<PAGE> 1
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, 1999
--------------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------ --------------------
Commission file Number: 0-18338
I-Flow Corporation
------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 33-0121984
------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
20202 Windrow Drive, Lake Forest, CA 92630
------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(949) 206-2700
------------------------------------------------------------------------
(Registrant's telephone number, including area code)
------------------------------------------------------------------------
(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 30,1999 there were 14,487,306 shares outstanding of
Common Stock.
<PAGE> 2
I-FLOW CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I: Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1999 (Unaudited)
and December 31, 1998 3
Consolidated Statements of Operations for the three and nine-month
periods ended September 30, 1999 and 1998 (Unaudited) 4
Consolidated Statements of Cash Flows for the nine-month periods
ended September 30, 1999 and 1998 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
Part II: Other Information 12
Signatures 14
</TABLE>
<PAGE> 3
I-FLOW CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 809,000 $ 971,000
Accounts receivable, net 8,518,000 7,490,000
Inventories, net 4,489,000 4,328,000
Prepaid expenses and other 644,000 638,000
------------ ------------
Total current assets 14,460,000 13,427,000
------------ ------------
PROPERTY:
Furniture, fixtures and equipment 7,614,000 6,789,000
Less accumulated depreciation (4,456,000) (3,362,000)
------------ ------------
Property, net 3,158,000 3,427,000
------------ ------------
OTHER ASSETS
Goodwill and other intangibles, net 7,100,000 7,223,000
Notes receivable and other 110,000 259,000
------------ ------------
TOTAL $ 24,828,000 $ 24,336,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,426,000 $ 1,300,000
Accrued payroll and related expenses 2,065,000 1,453,000
Current portion of long-term debt 1,905,000 2,083,000
Borrowings under line-of-credit 260,000 1,979,000
Other liabilities -- 24,000
------------ ------------
Total current liabilities 5,656,000 6,839,000
------------ ------------
LONG-TERM DEBT 1,571,000 2,680,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock - no par value; 5,000,000 shares
authorized; 301,250 series B shares issued
and outstanding at December 31, 1998 -- 686,000
Common stock - no par value; 40,000,000 shares
authorized; 14,487,306 and 14,044,428 shares
issued and outstanding at June 30, 1999 and
December 31, 1998, respectively 38,624,000 37,735,000
Common stock warrants 615,000 615,000
Cumulative other comprehensive income 12,000 --
Accumulated deficit (21,650,000) (24,219,000)
------------ ------------
Net shareholders' equity 17,601,000 14,817,000
------------ ------------
TOTAL $ 24,828,000 $ 24,336,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 4
I-FLOW CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $ 7,831,000 $ 6,574,000 $ 21,387,000 $ 16,539,000
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales 3,057,000 2,733,000 8,380,000 7,184,000
Selling and marketing 1,011,000 1,107,000 3,141,000 3,038,000
General and administrative 2,248,000 1,742,000 6,069,000 4,556,000
Product development 275,000 236,000 801,000 678,000
------------ ------------ ------------ ------------
Total costs and expenses 6,591,000 5,818,000 18,391,000 15,456,000
Operating income 1,240,000 756,000 2,996,000 1,083,000
Interest expense, net 115,000 204,000 364,000 521,000
Income taxes 29,000 15,000 86,000 37,000
------------ ------------ ------------ ------------
Net income $ 1,096,000 $ 537,000 $ 2,546,000 $ 525,000
============ ============ ============ ============
Net income per share
Basic $ 0.08 $ 0.04 $ 0.18 $ 0.04
Diluted $ 0.07 $ 0.04 $ 0.17 $ 0.03
============ ============ ============ ============
Comprehensive Operations:
Net income $ 1,096,000 $ 537,000 $ 2,546,000 $ 525,000
Foreign currency translation adjustment 12,000 (9,000) 12,000 (9,000)
------------ ------------ ------------ ------------
Comprehensive income $ 1,108,000 $ 528,000 $ 2,558,000 $ 516,000
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
I-FLOW CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,546,000 $ 525,000
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 1,812,000 1,528,000
Changes in operating assets and liabilities:
Accounts receivable (1,028,000) 561,000
Inventories (161,000) 249,000
Prepaid expenses and other (6,000) (231,000)
