UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
Date of Report(Date of earliest event reported) August 21, 1996
---------------
Isco, Inc.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Nebraska 0-14429 47-0461807
- ---------------------------- ------------ ------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
4700 Superior Street, Lincoln, NE 68504
--------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(402) 464-0231
--------------------------------------------------
Registrant's telephone number, including area code
1
Item 7. Financial Statements and Exhibit
Page
Number
a. Financial Statements of Business Acquired:
1. Audited Financial Statements of Suprex Corporation for
the years ended December 31, 1995 and 1994.
Report of Independent Auditors 3
Consolidated Balance Sheets 4
Consolidated Statements of Operations 5
Consolidated Statements of Stockholders' Deficiency
and Redeemable Preferred Stock 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8
2. Unaudited Financial Statements of Suprex Corporation
Consolidated Balance Sheet at June 30, 1996 16
Consolidated Statements of Operations for the
six month periods ended June 30, 1996 and 1995. 17
Consolidated Statements of Cash Flows for the
six month periods ended June 30, 1996 and 1995. 18
Notes to Consolidated Financial Statements 19
b. Pro Forma Financial Information:
1. Unaudited Pro Forma Consolidated Statements of Operations
in connection with the acquisition of Suprex assets and
assumption of selected liabilities. 20
c. Exhibit
1. Consent of Ernst & Young LLP 26
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 hereto duly authorized.
ISCO, INC.,
By:/s/Philip M. Wittig
--------------------------------
Philip M. Wittig
Chief Financial Officer
and Treasurer
Dated: December 26, 1996
2
Report of Independent Auditors
The Board of Directors and Stockholders
Suprex Corporation
We have audited the accompanying consolidated balance sheets of Suprex
Corporation as of December 31, 1995 and 1994, and the related consolidated
statements of operations, stockholders' deficiency and redeemable preferred
stock, and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Suprex
Corporation at December 31, 1995 and 1994, and the consolidated results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that Suprex Corporation will continue as a going concern. As
discussed in Note 9 to the consolidated financial statements, the Company's
operating losses, cash absorbed by operations, required future debt payments
and net capital deficiency raise substantial doubt about its ability to
continue as a going concern. The 1995 consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
BY /s/Ernst & Young LLP
---------------------------------
Pittsburgh, Pennsylvania
March 29, 1996, except Note 10 as to
which the date is August 21, 1996
3
SUPREX CORPORATION
CONSOLIDATED BALANCE SHEETS
Dec 31 Dec 31
1995 1994
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 273,196 $ 88,728
Accounts receivable (less allowance of
$32,571 in 1995 and $20,322 in 1994) 1,409,330 1,500,902
Inventory:
Materials and subassemblies 519,511 543,707
Finished goods 327,990 146,787
------------ ------------
847,501 690,494
Other current assets 42,400 57,722
------------ ------------
Total current assets 2,572,427 2,337,846
Property and equipment:
Laboratory equipment 732,377 807,869
Office furniture and equipment 342,188 332,321
Demonstration and evaluation equipment 33,869 81,805
------------ ------------
1,108,434 1,221,995
Less accumulated depreciation and
amortization 895,568 853,671
------------ ------------
212,866 368,324
Receivable--officers 47,153 47,153
Other assets 39,924 12,211
------------ ------------
Total assets $ 2,872,370 $ 2,765,534
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Line of credit $ 600,000 $ 50,000
Note payable--bank 803,173 --
Accounts payable 321,392 487,414
Accrued liabilities 167,653 313,400
Customer deposits 12,365 170,694
Current maturities of long-term debt 616,048 87,326
------------ ------------
Total current liabilities 2,520,631 1,108,834
Long-term debt -- 585,131
Deferred compensation 47,153 47,153
Redeemable preferred stock 11,015,946 11,015,946
Common stockholders' deficiency:
Common stock 1,281 1,257
Paid-in capital 255,499 255,283
Warrants 169,428 95,236
Accumulated deficiency (11,137,568) (10,343,306)
------------ ------------
Common stockholders' deficiency (10,711,360) (9,991,530)
------------ ------------
Total liabilities and stockholders'
deficiency $ 2,872,370 $ 2,765,534
------------ ------------
------------ ------------
See accompanying notes.
