SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the quarterly period ended June 30, 2002 |
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _______________________ to _______________________ |
Commission file number: 0-18338
I-Flow Corporation
| Delaware | 33-0121984 | |
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
| 20202 Windrow Drive, Lake Forest, CA | 92630 | |
| (Address of Principal Executive Offices) | (Zip Code) | |
(949) 206-2700
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 August 12, 2002 there were 15,425,886 shares outstanding of common stock.
I-FLOW CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2002
Table of Contents
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Part I:
Financial Information
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Item 1.
Financial Statements
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Condensed
Consolidated Balance Sheets as of June 30, 2002 (Unaudited) and
December 31, 2001
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1
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Condensed
Consolidated Statements of Operations and Comprehensive Operations for
the three and six-month periods ended June 30, 2002 and 2001 (Unaudited)
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2
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Condensed
Consolidated Statements of Cash Flows for the six-month periods ended
June 30, 2002 and 2001 (Unaudited)
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3
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Notes
to Condensed Consolidated Financial Statements (Unaudited)
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4
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Item 2.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
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9
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Item 3.
Quantitative and Qualitative Disclosures About
Market Risk
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15
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Part II:
Other Information
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Item 1.
Legal Proceedings
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15
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Item 2.
Changes in Securities and Use of Proceeds
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15
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Item 4.
Submission of Matters to a Vote of Security Holders
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16
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Item 6.
Exhibits and Reports on Form 8-K
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17
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Signatures
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20
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I-FLOW CORPORATION
| June 30, | December 31, | |||||||||||
| 2002 | 2001 | |||||||||||
| (Unaudited) | (Audited) | |||||||||||
ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
$ | 1,860,000 | $ | 2,033,000 | ||||||||
Accounts receivable, net |
9,955,000 | 10,010,000 | ||||||||||
Inventories, net |
6,524,000 | 6,984,000 | ||||||||||
Prepaid expenses and other |
745,000 | 353,000 | ||||||||||
Deferred taxes |
2,294,000 | 2,294,000 | ||||||||||
Total current assets |
21,378,000 | 21,674,000 | ||||||||||
Property, net |
5,243,000 | 4,805,000 | ||||||||||
Goodwill, net |
2,639,000 | 6,115,000 | ||||||||||
Other long-term assets |
1,148,000 | 1,068,000 | ||||||||||
Deferred taxes |
2,042,000 | 2,042,000 | ||||||||||
TOTAL |
$ | 32,450,000 | $ | 35,704,000 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
$ | 3,249,000 | $ | 3,115,000 | ||||||||
Accrued payroll and related expenses |
1,401,000 | 1,875,000 | ||||||||||
Income taxes payable |
718,000 | 576,000 | ||||||||||
Current portion of long-term debt |
145,000 | 221,000 | ||||||||||
Other liabilities |
30,000 | 65,000 | ||||||||||
Total current liabilities |
5,543,000 | 5,852,000 | ||||||||||
LONG-TERM DEBT, less current portion |
17,000 | 83,000 | ||||||||||
STOCKHOLDERS’ EQUITY: |
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Preferred stock — $0.001 par value; 5,000,000 shares
authorized; no shares issued and outstanding at
June 30, 2002 (unaudited) and December 31, 2001, respectively |
— | — | ||||||||||
Common stock — $0.001 par value; 40,000,000 shares
authorized; 15,425,886 and 15,344,550 shares
issued and outstanding at June 30, 2002 (unaudited)
and December 31, 2001, respectively |
42,689,000 | 42,274,000 | ||||||||||
Accumulated other comprehensive income (loss) |
(62,000 | ) | 1,000 | |||||||||
Accumulated deficit |
(15,737,000 | ) | (12,506,000 | ) | ||||||||
Net stockholders’ equity |
26,890,000 | 29,769,000 | ||||||||||
TOTAL |
$ | 32,450,000 | $ | 35,704,000 | ||||||||
See accompanying notes to condensed consolidated financial statements.
