Back to GetFilings.com

Use these links to rapidly review the document
TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS IOMED, Inc.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission File Number: 001-14059

IOMED, Inc.
(Exact name of registrant as specified in its charter)

        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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

        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

        The aggregate market value of the Registrant's voting stock held by non-affiliates based upon the closing price of the common stock as quoted on the American Stock Exchange on December 31, 2003, was approximately $10,289,000.

        The number of shares of Registrant's common stock outstanding on August 31, 2004, was 6,585,213.

DOCUMENTS INCORPORATED BY REFERENCE

        Certain information is incorporated into Part III of this Report on Form 10-K by reference to the Registrant's Proxy Statement for its 2004 Annual Meeting of Shareholders.

TABLE OF CONTENTS

2

PART I

Item 1.    BUSINESS

Forward-Looking Statements

        Certain statements contained in this report on Form 10-K (the "Report") are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements may be identified by the use of terminology such as "may," "will," "expect," "anticipate," "intend," "designed," "estimate," "should," or "continue" or the negatives thereof or other variations thereon or comparable terminology. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of IOMED, Inc. (the "Company"), or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks, uncertainties and other factors include, among other things, the following: the uncertainties related to the Company's continuing profitability; the uncertainties related to the Company's product development programs; the uncertainties related to the Company's ability to attract collaborative development partners; the Company's reliance on third party distribution; the risks associated with obtaining governmental approval of the Company's products; the highly competitive industry in which the Company operates and the rapid pace of technological change within that industry; the uncertainty of patented and proprietary technology protection and the Company's reliance on such patented and proprietary technology (including reliance on technology licensed from third parties); defense of the Company's intellectual property rights; changes in or failure to comply with governmental regulation; the uncertainty of third party reimbursement for the Company's products; the Company's dependence on key employees; general economic and business conditions and other factors discussed in this Report and the Company's other Securities and Exchange Commission ("SEC") filings. The Company undertakes no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events or circumstances occur in the future.

Introduction

        The Company was incorporated in Utah in 1974 as Motion Control, Inc. In 1987, the Company merged with JMW Acquisition Corporation, and the name of the merged entity was changed to IOMED, Inc. The Company is a leader in developing, manufacturing and marketing 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 unmet medical needs. The Company has proprietary iontophoresis technology in various stages of research and product development primarily for transdermal drug delivery and for the treatment of ophthalmic disease.

Commercial Business

        The Company is in the business of developing, manufacturing, and marketing proprietary products used in the site-specific, non-invasive administration of soluble salts or other drugs into the body for medical purposes. The Company's active drug delivery systems employ iontophoresis (explained more fully below) as a non-invasive method of enhancing and controlling the transport of water-soluble ionic drugs into and through the skin and other body tissues using a low-level electrical current. The Company currently markets iontophoretic products used to deliver various drug compounds. The primary drug compounds used with our products are potent corticosteroids for the treatment of acute local inflammatory conditions and Iontocaine®, the Company's brand of lidocaine HCl 2% and

3

epinephrine 1:100,000 topical solution, for the administration of local dermal anesthesia. The Company's products are used in situations when it is advisable to avoid the pain that may accompany needle insertion and drug injection, to minimize the infiltration of carrier fluids, and/or to avoid the damage caused by needle insertion when tissue is traumatized.

        The Company's proprietary, patented iontophoresis system (the "Phoresor® system" or "Phoresor") is designed for clinical use and is comprised of a reusable dose controller and single use, disposable active transdermal patch kits ("patch kits"). The dose controller incorporates an advanced microprocessor to precisely control drug dosage through the Company's proprietary single-use, disposable patch kits, including its IOGEL®, TransQ®, OptimA™, and Numby® patch kits. The Company also markets a self-contained iontophoresis system, the Companion 80™, that provides a Mobile Solution™ allowing the patient to resume daily activity and the clinician to optimize the use of patient time in the clinic.

        Using the Company's products, medical professionals are able to deliver dexamethasone, a potent and effective corticosteroid, to treat local inflammatory conditions. Because of the negative side effects often associated with the oral or injectable administration of dexamethasone, it is used only as a second- or third-line therapy. However, using the Company's technology, the administration of this drug without the occurrence of these negative side effects is possible. The Company's products are used for site-specific corticosteroid therapy in clinics nationwide to treat a variety of conditions, including those suffered by top professional, collegiate, and Olympic athletes.

4

        The Company also markets a specialty pharmaceutical product, Numby Stuff®, for the delivery of Iontocaine with the Phoresor system. Numby Stuff offers non-invasive, local dermal anesthesia in as little as 10 minutes, and can be used prior to needle sticks, IV starts, lumbar punctures, PICC insertions, fine needle and skin biopsies, and other minor dermatological surgeries.

Business Strategy

        The majority of the Company's revenues are generated through the sale of the Phoresor system, which consists of a reusable dose controller and single-use disposable patch kits. The Company is continuously seeking opportunities to improve the quality of its existing products and to market or develop new products to support this "razor-razor blade" business model.

5

        The Company intends to promote growth in its core business by:

•

Strengthening Distribution—Leverage existing distributor networks and health care provider relationships and enter into new agreements to broaden and strengthen access to our served markets.



•

Developing New Products—Apply technological expertise on focused product development activities to provide value to our customers and to improve the competitive position of our products and our distributors.