4
SUPREX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended
-------------------------
Dec 31 Dec 31
1995 1994
---------- ----------
Net sales $4,279,328 $6,151,096
Cost of goods sold 2,069,095 3,055,206
---------- ----------
Gross profit 2,210,233 3,095,890
---------- ----------
Operating expenses:
Marketing and applications 577,289 642,588
Research and development 534,175 538,246
General and administrative 826,160 921,188
Selling 936,210 864,391
---------- ----------
2,876,834 2,966,413
---------- ----------
Operating (loss)income (666,601) 129,477
Other income(expense):
Interest income 7,125 11,468
Grant income 66,324 80,004
Interest expense (199,514) (107,831)
Other (9,608) 8,800
---------- ----------
(135,673) (7,559)
---------- ----------
(Loss)income before extraordinary item (802,274) 121,918
Extraordinary item:
Loss on early extinguishment of debt -- (33,898)
---------- ----------
Net(loss)income $ (802,274) $ 88,020
---------- ----------
---------- ----------
See accompanying notes.
5
SUPREX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY AND REDEEMABLE PREFERRED STOCK
Years ended December 31, 1995 and 1994
Redeemable Preferred Stock
Number of Par Value --------------------------
Common of Common Paid-in Accumulated Number of
Shares Stock Capital Warrants Deficit Total Shares Amount
---------------------------------------------------------------------------------------------------
Balance, January 1, 1994 1,252,411 $1,252 $254,798 $ 95,236 $(10,431,608) $(10,080,322) 19,002,236 $11,015,946
Employee stock options
exercised 4,900 5 485 -- -- 490 -- --
Foreign currency
translation -- -- -- -- 282 282 -- --
Net income -- -- -- -- 88,020 88,020 -- --
---------------------------------------------------------------------------------------------------
Balance, December 31, 1994 1,257,311 1,257 255,283 95,236 (10,343,306) (9,991,530) 19,002,236 11,015,946
Employee stock options
exercised 2,400 24 216 -- -- 240 -- --
Foreign currency
translation -- -- -- -- 8,012 8,012 -- --
Warrants granted -- -- -- 74,192 -- 74,192 -- --
Net loss -- -- -- -- (802,274) (802,274) -- --
---------------------------------------------------------------------------------------------------
Balance, December 31, 1995 1,259,711 $1,281 $255,499 $169,428 $(11,137,568) $(10,711,360) 19,002,236 $11,015,946
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
See accompanying notes.
6
SUPREX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Year Ended
---------------------------
Dec 31 Dec 31
1995 1994
----------- ------------
Cash flows from operating activities:
Net(loss) income $ (802,274) $ 88,020
Foreign currency translation 8,012 282
Adjustments to reconcile net(loss) income
to net cash used in operating activities:
Depreciation and amortization 114,862 115,290
Imputed interest on notes payable 12,365 19,324
Loss on sale of fixed assets 52,644 --
Loss on early extinguishment of debt -- 33,898
Change in assets and liabilities:
Accounts receivable 91,572 26,783
Receivable--officers -- --
Inventory (153,823) (119,888)
Other current assets 15,322 27,165
Other assets (27,713) (3,216)
Accounts payable (166,022) 116,116
Accrued liabilities (145,747) 58,473
Customer deposits (158,329) (1,042,336)
----------- ------------
Net cash used in operating activities (1,159,131) (680,089)
Cash flows from investing activities:
Purchase of property and equipment (15,232) (82,256)
----------- ------------
Net cash used in investing activities (15,232) (82,256)
Cash flows from financing activities:
Net borrowings under line of credit 550,000 50,000
Principal repayments under long-term debt (56,409) (777,543)
Issuance of debt 865,000 700,000
Issuance of common stock 240 490
----------- ------------
Net cash provided by (used in)
financing activities 1,358,831 (27,053)
----------- ------------
Increase(decrease) in cash and cash equivalents 184,468 (789,398)
Cash and cash equivalents, beginning of year 88,728 878,126
----------- ------------
Cash and cash equivalents, end of year $ 273,196 $ 88,728
----------- ------------
----------- ------------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 199,514 $ 136,132
----------- ------------
----------- ------------
Transfer of inventory to property
and equipment $ 48,769 $ 88,459
----------- ------------
----------- ------------
Transfer of property and equipment
to inventory $ 49,098 $ 16,524
----------- ------------
----------- ------------
See accompanying notes.
7
SUPREX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization:
Suprex Corporation (the "Company") is engaged in the business of developing
and selling chromatographic and extraction instruments and all other
activities incidental to such business. The Company supplies these
instruments to a variety of industries both domestically and internationally.
