<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 25, 1996
OR
[ ] 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 0-14429
Isco, Inc.
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(Exact name of registrant as specified in its charter)
Nebraska 47-0461807
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
4700 Superior Street, Lincoln, Nebraska 68504-1398
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(402) 464-0231
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of November 22, 1996:
Common Stock, $0.10 par value 5,351,931
- ----------------------------- ----------------
Class Number of Shares
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ISCO, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Condensed Consolidated Statements of Earnings 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
11 - Computation of earnings per share for the three
months ended October 25, 1996 and October 27, 1995. 11
27 - Financial Data Schedule. 12
(b) Reports on Form 8-K 10
2
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ISCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Amounts in thousands, except per share data)
-------------------------------------------
Three months ended
Oct 25 Oct 27
1996 1995
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Net sales $9,224 $9,752
Cost of sales 4,156 4,307
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5,068 5,445
Expenses:
Selling, general, and administrative 4,317 4,024
Research and engineering 1,091 1,117
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5,408 5,141
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Operating income(loss) (340) 304
Non-operating income 367 364
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Earnings before income taxes 27 668
Income tax provision(benefit) (61) 190
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Net earnings $ 88 $ 478
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Net earnings per share $.02 $.09
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Weighted average number of shares outstanding 5,354 5,356
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Cash dividend per share $.05 $.05
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The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
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ISCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Columnar amounts in thousands)
-----------------------------
Oct 25 Jul 26
1996 1996
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ASSETS
Current assets:
Cash and cash equivalents $ 1,630 $ 4,420
Short-term investments 2,918 2,749
Accounts receivable -trade, net of allowance for
doubtful accounts of $94,000 and $72,000 7,012 7,131
Inventories (Note 4) 6,776 5,343
Other current assets 2,559 1,771
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Total current assets 20,895 21,414
Property, plant, and equipment, net of accumulated
depreciation of $16,245,000 and $15,265,000 7,091 7,075
Long-term investments 15,237 16,035
Other assets 3,513 2,180
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Total assets $46,736 $46,704
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,274 $ 862
Other current liabilities 2,881 3,115
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Total current liabilities 4,155 3,977
Deferred income taxes 673 725
Shareholders' equity (Note 3):
Preferred stock, $.10 par value, authorized
5,000,000 shares; issued none
Common stock, $.10 par value, authorized
15,000,000 shares; issued 5,978,538 shares 598 598
Additional paid-in capital 36,838 36,838
Retained earnings 6,248 6,428
Net unrealized holding gain(loss) on
available-for-sale securities (112) (198)
Treasury stock, at cost, 626,607 shares (1,664) (1,664)
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Total shareholders' equity 41,908 42,002
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Total liabilities and shareholders' equity $46,736 $46,704
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The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
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ISCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Columnar amounts in thousands)
-----------------------------
Three months ended
Oct 25 Oct 27
1996 1995
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Cash flows from operating activities:
Net earnings $ 88 $ 478
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 528 515
Change in operating assets and liabilities (1,050) 388
Other 192 (115)
-------- --------
Total adjustments (330) 788
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Net cash provided by(used for) operating activities (242) 1,266
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Cash flows from investing activities:
Proceeds from sale of available-for-sale securities 231 --
Proceeds from maturity of available-for-sale securities 241 --
Proceeds from maturity of held-to-maturity securities 270 1,220
Proceeds from sale of property, plant, and equipment 53 100
Purchase of available-for-sale securities (41) (41)
Purchase of held-to-maturity securities -- (2,279)
Purchase of property, plant, and equipment (186) (250)
Disbursements for issuance of notes receivable (100) --
Purchase of Suprex assets (2,624) --
Other (124) (29)
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Net cash used in investing activities (2,280) (1,279)
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Cash flows from financing activities:
Cash dividends paid (268) (268)
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Net cash used in financing activities (268) (268)
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Cash and cash equivalents:
Net increase (decrease) (2,790) (281)
Balance at beginning of year 4,420 4,063
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Balance at end of period $ 1,630 $ 3,782
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During the three months ended October 25, 1996 and October 27, 1995, the Company
made income tax payments and received income tax refunds of approximately
$135,835 and $17,000, respectively.
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
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ISCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Columnar amounts in thousands, except per share data)
October 25, 1996
Note 1: In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all the adjustments necessary for a
fair presentation of the financial position of the Company and the results of
operations for the interim periods presented herein. All such adjustments are
of a normal recurring nature. Results of operations for the current unaudited
interim period are not necessarily indicative of the results which may be
expected for the entire fiscal year. All significant inter-company transactions
and accounts have been eliminated.