•

Seeking New Product and Market Opportunities—Expand product offerings, identify new products and enter new markets both independently and through acquisition or collaborative relationships.

Current and Future Products

        The following table lists the therapeutic applications of the principal products developed and future products pending development by the Company. The application of the Company's technology as an approved pharmaceutical product for the treatment of ophthalmic disease is not currently under development. This table is qualified in its entirety by reference to such detailed descriptions. There can be no assurance that any future products will be developed successfully or approved in a timely manner, if at all, or even if developed or approved, be successfully manufactured or marketed. In addition, the status of development indicated below does not necessarily indicate the order in which the products shown may be submitted to or approved by the Food and Drug Administration ("FDA").

(1)

Currently marketed under 510(k) clearance for use with "ions of soluble salts or other drugs."

(2)

All major development activity related to this program has been suspended. The Company continues to file, prosecute, maintain, and defend its intellectual property position in this area and to conduct business development activities. Any significant development efforts toward the clinical evaluation and commercial development of this technology application will likely only occur with the substantial support of a collaborative partner.

(3)

The Company is continuing to pursue additional research & development opportunities for its technology that may lead to new products or therapeutic applications of its existing products.

Acute Local Inflammation

        Acute local inflammatory conditions resulting from exercise, sports injuries, trauma or repetitive motion disorders are among the leading types of injuries occurring in the workplace and among physically active adults. The most common of these injuries include tendonitis, bursitis, carpal tunnel syndrome and epicondylitis (tennis elbow). The Company believes the electro-transport of corticosteroids may provide significant advantages over other current treatment regimens for acute local inflammation.

6

        Commercial Products.    The Company pioneered the commercial introduction of its active transdermal drug delivery systems in 1979. These products are used principally by physical therapists

7

(under a doctor's prescription) and have been clinically administered in over 24 million patient treatments for the delivery of corticosteroids and other drugs. More than 22 million of these treatments have occurred since 1990, when advancements in patch technology made by the Company led to the introduction of its present range of hydrogel patches for use with its microprocessor controlled dose controllers. The Company's products are also used by athletic trainers and physical therapists serving a number of professional, collegiate, and Olympic athletes and teams, including golfers, tennis players, men's and women's Olympic ski teams, as well as by football, basketball, baseball and hockey teams. The Company believes that its active transdermal drug delivery systems have been accepted in the rehabilitation marketplace due to their ease of use, non-invasiveness, recognized efficacy and lack of significant side effects.

        Products Under Development.    The Company continues to seek to develop and market "next generation" products for use in treating acute local inflammatory conditions. Enhancements to its dose controllers and electrode patches, as well as the developing, manufacturing, and marketing of new products are part of the Company's efforts to provide customers the most advanced iontophoresis technology commercially available.

8

        IontoDex™ is a miniaturized, integrated version of the Company's active drug transport system designed for patient in-home use to treat acute local inflammation. This proprietary active drug transport system, combined with dexamethasone, has the potential to address a significant unmet medical need by offering patients the benefits of the anti-inflammatory effects of dexamethasone while avoiding all of the gastrointestinal (GI) and other systemic side effects of oral drugs, such as non-steroidal anti-inflammatory drugs (NSAIDs), including Cox-II inhibitors.

        During fiscal 2001, the Company completed both a pivotal Phase III and a confirmatory Phase III clinical study for the delivery of dexamethasone to treat acute local inflammation. The confirmatory study failed to meet primary clinical endpoints. The study showed a positive response in patients treated with the drug; however, increased benefit in the study's placebo group prevented the statistical separation between the two patient groups necessary to achieve the desired conclusions. Due to these study results and to financial and other resource constraints, the Company suspended all major internal development efforts and may seek corporate development partners or other strategic funding sources prior to any substantial continuation of this development program.

Dermal Anesthesia

        Healthcare professionals recognize the importance of managing pain associated with invasive medical procedures, such as needle injections, placement of access devices (including phlebotomies, IV catheters, lumbar punctures, epidurals, etc), dermatological procedures (biopsies, wart and mole removal, Mohs procedures, etc), as well as gynecological and urological procedures (vasectomies, etc). In 2001, two new standards were instituted that may affect our product offerings. The Occupational Safety and Health Administration (OSHA) revised their Bloodborne Pathogen Standard, requiring employers to use safer medical devices wherever feasible in order to reduce the risk of injury from sharps. The Joint Commission on Accredited Healthcare Organizations (JCAHO) also passed their new Pain Management Standards requiring healthcare professionals to inform patients of methods available to minimize pain prior to, during, and after medical procedures. These two new standards favor the type of non-invasive drug delivery systems that the Company offers and could enhance the use of its

9

products in medical practice. The Company is continuing to pursue marketing and other opportunities arising from these new standards.

        Commercial Products.    The Company's Iontocaine is approved by the FDA under a New Drug Application ("NDA") and is specifically labeled for use with the Company's Phoresor system and its proprietary, single use, disposable active transdermal patch kits.

        The Company currently sells its dermal anesthesia product into the pediatric, adult vascular access, and dermatology markets under the brand name Numby Stuff. Numby Stuff is used to induce dermal anesthesia prior to invasive procedures and the Company believes it is more effective than the leading topical product. However, to date, Numby Stuff has not generated significant revenues.

