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 Quarter Ended September 30, 2000
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 0-9273
MOCON, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0903312
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7500 Boone Avenue North, Minneapolis, Minnesota 55428
(Address of principal executive offices) (Zip code)
(763) 493-6370
(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 the past 90 days.
YES _X_ NO ___
5,876,056 Common Shares were outstanding as of September 30, 2000
<PAGE>
MOCON, INC.
INDEX TO FORM 10-Q
For the Quarter Ended September 30, 2000
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
September 30, 2000 and December 31, 1999 1
Condensed Consolidated Statements of Income (Unaudited)
Three months and nine months ended September 30, 2000 and 1999 2
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 2000 and 1999 3
Notes to Condensed Consolidated Financial Statements (Unaudited) 4-5
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 6-8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MOCON, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments $ 116,190 $ 1,275,838
Marketable securities, current 4,785,079 4,347,724
Accounts receivable 2,889,316 2,497,850
Other receivables 127,416 139,481
Inventories 2,175,754 2,104,588
Prepaid expenses 279,830 161,587
Deferred income taxes 345,000 345,000
------------ ------------
Total current assets 10,718,585 10,872,068
------------ ------------
Marketable securities, noncurrent 3,890,191 4,259,071
------------ ------------
Net property and equipment 1,310,415 1,182,493
------------ ------------
Other assets:
Goodwill 872,361 964,897
Technology rights and other intangibles 495,000 540,000
Other 718,878 385,347
------------ ------------
Total other assets 2,086,239 1,890,244
------------ ------------
TOTAL ASSETS $ 18,005,430 $ 18,203,876
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 576,640 $ 853,030
Accrued compensation and vacation 543,694 675,339
Other accrued 1,244,269 1,308,529
------------ ------------
Total current liabilities 2,364,603 2,836,898
------------ ------------
Deferred income taxes 96,200 112,000
------------ ------------
TOTAL LIABILITIES 2,460,803 2,948,898
------------ ------------
Stockholders' equity:
Common stock - $.10 par value 587,606 607,310
Retained earnings 14,957,021 14,647,668
------------ ------------
Total stockholders' equity 15,544,627 15,254,978
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 18,005,430 $ 18,203,876
============ ============
</TABLE>
Note: The condensed consolidated balance sheet at December 31, 1999 has been
summarized from the Company's audited consolidated balance sheet at that
date.
See accompanying notes to condensed consolidated financial statements.
-1-
<PAGE>
MOCON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales
Products $ 3,996,595 $ 3,866,015 $11,744,554 $11,645,849
Consulting services 594,166 598,800 1,911,264 1,704,477
----------- ----------- ----------- -----------
Total sales 4,590,761 4,464,815 13,655,818 13,350,326
----------- ----------- ----------- -----------
Cost of Sales
Products 1,331,689 1,255,295 3,803,615 3,855,502
Consulting services 280,642 300,686 927,916 775,931
----------- ----------- ----------- -----------
Total cost of sales 1,612,331 1,555,981 4,731,531 4,631,433
----------- ----------- ----------- -----------
Gross profit 2,978,430 2,908,834 8,924,287 8,718,893
----------- ----------- ----------- -----------
Selling, general & administrative expenses 1,617,614 1,581,950 4,871,114 4,784,854
Research & development expenses 271,111 304,625 820,882 996,271
----------- ----------- ----------- -----------
1,888,725 1,886,575 5,691,996 5,781,125
----------- ----------- ----------- -----------
Operating income 1,089,705 1,022,259 3,232,291 2,937,768
Investment income 125,860 109,453 342,619 314,211
----------- ----------- ----------- -----------
Income before income taxes 1,215,565 1,131,712 3,574,910 3,251,979
Income taxes 389,000 379,000 1,144,000 1,089,000
----------- ----------- ----------- -----------
Net income $ 826,565 $ 752,712 $ 2,430,910 $ 2,162,979
=========== =========== =========== ===========
Net income per common share:
Basic $ 0.14 $ 0.12 $ 0.40 $ 0.34
=========== =========== =========== ===========
Diluted $ 0.14 $ 0.12 $ 0.40 $ 0.34
=========== =========== =========== ===========
Weighted average shares outstanding:
Basic 5,969,722 6,259,924 6,029,000 6,278,722
=========== =========== =========== ===========
Diluted 5,980,296 6,292,512 6,040,393 6,295,600
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-2-
<PAGE>
MOCON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,430,910 $ 2,162,979
Total adjustments to reconcile
net income to net cash provided
by operating activities (431,923) 617,482
------------ ------------
Net cash provided by operating activities 1,998,987 2,780,461
------------ ------------
Cash flows from investing activities:
Purchases of marketable securities (4,064,354) (5,922,369)
Proceeds from sales of marketable securities 3,995,879 4,694,672
Purchases of property and equipment (552,702) (351,817)
Purchases of patents and trademarks (408,981) --
Other (4,719) (32,660)
------------ ------------
Net cash used in investing activities (1,034,877) (1,612,174)
------------ ------------
Cash flows from financing activities:
Proceeds from the exercise of stock options 30,319 --
Purchases and retirement of common stock (1,187,625) (407,451)
Dividends paid (966,452) (946,095)
Other -- 6,330
------------ ------------
Net cash used in financing activities (2,123,758) (1,347,216)
Net decrease in cash and temporary cash investments (1,159,648) (178,929)
------------ ------------
Cash and temporary cash investments:
Beginning of period 1,275,838 1,352,416
------------ ------------
End of period $ 116,190 $ 1,173,487
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-3-
<PAGE>
MOCON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Condensed Consolidated Financial Statements
The condensed consolidated balance sheet as of September 30, 2000, the condensed
consolidated statements of income for the three- and nine-month periods ended
September 30, 2000 and 1999, and the condensed consolidated statements of cash
flows for the nine-month periods ended September 30, 2000 and 1999 have been
prepared by the Company, without audit. However, all adjustments (consisting
solely of normal recurring adjustments) which are, in the opinion of management,
necessary to present fairly the financial position, results of operations and
cash flows at September 30, 2000, and for all periods presented, have been made.
