<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1995
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or
[ ] TRANSITION 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: 0-18338
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I-Flow Corporation
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(Exact name of registrant as specified in its charter)
California 33-0121984
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2532 White Road, Irvine, CA 92714
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(Address of principal executive offices) (Zip Code)
(714) 553-0888
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
As of September 30, 1995, there were 8,990,759 shares outstanding of
Common Stock and 656,250 shares outstanding of Series B Preferred Stock.
<PAGE>
I-FLOW CORPORATION
FORM 10-Q
SEPTEMBER 30, 1995
TABLE OF CONTENTS
Page
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Part I: Financial Information
Balance Sheets as of September 30, 1995 (Unaudited) and
December 31, 1994 3
Statements of Operations for the three and nine-month
periods ended September 30, 1995 and 1994 (Unaudited) 4
Statements of Cash Flows for the nine-month periods
ended September 30, 1995 and 1994 (Unaudited) 5
Notes to Financial Statements 6
Management's Discussion and Analysis of Results of
Operations and Financial Condition 8
Part II: Other Information 10
Signatures 11
2
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I-FLOW CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
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(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,259,000 $ 1,834,000
Accounts receivable, net 3,529,000 2,627,000
Inventories 1,595,000 1,040,000
Other 116,000 91,000
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Total current assets 7,499,000 5,592,000
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PROPERTY:
Furniture, fixtures and equipment 1,385,000 1,159,000
Rental and demonstration equipment 215,000 248,000
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Total property 1,600,000 1,407,000
Less accumulated depreciation (1,160,000) (1,013,000)
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Property, net 440,000 394,000
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OTHER ASSETS 273,000 223,000
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TOTAL $ 8,212,000 $ 6,209,000
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----------- -----------
LIABITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 799,000 $ 556,000
Accrued payroll and related expenses 304,000 514,000
Deferred revenue 490,000 711,000
Other liabilities 137,000 247,000
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Total current liabilities 1,730,000 2,028,000
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock - no par value; 5,000,000
shares authorized; 656,250 series B
shares issued and outstanding at
September 30, 1995 and December 31, 1994
(aggregate preference on liquidation is
$1,575,000) 1,494,000 1,494,000
Common stock - no par value; 40,000,000
shares authorized; 8,990,759 and 8,201,834
shares issued and outstanding at
September 30, 1995 and December 31,
1994, respectively 23,446,000 21,721,000
Accumulated deficit (18,458,000) (19,034,000)
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Net shareholders' equity 6,482,000 4,181,000
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TOTAL $ 8,212,000 $ 6,209,000
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</TABLE>
See accompanying notes to financial statements
3
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I-FLOW CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Net sales $2,626,000 $2,050,000 $7,075,000 $ 4,097,000
Rental income 11,000 13,000 57,000 44,000
Interest income 12,000 16,000 53,000 73,000
---------- ---------- ---------- -----------
Total revenues 2,649,000 2,079,000 7,185,000 4,214,000
---------- ---------- ---------- -----------
COSTS AND EXPENSES:
Cost of sales 1,240,000 1,311,000 3,169,000 2,702,000
Selling and marketing 356,000 456,000 1,163,000 1,322,000
General and administrative 505,000 469,000 1,626,000 1,350,000
Product development 208,000 189,000 651,000 560,000
---------- ---------- ---------- -----------
Total costs and expenses 2,309,000 2,425,000 6,609,000 5,934,000
---------- ---------- ---------- -----------
NET INCOME (LOSS) $340,000 ($346,000) $576,000 ($1,720,000)
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
NET INCOME (LOSS) PER SHARE $0.04 ($0.04) $0.06 ($0.21)
----- ------- ----- -------
----- ------- ----- -------
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 9,432,579 8,168,999 9,080,710 8,168,999
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
I-FLOW CORPORATION
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
For the Nine Months
September 30,
1995 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 576,000 ($1,720,000)
Adjustments to reconcile net loss
to net cash used by operations:
Depreciation 147,000 197,000
Increase in reserve for obsolete inventory 234,000
Changes in operating assets and liabilities:
Accounts receivable (902,000) (1,585,000)
Inventories (555,000) (439,000)
Prepaid expenses (25,000) (13,000)
Accounts payable and accrued liabilities (298,000) (292,000)
----------- -----------
Net cash used by operating activities (1,057,000) (3,618,000)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Property acquisitions (including rental and
demonstration equipment) (193,000) (155,000)
Change in other assets (50,000) (48,000)
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Net cash used by investing activities (243,000) (203,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options and warrants
to purchase common stock 1,725,000
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Net cash provided by financing activities 1,725,000
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NET INCREASE IN CASH AND CASH EQUIVALENTS 425,000 (3,821,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,834,000 5,351,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,259,000 $ 1,530,000
----------- -----------
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</TABLE>
See accompanying notes to financial statements
5
<PAGE>
I-FLOW CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements contain all
adjustments (consisting only of normal recurring adjustments)
which, in the opinion of management, are necessary to present
fairly the financial position of the Company at September 30,
1995, and the results of its operations and its cash flows for
the nine-month periods ended September 30, 1995 and 1994.
