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 June 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 _____
6,011,556 Common Shares were outstanding as of June 30, 2000
<PAGE>
MOCON, INC.
INDEX TO FORM 10-Q
For the Quarter Ended June 30, 2000
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Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
June 30, 2000 and December 31, 1999 1
Condensed Consolidated Statements of Income (Unaudited)
Three months and six months ended June 30, 2000 and 1999 2
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 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 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MOCON, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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<CAPTION>
June 30, December 31,
ASSETS 2000 1999
----------- -----------
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Current assets:
Cash and temporary cash investments $ 748,116 $ 1,275,838
Marketable securities, current 5,397,218 4,347,724
Accounts receivable 1,884,240 2,497,850
Other receivables 133,868 139,481
Inventories 2,212,658 2,104,588
Prepaid expenses 262,366 161,587
Deferred income taxes 345,000 345,000
----------- -----------
Total current assets 10,983,466 10,872,068
----------- -----------
Marketable securities, noncurrent 3,960,162 4,259,071
----------- -----------
Property and equipment: 3,683,718 3,388,294
Less: accumulated depreciation
and amortization 2,395,393 2,205,801
----------- -----------
Net property and equipment 1,288,325 1,182,493
----------- -----------
Other assets:
Goodwill 903,206 964,897
Technology rights and other intangibles 510,000 540,000
Other 510,814 385,347
----------- -----------
Total other assets 1,924,020 1,890,244
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TOTAL ASSETS $18,155,973 $18,203,876
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 567,817 $ 853,030
Accrued compensation and vacation 377,626 675,339
Other accrued 1,268,250 1,308,529
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Total current liabilities 2,213,693 2,836,898
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Deferred income taxes 101,600 112,000
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Stockholders' equity:
Common stock - $.10 par value 601,156 607,310
Retained earnings 15,239,524 14,647,668
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Total stockholders' equity 15,840,680 15,254,978
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $18,155,973 $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.
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MOCON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales
Products $3,910,119 $3,803,513 $7,747,959 $7,787,834
Consulting services 639,488 628,276 1,317,098 1,097,677
---------- ---------- ---------- ----------
Total sales 4,549,607 4,431,789 9,065,057 8,885,511
---------- ---------- ---------- ----------
Cost of Sales
Products 1,199,214 1,304,415 2,471,927 2,607,949
Consulting services 334,733 251,888 647,273 467,503
---------- ---------- ---------- ----------
Total cost of sales 1,533,947 1,556,303 3,119,200 3,075,452
---------- ---------- ---------- ----------
Gross profit 3,015,660 2,875,486 5,945,857 5,810,059
---------- ---------- ---------- ----------
Selling, general & administrative expenses 1,669,542 1,527,766 3,253,500 3,202,904
Research & development expenses 261,731 364,913 549,771 691,646
---------- ---------- ---------- ----------
1,931,273 1,892,679 3,803,271 3,894,550
Operating income 1,084,387 982,807 2,142,586 1,915,509
Investment income 107,008 101,015 216,759 204,758
---------- ---------- ---------- ----------
Income before income taxes 1,191,395 1,083,822 2,359,345 2,120,267
Income taxes 381,000 368,000 755,000 710,000
---------- ---------- ---------- ----------
Net income $ 810,395 $ 715,822 $1,604,345 $1,410,267
========== ========== ========== ==========
Net income per common share:
Basic $ 0.13 $ 0.11 $ 0.26 $ 0.22
========== ========== ========== ==========
Diluted $ 0.13 $ 0.11 $ 0.26 $ 0.22
========== ========== ========== ==========
Weighted average shares outstanding:
Basic 6,044,056 6,288,177 6,058,640 6,288,121
========== ========== ========== ==========
Diluted 6,049,929 6,301,532 6,070,441 6,297,144
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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MOCON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Six Months
Ended June 30,
-------------------------------
2000 1999
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Cash flows from operating activities:
Net income $ 1,604,345 $ 1,410,267
Total adjustments to reconcile
net income to net cash provided
by operating activities 246,281 206,617
----------- -----------
Net cash provided by operating activities 1,850,626 1,616,884
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Cash flows from investing activities:
Purchases of marketable securities (2,637,742) (3,844,145)
Proceeds from sales of marketable securities 1,887,157 3,173,884
Purchases of property and equipment (411,541) (210,313)
Other (193,727) (45,131)
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Net cash used in investing activities (1,355,853) (925,705)
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Cash flows from financing activities:
Dividends paid (637,190) (631,662)
Other (385,305) (34,451)
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Net cash used in financing activities (1,022,495) (666,113)
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Net (decrease) increase in cash and
temporary cash investments (527,722) 25,066
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Cash and temporary cash investments:
Beginning of period 1,275,838 1,352,416
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End of period $ 748,116 $ 1,377,482
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
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MOCON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Condensed Consolidated Financial Statements
The condensed consolidated balance sheet as of June 30, 2000, the condensed
consolidated statements of income for the three- and six-month periods ended
June 30, 2000 and 1999, and the condensed consolidated statements of cash flows
for the six-month periods ended June 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
June 30, 2000, and for all periods presented, have been made. The results of
operations for the period ended June 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:
June 30, December 31,
2000 1999
------------ ------------
Finished Products $ 220,582 $ 240,784
Work in Process 748,462 808,267
Raw Materials 1,243,614 1,055,537
------------ ------------
$ 2,212,658 $ 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.