While the Company believes that the disclosures presented are adequate to make
the information not misleading, it is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes to the consolidated financial statements included
in the Annual Report on Form 10K for the year ended July 26, 1996.
Note 2: Certain reclassifications have been made to the prior period's
financial statements to conform to the current period's presentation.
Note 3: On November 21, 1996, the Board of Directors declared a quarterly cash
dividend of $.05 per share, payable January 2, 1997 to shareholders of record on
December 13, 1996.
Note 4: Inventories are valued at the lower of cost or market, principally on
the last-in, first-out (LIFO) basis. The composition of inventories is as
follows:
Oct 25, 1996 Jul 26, 1996
------------ ------------
Raw materials $2,878 $2,049
Work-in-process 2,045 1,935
Finished goods 1,853 1,359
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$6,776 $5,343
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Had inventories been valued on the first-in, first-out (FIFO) basis, they would
have been approximately $1,410,000 and $1,275,000 higher than reported on the
LIFO basis at October 25, 1996 and July 26, 1996, respectively.
Note 5: On August 21, 1996, Isco acquired substantially all of the assets and
assumed selected liabilities of Suprex Corporation, a Pennsylvania corporation,
located in Pittsburgh, Pennsylvania. Suprex manufactured a variety of
supercritical fluid extraction (SFE) products, principally for use in the food
products industry. The Company has intregrated the SFE products with its
existing line. The transaction was accounted for as a purchase.
6
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The purchase price, based on current estimates, was comprised of the following
consideration:
- -------------------------------------------------------------------------------
Amount paid to seller:
Cash paid at close $2,624
Liabilities assumed:
Current liabilities 499
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Total consideration $3,123
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------
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The initial purchase price allocation, based on current estimates, is summarized
as follows:
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Current assets:
Accounts receivable $ 305
Inventory 762
Property and equipment 219
Other assets (1):
Customer lists/trade names 807
Engineering drawings 304
Goodwill 726
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$3,123
------
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(1) The life of these intangibles range from 3 to 8 years.
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The following unaudited pro forma financial information sets forth the results
of operations of Isco, Inc. as if the acquisition of Suprex had occurred on July
29, 1995:
Pro forma financial information
(unaudited)
- -------------------------------------------------------------------------------
Three months ended
----------------------
10/25/96 10/27/95
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Net sales $9,412 $10,873
Net earnings(loss) (50) 281
Net earnings(loss) per share (0.01) 0.05
Weighted average number of shares outstanding 5,354 5,356
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7
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
SALES ANALYSIS AND REVIEW.
First quarter sales were $9,224,000, five percent below the same period last
year. Sales of wastewater samplers, open channel flow meters, and liquid
chromatography products, the Company's core products, were down eight percent
compared to the same period last year. Overall, sales of other products were
flat compared with the same period last year. Sales of supercritical fluid
extraction (SFE) products, including the recently acquired Suprex products, were
down six percent compared with the same period last year. Sales of syringe
pumps were down eight percent compared to the same period last year. The sales
of total organic carbon(TOC) process analyzers continued to grow, with sales 118
percent above the same period last year.
Domestically, sales related to the core product lines were flat compared with
last year, while sales from other product lines were down four percent. The
increased sales of SFE, TOC, and other products helped offset the 42 percent
decline in syringe pump sales.
International sales were down 20 percent. The core products were down 33
percent with all three products participating in the decline. Sales of other
products were up 11 percent, with the increase in sales of syringe pumps and TOC
analyzers more than offsetting a decline in sales of SFE products.
While sales were relatively weak in the first quarter, the rate of incoming
orders increased during the quarter. The resulting net orders were
approximately $10.4 million. This is an increase of 13 percent over the first
quarter a year ago and an increase of six percent over the preceding quarter.
Some of these orders did not ship because of future delivery dates or because
they were received in the latter part of the quarter.
OPERATING INCOME ANALYSIS AND REVIEW.
The Company had a $340,000 operating loss for the first quarter compared with
operating income of $304,000 for the same period last year. The $530,000
decline in sales for the first quarter of fiscal 1997 compared with the same
period last year reduced gross margin by $290,000 for the first quarter. During
the quarter, the Company expended $254,000 to manage the Suprex acquisition in
Pittsburgh and to integrate it into the Lincoln, Nebraska operations. The
Company incurred an additional $78,000 of amortization of the intangibles and
organizational costs of the acquisition. At this time, only engineering
activity remains to be transferred and fully integrated into the Lincoln
operations, with the date of final transfer not definitely established. The
reduction in the gross margin was, primarily, the result of the increase in the
LIFO reserve. In addition, the Company has not been able to realize fully the
anticipated benefits of the restructuring because management recognized, during
the quarter, that some personnel reductions in areas affecting customer service
had been, too, aggressive. As a result, eight of the terminated employees have
been rehired.
