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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 26, 2002
For the quarterly period ended October 25, 2002
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to to

Commission file number 0-14429

Isco, Inc.
(Exact name of registrant as specified in its charter)

Nebraska (State of Incorporation)		47-0461807 (I.R.S. Employer Identification No)
4700 Superior Street, Lincoln, Nebraska (Address of principal executive offices)		68504-1398 (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/~~ý No ~~/ /~~o

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of ~~May~~November 2429, 2002.

Common Stock, $0.10 par value Class 5,~~670~~676,~~273~~971 Number of Shares

ISCO, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

			Page Number
PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Condensed Consolidated Statements of Operations	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	89
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	13
	Item 4.	Controls and Procedures	13
PART II. OTHER INFORMATION
	Item 3.	Legal Proceedings	1315
	Item 6.	Exhibits and Reports on Form 8-K	1415
SIGNATURES			1516
CERTIFICATIONS			17

ISCO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

		Three months ended						~~Nine months ended~~
		Apr 26 2002			Apr 27 2001			Apr 26 2002			Apr 27 2001
		Oct 25 2002			Oct 26 2001
		(Amounts in thousands, except per share data)
Net Sales		$	14,139		$	13,780		$	44,105		$	42,693
Net sales		$	15,494		$	15,426
Cost of sales			6,~~865~~945			67,~~667~~187			~~21,272~~			~~20,083~~
			7,274			7,113			22,833			22,610
			8,549			8,239
Operating expenses:
	Selling, general, & administrative		56,~~568~~403			5,~~419~~381			~~16,472~~			~~16,073~~
	Research and engineering		1,~~460~~665			1,~~349~~376			~~4,073~~			~~3,940~~
	ERP settlement		—			—			—			(425	)
			8,068			6,757
			7,028			6,768			20,545			19,588
Income from operations			481			1,482
Income from operations			246			345			2,288			3,022
Other income (expense):
Other income (expense):
	Investment income		169			179
	Investment income		171			183			524			539
	Interest expense		(59	)		(78	)
	Interest expense		(65	)		(89	)		(215	)		(275	)
	Other, net		53			(63	)
	Other, net		158			(55	)		79			(47	)
			163			38
			264			39			388			217
Income before income taxes			644			1,520
Income before income taxes			510			384			2,676			3,239
Provision for income taxes			213			490
Provision for income taxes			203			144			978			1,099
Net income		$	431		$	1,030
Net income		$	307		$	240		$	1,698		$	2,140
Basic earnings per share		$	0.08		$	0.18
Basic earnings per share		$	0.05		$	0.04		$	0.30		$	0.38
Diluted earnings per share		$	0.07		$	0.18
Diluted earnings per share		$	0.05		$	0.04		$	0.29		$	0.37
Dividends declared per share		$	0.06		$	—
Cash dividends per share		$	0.05		$	—		$	0.10		$	—
Weighted average number of shares outstanding-basic			5,673			5,656
Weighted average number of shares outstanding—basic			5,667			5,647			5,663			5,646
Additional shares assuming exercise of common stock equivalents and dilutive stock options			253			185
Additional shares assuming exercise of common stock equivalents and dilutive stock options			262			215			233			135
Weighted average number of shares outstanding-diluted			5,926			5,841
Weighted average number of shares outstanding—diluted			5,929			5,862			5,896			5,781

The accompanying notes are an integral part of the condensed consolidated financial statements.

ISCO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

				Apr 26 2002		Jul 27 2001
				Oct 25 2002		Jul 26 2002
				(Columnar amounts in thousands)
Assets
	Current assets:
		Cash and cash equivalents		$	~~831~~1,424	$	~~2,675~~633
		Short-term investments			65,~~747~~506		25,~~430~~646
		Accounts receivable—trade, net of allowance for doubtful accounts of $127,000 and $124,000			9,214		9,269
		Accounts receivable — trade, net of allowance for doubtful accounts of $143,000 and $144,000			10,249		9,901
		Inventories (Note 3)			8,935		8,775
		Inventories			9,079		9,046
		Refundable income taxes			—65		~~460~~—
		Deferred income taxes			1,~~199~~222		1,~~515~~345
		Other current assets			~~424~~1,439		~~370~~1,136
			Total current assets		2728,~~350~~984		2527,~~494~~707
		Property and equipment, net of accumulated depreciation of $15,933,000 and $14,449,000			14,825		15,266
		Property and equipment, net of accumulated depreciation of $16,580,000 and $16,091,000			14,342		14,535
		Long-term investments			7,~~885~~334		79,~~358~~334
		Other assets (Note 4)			5,002		5,146
		Other assets			4,369		4,302
			Total assets	$	55,~~062~~029	$	5355,~~264~~878
Liabilities and Shareholders' Equity
	Current liabilities:
		Accounts payable		$	1,~~458~~425	$	~~950~~1,303
		Accrued expenses			3,~~526~~707		34,~~321~~057
		Income taxes payable			~~178~~—		—176
		Short-term borrowing			1,~~685~~651		1,~~503~~909
		Current portion of long-term debt			1,~~110~~149		1,~~056~~131
			Total current liabilities		7,~~957~~932		68,~~830~~576
	~~Deferred income taxes~~	Deferred income taxes			~~784~~660		~~789~~720
	~~Long-term debt, less current portion~~	Long-term debt, less current portion			~~1,226~~712		21,~~056~~006
	~~Shareholders' equity~~	Shareholders' equity
		~~Preferred stock, $.10 par value, authorized 5,000,000 shares; issued none~~	Preferred stock, $.10 par value, authorized 5,000,000 shares; issued none		—		—
		Common stock, $.10 par value, authorized 15,000,000 shares; issued and outstanding 5,669,423 and 5,651,098 shares			567		565
			Common stock, $.10 par value, authorized 15,000,000 shares; issued and outstanding 5,673,971 and 5,672,346		567		567
		~~Additional paid-in capital~~	Additional paid-in capital		38,~~323~~427		3738,~~929~~371
		~~Retained earnings~~	Retained earnings		6,~~149~~691		56,~~017~~602
		Accumulated other comprehensive income (loss) (Note 5)			56		78
			Accumulated other comprehensive income (loss)		40		36
			Total shareholders' equity		45,~~095~~725		4345,~~589~~576
			Total liabilities and shareholders' equity	$	55,~~062~~029	$	5355,~~264~~878

The accompanying notes are an integral part of the condensed consolidated financial statements.