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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 six- month periods ended June 30, 2000, and
1999:
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Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------- -----------------------------------
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Weighted shares of common stock
outstanding - basic 6,044,056 6,288,177 6,058,640 6,288,121
Weighted shares of common stock
assumed upon exercise of stock
options 5,873 13,355 11,801 9,023
------------------------------------------------------------------------------------------------------------------------
Weighted shares of common stock
outstanding - diluted 6,049,929 6,301,532 6,070,441 6,297,144
========================================================================================================================
</TABLE>
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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 June 30, 2000, were $4,549,607, up 3 percent from
second quarter 1999 sales of $4,431,789. The increase in second quarter sales is
primarily the result of increases in the sales volume of Lab Connections, the
Company's wholly-owned subsidiary acquired in December of 1998, and general
price increases.
Sales for the six-month period ended June 30, 2000, were $9,065,057, a 2 percent
increase from the sales for the first six months of 1999 of $8,885,511. 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, 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 second quarter of 2000, product sales were
$3,910,119 and consulting services were $639,488, or 86 and 14 percent,
respectively, of the Company's total second quarter 2000 sales. This compares to
product sales of $3,803,513 and consulting services of $628,276, 86 and 14
percent of total sales, in the second quarter of 1999.
For the six months ended June 30, 2000, product sales were $7,747,959 and
consulting services were $1,317,098, 85 and 15 percent, respectively, of the
Company's 2000 year-to-date sales compared to product sales of $7,787,834 and
consulting services of $1,097,677, 88 and 12 percent of total sales for the
first six months of 1999.
Gross profit was 66 percent of sales for the quarter and the six-month period
ended June 30, 2000, compared to 65 percent of sales, for the quarter and six
months ended June 30, 1999.
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Selling, general and administrative (SG&A) expenses increased approximately
$142,000 to 37 percent of sales in the second quarter of 2000, compared to 34
percent of sales in the second quarter of 1999. SG&A expenses were 36 percent of
sales for both the six months ended June 30, 2000 and 1999. The increase for the
second quarter 2000 was primarily due to increases in legal fees incurred to
protect confidential information of the Company. The legal matter to which these
fees relate has been settled, and no ongoing expenses related to this matter are
expected.
Research and development (R&D) expenses as a percentage of sales were 6 percent
for the quarter and six-month period ended June 30, 2000, compared to 8 percent
for the same periods in 1999. 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 5 to 8 percent of sales on R&D.
Investment income increased approximately $6,000 in the second quarter of 2000
as compared to the second quarter of 1999. For the six months ended June 30,
2000, investment income increased approximately $12,000. The increase is the
result of higher average investment balances and slightly higher investment
yields in 2000.
The Company's provision for income taxes was 32 percent of income before income
taxes for the six- month period ending June 30, 2000, compared to 33.5 percent
for the same period 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 13 percent to $810,395 for the second quarter of 2000,
compared to $715,822 for the second quarter of 1999. Basic net income per share
was 13 cents for the second quarter of 2000, compared to 11 cents for the same
period in 1999. For the six months ended June 30, 2000, net income increased 14
percent to $1,604,345 compared to $1,410,267 for the six months ended June 30,
1999. Basic net income per share was 26 and 22 cents for the six-month periods
ended June 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 increased approximately
$223,000 during the six months ended June 30, 2000. The Company used cash
resources to pay dividends of approximately $637,000 during the first six months
of 2000.
The Company has no long-term debt or material commitments for capital
expenditures as of June 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. The Company currently plans to
implement SAB No. 101 in the fourth quarter of 2000 and is in the process of
evaluating the impact.
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-
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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 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of MOCON, Inc. on May 23, 2000,
the nominees for election as Directors of the Company were elected
without opposition as follows:
Director-Nominee Votes For Votes Withheld/Against
---------------- --------- ----------------------
Robert L. Demorest 5,416,819 79,776
Dean B. Chenoweth 5,414,058 82,537
J. Leonard Frame 5,415,658 80,937
Paul J. Sjoquist 5,419,144 77,451
Richard A. Proulx 5,418,769 77,826
Tom C. Thomas 5,412,045 84,550
Ronald A. Meyer 5,416,919 79,676
Daniel W. Mayer 5,413,257 83,338
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
June 30, 2000.
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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: August 7, 2000 /s/ Robert L. Demorest
Robert L. Demorest,
Chairman, President and CEO
Date: August 7, 2000 /s/ Dane D. Anderson
Dane D. Anderson,
Acting Vice President and Treasurer
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