Ophthalmic Diseases

        The Company believes that its unique active drug transport system presents a significant opportunity in the ophthalmic pharmaceutical marketplace due to large patient populations with sight threatening medical needs that are unmet. Age-related macular degeneration ("AMD") and diabetic retinopathy ("DR") are the major causes of visual impairment in the United States and Europe. Both AMD and DR are conditions caused by angiogenesis (unwanted blood vessel growth) resulting in neovascularization that damages the retina and ultimately causes blindness. Posterior uveitis and retinitis secondary to glaucoma also contribute considerably to loss of sight worldwide. A common characteristic among all of these conditions is their occurrence at the back of the eye, where drug treatment is difficult to administer. The Company believes that its proprietary drug delivery products offer a solution or a significant improvement to currently unmet medical needs in this area.

10

        A leading obstacle in the advancement of new therapies to treat serious ophthalmic disease is the inability to both safely and effectively deliver drugs to diseased cells in the back of the eye. Current drug delivery methods, which include intravenous, oral, topical (eye drops), intraocular injections and surgical implants, all have limitations that potentially affect their technical as well as their commercial viability in the treatment of these diseases. Furthermore, the complex physiology of the human eye presents unique problems for drug delivery, which are not optimally addressed by current ocular drug delivery methods.

        Development Stage Products.    Using its proprietary technology, the Company has developed an ocular drug delivery system that seeks to address the safe and effective administration of therapeutics to the back of the eye. The Company's delivery system, trademarked OcuPhor™, allows for site-specific administration of a pharmacologic agent without the collateral tissue damage associated with surgery, lasers, needle injections or implants. OcuPhor has been designed as a platform technology to deliver drug compounds non-invasively and site-specifically to posterior segments of the eye. Through both collaborations and internal research efforts, the Company has made significant advancements with the OcuPhor System. Feasibility studies confirmed OcuPhor's ability to deliver an anti-angiogenic drug to the back of the eye. Preliminary clinical studies in human volunteers have shown that the OcuPhor System is safe and well tolerated using both positive and negative polarity currents and does not produce any ophthalmic changes as measured by a series of standard tests. Additionally, the Company has demonstrated in-vivo that the OcuPhor System is capable of delivering antiangiogenic, anti-inflammatory, antibiotic, and antiviral drugs. The Company believes that OcuPhor's transport capabilities are within the theoretical therapeutic range of a variety of drugs, including small molecules as well as some macromolecules and small proteins. The Company is evaluating strategies to capitalize on this technology, including license agreements and collaborative partnerships to identify specific drugs which will be able to take advantage of the OcuPhor System and thereafter move it beyond the preclinical stage and advance its commercial development.

11

General Iontophoretic Drug Delivery Technology and Its Advantages

        Iontophoretic drug delivery systems are designed to overcome many of the limitations associated with other drug delivery methods. Iontophoresis is an active method of drug delivery in which water-soluble, ionized (electrically charged) drugs are transported through the skin or other body tissues for local or systemic therapeutic applications by applying a low-level electrical current. The amount of drug delivered is proportional to the total electrical charge applied (which is a function of time and current). Therefore, it is possible to program the system's electrical current levels to control more precisely the desired drug dose, delivery rate and the pattern of delivery.

        Among the many drug delivery methods available today, the Company believes the advantages of iontophoretic drug delivery are many and include the following:

•

Non-invasive, needle-free



•

Site-specific drug delivery eliminates systemic side effects



•

Rapid onset and cessation kinetics



•

Controlled, programmable and titratable drug delivery capabilities



•

Single delivery system provides smooth, variable or bolus plasma levels, singly or in combination



•

Enhanced delivery of a broad range of compounds



•

Minimal variability in the delivery profiles among patients and body sites



•

Potential for enhanced patient compliance and control



•

Meets OSHA pain management standards for healthcare industry



•

Compliance with Needle Stick Prevention Act of 2001.

12

        Although the fundamentals of iontophoresis have been understood for decades, the method has become commercially practicable as a means of delivering drugs only recently as a result of advances in electronics, materials science and electrochemistry. These advances have led to the development of more efficient and adaptable drug patches and more reliable, compact and programmable dose controllers. The Company has an expansive portfolio of intellectual property with which it has developed iontophoretic systems that have unique and enhanced performance characteristics, which the Company believes are adaptable to a number of clinical settings and therapeutic applications.

Patents and Proprietary Rights

        The Company's proprietary technology includes patents, trademarks, trade secrets and other proprietary know-how. These technologies are used in various combinations in the testing, evaluation and formulation of optimal ionic drug solutions and in the research, development, design and manufacture of microprocessor controlled power supplies and active transdermal patches which are specifically designed and constructed for particular therapeutic applications.

        The Company has implemented a policy of actively patenting and maintaining as trade secrets and proprietary information all inventions and technologies that it believes are important to its business operations. The Company generally seeks patent protection for its key proprietary technologies in the United States and other major markets. The Company also relies on trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain its competitive position. The Company seeks protection of its trade secrets and proprietary know-how, in part, through confidentiality agreements. Employees, consultants, advisors, collaborators, and other individuals and entities are required to execute confidentiality agreements upon the start of employment or other contractual relationships.

        In 1997, the Company acquired exclusive worldwide rights to Elan Corporation, plc's ("Elan") broad base of United States and foreign patents, in vitro drug transport data and in vivo animal and human clinical data, in addition to other proprietary know-how in iontophoretic drug delivery and electro-transport fields.

