<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, 1999
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,
1999:
CLASSES OF COMMON STOCK NUMBER OF SHARES OUTSTANDING
-------------------------- ----------------------------
Common Stock, no par value 6,507,744
<PAGE> 2
IOMED, INC.
------------
INDEX TO FORM 10-Q
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets --
September 30, 1999 and June 30, 1999 ............................. 3
Condensed Consolidated Statements of Operations --
Three months ended September 30, 1999 and 1998 ................... 4
Condensed Consolidated Statements of Cash Flows --
Three months ended September 30, 1999 and 1998 ................... 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,
1999 1999
------------ ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 17,081,000 $ 17,263,000
Accounts receivable 1,193,000 1,292,000
Inventories 854,000 782,000
Prepaid expenses 46,000 43,000
------------ ------------
Total current assets 19,174,000 19,380,000
Equipment and furniture, net 535,000 603,000
Other assets 163,000 171,000
------------ ------------
TOTAL ASSETS $ 19,872,000 $ 20,154,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 153,000 $ 237,000
Accrued liabilities 846,000 940,000
Current portion of long-term obligations 59,000 57,000
------------ ------------
Total current liabilities 1,058,000 1,234,000
Long-term obligations 114,000 129,000
Commitments
Shareholders' equity:
Common shares 34,413,000 34,413,000
Convertible preferred shares 6,881,000 6,881,000
Accumulated deficit (22,594,000) (22,503,000)
------------ ------------
Total shareholders' equity 18,700,000 18,791,000
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 19,872,000 $ 20,154,000
============ ============
</TABLE>
See accompanying notes.
Page 3 of 13
<PAGE> 4
IOMED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------------
1999 1998
----------- -----------
(unaudited)
<S> <C> <C>
Revenues:
Product sales $ 2,532,000 $ 2,155,000
Contract research revenue, royalties and license fees 45,000 428,000
----------- -----------
Total revenues 2,577,000 2,583,000
Operating costs and expenses:
Cost of products sold 924,000 947,000
Research and development 661,000 415,000
Selling, general and administrative 1,304,000 1,397,000
----------- -----------
Total costs and expenses 2,889,000 2,759,000
----------- -----------
Loss from operations (312,000) (176,000)
Interest expense 4,000 6,000
Interest income and other, net 225,000 228,000
----------- -----------
Net income (loss) $ (91,000) $ 46,000
=========== ===========
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,
-----------------------------
1999 1998
------------ ------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (91,000) $ 46,000
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 91,000 102,000
Changes in assets and liabilities:
Accounts receivable 99,000 158,000
Inventories (72,000) (200,000)
Prepaid expenses and other assets (3,000) 1,000
Trade accounts payable (84,000) (303,000)
Other current liabilities (94,000) (170,000)
------------ ------------
Net cash provided by (used in) operating activities (154,000) (366,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and furniture (14,000) (69,000)
------------ ------------
Net cash provided by (used in) investing activities (14,000) (69,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term obligations (14,000) (13,000)
------------ ------------
Net cash provided by (used in) financing activities (14,000) (13,000)
Net increase (decrease) in cash and cash equivalents (182,000) (448,000)
Cash and cash equivalents at beginning of period 17,263,000 16,709,000
------------ ------------
Cash and cash equivalents at end of period $ 17,081,000 $ 16,261,000
============ ============
</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, 1999, and the results of its operations and
cash flows for the interim periods ended September 30, 1999, and 1998.
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, 1999, included in the Company's Annual
Report on Form 10-K, dated September 28, 1999.
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>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Denominator for basic earnings per share -- weighted
average shares outstanding ........................... 6,508 6,500
Dilutive securities: preferred stock and certain stock
options .............................................. --- 928
-------- --------
Denominator for diluted earnings per share -- adjusted
weighted average shares outstanding and assumed
conversions........................................... 6,508 7,428
======== ========
</TABLE>
At September 30, 1999, the following potentially dilutive
securities were outstanding but were not included in the computation of
diluted earnings per share due to their anti-dilutive effect: options to
purchase 862,325 common shares at a weighted average exercise price of
$3.22 per share; warrants to purchase 339,792 common shares at a
weighted average price of $13.70 per share; and 893,801 convertible
Series D preferred shares convertible on a share-for-share basis into
common stock.
Page 6 of 13
<PAGE> 7
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 1999, and June 30, 1999:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1999 1999
------------- -----------
<S> <C> <C>
Raw materials $ 569,000 $ 469,000
Work-in-progress 18,000 25,000
Finished goods 267,000 288,000
============ ===========
$ 854,000 $ 782,000
============ ===========
</TABLE>
Page 7 of 13
<PAGE> 8
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, 1999. 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, 1999, the Company's accumulated deficit was approximately $22,594,000. 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, 1999 AND 1998
Revenues. Product sales increased 17% to $2,532,000 in the three months
ended September 30, 1999, from $2,155,000 in the three months ended September
30, 1998. New products, increased market acceptance of iontophoresis and added
distribution continue to fuel demand for the Company's iontophoretic drug
delivery products.
Contract research revenues, royalties and license fees decreased to
$45,000 in the three months ended September 30, 1999, from $428,000 in the
three months ended September 30, 1998. This decrease is attributable to the
expiration of the Company's collaborative research and development program with
Novartis in December 1998. Pending the initiation of new collaborative research
and product development programs, such revenues, in the current quarter, are
indicative of the Company's expectations for the remainder of the fiscal year.
