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 March 31, 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 ___
6,056,556 Common Shares were outstanding as of March 31, 2000
<PAGE>
MOCON, INC.
INDEX TO FORM 10-Q
For the Quarter Ended March 31, 2000
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
March 31, 2000 and December 31, 1999 1
Condensed Consolidated Statements of Income (Unaudited)
Three months ended March 31, 2000 and 1999 2
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31, 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 6-7
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MOCON, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments $ 1,245,096 $ 1,275,838
Marketable securities, current 4,724,580 4,347,724
Accounts receivable 2,084,887 2,497,850
Other receivables 133,195 139,481
Inventories 2,108,212 2,104,588
Prepaid expenses 153,146 161,587
Deferred income taxes 345,000 345,000
------------ ------------
Total current assets 10,794,116 10,872,068
------------ ------------
Marketable securities, noncurrent 4,361,106 4,259,071
------------ ------------
Property and equipment: 3,844,988 3,388,294
Less: accumulated depreciation
and amortization 2,308,567 2,205,801
------------ ------------
Net property and equipment 1,536,421 1,182,493
------------ ------------
Other assets:
Goodwill 934,052 964,897
Technology rights and other intangibles 525,000 540,000
Other 371,476 385,347
------------ ------------
Total other assets 1,830,528 1,890,244
------------ ------------
TOTAL ASSETS $ 18,522,171 $ 18,203,876
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 700,197 $ 853,030
Accrued compensation and vacation 404,141 675,339
Other accrued 1,692,746 1,308,529
------------ ------------
Total current liabilities 2,797,084 2,836,898
------------ ------------
Deferred income taxes 106,360 112,000
------------ ------------
Stockholders' equity:
Common stock - $.10 par value 605,656 607,310
Retained earnings 15,013,071 14,647,668
------------ ------------
Total stockholders' equity 15,618,727 15,254,978
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 18,522,171 $ 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
March 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Sales
Products $ 3,837,840 $ 3,984,322
Consulting services 677,610 469,401
------------ ------------
Total sales 4,515,450 4,453,723
------------ ------------
Cost of Sales
Products 1,272,713 1,303,533
Consulting services 312,540 215,616
------------ ------------
Total cost of sales 1,585,253 1,519,149
------------ ------------
Gross profit 2,930,197 2,934,574
------------ ------------
Selling, general & administrative expenses 1,583,958 1,675,138
Research & development expenses 288,040 326,733
------------ ------------
1,871,998 2,001,871
Operating income 1,058,199 932,703
Investment income 109,751 103,743
------------ ------------
Income before income taxes 1,167,950 1,036,446
Income taxes 374,000 342,000
------------ ------------
Net income $ 793,950 $ 694,446
============ ============
Net income per common share:
Basic $ 0.13 $ 0.11
============ ============
Diluted $ 0.13 $ 0.11
============ ============
Weighted average shares outstanding:
Basic 6,073,223 6,288,065
============ ============
Diluted 6,090,953 6,292,755
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-2-
<PAGE>
MOCON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 793,950 $ 694,446
Total adjustments to reconcile
net income to net cash provided
by operating activities 583,949 379,469
------------ ------------
Net cash provided by operating activities 1,377,899 1,073,915
------------ ------------
Cash flows from investing activities:
Purchases of marketable securities (1,404,977) (969,313)
Proceeds from sales of marketable securities 926,086 1,237,023
Other (496,616) (187,253)
------------ ------------
Net cash (used in) provided by investing activities (975,507) 80,457
------------ ------------
Cash flows from financing activities:
Dividends paid (304,078) (317,253)
Other (129,056) 3,782
------------ ------------
Net cash used in financing activities (433,134) (313,471)
------------ ------------
Net (decrease) increase in cash and
temporary cash investments (30,742) 840,901
------------ ------------
Cash and temporary cash investments:
Beginning of period 1,275,838 1,352,416
------------ ------------
End of period $ 1,245,096 $ 2,193,317
============ ============
</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 March 31, 2000, the condensed
consolidated statements of income for the three-month periods ended March 31,
2000 and 1999, and the condensed consolidated statements of cash flows for the
three-month periods ended March 31, 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
March 31, 2000, and for all periods presented, have been made. The results of
operations for the period ended March 31, 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 generally accepted accounting principles
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:
March 31, December 31,
2000 1999
------------ ------------
Finished Products $ 296,604 $ 240,784
Work in Process 745,912 808,267
Raw Materials 1,065,696 1,055,537
------------ ------------
$ 2,108,212 $ 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-month periods ended March 31, 2000, and 1999:
Three Months Ended
March 31,
---------------------------
2000 1999
---------------------------------------------------------------
Weighted shares of common stock
outstanding - basic 6,073,223 6,288,065
Weighted shares of common stock
assumed upon exercise of stock
options 17,730 4,690
---------------------------------------------------------------
Weighted shares of common stock
outstanding - diluted 6,090,953 6,292,755
===============================================================
-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 March 31, 2000, were $4,515,450, up 1% percent from
first quarter 1999 sales of $4,453,723. The increase in first quarter sales is
primarily the result of increases in the sales volume of the Company's
permeation products, consulting services and general price increases, offset
somewhat by a decrease in the sales volume of the Company's weighing products
and decreases in the sales volume of Microanalytics and Lab Connections, the
Company's wholly-owned subsidiaries, acquired in 1998.