ISCO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

				Nine months ended
					Three Months Ended
				Apr 26 2002			Apr 27 2001
					Oct 25 2002			Oct 26 2001
				~~(Columnar amounts in thousands)~~	(Columnar amounts in thousands)
Cash flows from operating activities:
	Net income			$	1,698		$	2,140
	Net income (loss)				$	431		$	1,030
	Adjustments to reconcile net income to net cash flows from operating activities:
	Adjustments to reconcile net income (loss) to net cash flows from operating activities:
		Depreciation and amortization			~~1,828~~	628		~~1,635~~	580
		Deferred income taxes			293			1,026
		Stock-based compensation				49			16
		Stock based compensation			321			—
		Deferred income taxes				47			(90	)
		Change in operating assets and liabilities			1,096			49
		Gain on sale of property and equipment				(125	)		(69	)
		Other			(222	)		(224	)
		Provision for doubtful accounts				13			10
	Total adjustments				3,316			2,486
		Undistributed (income) losses of AFTCO				(18	)		65
		Cash flows from operating activities			5,014			4,626
		Change in operating assets and liabilities:
Cash flows from investing activities:
			Accounts receivable-trade			(369	)		(304	)
	Proceeds from maturity of held-to-maturity securities				9,750			5,500
			Inventories			(46	)		28
	Proceeds from maturity of available-for-sale securities				700			—
			Refundable income taxes			(65	)		460
	Purchase of held-to-maturity securities				(4,654	)		(8,866	)
			Other current assets			(301	)		(97	)
	Purchase of available-for-sale securities				(10,606	)		—
			Accounts payable			123			326
	Proceeds from sale of property and equipment				331			136
			Accrued expenses			(346	)		(605	)
	Purchase of property and equipment				(1,420	)		(829	)
			Income taxes payable			(176	)		97
	~~Other~~	Other			~~185~~	(83	)	13	(41	)
		Cash flows from investing activities			(5,714	)		(4,046	)
	Total adjustments					(669	)		376
Cash flows from financing activities:
		Cash flows from operating activities				(238	)		1,406
	Cash dividends paid				(566	)		—
Cash flows from investing activities:
	Net change in short-term borrowings				137			(168	)
	Proceeds from maturities of available-for-sale securities					2,750			—
	Repayment of long-term debt				(790	)		(717	)
	Proceeds from maturity of held-to-maturity securities					2,130			4,000
	Issuance of common stock and exercise of stock options				75			26
	Purchase of held-to-maturity securities					(497	)		(2,411	)
		Cash flows from financing activities			(1,144	)		(859	)
	Purchase of available-for-sale securities					(2,264	)		(2,752	)
Cash and cash equivalents:
	Proceeds from sale of property and equipment					174			132
	Net increase (decrease)				(1,844	)		(279	)
	Purchase of property and equipment					(446	)		(740	)
	Balance at beginning of year				2,675			1,589
	Other					22			190
	Balance at end of period			$	831		$	1,310
		Cash flows from investing activities				1,869			(1,581	)
Supplemental disclosures of cash flows:
Cash flows from financing activities:
The Company made income tax payments of $23,000 and $20,000 during the nine-month periods ended April 26, 2002 and April 27, 2001, respectively.
	Cash dividends paid					(341	)		—
The Company made interest payments of $215,000 and $275,000 during the nine-month periods ended April 26, 2002 and April 27, 2001, respectively.
	Net change in short-term borrowings					(237	)		(48	)
	Repayment of long-term debt					(269	)		(252	)
	Issuance of common stock and exercise of stock options					7			47
		Cash flows from financing activities				(840	)		(253	)
Cash and cash equivalents:
	Net increase (decrease)					791			(428	)
	Balance at beginning of year					633			2,675
	Balance at end of year				$	1,424		$	2,247

See Note 6 for supplemental cash flow information.

The accompanying notes are an integral part of the condensed consolidated financial statements.

ISCO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~April 26~~October 25, 2002 (Unaudited) (Columnar ~~amounts~~amouts in thousands, except per share data)

Note 1: In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all of the adjustments necessary for a fair presentation of the financial position of the Company and the results of operations and cash flows for the interim periods presented herein. All such adjustments are of a normal recurring nature. Results of operations and cash flows for the current unaudited interim period are not necessarily indicative of the results that may be expected for the entire fiscal year. Inter-company transactions and accounts have been eliminated.

While the Company believes that the disclosures presented are adequate to make the information not misleading, it is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements included in the Annual Report on Form 10-K for the year ended July 2726, ~~2001~~2002.

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 was as follows:

	Apr 26, 2002		Jul 27, 2001
	Oct 25, 2002		Jul 26, 2002
Raw materials	$	3,248	$	3,489
Raw Materials	$	3,230	$	3,076
Work-in-process		3,~~207~~023		23,~~883~~173
Finished goods		2,~~480~~826		2,~~403~~797
	$	89,~~935~~079	$	89,~~775~~046

Had inventories been valued on the first-in, first-out (FIFO) basis, they would have been approximately $2,~~176~~244,000 and $12,~~967~~307,000 higher than reported on the LIFO basis at ~~April~~October 2625, 2002 and July 2726, ~~2001~~2002, respectively.

Note 4: Other Assets

	Apr 26, 2002		Jul 27, 2001
Intangibles, net of accumulated amortization of $638,000 and $535,000	$	1,048	$	1,151
Investment in AFTCO, net of accumulated amortization of $306,000 and $250,000		622		639
Cash value of life insurance		1,324		1,425
Note receivable—related party		1,000		1,000
Other		1,008		931
	$	5,002	$	5,146

Note 54: ~~Comprehensive~~Other ~~income,~~Assets ~~for the three and nine month periods ended April 26, 2002 and April 27, 2001, was as follows:~~

			Three months ended						Nine months ended
		Oct 25, 2002			Jul 26, 2002
			Apr 26 2002			Apr 27 2001			Apr 26 2002			Apr 27 2001
Intangibles, net of accumulated amortization of $704,000 and $672,000		$	982		$	1,014
Net income			$	307		$	240		$	1,698		$	2,140
Investment in AFTCO, net of accumulated amortization of $325,000			581			563
Other comprehensive income (loss), net of income tax (tax benefit):
Cash value of life insurance			1,354			1,335
	Foreign currency translation adjustment			7			20			(9	)		27
Note receivable — related party			1,000			1,000
	Unrealized holding gains (losses) on available-for-sale securities			(3	)		(8	)		(13	)		(23	)
Other			452			390
Comprehensive income			$	311		$	252		$	1,676		$	2,144
		$	4,369		$	4,302

Note 65: ~~Legal~~Comprehensive ~~Proceedings~~income (loss), for the three month periods ended October 25, 2002 and October 26, 2001, was as follows:

The Company has filed an action in the United States District Court for the District of Nebraska against Cornell Research Foundation, Inc. ("Cornell") seeking to enjoin Cornell from terminating a patent license agreement dated April 30, 1996 ("license"). Pursuant to the rights granted in the license, the Company has been developing several new high performance liquid chromatography columns utilizing monolithic packing (SWIFTTM). The initial sale of these new products is scheduled by the Company for the fourth quarter of fiscal 2002. The Company's action was precipitated by a notice from Cornell terminating the license and alleging that the Company had not been diligent in developing a commercial product. Cornell has responded by filing an action in the Supreme Court of the State of New York to compel arbitration under the terms of the license.

		Three months ended
		Oct 25 2002			Oct 26 2001
Net income		$	431		$	1,030
Other comprehensive income (loss), net of income tax (tax benefit):
	Foreign currency translation adjustment		5			(30	)
	Unrealized holding gains (losses) on available-for-sale securities		(1	)		(9	)

Comprehensive income		$	435		$	991

~~Both actions~~Note 6: Supplemental ~~are~~Cash inFlow ~~their~~Information preliminary stages and neither court has held any hearings or taken any action to date. The Company intends to pursue this matter very vigorously and believes that it will prevail whether through the court action in Lincoln, Nebraska or through any court-ordered or party-agreed-to arbitration. The Company intends to continue with its marketing efforts on the new column products.

~~Note~~The Company made income tax payment of $385,000 and $0 during the three-month periods ended October ~~7: New~~25, ~~Accounting~~2002 ~~Pronouncements~~and October 26, 2001, respectively.

