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 September 30, 1998 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
Norcross, Georgia 30093
(Address of principal executive offices)
(770) 806-9898
(Registrant's telephone number, including area code)
650 Engineering Drive
Technology Park
Norcross, Georgia 30092
(Former Address)
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 November 13, 1998
Common Stock, $.001 par value 40,077,412
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
ISOLYSER COMPANY, INC.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
Assets September 30, 1998 December 31, 1997
------ ------------------ ----------------
Current assets
Cash and cash equivalents $ 5,256 $ 9,299
Accounts receivable, net 16,647 13,909
Inventories 23,658 32,067
Prepaid expenses and other assets 1,110 1,745
Assets held for sale 22,535 35,751
--------------- ---------------
Total current assets 69,206 92,771
--------------- ----------------
Property, plant and equipment 33,268 37,622
Less accumulated depreciation (14,688) (17,630)
--------------- ----------------
Property, plant, and equipment, net 18,580 19,992
--------------- ----------------
Intangibles and other assets, net 32,035 31,571
=============== ================
$ 119,821 $ 144,334
============== ===============
Liabilities and Shareholders' Equity
Current liabilities
Current installments of long term debt $ 28,461 $ 4,610
Accounts payable 6,615 10,108
Accrued expenses 5,641 5,644
---------- ------------
Total current liabilities 40,717 20,362
---------- ------------
Long term debt, excluding current
installments 4,729 37,546
Other liabilities 238 309
---------- ------------
Total liabilities 45,684 58,217
---------- ------------
Shareholders' equity
Common stock 40 39
Additional paid in capital 203,291 203,601
Retained earnings (128,347) (115,743)
Cumulative translation adjustment (113) (103)
Unearned shares restricted to
employee stock ownership plan (300) (300)
---------- ------------
74,571 87,494
Treasury shares (434) (1,377)
---------- ------------
Total shareholders' equity 74,137 86,117
========== ============
$ 119,821 $ 144,334
========== ============
See accompanying notes.
<PAGE>
<TABLE>
ISOLYSER COMPANY, INC.
Condensed Consolidated Statement of Operations
(in thousands, except per share data)
(unaudited)
<CAPTION>
Three months ended Three months Nine months Nine months ended
September 30, 1998 ended September ended September September 30, 1997
30, 1997 30, 1998
------------------ --------------- --------------- --------------------
<S> <C> <C> <C> <C>
Net sales $3636,112 41,877$ 116,216 124,314
Cost of goods sold 26,139 46,492 86,859 110,300
------------------ --------------- --------------- -----------------
Gross profit/(loss) 9,973 (4,615) 29,357 14,014
Operating expenses:
Selling, general & administrative 9,785 10,159 29,612 31,237
Research & development 846 595 2,649 1,982
Impairment loss - - 5,300 -
Amortization of intangibles 501 961 1,549 2,878
-------------- -------------- ------------------ -----------------
Total operating expenses 11,132 11,715 39,110 36,097
-------------- -------------- ------------------ -----------------
Loss from operations (1,159) (16,330) (9,753) (22,083)
Interest income 64 118 235 458
Interest expense (896) (946) (2,865) (2,977)
Gain (loss) in joint venture (2) (13) 10 (33)
Loss before income tax expense (1,993) (17,171) (12,374) (24,635)
Income tax expense 63 6 229 17
-------------- ---------------- ---------------- ------------------
Net loss $ (2,056) (17,177) (12,605) (24,652)
-------------- ---------------- ---------------- ------------------
Net loss per common share -
Basic and Diluted $ (0.05) (0.44) $ (0.32) $(0.63)
============== ================ ================ ==================
Weighted average number of common shares
outstanding 39,869 39,308 39,957 39,240
============== ================ ================ ==================
See accompanying notes.
</TABLE>
<PAGE>
ISOLYSER COMPANY, INC.
