SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1996 Commission File No. 0-24866
ISOLYSER COMPANY, INC.
(Exact name of Registrant as specified in its charter)
Georgia 58-1746149
(State or other jurisdiction of (IRS Employer incorporation or
organization) Identification No.)
4320 International Boulevard, N.W.
Norcross, Georgia 30093
(Address of principal executive offices)
(770) 381-7566
(Registrant's telephone number, including area code)
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 at least the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at August 9, 1996
Common Stock, $.001 par value 30,753,001
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
ISOLYSER COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Whole Dollars)
Assets June 30, 1996 December 31, 1995
Current Assets:
Cash and cash equivalents $33,807,168 $54,507,970
Accounts receivable, net 18,416,687 16,549,990
Inventories, net 45,635,379 35,195,796
Prepaid inventories 1,068,116 1,177,900
Prepaid expenses and other assets 2,591,987 1,501,442
Deferred income taxes 2,393,331 2,393,331
Total current assets 103,912,668 111,326,429
Property and Equipment at cost 70,248,054 57,985,504
Less accumulated depreciation <5,016,879> <2,597,140>
Property and equipment net 65,231,175 55,388,364
Deposits on machinery & equipment 1,457,744 3,058,985
Intangible Assets at cost 41,254,774 41,162,455
Less accumulated amortization <4,953,998> <3,333,035>
Intangible assets, net 36,300,776 37,829,420
Investments in Joint Ventures 364,638 438,915
Other Assets 573,865 669,721
$207,840,866 $208,711,834
See accompanying notes.
<PAGE>
Liabilities and Shareholders' Equity June 30, 1996 December 31, 1995
Current Liabilities:
Bank overdraft $ 1,644,415 $ 1,800,042
Accounts payable 12,231,123 13,634,753
Accrued compensation 2,525,450 2,447,429
Other accrued liabilities 1,903,353 1,112,668
Current portion of long-term debt 1,338,516 1,565,110
Total Current Liabilities 19,642,857 20,560,002
Long-term debt 9,345,797 9,821,439
Deferred income taxes 3,727,813 3,727,813
Other liabilities 223,332 423,269
Shareholders' equity
Common stock, $.001 par - 100,000,000
shares authorized, 31,072,645 and
30,773,836 shares issued 31,073 30,774
Additional paid-in capital 82,265,871 180,671,727
Accumulated deficit <4,999,297> <4,051,925>
177,297,647 176,650,576
Shares held in treasury, at cost
(318,544 and 329,502 shares) <2,396,580> <2,471,265>
Total shareholders' equity 174,901,067 174,179,311
$207,840,866 $208,711,834
See accompanying notes.
<PAGE> ISOLYSER COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Three Three Three
months months months months
ended ended ended ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $31,136 $15,886 $62,144 $28,041
Cost of goods sold 23,373 11,817 47,254 21,347
Gross profit 7,763 4,069 14,890 6,694
Operating expenses:
Selling & marketing 5,040 2,830 10,004 5,121
General & administrative 2,318 1,275 4,366 2,330
Research & development 403 258 700 467
Amortization of intangibles 807 302 1,614 575
Total operating expenses 8,568 4,665 16,684 8,493
Loss from operations <805> <596> <1,794> <1,799>
Interest income 490 912 1,130 1,917
Interest expense <182> <192> <411> <294>
Losses in joint ventures <72> <31> <138> <31>
Income (loss) before income
taxes <569> 93 <1,213> <207>
Income tax (benefit) --- 66 <266> <89>
Net income (loss) <569> $27 <947> <118>
Net income (loss) per common
share $<.02> --- <.03> <.01>
Weighted average number of
common shares outstanding 30,679 25,758 30,589 25,113
</TABLE>
See accompanying notes.
