UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended |
December 31, 2004 |
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or |
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TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to
Commission File Number: 001-14059
IOMED, Inc.
(Exact name of registrant as specified in its charter)
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Utah |
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87-0441272 |
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(State or other jurisdiction of |
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(I.R.S. Employer |
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2441 South 3850 West, Salt Lake City, Utah 84120 |
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(Address of principal executive offices) (Zip Code) |
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(801) 975-1191 |
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(Registrant’s telephone number, including area code) |
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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. ý Yes o No
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
o Yes ý
No.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of January 31, 2005:
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Classes of Common Stock |
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Number of shares outstanding |
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Common Stock, no par value |
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6,585,213 |
IOMED, Inc.
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PART I — FINANCIAL INFORMATION |
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Item 1. |
Financial Statements (unaudited) |
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Condensed Balance Sheets — |
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Condensed Statements of Cash Flows — |
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Management’s Discussion and Analysis of |
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Item 3. |
Quantitative and Qualitative Disclosure about Market Risk |
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2
IOMED, Inc.
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December 31, |
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June 30, |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
7,813,000 |
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$ |
7,338,000 |
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Accounts receivable, net |
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1,167,000 |
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1,347,000 |
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Inventories |
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1,075,000 |
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1,095,000 |
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Prepaid expenses |
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91,000 |
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93,000 |
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Total current assets |
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10,146,000 |
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9,873,000 |
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Equipment and furniture, net |
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1,209,000 |
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1,505,000 |
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Restricted cash |
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889,000 |
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1,062,000 |
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Other assets |
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65,000 |
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71,000 |
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Total assets |
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$ |
12,309,000 |
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$ |
12,511,000 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Trade accounts payable |
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$ |
139,000 |
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$ |
448,000 |
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Accrued liabilities |
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710,000 |
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649,000 |
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Current portion of long-term obligations |
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564,000 |
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603,000 |
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Total current liabilities |
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1,413,000 |
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1,700,000 |
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Long-term obligations |
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1,090,000 |
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1,368,000 |
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Commitments and contingencies |
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Shareholders’ equity |
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Common shares |
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34,719,000 |
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34,719,000 |
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Convertible preferred shares |
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6,881,000 |
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6,881,000 |
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Accumulated deficit |
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(31,794,000 |
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(32,157,000 |
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Total shareholders’ equity |
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9,806,000 |
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9,443,000 |
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Total liabilities and shareholders’ equity |
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$ |
12,309,000 |
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$ |
12,511,000 |
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See accompanying notes.
3
IOMED, Inc.
CONDENSED STATEMENTS OF INCOME
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Three Months Ended |
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Six Months Ended |
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2004 |
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2003 |
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2004 |
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2003 |
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(unaudited) |
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(unaudited) |
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Product sales |
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$ |
2,589,000 |
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$ |
3,010,000 |
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$ |
5,606,000 |
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$ |
5,932,000 |
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Cost of products sold |
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976,000 |
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1,116,000 |
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2,120,000 |
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2,220,000 |
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Gross profit |
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1,613,000 |
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1,894,000 |
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3,486,000 |
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3,712,000 |
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Operating costs and expenses: |
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Selling, general and administrative |
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1,374,000 |
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1,459,000 |
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2,658,000 |
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2,899,000 |
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Research and product development |
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222,000 |
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242,000 |
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488,000 |
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508,000 |
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Total operating costs and expenses |
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1,596,000 |
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1,701,000 |
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3,146,000 |
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3,407,000 |
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Operating income |
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17,000 |
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193,000 |
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340,000 |
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305,000 |
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Other income (expense): |
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Interest expense |
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(33,000 |
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(41,000 |
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(69,000 |
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(91,000 |
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Interest and other income |
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53,000 |
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61,000 |
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92,000 |
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116,000 |
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Net income |
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$ |
37,000 |
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$ |
213,000 |
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$ |
363,000 |
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$ |
330,000 |
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Basic income per common share |
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$ |
0.01 |
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$ |
0.03 |
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$ |
0.06 |
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$ |
0.05 |
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Diluted income per common share |
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$ |
— |
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$ |
0.03 |
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$ |
0.05 |
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$ |
0.04 |
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See accompanying notes.