The consolidated financial statements include Suprex GMBH, a wholly owned
subsidiary. All intercompany accounts have been eliminated.
The Company performs periodic credit evaluations of its customers and
collateral is generally not required. Credit losses have been within the
expectations of management. The Company derived 14% of its sales from one
customer in 1995. Total receivables due from this customer at December 31,
1995 was $174,410. Two customers comprised 37% of the Company's sales during
1994. Total receivables due from these two customers at December 31, 1994
were $327,102.
Cash Equivalents:
The Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.
Inventories:
Inventories are valued at the lower of cost (first-in, first-out) or market
which is net realizable value.
Property and Equipment:
Property and equipment are recorded at cost. Depreciation is calculated using
the straight-line method for financial reporting purposes and accelerated
methods for income tax reporting over the estimated useful lives, which range
from three to seven years.
Customer Deposits:
Customer deposits consist of prepayments from customers on future sales of
instruments.
Fair Values of Financial Instruments:
The Company's carrying amount of cash and cash equivalents, accounts
receivable, accounts payable, notes payable and long-term debt approximated
their fair value at December 31, 1995 and 1994.
Research and Development Expenses:
All research and development costs are expensed as incurred and consist
mainly of personnel costs, materials, supplies, and general and
administrative expenses.
8
The Company received grants from the Ben Franklin Partnership Challenge Grant
Program to fund some of its research and development. Through December 31, 1995,
the Company had received several grants totaling $485,000. The Company is
required to pay a royalty of 1% on sales of certain new technology developed
under these grants ranging from one and a half to four times the amount of the
original grants. Royalty payments are being made under the completed grants. One
grant of $60,000 is still in process and requires the Company to make a matching
contribution of $180,000 comprised of certain employee salaries and equipment.
At December 31, 1995, the Company expended approximately $60,000 of its in-kind
contribution under this grant.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
could affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Stock-Based Compensation:
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). SFAS No. 123 establishes financial accounting
and reporting standards for stock-based compensation plans and to
transactions in which an entity issues its equity instruments to acquire
goods and services for nonemployees. The new accounting standards prescribed
by SFAS No. 123 are optional, and the Company may continue to account for its
plans under the previous accounting standards. The Company does not expect to
adopt the new accounting standard. Consequently, SFAS No. 123 will not have
an impact on the Company's results of operations.
2. DEBT
The Company has a line of credit with a financial institution providing
maximum borrowings of $600,000. The line of credit is payable on demand with
interest at 2% above the prime rate which was 8.5% at December 31, 1995. The
borrowing base is equivalent to a percentage of eligible accounts receivable
and inventory. At December 31, 1995, the maximum amount had been borrowed
under the terms of this line. The line expires on April 30, 1996. An
extension on this line has been granted until June 30, 1996. It is the
intention of management to attempt to renew this line.
The bank's line of credit and term note are collateralized by the Company's
receivables, inventories, and fixed assets, and require the compliance with
various covenants which include, among other things, to maintain a specified
net worth and liabilities to net worth ratio. Additionally, the bank note
negotiated in 1995 is collateralized by a security interest, subordinate to
the term note, in all personal property and fixtures of the Company, a
key-man life insurance policy on the chief executive officer of the Company.
Loan covenants contained in this agreement require the Company to maintain
minimum levels of tangible net worth, as defined by a cash flow ratio, and a
ratio of total liabilities to total equity. Moreover, the bank note agreement
restricts incurring additional indebtedness, transferring real property,
transferring or encumbering the stock, or paying dividends. At December 31,
1995, the Company is in default of maintaining the required minimum tangible
net worth levels and meeting the debt to tangible net worth ratio on the bank
note negotiated in 1995. Waivers have not been obtained from the bank for
these noted defaults. As
9
a result, this debt has been reflected as a current liability on the balance
sheet.
