<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 June 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
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I-Flow Corporation
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 33-0121984
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
20202 Windrow Drive, Lake Forest, CA 92630
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(Address of principal executive offices) (Zip Code)
(949) 206-2700
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(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
As of June 30,1999 there were 14,416,841 shares of common stock
outstanding.
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I-FLOW CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I: Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1999 (Unaudited)
and December 31, 1998 3
Consolidated Statements of Operations for the three and six-month
periods ended June 30, 1999 and 1998 (Unaudited) 4
Consolidated Statements of Cash Flows for the six-month periods
ended June 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>
June 30, December 31,
1999 1998
------------ ------------
ASSETS (Unaudited)
- ------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,810,000 $ 971,000
Accounts receivable, net 6,289,000 7,490,000
Inventories, net 4,292,000 4,328,000
Prepaid expenses and other 601,000 638,000
------------ ------------
Total current assets 13,992,000 13,427,000
------------ ------------
PROPERTY:
Furniture, fixtures and equipment 7,202,000 6,789,000
Less accumulated depreciation (4,100,000) (3,362,000)
------------ ------------
Property, net 3,102,000 3,427,000
------------ ------------
OTHER ASSETS
Goodwill and other intangibles, net 7,338,000 7,223,000
Notes receivable and other 111,000 259,000
------------ ------------
TOTAL $ 24,543,000 $ 24,336,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,075,000 $ 1,300,000
Accrued payroll and related expenses 1,706,000 1,453,000
Current portion of long-term debt 1,946,000 2,083,000
Borrowings under line-of-credit 1,376,000 1,979,000
Other liabilities 100,000 24,000
------------ ------------
Total current liabilities 6,203,000 6,839,000
------------ ------------
LONG-TERM DEBT 1,949,000 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; 14,416,841 and 14,044,428 shares
issued and outstanding at June 30, 1999 and
December 31, 1998, respectively 38,522,000 37,735,000
Common stock warrants 615,000 615,000
Cumulative other comprehensive income 1,000 --
Accumulated deficit (22,747,000) (24,219,000)
------------ ------------
Net shareholders' equity 16,391,000 14,817,000
------------ ------------
TOTAL $ 24,543,000 $ 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 Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $ 7,338,000 $ 5,897,000 $ 13,555,000 $ 9,964,000
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales 2,887,000 2,637,000 5,523,000 4,444,000
Selling and marketing 1,068,000 1,081,000 2,130,000 1,932,000
General and administrative 2,041,000 1,631,000 3,620,000 2,819,000
Product development 286,000 233,000 526,000 442,000
------------ ------------ ------------ ------------
Total costs and expenses 6,282,000 5,582,000 11,799,000 9,637,000
Operating income 1,056,000 315,000 1,756,000 327,000
Interest expense (127,000) (165,000) (249,000) (317,000)
Income taxes (36,000) (17,000) (57,000) (24,000)
------------ ------------ ------------ ------------
Net income (loss) $ 893,000 $ 133,000 $ 1,450,000 $ (14,000)
============ ============ ============ ============
Net income per share
Basic and diluted $ 0.06 $ 0.01 $ 0.10 $ --
============ ============ ============ ============
Comprehensive Operations:
Net income (loss) $ 893,000 $ 133,000 $ 1,450,000 $ (14,000)
Foreign currency translation adjustment 1,000 5,000 1,000 5,000
============ ============ ============ ============
Comprehensive income (loss) $ 894,000 $ 138,000 $ 1,451,000 $ (9,000)
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
I-FLOW CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,450,000 $ (14,000)
Adjustments to reconcile net income (loss)
to net cash provided by operations:
Depreciation and amortization 1,220,000 885,000
Changes in operating assets and liabilities:
Accounts receivable 1,201,000 378,000
Inventories 35,000 (101,000)
Prepaid expenses and other 37,000 (158,000)
Accounts payable, accrued and other liabilities 124,000 (1,835,000)
----------- -----------
Net cash provided (used) by operating activities 4,067,000 (845,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property (acquisitions) disposals (413,000) (112,000)
Change in other assets (445,000) (105,000)
----------- -----------
Net cash used by investing activities (858,000) (217,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in line of credit (604,000) (751,000)
Change in notes payable (868,000) 1,705,000
Proceeds from exercise of stock options and warrants 101,000 13,000
----------- -----------
Net cash provided (used) by financing activities (1,371,000) 967,000
----------- -----------
Effect of exchange rates on cash 1,000 122,000
NET DECREASE IN CASH AND CASH EQUIVALENTS 1,839,000 27,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 971,000 715,000
=========== ===========
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,810,000 $ 742,000
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 266,000 $ 218,000
----------- -----------
Income tax payments $ 27,000 $ 24,000
----------- -----------
Preferred stock dividends payable $ -- $ 20,000
----------- -----------
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)
which, in the opinion of management, are necessary to present fairly
the financial position of the Company at June 30, 1999 and the results
of its operations and its cash flows for the six-month periods ended
June 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 June 30, 1999.
