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, 1999 Commission File No. 0-24866
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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 Blvd NW
Norcross, Georgia 30093
-----------------------
(Address of principal executive offices)
(770) 806-9898
--------------
(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 November 10, 1999
- ----- --------------------------------
Common Stock, $.001 par value 40,732,191
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
ISOLYSER COMPANY, INC.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
Assets September 30, 1999 December 31, 1998
------------------ -----------------
Current assets
Cash and cash equivalents $ 18,554 $ 7,325
Accounts receivable, net 15,417 18,118
Inventories 24,258 23,647
Prepaid expenses and other assets 4,238 1,413
Net assets held for sale - 9,873
------------------ -----------------
Total current assets 62,467 60,376
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Property, plant and equipment 21,839 31,072
Less accumulated depreciation (13,082) (15,511)
------------------ -----------------
Property, plant, and equipment, net 8,757 15,561
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Intangibles and other assets, net 27,157 33,581
------------------ -----------------
$ 98,381 $ 109,518
================== =================
Liabilities and Shareholders' Equity
Current liabilities
Current installments of long term debt $ 916 $ 9,395
Current portion of deferred licensing revenue 3,000 -
Accounts payable 4,726 6,247
Bank overdraft 759 361
Accrued expenses 5,512 5,250
------------------ -----------------
Total current liabilities 14,913 21,253
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Long term debt, excluding current installments 3,679 19,376
Long term deferred licensing revenue 6,750 -
Other - 214
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Total liabilities 25,342 40,843
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Shareholders' equity
Common stock
41 40
Additional paid in capital 205,705 203,364
Accumulated deficit (132,053) (133,980)
Cumulative translation adjustment
20 (75)
Unearned shares restricted to employee stock ownership plan (240) (240)
------------------ -----------------
73,473 69,109
Treasury shares, at cost (434) (434)
------------------ -----------------
Total shareholders' equity 73,039 68,675
------------------ -----------------
$ 98,381 $ 109,518
================== =================
See accompanying notes.
2
ISOLYSER COMPANY, INC.
Condensed Consolidated Statement of Operations
(in thousands, except per share data)
(unaudited)
THREE MONTHS ENDED THREE MONTHS ENDED NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------ ------------------ ------------------
Net product sales $ 16,303 $ 36,112 $ 83,323 $ 116,216
Licensing revenue 750 -- 750 --
------------------ ------------------ ------------------ ------------------
Total revenues 17,053 36,112 84,073 116,216
Cost of products sold 9,713 26,139 52,936 86,859
------------------ ------------------ ------------------ ------------------
Gross profit 7,340 9,973 31,137 29,357
Operating expenses:
Selling, general and administrative 5,171 9,785 23,304 29,612
Research & development 585 846 1,628 2,649
Impairment loss -- -- 1,590 5,300
Amortization of intangibles 311 501 1,208 1,549
------------------ ------------------ ------------------ ------------------
Total operating expenses 6,067 11,132 27,730 39,110
------------------ ------------------ ------------------ ------------------
Income (loss) from operations 1,273 (1,159) 3,407 (9,753)
Interest income 171 64 253 235
Interest expense (130) (896) (1,342) (2,865)
Gain on sale of assets 124 -- 124 --
Other income (loss) -- (2) 10
------------------ ------------------ ------------------ ------------------
Income (loss) before income tax expense 1,438 (1,993) 2,442 (12,373)
Income tax expense 128 63 515 229
------------------ ------------------ ------------------ ------------------
Net income (loss) $ 1,310 $ (2,056) $ 1,927 $ (12,602)
------------------ ------------------ ------------------ ------------------
Other comprehensive income (loss)
Foreign currency translation gain (loss) $ 80 $ (16) $ 83 $ (9)
------------------ ------------------ ------------------ ------------------
Comprehensive income (loss) $ 1,390 $ (2,072) $ 2,022 $ (12,611)
================== ================== ================== ==================
Net income (loss) per common share - basic $ 0.03 $ (0.05) $ 0.05 $ (0.32)
================== ================== ================== ==================
Net income (loss) per common share - diluted $ 0.03 $ (0.05) $ 0.05 $ (0.32)
================== ================== ================== ==================
Basic weighted average number of common
shares outstanding 40,499 39,869 40,190 39,957
================== ================== ================== ==================
Diluted weighted average number of common
shares outstanding 42,030 39,869 40,943 39,957
================== ================== ================== ==================
See accompanying notes.