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 first quarter of 2000, product sales were
$3,837,840 and consulting services were $677,610, or 85 and 15 percent
respectively, of the Company's total first quarter 2000 sales. This compares to
product sales of $3,984,322 and consulting services of $469,401 in the first
quarter of 1999, or 89 and 11 percent of total sales, respectively.
Gross profit was 65 percent of sales for the first quarter of 2000 and 66
percent for the first quarter of 1999. The slight decrease in the gross profit
margin was primarily due to increased warranty costs in the first quarter of
2000.
Selling, general and administrative (SG&A) expenses decreased approximately
$91,000 or 5 percent in the first quarter of 2000 compared to the first quarter
of 1999. As a percentage of sales, SG&A expenses were 35 and 38 percent of sales
for the first quarter of 2000 and 1999, respectively. The decrease is due
primarily to a decrease in general and administrative expenses associated with
the retirement of the Company's former Chief Executive Officer.
Research and development (R&D) expenses decreased approximately $39,000 or 12
percent in the first quarter of 2000 compared to the first quarter of 1999. As a
percent of sales, R&D expenses were 6 and 7 percent of sales for the first
quarter of 2000 and 1999, respectively. Continued R&D expenditures are necessary
as the Company develops new products 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.
-6-
<PAGE>
Investment income increased approximately $6,000 in the first quarter of 2000 as
compared to the first quarter of 1999. The increase is the result of higher
average investment balances, offset by a slightly lower yield in 2000.
The Company's provision for income taxes was 32 percent of income before income
taxes for the three-month period ending March 31, 2000, compared to 33 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 14 percent to $793,950 for the first quarter of 2000,
compared to $694,446 for the first quarter of 1999. Basic net income per share
was $.13 for the first quarter of 2000, compared to $.11 for the same period in
1999.
Liquidity and Capital Resources
The Company continues to maintain a strong financial position. Total cash,
temporary cash investments and marketable securities increased approximately
$448,000 during the three months ended March 31, 2000. The Company used cash
resources to pay dividends of approximately $304,000 in the first quarter of
2000.
The Company has no long-term debt or material commitments for capital
expenditures as of March 31, 2000. The Company's plant and equipment do not
require any 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 expenditures and dividend payments in the foreseeable
future.
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 plans to implement SAB
No. 101 in the second quarter of 2000 and is currently 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), 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.
-7-
<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.
-8-
<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 March 31,
2000.
-9-
<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: May 12, 2000 /s/ Robert L. Demorest
Robert L. Demorest,
Chairman, President and CEO
Date: May 12, 2000 /s/ Dane D. Anderson
Dane D. Anderson,
Acting Vice President and Treasurer
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND THE CONDENSED BALANCE SHEETS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,245,096
<SECURITIES> 4,724,580
<RECEIVABLES> 2,250,887
<ALLOWANCES> 166,000
<INVENTORY> 2,108,212
<CURRENT-ASSETS> 10,794,116
<PP&E> 3,844,988
<DEPRECIATION> 2,308,567
<TOTAL-ASSETS> 18,522,171
<CURRENT-LIABILITIES> 2,797,084
<BONDS> 0
0
0
<COMMON> 605,656
<OTHER-SE> 15,013,071
<TOTAL-LIABILITY-AND-EQUITY> 18,522,171
<SALES> 4,515,450
<TOTAL-REVENUES> 4,515,450
<CGS> 1,585,253
<TOTAL-COSTS> 1,585,253
<OTHER-EXPENSES> 1,762,247
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,167,950
<INCOME-TAX> 374,000
<INCOME-CONTINUING> 793,950
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 793,950
<EPS-BASIC> 0.13
<EPS-DILUTED> 0.13
</TABLE>