        As of June 30, 2004, the Company held or had rights to utilize approximately 74 United States patents and 85 foreign patents and has (or has the rights to utilize) approximately 8 pending patent applications in the United States and 35 pending patent applications in foreign countries. The Company also owns or has licensed rights to issued and pending United States patents governing the design and manufacture of certain myoelectric prosthetic devices which it has sublicensed to a third party in connection with the sale of the Company's Motion Control division in December 1996.

Collaborative Relationships and Licenses

        The Company may enter into new collaborative relationships. The potential collaborative partners may provide proprietary drugs, technology, financial resources, research and pharmaceutical manufacturing capabilities or marketing infrastructure to aid in the development and commercialization of the Company's current and future products. Depending on the availability of financial, marketing and scientific resources and other factors, the Company may also license or cross-license its technology or products to others and retain profit sharing, royalty, manufacturing, co-marketing, co-promotion or similar rights. Any such arrangements could limit the Company's flexibility in pursuing alternatives for the development or commercialization of its products.

        The Company's license arrangements and prior collaborative relationships include the following:

        Elan.    In March 1997, the Company acquired exclusive world-wide licenses to certain iontophoretic drug delivery technologies, including rights to Elan's broad base of United States and foreign patents, in vitro drug transport data and in vivo animal and human clinical data, in addition to

13

other proprietary know-how in iontophoretic drug delivery and electro-transport fields. Under the terms of the license, the Company is obligated to pay Elan a royalty on net revenues, as defined in the agreement.

        Alza.    In 1993, the Company entered into a cross-license agreement with Alza Corporation ("Alza"). Under the agreement, non-exclusive, royalty free rights to certain patented technologies were exchanged.

        University of Utah.    In 1974, the Company entered into a licensing agreement with the University of Utah Research Foundation ("University"). Under the agreement, as amended, the Company obtained an exclusive license to certain iontophoretic drug delivery technologies developed at the University. Under the terms of the amended license, the Company is obligated to pay the University a royalty on certain sales of its iontophoretic drug delivery products through the year 2007.

Manufacturing

        All of the Company's products are inspected, labeled and prepared for shipment at its manufacturing facility in Salt Lake City, Utah. At this facility, the Company also manufactures the patch kits using several proprietary materials, components, processes and production technologies developed by the Company in conjunction with its equipment and materials suppliers. The Company has manufactured all of the drug electrode patches it has sold, and believes its electrode manufacturing capacity can be expanded to meet its needs for the foreseeable future.

        The Company outsources the manufacture and assembly of its Phoresor dose controllers, which employ a variety of sub-assemblies and components that are designed or specified by the Company. These components and subassemblies are manufactured by third parties, and are then shipped to a contract manufacturer for final assembly. The Company's manufacturing activities for the Phoresor are limited to design, labeling, inspection and packaging. The Company manufactures its Companion 80 product in-house from components and subassemblies manufactured by third parties. The Company does not manufacture or repackage any drugs or compounds used in its delivery systems.

        The Company and certain of its suppliers are required to comply with FDA regulations governing manufacturing practices, including the Quality System Regulations, which mandate controls for product design, control and quality. The Company believes it is in compliance with current Quality System Regulations. The Company is also certified to European quality systems regulation EN13485, which is similar to ISO 9001 and includes elements specifically for medical device manufacturers. Additionally, the Company has earned the right, through continued compliance to European regulations, to place the CE mark on its products, allowing it to market them in the European community. The Company has current Good Manufacturing Practices ("GMP") audits conducted on a regular basis.

Sales and Distribution

        The Company's marketing strategy is to position its products in the marketplace as the preferred means of administering a wide range of drugs. The Company currently employs the use of multiple sales and distribution channels, including (i) a network of medical supply dealers; (ii) independent sales representatives; and (iii) national distribution partners. The Company uses these distribution channels to maximize its sales and marketing resources.

        The Company currently sells the majority of its products into the physical and occupational therapy, sports medicine and other healthcare markets. The Company employs a nationwide network of distributors and independent sales representatives to sell and distribute its products in those markets. This distribution network is supported by regional business managers and internal customer service representatives who are employees of the Company. In addition to the Company's domestic sales and distribution efforts for its local inflammation products in the United States, it maintains marketing and

14

sales activities in international markets. These sales are made through independent distributors operating in those countries.

        During the fourth quarter of Fiscal 2004, the Company restructured its independent distribution network to achieve long-term growth objectives. This restructuring resulted in termination of some dealer relationships and reallocation of territories. The Company believes that the breadth of its product line, distributor pricing incentives, and reduced interference among distributors will strengthen business relationships with its long-term strategic distribution partners.

        Two distributors combined to account for approximately 32%, 25% and 22% of the Company's total product sales for the fiscal years ended June 30, 2004, 2003 and 2002. Although valued distribution channels, in the event of a loss of either distributor, the Company believes that it could continue to reach a substantial portion of its end user customers through alternative distribution channels. Less than 10% of product sales are to foreign customers.

Government Regulation

        Both drugs and medical devices, including the Company's iontophoretic drug delivery systems, are subject to extensive regulation by the FDA in the United States and by comparable authorities in other foreign countries.