<PAGE>
ISOLYSER COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(Whole Dollars) Six months ended Six months ended
June 30, 1996 June 30, 1995
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss . . . . . . . . . . . . . . . . . . . . . $ <947,372> $<118,436>
Adjustment to reconcile net loss to net
cash used in operating activities:
Depreciation . . . . . . . . . . . . . . . . . . 2,420,000 468,190
Amortization . . . . . . . . . . . . . . . . . . 1,620,963 574,939
Provision for doubtful accounts. . . . . . . . . . .18,000 18,000
Equity in losses of joint ventures . . . . . . . . 134,277 30,684
Changes in assets and liabilities. . . . . . . <13,944,042> <6,595,431>
Net cash used in operating activities. . . . . <10,698,174> <5,622,054
Investing activities:
Purchase of and deposits for property and
equipment. . . . . . . . . . . . . . . . . . . <10,661,570> <18,455,702>
Investment in Joint Ventures . . . . . . . . . . . <60,000> <327,725>
Purchase of businesses, net of cash acquired <92,323> <1,098,087>
Net cash used in investing activities. . . . . <10,813,893> <19,881,514>
Financing activities:
Proceeds from term note payable. . . . . . . . --- 10,000,000
Repayment of term note payable . . . . . . . . . <500,000> <500,000>
Borrowings under line of credit agreement. . . . 750,000 453,935
Repayments under line of credit agreement. . . . <750,000> ---
Repayment of other notes payable . . . . . . . . <202,236> ---
Decrease in bank overdraft . . . . . . . . . . . <155,627> ---
Proceeds from exercise of stock options and
warrants. . . . . . . . . . . . . . . . . . . . 1,565,118 356,997
Purchase of treasury stock . . . . . . . . . . . --- <2,471,265>
Proceeds from issuance of common stock . . . . . 118,500 ---
Direct costs relating to issuance of common stock <14,490> ---
Net cash provided by financing activities 811,265 7,839,667
Net decrease in cash and cash equivalents. . . . . <20,700,802> <17,663,901>
Cash and cash equivalents at beginning of period 54,807,970 71,780,859
Cash and cash equivalents at end of period . . . $33,807,168 $ 54,116,958
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of interest capitalized) . . $ 392,571 $ 171,542
Income taxes . . . . . . . . . . . . . . . $ 160,149 $ 170,700
</TABLE>
See accompanying notes.
<PAGE>
ISOLYSER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) In the opinion of management, the information furnished reflects all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the financial position, results of operations and cash
flows for the interim periods. Results for the interim periods are not
necessarily indicative of results to be expected for the full year. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto contained in the Company's
Annual Report on Form 10-K at December 31, 1995.
(2) Inventories are stated at the lower of cost or market and are summarized
as follows:
June 30, 1996 December 31, 1995
Raw materials and supplies $18,950,379 $17,883,452
Work in process 14,641,087 6,578,302
Finished goods 11,903,677 10,740,753
______________ _____________
Total 45,495,143 35,202,507
Reserve for LIFO inventory 140,236 <6,711>
______________ _____________
Total $45,635,379 $35,195,796
The first-in first-out ("FIFO") valuation method is used to determine the cost
of inventories except for inventories held by the Company's subsidiary, White
Knight Healthcare, Inc. ("White Knight"). White Knight uses the last-in first-
out ("LIFO") inventory valuation method. At June 30, 1996 and December 31,
1995, LIFO inventories approximated $24,785,000 and $13,675,000.
(3) Investments in joint ventures are accounted for using the equity method
of accounting.
(4) Loss per common share is computed using the weighted average number of
common shares outstanding during the respective periods. There is no
significant difference between primary and fully diluted per share amounts for
these periods.
(5) On March 15, 1996, the Company executed a merger agreement with Microtek
Medical, Inc. ("Microtek"), a manufacturer of infection and fluid control
products, headquartered in Columbus, Mississippi. As amended on June 23, 1996
and July 29, 1996, the merger agreement provides that the Company will exchange
or grant options to purchase an aggregate of approximately 8.8 million shares
of its common stock for all of the outstanding shares and assumption of all
outstanding stock options of Microtek. The Company anticipates that the merger
will be accounted for using the pooling of interests method of accounting.
