<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
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: 0-15383
CEM CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-1019741
-------------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
3100 SMITH FARM ROAD, MATTHEWS, NC 28104
(Address of principal executive offices) (Zip Code)
POST OFFICE BOX 200, MATTHEWS, NORTH CAROLINA 28106
----------------------------------------------------
(Mailing address of principal executive offices)
(704) 821-7015
----------------------------------------------------
(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 [ ]
3,043,443 shares of the issuer's $.05 par value common stock, its only class of
common stock, were outstanding as of January 29, 2000.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial statements
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended December 31, 1999
CEM Corporation
Matthews, North Carolina
The condensed financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1999.
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<PAGE> 3
CEM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31 AND JUNE 30, 1999
<TABLE>
<CAPTION>
(in thousands)
(unaudited)
December 31 June 30
----------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................................................... $ 4,561 $ 2,865
Short-term investments ...................................................................... 6,131 6,262
Trade receivables ........................................................................... 6,516 6,634
Inventories ................................................................................. 5,228 5,335
Deferred taxes and other .................................................................... 834 964
-------- --------
Total current assets ..................................................................... 23,270 22,060
LONG-TERM INVESTMENTS .......................................................................... 546 476
PROPERTY, PLANT AND EQUIPMENT, NET ............................................................. 4,722 4,984
OTHER ASSETS ................................................................................... 1,261 1,036
-------- --------
$ 29,799 $ 28,556
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current maturities of long-term debt ...................................... $ 1,038 $ 1,066
Accounts payable and accrued expenses ....................................................... 3,113 2,874
Deferred income ............................................................................. 1,481 1,402
Income taxes payable ........................................................................ 766 819
-------- --------
Total current liabilities ................................................................ 6,398 6,161
LONG-TERM DEBT, NET OF CURRENT MATURITIES ...................................................... 320 173
DEFERRED TAXES ................................................................................. 127 127
SHAREHOLDERS' EQUITY:
Common Stock ................................................................................ 152 152
Retained Earnings ........................................................................... 23,346 22,422
Translation Adjustments ..................................................................... (544) (479)
-------- --------
Total Shareholders' Equity ................................................................ 22,954 22,095
-------- --------
$ 29,799 $ 28,556
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 4
CEM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(UNAUDITED)
(in thousands, except per share data)
1999 1998
------- -------
Net sales .................................. $ 9,051 $ 8,492
Cost of goods sold ......................... 4,438 4,063
------- -------
Gross profit ........................... 4,613 4,429
Selling, general and administrative expenses 2,909 2,718
Research and development expenses .......... 805 776
------- -------
Income from operations ................. 899 935
Investment income .......................... 139 107
Other expenses, net ........................ (208) (31)
------- -------
Income before income taxes ............. 830 1,011
Provision for income taxes ................. 261 309
------- -------
Net income ............................. 569 702
Foreign Currency Translation ............... (280) (35)
------- -------
Comprehensive Income ................... $ 289 $ 667
======= =======
Net Income Per Share:
Basic .................................. $ .19 $ .23
======= =======
Diluted ................................ $ .19 $ .23
======= =======
Average Shares Outstanding:
Basic ................................. 3,043 3,089
======= =======
Diluted 3,044 3,104
======= =======
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 5
CEM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(UNAUDITED)
(in thousands, except per share data)
1999 1998
-------- --------
Net sales .................................. $ 16,441 $ 15,643
Cost of goods sold ......................... 7,963 7,572
-------- --------
