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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
[ ] 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 0-15383
CEM CORPORATION
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(Exact name of Registrant as specified in its charter)
North Carolina 56-1019741
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(State of Incorporation) (I.R.S. Employer Identification No.)
3100 Smith Farm Road, Matthews, NC 28105
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(Address of principal executive offices)
Post Office Box 200, Matthews, North Carolina 28106
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(Mailing address of principal executive offices)
Registrant's telephone number, including area code: (704) 821-7015
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
$.05 par value Common Stock
---------------------------
(Title of Class)
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of shares of the Registrant's $.05 par value Common
Stock, its only outstanding class of voting stock, held by non-affiliates as of
September 8, 1997, was $28,986,124. The number of issued and outstanding shares
of the Registrant's $.05 par value Common Stock, its only outstanding class of
Common Stock, as of September 8, 1997, was 3,485,997 shares.
Portions of the CEM Corporation Annual Report to Shareholders for the fiscal
year ended June 30, 1997 are incorporated by reference into Parts I and II.
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be
held November 6, 1997 are incorporated by reference into Part III.
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PART I
ITEM 1 - BUSINESS
General
The Registrant engages in one line of business, the development,
manufacture, sale and service of microwave-based instrumentation for testing,
analysis and process control in analytical laboratory and industrial markets.
These sample preparation products provide advantages of speed and simplicity
compared to traditional methods of testing and analysis. The Registrant's
products are used in the general analytical laboratory market and in many
manufacturing and processing industries, including chemical and food processing.
A significant amount of the Registrant's sales consists of consumable supplies,
parts and service for its instrumentation. The Registrant was organized as a
North Carolina corporation in 1971.
Products
Microwave Digestion Systems. The Microwave Digestion System and related
accessories accounted for approximately 29%, 35% and 34% of the Registrant's
consolidated sales in 1997, 1996 and 1995, respectively. This product is a
microwave heating system designed especially for use in the digestion of samples
for laboratory analysis. It performs a rapid dissolution of samples in acid in a
closed vessel system and is sold to the analytical laboratory market.
The MARS (Microwave Accelerated Reaction System) System, which is the next
generation of the Microwave Digestion System, performs a rapid dissolution of
samples in acid in a closed vessel system and was nearing completion of
development in fiscal 1997. This System permits higher pressures to be used
safely and provides greater measurement data for control of the instrument.
Commercial introduction of the MARS System is expected in the second quarter of
fiscal 1998.
Moisture/Solids Analyzer. The Moisture/Solids Analyzer and related
accessories accounted for approximately 19%, 18% and 21% of the Registrant's
consolidated sales in 1997, 1996 and 1995, respectively. This product performs
percent moisture or percent solids measurement in process control monitoring,
quality control and product development in a variety of industries, including
chemical processing, pharmaceuticals, food and dairy products, tobacco,
textiles, paint and coatings, pulp and paper, water and wastewater treatment.
Microwave Ashing System. The Microwave Ashing System uses microwave energy
to rapidly oxidize a sample to determine the ash (metal oxide) content. This
product is primarily sold to the analytical laboratory market and petrochemical
industry.
STAR System. The STAR system, which incorporates temperature control and
reagent (acid) addition, is an open cavity microwave heating system designed
initially for use in the digestion of samples for laboratory analysis. It
performs a rapid dissolution of samples and is sold to the food, polymer,
petroleum and chemical industries. The Registrant is in investigating
applications of the STAR System in the semiconductor industry and the food
industry for protein testing.
Fat Analyzer System. The Registrant manufactures an automatic extraction
unit which is used in conjunction with the Moisture/Solids Analyzer to form the
Fat Analyzer System. This product measures the fat content of a variety of
samples and is sold primarily to meat processing and other food industries.
ProFat 2 System. The Pro Fat 2 System is a microwave based instrument that
provides rapid moisture fat and protein results on most meat products, without
solvents. The product is sold primarily to companies processing beef, poultry
and pork products that require a rapid result for process control purposes and
companies which utilize non solvent-based instruments for product analysis. The
ProFat 2 System was introduced in the first quarter of fiscal 1998.
Microwave Extraction System. The Microwave Extraction System uses microwave
energy to rapidly heat solvents to high temperatures. These elevated
temperatures reduce the time necessary to extract organic compounds from solid
matrices. This product uses a unique temperature control system and multiple
safety devices to ensure both rapid and safe sample preparation. This product is
a cost effective alternative to traditional solvent extraction due to its high
recoveries and significantly reduced solvent usage. The Microwave Extraction
System is marketed under the trade name, MES 1000. Sales of the MES 1000 will be
limited in the United States until the U.S. Environmental Protection Agency
approves the use of microwave-based instruments as an alternative method for
extraction.
SpectroPrep System. The SpectroPrep System, which is sold on an
intermittent basis, is a fully automated microwave heating system using a
continuous flow-through process to digest samples for laboratory analysis.
Initial uses of the system include environmental, chemical and agricultural
applications.
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Marketing and Sales
The Registrant's marketing and sales strategy is based on identifying
applications for its products and providing its customers with prompt and
effective technical and applications support.
The Registrant's marketing strategy utilizes telemarketing, direct mail,
trade show demonstrations, articles, studies and trade journal advertising,
product releases, seminars and extensive use of the Registrant's applications
laboratory to develop specific testing applications for potential and existing
customers.
Sales in the U.S. are generated by full-time sales personnel through sales
and service locations throughout the country. Sales are conducted through direct
selling efforts including on-site demonstrations. Sales and service
representatives provide installation and training of production and laboratory
personnel. Sales representatives are paid a base salary, commissions and/or
other incentive compensation.
The Registrant's applications laboratory provides technical assistance to
customers and potential customers in developing new and improved applications
and related procedures. The applications laboratory performs tests in its
facility in North Carolina and provides the results to customers.
The Registrant's foreign sales are conducted through independent dealers
throughout the world and the Registrant's subsidiaries in England, Germany and
Italy. Foreign sales are primarily to customers in Europe, Asia and Latin
America. Foreign sales accounted for 46%, 46% and 42% of net sales in fiscal
1997, 1996 and 1995, respectively.
Research and Development
The Registrant invests heavily in the research and development of potential
new products, product improvements and enhancements, and applications research
for existing products. For fiscal 1997, 1996 and 1995, research and development
expense was $2,742,000, $2,891,000 and $2,605,000, respectively.
The Company's product development using certain proprietary technology
licensed in 1996 relating to instruments used in testing for bacteria in raw
milk and sterilization of dental, medical and laboratory equipment continues to
progress as expected. The Company is not able to predict when prototype units
will be delivered to prospective customers for testing.
Product Protection
The Registrant relies upon its proprietary technology, continuing research
and development and customer service support to maintain and enhance its
competitive position. Important features of certain of the Registrant's products
are protected by issued patents or pending patent applications.
Manufacturing
The Registrant's manufacturing operations are carried out at its
headquarters in Matthews, North Carolina and consist mostly of the assembly and
testing of mechanical and electronic components purchased from others.
Certain components are currently purchased from single source suppliers. An
interruption of one of these sources could result in delays in the Registrant's
production while the Registrant developed an alternative supplier and could
result in a loss of sales and income. There are other single source components
for which the Registrant has determined that other sources are readily
available.
The Registrant has experienced no significant production delays because of
a supplier's inability to ship an acceptable component. The Registrant stocks
what it believes is an adequate supply of all components and materials based
upon delivery lead times and orders currently in hand.
Environmental Regulations
Compliance with federal, state and local provisions relating to protection
of the environment has not had, and is not expected to have, any material
adverse effects upon the production, capital expenditures, earnings or
competitive position of the Registrant and its subsidiaries.
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Employees
At June 30, 1997, the Registrant employed 176 persons. None of the
Registrant's employees are covered by a collective bargaining agreement.
Backlog
The Registrant does not have a significant backlog of orders, as it
normally ships its products within a short time after it receives orders.
Competition
The Registrant experiences direct competition in both foreign and U.S.
markets from companies using microwave technology, traditional methods of
heating and drying and other technologies.
There are a number of methods for performing acid digestions, the most
common of which is the traditional "open vessel on a hot plate" method. There
are three other primary manufacturers of closed vessel microwave digestion
systems similar in nature to the Registrant's product. Also competing with the
Microwave Digestion System are other advanced methods utilizing higher pressure
and temperature including steel jacketed digestion vessels for use in
conventional ovens and high pressure wet ashers.