Condensed Consolidated Statement of Cash Flows
(in thousands)
(unaudited)
Nine months ended Nine months ended
September 30, 1998 September 30, 1997
-------------------- -----------------
Cash flows from operating activities:
Net loss $ (12,604) $ (24,652)
Adjustments to reconcile net loss to
net cash (used in)/provided
by operating activities:
Depreciation 2,928 5,571
Amortization 1,549 2,879
Provisions for doubtful accounts 125 206
Loss(Gain) on disposal of property,
plant & equipment 10 (27)
Impairment loss 5,300 -
Changes in assets and liabilities (1,195) 16,617
---------- ---------------
Net cash (used in)/provided by operating activities: (3,887) 594
---------- ---------------
Cash flows from investing activities
Additions to property, plant and equipment (3,185) (4,273)
Proceeds on sale of assets held for sale 11,450 -
--------- ---------------
Net cash provided by/(used in) investing activities: 8,265 (4,273)
---------- ---------------
Cash flows from financing activities:
Net repayments under credit agreement $ (9,052) $ (5,957)
Changes in bank overdraft (2) (2,978)
Proceeds from exercised stock options - 574
Proceeds from issuance of stock 255 333
Issuance of stock to 401(k) Plan 378 259
---------- ---------------
Net cash used in financing activities: (8,421) (7,769)
---------- ---------------
Net decrease in cash and cash equivalents (4,043) (11,448)
Cash and cash equivalents at beginning of period 9,299 20,925
---------- ---------------
Cash and cash equivalents at end of period $ 5,256 $ 9,477
---------- ---------------
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, 1997.
2) Inventories are stated at the lower of cost or market and are summarized as
follows:
September 30, 1998 December 31, 1997
------------------ -----------------
Raw materials and supplies $ 15,722,000 $ 24,121,000
Work in process 3,351,000 4,456,000
Finished goods 22,042,000 25,901,000
------------------ -----------------
Total 41,115,000 54,478,000
Reserve for excess, slow moving
and obsolete inventory (17,457,000) (22,411,000)
------------------ -----------------
Total $ 23,658,000 $ 32,067,000
At September 30, 1998 and December 31, 1997 net OREX inventory approximated
$4,753,000 and $7,500,000, respectively.
3) On February 25, 1998, the Company approved a plan to dispose of its OREX
manufacturing facilities in Arden and Charlotte, North Carolina and Abbeville,
South Carolina, and its White Knight subsidiary and recorded impairment charges
to adjust the carrying value of such entities to their estimated fair market
value based on appraisals and/or analyses of discounted future operating cash
flows from those entities.
The Company is currently negotiating to dispose of the remaining portion of its
White Knight subsidiary. The net assets of the remaining portion of the
Company's White Knight subsidiary at September 30, 1998, its Abbeville
manufacturing facility, and its Norcross headquarters are classified as assets
held for sale in the accompanying consolidated balance sheets, and are comprised
of the following:
September 30, 1998 December 31, 1997
----------------- -------------------
Assets:
Accounts receivable $ 7,024,000 $ 8,848,000
Inventory 9,577,000 13,085,000
Prepaid expense and other assets 1,108,000 186,000
Property and equipment, net 9,951,000 19,980,000
Other assets 237,000 287,000
--------------- ------------------
Total assets 27,897,000 42,386,000
--------------- ------------------
Liabilities:
Accounts payable 2,235,000 2,247,000
Bank overdraft 505,000 508,000
Accrued liabilities 955,000 2,044,000
Long-term debt 1,667,000 1,836,000
---------------- ---------------
Total liabilities 5,362,000 6,635,000
---------------- --------------
Net assets held for sale $ 22,535,000 $ 35,751,000
============== ================
The following represents the results of operations of the entities held for sale
for the three and nine months ended September 30, 1998 and 1997:
Three months ended September 30, Nine months ended September 30,
1998 1997 1998 1997
------------------ ------------- ----------------- ------------
Net sales $ 8,400,000 $ 12,463,000 $29,675,000 $37,316,000
Net loss (1,304,000) (2,929,000) (11,486,000) (6,851,000)
Net loss per
share- basic
and diluted (0.03) (0.07) (0.29) (0.17)
On August 11, 1998, the Company disposed of its Arden and Charlotte, North
Carolina OREX manufacturing facilities, the industrial division of its White
Knight subsidiary and substantially all of the assets of its SafeWaste
subsidiary for proceeds of approximately $13.4 million which includes
approximately $2.0 million of proceeds for the purchase of the Company's OREX
fiber inventory under a product financing arrangement. On October 14, 1998, the
Company disposed of its Abbeville, South Carolina OREX manufacturing facility
for proceeds of approximately $8 million, consisting of $7.5 million in cash and
a $500,000 note. The Company maintains a 20% minority interest in the company
formed to operate the Abbeville and Arden facilities. The Company has recorded
this minority interest under the equity method of accounting for investments.
4) Loss per common share is computed using the weighted average number of common
shares outstanding during the respective periods. There is no difference between
basic and diluted weighted average and per share amounts for these periods.