4
IOMED, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
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Six Months Ended |
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2004 |
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2003 |
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Cash flows from operating activities |
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(unaudited) |
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Net income |
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$ |
363,000 |
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$ |
330,000 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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334,000 |
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507,000 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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180,000 |
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157,000 |
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Inventories |
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20,000 |
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124,000 |
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Prepaid expenses |
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2,000 |
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26,000 |
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Trade accounts payable |
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(309,000 |
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(402,000 |
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Other accrued liabilities |
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61,000 |
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(131,000 |
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Net cash provided by operating activities |
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651,000 |
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611,000 |
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Cash flows from investing activities |
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Purchases of equipment and furniture |
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(32,000 |
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(70,000 |
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Cash flows from financing activities |
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Change in restricted cash balance |
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173,000 |
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190,000 |
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Payments on long-term obligations |
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(317,000 |
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(297,000 |
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Net cash used in financing activities |
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(144,000 |
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(107,000 |
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Net increase in cash and cash equivalents |
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475,000 |
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434,000 |
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Cash and cash equivalents at beginning of period |
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7,338,000 |
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5,921,000 |
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Cash and cash equivalents at end of period |
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$ |
7,813,000 |
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$ |
6,355,000 |
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See accompanying notes.
5
IOMED, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
IOMED, Inc., a Utah corporation (the “Company”), is a leader in the development, manufacture and sale of active drug delivery systems used primarily to treat acute local inflammation in the physical and occupational therapy and sports medicine markets. The Company is pursuing opportunities to advance its position as a provider of quality, innovative medical products that improve patient healthcare. In addition, the Company is seeking collaborative opportunities to develop its non-invasive drug delivery technology to satisfy substantial unmet medical needs. The Company has proprietary technology in various stages of research and product development primarily for transdermal drug delivery and for the treatment of ophthalmic disease.
Basis of Presentation
In the opinion of management, the accompanying condensed financial statements contain all normal recurring adjustments necessary to present fairly the financial position of the Company as of December 31, 2004, and the results of its operations and cash flows for the interim periods ended December 31, 2004 and 2003. The operating results for the interim periods are not necessarily indicative of the results for a full year. Certain information and footnote disclosures normally included in financial statements in accordance with accounting principles generally accepted in the United States have been condensed or omitted. Therefore, these statements should be read in conjunction with the Company’s audited financial statements for the year ended June 30, 2004, included in the Company’s Annual Report on Form 10-K, dated September 28, 2004.
Earnings Per Share
Net income as presented in the condensed statements of operations represents the numerator used in computing both basic and diluted income per share and the following table sets forth the computation of the weighted average shares representing the denominator used in determining basic and diluted income per share:
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Three Months ended |
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Six Months ended |
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2004 |
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2003 |
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2004 |
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2003 |
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(in thousands) |
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(in thousands) |
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Denominator for basic income per share - weighted average shares outstanding |
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6,585 |
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6,545 |
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6,585 |
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6,545 |
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Dilutive securities: preferred stock and certain stock options |
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1,111 |
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1,114 |
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1,088 |
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1,036 |
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Denominator for diluted income per share — adjusted weighted average shares outstanding and assumed conversions |
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7,696 |
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7,659 |
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7,673 |
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7,581 |
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In all periods presented, certain securities were not included in the computation of diluted income per share due to their anti-dilutive effect. Options to purchase approximately 613,000 and 673,000 common shares at weighted average exercise prices of $3.62 and $3.49 per share, respectively, were excluded in the three and six months ended December 31, 2004. Options to purchase approximately 732,000 and 1,179,000 common shares, respectively, were excluded in the three and six months ended December 31, 2003.