There are a number of other methods for testing the moisture or solids
content of various liquids and solids. In most instances, the equipment and
instruments, which consist typically of simple heating and drying units and
measurement techniques, are less expensive than the Moisture/Solids Analyzer
produced by the Registrant. In addition, infrared moisture analyzers, radio
frequency energy absorption techniques and the Karl Fischer titration method, a
wet chemical procedure, have been developed. These systems compete directly with
the Registrant's instrumentation in certain markets. Although there is one
manufacturer of a microwave moisture system similar in nature to the
Registrant's Moisture/Solids Analyzer, the Registrant does not believe there
have been significant sales of this competitive product to date.
The traditional method of ashing is with a resistance heat furnace. There
are a number of manufacturers of laboratory furnaces used for ashing. Although
these products are typically less expensive than the Microwave Ashing System
sold by the Registrant, the Registrant's product offers advantages in both speed
and process control.
The microwave open vessel digestion system (the STAR System) is designed to
digest large samples or samples that are very reactive and can not be safely
digested in a closed vessel digestion system. There is currently one competitor
in this market, which also utilizes microwave based technology and automatic
reagent additions, however the Registrant's product offers advantages in price
and performance.
The Registrant's Fat Analyzer System is the only Association of Analytical
Chemists approved direct moisture, fat and protein system available. However,
there is a competing technology using an indirect measurement method of
analysis, which results in a quicker result time, but is not considered as
accurate. In addition, this system is sold at a significantly higher price than
the Registrant's system.
There are a number of methods for performing extractions, the most common
of which are the traditional Soxhlet and sonication methods. Also competing with
the Registrant's Microwave Extraction System are other advanced methods such as
Supercritical Fluid Extraction and Accelerated Solvent Extraction.
Typically the Registrant's selling prices are higher than those of most of
its competitors. The Registrant competes primarily upon the speed, ease of use,
applications support and long-term cost savings to the users.
International Operations and Sales
Information about the Registrant's international operations and sales is
incorporated by reference to footnotes 1 and 7 of the financial statements
contained in the Registrant's 1997 Annual Report to Shareholders.
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ITEM 2 - PROPERTIES
The Registrant's headquarters, research and manufacturing operations are
located in an 82,000 square foot building on an eight and three-fourths acre
tract of land owned by the Registrant near Charlotte, North Carolina. The
Registrant also owns a 5,000 square foot office and warehouse facility in
England, owns a 5,200 square foot office and warehouse in Germany and leases a
4,000 square foot office in Italy. The facility in Germany is subject to a
mortgage which had a balance of $92,000 at June 30, 1997. Management believes
these facilities are adequate to serve existing markets for the next several
years.
ITEM 3 - LEGAL PROCEEDINGS
The Registrant is not a party to any material legal proceedings other than
routine litigation incidental to the business of the Registrant and the
litigation entitled CEM Corporation versus Questron Corporation (Questron), in
which it was judged that Questron had willfully and deliberately infringed on
U.S. Patent No. 5,230,865. The Judgment by the United States District Court
Eastern District of North Carolina, dated June 18, 1997, permanently enjoins
Questron, its officers, directors, agents, employees and attorneys and all those
in active concert with them from infringing, contributing to, or inducing others
to infringe the patent. The thirty day appeal period expired on July 18, 1997,
without appeal. The Registrant was awarded approximately $1.5 million plus
treble damages, attorneys fees and interest. However, the collection of any
significant amount by the Registrant is doubtful due to Questron's filing for
Chapter 7 bankruptcy in July 1997.
ITEM 4 is inapplicable and has been omitted.
Separate Item - Executive Officers of the Registrant
Information as to the chief executive officer of the Registrant is
incorporated herein by reference to the section captioned "Election of
Directors" of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held November 6, 1997. The following information is provided
as to the executive officers of the Registrant who are not directors:
Name Age Background
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Richard N. Decker 48 Vice President - Finance, Chief Financial
Officer, Secretary and Treasurer since 1995;
Secretary, Treasurer and Chief Financial
Officer 1993-1995; Vice President-Finance of
the Water and Gas Meter Division of
Schlumberger Limited Corporation 1982-1993.
All of the Registrant's executive officers were appointed to their current
positions at the Annual Meeting of the Board of Directors held on November 7,
1996. All of the Registrant's executive officers' terms of office extend until
the next Annual Meeting of the Board of Directors and until their successors are
elected and qualified.
PART II
ITEMS 5-7 are incorporated herein by reference to the inside front cover, pages
6-8, pages 18 and 20 and items captioned "1997 Financial Highlights",
"Management's Discussion and Analysis", Footnote 10 "Quarterly Information
(Unaudited)" and "Shareholders of Record" of the Registrant's 1997 Annual Report
to Shareholders.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, notes to the financial statements and quarterly
supplemental financial data of the Registrant appearing on pages 9-18 of the
Registrant's 1997 Annual Report to Shareholders are hereby incorporated by
reference.
ITEM 9 is inapplicable and has been omitted.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of CEM Corporation:
We have audited the consolidated financial statements of CEM Corporation
and Subsidiaries as of June 30, 1997 and 1996, and for each of the three years
in the period ended June 30, 1997, which financial statements are included on
pages 9 through 18 of the 1997 Annual Report to Shareholders of CEM Corporation
and incorporated by reference herein. We have also audited the financial
statement schedule listed in the index on page 8 of this Form 10-K. These
financial statements and the financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and the financial statement schedule based on our
audits.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CEM Corporation
and Subsidiaries as of June 30, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1997, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included therein.
/s/ Coopers & Lybrand L.L.P.
Charlotte, North Carolina
July 23, 1997
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PART III
ITEMS 10 through 12 are incorporated herein by reference to the sections
captioned "Principal Shareholders and Holdings of Management," "Election of
Directors," "Executive Compensation," "Director Compensation" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Registrant's Proxy Statement
for Annual Meeting of Shareholders to be held November 6, 1997.
ITEM 13 is inapplicable and has been omitted.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements. See accompanying Index to Financial Statements.
(2) Financial Statement Schedules. See accompanying Index to Financial
Statements.
(3) Exhibits.
3.1 Restated Charter of the Registrant, as
amended.(1)
3.2 Bylaws of the Registrant.(1)
10.1 * CEM Corporation 1986 Nonqualified Stock Option
Plan, as amended, incorporated herein by
reference to the Registrant's Registration
Statement on Form S-8 (File No. 33-53694).
10.2 * CEM Corporation Employee Stock Purchase Plan,
as amended, incorporated herein by reference
to the Registrant's Registration Statement on
Form S-8 (File No. 33-80136).
10.3 * CEM Corporation 1987 Stock Option Plan, as
amended.(1)
10.4 * CEM Corporation 1993 Management Equity Plan,
incorporated herein by reference to the
Registrant's Registration Statement on Form
S-8 (File No. 33-75368).
10.5 * CEM Corporation Management Incentive
Compensation Plan.
10.6 CEM Corporation 1993 Nonqualified Stock Option
Plan for Non-Employee Directors, incorporated
herein by reference to the Registrant's
Registration Statement on Form S-8 (File No.
33-75366).
11. Computation of Earnings per Share.
13. The Registrant's 1997 Annual Report to
Shareholders. This Annual Report to
Shareholders is furnished for the information
of the Commission only and, except for the
parts thereof incorporated in this report, is
not deemed to be "filed" as part of this
filing.
21. List of the Registrant's Subsidiaries.(1)
23. Consent of Independent Accountants.
27. Financial Data Schedule (filed in electronic
format only). This schedule shall not be
deemed "filed" for purposes of Section 11 of
the Securities Act of 1933 or Section 18 of
the Securities Exchange Act of 1934 or
otherwise be subject to the liabilities of
such sections, nor shall it be deemed a part
of any registration statement to which it
relates.
99. Revised Item 21 of Part II to the Registrant's
registration statements on Form S-8
(Registration Numbers 33-11952 and
33-25739).(1)
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* This exhibit is one of the Registrant's management contracts and
compensatory plans and arrangements.
(1) Incorporated herein by reference to the Registrant's Form 10-K for the year
ended June 30, 1994.
(b) Reports on Form 8-K. No reports on Form 8-K have been filed during the last
quarter of the period covered by this report.
