<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, 2000
or
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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,
2000:
CLASSES OF COMMON STOCK NUMBER OF SHARES OUTSTANDING
-------------------------------- -------------------------------
Common Stock, no par value 6,543,589
Page 1 of 12
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IOMED, INC.
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INDEX TO FORM 10-Q
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets --
September 30, 2000 and June 30, 2000 3
Condensed Consolidated Statements of Operations --
Three months ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows --
Three months ended September 30, 2000 and 1999 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 10
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
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IOMED, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
2000 2000
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(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 14,426,000 $ 15,097,000
Accounts receivable 1,268,000 1,339,000
Inventories 786,000 767,000
Prepaid expenses 74,000 119,000
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Total current assets 16,554,000 17,322,000
Equipment and furniture, net 1,130,000 908,000
Other assets 1,643,000 1,686,000
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TOTAL ASSETS $ 19,327,000 $ 19,916,000
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 285,000 $ 145,000
Accrued liabilities 973,000 1,338,000
Current portion of long-term obligations 154,000 134,000
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Total current liabilities 1,412,000 1,617,000
Long-term obligations 420,000 387,000
Other long-term liabilities 178,000 199,000
Commitments
Shareholders' equity:
Common shares 34,533,000 34,490,000
Convertible preferred shares 6,881,000 6,881,000
Accumulated deficit (24,097,000) (23,658,000)
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Total shareholders' equity 17,317,000 17,713,000
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 19,327,000 $ 19,916,000
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</TABLE>
See accompanying notes.
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IOMED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
September 30,
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2000 1999
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(unaudited)
<S> <C> <C>
Revenues:
Product sales $ 2,763,000 $ 2,532,000
Contract research revenue, royalties and license fees 57,000 45,000
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Total revenues 2,820,000 2,577,000
Operating costs and expenses:
Cost of products sold 917,000 924,000
Research and development 879,000 661,000
Selling, general and administrative 1,695,000 1,304,000
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Total costs and expenses 3,491,000 2,889,000
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Loss from operations (671,000) (312,000)
Interest expense 12,000 4,000
Interest income and other, net 244,000 225,000
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Net loss $ (439,000) $ (91,000)
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.07) $ (0.01)
</TABLE>
See accompanying notes.
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IOMED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
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(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (439,000) $ (91,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 129,000 91,000
Compensation from non-employee stock options granted 2,000 ---
Changes in assets and liabilities:
Accounts receivable 71,000 99,000
Inventories (19,000) (72,000)
Prepaid expenses 45,000 (3,000)
Trade accounts payable 140,000 (84,000)
Other accrued liabilities (386,000) (94,000)
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Net cash used in operating activities (457,000) (154,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and furniture (207,000) (14,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 41,000 ---
Payments on long-term obligations (48,000) (14,000)
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Net cash used in financing activities (7,000) (14,000)
Net decrease in cash and cash equivalents (671,000) (182,000)
Cash and cash equivalents at beginning of period 15,097,000 17,263,000
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Cash and cash equivalents at end of period $ 14,426,000 $ 17,081,000
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Non-cash activities:
Purchase of equipment under capital lease obligation $ 101,000 $ ---
</TABLE>
See accompanying notes.
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IOMED, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
IOMED, Inc., a Utah corporation (the "Company"), is a specialty
pharmaceutical company focused on satisfying substantial unmet medical
needs in large pharmaceutical markets. The Company is currently pursuing
research, product development and commercialization opportunities in the
local inflammation and ophthalmic markets.
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, 2000, and the results of its operations and
cash flows for the interim periods ended September 30, 2000 and 1999.
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, 2000, included in the Company's Annual
Report on Form 10-K, dated September 28, 2000.
Loss Per Share
For all periods presented, basic and diluted loss per share are
computed in accordance with Statement of Financial Accounting Standards
(SFAS) No. 128 - Earnings per Share.
Net loss as presented in the condensed consolidated statements of
operations represents the numerator used in computing both basic and
diluted loss per share and the following table sets forth the
computation of the weighted average shares representing the denominator
used in determining basic and diluted loss per share:
<TABLE>
<CAPTION>
2000 1999
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(IN THOUSANDS)
<S> <C> <C>
Denominator for basic loss per share -- weighted average
shares outstanding 6,531 6,508
Dilutive securities: preferred stock and certain stock
options --- ---
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Denominator for diluted loss per share -- adjusted
weighted average shares outstanding and assumed 6,531 6,508
conversions ========= =========
</TABLE>
At September 30, 2000, the following potentially dilutive
securities were outstanding but were not included in the computation of
diluted loss per share due to their anti-dilutive effect: options to
purchase 1,278,738 common shares at a weighted average exercise price of
$3.33 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.
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial
Statements. The effective date of SAB 101 is the fourth quarter of the fiscal
year ending after December 15, 1999. This SAB clarifies certain existing
guidance related to revenue recognition. The Company is currently evaluating the
impact that SAB 101 will have on its revenue recognition policies and practices.
However, it is not anticipated that SAB 101 will have a material impact on the
Company's reported revenue.
2. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. Inventories consist of
the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
2000 2000
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<S> <C> <C>
Raw materials $503,000 $441,000
Work-in-progress 36,000 24,000
Finished goods 247,000 302,000
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$786,000 $767,000
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</TABLE>
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<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, 2000. This discussion should be
read in conjunction with such report, copies of which are available upon
request.