Long-term debt consisted of the following:
- -------------------------------------------------------------------------------
Dec 31 Dec 31
1995 1994
----------- ---------
Bank note, payable in monthly installments of
$19,351 beginning January 1, 1998 through
July 1, 2000, including interest at 12.25%
beginning July 1, 1995 (16.25% interest in the
event of a debt convenant default), balloon
payment of $515,231 due on July 1, 2000, original
face amount $865,000 (net of discount based on
imputed interest rate of 21%) --in default $ 803,173 $ --
Bank term note, payable in monthly installments
of $5,000 through April 30, 1995, $7,000 through
November 30, 1996, including interest at prime
plus 1.75%, balloon payment of $235,318 due on
December 31, 1996 305,040 335,107
Bank term note, payable in monthly installments of
$5,000 through April 30, 1995, $7,000 through
November 30, 1996, including interest at prime
plus 3.0%, balloon payment of $245,856 due on
December 31, 1996 311,007 337,350
----------- ---------
1,419,220 672,457
Less current maturities 1,419,220 87,326
----------- ---------
$ -- $585,131
----------- ---------
----------- ---------
- -------------------------------------------------------------------------------
As part of the term note agreement, a provision exists for an extension of the
term loan for a period of 30 months based upon mutual agreement between the
bank and Company. As of March 29, 1996, the Company has not obtained the bank's
agreement for such an extension. Principal maturities remaining on long-term
debt, assuming that the debt in default is not called, are as follows:
Year ending December 31
- -------------------------------------------------------------------------------
1996 $ 616,047
1997 --
1998 120,698
1999 148,022
2000 596,280
----------
$1,481,047
Less unamortized discount 61,827
----------
$1,419,220
----------
----------
- -------------------------------------------------------------------------------
In conjunction with a debt financing in 1993, the Company granted 1,058,179
warrants to purchase common stock at $.01. The difference between the fair
market value of common stock ($.10) at the date of inception of the note and
the exercise price of the warrant ($.01) was reflected as a reduction of the
debt, and an increase in stockholders' equity. This amount has been treated as
additional interest expense. The imputed interest was $19,324 and $42,014 in
10
1994 and 1993, respectively. The warrant allocation resulted in the note
having an effective interest rate of 20%. On May 26, 1994, this note payable
had a carrying value of $716,102 and was extinguished early for $750,000. An
extraordinary loss of $33,898 was recognized related to the transaction.
3. CAPITAL STOCK
The common stock has a $.001 par value and there are 30,000,000 shares
authorized. No dividends may be declared on common stock until all preferred
cumulative dividends have been paid or sufficient funds have been set aside
for their payment.
Redeemable preferred stock at December 31, 1995 is as follows:
- -------------------------------------------------------------------------------
Original
Liquidation
Par Authorized Outstanding Issue Dividends Value Per
Class Value Shares Shares Amount Per Share Share (1)
- -------------------------------------------------------------------------------
Series A None 1,270,272 1,270,272 $ 1,175,002 $.09 $.925
Series B None 7,649,975 7,631,975 4,960,785 $.065 $ .65
Series C None 12,500,000 10,099,989 4,880,159 $.05 $ .50
---------- ---------- -----------
Total 12,420,247 19,002,236 $11,015,946
---------- ---------- -----------
---------- ---------- -----------
(1) Plus declared and unpaid dividends. Series A and B are subordinate to
Series C in liquidation.
- -------------------------------------------------------------------------------
Preferred stockholders have voting rights as if their stock was converted to
common stock. All preferred stock is convertible at $1.00 per share. All
preferred stock is convertible into common stock at its conversion price 1) at
the option of the owner or 2) automatically upon a firm commitment of an
underwritten public offering intended to raise net proceeds not less than $10
million at a price of not less than $1.50 per share.
After January 1, 1995, the preferred stockholders had the right to sell all or
a part of their preferred shares back to the Company at the original issuance
price, plus, if approved by the Board of Directors, all unpaid cumulative
dividends, whether or not earned or declared. Such action requires the approval
of 50% of the preferred stockholders. All dividends on the preferred stock
shall be declared and paid proratably in the same relationship as the original
issuance price of each class of preferred stock; however, the Company is not
obligated to pay dividends. At December 31, 1995, cumulative undeclared
dividends were $5,604,644 on the preferred classes of stock.
11
4. STOCK OPTIONS AND WARRANTS
Stock Options:
The Company has several incentive stock option plans covering officers and key
employees. The Company is able to award up to 3,350,000 shares of stock under
these plans. At the date of grant of the options, the exercise prices must be
equal to or exceed the then fair market value.