Certain information and footnote disclosures normally included
in financial statements have been condensed or omitted
pursuant to rules and regulations of the Securities and
Exchange Commission although the Company believes that the
disclosures in the financial statements are adequate to make
the information presented not misleading.
The financial statements included herein should be read in
conjunction with the financial statements of the Company,
included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1994 filed with the Securities and
Exchange Commission on March 31, 1995.
Certain amounts previously reported have been reclassified to
conform with the presentation at September 30, 1995.
2. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES - Inventories consisted of the following:
<TABLE>
September 30, December 31,
1995 1994
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<S> <C> <C>
Raw Materials $1,384,000 $1,078,000
Work in Process 302,000 213,000
Finished Goods 370,000 210,000
Reserve for Obsolescence (461,000) (461,000)
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$1,595,000 $1,040,000
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---------- ----------
</TABLE>
3. COMMON STOCK OPTIONS AND WARRANTS
The Company has stock option plans which currently provide for
the granting of options to employees, officers, consultants
and directors. Stock option activity for the nine-month
period ended September 30, 1995 is summarized as follows:
6
<PAGE>
<TABLE>
<CAPTION>
Shares Exercise
Subject to Price per
Options Share
---------- ---------
<S> <C> <C>
Balance, December 31, 1994 1,802,091 $0.25-$5.15
Granted 189,778 $1.88-$3.06
Canceled (27,586) $1.31-$2.75
Exercised (30,244) $1.31-$2.20
Expired (6,000) $4.40-$5.00
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Balance, September 30, 1995 1,928,039 $0.25-$5.15
-------- -----------
-------- -----------
</TABLE>
Options to purchase 1,397,346 shares of the Company's common
stock were exercisable at September 30, 1995 at exercise
prices ranging from $0.25 to $5.15 per share.
During the nine-month period ended September 30, 1995, the
Company authorized a reduction in the exercise price of the
IPO Warrants and the Series E Warrants from $ 3.81 and $4.00,
respectively, to $2.25 (which approximated the fair market
value on the date of the reduction). Additionally, the
expiration dates of these warrants was extended from June 30,
1995 until July 31, 1995. In July 1995, an aggregate of
758,678 shares of the Company's Common Stock was issued upon
exercise of the IPO Warrants and the Series E Warrants. The
Company received net proceeds of $1,707,032 from the exercise
of such warrants. Outstanding warrants as of September 30,
1995 are summarized below.
<TABLE>
<CAPTION>
Shares
Subject to Exercise Price
Description Warrants Per Share Expiration Date
----------- ---------- -------------- ---------------
<S> <C> <C> <C>
Underwriter Warrants 46,051 6.79 February 1997
Series F Warrants 607,032 2.40 to October 1997
4.80
Series G Warrants 2,239,622 3.00 December 1996
Series H Warrants 150,000 2.75 to March 1997
3.25
</TABLE>
4. BANK FINANCING
During the three-month period ended September 30, 1995, the
Company entered into a financing agreement with a bank which
provides for a working capital line of credit expiring in
August 1996. Under the line of credit, the Company may borrow
up to the lesser of $1,500,000 or 75% of eligible accounts
receivable, as defined, at a banks prime rate plus 1% (9.75%
at September 30, 1995). There were no borrowings under the
line during the quarter ended September 30, 1995.
7
<PAGE>
I-FLOW CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Total revenues for the three and nine-month periods ended
September 30, 1995 were $2,649,000 and $7,185,000,
respectively, compared to $2,079,000 and $4,214,000 for the
same periods in the prior year, representing an increase of
27% and 71%, respectively. This increase in revenues is due
to increased sales for the Company's SIDEKICK and PARAGON
products. In April 1994, the Company changed its primary U.S.
distributor for these products and sales to the new
distributor have been the primary reason for the increase in
revenue.