2. INVENTORIES
Inventories consisted of the following as of June 30, 1999 and December
31, 1998:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw Materials $ 3,590,000 $ 3,507,000
Work in Process 442,000 172,000
Finished Goods 1,605,000 1,869,000
Reserve for Obsolescence (1,345,000) (1,220,000)
--------------------------------------------------------------------------------------------------
Total $ 4,292,000 $ 4,328,000
--------------------------------------------------------------------------------------------------
</TABLE>
3. EARNINGS PER SHARE
In December 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, Earnings per Share. SFAS No. 128 redefines
earnings per share under generally accepted accounting principles.
Under the new standard, primary net income per share is replaced by
basic net income per share and fully diluted net income per share is
replaced by diluted net income per share. All historical earnings per
share information has been restated as required by SFAS No. 128.
Basic net income (loss) per share is computed using the weighted
average number of common shares outstanding during the periods
presented.
Diluted net income (loss) 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 (loss) and the
number of shares used in the basic and diluted net income (loss) per
share calculations:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------------------------------------------------------------------------
(Amounts in thousands) 1999 1998 1999 1998
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) 893 133 1,450 (14)
Less preferred stock dividends -- 19 -- 78
----------------------------------------------------------------------------------------------------------
Net income (loss) available to common shareholders 893 114 1,450 (92)
----------------------------------------------------------------------------------------------------------
Basic net income (loss) per share
Weighted average number of shares outstanding 14,349 13,418 14,224 13,180
Effect of dilutive securities:
Preferred stock -- 700 -- 700
Stock options 1,161 272 799 --
----------------------------------------------------------------------------------------------------------
Diluted net income (loss) per share
Weighted average number of shares outstanding 15,510 14,390 15,023 13,880
----------------------------------------------------------------------------------------------------------
</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 six-month
periods ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Manufacturing
(Amounts in thousands) and Marketing Rentals Consolidated
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Three months ended June 30, 1999:
Revenues $ 5,212 $ 2,126 $ 7,338
Operating income 693 576 1,269
Assets 15,832 8,711 24,543
Six months ended June 30, 1999:
Revenues 9,439 4,116 13,555
Operating income 1,124 1,041 2,165
Assets 15,832 8,711 25,543
Three months ended June 30, 1998:
Revenues 4,269 1,628 5,897
Operating income 351 157 508
Assets 16,767 8,416 25,183
Six months ended June 30, 1998:
Revenues 7,253 2,711 9,964
Operating income 128 535 663
Assets 16,767 8,416 25,183
- --------------------------------------------------------------------------------------------------------
</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 merged (the "Merger") with 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.
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 six-month periods ended June 30, 1999
were $7,338,000 and $13,555,000, respectively, compared to $5,897,000
and $9,964,000 for the same periods in the prior year. 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 merged into InfuSystem, Inc. ("InfuSystem"),
a wholly- owned subsidiary of the Company. Rental revenues generated by
InfuSystem, Inc. of $2,126,000 and $4,116,000 were included in net
revenues for the three and six-month periods ended June 30, 1999,
respectively. Revenues generated by InfuSystem, Inc., subsequent to the
February 11, 1998 acquisition date, of $1,628,000 and $2,711,000 were
included in net revenues for the three and six-month periods ended June
1998, respectively.
Net product revenues increased from $7,253,000 for the six months ended
June 30, 1998 to $8,599,000 for the same period in 1999, an increase of
18%. 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 distibutors contributed significantly to the increased
product revenues for the six months ended June 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.
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 recently
introduced PainBuster 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 also
9
<PAGE> 10
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 June
30, 1999, the Company had received and recorded as revenue $800,000 in
such licensing fees.
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
disposable ON-Q pain management system, another new product for the
pain management market, for all surgical applications (excluding
orthopedics). The ON-Q pain management system infuses local anesthetics
directly to 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.
The Company incurred cost of sales of $2,887,000 and $5,523,000 during
the three and six-month periods ended June 30, 1999, compared to
$2,637,000 and $4,444,000 in the prior year, an increase of 9% and 24%,
respectively. As a percentage of product sales, cost of sales was
relatively unchanged compared to the same periods in the prior year.
Selling and marketing expenses for the three and six-month periods
ended June 30, 1999 increased over the same periods in the prior year
by $13,000 or 1% and $198,000 or 10%, respectively. The six-month
increase is primarily due to the addition of such expenses for
InfuSystem for the entire six-month period in 1999 versus only a
portion of the six-month period for 1998.
General and administrative expenses for the three and six-month periods
ended June 30, 1999 increased $410,000 or 25% and $801,000 or 28% 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 six month period in 1999 compared to only a
portion of the six-month period for 1998.