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Stock-based Compensation
The Company has elected to follow Accounting Principles Board Opinion No. 25 - Accounting for Stock Issued to Employees (APB 25) and related interpretations in accounting for its employee stock options rather than adopting the alternative fair value accounting provided for under Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock Based Compensation – Transition and Disclosure. Because the exercise price of the Company’s employee stock options equals the market price of the underlying shares on the date of grant, under APB 25, the Company does not recognize any compensation expense. The following table illustrates the effect on net income and income per share had compensation cost for the Company’s employee stock options been determined consistent with the fair value methodology prescribed under SFAS 123:
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Three Months Ended |
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Six Months Ended |
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2004 |
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2003 |
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2004 |
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2003 |
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Net income - as reported |
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$ |
37,000 |
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$ |
213,000 |
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$ |
363,000 |
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$ |
330,000 |
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Less: Total stock compensation expense determined under fair value method |
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(142,000 |
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(149,000 |
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(196,000 |
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(227,000 |
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Net income (loss) - pro forma |
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$ |
(105,000 |
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$ |
64,000 |
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$ |
167,000 |
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$ |
103,000 |
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Income (loss) per share: |
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Basic - as reported |
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$ |
0.01 |
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$ |
0.03 |
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$ |
0.06 |
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$ |
0.05 |
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Diluted - as reported |
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$ |
— |
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$ |
0.03 |
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$ |
0.05 |
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$ |
0.04 |
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Basic - pro forma |
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$ |
(0.02 |
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$ |
0.01 |
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$ |
0.03 |
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$ |
0.02 |
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Diluted - pro forma |
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$ |
(0.02 |
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$ |
0.01 |
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$ |
0.02 |
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$ |
0.01 |
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In December 2004, the FASB issued SFAS 123R, Share-Based Payment, which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. A key provision of this statement is the requirement of a public entity to measure the cost of employee services received in exchange for an award of equity instruments (including stock options) based on the grant date fair value of the award and recognized over the vesting period. SFAS 123R will be effective for the Company’s fiscal quarter beginning July 1, 2005, and requires the use of either the Modified Prospective or the Modified Retrospective application method. Under the Modified Prospective method, SFAS 123R is applied to new awards and to awards modified, repurchased, or cancelled after the effective date. Compensation cost for the portion of awards for which service has not been rendered (such as unvested options) that are outstanding as of the date of adoption shall be recognized as the remaining services are rendered. If the Modified Retrospective method is applied, financial statements for prior periods shall be adjusted to give effect to the fair-value-based method of accounting for awards on a consistent basis with the pro forma disclosures required for those periods under the original SFAS 123. The Company has not selected which method to adopt.
The Company expects that the adoption of SFAS 123R will result in significant stock-based compensation expense. Had we adopted Statement 123R in prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net income and earnings per share in the above table.
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Revenues on product sales are recognized when there is persuasive evidence that an arms length transfer has occurred, generally upon shipment, when title has passed, the price is fixed or determinable, and collectibility is reasonably assured. The Company provides its customers certain purchase incentives, including performance rebates and volume pricing discounts, based on the achievement of specified purchase levels. The Company recognizes such incentives as contra-revenue. The Company accrues for performance rebates based upon estimated customer purchase levels and records volume pricing discounts when products are purchased.
Long-lived Assets
The carrying amounts of long-lived assets, and the related amortization periods, are reviewed for impairment whenever events occur or changes in circumstances indicate that the carrying amount of an asset may not be recoverable within the estimated useful life. When the Company determines the existence of impairment indicators, the impairment loss is measured based on the excess of carrying value over the estimated fair value of the impaired asset. The carrying value of the underlying asset is reduced, with the reduction charged to expense, so that the carrying amount is equal to fair value.
Reclassifications
Certain reclassifications have been made to prior year balances to conform to the financial statement presentation included herein.
2. Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Inventories consisted of the following at December 31, 2004 and June 30, 2004:
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December 31, |
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June 30, |
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Raw materials |
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$ |
626,000 |
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$ |
660,000 |
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Work-in-progress |
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88,000 |
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54,000 |
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Finished goods |
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361,000 |
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381,000 |
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$ |
1,075,000 |
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$ |
1,095,000 |
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3. Restricted Cash
The Company maintains an interest bearing money market account with a lending bank, $889,000 of which is being held as a compensating balance as of December 31, 2004 under a long-term obligation and is restricted as to withdrawal. Included in cash and cash equivalents as of December 31, 2004 is an additional $340,000 restricted to secure the current portion of the long-term obligation. The restricted cash balance requirement decreases over the life of the obligation as payments are made.