Accounts payable, accrued and other liabilities 737,000 (1,854,000)
----------- -----------
Net cash provided by operating activities 3,900,000 778,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property acquisitions (825,000) (403,000)
Change in other assets (446,000) (13,000)
----------- -----------
Net cash used by investing activities (1,271,000) (416,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in line of credit (1,719,000) (1,243,000)
Change in notes payable (1,287,000) 1,352,000
Proceeds from exercise of stock options and warrants 203,000 13,000
----------- -----------
Net cash (used) provided by financing activities (2,803,000) 122,000
----------- -----------
Effect of exchange rates on cash 12,000 126,000
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (162,000) 610,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 971,000 715,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 809,000 $ 1,325,000
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 364,000 $ 521,000
----------- -----------
Income tax payments $ 86,000 $ 37,000
----------- -----------
Conversion of preferred stock to common stock $ 662,000 $ 808,000
----------- -----------
Liabilities issued and assumed in connection with acquisition:
Fair value of assets acquired (including intangibles) 8,254,000
Common stock issued 3,044,000
-----------
Liabilities issued and assumed 5,210,000
===========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 6
I-FLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements contain all
adjustments (consisting only of normal recurring adjustments) that, in
the opinion of management, are necessary to present fairly the financial
position of I-Flow Corporation (the Company) at September 30, 1999 and
the results of its operations and its cash flows for the three and
nine-month periods ended September 30, 1999 and 1998. 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, 1998 filed
with the Securities and Exchange Commission on March 31, 1999.
Certain amounts previously reported have been reclassified to conform
with the presentation at September 30, 1999.
2. INVENTORIES
Inventories consisted of the following as of September 30, 1999 and
December 31, 1998:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------------------------------------------------------------------
<S> <C> <C>
Raw Materials $ 3,826,000 $ 3,507,000
Work in Process 591,000 172,000
Finished Goods 1,564,000 1,869,000
Reserve for Obsolescence (1,492,000) (1,220,000)
---------------------------------------------------------------------
Total $ 4,489,000 $ 4,328,000
---------------------------------------------------------------------
</TABLE>
3. EARNINGS PER SHARE
Basic net income per share is computed using the weighted average number
of common shares outstanding during the periods presented.
Diluted net income per share is computed using the weighted average
number of common and common equivalent shares outstanding during the
periods presented assuming the conversion of all shares of the Company's
convertible preferred stock into common stock and the exercise of all
in-the-money stock options. Common equivalent shares have not been
included where inclusion would be antidilutive.
6
<PAGE> 7
The following is a reconciliation between the net income and the number
of shares used in the basic and diluted net income per share
calculations:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
---------------------------------------------------------------------------------------------------------
(Amounts in thousands) 1999 1998 1999 1998
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 1,096 $ 537 $ 2,546 $ 525
Less preferred stock dividends 14 42
---------------------------------------------------------------------------------------------------------
Net income available to common shareholders $ 1,096 $ 523 $ 2,546 $ 483
---------------------------------------------------------------------------------------------------------
Basic net income per share
Weighted average number of shares outstanding 14,442 13,632 14,298 13,332
Effect of dilutive securities:
Preferred stock 570 570
Stock options 1,324 185 1,008 333
---------------------------------------------------------------------------------------------------------
Diluted net income per share
Weighted average number of shares outstanding 15,766 14,387 15,306 14,235
---------------------------------------------------------------------------------------------------------
</TABLE>
4. BUSINESS SEGMENTS
The Company operates in two business segments: manufacturing and
marketing of medical infusion pumps and rentals of medical infusion
pumps.