(6) The following items comprise the Company's outstanding purchase
commitments at June 30, 1996 and December 31, 1995:
December 31,
June 30,1996 1995
Equipment for Arden, North Carolina
manufacturing plant. . . . . . . . . . . . . . $1,171,920 $4,199,777
Equipment for Abbeville, South Carolina
manufacturing plant . . . . . . . . . . . . . . .730,307 938,005
Financial system software. . . . . . . . . . . . .1,250,000 1,500,000
Norcross, Georgia corporate headquarters . . . . .2,400,000 ---
OREX Degradables inventory . . . . . . . . . . . .7,091,704 12,322,755
Other equipment. . . . . . . . . . . . . . . . 569,171 382,150
$13,213,102 $19,342,687
On March 22, 1995 the Internal Revenue Service issued a report proposing
certain adjustments to White Knight's income tax return for 1992 which
approximated $864,000 in federal taxes without penalties and interest. White
Knight recently reached a settlement with the Internal Revenue Service under
which White Knight was required to pay $229,843 in additional taxes and $75,415
in related interest. All taxes and interest ensuing from this settlement are
the subject matter of provisions indemnifying the Company negotiated between
the Company and the sellers of White Knight as a part of the White Knight
acquisition. Such indemnification provisions provide that all payments in the
way of indemnities (including, without limitation, indemnification payments for
such taxes and interest) are subject to an aggregate deductible amount of
$250,000.
A complaint was filed against the Company as well as its President and
Chief Financial Officer on December 13, 1995 on behalf of Peter Salit in the
United States District Court for the Northern District of Georgia. In the
complaint, the plaintiff seeks class certification and damages relative to
certain alleged wrongful disclosures and omissions in various of the Company's
filings with the Securities and Exchange Commission, including allegations that
certain OREX Degradables do not dissolve as represented and cannot be
manufactured as represented. The Company intends to vigorously defend this
litigation which remains in the preliminary stages.
The Company is involved in routine litigation and proceedings in the
ordinary course of business. Management believes that pending litigation
matters will not have a material adverse effect on the Company's financial
position or results of operations.
(7) At June 30, 1996, the Company was not in compliance with the restrictive
covenant of its credit facility pertaining to net income. This existing
covenant violation was waived by the Company's lenders on August 8, 1996.
(8) On August 31, 1995, the Company's Board of Directors approved a 2 for 1
stock split effected in the form of a 100% stock dividend paid on October 2,
1995 to shareholders of record on September 15, 1995. All share and per share
data have been adjusted to give retroactive effect to this stock split.
(9) In March, 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be disposed of, which
the Company adopted effective January 1, 1996. SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment when events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable, with any impairment losses being
reported in the period on which the recognition criteria are first applied
based on the fair value of the asset. Long lived assets and certain
intangibles to be disposed of are required to be reported at the lower of
carrying amount or fair value less cost to sell. The initial adoption of SFAS
No. 121 had no impact on the Company results of operations.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123 "Accounting for
Stock-Based Compensation" which the Company adopted effective January 1, 1996.
SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply APB Opinion No. 25,
which recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB Opinion No. 25 to
its stock based compensation awards to employees and will disclose the required
pro forma effect on net income and earnings per share in its 1996 Annual
Report. Accordingly, the initial adoption of SFAS No. 123 had no impact on the
Company's results of operations.
(10) Certain prior period amounts have been reclassified for comparative
purposes.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Net sales for the three months ended June 30, 1996 (the "1996 Quarter")
were $31.1 million compared to $15.9 million for the three months ended June
30, 1995 (the "1995 Quarter"), an increase of 96 percent. Net sales for the
six months ended June 30, 1996 (the "1996 Period") were $62.1 million compared
to $28.0 million for the six months ended June 30, 1995 (the "1995 Period"), an
increase of 122 percent. The increase in net sales in the 1996 Quarter and
1996 Period over the corresponding period of 1995 reflects the $15.4 million
and $30.7 million of net sales by White Knight during the 1996 Quarter and 1996
Period, respectively, with no corresponding sales during the 1995 Quarter and
1995 Period as the acquisition of White Knight was consummated as of
September 1, 1995. Procedure trays and related products contributed $13.4
million and $25.9 million to net sales in the 1996 Quarter and 1996 Period,
respectively, down 1.5 percent and up 8.0 percent over the $13.6 million and
$24.0 million in net sales of similar products during the 1995 Quarter and 1995
Period, respectively. Net sales of safety products and services were $2.4
million and $5.6 million in the 1996 Quarter and 1996 Period, respectively, or
equal to and 30.2 percent higher than the $2.4 million and $4.3 million during
the 1995 Quarter and 1995 Period, respectively, related primarily to a
distributor adjusting its inventory in the Company's LTS products and increased
revenues from the Company's Onsyte systems. The net sales of the Company for
the 1996 Quarter and 1996 Period include the net revenues of SafeWaste
Corporation ("SafeWaste"), which the Company acquired on May 31, 1995.