4. Commitments
The Company has entered into agreements with various lending institutions to provide financing for the Company’s investments in capital equipment and facilities modifications and consolidation. As of December 31, 2004, the Company had approximately $1,654,000 outstanding under these agreements, $1,090,000 of which was classified as long-term obligations.
8
The Company leases space, including under a recently amended facility lease agreement, and certain equipment under non-cancelable operating lease agreements that expire at various dates through 2012. Future minimum lease payments under non-cancelable operating leases at December 31, 2004 were $2,259,000. These obligations mature as follows: remaining 6 months of fiscal 2005 — $132,000; fiscal 2006 — $271,000; fiscal 2007 — $278,000; fiscal 2008 — $274,000; and fiscal 2009 —$275,000; and thereafter — $1,029,000.
5. Litigation
The Company has filed two civil complaints in state court against two former executives, among others, alleging misappropriation of the Company’s trade secrets, interference with economic relationships and civil conspiracy. The claims arise out of the Company’s allegations that the defendants engaged in conduct to misappropriate confidential information related to a new product that was being developed by the Company under the supervision of the two former executives. The Company is seeking injunctive relief against all defendants. In response, a counterclaim has been filed against the Company and certain Company employees seeking, among other things, $5 million in monetary damages.
In addition, two separate federal court complaints were filed against the Company and certain Company employees and agents, alleging violation of the plaintiffs’ federal civil rights, invasion of privacy, intentional infliction of emotional distress, trespassing, and conspiracy. These complaints are related to one of the state court actions filed by the Company in that they arise out of the court-ordered seizure of computer hard drives, other electronic media, and certain business files of certain of the defendants in one of the state court actions. Such seizure was conducted by the Salt Lake County Sheriff’s Office. The two federal court complaints sought, among other things, combined monetary damages of $60 million. The United States District Court granted, with prejudice, the Company’s motion to dismiss the two federal civil rights complaints filed against the Company. The plaintiffs have appealed these rulings.
A plaintiff in one of the federal civil rights complaints also filed a Utah state court complaint against the Company and certain Company employees alleging discrimination, among other things. This complaint is related to one of the state court actions filed by the Company in that the claims asserted arise from the same series of transactions and occurrences. The Utah State Court has granted the Company’s motion to dismiss the plaintiff’s discrimination claim, and the plaintiff has appealed this ruling.
Management believes that the Company’s complaints contain meritorious claims and intends to vigorously protect the Company’s intellectual property. Additionally, management believes that there is no basis for the claims and counterclaims asserted or the penalties sought against the Company and the other defendants in the above state or federal court actions.
Additionally, a patent infringement claim has been asserted against the Company in connection with its new Companion 80 product. The Company has denied infringement, and has asserted a counterclaim for a declaratory judgment of non-infringement and/or that the patent is invalid. This case is in discovery phase and it is too early to predict the outcome.
In addition to the legal matters above, the Company is subject to various claims and legal proceedings covering matters that arise in the ordinary course of business.
Management does not believe that the outcomes of these legal matters will have a material adverse impact on the Company. However, legal fees and expenses will likely be material and, in the event of an unfavorable resolution, the outcome could have a material adverse impact on the Company’s business, financial position, or results of operations.
9
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Condensed Financial Statements and the related Notes thereto included elsewhere in this Report. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, that involve risks and uncertainties. The Company’s actual results of operations could differ significantly from those anticipated in such forward-looking statements as a result of numerous factors including those discussed herein. Additional risks and uncertainties are described in the Company’s most recent Annual Report on Form 10-K for its fiscal year ended June 30, 2004. This discussion should be read in conjunction with such report, copies of which are available upon request.
