UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended October 24, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission file number 0-14429
_______
ISCO, INC.
______________________________________________________
(Exact name of registrant as specified in its charter)
NEBRASKA 47-0461807
_______________________ ____________________________________
(State of Incorporation) (I.R.S. Employer Identification No.)
4700 SUPERIOR STREET, LINCOLN, NEBRASKA 68504-1398
________________________________________ __________
(Address of principal executive offices) (Zip Code)
(402) 464-0231
____________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
___ ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of November 21, 1997:
COMMON STOCK, $0.10 PAR VALUE 5,672,092
_____________________________ ________________
Class Number of Shares
ISCO, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Number
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Condensed Consolidated Statements of Earnings 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
11 - Computation of earnings per share for the three
months ended October 24, 1997 and October 25, 1996. 10
27 - Financial Data Schedule. 11
(b) Reports Form 8-K 9
2
ISCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Amounts in thousands, except per share data)
Three months ended
-----------------------
Oct 24 Oct 25
1997 1996
------- ------
Net sales $11,500 $9,224
Cost of sales 4,834 4,156
------- ------
6,666 5,068
------- ------
Expenses:
Selling, general, and administrative 4,853 4,317
Research and engineering 1,594 1,091
------- ------
6,447 5,408
------- ------
Operating income (loss) 219 (340)
Non-operating income 223 367
------- ------
Earnings before income taxes 442 27
Income tax provision (benefit) 150 (61)
------- ------
Net earnings $ 292 $ 88
======= ======
Net earnings per share $.05 $.02
======= ======
Weighted average number of shares outstanding 5,497 5,354
======= ======
Cash dividend per share $.05 $.05
======= ======
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
ISCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Columnar amounts in thousands)
Oct 24 Jul 25
1997 1997
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 5,099 $ 1,810
Short-term investments 8,696 8,813
Accounts receivable - trade, net of allowance
for doubtful accounts
of $103,000 and $82,000 9,016 8,456
Inventories (Note 3) 9,471 8,005
Other current assets 1,441 1,874
-------- --------
Total current assets 33,723 28,958
Property, plant, and equipment, net of accumulated depreciation
of $17,838,000 and $17,222,000 7,887 7,144
Long-term investments 2,221 6,602
Other assets 6,098 4,004
-------- --------
Total assets $49,929 $46,708
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,405 $ 1,325
Other current liabilities 2,912 2,378
-------- --------
Total current liabilities 4,317 3,703
Deferred income taxes 470 525
Shareholders' equity (Note 4):
Preferred stock, $.10 par value, authorized 5,000,000 shares; issued none
Common stock, $.10 par value, authorized 15,000,000 shares; issued
6,297,391 and 5,978,538 shares 630 598
Additional paid-in capital 39,458 36,846
Retained earnings 6,691 6,683
Net unrealized holding gain on available-for-sale securities 24 14
Treasury stock, at cost, 625,299 shares (1,661) (1,661)
-------- --------
Total shareholders' equity 45,142 42,480
-------- --------
Total liabilities and shareholders' equity $49,929 $46,708
======== ========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
4
ISCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Columnar amounts in thousands)
Three months ended
---------------------
Oct 24 Oct 25
1997 1996
----- -----
Cash flows from operating activities:
Net earnings $ 292 $ 88
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 581 528
Purchased R&D 302 --
Change in operating assets and liabilities (287) (1,050)
Other 47 192
------ -------
Total adjustments 643 (330)
------ -------
Cash flows provided by (used for) operating activities 935 (242)
------ -------
Cash flows from investing activities:
Proceeds from sale of available-for-sale securities 4,456 231
Proceeds from maturity of available-for-sale securities -- 241
Proceeds from maturity of held-to-maturity securities -- 270
Proceeds from sale of property, plant, and equipment 41 53
Purchase of available-for-sale securities (23) (41)
Purchase of property, plant, and equipment (767) (186)
Disbursements for issuance of notes receivable -- (100)
Purchase of Suprex assets -- (2,624)
Purchase of Geomation - net of cash and cash equivalents acquired (760) --
Other (309) (124)
------ -------
Cash flows provided by (used for) investing activities 2,638 (2,280)
------ -------
Cash flows from financing activities:
Cash dividends paid (284) (268)
------ -------
Cash flows used for financing activities (284) (268)
------ -------
Cash and cash equivalents:
Net increase (decrease) 3,289 (2,790)
Balance at beginning of year 1,810 4,420
------ -------
Balance at end of period $5,099 $ 1,630
====== =======
During the three months ended October 24, 1997 and October 25, 1996, the Company
made income tax payments of approximately $1,000 and $135,835, respectively.