The results of operations for the period ended September 30, 2000 are not
necessarily indicative of operating results for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted. It is suggested
that these condensed consolidated financial statements be read in conjunction
with the financial statements and notes thereto included in the Company's
December 31, 1999 annual report to shareholders.
Note 2 - Inventories
Inventories consist of the following:
September 30, December 31,
2000 1999
------------ ------------
Finished Products $ 202,049 $ 240,784
Work in Process 786,904 808,267
Raw Materials 1,186,801 1,055,537
------------ ------------
$ 2,175,754 $ 2,104,588
============ ============
Note 3 - Net Income Per Common Share
Basic net income per common share is computed by dividing net income by the
weighted average of common shares outstanding during the period. Diluted net
income per share is computed by dividing net income by the weighted average of
common and dilutive potential common shares outstanding during the period.
-4-
<PAGE>
The following table presents a reconciliation of the denominators used in the
computation of net income per common share-basic and net income per common
share-diluted for the three- and nine-month periods ended September 30, 2000,
and 1999:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-----------------------------------------------------
2000 1999 2000 1999
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted shares of common
stock outstanding - basic 5,969,722 6,259,924 6,029,000 6,278,722
Weighted shares of common
stock assumed upon exercise
of stock options 10,574 32,588 11,393 16,878
---------------------------------------------------------------------------------------
Weighted shares of common stock
outstanding - diluted 5,980,296 6,292,512 6,040,393 6,295,600
=======================================================================================
</TABLE>
-5-
<PAGE>
MOCON, INC.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
This Form 10-Q includes certain statements that are deemed to be
"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. All statements, other than statements of historical facts, included
in this Form 10-Q that address activities, events, or developments that the
Company expects, believes, or anticipates will or may occur in the future, are
forward-looking statements. These statements are based on certain assumptions
and analyses made by the Company in light of its experience and its perception
of historical trends, current conditions, expected future developments, and
other factors it believes are appropriate in the circumstances. Such statements
are subject to a number of assumptions, risks, and uncertainties, many of which
are beyond the control of the Company. Investors are cautioned that any such
statements are not guarantees of future performance and that actual results or
developments may differ materially from those projected in the forward-looking
statements.
Results of Operations
Sales for the quarter ended September 30, 2000, were $4,590,761, up 3 percent
from third quarter 1999 sales of $4,464,815. The increase in third quarter sales
is primarily the result of increases in the sales volume of Lab Connections,
Inc., the Company's wholly-owned subsidiary acquired in December of 1998, and
general price increases, offset somewhat by a decrease in the sales volume of
the Company's weighing products.
Sales for the nine-month period ended September 30, 2000, were $13,655,818, a 2
percent increase from the sales for the first nine months of 1999 of
$13,350,326. The 2 percent increase is primarily due to increases in the sales
volume of the Company's permeation products, the sales volume of Lab
Connections, Inc., and general price increases, offset somewhat by a decrease in
the sales volume of the Company's weighing products.
The Company derives its revenue from product sales and consulting services,
consisting of consulting and analytical services and standard testing performed
for various customers. In the third quarter of 2000, product sales were
$3,996,595 and consulting services were $594,166, or 87 and 13 percent,
respectively, of the Company's total third quarter 2000 sales. This compares to
product sales of $3,866,015 and consulting services of $598,800, or 87 and 13
percent of total sales, in the third quarter of 1999.
For the nine months ended September 30, 2000, product sales were $11,744,554 and
consulting services were $1,911,264, or 86 and 14 percent, respectively, of the
Company's 2000 year-to-date sales compared to product sales of $11,645,849 and
consulting services of $1,704,477, or 87 and 13 percent of total sales for the
first nine months of 1999.