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PART IV (CONTINUED)
<TABLE>
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Reference (Page)
-------------------------------------------
Annual
Form 10-K Report to
Item 14. (A) Index to Financial Statements and Schedules Annual Report Shareholders
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<S> <C> <C>
Data incorporated by reference from the attached 1997 Annual Report to
Shareholders:
Balance Sheets as of June 30, 1997 and 1996 9
Statements of Income for the years ended 10
June 30, 1997, 1996 and 1995
Statements of Cash Flows for the years 11
ended June 30, 1997, 1996 and 1995
Statements of Shareholders' Equity for the 12
years ended June 30, 1997, 1996 and 1995
Notes to Financial Statements 13 - 18
Data submitted herewith:
Report of Independent Accountants 6
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts 10
</TABLE>
With the exception of the consolidated financial statements listed in the above
index, the information referred to in Items 5, 6, 7 and the supplementary
quarterly information referred to in Item 8, all of which is included in the
1997 Annual Report to Shareholders of CEM Corporation and incorporated by
reference into this Form 10-K Annual Report, the 1997 Annual Report to
Shareholders is not to be deemed "filed" as part of this report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned thereunto duly authorized.
CEM CORPORATION
By: /s/ Michael J. Collins
---------------------------------
Michael J. Collins
Dated: September 24, 1997 President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
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<S> <C> <C>
/s/ Ronald A. Norelli Chairman of the Board of Directors September 24, 1997
- ------------------------------
Ronald A. Norelli
/s/ Michael J. Collins President, Chief Executive Officer and Director September 24, 1997
- ------------------------------ (Principal Executive Officer)
Michael J. Collins
/s/ Richard N. Decker Vice President - Finance, Chief Financial Officer, September 24, 1997
- ------------------------------ Secretary and Treasurer (Principal Financial
Richard N. Decker and Accounting Officer)
/s/ John L. Chanon Director September 24, 1997
- ------------------------------
John L. Chanon
/s/ John D. Correnti Director September 24, 1997
- ------------------------------
John D. Correnti
</TABLE>
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CEM CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Balance at
beginning of Charged to costs Balance at
Description period and expenses Deductions end of period
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<S> <C> <C> <C> <C>
Year ended Accounts receivable, $ 720,000 607,000 (287,000) $ 1,039,000
June 30, 1997 inventory and warranty
reserves
Year ended Accounts receivable, $ 752,000 301,000 (333,000) $ 720,000
June 30, 1996 inventory and warranty
reserves
Year ended Accounts receivable, $ 728,000 331,000 (307,000) $ 752,000
June 30, 1995 inventory and warranty
reserves
</TABLE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
ITEM 14(a)(3)
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended Commission File Number
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June 30, 1997 0-15383
CEM CORPORATION
EXHIBIT INDEX
Exhibit No. Exhibit Description
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3.1 Restated Charter of the Registrant, as amended.(1)
3.2 Bylaws of the Registrant.(1)
10.1 CEM Corporation 1986 Nonqualified Stock Option Plan,
as amended, incorporated herein by reference to the
Registrant's Registration Statement on Form S-8 (File
No. 33-53694).
10.2 CEM Corporation Employee Stock Purchase Plan, as
amended, incorporated herein by reference to the
Registrant's Registration Statement on Form S-8 (File
No. 33-80136).
10.3 CEM Corporation 1987 Stock Option Plan, as amended.(1)
10.4 CEM Corporation 1993 Management Equity Plan,
incorporated herein by reference to the Registrant's
Registration Statement on Form S-8 (File No.
33-75368).
10.5 CEM Corporation Management Incentive Compensation Plan
(page __ of the sequentially numbered pages).
10.6 CEM Corporation 1993 Nonqualified Stock Option Plan
for Non-Employee Directors, incorporated herein by
reference to the Registrant's Registration Statement
on Form S-8 (File No. 33-75366).
11. Computation of Earnings per Share (page __ of the
sequentially numbered pages).
13. The Registrant's 1997 Annual Report to Shareholders.
This Annual Report to shareholders is furnished for
the information of the Commission only and, except for
the parts thereof incorporated in this report, is not
deemed to be "filed" as part of this filing (page __
of the sequentially numbered pages).
21. List of the Registrant's Subsidiaries.(1)
23. Consent of Independent Accountants (page __ of the
sequentially numbered pages).
27. Financial Data Schedule (filed in electronic format
only). This schedule shall not be deemed "filed" for
purposes of Section 11 of the Securities Act of 1933
or Section 18 of the Securities Exchange Act of 1934
or otherwise be subject to the liabilities of such
sections, nor shall it be deemed a part of any
registration statement to which it relates.
99. Revised Item 21 of Part II to the Registrant's
registration statements on Form S-8 (Registration
Numbers 33-11952 and 33-25739).(1)
- ----------------------
(1) Incorporated herein by reference to the Registrant's Form 10-K for the year
ended June 30, 1994.
11
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EXHIBIT 10.5
CEM Corporation
Management Incentive Compensation Plan ("MICP")
Principal Plan Features for the year ending June 30, 1997
GOALS
- - To have a relatively simple management incentive compensation plan that
rewards certain CEM employees for achievement of the Company's short and
long term objectives.
- - For the plan to link incentive rewards to these CEM employees with the
interest of CEM's shareholders.
- - To have a competitive total compensation package to attract and retain the
caliber of talent needed to achieve the Company's long term objectives.
PARTICIPANTS
- - Three groups of CEM employees as defined below:
-- Senior Management
-- Middle Management
-- Key Individuals
MAXIMUM PAYOUT DETERMINATION BY GROUP
- - Maximum amount of incentive compensation available to each group is
determined by the Company's fiscal 1997 performance as measured by "Growth
in Net Income before Interest and Taxes".
- - "Growth in Net Income before Interest and Taxes" must be at least __%
before funds are available for the Middle Management and Key Individual
groups.
- - "Growth in Net Income before Interest and Taxes" must be at least __%
before funds are available for the Senior Management group.
- - Any additional payout for "Growth in Net Income before Interest and Taxes"
greater than __% is at the discretion of the Compensation Committee.
INDIVIDUAL PAYOUT DETERMINATION
- - The maximum incentive award available to an individual within any group is
equal to the percentage of that individual's base salary corresponding to
the average percentage of salary available to the entire group.
- - There is no discretionary component in determining the incentive award for
the Chief Executive Officer: 100% of the incentive award is determined by
company performance defined as "Growth in Net Income before Interest and
Taxes".
- - For all other individuals participating in the MICP, two-thirds of each
incentive award (66 2/3%) is determined by company performance defined as
"Growth in Net Income before Interest and Taxes," with up to an additional
one-third (33 1/3% maximum) being discretionary based on management's
assessment of performance towards achievement of pre-established individual
objectives related to Company goals.
FORM OF INDIVIDUAL PAYOUT
- - For all individuals except Chief Executive Officer,
-- 60% of each individual award is in cash and 40% in company stock
-- 50% of the stock component to vest on date of award, with remaining
50% to vest twelve months thereafter.
-- Individuals responsible for applicable income taxes.
- - The Chief Executive Officer has the option of receiving the 40% portion
also in cash, either current or deferred.
ADDITIONAL CONSIDERATIONS:
- - Company performance targets and payout potential for subsequent years will
be based on the operating plans for the particular years as well as the
levels of performance consistent with the Company's long term objectives
established in its strategic plan.
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CEM Corporation
Employee Stock Grant Plan
Principal Plan Features for the year Ending June 30, 1997
GOAL
- - To recognize and reward a broad base of CEM employees for unique
achievements and thus build morale, a sense of ownership and company
loyalty.
ELIGIBILITY
- - Any CEM employee excluding the Officer and Middle Management groups as
defined in the MICP.
TYPE OF AWARD
- - Unrestricted Stock Grants and/or Stock Options with a four-year vesting
schedule (25% at the end of each twelve-month period following the grant).
- - Amount of a typical grant intended to be smaller than granted under the
Company's prior Stock Option Plan.
METHOD OF DETERMINING GRANTS
- - Chief Executive Officer may recommend grants to the Compensation Committee.
- - Compensation Committee of the Board of Directors to make grants.