The Company is a leader in the development, manufacture and sale of active drug delivery systems primarily used to treat local inflammation in the physical and occupational therapy and sports medicine markets. The Company’s current product line is based on proprietary iontophoretic drug delivery technology. The majority of the Company’s revenues have been generated through the sale of the Phoresor system, including the reusable dose controller and single use, disposable patch kits. The Company is pursuing opportunities to advance its position as a provider of quality, innovative medical products that improve patient healthcare. In addition, the Company is seeking collaborative opportunities to develop its non-invasive drug delivery technology to satisfy substantial unmet medical needs. The Company has proprietary technology in various stages of research and product development primarily for transdermal drug delivery and for the treatment of ophthalmic disease. From inception through fiscal 2002, the Company had generally incurred operating losses as a result of costs associated with internally funded research and development activities. During fiscal 2003 and 2004, the Company reported net income. As of December 31, 2004, the Company’s accumulated deficit was approximately $31.8 million. The Company’s ability to sustain profitability will depend on its ability to maintain market acceptance, successfully expand sales of its existing and new products, and successfully complete the development of, receive regulatory approvals for, and successfully manufacture and market its products under development, as to which there can be no assurance.
The Company’s results of operations may vary significantly from quarter to quarter and depend on product sales levels, and costs associated with manufacturing processes, as well as other factors. The amount of revenue and net income in any given period is not necessarily indicative of future revenue and net income.
Results of Operations
Product sales. Product sales decreased 14% and 5% to $2.6 million and $5.6 million in the three and six months ended December 31, 2004, respectively, from $3.0 million and $5.9 million in the three and six months ended December 31, 2003, respectively. Sales in the current periods were negatively impacted by a reduction in inventory levels carried by certain of the Company’s dealers. The Company believes the inventory reductions were due, in part, to the restructuring of its dealer network, which began in the fourth quarter of fiscal 2004. In addition, the restructuring of the Company’s distribution network and the dealer incentive program resulted in lower average selling prices in the current periods. Sales in current periods were favorably impacted by increased unit volumes of new products, which, to date, have exceeded the Company’s estimates. Existing orders from dealers that reduced their inventory levels have improved, but have not returned to historical levels. Based on existing orders, the Company anticipates an improvement in overall unit sales volume during the third and fourth fiscal quarters relative to the second fiscal quarter’s unit volume.
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Costs of Products Sold. Costs of products sold were $1.0 million and $2.1 million in the three and six months ended December 31, 2004, respectively, compared to $1.1 million and $2.2 million in the prior year periods, respectively. Gross margins on product sales were 62% in the current year periods compared to 63% in prior year periods. The beneficial effects of the recently renegotiated facility lease, including decreased monthly rent and allocated depreciation expense, mitigated the effects of lower product sales on gross margin.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased 6% and 8% to $1.4 million and $2.7 million in each of the three and six months ended December 31, 2004, respectively, compared to $1.5 million and $2.9 million in prior year periods. The decrease was primarily a result of the operating efficiencies initiated over the last three years offset, in part, by increased litigation related expenses. The Company continues to look for new opportunities for further improvement. The beneficial effects of the recently re-negotiated facility lease will result in additional net income and cash flow contributions.
Research and Product Development Expense. Research and product development expenditures decreased 8% and 4% to $222,000 and $488,000 for the three and six months ended December 31, 2004, respectively, compared to $242,000 and $508,000 for the prior year periods. During fiscal 2005, the Company intends to focus research and product development efforts on its core business and new market opportunities for its iontophoresis technology.
Other Income and Expenses. Interest expense decreased to $33,000 and $69,000 in the current three-and six-month periods, respectively, from $41,000 and $91,000 in the prior year periods, respectively, due to a decreasing balance on long-term obligations. Interest income and other miscellaneous income was $53,000 and $92,000 in the current three- and six-month periods, respectively, compared to $61,000 and $116,000, respectively, in the prior year periods. Amounts in both periods reflect interest earnings on invested cash balances and income from a royalty and license agreement. The decrease is primarily due to reduced royalty income from the royalty and license agreement. Under the terms of this agreement, the royalty rate decreased beginning during fiscal 2004.