Following is a summary of option activity:
- -------------------------------------------------------------------------------
Number of Price
Shares Per Share
--------- ------------
Outstanding, January 1, 1994 2,269,456 $.10 to $.25
Granted 589,960 $.10
Canceled (124,000) $.10
Exercised (4,900) $.10
--------- ------------
Outstanding, December 31, 1994 2,730,516 $.10 to $.25
Granted 96,892 $.10
Canceled (291,670) $.10
Exercised (2,400) $.10
--------- ------------
Outstanding, December 31, 1995 2,533,338 $.10 to $.25
--------- ------------
--------- ------------
- -------------------------------------------------------------------------------
Options, under the plans, generally vest in relation to the length of service
of the employee. At December 31, 1995, options for approximately 2,180,171
shares of common stock were currently exercisable under these plans. Options
expire ten years from the date of grant.
In addition to the above options, the Company has outstanding 85,000 options to
certain members of the Board of Directors at $.10. These options expire over
various periods not exceeding 10 years.
At December 31, 1995, the Company has reserved sufficient common stock in
connection with these options.
12
Warrants and 1995 Financing:
In conjunction with the current year debt financing, the Company granted
824,358 warrants to purchase common stock at $.01. The difference between the
fair market value of common stock ($.10) at the date of inception of the note
and the exercise price of the warrant ($.01) is reflected as a reduction of
the debt and an increase in shareholders' equity. This amount will be imputed
as additional interest expense over the first thirty-six months of the note.
The imputed interest in 1995 was $12,365. These warrants can be exercised at
any time and expire on June 13, 2005. If the note is not repaid in full by
June 13, 1998, additional warrants are granted for each year past June 13,
1998 that the debt remains outstanding as follows:
--------------------------------------------
Additional Total
Warrants Warrants
Granted Granted
---------- ---------
June 13, 1998 286,235 1,110,593
June 13, 1999 292,261 1,402,854
After June 13, 1999 298,480 1,701,334
-------------------------------------------
In conjunction with a debt financing in 1993, the Company granted 1,058,179
warrants to purchase common stock at $.01. The warrants may be exercised at any
time and expire on March 31, 1998.
As part of financing obtained in prior years, the Company received proceeds
of $12,761 for the sale of 2,552,104 common stock warrants which was recorded
in paid-in capital. Each warrant entitles the holder to purchase a share of
common stock for $.10 per share. The warrants expire on November 26, 1996.
5. LEASES
The Company's rent expense results primarily from the lease of office and
manufacturing facilities. Rental expense under operating leases was $128,672
in 1995 and $122,508 in 1994.
Future minimum lease payments under noncancelable operating leases at
December 31, 1995 are as follows:
--------------------------------------
1996 $128,228
1997 133,362
1998 79,587
--------
Total minimum lease payments $341,177
--------
--------
--------------------------------------
13
6. INCOME TAXES
The Company accounts for income taxes under Financial Accounting Standards
Board Statement No. 109. Under this method, deferred income taxes reflect the
net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company's deferred tax
assets are as follows:
- -------------------------------------------------------------------------------
December 31
--------------------------
1995 1994
----------- -----------
Deferred tax asset:
Book over tax depreciation and amortization $ 69,200 $ 58,100
Deferred gross profit 2,000 30,000
Inventory 6,000 123,200
Other 46,810 93,400
Net operating loss carryforwards 3,552,478 3,225,754
Tax credits 164,000 164,000
----------- ------------
3,840,488 3,694,454
Valuation allowance for deferred tax amounts (3,840,488) (3,694,454)
----------- -----------
Net deferred tax assets $ -- $ --
----------- -----------
----------- -----------
- ---------------------------------------------------------------------------
A valuation allowance has been provided for the remaining deferred tax
assets because of the uncertainty of realization.
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $10.1 million for federal income tax purposes. These
carryforwards expire in various amounts through years 2010. The Company also
has research and development tax credit carryforwards of approximately
$164,000 at December 31, 1995, which expires in varying amounts through the
year 2008.
Pennsylvania reinstated its net operating loss provisions in 1994 subject to
certain limitations. For Pennsylvania purposes, the Company will be able to
utilize up to $1,000,000 in 1996 and 1997 against taxable income.
7. PENSION PLAN
The Company has a defined contribution (401(k)) plan covering all full-time
employees. The plan provides for eligible employees to contribute a portion
of their eligible earnings to the plan. The plan also provides for Board of
Directors-approved discretionary employer contributions based on
profitability of the Company. There were no employer contributions paid or
accrued as of December 31, 1995 or 1994.