        The Company's iontophoretic drug delivery products involve a medical device component, thereby subjecting such products to compliance with the FDA's regulations governing medical devices. Where such medical devices are labeled for use with a specific pharmaceutical product for a specific therapeutic indication, they are subject to the FDA's regulations governing both medical devices and pharmaceutical products. The Company's future iontophoretic drug delivery systems may involve a pharmaceutical component or specific labeling for use with a pharmaceutical product.

        Products regulated as medical devices may not be commercially distributed in the United States unless they have been cleared or approved by the FDA. Currently, there are two methods for obtaining FDA clearance or approval of medical devices. Devices deemed to pose less risk are placed in class I (general controls) or class II (general and special controls) and qualify for 510(k) notification, a procedure under section 510(k) of the Federal Food, Drug, and Cosmetic Act. A medical device that does not qualify for the 510(k) clearance is placed in class III, which is reserved for devices deemed by the FDA to pose the greatest risk. A preamendment class III device is one that was on the market before May 28, 1976. This status means that the device at present can be marketed through a 510(k) clearance, but it remains subject to a call for a Pre-Market Approval ("PMA") application under section 515 of the Drug Act. A PMA application generally requires a more complex submission than a 510(k) notification. Typically, it requires showing that the device is safe and effective based on extensive and costly preclinical and clinical tests, as well as information about the device and its components regarding, among other things, manufacturing, labeling and promotion.

        The regulatory status of iontophoretic devices is complex. The FDA has classified them as class II devices eligible for marketing through 510(k) premarket clearance when intended for use with a drug whose labeling bears adequate directions for the device's use with that drug. However, if an iontophoretic device is intended for use with a drug that is not labeled for use with the device, the FDA considers the iontophoresis device to be a preamendment class III device.

        The Company's Phoresor received 510(k) clearance as a preamendment class III device labeled for use with ions of soluble salts or other drugs. In 1995, the FDA approved an NDA for Iontocaine to be used as a local anesthetic and delivered iontophoretically by the Phoresor, which effectively moved the Phoresor into class II for this intended use. Unlike Iontocaine, dexamethasone does not have an NDA approval allowing it to be labeled for iontophoretic delivery. Thus, at the present time, the Company's Phoresor is a preamendment class III device when used with dexamethasone (or any drug other than

15

Iontocaine). The Company is not currently seeking, and gives no assurance that it will ever obtain, an approved NDA for the iontophoretic delivery of any drug other than Iontocaine.

        In August 2000, the FDA published a proposed rule to amend the physical medical device regulations to remove the class III iontophoresis device identification. Because the Company's products are all approved as class II devices, the Company does not believe that the proposed regulation would have any effect on the Company's ability to continue the manufacturing and selling of its current products.

        A lengthy and complex regulatory framework also applies to the labeling and marketing of specific drugs. Generally these pharmaceutical products require the submission of an NDA. The NDA approval process generally entails: (i) conducting preclinical laboratory and animal testing to enable FDA authorization of an Investigational New Drug ("IND") application, (ii) initial IND clinical studies to define safety and dose parameters, (iii) well controlled IND clinical trials to demonstrate product safety and efficacy, and (iv) submission to the FDA of an NDA. Preclinical studies involve laboratory evaluation of product characteristics and animal studies to assess the efficacy and safety of the drug. Human clinical trials are typically conducted in three sequential phases. Phase I trials normally consist of testing the product in a small number of healthy volunteers for safety and pharmacokinetic parameters using single and multiple dosing regimens. In Phase II trials, the manufacturer evaluates safety, initial efficacy, and dose ranging of the product for specific indications in a somewhat larger patient population. Phase III trials typically involve expanded testing for safety and clinical efficacy in a broad patient population at multiple clinical testing centers. The FDA, under Good Laboratory Practice regulations, regulates the preclinical and clinical studies. Results of the studies must be submitted to the FDA for review. The FDA may grant marketing approval, require additional testing and/or information, or deny the application. The process of obtaining FDA approval for a new product through this process may take several years and typically involves substantial risks and the expenditure of substantial resources.

        The FDA regulates the Company's quality control and manufacturing procedures by requiring it and its contract manufacturers to comply with certain standards, including compliance with the Quality System Regulations (for devices) and current GMP regulations (for drugs).

        The Company may be subject to certain fees that the FDA is authorized to collect, including user fees authorized under the Public Health Security and Bioterrorism Preparedness and Response Act of 2002, which includes the reauthorization of user fees under the Prescription Drug User Fee Amendments of 2002 (PDUFA III).

        Agencies similar to the FDA regulate medical devices and pharmaceutical products in most foreign countries. The International Standards Organization (ISO) has established regulations for medical devices in the European Union. Currently, the Company is in compliance with these regulations and its products are CE Marked. The Company will be required to meet the regulations of any foreign country where it markets its products. In addition, various aspects of the Company's business and operations are also regulated by a number of other governmental agencies including the Drug Enforcement Agency, U.S. Department of Agriculture, the Environmental Protection Agency, the Occupational Safety and Health Administration as well as by other federal, state and local authorities.

        Noncompliance with these various government regulatory requirements could result in enforcement actions that could include fines, plant closure, a recall of the Company's products or other civil or criminal sanctions. Noncompliance as well as unanticipated changes in existing regulatory requirements or adoption of new requirements could have a material adverse effect on the Company.