5) In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income". SFAS 130 establishes new rules for the
reporting and display of comprehensive income and its components. SFAS 130
requires foreign currency translation adjustments to be included in other
comprehensive income. Effective January 1, 1998, the Company adopted SFAS 130.
The Company currently has no material foreign currency translation adjustment in
the financial statements. Management believes the pronouncement does not
significantly impact the presentation of the Company's consolidated financial
statements.
6) Certain prior period amounts have been reclassified for comparative purposes.
7) September 30, 1998, the Company was not in compliance with a covenant of its
credit facility pertaining to operating results. Such covenant violation was
waived by the Company's lenders on November 12, 1998.
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Net sales for the three months ended September 30, 1998 (the "1998 Quarter")
were $36.1 million compared to $41.9 million for the three months ended
September 30, 1997 (the "1997 Quarter"), a decrease of 13.8%. Excluding net
sales from the Company's White Knight industrial division and Struble & Moffitt
division which were disposed during the 1998 Period, net sales decreased 7.2%.
Net sales for the nine months ended September 30, 1998 (the "1998 Period") were
$116.2 million compared to $124.3 million for the nine months ended September
30, 1997 (the "1997 Period"), a decrease of 6.5%. Excluding net sales from the
Company's White Knight industrial division and Struble & Moffitt division, net
sales decreased 4.3%. Sales of custom procedure trays and related products
decreased 5.8% in the 1998 Quarter and increased 1.6% in the 1998 Period. This
decrease in the 1998 Quarter is primarily attributable to timing of shipments
during the 1997 Quarter in anticipation of the Company's implementation during
fourth quarter 1997 of a new management information system. Sales of Microtek
products decreased 6.6% and 3.1% in the 1998 Quarter and the 1998 Period,
respectively, as compared to the corresponding periods of 1997 primarily
attributed to lower sales volume to Microtek's international and OEM customers.
Sales of safety products declined 3.6% and 15.6% in the 1998 Quarter and 1998
Period, respectively, as compared to the corresponding periods of 1997 due to a
substantial reduction in purchases of LTS products by Allegiance, the primary
distributor of such products, and previously reported adverse regulatory
developments which occurred in the first quarter of 1998. While the Company
plans to introduce a new LTS product to preserve its market share created by
LTS, the Company's ability to do so is subject to obtaining federal registration
of such product. See "Risk Factors - Regulatory Risks" in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 (the "Annual Report").
The Company expects that its operating results will continue to be adversely
affected by reduced sales of LTS, and no assurances can be provided that the
Company will be able to maintain its market share on such products by the
registration and introduction of a new LTS product. White Knight Healthcare
sales declined 12.9% and 17.2% in the 1998 Quarter and the 1998 Period,
respectively, as compared to the corresponding periods of 1997. Such decline in
sales is due to the timing of divestitures affecting the White Knight business,
a competitor's purchase of a significant customer and the Company's decision to
de-emphasize marketing of White Knight products in favor of higher margin
products sold by its other subsidiaries. In February 1998, the Company announced
plans to sell its White Knight subsidiary, which, if consummated, would
significantly reduce the Company's net sales. On August 11, 1998, the Company
sold the industrial division of White Knight and is currently in negotiations to
sell the remaining portion of White Knight. See "Risk Factors - Risks of Planned
Divestitures" in the Company's Annual Report.
Included in the foregoing sales figures are $1.1 million in sales of OREX
Degradables during the 1998 Quarter and $4.2 million during the 1998 Period as
compared to $1.5 million and $5.5 million during the corresponding periods of
1997. During 1997, the Company substantially reduced its efforts to increase
sales of OREX Degradables and instead focused on preserving its existing base of
hospitals purchasing OREX Degradables and evaluating means to market OREX
Degradables within its various market potentials. The Company to date has not
achieved any gross profits on its sale of OREX Degradables. 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 at acceptable profit margins. The
Company's ability to achieve such objectives is subject to risks including the
risks described in the Company Annual Report under "Risk Factors".
Gross profit for the 1998 Quarter was $10.0 million or 27.6% of net sales as
compared to gross (loss) of $(4.6) million or (11)% of net sales in the 1997
Quarter. Gross profit for the 1998 Period was $29.4 million or 25.3% of net
sales as compared to $14.0 million or 11.3% of net sales in the 1997 Period.