Cost of sales of $1,240,000 and $3,169,000 were incurred
during the three and nine-month periods ended September 30,
1995, respectively. As a percentage of revenues, cost of
sales decreased by approximately 17% and 21%, respectively,
compared to the same periods in the prior year. The increase
in gross profit is primarily the result of manufacturing
efficiencies which have occurred due to increased production
and a change in the product mix to increased PARAGON product
sales as a percent of total sales. PARAGON products have a
gross margin which is approximately 15 to 20% higher than
SIDEKICK products. In the prior period, the PARAGON products
accounted for only 40% of total sales versus approximately 60%
in the three and nine-month periods ended September 30, 1995
Selling and marketing expenses for the three and nine-month
periods ended September 30, 1995 decreased over the same
period in the prior year by $100,000 or 22% and $159,000 or
12%, respectively. This decrease was due primarily to a
reduction in the Company's internal sales force, as the
Company now generates most of its sales through outside
distributors.
General and administrative expenses for the three and nine-
month periods ended September 30, 1995 increased over the same
periods in the prior year by $36,000 or 8% and $276,000 or
20%. These expenses primarily represent costs for
administrative personnel, facilities and other miscellaneous
items. These costs have increased primarily as a result of
increased operations during 1995.
Product development expenses for the three and nine-month
periods ended September 30, 1995 increased compared to those
for the same period in the prior year by $19,000 or 10% and
$91,000 or 16%, respectively. The Company will continue to
incur product development expenses as it continues its efforts
to introduce new improved-technology, cost-efficient products
into the market.
8
<PAGE>
FINANCIAL CONDITION
During the nine-month period ended September 30, 1995, the
Company used funds aggregating $1,057,000 in its operations.
Such use of funds consisted primarily of the net income of
$576,000, plus non-cash expenses of $147,000 for depreciation,
less net changes in operating assets and liabilities of
$1,780,000. The changes in operating assets and liabilities
consisted of an increase in accounts receivable, inventories
and prepaid expenses of $1,482,000 and a reduction in accounts
payable and accrued liabilities of $298,000.
The Company used funds for investing activities during the
nine-month period ended September 30, 1995 by acquiring
property (including rental and demonstration equipment) and
other assets aggregating $243,000.
The Company had a warrant offering which generated $1,728,000
in cash from financing activities during the nine-month period
ended September 30, 1995.
As of September 30, 1995, the Company had available funds of
$2,259,000 and net receivables of $3,529,000. To date, the
Company has financed its operations and working capital
requirements primarily through equity financings. Management
believes the Company's funds are sufficient to provide for its
short-term projected needs. As the Company has not yet
reached a level of sales adequate to provide for all of its
cash requirements, there is no assurance that the Company will
be able to finance its long-term financial needs without
additional financing or increased sales activity. While
management believes financing would be available if operations
improve, no assurances can be given.
9
<PAGE>
PART II - OTHER INFORMATION
Items 1. - 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - none
(b) During the quarter ended September 30, 1995, the Company
filed a Current Report on Form 8-K dated July 31, 1995,
regarding its previously announced special Warrant
Reduction Offer.
10
<PAGE>
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.
I-FLOW CORPORATION
------------------
(Registrant)
Date: November 12, 1995 Donald M. Earhart /s/
----------------------------
Donald M. Earhart,
Chairman, President and CEO
Date: November 12, 1995 Gayle L. Arnold /s/
----------------------------
Gayle L. Arnold,
Vice President, Finance
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995<F1>
<PERIOD-START> JAN-01-1995<F1>
<PERIOD-END> SEP-30-1995<F1>
<CASH> 2,259,000<F1>
<SECURITIES> 0<F1>
<RECEIVABLES> 3,529,000<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 1,595,000<F1><F2>
<CURRENT-ASSETS> 116,000<F1>
<PP&E> 1,600,000<F1>
<DEPRECIATION> (1,160,000)<F1>
<TOTAL-ASSETS> 8,212,000<F1>
<CURRENT-LIABILITIES> 1,730,000<F1><F4>
<BONDS> 0<F1>
<COMMON> 23,446,000<F1><F3>
0<F1>
1,494,000<F1>
<OTHER-SE> (18,458,000)<F1>
<TOTAL-LIABILITY-AND-EQUITY> 8,212,000<F1>
<SALES> 7,075,000<F1>
<TOTAL-REVENUES> 7,185,000<F1>
<CGS> 3,169,000<F1>
<TOTAL-COSTS> 6,609,000<F1>
<OTHER-EXPENSES> 0<F1>
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 0<F1>
<INCOME-PRETAX> 576,000<F1>
<INCOME-TAX> 0<F1>
<INCOME-CONTINUING> 576,000<F1>
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> 0<F1>
<CHANGES> 0<F1>
<NET-INCOME> 576,000<F1>
<EPS-PRIMARY> .06<F1>
<EPS-DILUTED> .06<F1>
<FN>
<F1>Basis of Presentation
<F2>General and Summary of Significant Acctg. Policies
<F3>Common Stock Options and Warrants
<F4>Bank Financing
</FN>
</TABLE>