Gross profit ........................... 8,478 8,071
Selling, general and administrative expenses 5,555 5,311
Research and development expenses .......... 1,546 1,506
-------- --------
Income from operations ................. 1,377 1,254
Investment income .......................... 236 212
Other expenses, net ........................ (237) (41)
-------- --------
Income before income taxes ............. 1,376 1,425
Provision for income taxes ................. 433 441
-------- --------
Net income ............................. 943 984
Foreign Currency Translation ............... (65) 166
-------- --------
Comprehensive Income ................... $ 878 $ 1,150
======== ========
Net Income Per Share:
Basic .................................. $ .31 $ .31
======== ========
Diluted ................................ $ .31 $ .31
======== ========
Average Shares Outstanding:
Basic ................................. 3,044 3,126
======== ========
Diluted ............................... 3,044 3,155
======== ========
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 6
CEM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES ......... $ 2,356 $ 1,186
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of available-for-sale investments ........ 100 --
Purchase of available-for-sale investments .... -- --
Purchase of long-term investment .............. (38) --
Acquisition of intangibles .................... (317) (63)
Capital expenditures, net ..................... (331) (580)
------- -------
Net cash used in investing activities .. (586) (643)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of notes payable ...................... (73) (99)
Proceeds from issuance of common stock ........ -- 21
------- -------
Repurchase of common stock .................... (19) (1,175)
------- -------
Net cash used in financing activities .. (92) (1,253)
------- -------
EFFECTS OF EXCHANGE RATES ON CASH ................. 18 (3)
------- -------
Net increase(decrease) in cash and cash equivalents 1,696 (713)
Cash and cash equivalents at beginning of period .. 2,865 2,963
------- -------
Cash and cash equivalents at end of period ........ $ 4,561 $ 2,250
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 7
CEM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of results for the interim periods. The result of operations for
the period ended December 31, 1999 are not necessarily indicative of the results
that may be expected for the year ended June 30, 2000.
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.
The Company considers this to be one industry segment for financial reporting
purposes.
2. INVENTORIES
The components of inventories at current cost at December 31 and June 30, 1999
are as follows:
(in thousands)
<TABLE>
<CAPTION>
December 31 June 30
------------- ------------
<S> <C> <C>
Parts and raw materials............................ $ 2,900 $ 3,233
Work-in-process and finished goods................. 2,328 2,102
------------- ------------
$ 5,228 $ 5,335
============= ============
</TABLE>
3. NET INCOME PER COMMON SHARE
BASIC EARNINGS PER SHARE COMPUTATION:
The computation of basic earnings per share is computed by dividing income
available to shareholders by the weighted average number of shares outstanding
during the period. Shares issued during the period and shares repurchased by the
Company during the period are weighted for the portion of the period that they
were outstanding. Income and share information for the three months ended
December 31, 1999 follows:
(in thousands, except per share data)
Net income............................................. $ 569
Less: preferred stock dividends........................ --
-------------
Income available to shareholders....................... $ 569
=============
<TABLE>
<CAPTION>
Dates Shares Fraction Weighted
Outstanding Outstanding of Period Average Shares
----------- ----------- --------- --------------
<S> <C> <C> <C>
October 1, 1999................................................... 3,043
Shares repurchased during the period.............................. -- -- --
Stock options exercised during the period......................... -- -- --
--------------
Weighted average shares........................................... 3,043
==============
Basic earnings per share.......................................... $ .19
==============
</TABLE>
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<PAGE> 8
3. NET INCOME PER COMMON SHARE (CONTINUED)
Income and share information for the three months ended December 31, 1998
follows:
(in thousands, except per share data)
Net income.................................................. $ 702
Less: preferred stock dividends............................. --
------------
Income available to shareholders............................ $ 702
============
<TABLE>
<CAPTION>
Dates Shares Fraction Weighted
Outstanding Outstanding of Period Average Shares
----------- ----------- --------- --------------
<S> <C> <C> <C>
October 1, 1998............................................. 3,100
Shares repurchased during the period........................ (14) 74/92 (11)
Stock options exercised during the period................... -- -- --