Included in cost of sales for the 1998 Period was approximately $900,000 in
inventory charges recorded in connection with the sale of the industrial
division of White Knight. Included in cost of sales for the 1997 Quarter and
Period was approximately $13.0 million reserved for potentially excess OREX
inventories. Exclusive of such reserves, gross profit in the 1998 Quarter and
Period would approximate $10.0 million and $30.3 million, respectively, as
compared to $8.4 million and $27.0 million for the 1997 Quarter and Period,
respectively. The improvement in gross profit margin is attributable to
increased overhead absorption at the Company's Arden and Abbeville base material
plants due to impairment reserves recorded during the fourth quarter of 1997,
improved gross profit at the Company's Microtek division, the sale of the
Company's Arden manufacturing plant and contract manufacturing at the Company's
Abbeville manufacturing plant.
Selling, general and administrative expenses were $9.8 million or 27.1% of net
sales in the 1998 Quarter as compared to $10.2 million or 24.3% of net sales in
the 1997 Quarter. Selling, general and administrative expenses were $29.6
million or 25.5% of net sales in the 1998 Period as compared to $31.2 million or
25.1% of net sales in the 1997 Period. Included in selling, general and
administrative expenses in the 1998 Quarter and Period were approximately
$300,000 in charges related to the sale of the industrial division of White
Knight. The reduction in selling, general and administrative expense is
attributed to a combination of implementation of the Company's operating plan
that focused on reorganizing marketing and sales efforts to achieve reductions
in selling and marketing expenses, and lower commissions on reduced sales.
Research and development expenses were $0.8 million or 2.3% of net sales in the
1998 Quarter as compared to $0.6 million or 1.4% of net sales in the 1997
Quarter. Research and development expenses were $2.6 million or 2.3% of net
sales in the 1998 Period as compared to $2.0 million or 1.6% of net sales in the
1997 Period. The increase in research and development expense is primarily
attributed to increased effort in development of OREX roll-stock production in
Asia, and regulatory expense associated with the Company's effort to receive
federal regulatory approval of its new LTS products.
Amortization of intangibles was $501,000 and $1,549,000 in the 1998 Quarter and
1998 Period, respectively, as compared to $961,000 and $2,878,000 in the
corresponding periods of 1997. The decline in amortization expense was primarily
due to charges recorded during the fourth quarter of 1997 for the impairment of
carrying value of the Company's OREX manufacturing facilities and White Knight
business and the related decision to sell such assets.
The resulting loss from operations was $1.2 million in the 1998 Quarter as
compared to a $16.3 million loss from operations in the 1997 Quarter. The
resulting loss from operations was $9.8 million in the 1998 Period as compared
to a $22.1 million loss from operations in the 1997 Period. Included in loss
from operations in the 1998 Period was $6.5 million in impairment and other
charges related to the Company's disposal of the aforementioned assets held for
sale. Included in the 1997 Quarter and Period was a reserve of $13.0 million
related to potentially excess OREX inventories. Exclusive of such reserves and
impairment and other charges, the Company's loss from operations was $1.2
million and $3.3 million for the 1998 Quarter and Period, respectively, as
compared to $3.3 million and $9.1 million for the 1997 Quarter and Period,
respectively.
Interest expense, net of interest income, was $832,000 and $2.6 million in the
1998 Quarter and 1998 Period, respectively, as compared to $828,000 and $2.5
million in the corresponding periods of 1997. The increase in interest expense
is attributed to increased interest rates during 1998 combined with lower
interest income as a result of lower cash balances during 1998.
Provision for income taxes reflects an expense of $63,000 and $229,000 in the
1998 Quarter and 1998 Period, respectively, as compared to an expense of $6,000
and $17,000 in the corresponding periods of 1997.
The resulting net loss was $2.1 million and $12.6 million for the 1998 Quarter
and 1998 Period, respectively, as compared to a net loss of $17.2 million and
$24.7 million for the corresponding periods of 1997.
Liquidity and Capital Resources
At September 30, 1998, the Company's cash and equivalents totaled $5.3 million
as compared to $9.3 million at December 31, 1997.
During the 1998 Period, the Company used $3.9 million of cash in operating
activities. This use of cash in the 1998 Period is attributable to a combination
of the Company's operating loss, increase in accounts receivable primarily due
to such increases at the Company's Microtek subsidiary and a decrease in
accounts payable as a result of accelerated payments for purposes of taking
advantage of discounts on accounts payable. The Company generated $8.3 million
from investing activities during the 1998 Period. This generation of cash during
the 1998 Period was primarily attributable to proceeds from the aforementioned
sale of assets. The Company used $3.2 million in investing activities during the
1998 Period, primarily for several computer software implementations in
progress. During the 1998 Period, the Company reduced indebtedness outstanding
under its senior credit facility by approximately $9.1 million.
