivery technologies. As of September
30, 1998, the Company's accumulated deficit was approximately $22.6 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; successfully complete the development of, receive regulatory
approvals for, and successfully manufacture and market its products under
development; as well as successfully negotiate and enter into agreements with
collaborative partners, licensors, licensees and other parties for the
development, clinical testing, manufacture, marketing or sale of certain of its
products or products in 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 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 8 of 13
<PAGE> 9
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Revenues. Product sales increased 8% to $2.2 million in the three months
ended September 30, 1998, from $2.0 million in the three months ended September
30, 1997. The increase can be attributed primarily to higher sales of the
Company's iontophoretic drug delivery products for the treatment of local
inflammatory conditions resulting from continued overall growth in this market.
Contract research revenues, royalties and license fees decreased 15% to
$428,000 in the three months ended September 30, 1998, from $503,000 in the
three months ended September 30, 1997. This decrease is attributable to the
decline in the Company's research revenues received from Novartis as the Company
enters the final phase of this collaborative development program.
Costs of Products Sold. Costs of products sold increased 10% to $986,000
in the three months ended September 30, 1998, from $893,000 in the three months
ended September 30, 1997, reflecting increased material and labor costs
associated with higher unit sales volumes, as well as certain non-recurring
engineering and tooling costs.
Research and Development Expense. Research and development expenditures
of $376,000 for the three months ended September 30, 1998, were unchanged from
the $375,000 reported for the three months ended September 30, 1997.
Expenditures in the current period included a higher proportion of expenditures
on internally funded projects.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 32%, to $1,397,000 in the three months ended
September 30, 1998, from $1,061,000 in the three months ended September 30,
1997. The increase in the current period can be attributed primarily to one-time
costs associated with the restructuring of the Company's field sales force and
increased marketing and promotional expenses. In addition, the Company realized
increased costs associated with legal, professional and related services in
connection with investor relations and SEC compliance.
Other Costs and Expenses. Interest expense decreased to $6,000 in the
three months ended September 30, 1998. This decrease can be attributed to lower
interest expense resulting from the repayment of the Company's indebtedness to
Elan in transactions related to the initial public offering of its common shares
in April 1998. Interest income and other miscellaneous income was $228,000 in
the three months ended September 30, 1998, compared to $80,000 in the three
months ended September 30, 1997, reflecting interest earnings on the investment
of the proceeds from the initial public offering during the current 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. No income tax
expense was recognized for the three months ended September 30, 1998, which
reflects management's estimate of the Company's fiscal 1999 tax position. In
addition, no income tax benefit was recognized on the Company's pre-tax loss for
the three months ended September 30, 1997.
Net income (loss). The Company recognized net income of $46,000 or $0.01
per share during the three months ended September 30, 1998, compared to a net
loss of $36,000 or $0.01 per share in the three months ended September 30, 1997.
During the current period, a loss from operations was offset by interest
earnings on invested proceeds from the initial public offering. With anticipated
increases in internally funded research and development expenditures coupled
with the loss of contract research revenue from Novartis after December 31,
1998, the Company expects to report a net loss for the fiscal year. The net loss
reported for the three months ended September 30, 1997, was attributable to the
non-cash interest charges recorded on the Elan indebtedness.
Page 9 of 13
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
Beginning in fiscal 1996, the Company's operating losses, including its
research and development activities, have been internally funded with cash flows
from operations and from contract research and development revenues and license
fees the Company has received from Novartis.
In July 1998, Novartis elected not to renew its collaborative research
and development agreement with the Company beyond its scheduled expiration date
of December 31, 1998. Accordingly, the Company's contract research revenues may
decline during fiscal 1999 and future years. The effect of the loss of contract
research revenue on the Company's future operating results and cash flow may be
offset, in part, by a reduction in research and development expenditures
incurred in connection with the collaboration, as well as by additional contract
research revenues, if the Company is successful in its efforts to enter into new
collaborative research and development arrangements.
As of September 30, 1998, the Company had cash and cash equivalents
totaling approximately $16.3 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.
The Company consumed $366,000 in cash for operating activities during
the three months ended September 30, 1998, compared to $194,000 during the
three months ended September 30, 1997. The increased cash consumption in the
current period can be attributed to a higher net investment in working capital
used to finance sales growth and expanded product offerings.
Historically, the Company's operations have not been capital intensive
and investment in property, plant and equipment during the periods presented has
not been significant. However, investment in facilities and equipment may
increase in the future. The Company's expenditures for equipment and furniture
were $69,000 and $60,000 in each of the three month periods ended September 30,
1998 and 1997, respectively.