1
I-FLOW CORPORATION
| Three Months Ended | Six Months Ended | ||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||||
Net revenues |
$ | 9,505,000 | $ | 8,479,000 | $ | 18,055,000 | $ | 16,471,000 | |||||||||||
Costs and expenses: |
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Cost of sales |
3,792,000 | 3,469,000 | 7,248,000 | 6,815,000 | |||||||||||||||
Selling and marketing |
2,939,000 | 1,370,000 | 5,306,000 | 2,661,000 | |||||||||||||||
General and administrative |
2,036,000 | 2,376,000 | 4,010,000 | 4,581,000 | |||||||||||||||
Product development |
565,000 | 524,000 | 1,091,000 | 1,082,000 | |||||||||||||||
Total costs and expenses |
9,332,000 | 7,739,000 | 17,655,000 | 15,139,000 | |||||||||||||||
Operating income |
173,000 | 740,000 | 400,000 | 1,332,000 | |||||||||||||||
Interest expense (income), net |
(4,000 | ) | 30,000 | (5,000 | ) | 77,000 | |||||||||||||
Income tax provision |
71,000 | 311,000 | 163,000 | 540,000 | |||||||||||||||
Net
income before effect of a change in accounting principle |
106,000 | 399,000 | 242,000 | 715,000 | |||||||||||||||
Effect of a change in accounting principle: |
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Goodwill impairment |
— | — | (3,474,000 | ) | — | ||||||||||||||
Net income (loss) |
$ | 106,000 | $ | 399,000 | $ | (3,232,000 | ) | $ | 715,000 | ||||||||||
Net income per share, before effect of
a change in accounting principle |
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Basic |
$ | 0.01 | $ | 0.03 | $ | 0.02 | $ | 0.05 | |||||||||||
Diluted |
$ | 0.01 | $ | 0.03 | $ | 0.02 | $ | 0.05 | |||||||||||
Loss per share from goodwill impairment |
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| Basic | $ | — | $ | — | $ | (0.23 | ) | $ | — | ||||||||||
| Diluted | $ | — | $ | — | $ | (0.22 | ) | $ | — | ||||||||||
Net income (loss) per share |
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Basic |
$ | 0.01 | $ | 0.03 | $ | (0.21 | ) | $ | 0.05 | ||||||||||
Diluted |
$ | 0.01 | $ | 0.03 | $ | (0.20 | ) | $ | 0.05 | ||||||||||
Comprehensive Operations: |
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Net income (loss) |
$ | 106,000 | $ | 399,000 | $ | (3,232,000 | ) | $ | 715,000 | ||||||||||
Foreign currency translation gain (loss) |
(72,000 | ) | 43,000 | (62,000 | ) | 36,000 | |||||||||||||
Comprehensive income (loss) |
$ | 34,000 | $ | 442,000 | $ | (3,294,000 | ) | $ | 751,000 | ||||||||||
See accompanying notes to condensed consolidated financial statements
2
I-FLOW CORPORATION
| Six Months Ended | ||||||||||
| June 30, | ||||||||||
| 2002 | 2001 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income (loss) |
$ | (3,232,000 | ) | $ | 715,000 | |||||
Adjustments to reconcile net income (loss)
to net cash provided by operating activities: |
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Depreciation and amortization |
977,000 | 1,359,000 | ||||||||
Goodwill impairment |
3,474,000 | — | ||||||||
Compensation expense related to stock option grants |
392,000 | 310,000 | ||||||||
Change in allowance for doubtful accounts |
(237,000 | ) | 148,000 | |||||||
Change in inventory obsolescence reserve |
87,000 | (9,000 | ) | |||||||
Changes in operating assets and liabilities, net of effect of business acquisitions: |
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Accounts receivable |
293,000 | 2,986,000 | ||||||||
Inventories |
373,000 | (969,000 | ) | |||||||
Prepaid expenses and other |
(305,000 | ) | (158,000 | ) | ||||||
Accounts payable and accrued payroll and related expenses |
(382,000 | ) | (430,000 | ) | ||||||
Income taxes payable |
142,000 | 284,000 | ||||||||
Other liabilities |
(44,000 | ) | (48,000 | ) | ||||||
Net cash provided by operating activities |
1,538,000 | 4,188,000 | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