InThe ~~July 2001,~~Company ~~the~~made ~~Financial~~interest ~~Accounting~~payments ~~Standards Board issued Statement~~ of ~~Financial~~$59,000 ~~Accounting Standards No. 142 (SFAS No. 142) Goodwill~~ and ~~Other~~ ~~Intangible Assets. SFAS No. 142 requires~~$78,000 ~~among~~during ~~other things,~~ the ~~discontinuance~~three-month ofperiods ~~goodwill~~ended ~~amortization. In addition~~October 25, ~~the~~2002 ~~standard includes provisions for the reclassification of certain existing recognized intangibles out of previously reported goodwill~~ and ~~the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS No.~~October ~~142 is effective for fiscal years beginning after December 15~~26, 2001., ~~The Company is currently assessing but has not yet determined the impact of SFAS No~~respectively. ~~142~~ ~~on its financial position and the results of operations upon adoption in fiscal 2003.~~

~~In June~~Note ~~2001,~~7: Legal ~~the~~Proceedings ~~Financial~~The ~~Accounting~~Company ~~Standards~~continues ~~Board~~its ~~issued~~activities ~~Statement~~related ofto ~~Financial~~its ~~Accounting~~SWIFT ~~Standards~~column ~~No. 143~~products ~~(SFAS~~and ~~No. 143),~~to ~~Accounting~~the filed lawsuits by and ~~for~~against ~~Asset~~Cornell ~~Retirement~~Research ~~Obligations~~Foundation, Inc. ~~SFAS~~("Cornell") ~~No. 143~~All ~~addresses~~legal ~~financial~~actions ~~accounting~~are ~~and~~in ~~reporting~~their ~~for~~preliminary ~~obligations~~stages. ~~related~~The Company intends to ~~the~~pursue ~~retirement~~these ofmatters ~~tangible~~very ~~long-lived assets~~vigorously and ~~the~~believes ~~related~~that ~~asset~~it ~~retirement~~will prevail ~~costs.~~whether ~~SFAS~~through ~~No. 143~~court isaction ~~effective~~or ~~for~~through ~~fiscal~~any ~~years~~court-ordered ~~beginning~~or ~~after~~party-agreed-to ~~June 15, 2002~~arbitration. ~~The~~Details ~~Company~~on ~~does~~these ~~not~~lawsuits ~~expect~~can ~~the~~be ~~adoption~~found ofin ~~this~~Isco's ~~standard~~annual inreport on ~~fiscal~~Form 10-K ~~2003~~for tofiscal ~~have~~year a2002 ~~significant~~under ~~impact~~Part I, onItem ~~the~~3, ~~consolidated~~Legal ~~financial statements~~Proceedings.

InThe ~~August 2001,~~Company began selling the ~~Financial~~new ~~Accounting~~SWIFT ~~Standards~~columns ~~Board~~late ~~issued~~in ~~Statement~~the ofin ~~Financial~~the ~~Accounting~~fourth ~~Standards~~quarter ~~No. 144~~of ~~(SFAS~~fiscal No2002. ~~144), Accounting~~ ~~for~~At this time, the ~~Impairment~~revenues orfrom ~~Disposal~~SWIFT columns are not material to the overall revenues of ~~Long-Lived~~the ~~Assets~~Company. ~~SFAS~~The ~~No. 144~~Company ~~addresses~~continues ~~financial~~to ~~accounting~~invest in infrastructure to build and ~~reporting~~expand ~~for~~this ~~the impairment~~column orbusiness. ~~disposal~~Details ofon ~~certain~~the ~~long-lived~~Company's ~~assets.~~investments ~~SFAS~~in ~~No. 144~~this isarea ~~effective~~can ~~for~~be ~~fiscal~~found ~~years~~in ~~beginning~~Isco's ~~after~~annual ~~December~~report on Form ~~15,~~10-K ~~2001.~~for ~~The~~fiscal ~~Company~~year ~~does~~2002 ~~not~~under ~~expect~~ the ~~adoption~~section ~~of this~~entitled ~~standard~~"Factors Affecting Future Results" in ~~fiscal~~Part I, ~~2003~~Item to2, ~~have~~Management's aDiscussion ~~significant~~and ~~impact~~Analysis onof ~~the~~Results ~~consolidated~~of ~~financial~~Operations and ~~statements~~Financial Condition.

Note 8: New Accounting Pronouncements

The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets, as of the beginning of the current fiscal year. SFAS No. 142 provides that goodwill and other intangible assets with indefinite lives shall not be amortized and shall be tested for

impairment of value on an annual basis. There was no impairment that resulted from adoption of this standard. The Company discontinued the amortization of equity method goodwill relating to the AFTCO joint venture upon adoption of this standard. Goodwill and other identifiable intangible assets with indefinite lives are not amortized and are tested annually for impairment. Impairment occurs when ~~Item~~the 2fair value of the asset is less than its carrying amount. Identifiable intangible assets with definite lives are amortized over their estimated useful lives and tested for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may be impaired. Impairment occurs when the fair value of the asset is less than its carrying amount. If impaired, the intangible asset is written down to its fair value. The after tax impact of adopting this standard in fiscal 2002 would have been to increase first quarter fiscal 2002 earnings by approximately $19,000. Basic and diluted earnings per share amounts would not have changed on a pro forma basis.

In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146 (SFAS No. 146), Accounting ~~MANAGEMENT'S~~for ~~DISCUSSION~~Costs ~~AND~~Associated ~~ANALYSIS~~with OFExit ~~FINANCIAL~~or ~~CONDITION AND~~Disposal ~~RESULTS~~Activities. OFSFAS ~~OPERATIONS~~ No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002.

The following Management's Discussion and Analysis of Financial Condition and Results of Operations contain trend analysis and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results could differ materially from those projected in the forward-looking statements within this document.

RESULTS OF OPERATIONS

The following table sets forth, for the three-month and nine-month periods indicated, the percentages which certain components of the Condensed Consolidated Statements of Operations bear to net sales and the percentage of change of such components (based on actual dollars) compared with the same periods of the prior year.

		Three months ended						Nine months ended
		Apr 26 2002		Apr 27 2001		Change		Apr 26 2002		Apr 27 2001		Change
Net sales		100.0		100.0		2.6		100.0		100.0		3.3
Cost of sales		48.6		48.4		3.0		48.2		47.0		5.9
		51.4		51.6		2.3		51.8		53.0		1.0
Operating expenses:
	Selling, general, & administrative	39.4		39.3		2.8		37.4		37.6		2.5
	Research & engineering	10.3		9.8		8.2		9.2		9.2		3.4
	ERP settlement	0.0		0.0		—		0.0		(0.9	)	(100.0	)
		49.7		49.1		3.8		46.6		45.9		4.9
Income from operations		1.7		2.5		(28.5	)	5.2		7.1		(24.3	)
Other income (expense):
	Investment income	1.2		1.3		(6.4	)	1.2		1.3		(2.8	)
	Interest expense	(0.5	)	(0.6	)	(26.3	)	(0.5	)	(0.7	)	(21.8	)
	Other, net	1.2		(0.4	)	—		0.2		(0.1	)	—
		1.9		0.3		573.5		0.9		0.5		78.8
Income before income taxes		3.6		2.8		33.0		6.1		7.6		(17.4	)
Provision for income taxes		1.4		1.1		40.6		2.2		2.6		(11.0	)
Net income		2.2		1.7		28.5		3.9		5.0		(20.6	)

SALES ANALYSIS AND REVIEW

Our sales for the three-month and nine-month periods ended April 26, 2002 were $14.1 million and $44.1 million, respectively. For the periods under review, sales were approximately 3 percent higher than each of the respective periods of last year. The three-month improvement was driven by increases in international sales across all product lines with the exceptions of process monitoring and SFE. The year-to-date increase also was driven by increased international sales primarily from sales of products in the liquid chromatography and SFE product lines. Our performance in the U.S. market was significantly impacted by lower sales in the sampler product line from the prior year level.