3
ISOLYSER COMPANY, INC.
Condensed Consolidated Statement of Cash Flows
(in thousands)
(unaudited)
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
---------------------------------------
Cash flows from operating activities:
Net income (loss) ................................................... $ 1,927 $ (12,602)
Adjustments to reconcile net income (loss) to net cash provide by (used in)
operating activities:
Depreciation ........................................................ 2,696 2,928
Amortization ........................................................ 1,197 1,549
Provision for doubtful accounts 134 125
(Gain) loss on disposal of property, plant & equipment............... (124) 10
Impairment loss ..................................................... 1,590 5,300
Changes in assets and liabilities ................................... 2,091 (1,195)
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ............................ 9,511 (3,885)
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Cash flows from investing activities:
Additions to property, plant and equipment .......................... (1,562) (3,185)
Proceeds from sale of assets, net of effects from dispositions....... 25,395 11,450
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NET CASH PROVIDED BY INVESTING ACTIVITIES ...................................... 23,833 8,265
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Cash flows from financing activities:
Net repayments under credit agreements .............................. (25,213) (9,053)
Changes in bank overdraft
756 (3)
Proceeds from exercised stock options
590 --
Proceeds from issuance of stock ..................................... 1,751 255
Issuance of stock to 401(k) Plan
1 378
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NET CASH USED IN FINANCING ACTIVITIES .......................................... (22,115) (8,423)
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Net increase (decrease) in cash and cash equivalents ........................... 11,229 (4,043)
Cash and cash equivalents at beginning of period ............................... 7,325 9,299
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CASH AND CASH EQUIVALENTS AT END OF PERIOD ..................................... $ 18,554 $ 5,256
========= ===========
See accompanying notes.
4
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, 1998.
2) Inventories are stated at the lower of cost or market and are summarized as
follows:
September 30, December 31,
1999 1998
---- ----
Raw materials and supplies $ 14,793,000 $ 16,959,000
Work in process 1,393,000 1,747,000
Finished goods 20,967,000 21,864,000
----------- -----------
Total $ 37,153,000 $ 40,570,000
Reserve for excess, slow moving
and obsolete inventory (12,895,000) (16,923,000)
----------- -----------
Total $ 24,258,000 $ 23,647,000
=========== ===========
At December 31, 1998, the Company's LIFO inventory is included as a component of
net assets held for sale.
At September 30, 1999 and December 31, 1998 the net OREX inventory is
approximately $7,959,000 and $4,920,000, respectively.
3) The remaining net assets of the MedSurg subsidiary at September 30, 1999 and
the net assets of the White Knight subsidiary and the Company's former
headquarters at December 31, 1998 are classified as held for sale in the
accompanying condensed consolidated financial statements, and are comprised of
the following:
September 30, December 31,
1999 1998
---- ----
Assets:
Accounts receivable $ -- $ 3,589,000
Inventory ...................... 4,846,000 6,744,000
Prepaid expense and other assets -- 71,000
Property and equipment, net .... -- 2,000,000
Other assets ................... -- 73,000
---------- ----------
Total Assets ......... $ 4,846,000 $ 12,477,00
========== ===========
5
Liabilities
Accounts payable $ 3,211,000 $ 1,441,000
Bank overdraft -- 361,000
Accrued liabilities 1,635,000 786,000
Long-term debt -- 16,000
---------- ----------
Total Liabilities 4,846,000 2,604,000
---------- ----------
Net assets held for sale $ -- $ 9,873,000
========== ==========
On March 31, 1999, the Company disposed of its former corporate headquarters for
proceeds of approximately $1.9 million. Effective May 31, 1999, the Company
disposed of the stock of its White Knight subsidiary ("White Knight") for
proceeds of approximately $8.2 million. These proceeds were used to reduce
outstanding borrowings under the Company's Credit Agreement.