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EXHIBIT 11
CEM CORPORATION
COMPUTATION OF EARNINGS PER SHARE
In thousands, except per share data
<TABLE>
<CAPTION>
1997 1996 1995
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<S> <C> <C> <C>
NET INCOME............................................................................ $1,837 $2,908 $3,179
====== ====== ======
Weighted average number of shares outstanding ........................................ 3,530 3,626 3,631
Number of shares purchasable upon exercise of options, reduced by the number of
shares which could have been purchased with proceeds from the exercise of
such options at average market price ............................................. 20 122 104
------ ------ ------
Weighted average number of shares outstanding, as adjusted............................ 3,550 3,748 3,735
------ ------ ------
PRIMARY EARNINGS PER SHARE ........................................................... $ .52 $ .78 $ .85
====== ====== ======
NET INCOME ........................................................................... $1,837 $2,908 $3,179
Weighted average number of shares outstanding ........................................ 3,530 3,626 3,631
Number of shares purchasable upon exercise of options, reduced by the number of
shares which could have been purchased with proceeds from exercise of such
options at the greater of period-end market price or average market price ........ 20 122 115
------ ------ ------
Weighted average number of shares outstanding, as adjusted............................ 3,550 3,748 3,746
------ ------ ------
EARNINGS PER COMMON SHARE, ASSUMING FULL DILUTION .................................... $ .52 $ .78 $ .85
====== ====== ======
</TABLE>
<PAGE> 1
EXHIBIT 13
1997 Financial Highlights
In thousands, except per share data
<TABLE>
<CAPTION>
For the years ended June 30
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income Statement and Cash Flows
Net sales ................................ $30,075 $31,477 $31,611 $29,040 $26,320
Income from operations ................... 2,378 4,136 4,479 4,050 3,349
Net income ............................... 1,837 2,908 3,179 2,791 2,403
Net income per share ..................... $ .52 $ .78 $ .85 $ .70 $ .57
Weighted average shares outstanding ...... 3,550 3,748 3,735 3,994 4,204
Net cash provided by operating activities $ 4,883 $ 2,020 $ 3,134 $ 3,220 $ 5,203
<CAPTION>
As of June 30
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance Sheet
Working capital .......................... $16,409 $15,549 $14,047 $12,892 $14,343
Total assets ............................. 29,214 27,584 26,653 22,766 23,414
Long-term debt ........................... 1,229 1,417 1,578 132 246
Shareholders' equity ..................... $23,480 $22,351 $20,592 $18,621 $20,038
</TABLE>
FOOTNOTE: The following graphs are presented for a five-year period and are
displayed below the tables:
1) Net Sales (In Millions)
2) Income from Operations (In Millions)
3) Net Income Per Share
4) Shareholders' Equity (In Millions)
CEM manufactures microwave-based products for the laboratory marketplace. These
products create exceptional value for customers based on advantages of speed and
simplicity. They are sold on a worldwide basis to the general analytical
laboratory market as well as many manufacturing industries including chemical
and food processing.
INSIDE FRONT COVER
<PAGE> 2
Management's Discussion & Analysis
The following table sets forth the percentage relationship of net sales,
expenses and income for the periods indicated:
<TABLE>
<CAPTION>
For the years ended June 30
--------------------------------------------------------------------
Percent Change
Percentage of Sales Over Prior Period
--------------------------------------- --------------------------
1997 1996 1995 1997 1996
------------- ------------ ------------ --------------------------
<S> <C> <C> <C> <C> <C>
Net sales............................................ 100.0 % 100.0 % 100.0 % (4.5) % (.4) %
Cost of goods sold................................... 44.8 41.6 42.2 2.9 (1.8)
------------- ------------ ------------
Gross profit......................................... 55.2 58.4 57.8 (9.7) .6
Selling, general and administrative expenses......... 38.2 36.1 35.4 1.1 1.5
Research and development expenses.................... 9.1 9.2 8.2 (5.2) 11.0
------------- ------------ ------------
Income from operations............................... 7.9 13.1 14.2 (42.5) (7.7)
Investment income.................................... 1.5 1.4 .9 2.9 55.8
Other (expense) income, net.......................... (.4) (.1) .4 nm nm
------------- ------------ ------------
Income before income taxes........................... 9.0 14.4 15.5 (40.2) (7.6)
Provision for income taxes........................... 2.9 5.2 5.4 (46.3) (5.9)
------------- ------------ ------------
Net income........................................... 6.1 % 9.2 % 10.1 % (36.8) (8.5)
============= ============ ============
</TABLE>
Results of Operations
- ---------------------
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
In 1997, sales declined $1.4 million or 4.5% primarily from weakness in the U.S.
and German markets. The decline primarily resulted from significantly lower
MDS(TM) instrument sales in environmental, governmental, food and other
industries. As expected, this decline was partially offset by increased sales of
our STAR(TM) instruments which were introduced in March 1996. While activity in
foreign markets is more difficult to predict, softness in the U.S. MDS(TM)
market is expected to continue into fiscal 1998. Foreign sales were 46% of total
sales in 1997 and 1996.
Gross profit margins declined from 58.4% to 55.2% primarily from changes in
product mix, additions to inventory obsolescence reserves, higher warranty costs
associated with new product introductions, and increased profit sharing
expenses. Additionally, gross margins were negatively impacted due to the
decrease in sales by the Company's European subsidiaries which, on a
consolidated basis, carry higher margins than U. S. sales.
Foreign distributor commissions and legal costs, offset by a decrease in
advertising, were primary contributors to the $120,000 or 1.1% increase in
selling, general and administrative expenses. Research and development expenses
were consistent with management's expectations and reflect the Company's
continued commitment to new product development and enhancements. Management
expects research and development expenses to remain between 8% and 10% of sales
for the foreseeable future.
The Company's effective tax rate declined from 35.6% to 32.0% resulting from the
renewal of the Research and Experimentation tax credit and higher non-taxable
investment income as a percentage of income before income taxes.
During the fourth quarter, the United States District Court for the Eastern
District of North Carolina issued a judgment that CEM's patent related to
microwave digestion vessels is valid and enforceable. The Court held that
Questron Corporation, a privately held manufacturer of microwave-based
instruments, had willfully and deliberately infringed the Company's patent.
Questron and its owners were permanently enjoined by the Court from infringing
the patent or inducing others to infringe the patent. While the Company was
awarded approximately $1.5 million plus treble damages, attorneys fees and
interest, the collection of any significant amount by CEM is doubtful due to
Questron's filing for Chapter 7 bankruptcy in July 1997, therefore no gain has
been recorded. Resolution of this matter reflects management's strong commitment
to enforce all rights related to the Company's intellectual property and may
result in the elimination of a competitor.
6
<PAGE> 3
Management's Discussion & Analysis
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
In 1996, sales were relatively flat as compared to 1995. Foreign sales increased
as a percentage of total sales from 42% to 46%. Sales from Asia and Europe
increased 42% and 5%, respectively, resulting from a concentrated sales and
marketing effort and relatively stable economic conditions. The increases in
foreign sales were offset by a 7% decline in U.S. sales. This decline resulted
primarily from reductions in federal, state and local government spending which
adversely affected sales from most product lines, continued softness in
environmental markets which negatively impacted digestion systems and
consumables, and the lack of regulatory approval for microwave extraction
methods which limits market penetration by the MES 1000(TM). The decrease in
sales from existing product lines was offset in part by the favorable initial
response to the new, open vessel digestion, STAR(TM) instruments which were
introduced in March 1996.
Gross profit margins increased from 57.8% to 58.4% primarily resulting from the
increase in sales by the Company's European subsidiaries which, on a
consolidated basis, generally carry higher margins than U.S. sales, and from
lower profit sharing and incentive compensation expenses.
Selling, general and administrative expenses increased due to a more
concentrated export sales and marketing effort in Asia and Europe. Research and
development expenses increased with the introduction of the STAR(TM) product
line.
In March 1995, the Company replaced an intercompany note receivable with a
third-party bank loan, denominated in German marks. The proceeds from this loan
and an additional $0.5 million were invested in a long-term held-to-maturity
investment resulting in higher investment income in fiscal 1996.
The Company's effective tax rate increased slightly as the research and
development tax credit expired.
Liquidity and Capital Resources
- -------------------------------
In 1991, the Company began a stock repurchase program which has been extended by
the Board of Directors on several occasions. Repurchases totaled $0.8, $2.0, and
$1.9 million in 1997, 1996, and 1995, respectively. As of June 30, 1997, an
additional $2.1 million remained authorized to repurchase the Company's common
stock. From time to time, repurchases may be made in the open market or directly
from shareholders at prevailing market prices. The shares repurchased will
reduce any dilution of earnings to existing shareholders resulting from the
Company's stock option and compensation plans.
In March 1995, the Company converted an intercompany note receivable to a third
party bank loan of $1.5 million, denominated in German marks. The loan proceeds
and an additional $0.5 million of available cash were used to acquire a
long-term investment which was pledged to secure the loan. While the loan and
the corresponding long-term investment are now reflected on the balance sheet,
this transaction eliminated the Company's exposure to future currency
fluctuations on the intercompany note receivable.