Gross profit was 65 percent of sales for the quarter and the nine-month periods
ended September 30, 2000, and 1999.
-6-
<PAGE>
Selling, general and administrative (SG&A) expenses increased approximately
$36,000 due to increases in commissions and other selling expenses related to
the increased sales. SG&A represented 35 percent of sales in the third quarter
of 2000 and 1999. SG&A expenses were 36 percent of sales for both nine-month
periods ended September 30, 2000 and 1999.
Research and development (R&D) expenses as a percentage of sales were 6 percent
for both the three- and nine-month periods ended September 30, 2000, and 7
percent for the same periods in 1999. R&D expenses have been somewhat lower in
2000 due to an SBIR grant awarded by the National Science Foundation. Continued
R&D expenditures are necessary as the Company develops new products and
technologies to expand in its niche markets. For the foreseeable future, the
Company expects to spend on an annual basis approximately 6 to 8 percent of
sales on R&D.
Investment income increased approximately $16,000 in the third quarter of 2000
as compared to the third quarter of 1999. For the nine months ended September
30, 2000, investment income increased approximately $28,000. The increases are
the result of higher average investment yields on lower cash balances in 2000.
The Company's provision for income taxes was 32 percent of income before income
taxes for the three- and nine-month periods ending September 30, 2000, compared
to 33.5 percent for the same periods in 1999. The Company reviews the tax rate
quarterly and may make adjustments to reflect changing estimates. Based on
current operating conditions and income tax laws, the Company expects the
effective tax rate for all of 2000 to be in a range of 31 to 33 percent.
Net income increased 10 percent to $826,565 for the third quarter of 2000,
compared to $752,712 for the third quarter of 1999. Basic net income per share
was 14 cents for the third quarter of 2000, compared to 12 cents for the same
period in 1999. For the nine months ended September 30, 2000, net income
increased 12 percent to $2,430,910 compared to $2,162,979 for the nine months
ended September 30, 1999. Basic net income per share was 40 and 34 cents for the
nine-month periods ended September 30, 2000, and 1999, respectively.
Liquidity and Capital Resources
The Company continues to maintain a strong financial position. Total cash,
temporary cash investments and marketable securities decreased approximately
$1,091,000 during the nine months ended September 30, 2000. The Company used
cash resources to pay dividends of approximately $966,000, and to repurchase
shares of the Company's common stock during the period totaling approximately
$1,188,000. Depending upon market conditions, and subject to approval of the
Board of Directors, the Company may continue to repurchase shares of its common
stock on the open market at prices not exceeding the market price.
The Company has no long-term debt or material commitments for capital
expenditures as of September 30, 2000. The Company's plant and equipment do not
require major expenditures to accommodate a significant increase in operating
demands. The Company anticipates that a combination of its existing cash,
temporary cash investments and marketable securities, plus an expected
continuation of cash flow from operations, will continue to be adequate to fund
operations, capital equipment expenditures and dividend payments in the
foreseeable future. The Company has made acquisitions in the past, and is
continuing to look at acquisitions as a way to grow the Company.
-7-
<PAGE>
New Accounting Pronouncements
In December 1999, the SEC staff issued Staff Accounting Bulletin (SAB) No. 101,
REVENUE RECOGNITION IN FINANCIAL STATEMENTS. SAB No. 101 summarizes certain of
the SEC staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. In October 2000 the SEC issued
additional guidance on the application of SAB No. 101. The Company is currently
analyzing SAB No. 101 and plans to implement it in the fourth quarter of 2000.
During 1998, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES (as amended by SFAS No. 137 with respect to
the effective date and SFAS No. 138 with respect to certain hedging activities),
which establishes new standards for recognizing all derivatives as either assets
or liabilities, and measuring those instruments at fair value. The Company will
be required to adopt the new standard beginning with the first quarter of fiscal
2001. The Company is currently in the process of evaluating the impact of this
statement. Its adoption is not expected to materially impact the Company's
financial condition or results of operations.
-8-
<PAGE>
MOCON, INC.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk Management
Substantially all of the Company's marketable securities are at fixed interest
rates. However, almost all of the Company's marketable securities mature within
three years, therefore, the Company believes that the market risk arising from
its holding of these financial instruments is minimal.
The Company currently sells its products and services in United States dollars;
accordingly, the exposure to foreign currency exchange risk is minimal.
There have been no significant changes since December 31, 1999.
-9-
<PAGE>
MOCON, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
The following is a listing of the exhibits contained in this Form 10-Q
filing:
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
b. There were no reports on Form 8-K filed for the quarter ended
September 30, 2000.
-10-
<PAGE>
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.
MOCON, INC.
Registrant
Date: November 13, 2000 /s/ Robert L. Demorest
----------------- -------------------------------------
Robert L. Demorest,
Chairman, President and CEO
Date: November 13, 2000 /s/ Dane D. Anderson
----------------- -------------------------------------
Dane D. Anderson,
Chief Financial Officer
-11-