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
ISCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Columnar amounts in thousands)
October 24, 1997
NOTE 1: In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all the adjustments necessary for a
fair presentation of the financial position of the Company and the results of
operations for the interim periods presented herein. All such adjustments
are of a normal recurring nature. Results of operations for the current
unaudited interim period are not necessarily indicative of the results which
may be expected for the entire fiscal year. All significant inter-company
transactions and accounts have been eliminated.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, these condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes to the consolidated financial statements included in the
Annual Report on Form 10K for the year ended July 25, 1997.
NOTE 2: Certain reclassifications have been made to the prior period's
financial statements to conform to the current period's presentation.
NOTE 3: Inventories are valued at the lower of cost or market, principally on
the last-in, first-out (LIFO) basis. The composition of inventories is as
follows:
--------------------------------------------------------
Oct 24, 1997 Jul 25, 1997
------------ ------------
Raw materials $4,029 $3,389
Work-in-process 3,052 2,755
Finished goods 2,390 1,861
------ ------
$9,471 $8,005
====== ======
--------------------------------------------------------
Had inventories been valued on the first-in, first-out (FIFO) basis, they
would have been approximately $1,397,000 and $1,344,000 higher than reported
on the LIFO basis at October 24, 1997 and July 25, 1997, respectively.
NOTE 4: On November 20, 1997, the Board of Directors declared a quarterly
cash dividend of $.05 per share, payable January 2, 1998 to shareholders of
record on December 12, 1997.
NOTE 5: ACCOUNTING PRONOUNCEMENTS. Statement of Financial Accounting
Standards No. 128 "Earnings Per Share", Statement of Financial Accounting
standards No. 130 "Report Comprehensive Income", and Statement of Financial
Accounting Standards No. 131 "Disclosure about Segments of an Enterprise and
Related Information", have been issued by the Financial Accounting Standards
Board. The Company does not expect the adoption of these statements to be
material to the consolidated financial statements. Basic earnings per share
will be equivalent to primary earnings per share for the periods ended
October 24, 1997 and October 25, 1996.
NOTE 6: On September 17, 1997, the Company acquired the remaining
approximately 82 percent of Geomation, Inc., Golden, Colorado. The
acquisition required approximately $929,000 in cash and the issuance of
318,853 shares of the Company's common stock. The transaction also included
an earn-out provision, which depending upon the performance of Geomation
through July 1998, may require the payment of up to approximately $250,000 of
additional cash and the issuance of additional shares of the Company's common
stock with a market value of up to approximately $750,000. The transaction
was accounted for as a purchase with resulting intangibles of approximately
$2,093,000 being amortized over periods ranging from 3 to 15 years. The
transaction also included approximately $302,000 of "purchased R&D" which was
expensed in the first quarter.
6
The following unaudited pro forma financial information sets forth the
results of operations of Isco, Inc. as if the acquisition of Geomation had
occurred on July 27, 1996:
Pro forma financial information
-------------------------------------------------------------
Three months ended
-----------------------
10/24/97 10/25/96
-------- --------
Net sales $11,663 $9,895
Net earnings(loss) 532 (118)
Net earnings(loss) per share $.09 $(0.02)
Weighted average number of
shares outstanding 5,686 5,680
-------------------------------------------------------------
- -------------------------------------------------------------------------------
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
SALES ANALYSIS AND REVIEW.
First quarter sales, including approximately $331,000 of Geomation sales for
the partial period, were $11,500,000, 25 percent above the same period last
year. Sales of wastewater samplers, flow meters, and liquid chromatography
products, the Company's core products, were up 16 percent compared with the
same period last year. Sales of the Company's other products were up 56
percent compared with the same period last year. The other products include:
supercritical fluid extraction and process monitoring products, syringe
pumps, parts and service, and Geomation products.
The Company's first quarter domestic sales were up 15 percent compared with
the same period last year. Without the Geomation sales, the Company's
domestic sales for the comparable periods were up 12 percent. Sales of the
core products increased eight percent, and sales of the other products also
increased 50 percent.
The Company's first quarter international sales were 59 percent higher than
the same period last year. Without the Geomation sales, the Company's
international sales for the comparable periods were up 56 percent. These
sales of the core products increased 55 percent, and sales of the other
products also increased 68 percent.
Net orders of $10.9 million were received during the first quarter and were
four percent higher than the same period last year. During the quarter, the
order backlog was reduced by approximately 16 percent to $3.3 million.