8. SALARY REDUCTION DEFERRED COMPENSATION PROGRAM
The Company has established a nonqualified salary deferment program whereby
the salaries of two individuals were reduced by amounts which were used to
purchase split dollar life insurance policies on the individuals. The
policies are collaterally assigned to the Company until such time as the
collateral is released and control of the policies is transferred to the
employees. At December 31, 1995 and 1994, employee receivables and offsetting
deferred compensation liabilities of $47,153 were recorded as a result of
this program.
14
9. RESULTS OF OPERATIONS AND MANAGEMENT'S PLANS
As a result of the Company's operating losses, cash absorbed by operations,
and required future debt repayments (see Note 2), substantial doubt about the
Company's ability to continue as a going concern has been raised. Management
is actively involved in addressing these cash flow needs through obtaining
extensions or refinancing its existing debt. Management is also evaluating a
strategic relationship, which could involve acquisition of the Company.
10. SUBSEQUENT EVENT
Effective August 21, 1996, substantially all of the operating assets and
certain obligations of the Company were acquired. The accompanying financial
statements have not been adjusted to reflect the terms of this acquisition.
15
SUPREX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
(Amounts in thousands)
June 30
1996
--------
ASSETS
Current Assets:
Cash and cash equivalents $ 98
Accounts receivable 510
Inventories 944
Other 34
--------
Total current assets 1,586
Property and equipment(net) 195
Other 12
--------
Total assets $ 1,793
--------
--------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable $ 301
Accrued expenses 254
Notes payable - current 1,365
Line of credit 600
--------
Total current liabilities 2,520
Redeemable preferred stock 11,015
Common Stockholders' deficiency:
Common stock 1
Paid-in capital 255
Warrants 170
Accumulated deficiency (12,168)
--------
Common Stockholders' deficiency (11,742)
--------
Total liabilities and stockholders' deficiency $ 1,793
--------
--------
See accompanying notes.
16
SUPREX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(Amounts in thousands)
Six months ended
-----------------
June 30 June 30
1996 1995
------- -------
Net sales $ 1,091 $1,748
Cost of good sold 624 845
------- -------
Gross profit 467 903
------- -------
Operating expenses:
Selling, general and administrative 1,208 1,243
Research and engineering 210 318
------- -------
1,418 1,561
Operating loss (951) (658)
Other:
Grant income 60 42
Interest expense (116) (83)
------- -------
Net loss $(1,007) $ (699)
------- -------
------- -------
See accompanying notes.
17
SUPREX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Amounts in thousands)
Six months ended
------------------
June 30 June 30
1996 1995
------- -------
Cash flows from operating activities:
Net loss $(1,007) $ (699)
Foreign currency translation (25) --
Depreciation 45 63
Changes in assets and liabilities:
Accounts receivable 899 413
Inventories (96) (209)
Other current assets 8 (5)
Other assets 75 50
Accounts payable (20) (296)
Accrued liabilities 27 (163)
------- -------
Net cash used for operations (94) (846)
------- -------
Cash flows from investing activities:
Purchase of property and equipment (27) (15)
------- -------
Cash flows from financing activities:
Net borrowings under line of credit -- 550
Principal repayments on long-term debt (54) (22)
Proceeds from issuance of debt -- 865
------- -------
Net cash provided by(used for) financing activities (54) 1,393
------- -------
Cash and cash equivalents:
Net increase(decrease) (175) 532
Balance at beginning of year 273 89
------- -------
Balance at end of period $ 98 $ 621
------- -------
------- -------
See accompanying notes.
18
SUPREX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
A. General
The accompanying unaudited consolidated financial statements and notes
thereto contain all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position of Suprex
Corporation (Suprex) as of June 30, 1996 and the results of their operations
and cash flows for the six month periods ended June 30, 1996 and 1995. The
consolidated condensed financial statements should be read in conjunction
with the audited annual consolidated financial statements and notes thereto
included in this Form 8-K/A. The results of operations for the unaudited six
month period ended June 30, 1996 are not necessarily indicative of the
results which may be expected for the entire calendar year 1996.
B. Inventories
As of June 30, 1996, inventories were comprised of the following:
---------------------------------------
1996
----
Materials and subassemblies $497
Finished goods 447
----
$944
----
----
----------------------------------------
19
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS IN CONNECTION WITH
THE ACQUISITION OF SUPREX ASSETS AND ASSUMPTION OF SELECTED LIABILITIES
The following unaudited pro forma condensed statements of operations
presented are based on the historical financial statements of the Company and
reflect the pro forma effects of the acquisition of Suprex assets and
assumption of selected liabilities, as described in the accompanying notes.