Core products sales (sampler, flow meter, and liquid chromatography products) of $10.9 million for the quarter and $33.2 million for the nine-month period, were up 1 percent for both the quarter and

~~year~~ ~~to date compared with the same periods last year. The increase in sales of liquid chromatography and flow meter products was offset by lower sales of samplers for both the three and~~ ~~nine-month~~Item ~~periods. Sales of our non-core products (process monitoring, supercritical fluid extraction (SFE) and syringe pump) of $~~2.~~3 million~~ MANAGEMENT'S ~~for~~DISCUSSION ~~the~~AND ~~quarter~~ANALYSIS ~~and $8.2 million~~OF ~~for~~FINANCIAL ~~the~~CONDITION AND ~~nine-month~~RESULTS ~~period were up 9 percent and 10 percent compared with the same periods of last year. For the current quarter, the results were driven~~OF by increased sales of process monitoring products offset by declines in sales of SFE and syringe pump products. For the nine-month period, both SFE and process monitoring products contributed to the sales increase over the prior year, while syringe pumps sales declined from the prior year. OPERATIONS

~~U.S. sales~~The ~~for~~following ~~the~~Management's ~~three~~Discussion ~~months~~ and ~~nine~~Analysis ~~months~~of ~~were~~Financial ~~down~~Condition ~~4 percent~~ and upResults ~~1 percent, respectively. U.S. sales~~ of ~~our~~Operations ~~core~~contain ~~products~~trend ~~for~~analysis ~~the~~and ~~same periods decreased~~other ~~6 percent~~forward-looking ~~and~~statements ~~increased~~within ~~1 percent, respectively, over~~ the ~~comparable~~meaning ~~periods~~ of ~~fiscal~~Section 27A ~~2001.~~of ~~Liquid chromatography and flow meter products accounted for~~ the ~~increases~~Securities inAct ~~both~~of ~~periods~~1933, ~~offset~~ byas ~~declines~~amended, ~~in sampler products for both periods. U.S. sales of our non-core products increased 8 percent for the three-month period~~ and ~~decreased by 6~~Section ~~percent~~21E ~~for the nine-month comparison. Sales~~ of ~~process monitoring equipment accounted for~~ the ~~increase~~Securities inExchange ~~the~~Act ~~three-month period offset by declines in sales~~ of ~~SFE~~1934, ~~and~~as ~~syringe~~amended. ~~pump~~Actual ~~products, while for~~results ~~the~~could ~~nine-month~~differ ~~period~~materially ~~the~~from ~~decline~~those inprojected ~~syringe pump sales was only partially offset by increases~~ in ~~SFE~~the ~~and~~forward-looking ~~process~~statements ~~monitoring~~within ~~sales.~~this document.

~~International sales~~Results ~~for the three months and nine months were up 25 percent and 9 percent, respectively. International sales~~ of our core products for the same periods were up 37 percent and 1 percent, respectively, over last year. Sampler, flow meter and liquid chromatography products all contributed to the three month increase, while liquid chromatography and flow meter products accounted for the nine month increase, offset by a decline in sampler product sales. International sales of our non-core products for the three months and nine months increased by 9 percent and 21 percent, respectively. Syringe pumps recorded increased sales for each of the periods, while SFE was flat for each of the periods, and process monitoring sales were down for the current quarter but provided a sales increase for the nine-month period. Operations

~~During the~~The ~~three~~following ~~months~~table ~~and~~sets ~~nine~~forth, ~~months~~for wethe ~~received~~three-month ~~net~~periods ~~orders~~indicated, ofthe ~~$14.4 million~~percentages ~~and~~which ~~$43.3 million,~~certain ~~respectively.~~components ~~Net~~of ~~orders~~the ~~received~~Condensed ~~were~~Consolidated upStatements ~~6 percent and~~of ~~3 percent~~Operations ~~compared~~bear ~~with~~to ~~the~~net ~~same~~sales ~~periods~~and ~~last~~the ~~year.~~percentage ~~The~~of ~~order~~change ~~backlog~~of atsuch ~~April 26,~~components ~~2002~~(based ~~was~~on ~~$4.6 million,~~actual ~~down~~dollars) ~~approximately~~compared ~~15 percent~~with ~~from~~ the ~~beginning~~same periods of the ~~fiscal~~ prior year.

NET INCOME ANALYSIS AND REVIEW

		Three months ended
		Oct 25, 2002		Oct 26, 2001		Change
Net sales		100.0		100.0		0.4
Cost of sales		44.8		46.6		(3.4	)

		55.2		53.4		3.8

Operating expenses:
	Selling, general, & administrative	41.3		34.9		19.0
	Research & engineering	10.7		8.9		21.0

		52.0		43.8		19.4

Income from operations		3.2		9.6		(67.5	)
Other income (expense):
	Investment income	1.1		1.2		(5.6	)
	Interest expense	(0.4	)	(0.5	)	(24.4	)
	Other, net	0.3		(0.4	)	—

		1.0		0.3		328.9

Income before income taxes		4.2		9.9		(57.6	)
Provision for income taxes		1.4		3.2		(56.5	)

Net income		2.8		6.7		(58.2	)

WeNet ~~had~~Sales ~~income~~Analysis ~~from operations of $246,000~~ and $2,288,000, respectively, for the three months and nine months ended April 26, 2002. For the same periods last year, income from operations was $345,000 and $3,022,000, respectively. The decline in income from operations for the three-month period was due to increased operating expenses greater than the additional gross margin dollars realized on the increased sales. The decline in income from operations for the nine-month period was due to the prior year receiving the benefit from the ERP settlement of $425,000, a decline in the gross margin as a percentage of sales from the prior year level, and increased operating expenses in the current year. Review

~~The gross~~Our ~~margin,~~net assales afor ~~percentage~~the first quarter of ~~sales,~~fiscal ~~was~~2003 51of $15.45 ~~percent~~million ~~and~~were 51slightly above first quarter fiscal 2002 net sales of $15.84 ~~percent,~~million. Revenues ~~respectively,~~related ~~for~~to ~~the~~our ~~three~~core ~~month~~products ~~and~~lines ~~nine~~(wastewater ~~month~~samplers, ~~periods~~flow meters, ~~ended~~and ~~April 26,~~liquid ~~2002~~chromatography) were $12.0 million ~~This compares~~for ~~with~~the ~~gross~~first ~~margins~~quarter of ~~51.6 percent~~fiscal ~~and~~2003 53compared with $11.06 ~~percent~~million for the same ~~periods~~period last year, an increase of 3.0 percent. Revenues ~~The~~from ~~decline~~our inliquid chromatography line continue to provide double digit growth and accounted for the ~~nine~~year-~~month~~over-year ~~period~~increase, iswhile ~~due~~revenues ~~primarily~~from tosamplers ~~increased~~and ~~direct~~flow meters ~~manufacturing~~were ~~costs.~~down ~~The~~slightly ~~three~~from ~~month~~the ~~results~~first ~~were~~quarter ~~consistent~~of ~~with~~fiscal ~~the~~2002. ~~prior~~Our ~~year~~major ~~due~~product tolines ~~the~~of ~~increase~~samplers inand ~~direct~~flow ~~manufacturing~~meters ~~costs~~continue ~~being~~to ~~offset~~be negatively affected by ~~benefits~~the ~~from~~continuing ~~LIFO~~economic and ~~improved~~competitive ~~production~~conditions that ~~variances~~were present in the prior fiscal year. Revenues outside of our core product lines (including the product lines of process monitoring,

~~Operating~~ ~~expenses~~supercritical ~~increased~~fluid byextraction ~~$260~~(SFE),~~000~~ ~~and~~syringe ~~$532~~pumps,~~000~~ ~~for~~along ~~the~~with ~~three-month~~revenues ~~and~~related ~~nine-month periods, excluding the impact~~ to ~~the~~equipment ~~prior~~repairs ~~fiscal year for the ERP settlement discussed above. SG&A~~ and ~~engineering~~billed ~~expenses~~freight) ~~contributed~~were ~~to the three and nine-month period increases~~$3.5 million ~~SG&A increased by approximately $150,000 and $400,000~~ for the ~~three~~current ~~and~~fiscal ~~nine~~year ~~month~~compared with ~~periods~~$3.8 million ~~The increase~~ for the ~~three~~same ~~month~~ period islast ~~due to increased personnel costs~~year, ~~while~~a ~~the~~7.4 percent ~~nine month received an offsetting benefit from reduced advertising expenses~~decrease. ~~The~~While ~~personnel~~syringe ~~cost~~pump ~~increase was~~revenues ~~due to~~ increased, ~~selling~~revenues ~~and~~from ~~marketing~~all ~~compensation~~other asareas ~~well~~were aseither ~~non-cash~~flat ~~charges~~or ~~related~~lower tothan ~~stock options under~~ the ~~executive compensation~~prior ~~program~~year. ~~Engineering expense increased by approximately $120,000 for the three and nine month periods. This increase is due to increased product support resources.~~