Business segment information is as follows for the three and nine-month
periods ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Manufacturing
(Amounts in thousands) and Marketing Rentals Consolidated
------------------------------------------------------------------------------
<S> <C> <C> <C>
1999
THREE MONTHS ENDED SEPTEMBER 30,
Revenues $ 5,788 $ 2,043 $ 7,831
Operating income 814 426 1,240
Assets 15,852 8,976 24,828
NINE MONTHS ENDED SEPTEMBER 30,
Revenues 15,228 6,159 21,387
Operating income 1,639 1,357 2,996
Assets 15,852 8,976 24,828
1998
THREE MONTHS ENDED SEPTEMBER 30,
Revenues 4,924 1,650 6,574
Operating income 563 193 756
Assets 16,342 8,521 24,863
NINE MONTHS ENDED SEPTEMBER 30,
Revenues 12,178 4,361 16,539
Operating income 429 654 1,083
Assets 16,342 8,521 24,863
------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
5. ACQUISITION OF INFUSYSTEMS II, INC. AND VENTURE MEDICAL, INC.
On February 9, 1998, the Company entered into an Agreement and Plan of
Merger (the "Agreement") with, InfuSystems II, Inc. ("InfuSystem"),
Venture Medical, Inc. ("VMI") and the shareholders of InfuSystem and
VMI, contemplating the merger of InfuSystem and VMI with and into a
wholly-owned subsidiary of the Company. Pursuant to the Agreement, VMI
and InfuSystem were merged (the "Merger") with and into the subsidiary
effective as of February 11, 1998. The acquisition was accounted for
under the purchase method of accounting and the purchase price has been
allocated to the net assets acquired and goodwill.
In the Merger, all of the outstanding shares of Common Stock of VMI and
InfuSystems were exchanged for shares of Common Stock of the Company.
The aggregate number of shares of Common Stock of the Company issued in
the Merger to the shareholders of VMI and InfuSystems was 972,372
shares, valued at approximately $2.9 million (subject to certain
post-closing adjustments). As contemplated by the Agreement, shares of
Common Stock of the Registrant issued in the Merger valued at $1.5
million (the "Escrowed Shares") were withheld and were delivered to an
escrow agent, to be deposited in escrow. The Escrowed Shares, or cash
equal to the closing value of the Escrowed Shares, will be held for a
period of two years during which time they will be subject to claims by
the Company to satisfy the obligations of InfuSystems, VMI and the
shareholders of InfuSystems and VMI under the Agreement (subject to the
possible earlier release of a portion of the Escrowed Shares in
connection with collection of certain accounts receivable). At each of
the six-month, one-year, eighteen-month and two-year anniversaries of
the closing, if the value of the Company's Common Stock at such time is
less than the value of its Common Stock as of the closing ($2.98 per
share), then the Company will be obligated to pay additional amounts as
merger consideration. Any additional amounts are to be calculated
pursuant to the formula set forth in the Agreement. At the Company's
election, it may pay such additional merger consideration by the
issuance of additional shares of its Common Stock, in cash, or any
combination thereof. In August 1998, the Company issued 234,806 shares
of its Common Stock pursuant to the valuation floor provision for the
six-month anniversary. There was no incremental value ascribed to these
additional shares for purchase accounting of the acquisition. In March
1999, the Company paid $286,081 pursuant to the valuation floor
provision for the one-year anniversary. No adjustment was necessary for
the eighteen-month anniversary in August 1999.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain disclosures made by the Company in this report and in other
reports and statements released by the Company are and will be
forward-looking in nature, such as comments that express the Company's
opinions about trends and factors that may impact future operating
results. Disclosures that use words such as the Company "believes,"
"anticipates," or "expects" or use similar expressions are intended to
identify forward-looking statements. Such statements are subject to
certain risks and uncertainties that could cause actual results to
differ from those expected. Readers are cautioned not to place undue
reliance on these forward-looking statements. The Company undertakes no
obligation to publish revised forward-looking statements to reflect the
occurrence of unanticipated events. Readers are also urged to carefully
review and consider the various disclosures made by the Company in this
report that seek to advise interested parties of the risks and other
factors that affect the Company's business, as well as in the Company's
periodic reports on Forms 10-K, 10-Q, and 8-K filed with the Securities
and Exchange Commission. The risks affecting the Company's business
include reliance on the success of the home health care industry, the
ability to penetrate hospital accounts, the health care reimbursement
system in place now and in the future, competition in the industry,
demand in foreign countries, customer credit risks, technological
changes and product availability. Any such forward-looking statements,
whether made in this report or elsewhere, should be considered in
context with the various disclosures made by the Company about its
business.
RESULTS OF OPERATIONS
Net revenues during the three and nine-month periods ended September 30,
1999 were $7,831,000 and $21,387,000, respectively, compared to
$6,574,000 and $16,539,000 for the same periods in the prior year,
representing an increase of 19% and 29%, respectively. In February 1998,
the Company acquired two new subsidiaries, InfuSystems II, Inc. and
Venture Medical, Inc., both of which were national ambulatory infusion
pump management and distribution companies based in Detroit, Michigan.
These companies were merged into InfuSystem, Inc. ("InfuSystem"), a
wholly owned subsidiary of the Company. Rental revenues generated by
InfuSystem, Inc. of $2,043,000 and $6,159,000 were included in net
revenues for the three and nine-month periods ended September 30, 1999,
respectively. Rental revenues generated by InfuSystem, Inc. subsequent
to the February 11, 1998 acquisition date, of $1,650,000 and $4,361,000
were included in net revenues for the three and nine-month periods ended
September 30, 1998.