Costs of Products Sold. Costs of products sold decreased 2% to $924,000
in the three months ended September 30, 1999, from $947,000 in the three months
ended September 30, 1998. This decrease in light of our reported sales increase
reflects a more favorable product mix and the benefits of aggressive cost
controls during the current quarter. Gross margins on product sales reached 64%
during the current quarter compared to 56% last year.
Research and Development Expense. Research and development expenditures
increased 59% to $661,000 for the three months ended September 30, 1999, from
$415,000 reported for the three months ended September 30, 1998. This increase
primarily reflects the initiation of the Phase III clinical studies for
IontoDex, a formulation of dexamethasone for the treatment of acute local
inflammatory conditions, as well as increased expenditures in support of the
Company's other product development programs. Last years costs included expenses
incurred in connection with the Novartis program which were declining as the
project began to wind down.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 7%, to $1,304,000 in the three months ended
September 30, 1999 from $1,397,000 in the three months ended September 30, 1998.
Higher sales and marketing costs during last years first quarter were primarily
attributable to one-time costs associated with the restructuring of the
Company's field sales force and higher marketing and promotional expenses. The
decrease in sales and marketing expenses during the current fiscal quarter was
offset, in part, by increased patent prosecution and maintenance costs and
increased costs associated with legal, professional and related services in
connection with investor relations and SEC compliance.
Other Costs and Expenses. Net interest income and expense was $221,000
during the current quarter, unchanged from the $222,000 reported during the
prior year period. Amounts in both periods reflect interest earnings on invested
cash balances.
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
benefit was recognized on the Company's pre-tax loss for the three months ended
September 30, 1999, which reflects management's estimate of the Company's fiscal
1999 tax position. In addition, no income tax expense was recognized for the
three months ended September 30, 1998.
Net income (loss). The Company recognized a net loss of $91,000 or $0.01
per share, during the three months ended September 30, 1999 compared to net
income of $46,000 or $0.01 per share, during the three months ended September
30, 1998. During the current period, net interest earnings on invested cash
balances offset a loss from operations, in part. With anticipated increases in
internally funded research and
Page 9 of 13
<PAGE> 10
development programs, including the IontoDex Phase III clinical studies, the
Company expects to report a net loss for the fiscal year. During the three
months ended September 30, 1998, net interest earnings on invested cash balances
more than offset a loss from operations.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 2000 the Company's operating losses, including its
research and development programs, will be internally funded with cash flows
from operations and existing cash balances. In the prior period such losses were
internally funded with cash flows from operations and from contract research and
development revenues the Company received from Novartis.
In December 1998, the Company's collaborative research and development
agreement with Novartis expired. Accordingly, the Company's contract research
revenues declined during the second half of fiscal 1999. If successful in its
efforts to enter into new collaborative research and development arrangements,
the Company may earn additional contract research revenues, in fiscal 2000 and
in future years.
As of September 30, 1999, the Company had cash and cash equivalents
totaling approximately $17,081,000. 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 $154,000 in cash for operating activities during
the three months ended September 30, 1999, compared to $366,000 during the three
months ended September 30, 1998. The decreased cash consumption in the current
period can be attributed primarily to a lower net investment in working capital
to finance sales growth as compared to the prior year period.
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 further automation
may increase in the future. The Company's expenditures for equipment and
furniture were $14,000 and $69,000 in each of the three month periods ended
September 30, 1999 and 1998, respectively.
Other uses of cash were $14,000 and $13,000 in principal reductions
under capital lease obligations during the three months ended September 30, 1999
and 1998, respectively.
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 2001. 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 completed its evaluation of 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 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
None
Item 6. Exhibits and Reports on Form 8-K
EXHIBITS:
27.1 Financial Data Schedule for the three months ended September 30,
1999.
REPORTS ON FORM 8-K:
No reports were filed on form 8-K during the period covered by this
report.
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 12, 1999 By:/s/ JAMES R. WEERSING
---------------------------
James R. Weersing
Chairman of the Board
Date: November 12, 1999 By:/s/ ROBERT J. LOLLINI
---------------------------
Robert J. Lollini
Vice President, Finance and
Chief Financial Officer
Page 12 of 13
<PAGE> 13
EXHIBIT INDEX
EXHIBITS:
<TABLE>
<CAPTION>
Exhibit
No. Description Page
------- ----------- ----
<S> <C> <C>
27.1 Financial Data Schedule for the three months ended
September 30, 1999.
</TABLE>
<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, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 17,081,000
<SECURITIES> 0
<RECEIVABLES> 1,271,000
<ALLOWANCES> 78,000
<INVENTORY> 854,000
<CURRENT-ASSETS> 19,174,000
<PP&E> 3,165,000
<DEPRECIATION> 2,630,000
<TOTAL-ASSETS> 19,872,000
<CURRENT-LIABILITIES> 1,058,000
<BONDS> 114,000
0
6,881,000
<COMMON> 34,413,000
<OTHER-SE> (22,594,000)
<TOTAL-LIABILITY-AND-EQUITY> 19,872,000
<SALES> 2,532,000
<TOTAL-REVENUES> 2,577,000
<CGS> 924,000
<TOTAL-COSTS> 2,889,000
<OTHER-EXPENSES> (225,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,000
<INCOME-PRETAX> (91,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (91,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (91,000)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