~~Other~~Domestic ~~income~~revenues ~~increased by $225,000 and $171,000,~~ for the ~~three-month~~first ~~and~~quarter ~~nine-month~~of ~~periods~~fiscal ~~ended~~2003 ~~April~~of $11.8 ~~26,~~million ~~2002,~~were ~~respectively,~~2.7 percent asabove ~~compared~~first toquarter ~~the~~fiscal ~~same~~2002 ~~periods~~revenues of ~~the previous year~~$11.5 million. ~~Improved~~Domestic ~~earnings~~revenues related ~~from~~to ~~AFTCO,~~our ~~Isco's~~core ~~joint~~product ~~venture,~~lines ~~were~~for the ~~primary~~three ~~factor~~months inwere ~~both~~up ~~periods~~2.0 percent ~~While~~from ~~our~~last ~~average investment balances were higher in the current~~ year, ~~lower~~with ~~yield~~liquid ~~rates resulted~~chromatography inrevenues ~~the~~accounting ~~same levels of investment income~~ for the ~~three~~increase, ~~and~~offset ~~nine-month~~by ~~periods~~declines ~~compared~~in ~~with~~sampler ~~last~~and flow ~~year~~meter revenues. ~~Interest~~Domestic ~~expense~~revenues ~~decreased~~outside byof ~~$24,000~~our ~~and~~core ~~$60,000,~~product ~~for~~lines ~~the~~were ~~three-month~~up ~~and nine-month periods ended April~~6.4 ~~26,~~percent ~~2002, respectively,~~ compared with the same ~~periods~~period oflast ~~the~~year. ~~previous~~Revenues ~~year~~from asthe ~~average~~syringe ~~debt~~pump ~~outstanding~~line ~~was~~accounted ~~lower~~for the year-over-year improvement.

~~Our~~International ~~effective~~revenues ~~income tax rate~~ for the ~~three~~first ~~months~~quarter ~~and~~of ~~nine~~fiscal ~~months~~2003 ~~ended~~of ~~April~~$3.7 ~~26,~~million ~~2002~~were ~~was 39~~6.80 percent ~~and~~below ~~36.5 percent,~~first ~~respectively.~~quarter ~~For~~fiscal ~~the~~2002 ~~same~~revenues ~~periods~~of ~~last~~$4.0 million. First quarter ~~year~~revenues from our ~~effective~~core ~~income~~product ~~tax~~lines ~~rates~~increased ~~were~~by 378.51 percent ~~and~~compared ~~33.9 percent,~~with ~~respectively.~~last ~~The current~~ year's ~~effective~~first ~~tax~~quarter. ~~rate,~~The ~~for~~sampler ~~both~~product ~~the~~line ~~three~~accounted ~~and~~for ~~nine~~this ~~month~~revenue ~~results~~increase, ~~was~~partially ~~higher~~offset asby a ~~result~~decline in liquid chromatography related sales. International revenues outside of ~~the~~our ~~nondeductibility,~~core ~~for~~product ~~tax~~lines ~~purposes~~were down 19.4 percent, ofwith ~~expenses~~all ~~related~~areas contributing to the ~~executive compensation program~~decrease.

~~FINANCIAL~~ Net orders ~~CONDITION~~of ~~AND~~$15.1 million ~~LIQUIDITY~~ were received during the first quarter of fiscal 2003, a decrease of 1.0 percent from the first quarter of fiscal 2002. The order backlog at October 25, 2002 was $4.9 million, down approximately eight percent from the beginning of the fiscal year.

~~Our~~Net ~~overall~~Income ~~cash~~Analysis and investments increased to $15.5 million at April 26, 2002 from $12.5 million at the end of fiscal year 2001, an increase of $3.0 million. Operating activities generated $5.0 million of cash flow during the first nine months of fiscal 2002 compared with $4.6 million during the same period of fiscal 2001. The year over year improvement of $0.4 million in cash flow from operating activities was driven by the change in operating assets and liabilities, primarily accounts receivable, inventories and the timing of income tax payments. For the current nine months, net earnings, depreciation, and other adjustments provided $3.9 million of cash while changes in operating assets and liabilities generated $1.1 million. This compares to the prior year where net earnings, depreciation, and other adjustments provided for nearly all of the $4.6 million of cash from operations. Review

~~The cash~~Our ~~flow~~net ~~generated~~income for the ~~nine~~first ~~months~~quarter of fiscal 2003 was ~~primarily~~$0.4 million, ~~invested~~down inapproximately ~~short-term~~$0.6 million ~~investments~~or ~~due~~58 percent tofrom ~~current~~the ~~market~~prior ~~conditions~~year. WeThe primary ~~invested~~factor ~~net~~in ~~cash~~the ofdecline $1was lower income from operations.~~1 million into~~ ~~equipment,~~Income ~~used~~from ~~cash~~operations for the first quarter of fiscal 2003 was $0.85 million, ~~for~~down ~~the~~approximately ~~repayment~~$1.0 million ofor 68 percent ~~debt,~~compared ~~and~~with ~~paid~~the ~~dividends~~first quarter of $0fiscal 2002.~~6 million~~ toPositive ~~shareholders.~~shifts ~~Our~~in ~~net~~the ~~cash~~mix ~~and~~of ~~cash~~our ~~equivalents~~product ~~position~~lines ~~was $0.8 million~~resulted atin ~~April 26,~~a ~~2002~~gross ~~compared~~margin, toas ~~$2.7 million~~a atpercentage ~~year-end~~of ~~and~~sales, $1of 55.32 ~~million~~percent atcompared with ~~April~~53.4 ~~27,~~percent ~~2001.~~for ~~The~~the ~~cash~~same ~~and~~period ~~cash~~last ~~equivalents~~year, ~~balance~~and ~~at year-end~~provided ~~was~~additional ~~higher~~gross ~~than~~margin ~~our~~dollars ~~normal~~of ~~target~~$0.3 million. ~~range~~This ~~due~~benefit towas ~~the~~offset ~~timing~~by ofoperating ~~investment~~expenses ~~purchases~~which ~~and~~increased ~~maturities~~by approximately $1.3 million.

AtThe ~~April 26,~~increase ~~2002~~in operating expenses was driven by increases in both sales, wegeneral ~~had~~and ~~working~~administrative ~~capital~~(SG&A) expenses and engineering expenses. The majority of the increase was in SG&A, which increased by approximately $191.30 million ~~and~~from athe ~~current~~prior ~~ratio~~year. ofIncreased ~~3.4:1.~~staffing Atfor ~~period-end~~the chromatography line, ~~our~~general ~~total~~wage ~~long-term~~increases, ~~debt~~increased ~~was~~exhibition expenses, and the replacement of $2an international dealer were drivers in the SG&A increase.~~3 million~~ ~~with~~Approximately $1300,000 of the increase is attributed to marketing, sales, and legal expenditures for the new SWIFT chromatography media.~~1 million~~ Beginning ~~payable~~in ~~within~~the second quarter of the ~~next~~prior fiscal year., Inand ~~addition~~continuing through the first quarter of fiscal 2003, we ~~had~~increased ~~lines~~the ofexpenditure ~~credit~~level ~~with~~for ~~various~~SG&A. ~~banks~~This ~~totaling~~was $7due to our commitment to build the marketing and sales infrastructure to capitalize on market and technology opportunities in process monitoring, SWIFT columns, and drug discover applications of liquid chromatography.0 These commitments are discussed in detail in our annual report on Form ~~million~~10-K ofunder ~~which~~the section titled "Factors affecting future results." Engineering expenses increased by $50.23 million ~~was available~~primarily ~~for~~from ~~future~~higher ~~business~~levels ~~needs~~of outsourced product development activities.