Net product revenues increased from $12,178,000 for the nine months
ended September 30, 1998 to $13,769,000 for the same period in 1999, an
increase of 13%. Revenues in early 1998 were adversely affected by the
restructuring of the Company's worldwide distribution network as well as
existing high distributor inventory levels early in 1998, which caused a
short-term decline in shipments of infusion products to the Company's
previous distribution partners. As described below, several new
distribution partners and new products were added in 1998 and 1999.
These new distributors contributed significantly to the increased
product revenues for the nine-months ended September 30, 1999.
In March 1998, the Company entered into an agreement with B. Braun
Melsungen AG (G.BRN), a world leader in the manufacture and distribution
of pharmaceuticals and infusion products, to distribute I-Flow's
elastomeric infusion pumps in Western Europe, Eastern Europe, the Middle
East, Asia Pacific, South America and Africa. The Company also entered
into a similar agreement under which B. Braun of America, Inc.
distributes I-Flow's elastomeric pumps to its full line IV solution
customers in the United States. During the nine months ended September
30, 1999 and 1998, aggregate sales to these two companies accounted for
approximately 22% and 25%, respectively, of the Company's net revenues.
In May 1999, the Company entered into an agreement with dj Orthopedics
LLC (formerly DonJoy, a division of Smith & Nephew, Inc.), a leading
provider of orthopedic braces, to distribute the Company's PainBuster
pain management system exclusively in the United States and Canada for
orthopedic surgery applications. I-Flow's PainBuster pain management
system provides continuous infusion of a non-narcotic, local anesthetic
directly into the intraoperative site for post-operative pain
management. The agreement
9
<PAGE> 10
also calls for I-Flow to receive a nonrefundable $2 million licensing
fee during 1999 and requires dj Orthopedics to make minimum purchases
for 1999 and beyond in order to maintain distribution rights. As of
September 30, 1999 the Company had recorded as revenue $1,400,000 in
such licensing fees. The Company has not yet received payment for
$600,000 of these licensing fees which were due September 20, 1999.
In June 1999, the Company signed a distribution agreement with Ethicon
Endo-Surgery, Inc., a Johnson & Johnson Company, under which Ethicon
Endo-Surgery became the exclusive, worldwide distributor of I-Flow's
ON-Q Pain Management System for all surgical applications excluding
orthopedics. The ON-Q Pain Management System infuses non-narcotic local
anesthetics directly into the intraoperative site, the patient's primary
source of post-operative pain. This multi-year agreement requires
Ethicon Endo-Surgery to meet minimum purchase commitments to maintain
exclusive distribution rights.
Cost of sales of $3,057,000 and $8,380,000 were incurred during the
three and nine-month periods ended September 30, 1999, compared to
$2,733,000 and $7,184,000 in the prior year. As a percentage of net
sales, cost of sales was approximately 4 % lower compared to the same
periods in the prior year due primarily to a change in the sales mix
towards the new pain management products, which have a higher gross
margin.
Selling and marketing expenses for the three-months ended September 30,
1999 decreased over the same period in the prior year by $96,000 or 9%,
due to the lower selling costs associated with the new distribution
agreements described above. Selling and marketing expenses for the
nine-months ended September 30, 1999 increased over the same period in
the prior year by $103,000 or 3%. The nine-month increase is primarily
due to the addition of such expenses for InfuSystem for the entire
nine-month period in 1999 versus only a portion of the nine-month period
for 1998.
General and administrative expenses for the three and nine-months ended
September 30, 1999 increased $506,000 or 29% and $1,513,000 or 33% from
the same periods in the prior year. These increases are due primarily to
increased personnel costs, insurance costs and various other costs
associated with the growth in the business as well as the addition of
InfuSystem for the entire nine-month period in 1999 compared to only a
portion of the nine-month period for 1998.
Product development expenses for the three and nine-months ended
September 30, 1999 increased over the same period in the prior year by
$39,000, or 17% and $123,000 or 18%, respectively, due primarily to
increased efforts on the new pain management products. The Company will
continue to incur product development expenses as it continues its
efforts to introduce new and improved technology and cost-efficient
products into the market.