Other uses of cash in the three months ended September 30, 1998, were
$13,000 in principal reductions under capital lease obligations. During the
three months ended September 30, 1997, the Company paid $180,000 for the
mandatory redemption of a portion of its outstanding Series C Preferred Shares.
The remaining Series C Preferred Shares were converted into common shares of the
Company, on a share-for-share basis, concurrently with the closing of the
initial public offering of the Company's common shares.
The Company may continue to incur costs associated with its research and
development activities, including clinical trials, and make additional
investments in working capital. The Company anticipates that its existing cash
balances and cash generated from operations will be sufficient to fund the
operations of the Company at least through fiscal 2000. However, the Company may
be required or elect to raise additional capital before that time. The Company's
actual capital requirements will depend on many factors, some of which are
outside the Company's control.
IMPACT OF THE YEAR 2000
Many computer systems experience problems handling dates beyond the year
1999. The Company has evaluated its primary operating systems (including its
financial systems, material requirements planning, and production lot tracking
systems) and believes, based upon its evaluation as well as representations from
its software suppliers, that its operating systems are substantially year 2000
compliant. To the extent that any software applications are not fully year 2000
compliant, the Company expects that software upgrades made in the normal course
of business will either minimize, isolate or possibly eliminate any substantive
risks associated with software or system failure.
Page 10 of 13
<PAGE> 11
To date, the Company has not incurred any significant costs associated
with the evaluation or modification of its systems relating to year 2000
compliance and does not anticipate the need to incur any costs outside the
normal course of business. In the event that any of the Company's systems should
fail due to a failure to identify and address a year 2000 exposure, the Company
believes that the size and scope of its operations would allow the Company to
revert to manual operating systems on a timely basis.
The custom circuitry and software utilized in the Company's
iontophoretic dose controllers do not include any date driven functions and
therefore will not exhibit any change in performance due to the arrival of the
year 2000. The Company has initiated procedures designed to evaluate the year
2000 exposure of its significant suppliers and other vendors whose systems may
impact the Company's operations. To date, the Company has not identified any
compliance deficiencies that might have a significant impact on the Company if
not rectified by such supplier or vendor on a timely basis. There can be no
assurance that such a deficiency will not be discovered or arise in the future
or that the Company would be able to identify and validate an alternative source
for any service or material which may be affected by such deficiency.
PART II -- OTHER INFORMATION
Item 5. Other Information
Effective September 18, 1998, Dr. Ned M. Weinshenker resigned as
President and Chief Executive Officer and as a director of the Company.
Item 6. Exhibits and Reports on Form 8-K
EXHIBITS:
27.1 Financial Data Schedule for the three months ended September 30,
1998 and 1997.
REPORTS ON FORM 8-K:
On July 2, 1998, the Company filed a report on Form 8-K with
regard to the decision by Novartis Pharmaceuticals Corporation not to
renew the collaborative research and development agreement between the
Company, Dermion, Inc., the Company's wholly owned subsidiary, and
Novartis beyond its scheduled December 31, 1998, expiration date.
Page 11 of 13
<PAGE> 12
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: November 13, 1998 By:/s/ James R. Weersing
---------------------
James R. Weersing
Chairman of the Board
Date: November 13, 1998 By:/s/ Robert J. Lollini
---------------------
Robert J. Lollini
Vice President, Finance and
Chief Financial Officer
Page 12 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE IOMED,
INC. CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001041652
<NAME> IOMED, INC.
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1997
<PERIOD-START> JUL-01-1998 JUL-01-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 16,261,000 0
<SECURITIES> 0 0
<RECEIVABLES> 1,472,000 0
<ALLOWANCES> 60,000 0
<INVENTORY> 1,076,000 0
<CURRENT-ASSETS> 18,801,000 0
<PP&E> 4,500,000 0
<DEPRECIATION> 3,744,000 0
<TOTAL-ASSETS> 19,758,000 0
<CURRENT-LIABILITIES> 890,000 0
<BONDS> 171,000 0
0 0
6,881,000 0
<COMMON> 34,408,000 0
<OTHER-SE> (22,592,000) 0
<TOTAL-LIABILITY-AND-EQUITY> 19,758,000 0
<SALES> 2,155,000 1,997,000
<TOTAL-REVENUES> 2,583,000 2,500,000
<CGS> 986,000 893,000
<TOTAL-COSTS> 2,759,000 2,329,000
<OTHER-EXPENSES> (228,000) (80,000)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,000 287,000
<INCOME-PRETAX> 46,000 (36,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 46,000 (36,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 46,000 (36,000)
<EPS-PRIMARY> 0.01 (0.01)
<EPS-DILUTED> 0.01 (0.01)
</TABLE>