Other income increased by $125,000, for the first quarter of fiscal 2003 compared with the same period of last year. This improvement was driven by improved earnings from AFTCO, Isco's joint venture. While our average investment balances were higher in the current year, lower yield rates resulted in a slight decrease in investment income for the three-month period compared with last year. Interest expense also decreased slightly for the three-month comparison due to our continued ability to drive down our outstanding fixed debt. Our effective income tax rate for the first quarter of fiscal 2003

~~The~~ ~~following~~was ~~tables summarize our outstanding contractual obligations and commitments as of July~~33.1 ~~27,~~percent ~~2001.~~compared ~~There~~with ~~have~~an ~~been~~effective noincome ~~significant~~tax ~~changes~~rate tofor ~~debt or other obligations in~~ the ~~first~~same ~~nine~~period ~~months~~last year of ~~fiscal 2002~~32.2 percent.

~~(Amounts~~Financial inCondition ~~thousands):~~and Liquidity

		Payments Due by Period
Contractual Obligations		Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Short-Term Debt		$	1,053	$	1,053	$	—	$	—	$	—
Long-Term Debt			3,112		1,056		1,952		44		60
Operating Leases			615		266		328		21		—
	Total	$	4,780	$	2,375	$	2,280	$	65	$	60

Our overall cash and investments decreased to $14.3 million at October 25, 2002 from $15.6 million at the end of fiscal year 2002, a decrease of $1.3 million. Operating activities utilized $0.2 million of cash during the first quarter of fiscal 2003 compared with generating $1.4 million during the same period last year. The major factor in the decline was a change in operating assets and liabilities that resulted in a net reduction of approximately $1.1 million in operating cash flow, primarily driven by a change in income taxes. During fiscal 2002, we received the benefits of net operating loss carry forwards to offset that year's tax liabilities. These benefits were fully utilized in fiscal 2002. The decline in net income accounted for approximately $0.6 million of the $1.6 million decline, with the adjustments for depreciation and amortization and other non operating assets and liabilities being at approximately the same level.

		Amount of Commitment Expiration Per Period
Other Commercial Commitments		Total Amounts Committed		Less than 1 year		1-3 years		4-5 years		Over 5 years
Lines of Credit		$	5,200	$	5,200	$	—	$	—	$	—
Standby Letters of Credit			1,800		1,800		—		—		—
Guarantees			1,000		1,000		—		—		—
	Total	$	8,000	$	8,000	$	—	$	—	$	—

We invested the cash generated from maturities of investments of $4.9 million into long-term and short-term investments of $2.8 million. We utilized the remaining cash available from investment maturities to fund the cash required for operations, purchase a net of $0.3 million in equipment, used cash of $0.5 million for the repayment of long and short term bank obligations and used $0.3 million for dividends. Our net cash and cash equivalents position increased by $0.8 million for the first quarter of fiscal 2003 compared to a net decrease of $0.4 million in the first quarter of fiscal 2002.

At ~~April~~October 2625, 2002, ~~the~~we ~~Company~~ had ~~available~~working ~~$7,000,000~~capital ~~in lines~~ of ~~credit expiring February~~$21.1 ~~28,~~million ~~2003~~ and ~~December 31,~~a ~~2003.~~current ~~The~~ratio ~~lines~~ of ~~credit~~3.7:1. ~~are~~At ~~secured by inventory~~period-end, ~~accounts~~our ~~receivable,~~total ~~equipment,~~long-term ~~and~~debt ~~intangibles~~was $1.9 million ~~The~~with ~~Company~~$1.1 million ~~has~~payable awithin ~~standby~~the ~~letter~~next ofyear. ~~credit~~In inaddition, ~~place~~we ashad alines ~~requirement~~of ~~for obtaining a revolving~~ credit ~~agreement~~with ~~for~~various ~~the~~banks ~~Company's~~totaling ~~German subsidiary,~~$7.0 million ~~currently~~of ~~DM4,000,000~~which ~~(US~~approximately $~~1,800,000)~~5.0 million ~~The~~was ~~Company~~available ~~has~~for afuture ~~guarantee~~business ~~outstanding related to the AFTCO joint venture~~needs.

~~NEW~~New ~~ACCOUNTING~~Accounting ~~PRONOUNCEMENTS~~Pronouncements

In ~~July~~June ~~2001~~2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. ~~142~~146 (SFAS No. ~~142~~146), ~~Goodwill~~Accounting ~~and Other~~for ~~Intangible~~Costs ~~Assets.~~Associated ~~SFAS~~with ~~No. 142~~Exit ~~requires,~~or ~~among~~Disposal ~~other~~Activities. ~~things,~~SFAS ~~the discontinuance of goodwill amortization~~No. 146 Inaddresses ~~addition,~~financial ~~the standard~~accounting ~~includes provisions for the reclassification of certain existing recognized intangibles out of previously reported goodwill~~ and ~~the identification of~~ reporting ~~units~~ for ~~purposes~~costs ~~of assessing~~associated ~~potential~~with ~~future~~exit ~~impairments~~or ofdisposal ~~goodwill~~activities. SFAS No. ~~142~~146 is effective for ~~fiscal~~exit ~~years~~or ~~beginning~~disposal ~~after~~activities ~~December 15,~~that ~~2001.~~are ~~The~~initiated ~~Company~~after ~~is currently assessing but has not yet determined the impact of SFAS No.~~December ~~142~~31, ~~on its financial position and the results of operations upon adoption in fiscal 2003~~2002.

~~In June 2001,~~Critical ~~the Financial~~ Accounting Standards Board issued Statement of Financial Accounting Standards No. 143 (SFAS No. 143), Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting for obligations related to the retirement of tangible long-lived assets and the related asset retirement costs. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Company does not expect the adoption of this standard in fiscal 2003 to have a significant impact on the consolidated financial statements. Policies

In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144 (SFAS No. 144), Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of certain long-lived assets. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company does not expect the adoption of this standard in fiscal 2003 to have a significant impact on the consolidated financial statements.

CRITICAL ACCOUNTING POLICIES

Accounts Receivable

Accounts receivable consist primarily of amounts due to us from normal business activities. We maintain an allowance for doubtful accounts to reflect the expected uncollectibility of accounts receivable based on a combination of past collection history, aging of outstanding accounts receivables, and specific risks identified in the portfolio.

Inventories

Inventories consist of purchased materials, raw materials, in-process subassemblies, and finished goods. AnInventory ~~allowance~~obsolescence iscost ~~maintained~~has not historically been material and as a result we do not carry a reserve for obsolescence for the ~~expected obsolescence~~majority inof our inventory. ~~The~~We ~~obsolescence~~review ~~factors~~our ~~include~~inventory ~~a) changes~~balances into ~~expected~~determine ~~future~~if ~~demand~~inventories ~~for~~can ~~repair~~be ~~and~~sold ~~warranty~~at amounts ~~parts,~~equal ~~b) obsolescence~~to inor ~~purchased~~greater ~~materials,~~than ~~raw~~their ~~material~~carrying ~~and subassemblies~~amounts. ~~due~~The toreview ~~changes~~includes inidentification ~~finished~~of ~~goods~~slow-moving ~~product~~inventories, ~~offerings~~obsolete inventories, and ~~c) the~~discontinued ~~decision~~products ~~not~~or tolines ~~incorporate~~of products. ~~these~~The ~~items~~identification ~~into~~process ~~existing~~includes ora ~~new~~review ~~finished~~of ~~goods.~~historical Weperformance ~~use~~of the ~~link-chain method~~inventory ~~for~~and ~~valuing~~current operational plans for the ~~majority~~inventory. ofIf our ~~inventory~~actual onresults adiffer ~~LIFO~~from ~~basis.~~our

expectations with respect to the inventory sales at amounts equal to or greater than their carrying amounts, we would be required to adjust our inventory balances accordingly. We use the link-chain method for valuing the majority of our inventory on a LIFO basis.