Although net income declined $1.1 million, net cash provided by operating
activities increased $2.9 million to $4.9 million resulting from improved
balance sheet management using cross-functional teams. The Company will continue
to concentrate on maintaining or reducing accounts receivable and inventory
levels. The increase in accrued payroll and benefits resulted from the increase
in the Company's profit-sharing contribution to historical levels.
The Company maintains unsecured bank lines of credit providing for short term
borrowings of up to $3.6 million at market rates. At June 30, 1997, $57,000 was
outstanding under these bank lines of credit. Should the need arise, management
believes the lines of credit could be increased.
The Company primarily assembles components manufactured by others and
significant expenditures for property and equipment are not expected. Existing
facilities, which were expanded in 1991 and 1992, are expected to be sufficient
to serve existing markets for the next several years. Management believes that
working capital, capital expenditures, debt servicing and stock repurchases can
be funded currently from cash on hand and cash generated from operations.
The Company has never paid cash dividends and has no plans to do so in the
foreseeable future.
7
<PAGE> 4
Management's Discussion & Analysis
Outlook
- -------
The following cautionary statement identifies important factors that could cause
the Company's actual results to differ materially from those projected in
forward-looking statements made by or on behalf of the Company. Except for the
historical information contained herein, the matters discussed in "Management's
Discussion and Analysis of Results of Operations and Financial Condition" are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These cautionary statements are made pursuant to
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, both enacted pursuant to the Private Securities Litigation
Reform Act of 1995.
The industry in which the Company competes, as well as the markets that it
serves, are characterized by cyclical market patterns as a consequence of, among
other things, business cycles, foreign exchange fluctuations, regulatory
changes, government spending levels and general economic conditions. These
factors affect the timing of orders from the Company's customers and cause
substantial variations in sales and profitability from quarter to quarter.
Likewise, supplier-related delays and the timing of the release of Company's
customer orders may affect quarter-to-quarter sales and profitability. The
Company's sales may also be adversely affected by direct and indirect
competition from third parties including, but not limited to, legal challenges
to existing patents or pending patent applications.
Demand for the Company's instrumentation is substantially affected by the
enactment, timing, extent and severity of state, federal and foreign laws
governing environmental testing standards as well as product labeling
requirements including foods and pharmaceuticals. The Company has and may
experience fluctuations in sales of such products as well as in demand for
particular product enhancements as a result of actual or perceived changes in
regulatory requirements. Legislation or regulations resulting in the development
or expansion of acceptance standards for specific testing methods has and may
result in periodic delays in sales, especially in the United States. Conversely,
increases in international sales have resulted, and may result in the future,
from less stringent or nonexistent acceptance standards in a given country.
Moreover, the Company's success is dependent on its ability to continue to
develop and engineer high-quality, high-performance products that are
commercially acceptable. Risks associated with new product development include
market acceptance, competition from other products and the Company's ability to
manufacture and market products on an efficient and timely basis at a reasonable
cost and in sufficient volume.
Inflation
- ---------
Inflation has not had a material impact on the Company's operations. The prices
of some components purchased by the Company have declined in the past several
years due in part to increased volume and improved purchasing practices. Certain
other materials and labor costs have increased, but management believes that
such increases have not exceeded the inflation rate of the national economy as a
whole.
8
<PAGE> 5
CEM Corporation
Consolidated Balance Sheets
In thousands, except share data
<TABLE>
<CAPTION>
June 30
-----------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................. $ 5,833 $ 1,832
Short-term investments ................................................ 3,100 4,100
Trade receivables, net ................................................ 5,990 7,061
Inventories ........................................................... 5,139 5,639
Deferred taxes ........................................................ 357 254
Other current assets .................................................. 385 425
-------- --------
Total current assets .............................................. 20,804 19,311
LONG-TERM INVESTMENTS ..................................................... 2,018 2,024
INVESTMENT IN AFFILIATE ................................................... 250 --
PROPERTY, PLANT AND EQUIPMENT, NET ........................................ 5,296 5,569
OTHER ASSETS .............................................................. 846 680
-------- --------
$ 29,214 $ 27,584
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current maturities of long-term debt ................ $ 67 $ 63
Accounts payable ...................................................... 1,095 990
Accrued payroll and benefits .......................................... 916 571
Deferred income ....................................................... 1,039 1,098
Income taxes payable .................................................. 488 410
Warranty reserve ...................................................... 218 175
Other current liabilities ............................................. 572 455
-------- --------
Total current liabilities ......................................... 4,395 3,762
-------- --------
LONG-TERM DEBT, NET OF CURRENT MATURITIES ................................. 1,229 1,417
-------- --------
DEFERRED TAXES ............................................................ 110 54
-------- --------
SHAREHOLDERS' EQUITY:
Preferred stock, $5 par value, 1,000,000 shares authorized; none issued -- --
Common stock, $.05 par value; 10,000,000 shares authorized;
3,487,000 and 3,551,000 shares issued and outstanding as of June 30,
1997 and 1996, respectively ......................................... 174 178
Additional paid-in capital ............................................ -- --
Retained earnings ..................................................... 23,463 22,223
Translation of foreign currencies ..................................... (157) (50)
-------- --------
Total shareholders' equity ........................................ 23,480 22,351
-------- --------
$ 29,214 $ 27,584
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
9
<PAGE> 6
CEM Corporation
Consolidated Statements of Income
In thousands, except per share data
<TABLE>
<CAPTION>
For the years ended June 30
-------------------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Net sales ................................... $ 30,075 $ 31,477 $31,611
Cost of goods sold .......................... 13,481 13,096 13,341
-------- -------- -------
Gross profit ........................... 16,594 18,381 18,270
Selling, general and administrative expenses 11,474 11,354 11,186
Research and development expenses ........... 2,742 2,891 2,605
-------- -------- -------
Income from operations ................. 2,378 4,136 4,479
Investment income ........................... 454 441 283
Other (expense) income, net ................. (130) (58) 129
-------- -------- -------
Income before income taxes ............. 2,702 4,519 4,891
Provision for income taxes .................. 865 1,611 1,712
-------- -------- -------
Net income ............................. $ 1,837 $ 2,908 $ 3,179
======== ======== =======
Net income per share ........................ $ .52 $ .78 $ .85
======== ======== =======
Weighted average number of shares outstanding 3,550 3,748 3,735
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
10
<PAGE> 7
CEM Corporation
Consolidated Statements of Cash Flows
In thousands
<TABLE>
<CAPTION>
For the years ended June 30
-----------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................... $ 1,837 $ 2,908 $ 3,179
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................. 1,116 1,052 927
Deferred income taxes .......................... (64) 151 (56)
Loss (gain) on disposal of fixed assets ........ 32 (73) (7)
Changes in operating assets and liabilities:
Trade receivables ............................ 942 (346) (557)
Inventories .................................. 389 (719) (837)
Accounts payable and accrued expenses ........ 508 (690) 259
Income taxes payable ......................... 101 (3) 380
Other changes, net ........................... 22 (260) (154)
------- ------- -------
Net cash provided by operating activities ...... 4,883 2,020 3,134
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Sales of short-term investments .................... 1,500 2,603 4,500
Purchase of short-term investment .................. (500) (2,700) (5,004)
Purchase of long-term investment ................... -- -- (2,032)
Purchase of investment in affiliate ................ (250) -- --
Proceeds from sale of fixed assets ................. 56 193 69
Capital expenditures and acquisition of intangibles (1,165) (1,013) (1,028)
------- ------- -------
Net cash used in investing activities .......... (359) (917) (3,495)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable ........................ 59 50 200
Proceeds from long-term debt ....................... -- -- 1,333
Payment of notes payable ........................... -- (11) (200)
Payment of long-term debt .......................... (8) -- (11)
Repurchase of common stock ......................... (767) (2,025) (1,868)
Proceeds from issuance of common stock ............. 147 639 466
------- ------- -------
Net cash used in financing activities .......... (569) (1,347) (80)
------- ------- -------
------- ------- -------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH ........... 46 (2) 17
------- ------- -------
Net increase (decrease) in cash and cash equivalents 4,001 (246) (424)
Cash and cash equivalents at beginning of year ..... 1,832 2,078 2,502
------- ------- -------
Cash and cash equivalents at end of year ........... $ 5,833 $ 1,832 $ 2,078
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
11
<PAGE> 8
CEM Corporation
Consolidated Statements of Changes in Shareholders' Equity
In thousands
<TABLE>
<CAPTION>
ADDITIONAL TRANSLATION
PAID-IN RETAINED OF FOREIGN
SHARES AMOUNT CAPITAL EARNINGS CURRENCIES TOTAL
------ ------ ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
June 30, 1994 .................... 3,718 $ 186 $ -- $ 18,533 $ (98) $ 18,621
Issuance of shares under stock
benefit plans .............. 61 3 570 -- -- 573
Repurchase of common stock ... (158) (8) (328) (1,532) -- (1,868)
Income tax benefit from
employees' stock options ... -- -- 71 -- -- 71
Translation adjustment ....... -- -- -- -- 16 16
Net income ................... -- -- -- 3,179 -- 3,179
------ ----- ------- -------- ----- --------
June 30, 1995 .................... 3,621 181 313 20,180 (82) 20,592
Issuance of shares under stock
benefit plans .............. 77 4 717 -- -- 721
Repurchase of common stock ... (147) (7) (1,154) (865) -- (2,026)
Income tax benefit from
employees' stock options ... -- -- 124 -- -- 124
Translation adjustment ....... -- -- -- -- 32 32
Net income ................... -- -- -- 2,908 -- 2,908
------ ----- ------- -------- ----- --------
June 30, 1996 .................... 3,551 178 -- 22,223 (50) 22,351
Issuance of shares under stock
benefit plans .............. 16 1 146 -- -- 147
Repurchase of common stock ... (80) (5) (165) (597) -- (767)
Income tax benefit from
employees' stock options ... -- -- 19 -- -- 19
Translation adjustment ....... -- -- -- -- (107) (107)
Net income ................... -- -- -- 1,837 -- 1,837
------ ----- ------- -------- ----- --------
June 30, 1997 .................... 3,487 $ 174 $ -- $ 23,463 $(157) $ 23,480
====== ===== ======= ======== ===== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
12
<PAGE> 9
CEM Corporation
Notes to Consolidated Financial Statements
1. ACCOUNTING POLICIES
CONSOLIDATION - The financial statements include the accounts of the Company and
its wholly-owned domestic and foreign subsidiaries after the elimination of
inter-company accounts and transactions.