On July 12, 1999, the Company disposed of substantially all of the assets of its
MedSurg subsidiary and entered into an OREX License and Supply Agreement (the
"License Agreement") with Allegiance Healthcare for proceeds of approximately
$31.3 million. Of the $31.3 million in proceeds from the Allegiance transaction,
the Company allocated $20.8 million to the sale of substantially all of the
assets of the Company's MedSurg subsidiary and $10.5 million to the License
Agreement, which is recorded as deferred revenue on the accompanying condensed
consolidated balance sheet. The license fee is being amortized on a
straight-line basis over 14 quarterly periods. A portion of these proceeds were
used to pay-off the remaining balance of the Company's Credit Agreement. As part
of the sale of MedSurg assets, title to certain MedSurg assets and liabilities
will transfer to Allegiance upon completion of a short-term contract
manufacturing agreement with Allegiance, which is expected to be completed by
January 31, 2000. As part of the MedSurg sales agreement, proceeds of $3.1
million were deposited into an escrow account to secure potential
indemnification claims by Allegiance. The balance of funds on deposit will be
released from escrow on July 12, 2000.
The following represents the results of operations of the above noted disposed
entities for the three and nine months ended September 30, 1999 and 1998:
Three months ended Nine months ended
Sept. 30 Sept. 30
------------------------- ------------------------
1999 1998 1999 1998
---- ---- ---- ----
Net sales 1,536,000 23,306,000 38,851,000 76,709,000
Net loss (44,000) (1,119,000) (465,126) 1,790,000)
Net loss per share - basic (0.00) (0.03) (0.01) (0.30)
Net loss per share - diluted (0.00) (0.03) (0.01) (0.30)
4) Basic per share earnings (loss) is computed using the weighted average number
of common shares outstanding for the period. Diluted per share earnings (loss)
is computed including the dilutive effect of all contingently issuable shares.
The difference between basic and diluted weighted average shares is attributable
to 1,531,000 stock options for the three months ended September 30, 1999, and
753,000 stock options for the nine months ended September 30, 1999. There were
no dilutive stock options outstanding for the three and nine months ended
September 30, 1998.
6
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, 1999 (the "1999 Quarter")
were $17.1 million compared to $36.1 million for the three months ended
September 30, 1998 (the "1998 Quarter"), a decrease of 52.8%. Net sales for the
nine month period ended September 30, 1999 (the "1999 Period") were $84.1
million compared to $116.2 million for the nine month period ended September 30,
1998 (the "1998 Period"), a decrease of 27.7%. Excluding sales of White Knight,
the industrial division of White Knight ("White Knight Industrial"), SafeWaste,
Struble and Moffitt and MedSurg (businesses disposed of prior to September 30,
1999), net sales for the 1999 Quarter and Period increased 12.2% and 13.3%,
respectively, as compared to the 1998 Quarter and Period. Sales of Microtek
products increased to $14.2 million during the 1999 Quarter as compared to $12.7
million during the 1998 Quarter, an increase of 17.2%, and increased to $44.1
million in the 1999 Period as compared to $37.3 million in the 1998 Period, an
increase of 20.7%. This increase was primarily a result of new business and
increased sales from a short-term manufacturing contract arrangement with a
customer. Sales of Microtek safety products declined 10.6% during the 1999
Quarter as compared to the 1998 Quarter and increased 6.2% during the 1999
Period as compared to the 1998 Period. The quarter to quarter decline in safety
product sales reflects an unusually large purchase order received from a
distributor in the 1998 Quarter. The period to period increase in safety product
sales was a result of substantially increased purchases from a distributor.