16

Competition

        The drug delivery, pharmaceutical and biotechnology industries are highly competitive and rapidly evolving, with significant developments expected to continue at a rapid pace. The Company's success depends upon maintaining a competitive position and developing products and technologies for efficient and cost effective drug delivery. The Company's products compete with other drugs and drug delivery systems, including other iontophoretic delivery systems. The Company believes its products compete on the basis of quality, efficacy, cost, convenience, safety and patient compliance.

        The Company is aware of many other competitors in the general field of drug delivery, including, among others, competitors developing injectable or implantable drug delivery systems, oral drug delivery technologies, passive transdermal systems, oral transmucosal systems and intranasal and inhalation systems. The Company is also aware of other companies that have developed or are currently developing iontophoretic and other active transdermal drug delivery systems.

        Alza, Vyteris, Inc., and Empi, Inc. are engaged in the development and/or marketing of iontophoretic devices. Alza, a licensee of the Company, and Vyteris are both undertaking the development of iontophoretic drug delivery systems, but neither currently markets any iontophoretic products. Empi is the Company's primary competitor in the sale of iontophoretic drug delivery systems for the treatment of acute local inflammation in the physical therapy market and, the Company estimates, controls a majority of that market.

        The Company's iontophoretic system for delivering Iontocaine for the inducement of dermal anesthesia primarily competes with traditional methods of delivering dermal anesthetics by needle injection or is used in circumstances where either no anesthesia is used, due to the pain associated with needle injection (including needle injections themselves), or where topical anesthetic creams are used. The most effective and widely used topical anesthetic cream, EMLA, is manufactured and sold by AstraZeneca International, a large international pharmaceutical company. There can be no assurance that the Company can effectively compete with these products or any other drug delivery system.

Employees

        As of June 30, 2004, the Company had 51 full-time employees, 10 of whom hold either an advanced business or technical degree. Of the Company's full-time employees on that date, 6 were engaged in engineering and product development, 22 in manufacturing and quality control, and 23 in sales, marketing and general administration. None of the Company's employees is represented by a labor union. The Company has not experienced any employee related work stoppages and considers its relations with employees to be good.

Item 2.    PROPERTIES

        The Company's administrative, manufacturing operations, and research office space is housed in a single facility, consisting of approximately 34,000 square feet, located at 2441 South 3850 West in Salt Lake City, Utah. The facility is leased to the Company until December 31, 2012. The Company believes its facilities will be adequate and suitable for its present needs and that additional space will be available as needed.

17

Item 3.    LEGAL PROCEEDINGS

        IOMED, Inc. v. Jamal Yanaki, et al., Third District Court of Utah, Salt Lake County. IOMED filed the Complaint in this action on April 2, 2002. As amended on December 2, 2002 (the "Amended Complaint"), IOMED has named as defendants Jamal Yanaki, ActivaTek, LLC, Ceramatec, Inc., Ashok Joshi, James Weersing, Shunt Power Technology, LLC, and Empi, Inc. On February 27, 2003, IOMED filed an additional complaint against JRW Technology, Inc. in the Third District Court of Utah, Salt Lake County asserting claims arising out of the same factual allegations. Mr. Yanaki is a former IOMED executive officer. ActivaTek, LLC is a company formed by Mr. Yanaki and Ceramatec following his resignation from IOMED. Ceramatec is an engineering consulting firm. Mr. Joshi is the principal owner of Ceramatec. Mr. Weersing is the former chief executive officer and chairman of IOMED. Shunt Power Technology and JRW Technology are companies formed by Mr. Weersing. Empi is IOMED's principal competitor in the iontophoretic marketplace. In addition, Mr. Weersing was a managing director of MBW Venture Partners, LP, which beneficially owned more than five percent of IOMED's common stock at the time the litigation commenced.

        The claims arise out of IOMED's allegations that the defendants engaged in conduct to misappropriate IOMED's confidential information related to a new product that was being developed by IOMED under the supervision of Messrs. Weersing and Yanaki. In the Amended Complaint, IOMED alleges that all defendants misappropriated trade secrets, tortiously interfered with IOMED's economic relationships and engaged in a civil conspiracy. IOMED further alleges that Messrs. Weersing and Yanaki engaged in fraud and tortiously interfered with IOMED's contractual relationships, breached fiduciary duties and duties of loyalty and, that Mr. Yanaki breached his contract with IOMED and an implied covenant of good faith and fair dealing. IOMED seeks injunctive relief against all defendants.

        In response, a Counterclaim was filed with respect to the Amended Complaint on January 10, 2003 against IOMED and certain IOMED employees, including Mr. Robert J. Lollini, President and Chief Executive Officer. The counterclaim alleges, among other things, defamation and seeks, among other things, $5 million in monetary damages.

        The parties have conducted limited discovery, including production of documents and depositions of various witnesses. No date has been set for trial of the matter. The parties participated in mediation administered by a third party mediator in an attempt to resolve the dispute. No resolution was reached, but settlement discussions have continued. Unless a settlement is reached, the Company intends to vigorously prosecute the claims against the defendants and vigorously defend the claims asserted against it by Yanaki and Activatek.