-----------------
Weighted average shares..................................... 3,089
=================
Basic earnings per share.................................... $ .23
=================
</TABLE>
Income and share information for the six months ended December 31, 1999 follows:
(in thousands, except per share data)
Net income.................................................. $ 943
Less: preferred stock dividends............................. --
----------------
Income available to shareholders............................ $ 943
================
<TABLE>
<CAPTION>
Dates Shares Fraction Weighted
Outstanding Outstanding of Period Average Shares
----------- ----------- --------- --------------
<S> <C> <C> <C>
July 1, 1999................................................. 3,046
Shares repurchased during the period......................... (3) 154/184 (2)
Stock options exercised during the period.................... -- -- --
---------------
Weighted average shares...................................... 3,044
===============
Basic earnings per share..................................... $ .31
===============
</TABLE>
8 of 18
<PAGE> 9
3. NET INCOME PER COMMON SHARE (CONTINUED)
Income and share information for the six months ended December 31, 1998 follows:
(in thousands, except per share data)
Net income..................................................... $ 984
Less: preferred stock dividends................................ --
-------------
Income available to shareholders............................... $ 984
=============
<TABLE>
<CAPTION>
Dates Shares Fraction Weighted
Outstanding Outstanding of Period Average Shares
----------- ----------- --------- --------------
<S> <C>
July 1, 1998.................................................. 3,180
Shares repurchased during the period.......................... (105) 98/184 (56)
Stock options exercised during the period..................... 3 140/184 2
-----------------
Weighted average shares....................................... 3,126
=================
Basic earnings per share...................................... $ .31
=================
</TABLE>
DILUTED EARNINGS PER SHARE COMPUTATION:
The computation of diluted earnings per share is similar to the computation of
basic earnings per share except that the denominator is increased to include the
number of additional shares that would have been outstanding if the dilutive
potential shares had been issued. Potential shares consist of dilutive stock
options using the treasury stock method.
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
December 31, 1999 December 31, 1999
----------------- ------------------
<S> <C> <C>
Income available to shareholders..................... $ 569 $ 943
Plus: Preferred stock dividends...................... -- --
============== ------------
Income available to shareholders.................... $ 569 $ 943
============== ============
Weighted average shares............................. 3,043 3,044
Dilutive potential shares (stock options)........... 1 --
-------------- ------------
Adjusted weighted average shares.................... 3,044 3,044
============== ============
Diluted earnings per share.......................... $ .19 $ .31
============== ============
</TABLE>
Options to purchase an additional 432,179 and 432,179 shares of common stock at
a weighted average price of $7.85 and $7.37 per share were outstanding during
the three and six months ended December 31, 1999, respectively, which were not
included in the computation of diluted earnings per share because the option
exercise prices were greater than the average market price of the common shares
during the periods.
9 of 18
<PAGE> 10
3. NET INCOME PER COMMON SHARE (CONTINUED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
December 31, 1998 December 31, 1998
--------------------------- ------------------------
<S> <C> <C>
Income available to shareholders.................... $ 702 $ 984
Plus: Preferred stock dividends..................... -- --
-------------------- ------------------------
Income available to shareholders.................... $ 702 $ 984
==================== ========================
Weighted average shares............................. 3,089 3,126
Dilutive potential shares (stock options)........... 15 29
-------------------- ------------------------
Adjusted weighted average shares.................... 3,104 3,155
==================== ========================
Diluted earnings per share.......................... $ .23 $ .31
==================== ========================
</TABLE>
Options to purchase an additional 282,000 and 145,000 shares of common stock at
a weighted average price of $10.12 and $10.77 per share were outstanding during
the three and six months ended December 31, 1998, respectively, which were not
included in the computation of diluted earnings per share because the option
exercise prices were greater than the average market price of the common shares
during the periods.
4. NEW PRONOUNCEMENTS
There have been no new pronouncements issued which have not already been
implemented by the Company which management believes would have a material
impact on the financial statements.