OVERVIEW
The Company is a specialty pharmaceutical company focused on satisfying
substantial unmet medical needs in large pharmaceutical markets. The Company is
currently pursuing research, product development and commercialization
activities in the local inflammation and ophthalmic markets. The majority of the
Company's revenues have been generated through the sale of its Phoresor system
and related active transdermal drug delivery products into the physical therapy
market for use in the treatment of acute local inflammation. 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, and the consolidation and
equipping of its facilities. As of September 30, 2000, the Company's accumulated
deficit was approximately $24.1 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
perform and achieve development, clinical testing, manufacture, marketing or
commercialization 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Revenues. Product sales increased 9% to $2,763,000 in the three months
ended September 30, 2000, from $2,532,000 in the three months ended September
30, 1999. Continued growth in the IOGEL(TM) product line and increased market
acceptance of iontophoresis contributed to the increase in product sales.
Contract research revenues, royalties and license fees increased to
$57,000 in the three months ended September 30, 2000, from $45,000 in the three
months ended September 30, 1999. Without 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.
Page 8 of 12
<PAGE> 9
Costs of Products Sold. Costs of products sold decreased to $917,000 in
the three months ended September 30, 2000, from $924,000 in the three months
ended September 30, 1999. This decrease in light of the Company's reported sales
increase reflects higher sales volume, a more favorable product mix and improved
operating efficiencies during the current quarter. Gross margins on product
sales reached 67% during the current quarter compared to 64% last year. The
Company expects downward pressure on its product margins during the second half
of fiscal 2001 due to higher fixed costs resulting from its relocation to a new
facility, and costs associated with the installation of automated manufacturing
equipment.
Research and Development Expense. Research and development expenditures
increased 33% to $879,000 for the three months ended September 30, 2000, from
$661,000 reported for the three months ended September 30, 1999. This increase
primarily reflects the Company's continued investment in Phase III clinical
studies and other product development costs for ProDex, an active drug transport
system for 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, including the OcuPhor System for
the non-invasive, site specific delivery of therapeutics to treat ophthalmic
diseases. The Company estimates that total research and product development
costs for the full fiscal year could exceed $5 million, including $4 million for
local inflammation programs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 30%, to $1,695,000 in the three months ended
September 30, 2000 from $1,304,000 in the three months ended September 30, 1999.
The increase reflects additional business development and other administrative
costs.
Other Costs and Expenses. Net interest income and expense was $232,000
during the current quarter and $221,000 reported during the prior year period.
Amounts in both periods reflect interest earnings on invested cash balances.
Income Taxes. 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, 2000, which reflects management's
estimate of the Company's fiscal 2001 tax position. In addition, no income tax
benefit was recognized for the three months ended September 30, 1999.
Net loss. The Company recognized a net loss of $439,000 or $0.07 per
share, during the three months ended September 30, 2000 compared to a net loss
of $91,000 or $0.01 per share, during the three months ended September 30, 1999.
During both periods, net interest earnings on invested cash balances offset a
loss from operations, in part. With anticipated increases in internally funded
research and development programs, including its Phase III clinical studies,
the Company expects to report a net loss for the fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 2001, and consistent with the prior period, the Company's
operating losses, including its research and development programs, will be
internally funded with cash flows from its current operating business and cash
reserves. If successful in its efforts to enter into new collaborative research
and development arrangements, the Company could earn additional contract
research revenues in fiscal 2001 and in future years.
As of September 30, 2000, the Company had cash and cash equivalents
totaling approximately $14,426,000. 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.
Page 9 of 12
<PAGE> 10
The Company consumed $457,000 in cash for operating activities during
the three months ended September 30, 2000, compared to $154,000 during the three
months ended September 30, 1999. The increased cash consumption in the current
period can be attributed primarily to the higher reported net loss in the
current period.
Historically, the Company's operations have not been capital intensive
and, therefore, its investment in property, plant and equipment during the
periods presented has not been significant. However, the Company has entered
into agreements with various lending institutions to provide additional lease
financing for the Company's anticipated investments in capital equipment. As of
September 30, 2000, the Company had approximately $574,000 outstanding under
these lease agreements, all of which was classified as long-term obligations.
The Company intends to use the available credit under the agreement to fund the
majority of its capital equipment needs during the next 12 months. The
Company's expenditures for equipment and furniture in excess of equipment
acquired under the lease agreements was $207,000 in the three months ended
September 30, 2000.
Other uses of cash were $48,000 and $14,000 in principal reductions
under capital lease obligations during the three months ended September 30, 2000
and 1999, respectively. The Company received $41,000 in proceeds from exercise
of stock options during the current period.
In an effort to meet anticipated future growth and to consolidate its
research and administrative functions and manufacturing operations, the Company
executed a lease agreement in fiscal 2000 for an approximate 34,000 square foot
facility. The Company anticipates the use of term loans and lease lines, the
availability of which is not assured, to fund the facilities modification and
consolidation.
The Company expects to continue to incur substantial costs associated
with its research and product development activities, including clinical trials,
investment in sales and marketing of new product lines, additional investment in
working capital, and the cost of consolidating and equipping its facilities.
These costs will be funded by internally generated funds from the Company's
established commercial business; term loan and capital lease financing
agreements; and from existing cash balances. It is currently estimated that the
Company will consume $5 million of existing cash balances during fiscal year
2001. 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 to 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.
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,
2000.
REPORTS ON FORM 8-K:
No reports were filed on form 8-K during the period covered by this
report.
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IOMED, INC.
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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, 2000 By: /s/ James R. Weersing
----------------------
James R. Weersing
President and Chief Executive Officer
Date: November 13, 2000 By: /s/ Robert J. Lollini
----------------------
Robert J. Lollini
Executive Vice President, Finance
and Chief Financial Officer
Page 11 of 12
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
27.1 Financial Data Schedule for the three months ended
September 30, 2000.
</TABLE>
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