The Company's sales of OREX Degradables in the 1996 Quarter and 1996
Period were $2.4 million and $4.0 million, respectively (which amounts are
included in the sales figures described above), as the Company's OREX products
were sold in procedure trays and sterile packs. The Company's future
performance will depend to a substantial degree upon market acceptance of and
the Company's ability to successfully manufacture, market, deliver and expand
its OREX Degradables line of products.
Gross profit for the 1996 Quarter and 1996 Period was 24.9 percent and
24.0 percent of net sales, respectively, compared to 25.6 percent and 23.9
percent of net sales for the 1995 Quarter and 1995 Period, respectively,
reflecting the somewhat higher gross profit margin on White Knight conventional
products combined with relatively low gross profit margins on OREX Degradables.
Gross profit margins in the early portions of the 1996 Period were adversely
impacted by $651,000 of unabsorbed manufacturing costs (i.e., manufacturing
costs added to costs of goods sold rather than being included in inventory of
manufactured product) attributed to OREX Degradables due to manufacturing
inefficiencies at the Company's Arden and Abbeville OREX Degradables
manufacturing facilities. As manufacturing rates increased during the 1996
Period, the Company was able to more fully absorb manufacturing costs and
thereby reduce operating losses. Pending increased utilization of the
Company's existing manufacturing capacity at its Arden and Abbeville OREX
manufacturing facilities, however, the Company will continue to encounter low
profit margins on sales of its OREX Degradables products. During the 1996
Period, the Company manufactured more OREX Degradables towels than were sold in
the 1996 Period.
Selling and marketing expenses were $5.0 million or 16.2 percent of net
sales in the 1996 Quarter and $2.8 million or 17.8 percent of net sales in the
1995 Quarter. Selling and marketing expenses were $10.0 million or 16.1
percent of net sales in the 1996 Period and $5.1 million or 18.3 percent of net
sales in the 1995 Period. This increase in real dollars reflects the
acquisition of White Knight, and the corresponding distribution and selling
expenses associated with White Knight's sales volume, coupled with expenses
relating to investments in sales and marketing efforts.
General and administrative expenses were $2.3 million or 7.4 percent of
net sales in the 1996 Quarter compared to $1.3 million or 8.0 percent of net
sales for the 1995 Quarter. General and administrative expenses were $4.1
million or 6.6 percent of net sales in the 1996 Period and $2.3 million 8.3
percent of net sales in the 1995 Period. The major portion of the increase
reflects the acquisition of White Knight effective September 1, 1995 and its
general and administrative expenses.
Research and development expenses were $403,000 or 1.3 percent of net
sales in the 1996 Quarter compared to $258,000 or 1.6 percent of net sales for
the 1995 Quarter. Research and development expenses were $700,000 or 1.1
percent of net sales in the 1996 Period and $467,000 or 1.7 percent of net
sales in the 1995 Period.
Amortization of intangibles in the 1996 Quarter and 1995 Quarter was
$807,000 and $302,000, respectively. Amortization of intangibles in the 1996
Period and 1995 Period was $1.6 million and $575,000, respectively. This
increase in cost reflects the amortization of intangibles relating to the White
Knight and SafeWaste acquisitions.