Revenue Recognition

Revenues are recorded when products are shipped to customers or, in instances where service is performed to customer ~~requirement~~requirements, upon the successful completion of such service. We are generally not contractually obligated to accept returns, except for defective products. Sales are shown net of returns and discounts.

Stock-Based Compensation

We have elected to account for ~~our~~fixed award stock ~~option~~options ~~plans~~and innonemployee ~~accordance~~directors' ~~with~~options under the provisions of ~~Accounting~~APB ~~Principles Board Option~~ No. 25 ~~(APB 25),~~ "Accounting for Stock Issued to to Employees," ~~and related interpretations~~. As such, ~~compensation~~no ~~expense is recorded on the date of grant if the current market price of the underlying stock exceeds the exercise price. Stock options expected to vest under the current executive incentive~~ compensation ~~plan~~cost ~~are~~has ~~reported~~been ~~using~~recorded ~~variable accounting thus requiring adjustments~~ in ~~compensation expense based on~~ the ~~movements~~financial instatements ~~market price~~ relative to ~~the~~these ~~exercise price~~options. ~~Stock~~We ~~option~~utilize ~~grants~~the ~~to non~~Black-~~employees~~Scholes ~~are~~option ~~accounted~~pricing ~~for~~model atto estimate the fair value of ~~the stock option grant in accordance with Statement of Financial~~ ~~Accounting~~these ~~Standards~~options ~~No. 123, "Accounting~~ for ~~Stock-Based~~disclosure ~~Compensation~~purposes." ~~Directors deferred stock units are recorded as compensation expense at fair value on the date the units are earned by the director for service on the Company's board of directors.~~

We account for performance based awards granted under our employee stock option plans in accordance with the provisions of APB 25. Options granted under the performance based awards are subject to variable accounting treatment until the number of options that will vest is known. Options not vested at the end of each performance year are cancelled. Compensation expense is recorded based on difference between the closing market price at the date the shares vest and the exercise price as determined at the date the shares were granted.

Deferred stock units granted to nonemployee directors are accounted for in accordance with Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation." Accordingly, directors deferred stock units are recorded as compensation expense at estimated fair value on the date the units are earned by the director.

Joint Venture

We account for our investment in the AFTCO joint venture using the equity method of accounting.

~~FACTORS~~Factors ~~AFFECTING~~Affecting ~~FUTURE~~Future ~~RESULTS~~Results

~~For~~As stated in our ~~period~~annual ~~ended~~report ~~January~~on Form ~~25,~~10-K for fiscal 2002, ~~our~~we expected fiscal year ~~mid-point,~~2003 weto ~~provided~~be ~~additional~~a ~~comments~~challenging ~~updating~~year ~~and~~related ~~expanding~~to ongrowth ~~our~~in ~~comments made~~the inareas ~~our~~of ~~fiscal~~net ~~2001~~sales, ~~10-K~~net ~~report~~income, ~~related~~and tocash ~~expectations~~flow. ofDuring ~~some~~this ~~short-term~~first ~~downward~~quarter ~~pressure on~~ our ~~operating~~sales ~~performance~~ in ~~fiscal~~the ~~2002~~area ~~due~~of towater ~~uncertain~~quality ~~economic~~have ~~conditions,~~been ~~as well~~adversely asaffected ~~our~~by ~~decision~~the toeconomic ~~increase~~and ~~operating~~political ~~expenses~~conditions towe ~~capitalize~~mentioned ~~on selected strategic opportunities. In~~ in our ~~January~~Form ~~25,~~10-K ~~2002~~for ~~report~~fiscal we2002. ~~stated~~We anticipate that ~~our~~these ~~best~~negative ~~estimate~~conditions ~~was~~will ~~that~~continue weinto ~~would~~the ~~report lower~~next ~~sales~~quarter and ~~earnings~~potentially ~~for~~throughout the ~~last two quarters of~~ fiscal ~~2002 compared to the prior~~ year. In addition, we ~~stated~~have begun ~~that~~to onsee ansigns ~~annualized~~that ~~basis,~~the westrong ~~expect~~ sales togrowth berate ~~approximately~~of ~~equal~~liquid tochromatography ~~the~~products ~~prior fiscal~~for ~~year,~~drug ~~while~~discovery weapplications ~~expect~~will ~~earnings~~slow ~~per~~due ~~share~~ to bepressure 15upon pharmaceutical firms to ~~25 percent~~reduce ~~lower~~spending and increase profits.

~~The~~Our ~~recent~~net ~~three~~income ~~month~~will ~~results,~~also ~~our~~be ~~third~~affected ~~quarter,~~as ~~were~~we ~~slightly~~maintain ~~better~~the ~~than~~marketing ~~expected~~and ~~related~~sales infrastructure to ~~sales~~capitalize ~~while~~on market and technology opportunities in process monitoring, SWIFT columns, and drug discovery applications of liquid chromatography. We believe we can deliver greater long-term value for our ~~operating~~shareholders ~~performance~~by ~~was~~maintaining ~~down~~these ~~from~~investments ~~the~~rather ~~prior~~than ~~quarter~~reducing ~~due~~our commitment to ~~increased SG&A~~strive for a year-over-year increase in net income.

In addition to the downward pressure from potentially lower net sales and operating income, our cash flows from operations for the year will be negatively impacted by our return to remitting income

~~expenses~~taxes. AtCash ~~this~~flows ~~time, our outlook for sales remains fairly consistent with our earlier position. Sales~~ in the ~~final~~prior ~~quarter~~two ~~of the~~ fiscal ~~year~~years ~~should~~benefited befrom in the ~~range~~utilization of ~~$13.5 million~~net ~~to $15.0 million~~operating ~~which~~losses ~~will~~carry ~~put~~forwards. usWhile ~~slightly~~we ~~ahead~~are ofcommitted ~~the~~to ~~prior~~improving ~~year's~~our ~~sales.~~working ~~The~~capital ~~gross margin~~management, aswe ado ~~percentage~~not believe ofthese ~~sales,~~improvements will ~~continue~~offset tothe beeffect ~~impacted~~of by the ~~increased~~above ~~manufacturing costs~~items. ~~Operating~~ ~~expenses~~In ~~are expected to increase in~~ the ~~final~~aggregate, ~~quarter~~we ~~due~~anticipate tothat ~~increased expenses related to the commercialization of~~ our ~~monolithic~~overall ~~column~~cash ~~media~~and ~~technology~~investments ~~(SWIFT™)~~will ~~for chromatography.~~remain Weflat, ~~expect~~or todecline ~~report~~slightly ~~earnings~~from ~~per share for~~ the ~~year~~current level, inover the ~~range~~remainder of ~~$0.34~~the ~~and~~fiscal $0year.~~38,~~ ~~which is slightly lower than our earlier expectations.~~

~~A final~~Market comment that needs to be addressed relates to the costs and risks associated with our efforts to participate in the monolithic column business. We have commented in various public documents that we expect this business to provide Isco with additional revenues and profits in the near future. While we still strongly believe this is a viable business, we are currently facing a significant short term legal issue related to the licensing rights of this media. Details of the litigation are provided under item 3. Legal Proceedings within this 10Q document. At this time, we believe our position is strong related to the license agreement. Because of this, we have continued to move forward in protecting additional technologies we have developed through patents and building the infrastructure needed to successfully launch this media. We are expecting to begin selling this media during our fourth quarter of fiscal 2002. Risk

~~MARKET~~ Interest ~~RISK~~ rate risk and currency exchange risks are the primary market risks to which we are exposed. We do not use derivative financial or commodity instruments. Our other financial instruments include cash and cash equivalents, accounts and notes receivable, accounts and notes payable and long-term debt. Our cash and cash equivalents, accounts and notes receivable, and accounts and notes payable balances are generally short-term in nature and do not expose our company to material market risk. At October 25, 2002, we had approximately $1.9 million of fixed rate debt. In addition, we had $7.0 million of variable rate credit facilities, of which approximately $1.7 million was outstanding under these credit facilities. We do not believe that changes in interest rates on the debt and credit facilities would have a material effect on our results of operations, given our current obligations under these debt and credit facilities.