OPERATING INCOME ANALYSIS AND REVIEW.
The Company had operating income of $219,000 for the first quarter of fiscal
1998 compared with an operating loss of $340,000 for the same period last
year. The gross margin percentage improved from 55 percent for the first
quarter last year to 58 percent for the recently completed first quarter.
This improvement was due primarily to a higher level of manufacturing
activity.
Selling, general, and administrative expenses increased $536,000 over the
comparable period last year. The growth in selling expenses was primarily
the result of: salaries and benefits for increased staff and related travel
to better serve the customers; increased manufacturers' representative
commissions driven by higher domestic sales; the planned increase in focused
advertising; and amortization expense resulting from the Company's
acquisition activity during the past year. In the general and administrative
area, there was an increase in the accrual for the Company's profit sharing
contribution driven by improved profitability, and higher continuing
education expenses which were the result of the management's effort to
upgrade the computer utilization skills of employees, company-wide, in
anticipation of the implementation of an enterprise resource planning (ERP)
system.
7
Engineering expenses when compared with the same period last year increased
by $503,000, which includes approximately $302,000 of "purchased R&D"
acquired in the Geomation transaction. The growth in engineering expenses is
the result of management's focus on getting new products to market more
rapidly and ensuring that the new products more adequately meet the needs of
the customer. As a result, engineering staff was increased slightly and the
use of outside professional services and consultants was also increased.
RESULTS OF OPERATIONS.
The following table sets forth, for the three-month period indicated, the
percentages which certain components of the Condensed Consolidated Statements
of Earnings bear to net sales and the percentage of change of such components
(based on actual dollars) compared with the same period of the prior year.
Three months ended
-------------------------------------
Percent
10/24/97 10/25/96 Change
-------- -------- -------
Net sales 100.0 100.0 24.7
Cost of sales 42.0 45.1 16.3
----- -----
58.0 54.9 31.5
----- -----
Expenses:
Selling, general, & administrative 42.2 46.8 12.4
Research & engineering 13.8 11.8 46.1
----- -----
56.0 58.6 19.2
----- -----
Operating income(loss) 2.0 (3.7) --
Non-operating income 1.9 4.0 (39.2)
----- -----
Earnings before income taxes 3.9 .3 1,537.0
Income tax provision (benefit) 1.3 (.7) --
----- -----
Net earnings 2.6 1.0 231.8
===== =====
- -------------------------------------------------------------------------------
The underlying reasons for the changes in operating income were discussed in
the previous section. The Company's investment income for the first quarter
fiscal 1998 is lower than for the similar period last year due to the
liquidation of investments to improve the Company's computer technology
capabilities, the acquisition of Geomation, and the expansion of the
Company's Superior Street facility. The effective income tax rate for the
first quarter of fiscal 1998 was 33.9 percent. This reflects the effect of
the non-deductible "purchased R&D" and goodwill arising out of the Geomation
acquisition.
FINANCIAL CONDITION AND LIQUIDITY.
At October 24, 1997, the Company's working capital was nearly $30 million
compared with $25 million at the beginning of the fiscal year. The increase
is the result, primarily, of the growth in inventories and accounts
receivable. The Company has in place, with its commercial bank, an unused,
unsecured $3 million line of credit.
The Company will have significant cash needs during the remainder of fiscal
1998 as it completes the expansion and renovation of the Superior Street
facility along with installing significantly more efficient production
machinery. The expansion is expected to require $10 million to $11.25
million through the second quarter of fiscal 1999 when the renovation is
completed. The acquisition and installation of the ERP system is expected to
require approximately $1.7 million. Management expects that there will be
additional cash requirements arising from the recent acquisition of
Geomation, Inc. and the possible consummation of other existing corporate
development opportunities.
8
INFLATION.
The impact of inflation on the costs of the Company and its ability to pass
on cost increases in the form of increased prices is dependent upon market
conditions and its competitive environment. The general level of inflation
in the domestic economy has been relatively low for the past several years,
and has not had a significant impact on the Company.
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
11 - Computation of earnings per share for the three months
ended October 24, 1997.
27 - Financial Data Schedule.
(b) Reports on Form 8-K - None
SIGNATURES.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ISCO, INC.
BY /s/ Robert W. Allington
--------------------------------
Robert W. Allington, Chairman
Chief Executive Officer
BY /s/ Philip M. Wittig
--------------------------------
Philip M. Wittig, Treasurer
and Chief Financial Officer
Date: December 5, 1997
9