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Property acquisitions |
(1,303,000 | ) | (842,000 | ) | ||||||
Cash paid for acquisition |
— | (165,000 | ) | |||||||
Change in other assets |
(203,000 | ) | (295,000 | ) | ||||||
Net cash used in investing activities |
(1,506,000 | ) | (1,302,000 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
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Repayments on line of credit |
— | (500,000 | ) | |||||||
Principal payments on notes payable |
(142,000 | ) | (1,836,000 | ) | ||||||
Proceeds from exercise of stock options and warrants |
23,000 | 20,000 | ||||||||
Net cash used in financing activities |
(119,000 | ) | (2,316,000 | ) | ||||||
Effect of exchange rates on cash |
(86,000 | ) | (33,000 | ) | ||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
(173,000 | ) | 537,000 | |||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD |
2,033,000 | 1,184,000 | ||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 1,860,000 | $ | 1,721,000 | ||||||
SUPPLEMENTAL CASH FLOW INFORMATION: |
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Interest paid |
$ | 2,000 | $ | 90,000 | ||||||
Income tax payments |
$ | 22,000 | $ | 81,000 | ||||||
Liabilities issued and assumed in connection with acquisition: |
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Fair value of assets acquired (including intangibles) |
$ | — | $ | 165,000 | ||||||
Cash paid for business acquisition |
— | (165,000 | ) | |||||||
Common stock issued |
— | — | ||||||||
Liabilities assumed |
$ | — | $ | — | ||||||
See accompanying notes to condensed consolidated financial statements.
3
I-FLOW CORPORATION
| 1. | Basis of Presentation | |
| The accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments, and a goodwill impairment charge related to a change in accounting principle) that, in the opinion of management, are necessary to present fairly the financial position of I-Flow Corporation and its subsidiaries (the “Company”) at June 30, 2002 and the results of its operations and its cash flows for the three and six-month periods ended June 30, 2002 and 2001. 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, 2001 filed with the Securities and Exchange Commission on April 1, 2002. | ||
| Certain amounts previously reported have been reclassified to conform with the presentation at June 30, 2002. | ||
| 2. | Inventories | |
| Inventories consisted of the following: |
| June 30, | December 31, | |||||||
| 2002 | 2001 | |||||||
Raw Materials |
$ | 4,202,000 | $ | 4,553,000 | ||||
Work in Process |
719,000 | 199,000 | ||||||
Finished Goods |
1,603,000 | 2,232,000 | ||||||
Total |
$ | 6,524,000 | $ | 6,984,000 | ||||
| 3. | Earnings (Loss) Per Share | |
| Basic net income (loss) per share is computed using the weighted average number of common shares outstanding during the periods presented, excluding unvested restricted stock which the Company has a right to repurchase in the event of early termination of employment. | ||
| Diluted net income (loss) per share is computed using the weighted average number of common and common equivalent shares outstanding during the periods utilizing the treasury stock method for stock options and unvested restricted stock. |
4
| The following is a reconciliation between the number of shares used in the basic and diluted net income per share calculations: |
| Three Months Ended | Six Months Ended | |||||||||||||||||
| June 30, | June 30, | |||||||||||||||||
| (Amounts in thousands) | 2002 | 2001 | 2002 | 2001 | ||||||||||||||
Net
income before effect of a change in accounting principle |
$ | 106 | $ | 399 | $ | 242 | $ | 715 | ||||||||||
Net income (loss) |
$ | 106 | $ | 399 | $ | (3,232 | ) | $ | 715 | |||||||||