Income Taxes. The Company has substantial net operating loss carryforwards, which, under the current “change of ownership” rules of the Internal Revenue Code of 1986, as amended, may be subject to substantial annual limitation. No income tax expense was recognized on the Company’s pre-tax income for the three- and six-month periods ended December 31, 2004, which reflects management’s estimate of the Company’s fiscal 2005 tax position due to the use of historical net operating losses and the resulting change in the valuation allowance. In addition, no income tax expense was recognized for the prior year periods.
Net Income. The Company recognized net income of $37,000 and $363,000, or $0.00 and $0.05 per diluted share, during the three and six month periods ended December 31, 2004, respectively, compared with net income of $213,000 and $330,000, or $0.03 and $0.04 per diluted share, during the prior year periods. The fluctuations are a result of the changes discussed above.
Liquidity and Capital Resources
As of December 31, 2004, the Company had total cash of approximately $8.7 million, of which $7.8 million is cash and cash equivalents and $889,000 is being held as a compensating balance under a long-term obligation and subject to withdrawal restrictions. Included in cash and cash equivalents as of December 31, 2004 is an additional $0.3 million restricted to secure the current portion of the long-term obligation. The restricted cash balance requirement decreases over the life of the obligation as payments are made. Cash in excess of immediate requirements is invested in a manner intended to maximize liquidity and return, while minimizing investment risk and the potential effects of concentration of credit risk.
The Company generated $651,000 and $611,000 in cash from operating activities during the current and prior year periods, respectively. Cash generated from operations in the current period is primarily a result of net income and depreciation of fixed assets.
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As of December 31, 2004, the Company had approximately $1.7 million outstanding under long-term financing agreements, including the current portion thereof. The Company may enter into additional financing agreements to fund its capital equipment needs during the next 12 months, but does not anticipate a significant investment in capital equipment during that time. The Company’s expenditures for equipment and furniture were $32,000 and $70,000 in the current and prior year periods, respectively.
The Company used $317,000 and $297,000 of cash for payments on long-term obligations during the current and prior year periods, respectively. Restricted cash requirements decreased $173,000 and $190,000 in the current and prior year periods, respectively.
During fiscal 2005, the Company anticipates funding its operations with internally generated cash flow; term loan and capital lease financing agreements; and from existing cash balances. The Company anticipates that at its current operating levels, existing cash balances and cash generated from operations will be sufficient to fund its operating needs through fiscal 2006. However, the Company may be required to or elect to raise additional capital before that time. The Company’s actual capital requirements will depend on numerous factors, many of which are outside the Company’s control.
Critical Accounting Policies
Financial Reporting Release No. 60 requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. The following list is not intended to be a comprehensive list of all of our accounting policies. Our significant accounting policies are more fully described in Note 1 of our financial statements for the year ended June 30, 2004. In many cases, the accounting treatment of a particular transaction is dictated by United States generally accepted accounting principles, with no need for management’s judgment or estimation in its application. In other cases, management’s judgment or estimation is required. We regularly re-evaluate our judgments and estimates using historical experience, knowledge of current conditions and our beliefs of what could occur in the future considering available information. Actual results may differ from these estimates under different assumptions or conditions. The following is a brief discussion of the more significant accounting policies and methods used by us:
General - The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition – Revenues on product sales are recognized when there is persuasive evidence that an arms length transfer has occurred, generally upon shipment, when title has passed, the price is fixed or determinable, and the collectibility is reasonably assured. The Company provides its customers certain purchase incentives, including performance rebates and volume pricing discounts, based on the achievement of specified purchase levels. The Company recognizes such incentives as a reduction of revenue. The Company accrues for performance rebates based upon estimated customer purchase levels and records volume pricing discounts when products are purchased.
Long-lived Assets – The carrying amounts of long-lived assets, and the related amortization periods, are reviewed for impairment whenever events occur or changes in circumstances indicate that the carrying amount of an asset may not be recoverable within the estimated useful life. When the Company determines the existence of impairment indicators, the impairment loss is measured based on the excess of carrying value over the estimated fair value of the impaired assets. The carrying value of the underlying assets is reduced, with the reduction charged to expense, so that the carrying value is equal to fair value.