10 of 18
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following table sets forth, for the three-month periods indicated, the
percentages which certain components of the condensed consolidated statements of
income bear to net sales and the percentage of change of such components from
the same period of the prior year.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------
12/31/99 12/31/98 % Change
----------------- ----------------- ---------------
<S> <C> <C> <C>
Net sales................................................................... 100.0% 100.0% 6.6%
Cost of goods sold.......................................................... 49.0 47.8 9.2
-------- --------
GROSS PROFIT......................................................... 51.0 52.2 4.2
Selling, general and administrative expenses................................ 32.2 32.0 7.0
Research and development expenses........................................... 8.9 9.2 3.7
-------- --------
INCOME FROM OPERATIONS............................................... 9.9 11.0 (3.9)
Investment income........................................................... 1.5 1.3 29.9
Other expenses, net......................................................... (2.2) (0.4) 571.0
-------- --------
INCOME BEFORE INCOME TAXES........................................... 9.2 11.9 (17.9)
Provision for income taxes.................................................. 2.9 3.6 (15.5)
-------- --------
NET INCOME........................................................... 6.3% 8.3% (18.9)
======== ========
</TABLE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 1999
Net sales for the second quarter of fiscal 2000 increased by 7%, compared with
the second quarter of fiscal 1999, primarily due to increased demand in the
Asian and, to a lesser extent, the U.S. markets. These gains were partially
offset by lagging sales and margins in Europe as a result of a stronger dollar.
Management expects continued softness in the European sales. Foreign sales as a
percent of total sales increased from 47% in the second quarter of fiscal 1999
to 48% in the current year period.
Gross profit margins declined from 52.2% in the second quarter of fiscal 1999 to
51.0% in the second quarter of fiscal 2000, primarily due to product warranty
issues related to new product launches, as well as reduced profit from the
foreign subsidiaries caused by the strengthening of the dollar. Management
expects the margin pressure to continue for the next quarter after which time
warranty expenses should decline to historical levels.
Selling, general and administrative expenses increased 7% compared to the second
quarter of fiscal 1999, primarily due to increases in incentive compensation and
distributor commissions resulting from increased sales. The 3.7% increase in
research and development expense reflects the Company's continued commitment to
new product development. Management expects research and development expenses to
remain between 8% and 10% of net sales for the foreseeable future.
Investment income increased 30.8% for the second quarter of fiscal 2000 as
compared with the prior year period as average cash and investment balances
increased due to a suspension of the stock repurchase program while a Special
Committee of the Board of Directors assessed an offer to acquire the Company and
other strategic alternatives. The expenses associated with this assessment
process caused the other expenses for the quarter to rise from $41,000 to
$237,000 as compared with the second quarter of fiscal 2000.
The Company's effective tax rate was 31.4% for the second quarter of fiscal 2000
which approximates the fiscal 1999 tax rate.
11 of 18
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
The following table sets forth, for the six-month periods indicated, the
percentages which certain components of the condensed consolidated statements of
income bear to net sales and the percentage of change of such components from
the same period of the prior year.
<TABLE>
<CAPTION>
Six Months Ended
----------------------------------------------------
12/31/99 12/31/98 % Change
----------------- ----------------- ---------------
<S> <C> <C> <C>
Net sales................................................................... 100.0% 100.0% 5.1%
Cost of goods sold.......................................................... 48.4 48.4 5.2
--------- --------
GROSS PROFIT......................................................... 51.6 51.6 5.0
Selling, general and administrative expenses................................ 33.8 34.0 4.6
Research and development expenses........................................... 9.4 9.6 2.7
--------- --------
INCOME FROM OPERATIONS............................................... 8.4 8.0 9.8
Investment income........................................................... 1.4 1.4 11.3
Other expenses, net......................................................... (1.5) (0.3) 478.0
--------- --------
INCOME BEFORE INCOME TAXES........................................... 8.3 9.1 (3.4)
Provision for income taxes.................................................. 2.6 2.8 (1.8)
--------- --------
NET INCOME........................................................... 5.7% 6.3% (4.2)
========= ========
</TABLE>
RESULTS OF OPERATIONS - SIX MONTHS ENDED DECEMBER 31, 1999
The increase in total sales for the first six months of fiscal 2000 compared
with the prior year period was primarily due to increased sales in the U.S. The
percentage increase in U.S. sales was partially offset by slower growth in the
foreign sales as improvements noted in Asia have been softened by declines in
Europe and Latin America. Foreign sales as a percent of total sales decreased to
43% in the first six months of fiscal 2000 from 45% in the same period of the
prior year.