Included in the foregoing sales figures are $523,000 in sales of OREX
Degradables and Enviroguard products during the 1999 Quarter and $2.1 million
during the 1999 Period as compared to $1.1 million and $4.2 million during the
corresponding periods of 1998. During 1997, the Company substantially reduced
selling and marketing efforts related to OREX Degradables and focused on
preserving its existing base of hospitals purchasing OREX Degradables and
evaluating means to exploit the market position of OREX Degradables within its
various market potentials. During 1998, the Company substantially revised its
strategy to commercialize its OREX products. As a result of these efforts, in
April 1999 the Company introduced new degradable products to the healthcare
industry under the Enviroguard trademark, which uses a hydroentanglement
manufacturing process to produce a spunlaced fabric. The Company's future
performance will depend to a substantial degree upon market acceptance of this
product and the Company's ability to successfully manufacture, market, deliver
and expand its OREX Degradables and Enviroguard lines of products at acceptable
profit margins. In connection with the July 12, 1999 sale by the Company of the
assets of MedSurg to Allegiance Healthcare, the Company granted to Allegiance
Healthcare a worldwide exclusive license to Isolyser's OREX and Enviroguard
proprietary technologies to make, use and sell products made from material which
can be dissolved and disposed of through a sanitary sewer system for healthcare
applications. Revenues for the 1999 Quarter and Period include $750,000 of
licensing revenues attributable to the License Agreement. There can be no
assurances that OREX Degradables or Enviroguard products will achieve or
maintain substantial acceptance in their target markets. See the risks described
under "Risk Factors" in the Company's Annual Report on Form 10-K for the period
ending December 31, 1998 (the "1998 Annual Report") including, without
limitation, "Risk Factors- Limited Operating History; Net Losses," "-Risks of
New Products" and "-Manufacturing and Supply Risks" in the Company's 1998 Annual
Report.
7
Gross profit for the 1999 Quarter was $7.3 million, or 43.0% of net sales as
compared to $10.0 million, or 27.6% of net sales in the 1998 Quarter. Gross
profit for the 1999 Period was $31.1 million, or 37.0% of net sales as compared
to $29.4 million, or 25.3% of net sales for the 1998 Period. Included in cost of
sales during the 1999 Period was approximately $1.6 million of excess OREX
inventory reserve primarily due to anticipated usage under the License Agreement
with Allegiance, which increased gross profit. Included in cost of sales for the
1998 Period was approximately $900,000 in inventory reserves recorded in
connection with the sale of the industrial division of White Knight, which
reduced gross profit. Exclusive of these adjustments, gross profit was 35.1% of
net sales for the 1999 Period as compared to 26.0% of net sales in the 1998
Period. The improvement in gross profit is attributable to improved gross profit
at the Company's Microtek subsidiary, licensing revenues from the Allegiance
License Agreement, reduced costs associated with the sale of the Company's Arden
and Abbeville manufacturing facilities in August 1998 and October 1998,
respectively, and improvements in sales mix associated with the cessation of
sales of lower margin products due to divestiture transactions. Microtek's gross
profit improved 15.1% in the 1999 Quarter as compared to the 1998 Quarter and
improved 21.7% for the 1999 Period as compared to the 1998 Period. Improved
gross profit at Microtek results from increased sales and improved cost
efficiencies as a result of consolidating two offshore manufacturing facilities.
Selling, general and administrative expenses were $5.2 million, or 30.3% of net
sales in the 1999 Quarter as compared to $9.8 million, or 27.1% of net sales in
the 1998 Quarter. Selling, general and administrative expenses were $23.3
million, or 27.7% of net sales in the 1999 Period as compared to $29.6 million,
or 25.5% of net sales in the 1998 Period. Included in selling, general and
administrative expenses for the 1998 Period were approximately $300,000 in
charges related to the sale of White Knight Industrial. The reduction in
selling, general and administrative expenses was due primarily to the sale by
the Company of White Knight and certain assets of the Company's MedSurg
subsidiary. The increase in selling, general and administrative costs as a
percentage of sales was due to sales mix. The Company's White Knight and MedSurg
subsidiaries traditionally had lower sales costs as a percentage of sales.
Although Microtek's selling cost to sales ratio is higher than White Knight and
MedSurg, Microtek's gross margins are significantly higher. During the 1999
Quarter and Period, Microtek reduced its selling, general and administrative
cost as a percentage of sales by 1.7% as compared to the 1998 Quarter and
Period.
Research and development expenses were $585,000 or 3.4% of net sales in the 1999
Quarter as compared to $846,000, or 2.3% of net sales in the 1998 Quarter.