        Yanaki v. IOMED, Inc., et al and Moss v. IOMED, Inc., et al, U.S. District Court for the District of Utah. On April 14, 2003, Mr. Yanaki and Ms. Susan I. Moss filed separate Complaints against IOMED and certain IOMED employees and agents, alleging violation of civil rights, invasion of privacy, intentional infliction of emotional distress, trespassing, and conspiracy. These actions, which were subsequently consolidated into a single action, are related to the state court action involving Jamal Yanaki, et al. discussed above in that they arise out of the seizure of Mr. Yanaki's computer hard drives, other electronic media, and certain business files, pursuant to an order by the Third Judicial District Court for the State of Utah. The court-ordered seizure was conducted by the Salt Lake County Sheriff's Office. Mr. Yanaki and Ms. Moss were seeking, among other things, combined monetary damages of $60 million. On January 27, 2004, the court granted, with prejudice, the Company's motion to dismiss these claims. The plaintiffs have appealed and the appeal is now pending.

        Yanaki v IOMED, Inc., et al, Third District Court of Utah, Salt Lake County. Mr. Yanaki filed the Complaint against IOMED and certain IOMED employees on June 24, 2003. The complaint alleges, among other things, unlawful employment practices, discrimination and breach of contract by the Company and certain of its employees. This Complaint is related to the state court action involving

18

Jamal Yanaki, et al. discussed above in that the claims asserted arise from the same series of transactions and occurrences. Mr. Yanaki was seeking compensatory and punitive damages, declaratory relief, and attorneys' fees. On February 10, 2004, the Court granted the Company's motion to dismiss this claim. The plaintiff has indicated an intent to ask leave of the Court to file claims as a Counterclaim in the trade secret litigation described above.

        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.

        Birch Point Medical, Inc. v IOMED, Inc., U.S. District Court for the district of Minnesota. This claim was filed on May 11, 2004. The complaint involves a patent infringement claim asserted against the Company by Birch Point Medical, Inc., a Minnesota corporation, related to the Company's recently released Companion 80 product, which is an iontophoretic drug delivery system. The patent-in-suit is U.S. Patent No. 6,653,014, which Birch Point Medical acquired by assignment. Birch Point Medical has not asserted that any of the Company's other products infringe the patent-in-suit. The Company has denied infringement, and has asserted a counterclaim for a declaratory judgment of noninfringement and/or that the patent is invalid. This case is entering the discovery phase and it is too early to predict the outcome. The Company intends to vigorously defend this lawsuit and prosecute its counterclaims.

        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 the legal matters discussed in this section above will have a material adverse impact on the Company. However, the legal fees and expenses in these actions 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.

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Report.

PART II

Item 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

        The Company's common stock is traded on the American Stock Exchange (the "AMEX"), under the symbol "IOX". The following table sets forth, for the periods indicated, the high and low sales prices as reported by the AMEX. These prices represent quotations between dealers and do not include retail mark-up, markdown or commission, and do not necessarily represent actual transactions.

19

Security Holders

        As of June 30, 2004, there were 132 shareholders of record of the Company's common stock.

Dividends

        The Company has not paid dividends to date and does not anticipate or contemplate paying cash dividends in the foreseeable future. It is the present intention of management to utilize all available funds for the development and growth of the Company's business.

Equity Compensation Plan Information

        The following table shows information about the securities authorized for issuance under the Company's equity compensation plans as of June 30, 2004:

Recent Sales of Unregistered Securities

        None.

20

Item 6.    SELECTED CONSOLIDATED FINANCIAL DATA

        The following selected statement of operations data for the years ended June 30, 2004, 2003 and 2002, and the balance sheet data as of June 30, 2004 and 2003 are derived from the audited consolidated financial statements included in this report and should be read in conjunction with those consolidated financial statements and the notes thereto. The selected statement of operations data for the years ended June 30, 2001 and 2000, and the balance sheet data as of June 30, 2002, 2001 and 2000 are derived from the audited consolidated financial statements of the Company, which are not included herein and are qualified by reference to such financial statements and the notes thereto. Certain reclassifications have been made to prior year balances to conform to the financial statement presentation included herein.

(1)

Reflects the reversal of the remaining accrual amount relating to the fiscal 2000 lease abandonment charge for facilities relocation.

(2)

Reflects a $1,190,000 non-recurring, non-cash charge for the impairment of long-lived assets and a $505,000 non-recurring restructuring charge.

(3)

Reflects a non-recurring restructuring charge.

(4)

Reflects a lease abandonment charge for facilities relocation.

(5)

Includes income from contract research, royalties, and license fees.

(6)

See Notes to Consolidated Financial Statements for information concerning the computation of per share amounts.

21

Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Consolidated 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 discussed under Item 1 "Business" and elsewhere in this Report.

Overview

        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 unmet medical needs. The Company has proprietary iontophoresis technology in various stages of research and product development primarily for transdermal drug delivery and for the treatment of ophthalmic disease. From its 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 June 30, 2004, the Company's accumulated deficit was approximately $32.2 million. The Company's ability to sustain profitability will depend on its ability to achieve market acceptance and successfully expand sales of its existing products and successfully complete the development of, receive regulatory approvals for, and successfully manufacture and market its current and future products, as to which there can be no assurance.

Fiscal Years Ended June 30, 2004 and 2003

        Revenues.    The Company achieved record annual product sales of $12.2 million in fiscal 2004, a 2% increase from $11.9 million in fiscal 2003. Revenues from increased unit volume were offset, in part, by dealer price incentives introduced during the fourth quarter of fiscal 2004 that were recorded as a reduction of revenues. Sales from three products introduced by the Company in the last half of fiscal 2004 contributed to the increase in unit volume demand.