LIQUIDITY AND CAPITAL RESOURCES
During the nine month period ended September 30, 1999, funds of
$3,900,000 were provided by operating activities consisting of net
income of $2,546,000 plus non-cash expenses of $1,812,000 less net
changes in operating assets and liabilities of $458,000. These changes
in operating assets and liabilities consisted of: (1) an increase in
accounts receivable of $1,028,000, (2) an increase in inventories of
$161,000, (3) an increase in prepaid expenses and other of $6,000, less
(4) an increase in accounts payable, accrued expenses, and other
liabilities of $737,000.
The Company used funds for investing activities during the nine-month
period ended September 30, 1999 aggregating $1,271,000. These
expenditures consisted of $825,000 for acquiring furniture, fixtures and
equipment for use in its operations and $446,000 in intangible assets.
Included in such amount is the payment of $286,000 to the former
shareholders of InfuSystem (see Note 5 of Notes to Consolidated
Financial Statements).
During the nine month period ended September 30, 1999, funds of
$2,803,000 were used for financing activities consisting primarily of
payments on notes payable net of borrowings of $1,287,000 and a net
10
<PAGE> 11
reduction on the Company's line of credit of $1,719,000. The Company
also received $203,000 in proceeds from the exercise of stock options.
As of September 30, 1999, the Company had cash funds of $809,000 and net
receivables of $8,518,000. Management believes the Company's funds are
sufficient to provide for its short and long-term projected needs for
operations. However, the Company may decide to sell additional equity or
increase its borrowings in order to fund increased product development
or for other purposes.
YEAR 2000 COMPLIANCE
Many computer systems and software products are coded to accept only two
digit entries in the date code field. These date code fields will need
to accept four digit entries to distinguish 21st century dates from 20th
century dates. As a result, prior to the end of 1999, computer systems
and/or software used in many companies may need to be upgraded to comply
with such "Year 2000" requirements.
The Company has modified or replaced portions of its hardware and
software so that its computer systems properly recognize dates beyond
December 31, 1999. The Company has completed its Year 2000 remediation
efforts and believes that with these modifications and conversions, the
Year 2000 issue can be managed, and the associated risks mitigated. The
Company has received confirmation from vendors of certain software used
for internal operations that current releases or upgrades are designed
to be Year 2000 compliant. The Company has installed such upgrades to
its current systems. Additionally, The Company has contacted the
companies that it relies heavily upon to determine the extent to which
the Company may be vulnerable to such parties' failure to resolve their
own Year 2000 issues. Where practicable, the Company has assessed and
attempted to mitigate its risks with respect to failure of these
entities to be Year 2000 ready. The effect, if any, on the Company's
results of operations from the failure of such parties to be Year 2000
ready is not reasonably estimable.
The Company has evaluated its own products for potential Year 2000
issues and made such products Year 2000 compliant. The vast majority of
the Company's products are not date sensitive and the Company does not
directly rely on any of its vendors' or customers' systems. The Company
did not incur significant issues or costs associated with making its
products Year 2000 compliant. However, there can be no assurance that
such products do not contain undetected errors or defects associated
with Year 2000 date functions.
The Company has been using both external and internal resources to
reprogram or replace its software for the Year 2000 issues. To date, the
amounts incurred and expensed for developing and carrying out the plan
have not had a material effect on the Company's operations. Although the
Company is not aware of any additional material operational issues or
costs associated with preparing its products or internal information
systems for the year 2000, there can be no assurances that the Company
will not experience serious unanticipated negative consequences and/or
material costs caused by undetected errors or defects in the technology
used in its internal systems, which are composed predominantly of third
party software and hardware.
Should the Company be unable to completely mitigate internal and
external Year 2000 risks, this could result in a system failure or
miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities at the Company
or its vendors and suppliers. The Company believes, that under a worst
case scenario, it could continue the majority of its normal business
activities on a manual basis.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
11
<PAGE> 12
FOREIGN CURRENCY
The Company has a subsidiary operating in Mexico. Accordingly, the
Company is exposed to transaction gains and losses that could result
from changes in foreign currency exchange rates. The Company believes
that this foreign currency market risk is not material.