ESTIMATES - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
SINGLE INDUSTRY SEGMENT - The Company engages in one line of business defined as
the development, manufacture, sale and service of microwave-based
instrumentation for testing, analysis and process control in analytical
laboratory and industrial markets.
TRANSLATION OF FOREIGN CURRENCIES - The Company's export sales, other than those
to its foreign subsidiaries, are denominated in U.S. dollars. For the Company's
foreign subsidiaries, assets and liabilities are translated at exchange rates
prevailing on the balance sheet date; revenues and expenses are translated at
average exchange rates prevailing during the period. Any resulting translation
adjustments are reported separately in shareholders' equity. Net exchange
(losses) gains from foreign currency transactions included in income were
($26,000) in 1997, $57,000 in 1996 and $111,000 in 1995.
CONCENTRATION OF CREDIT RISK - Financial instruments, which potentially subject
the Company to concentrations of credit risk, consist principally of temporary
cash investments and trade receivables. The Company places overnight cash
investments with major financial institutions. On June 30, 1997 and 1996, the
Company purchased $1,770,000 and $1,492,000, respectively, of Eurodollar
investments under agreements to resell on July 1, 1997 and 1996, respectively.
Due to the short term nature of the agreements, the Company did not take
possession of the securities which were, instead, held by a custodian.
The Company sells instruments on open account terms. Sales are not concentrated
geographically and no single customer accounts for more than ten percent of
sales. Management considers the risk of significant loss related to trade
receivables at June 30, 1997 and 1996 to be minimal.
STATEMENT OF CASH FLOWS - For purposes of reporting cash flows, cash equivalents
include short-term interest bearing investments, generally maturing within sixty
days. Cash flows from operations include income taxes paid totaling $788,000,
$1,312,000 and $1,384,000 in 1997, 1996 and 1995, respectively. Interest paid
totaled $135,000, $143,000 and $39,000 in 1997, 1996 and 1995, respectively. The
Company had noncash activity related to the income tax benefit from employees'
stock options of $19,000, $124,000 and $71,000 in 1997, 1996 and 1995,
respectively.
INVESTMENTS - The Company records investments in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." This
Statement requires the use of fair value accounting for those securities the
Company identifies as trading and available-for-sale, but retains the use of the
amortized cost method for investments in debt securities that the Company has
the positive intent and ability to hold to maturity. Unrealized holding gains
and losses are included in earnings for trading securities and are shown as a
separate component of shareholders' equity for available-for-sale securities net
of the effects of income taxes. Realized gains or losses continue to be
determined on the specific identification method and are reflected in income.
INVESTMENT IN AFFILIATE - In 1996, the Company entered into an exclusive,
worldwide licensing agreement with an Israel-based company, Sirotech, Ltd.,
related to the development and marketing of instruments used in rapid testing
for bacteria in raw milk. The Company also acquired a 10% ownership interest in
Sirotech, Ltd. which is accounted for under the cost method.
TRADE RECEIVABLES, NET - Trade receivables are stated net of allowances for
doubtful accounts of $265,000 and $245,000 at June 30, 1997 and 1996,
respectively.
INVENTORIES - Inventories are stated at the lower of cost or market. The
first-in, first-out (FIFO) basis is used to determine the cost of inventories.
ADVERTISING COSTS - The Company is actively engaged in marketing both new and
existing products. All advertising and promotional costs are charged to
operations as incurred and totaled $383,000, $960,000 and $742,000 in 1997, 1996
and 1995, respectively.
13
<PAGE> 10
Notes to Consolidated Financial Statements
1. ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT, NET - Property, plant and equipment is stated at
cost. Depreciation is computed generally using straight-line methods over the
estimated useful lives, ranging from 3 to 40 years. When property is disposed
of, the cost and related depreciation are removed from the accounts and
resulting gains and losses are included in income. Major improvements are
capitalized. Repair and maintenance costs are charged to expense as incurred.
RESEARCH AND DEVELOPMENT COSTS - The Company is actively engaged in basic
technology and applied research and development programs which are designed to
develop new and improved products, and product applications. The costs of these
programs as well as ongoing product and process improvement, engineering and
support costs are charged to operations as incurred.
DEFERRED INCOME - Revenue from service contracts is recognized in earnings
ratably over the period of the service agreement.
DEFERRED INCOME TAXES - Deferred tax assets or liabilities are established for
temporary differences between financial and tax reporting bases and are
subsequently adjusted to reflect changes in tax rates expected to be in effect
when the temporary differences reverse.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE - The computation of net
income per common share is based on the weighted average number of common shares
outstanding each year, adjusted for all stock splits, after adding dilutive
common stock equivalents of 19,000 in 1997, 122,000 in 1996 and 104,000 in 1995.
Common stock equivalents consist of stock options. In determining the number of
dilutive common stock equivalents, the Company includes average common shares
attributable to dilutive stock options using the treasury stock method. Fully
diluted net income per share is not presented because it approximates net income
per common and common equivalent share.
STOCK OPTIONS - The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," effective July 1, 1996. This statement establishes financial
accounting and reporting standards for stock-based compensation, including
employee stock purchase plans and stock option plans. As allowed by SFAS No.
123, the Company continues to measure compensation expense under the provisions
of APB No. 25, "Accounting for Stock Issued to Employees."
NEW ACCOUNTING STANDARDS - In 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings per Share," which is effective for the
Company's 1998 fiscal year. Adoption of this statement is not expected to have a
material impact on earnings per share.
2. INVESTMENTS
The following table summarizes the amortized cost, fair market value and
carrying value of the Company's investments at June 30, 1997 and 1996 under SFAS
No. 115. Proceeds from sales of available-for-sale securities were $1,500,000
and $1,603,000 in 1997 and 1996, respectively. There were no realized gains or
losses in 1997 in any security classification. In 1996, realized gains on sales
of available-for-sale securities totaled $3,000 and there were no realized
losses.
<TABLE>
<CAPTION>
1997: Amortized Market Carrying
(In Thousands) Cost Value Value
- -----------------------------------------------------------------
<S> <C> <C> <C>
Short-term available-for-sale $3,100 $3,100 $3,100
Long-term held-to-maturity
(see Note 5) ............... 2,018 2,055 2,018
------ ------ ------
$5,118 $5,155 $5,118
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1996: Amortized Market Carrying
(In Thousands) Cost Value Value
- -----------------------------------------------------------------
<S> <C> <C> <C>
Short-term available-for-sale $4,100 $4,100 $4,100
Long-term held-to-maturity
(see Note 5) ............... 2,024 2,054 2,024
------ ------ ------
$6,124 $6,154 $6,124
====== ====== ======
</TABLE>
The contractual maturity on the held-to-maturity security is five years.