Research and development expenses were $1.6 million, or 1.9% of net sales in the
1999 Period as compared to $2.6 million, or 2.3% of net sales in the 1998
Period. The decline in research and development expense is primarily related to
reduced costs associated with the development and registration of the Company's
LTS Plus product as well as reduced development cost associated with the
introduction of the Company's Enviroguard product line.
8
On July 12, 1999, the Company completed the sale of substantially all of the
assets of its MedSurg subsidiary for approximately $20.8 million. Concurrently
with the sale of MedSurg, the Company and Allegiance Healthcare entered into the
License Agreement described above. Effective May 31, 1999, the Company disposed
of the stock of its White Knight Healthcare subsidiary for approximately $8.2
million in cash. In conjunction with this disposition, the Company recorded
impairment charges of approximately $1.6 million in the 1999 Period. On August
11, 1998, the Company disposed of its Arden and Charlotte, North Carolina
manufacturing facilities, White Knight Industrial and substantially all of the
assets of its SafeWaste subsidiary for proceeds of approximately $13.4 million
in cash. The Company also contracted to sell its Abbeville, South Carolina OREX
manufacturing facility, which was subsequently sold in October 1998. In
conjunction with these sales, the Company recorded impairment charges of $5.3
million during the 1998 Period.
Amortization of intangibles was $311,000 and $1.2 million in the 1999 Quarter
and Period, respectively, as compared to $501,000 and $1.5 million in the
corresponding periods of 1998. The decline in amortization expenses was
primarily due to the sale of White Knight Industrial during 1998 and disposition
of certain assets of the Company's MedSurg subsidiary.
The resulting income from operations was $1.3 million and $3.4 million for the
1999 Quarter and 1999 Period, respectively, as compared to losses from
operations of $1.2 million and $9.8 million for the 1998 Quarter and Period,
respectively.
Interest income, net of interest expense, was $41,000 in the 1999 Quarter as
compared to a net expense of $832,000 in the 1998 Quarter. For the 1999 Period
and the 1998 Period, interest expense, net of interest income, was $1.1 million
and $2.6 million, respectively. The decline in interest expense is attributed to
reduced borrowings during the 1999 Quarter and Period as a result of the
disposition of the aforementioned assets during 1998 and 1999, offset by
increases in the Company's borrowing interest rate.
During the 1999 Quarter and Period, the Company recorded a gain on the sale of
certain assets of its MedSurg subsidiary in the amount of $124,000.
Provision for income taxes reflects expenses of $128,000 and $515,000 in the
1999 Quarter and Period, respectively, as compared to $63,000 and $229,000 in
the corresponding periods of 1998.
The resulting net income was $1.3 million and $1.9 million for the 1999 Quarter
and 1999 Period, respectively, as compared to net losses of $2.1 million and
$12.6 million in the 1998 Quarter and Period, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company's cash and equivalents totaled $18.6 as
compared to $7.3 million at December 31, 1998.
9
During the 1999 Period, the Company generated $9.5 million of cash from
operating activities as compared to a use of $3.9 million in the 1998 Period.
The Company generated approximately $23.8 million from investing activities
during the 1999 Period consisting of approximately $25.4 million from the
disposition of White Knight Healthcare, the Company's former headquarters and
substantially all of the assets of the MedSurg subsidiary. Offsetting these
proceeds were approximately $1.6 million in capital expenditures during the 1999
Period. The majority of these capital expenditures were incurred by Microtek for
computer software and bar coding. The Company generated $8.3 million from
investing activities during the 1998 Period, consisting of approximately $11.5
million from the disposition of the Company's 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. Offsetting these amounts were approximately $3.2 million in capital
expenditures during the 1998 Period. During the 1999 Period, the Company used
approximately $22.1 million in cash from financing activities compared to $8.4
million in the 1998 Period. The Company utilized cash proceeds from dispositions
to reduce amounts outstanding under its Credit Agreement.
As more fully described in the Company's 1998 Annual Report, the Company
maintains a $25.0 million credit agreement (as amended to date, the "Credit
Agreement") consisting of a revolving credit facility maturing on June 30, 2000.