PART II - OTHER INFORMATION
Items 1. - 5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Exhibit
----------- -------
<S> <C>
3.1 Restated Articles of Incorporation of the Company (2)
3.2 Certificate of Amendment to Restated Articles of
Incorporation dated June 14, 1991 (3)
3.3 Certificate of Amendment to Restated Articles of
Incorporation dated May 12, 1992 (4)
3.4 Certificate of Determination covering Company's Series B
Preferred Stock filed with the Secretary of State on
October 5, 1992 (4)
3.5 Restated Bylaws as of July 22, 1991 of the Company (3)
4.1 Specimen Common Stock Certificate (4)
4.2 Warrant Agreement between the Company and American Stock
Transfer & Trust Company, as Warrant Agent, dated February
13, 1990 (1)
4.3 Form of Warrant dated July 22, 1996, issued in conjunction
with the acquisition of Block Medical, Inc. (5)
10.1 Employment Agreement with Donald M. Earhart dated May 16,
1990 (2)(6) *
10.2 1987-1988 Incentive Stock Option Plan and Non-Statutory
Stock Option Plan Restated as of March 23, 1992 (5)(6) *
10.3 1992 Non-Employee Director Stock Option Plan (4)(6)
10.4 License and Transfer Agreement with SoloPak Pharmaceuticals
Inc., dated March 6, 1996 (7)
10.5 1996 Stock Incentive Plan (6)(9) *
10.6 Agreement for Purchase and Sale of Assets dated as of July
3, 1996 by and among I-Flow Corporation, Block Medical,
Inc. and Hillenbrand Industries, Inc. (8)
10.7 Employment Agreement with James J. Dal Porto dated
September 6, 1996 (10) *
10.8 Lease Agreement Between Industrial Developments
International, Inc. as Landlord and I-Flow Corporation as
Tenant dated April 14, 1997 (11)
10.9 Agreement and Plan of Merger by and among I-Flow
Corporation, I-Flow Subsidiary, Inc., Venture Medical,
Inc., and InfuSystems II, Inc. and the Shareholders of
Venture Medical, Inc. and InfuSystems II, Inc. (12)
10.10 Loan and Security Agreement between Silicon Valley Bank and
I-Flow Corporation dated September 28, 1995 (13)
</TABLE>
12
<PAGE> 13
<TABLE>
<S> <C>
10.11 Amendment to Loan Agreement between Silicon Valley Bank and
I-Flow Corporation dated March 2, 1998 (13)
27 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to exhibit with this title filed with the
Company's Registration Statement (#33-32263-LA) declared effective
February 1, 1990.
(2) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended September 30, 1990.
(3) Incorporated by reference to exhibit with this title filed with the
Company's Registration Statement (#33-41207-LA) declared effective
August 8, 1991.
(4) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended December 31, 1991.
(5) Incorporated by reference to exhibit with this title filed with the
Company's Post Effective Amendment to its Registration Statement
(#33-41207-LA) declared effective November 6, 1992.
(6) Management contract or compensatory plan or arrangement required to
be filed as an exhibit pursuant to applicable rules of the
Securities and Exchange Commission.
(7) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended December 31, 1995.
(8) Incorporated by reference to exhibit with this title filed with the
Company's Report on Form 8-K dated July 22, 1996.
(9) Incorporated by reference to exhibit with this title filed with the
Company's Registration Statement (#333-16547) declared effective
November 20, 1996.
(10) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended December 31, 1996.
(11) Incorporated by reference to exhibit with this title filed with the
Company's Report on Form 8-K dated April 14, 1997.
(12) Incorporated by reference to exhibit with this title filed with the
Company's Report on Form 8-K dated February 9, 1998.
(13) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended December 31, 1997.
* Compensation plan, contract or arrangement required to be filed as
an exhibit pursuant to applicable rules of the Securities and
Exchange Commission.