As more fully described in the Company's Annual Report, the Company has a $55
million credit agreement (the "Credit Agreement") consisting of a $40 million
revolving credit facility maturing on August 31, 1999 and a $15 million term
loan facility maturing on August 31, 2001. The Company had additional borrowing
availability of $1.7 million under the revolving credit facility at September
30, 1998. Outstanding borrowings under the revolving credit facility were
approximately $25.4 million at September 30, 1998. Outstanding borrowings under
the term loan facility were $2.1 million at September 30, 1998. The Credit
Agreement provides for the issuance of up to $3 million in letters of credit.
Outstanding letters of credit were $50,000 at September 30, 1998. At September
30, 1998, the Company was in violation of the operating results covenant
contained in the Credit Agreement. This violation was waived by the Company's
lenders on November 12, 1998. As part of that waiver agreement, the Company
reduced the amount of its revolving credit facility from $40 million to $30
million and revised the December 31, 1998 operating results covenant. No
assurance can be provided that other violations of covenants contained in the
Company's Credit Agreement will not occur in the future or, if such violations
occur, that those violations will be waived. Any unwaived default by the Company
under the Credit Agreement would be expected to have a material adverse effect
upon the Company. At September 30, 1998, outstanding indebtedness under the
Credit Agreement exceeded the Company's cash and cash equivalents.
On August 11, 1998, the Company disposed of its Arden and Charlotte, North
Carolina manufacturing facilities, its White Knight industrial division and
substantially all of the assets of its SafeWaste subsidiary for proceeds of
approximately $13.4 million. On October 14, 1998, the Company disposed of its
Abbeville, South Carolina OREX manufacturing facility for proceeds of
approximately $8 million, consisting of $7.5 million in cash and a $500,000
note. Proceeds from the disposition were used to reduce outstanding borrowings
under the Company's Credit Agreement, including satisfaction of the Company's
term loan facility. The Company is currently negotiating to dispose of the
remaining portion of its White Knight subsidiary including the Company's Struble
& Moffitt plant located in New Jersey. The Company recently began to market for
sale the Company's administrative office building in Norcross, Georgia while
consolidating such offices with the Company's nearby leased technology offices.
Based upon its current business plan, the Company currently expects that cash
equivalents and short term investments on hand, the Company's existing credit
facility and funds budgeted to be generated from operations and proceeds from
sales of assets will be adequate to meet its liquidity and capital requirements
over the next year, provided that the Company successfully replaces its existing
revolving credit facility prior to its scheduled maturity on August 31, 1999.
Currently unforeseen future developments and increased working capital
requirements may require additional debt financing or the issuance of common
stock in 1998 and subsequent years. There can be no assurances that the Company
will be able to obtain a replacement credit facility, obtain any required
additional debt financing or successfully consummate an issuance of common stock
on terms favorable to the Company, if at all.
Year 2000 Issue
Many companies are affected by the year 2000 issue, which could cause equipment
reliant upon computer applications to fail or create erroneous results due to
the failure of computer programs to correctly identify the year 2000 after
December 31, 1999.
During 1996, as part of a program to install improved information systems on a
Company-wide basis, the Company initiated a conversion from existing management
information software to programs that are year 2000 compliant. In the fourth
quarter of 1997, the Company's MedSurg operations completed substantially all of
its conversion to a year 2000 compliant system, with certain minor conversions
to be completed in first quarter, 1999. The Company's Microtek operations
substantially completed such conversion in September 1998, with certain minor
conversions scheduled to be completed in December, 1998. The Company's corporate
operations are scheduled to complete such conversion by June, 1999. If the
Company does not sell its remaining White Knight business, the Company has
scheduled to complete such conversion for the White Knight business by second
quarter, 1999. Costs incurred to date for such conversions approximate $7.1
million of which $1.8 million have been expensed with $5.3 million representing
capital expenditures. The Company estimates that costs remaining to be incurred
before scheduled completion of such conversion will be approximately $550,000,
all of which are expected to be capitalized. The Company has begun, but not
completed, a program to evaluate year 2000 compliance of non-information
technology assets. The Company has scheduled to complete compliance solutions on
such assets by second quarter 1999, and estimates related costs at less than
$200,000. Other than such costs, the Company does not believe its efforts to
become year 2000 compliant will have a material adverse impact upon the Company.