Borrowing availability under the revolving credit facility at September 30, 1999
was approximately $12.9 million. The Company had no outstanding borrowings under
the revolving credit facility at September 30, 1999. The Credit Agreement
provides for the issuance of up to $3.0 million in letters of credit.
Outstanding letters of credit were $50,000 at September 30, 1999. At September
30, 1999, the Company was in compliance with the covenants contained in its
Credit Agreement.
On March 31, 1999, the Company disposed of its former corporate headquarters for
proceeds of approximately $1.9 million. Effective May 31, 1999, the Company
disposed of the stock of its White Knight Healthcare subsidiary for proceeds of
approximately $8.2 million. On July 12, 1999, the Company disposed of
substantially all of the assets of its MedSurg subsidiary and entered into the
License Agreement with Allegiance Healthcare for cash proceeds of approximately
$31.3 million. A portion of these proceeds were subsequently used to pay-off the
remaining balance of the Company's Credit Agreement.
Based upon its current business plan, the Company expects that cash equivalents
and short term investments on hand, the Company's existing credit facility and
funds budgeted to be generated from operations will be adequate to meet its
liquidity and capital requirements for the next year. Currently unforeseen
future developments and increased working capital requirements may require
additional debt financing or issuance of common stock in 1999 and subsequent
years. There can be no assurances that the Company could obtain any required
additional debt financing or successfully consummate an issuance of common stock
on terms favorable to the Company, if at all.
10
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. The Company's
Microtek operations substantially completed its conversion to a year 2000
compliant system in September 1998. The Company's corporate operations
substantially completed such conversion in July 1999. Costs incurred to date for
such conversions approximate $8.0 million, of which $2.5 million have been
expensed with $5.5 million representing capital expenditures. The Company does
not expect to incur any additional costs in connection with completion of its
conversion to year 2000 compliant systems. 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 in the fourth quarter of 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 for completion 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 identify and complete such conversions 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 not compliant with year 2000 in a manner
which would have an adverse effect upon the Company or its operations; however,
the Company has not yet completed its inquiries to third parties concerning
their compliance with the year 2000 issue. The Company plans to complete such
inquiries in the fourth quarter of 1999. 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. Third party noncompliance with year
2000 issues could have a material adverse effect on the Company. 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. If the Company experiences critical
interruptions to its information systems or technologies, the Company will be
required to engage additional clerical services and would expect to incur
additional distribution expenses which could have a material adverse effect on
the Company's operating results.
The statements made under this caption are the Year 2000 Readiness Disclosure
under the Year 2000 Information and Readiness Disclosure Act.
11
FORWARD LOOKING STATEMENTS
Statements made in this Management's Discussion and Analysis of Financial
Condition and Results of Operations 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
1998 Annual Report including, without limitation, those described under "Risk
Factors - Limited Operating History; Net Losses", "-Risks of New Products",
"-Risks of Planned Divestitures", and "-Manufacturing & Supply Risks".
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's greatest sensitivity with respect to market risk is to changes in
the general level of U.S. interest rates and its effect upon the Company's
interest expense. At September 30, 1999, the Company has no long-term or
short-term debt that bears interest at floating rates. However, should the
Company incur borrowings under its Credit Agreement, such borrowings would bear
interest at variable rates. Because these rates are variable, an increase in
interest rates would result in additional interest expense and a reduction in
interest rates would result in reduced interest expense.
12
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
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
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
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.
13
4.1(1) Specimen Certificate of Common Stock
10.1* Agreement dated August 25, 1999, between the Company and
Travis W. Honeycutt
27.1* Financial Data Schedule
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* Filed herewith.
(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 current reports on Form 8-K on July 13, 1999 and July 27,
1999, and amended such reports on September 13, 1999.
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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 15, 1999.
ISOLYSER COMPANY, INC.
By: /s/ Migirdic Nalbantyan
---------------------------
Migirdic Nalbantyan
President & CEO
(principal executive officer)
By: /s/ Peter A. Schmitt
----------------------------
Peter A. Schmitt
Chief Financial Officer
(principal financial officer)
15
EXHIBIT INDEX
Exhibit No. Description
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10.1 Agreement dated August 25, 1999, between the Company and
Travis W. Honeycutt
27.1 Financial Data Schedule