Inventories – Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. The Company evaluates the carrying value of its inventories at least quarterly, taking into account such factors as historical and anticipated future sales compared with quantities on hand, the price the
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Company expects to obtain for its products in their respective markets compared with historical cost, and the remaining shelf life of goods on hand.
Stock Options - In December 2004, the FASB issued SFAS 123R, Share-Based Payment, which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. A key provision of this statement is the requirement of a public entity to measure the cost of employee services received in exchange for an award of equity instruments (including stock options) based on the grant date fair value of the award and recognized over the vesting period. SFAS 123R will be effective for the Company’s fiscal quarter beginning July 1, 2005, and requires the use of either the Modified Prospective or the Modified Retrospective application method. Under the Modified Prospective method, SFAS 123R is applied to new awards and to awards modified, repurchased, or cancelled after the effective date. Compensation cost for the portion of awards for which service has not been rendered (such as unvested options) that are outstanding as of the date of adoption shall be recognized as the remaining services are rendered. If the Modified Retrospective method is applied, financial statements for prior periods shall be adjusted to give effect to the fair-value-based method of accounting for awards on a consistent basis with the pro forma disclosures required for those periods under the original SFAS 123. The Company has not selected which method to adopt.
The Company expects that the adoption of SFAS 123R will result in significant stock-based compensation expense. Had we adopted Statement 123R in prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net income and earnings per share in Note 1 to the condensed financial statements.
Item 4. Control and Procedures
Our Chief Executive Officer and Chief Accounting Officer, after conducting an evaluation, together with other members of the Company’s management, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report, have concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in its reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to that evaluation, and there were no significant deficiencies or material weaknesses in such controls requiring corrective actions.
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Item 1. Legal Proceedings
The Company’s most recent Annual Report on Form 10-K for its fiscal year ended June 30, 2004, which was filed with the Securities Exchange Commission on September 28, 2004, includes a description of certain pending legal proceedings. No material changes to such proceedings have occurred.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on November 12, 2004, to consider and vote on the following proposals: (i) election of two Class I directors to serve a term of three years or until their successors are duly elected and qualified; and (ii) ratification of the appointment of Ernst & Young LLP as the Company’s auditors for the fiscal year ending June 30, 2005.
Proxies for the Annual Meeting were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934. There was no solicitation in opposition to management’s nominees for two Class I directors as listed in the Company’s Proxy Statement and the nominees was elected to serve a term of three years ending in 2007 with the following vote:
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Number of Votes |
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In Favor |
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Withheld |
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Peter J. Wardle |
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5,985,406 |
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9,610 |
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Warren Wood |
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5,986,106 |
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8,910 |
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In addition, the following directors’ terms of office continued after the meeting:
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Directors |
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Term Ending |
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John W. Fara, Ph.D. |
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2005 |
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Michael T. Sember |
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2006 |
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Robert J. Lollini |
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2006 |
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The proposal to ratify the appointment of Ernst & Young LLP as the Company’s auditors was approved with the following vote:
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Number of Votes |
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In favor |
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Against |
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Abstained |
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5,902,249 |
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85,357 |
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7,410 |
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Item 6. Exhibits
(a) Exhibits:
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Exhibit No. |
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Description |
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Exhibit 31.1 |
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CERTIFICATION OF CHIEF EXECUTIVE OFFICER |
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Exhibit 31.2 |
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CERTIFICATION OF CHIEF ACCOUNTING OFFICER |
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Exhibit 32.1 |
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CERTIFICATION OF CHIEF EXECUTIVE OFFICER |
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Exhibit 32.2 |
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CERTIFICATION OF CHIEF ACCOUNTING OFFICER |
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IOMED, Inc.
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.
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IOMED, Inc. |
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(Registrant) |
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Date: |
February 10, 2005 |
By: |
/s/ Robert J. Lollini |
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Robert J. Lollini |
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President and Chief Executive Officer |
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Date: |
February 10, 2005 |
By: |
/s/ Brian L. Mower, CPA |
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Brian L. Mower, CPA |
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Chief Accounting Officer |
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