13
<PAGE> 14
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 11, 1999 /s/ Donald M. Earhart
------------------- ---------------------------------
Donald M. Earhart,
Chairman, President and CEO
Date: November 11, 1999 /s/ Gayle L. Arnold
------------------- ---------------------------------
Gayle L. Arnold,
Vice President, Finance, Chief
Financial Officer
14
<PAGE> 15
INDEX TO EXHIBITS
Set forth below is a list of the exhibits included or incorporated by
reference as part of this report:
<TABLE>
<CAPTION>
Exhibit No. Exhibit
----------- -------
<S> <C>
3.1 Restated Articles of Incorporation of the Company (2)
3.2 Certificate of Amendment to Restated Articles of
Incorporation dated June 14, 1991 (3)
3.3 Certificate of Amendment to Restated Articles of
Incorporation dated May 12, 1992 (5)
3.4 Certificate of Determination covering Company's Series B
Preferred Stock filed with the Secretary of State on October
5, 1992 (5)
3.5 Restated Bylaws as of July 22, 1991 of the Company (3)
4.1 Specimen Common Stock Certificate (5)
4.2 Warrant Agreement between the Company and American Stock
Transfer & Trust Company, as Warrant Agent, dated February
13, 1990 (1)
4.3 Form of Warrant dated July 22, 1996, issued in conjunction
with the acquisition of Block Medical, Inc. (8)
10.1 Employment Agreement with Donald M. Earhart dated May 16,
1990 (2)(6) *
10.2 1987-1988 Incentive Stock Option Plan and Non-Statutory
Stock Option Plan Restated as of March 23, 1992 (5)(6) *
10.3 1992 Non-Employee Director Stock Option Plan (4)(6)
10.4 License and Transfer Agreement with SoloPak Pharmaceuticals
Inc., dated March 6, 1996 (7)
10.5 1996 Stock Incentive Plan (6)(9) *
10.6 Agreement for Purchase and Sale of Assets dated as of July
3, 1996 by and among I-Flow Corporation, Block Medical, Inc.
and Hillenbrand Industries, Inc. (8)
10.7 Employment Agreement with James J. Dal Porto dated September
6, 1996 (10) *
10.8 Lease Agreement Between Industrial Developments
International, Inc. as Landlord and I-Flow Corporation as
Tenant dated April 14, 1997 (11)
10.12 Agreement and Plan of Merger by and among I-Flow
Corporation, I-Flow Subsidiary, Inc., Venture Medical, Inc.,
and InfuSystems II, Inc. and the Shareholders of Venture
Medical, Inc. and InfuSystems II, Inc. (12)
10.13 Loan and Security Agreement between Silicon Valley Bank and
I-Flow Corporation dated September 28, 1995 (13)
10.14 Amendment to Loan Agreement between Silicon Valley Bank and
I-Flow Corporation dated March 2, 1998 (13)
27 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to exhibit with this title filed with the
Company's Registration Statement (#33-32263-LA) declared effective
February 1, 1990.
(2) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended September 30, 1990.
(3) Incorporated by reference to exhibit with this title filed with the
Company's Registration Statement (#33-41207-LA) declared effective
August 8, 1991.
(4) Incorporated by reference to exhibit with this title filed with the
Company's
15
<PAGE> 16
Form 10-K for its fiscal year ended December 31, 1991.
(5) Incorporated by reference to exhibit with this title filed with the
Company's Post Effective Amendment to its Registration Statement
(#33-41207-LA) declared effective November 6, 1992.
(6) Management contract or compensatory plan or arrangement required to
be filed as an exhibit pursuant to applicable rules of the
Securities and Exchange Commission.
(7) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended December 31, 1995.
(8) Incorporated by reference to exhibit with this title filed with the
Company's Report on Form 8-K dated July 22, 1996.
(9) Incorporated by reference to exhibit with this title filed with the
Company's Registration Statement (#333-16547) declared effective
November 20, 1996.
(10) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended December 31, 1996.
(11) Incorporated by reference to exhibit with this title filed with the
Company's Report on Form 8-K dated April 14, 1997.
(12) Incorporated by reference to exhibit with this title filed with the
Company's Report on Form 8-K dated February 9, 1998.
(13) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended December 31, 1997.
* Compensation plan, contract or arrangement required to be filed as
an exhibit pursuant to applicable rules of the Securities and
Exchange Commission.
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 809
<SECURITIES> 0
<RECEIVABLES> 8,518
<ALLOWANCES> 0
<INVENTORY> 4,489
<CURRENT-ASSETS> 14,460
<PP&E> 7,614
<DEPRECIATION> 4,456
<TOTAL-ASSETS> 24,828
<CURRENT-LIABILITIES> 5,656
<BONDS> 0
0
0
<COMMON> 38,624
<OTHER-SE> 615
<TOTAL-LIABILITY-AND-EQUITY> 24,828
<SALES> 21,387
<TOTAL-REVENUES> 21,387
<CGS> 8,380
<TOTAL-COSTS> 18,391
<OTHER-EXPENSES> 450
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 354
<INCOME-PRETAX> 2,632
<INCOME-TAX> 86
<INCOME-CONTINUING> 2,546
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,546
<EPS-BASIC> 0.18
<EPS-DILUTED> 0.17
</TABLE>