The resulting losses from operations for the 1996 Quarter was $805,000
compared to $596,000 for the 1995 Quarter, and for each of the 1996 Period and
1995 Period was $1.8 million.
Interest income was $490,000 in the 1996 Quarter compared to $912,000 for
the 1995 Quarter, and $1.1 million in the 1996 Period compared to $1.9 million
for the 1995 Period. This decrease in interest income reflects a reduction in
short term U.S. government and U.S. government-backed securities invested
during 1996, and a lower interest rate on those investments.
Interest expense was $182,000 and $192,000 for the 1996 Quarter and 1995
Quarter, respectively, compared to $411,000 and $294,000 for the 1996 Period
and 1995 Period, respectively. Much of the interest in the 1995 Quarter was
capitalized because the assets financed by the debt were still under
construction.
The Company recorded no income tax benefit for the 1996 Quarter and a
benefit of $266,000 for the 1996 Period, compared to a tax expense of $66,000
for the 1995 Quarter and a benefit of $89,000 for the 1995 Period.
The resulting net loss was $569,000 for the 1996 Quarter compared to a
net income of $27,000 for the 1995 Quarter. The net loss was $947,000 for the
1996 Period compared with $118,000 for the 1995 Period.
Upon and in the event of the Company's successful consummation of the
Microtek transaction, the Company intends to account for such transaction as a
pooling of interests which will result, among other things, in a restatement of
the Company's financial statements for prior periods in order to include the
operations of Microtek. In addition, the Company currently anticipates that
the consummation of the Microtek transaction will cause the Company to record
approximately $2.8 million in merger expenses and $538,000 of compensation
costs. These merger expenses include investment banking, legal, accounting and
miscellaneous transaction costs. Plans for the integration and consolidation
of the companies' operations are currently being developed, but associated
costs are not presently estimable. The accounting policies utilized by the
Company and Microtek are currently being studied from a conformity perspective;
however, the impact of any potential conformity adjustment is not presently
expected to be material.
Sterile Concepts is a significant customer of White Knight, accounting
for approximately 12 percent of White Knight's net sales and 6 percent of the
Company's net sales during the 1996 Period. Sterile Concepts was recently
acquired by Maxxim Medical, Inc. Such acquisition could adversely affect the
Company's sales.
FINANCIAL CONDITION AND LIQUIDITY
At June 30, 1996, the Company's cash and equivalents totalled $33.8
million compared to $54.5 million at December 31, 1995.
During the 1996 Period, the Company used $10.7 million of its cash in
operating activities compared to $5.6 million for the 1995 Period. The overall
use of cash in the 1996 Period of $20.7 million included a $1.9 million
increase in accounts receivable, a $10.4 million increase in inventories
(primarily OREX raw materials), a $1.4 million decrease in accounts payable, a
$1.1 million increase in prepaid expenses and $10.7 million in capital
expenditures related primarily to equipment for the Company's manufacturing
facilities.
At June 30, 1996, the Company had outstanding commitments to purchase
approximately $3.7 million of equipment in 1996. These commitments relate
primarily to the OREX roll stock plant in Arden, North Carolina, the OREX towel
plant in Abbeville, South Carolina (reflecting modifications and additions to
those plants and related equipment) and the purchase of equipment for the
Company's financial system software. Other material activity in the Company's
plants and equipment include further developments of the Company's OREX
extrusion manufacturing equipment located in Norcross, Georgia, and the
acquisition of PVA fiber manufacturing equipment currently located in
Charlotte, North Carolina and now operating on a test basis only. The Company
is currently substantially dependent upon third party manufacturers and
suppliers located in the Peoples Republic of China and elsewhere outside the
United States for the raw materials and certain of the finished goods
comprising the OREX Degradables line. Such dependence exposes the Company to
various risks concerning the costs and availability of raw materials and
finished products. The Company anticipates continued significant capital
expenditures to expand its manufacturing capabilities to enable the Company to
manufacture more of its OREX Degradables products internally thereby giving it
more control over its operations, including product quality, availability and
cost. The Company anticipates that such capital expenditures may require
additional term loan financing or issuances of common stock to the extent not
funded from available cash.