Interest rate risk and currency exchange risks are the primary market risks to which we are exposed. We do not use derivative financial or commodity instruments. Our other financial instruments include cash and cash equivalents, accounts and notes receivable, accounts and notes payable and long-term debt. Our cash and cash equivalents, accounts and notes receivable, and accounts and notes payable balances are generally short-term in nature and do not expose our company to material market risk. At April 26, 2002, we had approximately $2.3 million of fixed rate debt. In addition, we had $7.0 million of variable rate credit facilities, of which approximately $1.7 million was outstanding under these credit facilities. We do not believe that changes in interest rates on the debt and credit facilities would have a material effect on our results of operations, given our current obligations under these debt and credit facilities.

Related to currency exchange, international sales of our United States based operations are denominated in U.S. dollars and international sales of our German subsidiary are denominated in Euros. The currency exchange risk at the current level of activity is not material to our operating results or financial position. Our market risk resulting from the translation of the profit and loss of STIP and from our permanent investment in our foreign subsidiaries is not material.

There have been no material changes during the first quarter of fiscal 2003 with respect to the Company's contractual obligations. Details of the Company's contractual obligations can be ~~Item~~found 3in the Management's Discussion and Analysis of Results of Operations and Financial Condition section of the Company's fiscal 2002 Annual Report on Form 10-K.

Inflation ~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

Inflation has not had, and is not expected to have, a material impact upon the Company's operations. The effect of inflation on our costs and our ability to pass on cost increases in the form of increased prices is dependent upon market conditions and the competitive environment.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this item is included in the section entitled "Market Risk" in Part I, Item 2, Management's Discussion and Analysis of Results of Operations and Financial Condition.

Item 4. CONTROLS AND PROCEDURES

(a): Evaluation of disclosure controls and procedures.

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), within the 90 days prior to the filing date of this report, the Company carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer along with the Company's Chief Financial Officer. Based upon that evaluation, the Chief Executive Officer along with the Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits

under the Exchange Act is recorded, processed, summarized and reported with the time periods specified in Securities and Exchange Commission rules and forms.

(b): Changes in Internal Control.

There are no significant changes in the Company's internal controls or, to the Company's knowledge, in other factors that could significantly affect such internal controls subsequent to the date of the Company's evaluation of its internal controls.

PART II—OTHER INFORMATION

Item 3. Legal Proceedings

The Company ~~has~~continues ~~filed~~its anactivities ~~action~~related into ~~the~~its ~~United~~SWIFT ~~States~~column ~~District~~products ~~Court~~and ~~for~~to the ~~District~~filed oflawsuits ~~Nebraska~~by and against Cornell Research Foundation, Inc. ("Cornell") ~~seeking~~ toAll ~~enjoin~~legal ~~Cornell~~actions ~~from~~are ~~terminating~~in atheir ~~patent~~preliminary ~~license~~stages. ~~agreement~~The ~~dated~~Company ~~April 30,~~intends ~~1996~~to ~~("license").~~pursue ~~Pursuant~~these tomatters ~~the~~very ~~rights~~vigorously ~~granted~~and inbelieves ~~the~~that ~~license,~~it ~~the~~will ~~Company~~prevail ~~has~~whether ~~been~~through ~~developing~~court ~~several~~action or through any ~~new~~court-ordered ~~high~~or ~~performance~~party-agreed-to ~~liquid~~arbitration. ~~chromatography~~Details ~~columns~~on ~~utilizing~~these ~~monolithic~~lawsuits ~~packing~~can ~~(SWIFTTM).~~be ~~The~~found ~~initial~~in ~~sale~~Isco's ofannual ~~these~~report ~~new~~on ~~products~~Form 10-K isfor ~~scheduled~~fiscal byyear ~~the~~2002 under Part I, Item 3, Legal Proceedings.

13 The Company began selling the new SWIFT columns late in the in the fourth quarter of fiscal 2002. At this time, the revenues from SWIFT columns are not material to the overall revenues of the Company. The Company continues to invest in infrastructure to build and expand this column business. Details on the Company's investments in this area can be found in Isco's annual report on Form 10-K for fiscal year 2002 under the section entitled "Factors Affecting Future Results" in Part I, Item 2, Management's Discussion and Analysis of Results of Operations and Financial Condition.

Company for the fourth quarter of fiscal 2002. The Company's action was precipitated by a notice from Cornell terminating the license and alleging that the Company had not been diligent in developing a commercial product. Cornell has responded by filing an action in the Supreme Court of the State of New York to compel arbitration under the terms of the license.

Both actions are in their preliminary stages and neither court has held any hearings or taken any action to date. The Company intends to pursue this matter very vigorously and believes that it will prevail whether through the court action in Lincoln, Nebraska or through any court-ordered or party-agreed-to arbitration. The Company intends to continue with its marketing efforts on the new column products.

Item 6. Exhibits and Reports on Form 8-K

(a): Exhibits:

14Exhibit 99.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b): Reports on Form 8-K: No reports on Form 8-K have been filed during the quarter ended October 25, 2002, or during the period from October 26, 2002 to the date of this quarterly report on Form 10-Q.

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.
June 7, 2002	By:		/s/ ROBERT W. ALLINGTON Robert W. Allington Chairman and Chief Executive Officer
Date: December 6, 2002	By:	/s/ ROBERT W. ALLINGTON Robert W. Allington Chairman and Chief Executive Officer
June 7, 2002	By:		/s/ VICKI L. BENNE Vicki L. Benne Chief Financial Officer and Treasurer
Date: December 6, 2002	By:	/s/ VICKI L. BENNE Vicki L. Benne Chief Financial Officer and Treasurer

1516

CERTIFICATIONS

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Public Law Number107-204), the Chief Executive Officer of the Company certifies that:

1)

I have reviewed the report;

2)

Based upon my knowledge, this report does not contain any untrue statement of a material fact, or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3)

Based upon my knowledge, the financial statements and other financial information included in this report fairly present in all material respects the financial condition, results of operations, and cash flows of the Company as of, and for, the period presented in this report;

4)

The Company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and have:

a): designed such disclosure controls and procedures to ensure that material information relating to the Company and its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b): evaluated the effectiveness of the Company's disclosure controls and procedures within 90 days prior to the filing date of this report (the "Evaluation Date");
c): presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5)

The Company's other certifying officers and I have disclosed, based on our most recent evaluation, to the Company's auditors and the audit committee of the Company board of directors (or persons performing equivalent functions):

a): all significant deficiencies in the design or operation of internal controls which could adversely affect the Company's ability to record, process, summarize, and report financial data and have identified for the Company's auditors any material weaknesses in internal controls; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls; and

6): The Company's other certifying officers have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

By:

/s/ ROBERT W. ALLINGTON

Robert W. Allington
Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Public Law Number107-204), the Chief Financial Officer of the Company certifies that:

1)

I have reviewed the report;

2)

3)

4)

a): designed such disclosure controls and procedures to ensure that material information relating to the Company and its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b): evaluated the effectiveness of the Company's disclosure controls and procedures within 90 days prior to the filing date of this report (the "Evaluation Date");
c): presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5)

a): all significant deficiencies in the design or operation of internal controls which could adversely affect the Company's ability to record, process, summarize, and report financial data and have identified for the Company's auditors any material weaknesses in internal controls; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls; and

6): The Company's other certifying officers have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

By:

/s/ VICKI L. BENNE

Vicki L. Benne
Chief Financial Officer & Treasurer

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TABLE OF CONTENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
CONDENSED CONSOLIDATED BALANCE SHEETS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Item 4. CONTROLS AND PROCEDURES

PART II—OTHER INFORMATION

Item 3. Legal Proceedings

SIGNATURES

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