        Costs of Products Sold.    Costs of products sold increased 5% to $4.6 million in fiscal 2004 from $4.4 million in fiscal 2003. Gross margins on product sales were 62% and 63% in fiscal 2004 and 2003, respectively. The decreased gross margin was due, in part, to price incentives introduced during the fourth quarter of fiscal 2004. These price incentives may lead to a decreased gross margin percent in future years.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses decreased 2% to $5.6 million in fiscal 2004 compared to $5.7 million in 2003. This decrease relates primarily to decreased sales and marketing expenses, offset, in part, by an increase in general and administrative expenses.

        Research and Product Development Expense.    Research and development expenditures decreased 15% to $1,050,000 in fiscal 2004 from $1,232,000 in fiscal 2003. The Company's research and product

22

development expenditures in the current period reflect its investment in product development programs for its core business. 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.

        Non-recurring (income) expense.    During fiscal 2003, the Company fulfilled its obligations related to the non-recurring expense taken in fiscal 2000 for certain non-cancelable abandoned lease and other obligations related to the Company's relocation to its new facilities. As a result, in fiscal 2003 the Company reversed the remaining amount that was expensed as a non-recurring item in fiscal 2000 and realized a one-time benefit of $76,000.

        Other Income and Expenses.    Interest expense decreased to $169,000 in fiscal 2004 from $213,000 in fiscal 2003 due to a decreasing balance on long-term obligations. Interest income and other miscellaneous income was $184,000 in fiscal 2004 compared to $306,000 in fiscal 2003. 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 during fiscal 2004 and future periods.

        Income Taxes.    During fiscal years 2004 and 2003, the Company recognized no income tax expense due to certain future tax benefits and the reversal of valuation allowance that had been previously recorded to offset deferred tax assets associated with the Company's net operating loss carryforwards. 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. The Company's net deferred tax assets, primarily associated with net operating loss carryforwards, are fully offset by a valuation allowance. The Company will continue to monitor the realizability of these assets and could adjust the valuation allowance in the future.

        Net Income.    Net income of $954,000 in fiscal 2004 was a 22% increase over the $785,000 net income reported in fiscal 2003. The improvement in fiscal 2004 was principally a result of reduced operating expenses.

Fiscal Years Ended June 30, 2003 and 2002

        Revenues.    The Company reported product sales of $11.9 million in fiscal 2003, a 7% increase from $11.2 million in fiscal 2002. The increase in product sales was a result of increased demand from the Company's largest customers and a return of the Company's sales orders to normal levels following a shortage of an anti-inflammatory drug often used with its products, which negatively impacted sales during the first quarter of fiscal 2002.

        Costs of Products Sold.    Costs of products sold increased 5% to $4.4 million in fiscal 2003 from $4.2 million in fiscal 2002. Gross margins on product sales were 63% in both fiscal 2003 and 2002.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased 2% to $5.7 million in fiscal 2003 compared to $5.6 million in 2002. This increase related primarily to increased sales and marketing expenses and an increase in legal costs related to litigation the Company is pursuing against certain parties. These costs were offset, in part, by reductions in other general and administrative expenses.

        Research and Product Development Expense.    Research and development expenditures decreased $1.4 million, or 53%, to $1.2 million in fiscal 2003 from $2.6 million in fiscal 2002. The Company's research and product development expenditures in fiscal 2003 reflected its investment in product development programs for its core business. The decrease in fiscal 2003 was a result of cost reduction measures, including the suspension or curtailment of certain product development programs.

23

        Non-recurring (income) expense.    During fiscal 2003, the Company fulfilled its obligations related to the non-recurring expense taken in fiscal 2000 for certain non-cancelable abandoned lease and other obligations related to the Company's relocation to its new facilities. As a result, during fiscal 2003 the Company reversed the remaining $76,000 that was expensed as a non-recurring item in fiscal 2000.

        During 2002, following the suspension of certain research and development activities, a change in strategic focus, and the implementation of a new patent management strategy, the Company reviewed its intangible assets for impairment. Based on the review, the Company recorded a non-cash expense of $1,190,000 for the period ended June 30, 2002. The expense represented the write-off of unamortized acquisition costs of certain patents and other intellectual property rights.

        The Company recorded a restructuring expense of $505,000 in fiscal 2002 for certain involuntary employee termination benefits related to the suspension or curtailment of certain product development programs. As of June 30, 2003, all termination benefits had been paid.

        Other Income and Expenses.    Interest expense decreased to $213,000 in fiscal 2003 from $263,000 in fiscal 2002 due to a decreasing balance on long-term obligations. Interest income and other miscellaneous income was $306,000 in fiscal 2003 compared to $777,000 in fiscal 2002. Amounts in both periods reflect interest earnings on invested cash balances and income from contract research, royalties and license fees. The decrease was primarily due to the recognition during fiscal 2002 of a $350,000 one-time payment for work performed under a collaborative research agreement with Santen Pharmaceuticals Co., Ltd. The Company and Santen have concluded work under their collaborative development agreement.

        Income Taxes.    No income tax expense or benefit was recognized for fiscal 2003 or 2002.

        Net Income (loss).    The Company had net income of $785,000 in fiscal 2003 compared to a net loss of $2,362,000 in fiscal 2002. The improvement in fiscal 2003 was a result of increased product sales and significant cost control measures, including the suspension or curtailment of certain developmen