8
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RESULTS OF OPERATIONS.
The following table sets forth, for the three-month period indicated, the
percentages which certain components of the Condensed Consolidated Statements of
Earnings bear to net sales and the percentage of change of such components
(based on actual dollars) compared with the same periods of the prior year.
Three months ended
-------------------------------------
10/25/96 10/27/95 Change
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Net sales 100.0 100.0 (5.4)
Cost of sales 45.1 44.2 (3.5)
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54.9 55.8 (6.9)
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Expenses:
Selling, general, & administrative 46.8 41.3 7.3
Research & engineering 11.8 11.4 (2.3)
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58.6 52.7 5.2
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Operating income(loss) (3.7) 3.1 --
Non-operating income 4.0 3.7 .8
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Earnings before income taxes .3 6.8 (95.9)
Income tax provision (benefit) (.7) 1.9 --
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Net earnings 1.0 4.9 (81.6)
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The underlying reasons for the changes in operating results were discussed in
the previous section. The Company continued to generate a significant amount of
tax-exempt income in the first quarter of fiscal 1997. This tax-exempt income
combined with the lower net income before taxes created an income tax benefit
for the first quarter of fiscal 1997 compared with an income tax provision for
the first quarter of fiscal 1996.
FINANCIAL CONDITION AND LIQUIDITY.
At October 25, 1996, the Company's working capital exceeded $16.7 million. On
that date the current ratio was 5:1 compared with 5.4:1 at the end of fiscal
1996. During the quarter, the Company liquidated a portion of its cash
equivalents to complete the Suprex transaction. In addition, cash was used to
acquire additional inventory in anticipation of improved sales and to pay for
the restructuring charges accrued at fiscal 1996 year-end.
INFLATION.
The impact of inflation on the costs of the Company and its ability to pass on
cost increases in the form of increased prices is dependent upon market
conditions and the competitive environment. The general level of inflation in
the domestic economy has been relatively low for the past several years, and has
not had a significant impact on the Company.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
11 - Computation of earnings per share for the three months ended
October 25, 1996 and October 27, 1995.
27 - Financial Data Schedule.
(b) Reports on Form 8-K:
On October 21, 1996, Form 8-K was filed reporting the acquisition of
substantially all of the assets and the assumption of selected
liabilities of Suprex Corporation, a Pennsylvania corporation, located
in Pittsburgh, Pennsylvania. Required financial statements will be
included in Form 8-KA.
SIGNATURES.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ISCO, INC.
BY /s/ Robert W. Allington
-------------------------------------
Robert W. Allington, Chairman
and Chief Executive Officer
BY /s/ Philip M. Wittig
-------------------------------------
Philip M. Wittig, Treasurer
and Chief Financial Officer
Date: December 9, 1996
10
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EXHIBIT 11
COMPUTATION OF NET EARNINGS PER SHARE
(Amount in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three months ended
------------------------
Oct 25 Oct 27
1996 1995
--------- ---------
<S> <C> <C>
Primary:
Average number of shares of common
stock outstanding 5,351,931 5,351,931
Additional shares assuming exercise of
dilutive stock options 2,504 4,072
--------- ---------
Total 5,354,435 5,356,003
--------- ---------
--------- ---------
Net earnings $88 $478
--- ----
--- ----
Per share amount $0.02 $0.09
----- -----
----- -----
Fully Diluted:
Average number of shares of common
stock outstanding 5,351,931 5,351,931
Additional shares assuming exercise of
dilutive stock options 2,504 4,072
--------- ---------
Total 5,354,435 5,376,003
--------- ---------
--------- ---------
Net earnings $88 $478
--- ----
--- ----
Per share amount $0.02 $0.09
----- -----
----- -----
</TABLE>
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AND STATEMENT OF EARNINGS FOR OCTOBER 25, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-25-1996
<PERIOD-START> JUL-27-1996
<PERIOD-END> OCT-25-1996
<CASH> 1,630
<SECURITIES> 2,918
<RECEIVABLES> 7,106
<ALLOWANCES> 94
<INVENTORY> 6,776
<CURRENT-ASSETS> 20,895
<PP&E> 23,336
<DEPRECIATION> 16,245
<TOTAL-ASSETS> 46,736
<CURRENT-LIABILITIES> 4,155
<BONDS> 0
598
0
<COMMON> 0
<OTHER-SE> 41,310
<TOTAL-LIABILITY-AND-EQUITY> 46,736
<SALES> 9,224
<TOTAL-REVENUES> 9,224
<CGS> 4,156
<TOTAL-COSTS> 4,156
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 27
<INCOME-TAX> (61)
<INCOME-CONTINUING> 88
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