Product development expenses for the three and six-month periods ended
June 30, 1999 increased over the same period in the prior year by
$53,000, or 23% and $84,000 or 19%, 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 six-month period ended June 30, 1999, funds of $4,067,000
were provided by operating activities consisting of net income of
$1,450,000 plus non-cash expenses of $1,220,000 and net changes in
operating assets and liabilities of $1,397,000. These changes in
operating assets and liabilities consisted of: (1) a decrease in
accounts receivable of $1,201,000 due to improved collections, (2) a
decrease in inventories of $35,000, (3) an decrease in prepaid expenses
and other of $37,000 and (4) an increase in accounts payable, accrued
expenses, and other liabilities of $124,000 due to an increase in
deferred revenue.
The Company used funds for investing activities during the six-month
period ended June 30, 1999 aggregating $858,000. These expenditures
consisted of $413,000 for acquiring furniture, fixtures and equipment
for use in operations and $445,000 in intangible assets. The increase
in intangibles included additional goodwill of $286,000 (see Note 5 of
Notes to Consolidated Financial Statements) and expenditures relating
to patents.
During the six month period ended June 30, 1999, funds of $1,371,000
were used for financing activities consisting primarily of payments on
notes payable net of borrowings of $868,000 and a net reduction on the
Company's line of credit of $604,000. The Company also received
proceeds for the exercise of stock options of $101,000.
10
<PAGE> 11
As of June 30, 1999, the Company had cash funds of $2,810,000 and net
receivables of $6,289,000. 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 determined that it was necessary to modify or replace
portions of its hardware and software so that its computer systems
properly recognize dates beyond December 31, 1999. The Company 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.
The Company has contacted the companies on which I-Flow relies heavily
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 will assess and attempt 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 is in the process of evaluating its own products for
potential Year 2000 issues and making 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 does not believe that there will be
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. The
Company has substantially completed its Year 2000 modifications,
including testing, and does not anticipate any material costs remaining
for addressing the Year 2000 issue. Although the Company is not aware
of any 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.
FOREIGN CURRENCY
The Company has a subsidiary operation 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.
11
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PART II - OTHER INFORMATION
Items 1.-3. Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
(a) On May 13, 1999, the Company held its Annual Shareholders'
Meeting.
(b) A total of 11,545,966 of the outstanding voting securities
were represented at the Annual Shareholders' by proxy or in
person. All matters voted upon and approved at the Annual
Shareholders' Meeting were as follows:
(1) The separate tabulation of the votes for each Director
elected is as follows, with no abstentions, or broker
non-votes:
<TABLE>
<CAPTION>
Director Nominee Votes For Votes Against
---------------- --------- -------------
<S> <C> <C>
Donald M. Earhart 11,450,599 95,367
Dr. John H. Abeles 11,450,599 95,367
Erik H. Loudon 11,450,599 95,367
Dr. Henry T. Tai 11,450,599 95,367
Joel S. Kanter 11,450,599 95,367
Jack H. Halperin 11,450,599 95,367
James J. Dal Porto 11,450,599 95,367
</TABLE>
Item 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 (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)
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
<S> <C>
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)
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: August 12, 1999 /s/ Donald M. Earhart
-------------------------- -----------------------------------------
Donald M. Earhart,
Chairman, President and CEO
Date: August 12, 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)
3.3 Certificate of Amendment to Restated Articles of Incorporation dated
June 14, 1991 (3)
3.4 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 Form 10-K for its fiscal year ended December 31, 1991.
15
<PAGE> 16
(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
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 2,810,000 971,000
<SECURITIES> 0 0
<RECEIVABLES> 6,289,000 7,490,000
<ALLOWANCES> 0 0
<INVENTORY> 4,292,000 4,328,000
<CURRENT-ASSETS> 13,992,000 13,427,000
<PP&E> 7,202,000 6,789,000
<DEPRECIATION> (4,100,000) (3,362,000)
<TOTAL-ASSETS> 24,543,000 24,336,000
<CURRENT-LIABILITIES> 6,203,000 6,839,000
<BONDS> 0 0
0 0
0 0
<COMMON> 39,137,000 38,350,000
<OTHER-SE> (22,747,000) (24,219,000)
<TOTAL-LIABILITY-AND-EQUITY> 16,391,000 14,817,000
<SALES> 0 0
<TOTAL-REVENUES> 7,338,000 13,555,000
<CGS> 2,887,000 5,523,000
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 3,395,000 6,276,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 127,000 249,000
<INCOME-PRETAX> 925,000 1,507,000
<INCOME-TAX> 36,000 57,000
<INCOME-CONTINUING> 893,000 1,450,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 893,000 1,450,000
<EPS-BASIC> 0 0
<EPS-DILUTED> .06 .10
</TABLE>