3. INVENTORIES
Inventories at current cost are as follows at June 30:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- ------------------------- ------ ------
<S> <C> <C>
Parts and raw materials . $2,560 $2,974
Work-in-process and
finished goods ........ 2,579 2,665
------ ------
$5,139 $5,639
====== ======
</TABLE>
14
<PAGE> 11
Notes to Consolidated Financial Statements
4. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consisted of the following at June 30:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- -------------------------------------- ------- -------
<S> <C> <C>
Land.................................. $ 693 $ 685
Buildings ............................ 4,411 4,448
Machinery and equipment .............. 4,466 4,453
Vehicles ............................. 708 819
------- -------
10,278 10,405
Less: accumulated
depreciation ..................... 4,982 4,836
------- -------
$ 5,296 $ 5,569
======= =======
</TABLE>
5. FINANCING ARRANGEMENTS
The Company maintains unsecured bank lines of credit providing for short term
borrowings of up to $3.6 million at market rates. $57,000 and $51,000, was
outstanding at June 30, 1997 and 1996, respectively under these bank lines of
credit. The Company is not subject to commitment fees related to the unused
portion of the lines of credit.
At June 30, 1997, the Company had a foreign denominated mortgage note payable
totaling $92,000 bearing interest at an average rate of 7.4%. Principal payments
are due in equal installments until 2006 with the current portion totaling
approximately $10,000 per year.
At June 30, 1997, the Company had a term note maturing in fiscal 2000 and
denominated in German marks for $1,146,000 carrying a 9.25% fixed interest rate
and requiring a balloon principal payment upon maturity. The note is
collateralized by a long-term held-to-maturity investment. The carrying amount
of this term note approximates its fair value.
6. INCOME TAXES
Pre-tax income and the provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- ----------------------- ------- ------ -------
<S> <C> <C> <C>
Pre-tax income (loss):
Domestic ............ $ 2,705 $4,456 $ 5,146
Foreign ............. (3) 63 (255)
------- ------ -------
2,702 4,519 4,891
======= ====== =======
Current taxes:
Federal and state ... 929 1,418 1,816
Foreign ............. -- 50 (48)
------- ------ -------
929 1,468 1,768
Deferred taxes, federal
and state ........... (64) 143 (56)
------- ------ -------
Total taxes ........... $ 865 $1,611 $ 1,712
======= ====== =======
</TABLE>
The provision includes deferred taxes resulting from temporary differences in
the recognition of income and expense for tax and financial reporting purposes.
The sources of these differences and the tax effect of each are as follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- -------------------------- ----- ----- ----
<S> <C> <C> <C>
Unrealized foreign
exchange gains (losses) $-- $ 27 $(28)
Expiration of capital loss
carryforwards on
marketable securities .. -- 68 --
Depreciation ............. 40 (23) (26)
Inventories and reserves . (139) 23 2
Other items, net ......... 35 48 (4)
----- ----- ----
$ (64) $ 143 $(56)
===== ===== ====
</TABLE>
15
<PAGE> 12
Notes to Consolidated Financial Statements
6. INCOME TAXES (CONTINUED)
A reconciliation of the effective income tax rate to the amount computed by
applying the statutory federal income tax rate to income before income taxes
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal statutory income
tax rate........................ 34.0 % 34.0 % 34.0 %
State income taxes, net
of federal tax benefit......... 3.0 3.1 2.5
Foreign losses................... - 0.6 0.8
Tax-exempt foreign sales
income......................... (3.0) (4.8) (4.7)
Tax-exempt interest and
dividends received
exclusion...................... (2.4) (1.0) (0.9)
Research and
development credits............ (1.6) - (0.8)
Other items, net................. 2.0 3.8 4.1
----- ----- -----
Effective income tax rate........ 32.0 % 35.7 % 35.0 %
===== ===== =====
</TABLE>
Components of net deferred tax assets and liabilities at June 30 are as follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- -------------------------------- ----- -----
<S> <C> <C>
Current asset (liability):
Inventories and reserves ..... $ 388 $ 251
Employee compensation and
benefits ................... (29) (30)
Other ........................ (2) 33
----- -----
$ 357 $ 254
===== =====
Noncurrent liability (asset):
Depreciation and difference in
asset basis ................ $ 46 $ 69
Amortization of patents ...... 56 --
Foreign exchange on
inter-company notes ........ 18 1
Deferred gain on
sale/leaseback transaction . (10) (16)
----- -----
$ 110 $ 54
===== =====
</TABLE>
7. INTERNATIONAL OPERATIONS AND EXPORT SALES
The Company operates three subsidiaries in Europe primarily for the distribution
of microwave-based instrumentation produced by the parent in the US. Financial
data by geographic area is presented below:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- --------------------------- -------- -------- --------
<S> <C> <C> <C>
NET SALES:
U.S. operations:
Unaffiliated customers:
U.S ................. $ 16,165 $ 16,964 $ 18,313
Europe .............. 2,221 2,824 3,099
Asia ................ 3,855 3,657 2,571
Other ............... 2,561 2,353 2,608
Inter-area transfers .. 2,308 2,415 3,118
-------- -------- --------
27,110 28,213 29,709
European operations:
Unaffiliated customers 5,273 5,679 5,020
Eliminations ............ (2,308) (2,415) (3,118)
-------- -------- --------
Consolidated .............. $ 30,075 $ 31,477 $ 31,611
======== ======== ========
NET INCOME (LOSS):
U.S. operations ......... $ 1,776 $ 2,970 $ 3,513
European operations ..... (3) 13 (207)
Eliminations ............ 64 (75) (127)
-------- -------- --------
Consolidated .............. $ 1,837 $ 2,908 $ 3,179
======== ======== ========
IDENTIFIABLE ASSETS:
U.S. operations ......... $ 25,506 $ 23,553 $ 22,404
European operations ..... 4,967 5,248 5,081
Eliminations ............ (1,259) (1,217) (832)
-------- -------- --------
Consolidated .............. $ 29,214 $ 27,584 $ 26,653
======== ======== ========
</TABLE>
8. EMPLOYEE BENEFIT PLANS
The Company has a noncontributory profit-sharing and a 401(k) tax deferred
savings plan covering all employees meeting age and service requirements.
Participants can make pre-tax contributions with the Company matching certain
percentages of employee contributions. In addition to Company matching
contributions under the 401(k) plan, contributions may be made as determined by
the Board of Directors. The Company's policy is to fund amounts accrued. Expense
related to this plan amounted to $627,000, $105,000 and $638,000 for the years
ended June 30, 1997, 1996 and 1995, respectively.
16
<PAGE> 13
Notes to Consolidated Financial Statements
9. MANAGEMENT INCENTIVE AND STOCK OPTION PLANS
In fiscal 1994, the Company adopted the 1993 Management Equity Plan under which
officers and other key employees may receive stock and cash performance-based
incentive awards. Up to 375,000 shares are authorized under this plan. At June
30, 1997, 237,000 shares were reserved for future grants. No compensation
expense was accrued under the plan in 1997 and 1996; $232,000 was accrued in
1995.
Also in fiscal 1994, the Company adopted the 1993 Nonqualified Stock Option Plan
for Non-Employee Directors under which options may be granted to outside
directors. Up to 25,000 shares are authorized under this plan. At June 30, 1997,
12,000 shares were reserved for future grants.
Additional information with respect to the 1993 Management Equity Plan and 1993
Nonqualified Stock Option Plan is as follows:
<TABLE>
<CAPTION>
(In Thousands) Shares
- ---------------------------------------------------- ----------
<S> <C>
Stock awards:
1995 awards at $11.00 per share.................. 10
1996 awards at $13.00 per share.................. 7
1997 awards...................................... -
----------
Total stock awards at $11.00 - $13.00 per share.... 17
==========
Options to purchase shares:
- ----------------------------------------------------
Outstanding at June 30, 1994 at
$12.13 per share............................... 1
Granted at $11.00 - $13.63 per share......... 59
----------
Outstanding at June 30, 1995
at $11.00 - $13.63 per share................... 60
Granted at $12.75 - $13.75 per share......... 61
Exercised at $11.00 per share................ (1)
Canceled at $11.00 - $13.63 per share........ (15)
----------
Outstanding at June 30, 1996
at $11.00 - $13.75 per share................... 105
Granted at $8.25 - $10.69 per share.......... 65
Canceled at $10.69 - $13.00 per share........ (20)
----------
Outstanding at June 30, 1997
at $8.25 - $13.75 per share.................... 150
==========
Options exercisable at June 30, 1997
at $11.00 - $13.75 per share................... 41
==========
</TABLE>
Effective with the approval of the above plans, the Company's 1986 and 1987
stock option plans, under which options were granted to officers, employees, and
outside directors, were terminated. At June 30, 1997, no shares were reserved
for future grants. The prices for all outstanding and exercisable options
related to the 1986 and 1987 stock option plans ranged from $6.56 - $13.63 per
share for all periods presented.