For purposes of the pro forma statements, the purchase price of the assets of
Suprex Corporation has been allocated to the acquired net assets based on
information currently available with regard to the values of such net assets.
Pro forma adjustments have been made only for those assets and liabilities
which have fair values significantly different from historical amounts.
Final adjustments to recorded amounts may differ from the pro forma
adjustments presented herein.
A pro forma balance sheet is not included herein. The Company's balance
sheet, reflecting the acquisition of Suprex assets and assumption of selected
liabilities, is presented in the Company's 10-Q for the quarter ended October
25, 1996.
The unaudited pro forma consolidated statements of operations for the year
ended July 26, 1996, and the three months ended October 25, 1996 were
prepared as if the acquisition had occurred as of the beginning of the
respective periods.
These pro forma financial statements are not necessarily indicative of the
results of operations that might have occurred had the acquisition taken
place at the beginning of the period, or to project the Company's results of
operations at any future date or for any future period. The pro forma
statements should be read in conjunction with the audited and unaudited
financial statements of the Company, Suprex Corporation, and notes to the pro
forma statements.
20
ISCO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 26, 1996
(In thousands except for per share data)
Historical
Isco, Inc. Purchase
July 26 Suprex Accounting
1996 Corporation Adjustments Note(1) Pro forma
---------- ----------- ----------- ------- ---------
Net sales $39,981 $ 3,688 $ -- $43,669
Cost of goods sold 17,790 1,910 -- 19,700
---------- ----------- ----------- ---------
Gross profit 22,191 1,778 -- 23,969
---------- ----------- ----------- ---------
Operating expenses:
Selling, general,
and administrative 15,779 2,273 360 (b) 18,412
Research and
engineering 4,775 434 74 (b) 5,283
Restructuring
charges 1,752 -- -- 1,752
---------- ----------- ----------- ---------
22,306 207 434 25,447
---------- ----------- ----------- ---------
Operating(loss) (115) (929) (434) (1,478)
Other:
Investment income 1,088 -- (118) (a) 970
Other 374 83 -- 457
Interest expense -- (260) 260 (c) --
---------- ----------- ----------- ---------
Earnings(loss) before
income taxes 1,347 (1,106) (292) (51)
Income taxes(benefit) 360 -- (379) (d) (19)
---------- ----------- ----------- ---------
Net earnings(loss) $ 987 $(1,106) $ 87 $ (32)
---------- ----------- ----------- ---------
---------- ----------- ----------- ---------
Weighted average shares
outstanding 5,353 5,353
---------- ----------- ----------- ---------
---------- ----------- ----------- ---------
Net earnings(loss)
per share $.18 $(0.01)
---------- ----------- ----------- ---------
---------- ----------- ----------- ---------
(1) See Note B to the Pro Forma Consolidated Statement of Operations.
See accompanying notes.
21
ISCO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED OCTOBER 25, 1996
(In thousands except for per share data)
Historical
Isco, Inc. Purchase
Oct 25 Suprex Accounting
1996 Corporation Adjustments Note(1) Pro forma
---------- ----------- ----------- ------- ---------
Net sales $9,224 $188 $ -- $9,412
Cost of goods sold 4,156 103 -- 4,259
---------- ----------- ----------- ---------
Gross profit 5,068 85 -- 5,153
---------- ----------- ----------- ---------
Operating expenses:
Selling, general,
and administrative 4,317 127 30 (b) 4,474
Research and
engineering 1,091 20 6 (b) 1,117
---------- ----------- ----------- ---------
5,408 147 36 5,591
---------- ----------- ----------- ---------
Operating(loss) (340) (62) (36) (438)
Other:
Investment income 243 -- (10) (a) 233
Other 124 -- -- 124
---------- ----------- ----------- ---------
Earnings(loss) before
income taxes 27 (62) (46) (81)
Income taxes(benefit) (61) -- 30 (d) (31)
---------- ----------- ----------- ---------
Net earnings(loss) $ 88 $(62) $(76) $ (50)
---------- ----------- ----------- ---------
---------- ----------- ----------- ---------
Weighted average shares
outstanding 5,353 5,353
---------- ---------
---------- ---------
Net earnings(loss)
per share $.02 $(0.01)
---------- ---------
---------- ---------
(1) See Note B to the Pro Forma Consolidated Statement of Operations.
See accompanying notes.