Estimated costs to be incurred and the schedule to become year 2000 compliant
are subject to uncertainties and risks (including, for example, failure to
timely identify and correct non-compliant systems, encountering unanticipated
delays or impediments to conversion and disruptions of ordinary business
operations), and the failure of the Company to complete such conversion within
budget and on schedule could adversely affect the Company.
The Company is not currently aware of any of its customers, product users,
suppliers or other vendors which are non-compliant with year 2000 in a manner
which would have an adverse effect upon the Company or its operations. The
Company continues to evaluate the potential impact upon the Company of
noncompliance with year 2000 issues by third parties with which the Company
deals. The Company's customers are primarily healthcare institutions or vendors
to such institutions.
The Company has not adopted a specific contingency plan to address year 2000
non-compliance issues. The Company's experience in installing replacement
information systems has caused the Company to become familiar with the
consequences of reliance on such technology and short term solutions for
temporary interruptions to such systems.
The statements made under this caption are Year 2000 Readiness Disclosure under
the Year 2000 Information and Readiness Disclosure Act.
Forward Looking Statements
Statements made in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, including statements regarding the
Company's future liquidity and capital resources and the effect of the year 2000
issue upon the Company, include forward-looking statements made under the
provisions of the Private Securities Litigation Reform Act. The Company's actual
results could differ materially from such forward-looking statements and such
results will be affected by risks described in the Company's Annual Report on
Form 10-K including, without limitation, those described under "Risk Factors -
Limited Operating History; Net Losses", "-Risks of New Products", "Risks of
Planned Divestitures", "-Manufacturing & Supply Risks" and "-Liquidity Risks".
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
During the quarter for which this report is filed, there were no material
modifications in the instruments defining the rights of shareholders. During the
quarter for which this report is filed, none of the rights evidenced by the
shares of the Company's common stock were materially limited or qualified by the
issuance or modification of any other class of securities. During the quarter
for which this report is filed, the Company sold no equity securities of the
Company that were not registered under the Securities Act of 1933, as amended.
Item 3. Default Upon Senior Securities
At September 30, 1998, the Company was not in compliance with the covenant of
its credit facility pertaining to operating income. This violation was waived by
the Company's lenders on November 12, 1998.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Description
3.1(1) Articles of Incorporation of Isolyser Company, Inc.
3.2(2) Articles of Amendment to Articles of Incorporation of Isolyser Company,
Inc.
3.3(1) Amended and Restated Bylaws of Isolyser Company, Inc.
3.4(3) First Amendment to Amended and Restated Bylaws of Isolyser Company, Inc.
3.5(4) Second Amendment to Amended and Restated Bylaws of Isolyser Company, Inc.
4.1(1) Specimen Certificate of Common Stock
27.1 Financial Data Schedule
- - ------------------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 33-83474).
(2) Incorporated by reference to Exhibit 3.2 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
(3) Incorporated by reference to Exhibit 3.1 to the Company's Current Report on
Form 8-K filed July 29, 1996.
(4) Incorporated by reference to Exhibit 3.1 to the Company's Current Report on
Form 8-K filed December 20, 1996.
(b) The Company filed a current report on Form 8-K on August 26, 1998.
<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 November __, 1998.
ISOLYSER COMPANY, INC.
By: /s/ Migo Nalbantyan
-----------------------------
Migo Nalbantyan
President & CEO
(principal executive officer)
By: /s/ Peter A. Schmitt
-----------------------------
Peter A. Schmitt
Chief Financial Officer
(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 NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998 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> 9-mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,256<F1>
<SECURITIES> 0
<RECEIVABLES> 18,519
<ALLOWANCES> 1,872
<INVENTORY> 23,658
<CURRENT-ASSETS> 69,206
<PP&E> 33,268
<DEPRECIATION> 14,688
<TOTAL-ASSETS> 119,821
<CURRENT-LIABILITIES> 40,717
<BONDS> 0
0
0
<COMMON> 40
<OTHER-SE> 74,097
<TOTAL-LIABILITY-AND-EQUITY> 119,821
<SALES> 116,216
<TOTAL-REVENUES> 116,216
<CGS> 86,859
<TOTAL-COSTS> 86,859
<OTHER-EXPENSES> 39,110
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,867
<INCOME-PRETAX> (12,357)
<INCOME-TAX> 229
<INCOME-CONTINUING> (12,604)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,604)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
<FN>
<F1> INCLUDES CASH EQUIVALENTS.
</FN>
</TABLE>