Additional information with respect to the 1986 and 1987 stock option plans is
as follows:
<TABLE>
<CAPTION>
(In Thousands) Shares
- ---------------------------------------------------- ----------
Options to purchase shares:
- ----------------------------------------------------
<S> <C>
Outstanding at June 30, 1994..................... 489
Exercised at $7.69 - $10.50 per share.......... (51)
Canceled at $8.88 - $10.50 per share........... (4)
----------
Outstanding at June 30, 1995..................... 434
Exercised at $7.69 - $10.50 per share.......... (69)
Canceled at $6.56 - $11.00 per share........... (2)
----------
Outstanding at June 30, 1996..................... 363
Exercised at $7.69 - $10.50 per share.......... (16)
Canceled at $8.50 - $10.50 per share........... (47)
----------
Outstanding at June 30, 1997..................... 300
==========
Options exercisable at June 30, 1997............. 289
==========
</TABLE>
Options granted under all stock option plans are exercisable at the market value
of the shares at the date of grant. The options are exercisable over a period
not to exceed ten years. Tax benefits arising from disqualifying dispositions
are recognized at the time of disposition, are credited to additional paid-in
capital and recorded as noncash activity on the statement of cash flows.
PRO FORMA INFORMATION- The Company continues to apply APB No. 25 in accounting
for its stock-based compensation plans. Accordingly, no compensation cost has
been recognized in the accompanying consolidated statements of operations for
its stock option plans. Had compensation cost for the Company's stock-based
compensation plans been determined in accordance with the fair value method
prescribed in SFAS No. 123, the Company's net income and earnings per share
would have changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
---------------------
<S> <C> <C>
Net income (in thousands)..... as reported $ 1,837 $ 2,908
pro forma $ 1,751 $ 2,868
Earnings per share............ as reported $ .52 $ .78
pro forma $ .49 $ .77
</TABLE>
17
<PAGE> 14
Notes to Consolidated Financial Statements
9. MANAGEMENT INCENTIVE AND STOCK OPTION PLANS (CONTINUED)
The above pro forma amounts include compensation expense for options granted
since July 1, 1995, and may not be representative of that to be expected in
future years. The pro forma amounts assume that the fair value assigned to the
options were amortized using the straight-line method over the vesting period of
the options, which is one to four years.
The fair value of each option granted under the stock option plans is estimated
on the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions used for grants in 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Risk-free interest rate............. 6.5 % 6.0 %
Expected life....................... 6 YEARS 6 years
Expected volatility................. 30 % 20 %
</TABLE>
A dividend yield of zero was used for each year. These assumptions resulted in
weighted-average values as of the grant dates of $4.52 and $4.64 per share for
stock options granted in 1997 and 1996, respectively.
10. QUARTERLY INFORMATION (UNAUDITED)
Selected quarterly results of operations and quarterly stock prices for fiscal
1997 and 1996 are summarized in the table below. The stock prices represent the
high and low sales prices for CEM common shares as reported on the Nasdaq Stock
Market. No cash dividends were declared during the two fiscal years ended June
30, 1997.
<TABLE>
<CAPTION>
Q-1 Q-2 Q-3 Q-4 Year
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997:
Net sales $ 6,610 $ 8,172 $ 7,137 $ 8,156 $ 30,075
Gross profit 3,552 4,472 4,041 4,529 16,594
Net income 106 605 391 735 1,837
Net income per share .03 .17 .11 .21 .52
Stock Price:
High $ 14.00 $ 11.00 $ 12.75 $ 9.25 $ 14.00
Low 10.50 7.50 8.00 7.75 7.50
- --------------------------------------------------------------------------------------------------------------
1996:
Net sales $ 7,461 $ 8,731 $ 7,518 $ 7,767 $ 31,477
Gross profit 4,267 5,241 4,232 4,641 18,381
Net income 677 1,001 676 554 2,908
Net income per share .18 .27 .18 .15 .78
Stock Price:
High $ 14.50 $ 14.50 $ 15.00 $ 14.25 $ 15.00
Low 11.75 12.50 12.75 13.25 11.75
- --------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 15
Report of Independent Accountants
To the Shareholders of CEM Corporation:
We have audited the accompanying consolidated balance sheets of CEM Corporation
and Subsidiaries as of June 30, 1997 and 1996, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the three years in the period ended June 30, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CEM Corporation
and Subsidiaries as of June 30, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1997, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
Charlotte, North Carolina
July 23, 1997
19
<PAGE> 16
Corporate Information
OFFICERS & DIRECTORS
DR. MICHAEL J. COLLINS
Director, President and Chief Executive Officer
JOHN L. CHANON
Director
Area Partner
Tatum CFO Partners LP (CFO Services)
JOHN D. CORRENTI
Director
Vice Chairman, President and Chief Executive Officer
Nucor Corporation (Steel Products)
RICHARD N. DECKER
Vice President - Finance, Chief Financial Officer, Secretary and Treasurer
RONALD A. NORELLI
Chairman of the Board
President and Chief Executive Officer
Norelli & Company (Management Consulting)
CORPORATE ADDRESS
CEM Corporation
3100 Smith Farm Road
P.O. Box 200
Matthews, North Carolina 28106-0200
(704) 821-7015
e:mail: [email protected]
Web: http://www.cemx.com
TRANSFER AGENT
Wachovia Bank of North Carolina, N.A.
Winston Salem, North Carolina
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Charlotte, North Carolina
GENERAL COUNSEL
Kennedy Covington Lobdell & Hickman, L.L.P.
Charlotte, North Carolina
FORM 10-K/INVESTOR CONTACT
The Company's Annual Report on Form 10-K for the year ended June 30, 1997 filed
with the Securities and Exchange Commission is available without charge to
shareholders upon written request. These requests and other investor contacts
should be directed to Richard N. Decker, Secretary, at the corporate address.
ANNUAL MEETING
The annual meeting of shareholders of CEM Corporation will be held at 11:00 am
local time on November 6, 1997 at the corporate offices, 3100 Smith Farm Road,
Matthews, North Carolina. Shareholders of record as of September 8, 1997 will be
entitled to vote at this meeting.
TRADEMARKS
CEM(TM), MAC(TM), MES 1000(TM), MDS 2000(TM), MAS 7000(TM), Airwave 7000(TM),
LabWave 9000(TM), SpectroPrep(TM), STAR(TM), MARS 5(TM), ProFat 2(TM) and
PrepLink(TM) are CEM Corporation trademarks. For ease of reading, designations
of trademarks have sometimes been omitted from the text of this report.
NASDAQ SYMBOL
The Company's common shares are traded on the Nasdaq Stock Market (National
Market System) under the symbol CEMX.
SHAREHOLDERS OF RECORD
As of September 8, 1997, The Company had approximately 2,200 shareholders of
record and an estimate of the number of individual participants represented by
security position listings.
20
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
of CEM Corporation on Form S-8 (File Numbers 33-11952, 33-25739, 33-53694,
33-75366, 33-75368, 33-80136 and 33-87676) of our report dated July 23, 1997, on
our audits of the consolidated financial statements and financial statement
schedule of CEM Corporation as of June 30, 1997 and 1996, and for the years
ended June 30, 1997, 1996 and 1995, which report is included in this Annual
Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Charlotte, North Carolina
September 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,833
<SECURITIES> 3,100
<RECEIVABLES> 6,255
<ALLOWANCES> 265
<INVENTORY> 5,139
<CURRENT-ASSETS> 20,804
<PP&E> 10,278
<DEPRECIATION> 4,982
<TOTAL-ASSETS> 29,214
<CURRENT-LIABILITIES> 4,395
<BONDS> 1,229
0
0
<COMMON> 174
<OTHER-SE> 23,306
<TOTAL-LIABILITY-AND-EQUITY> 29,214
<SALES> 30,075
<TOTAL-REVENUES> 30,075
<CGS> 13,481
<TOTAL-COSTS> 13,481
<OTHER-EXPENSES> 14,216
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,702
<INCOME-TAX> 865
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,837
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
</TABLE>