On March 15, 1996, the Company executed a merger agreement with Microtek
which was subsequently amended on June 23, 1996 and July 29, 1996. Among other
objectives sought to be achieved by the Company through this merger, the
Company believes Microtek will facilitate the conversion manufacturing and
marketing of OREX Degradables film products. Upon closing of such acquisition,
under the amended merger agreement Isolyser would issue or grant options to
purchase an aggregate of approximately 8.8 million shares of its common stock
in exchange for all of the outstanding shares and assumption of all outstanding
stock options of Microtek. The closing of the transaction, which the Company
plans to account for as a pooling of interests, is subject to approval by the
Company's and Microtek's respective shareholders as well as certain other
customary conditions. There can be no assurance that such transaction will be
consummated.
On March 26, 1996, the Company signed an agreement to purchase land and a
building in Norcross, Georgia for approximately $2.4 million, including
estimated refurbishment costs. The closing of this transaction is expected to
occur no later than August 31, 1996. The Company anticipates utilizing this
location for its corporate headquarters. The Company anticipates funding this
purchase from available cash.
At June 30, 1996, long term debt, including current portion, amounted to
$10.7 million and consisted primarily of $8.5 million outstanding under the
Company's term loan which was used to partially finance its OREX roll stock
plant. As of June 30, 1996, there was current additional borrowing available
under the revolving facility of approximately $22.5 million. In connection
with the proposed acquisition of Microtek described above, the Company will be
required to assume Microtek's outstanding debt, which at May 31, 1996,
approximated $28.0 million. To facilitate such debt assumption, and from time
to time as the Company's working capital requirements increase, the Company
anticipates increasing its revolving line of credit to the extent such
requirements are not otherwise satisfied out of available cash flow or
borrowings under the Company's existing line of credit. In addition, the
proposed acquisition of Microtek will require the consent of the Company's
senior lender. There can be no assurance that an increase to the Company's
revolving credit facility and such consent will be available to the Company.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
A complaint was filed against the Company as well as its President and
Chief Financial Officer on December 13, 1995 on behalf of Peter Salit in the
United States District Court for the Northern District of Georgia. In the
complaint, the plaintiff seeks class certification and damages relative to
certain alleged wrongful disclosures and omissions in various of the Company's
filings with the Securities and Exchange Commission, including allegations that
certain OREX Degradables do not dissolve as represented and cannot be
manufactured as represented. The Company intends to vigorously defend this
litigation which remains in the preliminary stages.
On March 22, 1995, the Internal Revenue Service issued a report proposing
certain adjustments to White Knight's income tax return for 1992 which
approximated $864,000 in federal taxes without penalties and interest. White
Knight recently reached a settlement with the Internal Revenue Service on this
matter under which White Knight was required to pay $229,843 in additional
taxes and $75,415 in related interest. All taxes and interest ensuing from
this settlement are the subject matter of provisions indemnifying the Company
negotiated between the Company and the sellers of White Knight as a part of the
White Knight acquisition. Such indemnification provisions provide that all
payments in the way of indemnities (including, without limitation,
indemnification payments for such taxes and interest) are subject to an
aggregate deductible amount of $250,000.
The Company is involved in routine litigation and proceedings in the
ordinary course of business. Management believes that pending litigation
matters will not have a material adverse effect on the Company's financial
position or results of operations.
Item 2. Changes in Securities
Except as previously reported at Exhibits 3.1 and 20.2 of the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on
July 29, 1996, there have been no material modifications in the instruments
defining the rights of shareholders. None of the rights evidenced by the
shares of the Company's common stock have been materially limited or qualified
by the issuance or modification of any other class of securities.
Item 3. Defaults Upon Senior Securities
At June 30, 1996, the Company was not in compliance with the restrictive
covenant of its credit facility pertaining to net income. This existing
covenant violation was waived by the Company's lenders on August 8, 1996.
Item 4. Submission of Matters to a Vote of Securityholders
During the period covered by this report, the Company filed with the
Securities and Exchange (the "Commission") and delivered to its shareholders
the Company's Proxy Statement for Annual Meeting of Shareholder held May 16,
1996 (the "Proxy Statement").