22
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(columnar amounts in thousands, except per share data)
A. GENERAL
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. The acquisition was accomplished
pursuant to a Purchase and Assumption Agreement dated August 9, 1996 between
the parties. At the closing, Isco paid Suprex $2,850,000 for the assets and
assumed basically the trade payables of Suprex, subject to a $250,000 escrow
account hold-back to cover certain post-closing adjustments, including
warranty claims. The purchase price was arrived at through arms-length
negotiations among Isco, Suprex management, and Suprex' investment bankers.
The transaction was accounted for as a purchase. Suprex manufactured a
variety of super critical fluid extraction (SFE) products, principally for
use in the food products business. Isco intends to add the SFE products to
its existing line of SFE products. Isco did not acquire, either by purchase
or long term lease, any of the manufacturing facilities utilized by Suprex
and intends to relocate the manufacturing assets to its plant in Lincoln,
Nebraska.
Isco liquidated cash equivalent securities to obtain the cash to purchase the
Suprex assets.
B. PRO FORMA ADJUSTMENTS FOR THE ACQUISITION OF SUPREX CORPORATION The pro
forma adjustments assume the acquisition of Suprex occurred on July 29, 1995
or July 27, 1996, respectively, and reflect the adjustments to record the
purchase of substantially all of the assets and assumption of certain
liabilities based on Suprex's historical unaudited financial statements.
The purchase price, based on current estimates, is comprised of the
following consideration:
--------------------------------------------------------------------
Cash paid $2,624
Liabilities assumed:
Current liabilities 499
------
Total consideration $3,123
------
------
--------------------------------------------------------------------
23
The initial purchase price allocation, based on current estimates, is
summarized as follows:
- -----------------------------------------------------------------------------
Current assets:
Accounts receivable $ 305
Inventory 762
Property and equipment 219
Other assets (1):
Customer lists/tradenames 807
Engineering drawings 304
Goodwill 726
------
$3,123
------
------
(1) The lives of these intangibles ranges from 3 to 8 years.
- -----------------------------------------------------------------------------
a. RECORD REDUCTION OF INVESTMENT INCOME
To record reduced investment income due to cash equivalents and short-term
investments utilized in purchase.
For the period ended
--------------------
7/26/96 10/25/96
------- --------
Cash equivalents paid $2,624 $2,624
Investment return on investments utilized 4.5% 4.5%
---- ----
Annual adjustment to investment income $118 $118
---- ----
---- ----
One month adjustment to investment income N/A $10
---- ----
---- ----
24
b. RECORD AMORTIZATION OF INTANGIBLES
For the period ended
--------------------
7/26/96 10/25/96
------- --------
Amortization by type of intangibles:
Customer lists $269 $22
Engineering drawings 74 6
Goodwill 91 8
---- ---
$434 $36
---- ---
---- ---
Reflected in the Statement of Operations as:
Selling, general, and administrative $360 $30
---- ---
Research and engineering 74 6
---- ---
$434 $36
---- ---
---- ---
c. ADJUST INTEREST EXPENSE
To adjust interest expense of Suprex for debt not assumed in the acquisition.
d. ADJUST INCOME TAXES
Computed as follows:
For the period ended
--------------------
7/26/96 10/25/96
------- --------
Consolidated earnings(loss) before
income taxes of Isco, Inc. and
Suprex Corporation $ 241 $(35)
Pro forma income adjustments
Selling, general and administrative (360) (30)
Research and engineering (74) (6)
Investment income (118) (10)
Interest expense 260 --
----- ----
Adjusted loss before taxes (51) (81)
Income tax rate 38% 38%
----- ----
Calculated income taxes(benefit) (19) (31)
Recorded income tax expense 360 (61)
----- ----
Net income tax adjustment $(379) $ 30
----- ----
----- ----
25
Consent of Independent Auditors
We consent to the incorporation by reference of our report dated March 29, 1996,
except Note 10, as to which the date is August 21, 1996, with respect to the
consolidated financial statements of Suprex Corporation included in Isco, Inc.'s
Form 8-K/A in the following Registration Statements (Forms S-8):
- - Directors' Deferred Compensation Plan
- - 1981 Incentive Stock Option Plan
1985 Incentive Stock Option Plan
- - Employee Profit Sharing Plan
- - 1996 Stock Option Plan
1996 Outside Directors Stock Option Plan
By /s/Ernst & Young LLP
-------------------------------
Pittsburgh, Pennsylvania
December 19, 1996