(a) The Company's Annual Meeting of Shareholders was held on May 16,
1996.
(b) The Board of Directors of the Company as previously reported to the
Commission was re-elected in its entirety.
(c) With respect to each matter (as more fully described in the Proxy
Statement) voted upon at the meeting, the inspector of election tabulated the
following votes:
(i) Election of Directors
Nominee for Office Number of Votes Number Votes Abstentions and
For Withheld Broker Non-Votes
Robert L. Taylor 24,295,478 153,736 -0-
Travis W. Honeycutt 24,295,899 153,315 -0-
Michael Sahady 24,293,080 156,134 0-
C. Fred Harlow 24,292,528 156,686 -0-
Rosdon Hendrix 24,293,399 155,815 -0-
Jamal Silim 22,289,449 159,765 -0-
Kenneth F. Davis 24,294,584 154,630 -0-
(ii) Proposal to Amend Isolyser's Stock Option Plan
For Against Abstentions and
Broker Non-Votes
21,335,629 1,071,272 2,042,313
(ii) Proposal to Amend Isolyser's Stock Purchase Plan
For Against Abstentions and
Broker Non-Votes
22,057,128 350,214 2,041,872
(d) There was no solicitation subject to Rule 14a-11 of Regulation 14A
under the Securities Exchange Act of 1934.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Description
3.1* Articles of Incorporation of Isolyser Company,
Inc.
3.2* Amended and Restated Bylaws of Isolyser Company,
Inc.
3.3** First Amendment of the Amended and Restated
Bylaws of Isolyser Company, Inc.
4.1* Specimen Certificate of Common Stock
10.1*** Agreement and Plan of Merger dated as of
March 15, 1996 and amended as of June 23, 1996
and July 29, 1996 among Isolyser Company, Inc.,
Microtek Medical, Inc. and MMI Merger Corp.
27.1 Financial Data Schedule
- ------------------
* Incorporated by reference to the Company's registration statement
on Form S-1 (File No. 33-83474).
** Incorporated by reference to the Company's Current Report on Form
8-K filed on July 29, 1996.
*** Incorporated by reference to the Company's Registration Statement
on Form S-4 (File No. 333-7977).
(b) No current reports on Form 8-K were filed during the quarter for
which this report is filed; however, the Company filed a Current
Report on Form 8-K on July 29, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this quarterly report on Form 10-Q to be signed on its
behalf by the undersigned thereunto duly authorized on August 13, 1996.
ISOLYSER COMPANY, INC.
By: /s/ Robert L. Taylor
_____________________
Robert L. Taylor
President and Chief Executive Officer
(principal executive officer)
By: /s/ C. Fred Harlow
___________________
C. Fred Harlow
Senior Vice President of Finance, Chief
Financial Officer and Treasurer
(principal financial officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED FINANCIAL STATEMENTS CONTAINED IN ITS REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000929299
<NAME> ISOLYSER COMPANY, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 33,807<F1>
<SECURITIES> 0
<RECEIVABLES> 18,417<F2>
<ALLOWANCES> 0
<INVENTORY> 45,635
<CURRENT-ASSETS> 103,913
<PP&E> 65,231
<DEPRECIATION> 5,017
<TOTAL-ASSETS> 207,841
<CURRENT-LIABILITIES> 19,643
<BONDS> 9,346
0
0
<COMMON> 31
<OTHER-SE> 174,870
<TOTAL-LIABILITY-AND-EQUITY> 207,841
<SALES> 62,144
<TOTAL-REVENUES> 0
<CGS> 47,254
<TOTAL-COSTS> 47,254
<OTHER-EXPENSES> 16,684
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 411
<INCOME-PRETAX> (1,213)
<INCOME-TAX> (266)
<INCOME-CONTINUING> (947)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (947)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
<FN>
<F1>INCLUDES CASH EQUIVALENTS.
<F2>ACCOUNTS RECEIVABLE ARE SHOWN NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS.
</FN>
</TABLE>