Gross profit margins were flat at 51.6% for the two six month period as gains
obtained in the first quarter of fiscal 2000 were offset by factors described
above for the quarter ended December 31, 1999.
Selling, general and administrative expenses were 4.6% above the six months
ended December 31,1999 compared to the prior year period because of the
favorable impact from a settlement of litigation initiated to establish the
validity of a patent for our microwave digestion system that occurred in the
year earlier period. In addition, the increase in revenue created a
corresponding increase in incentive compensation and distributor commissions,
which was partially offset by improved operating efficiencies. Research and
development expense was consistent with the prior year period.
Investment income and other expense changes as compared with the prior year
period are due to the factors described for the quarter ended December 31, 1999.
The Company's effective tax was 31.5% for the first six months of fiscal 2000
which approximates the fiscal 1999 tax rate.
12 of 18
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
FINANCIAL CONDITION
In the first half of fiscal 2000, the Company generated cash from operations of
approximately $2.2 million, including $0.9 million in net income. Some
improvements have been made in accounts receivable collections and management of
inventory balances. Management believes that working capital, planned capital
expenditures, and debt servicing can be funded on a current basis with cash on
hand and cash generated from operations.
EURO CURRENCY ISSUES
Effective January 1, 1999, eleven of the fifteen member countries of the
European Union established fixed conversion rates between their existing
currencies and one common currency (the "euro"). The euro trades on currency
exchanges and is used in business transactions. Beginning in January, 2002,
bills and coins denominated in the euro will be issued and existing currencies
will be withdrawn from circulation. The Company's foreign subsidiaries do not
expect to transact a material portion of their business in the euro until fiscal
2001. Also, the Company's foreign subsidiaries are not yet required to prepare
reports to local regulatory agencies using the euro. Management expects that IT
systems used by the Company's foreign subsidiaries will be repaired or replaced
in a timely manner to facilitate business transactions and reporting to local
government agencies. Costs to repair and/or replace IT systems are not expected
to exceed $50,000.
CAUTIONARY STATEMENT
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
factual statements and historical information contained in this report,
statements contained in the foregoing discussion may be deemed forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Forward-looking statements are statements that include projections,
predictions, expectations or beliefs about future events or results or otherwise
are not statements of historical fact. Such statements are often characterized
by the use of qualifying words (and their derivatives) such as "expect,"
"believe," "plan," "project," or other statements concerning opinions or
judgment of the Company and its management about future events. 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, is 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 orders by the
Company's customers 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.
13 of 18
<PAGE> 14
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Information about the Company's exposure to market risk was
disclosed in its 1999 Annual Report on Form 10-K which was filed
with the Securities and Exchange Commission on September 27, 1999.
There have been no material quantitative changes in market risk
exposures since the date of that filing.
PART II. OTHER INFORMATION
ITEMS 1, 2, and 3 are not applicable and are omitted.
ITEM 4. Submission of Matters to a Vote of Security Holders
The Registrant's Annual Meeting of Shareholders scheduled for
November 4, 1999 was postponed indefinitely, pending a Special
Committee review of Michael J. Collins' offer to purchase all of
the Company's outstanding shares as well as other strategic
alternatives to maximize shareholder value. See ITEM 5 below.
ITEM 5. Other Information
On December 29, 1999 the Company announced that it had entered
into a merger agreement (Exhibit 10.7 hereto) with Michael J.
Collins, the Company's Chief Executive Officer and President,
pursuant to which Mr. Collins would acquire all of the Company's
outstanding shares not owned by him at a price of $11.15 per
share in cash.
A Special Committee of the Board of Directors, which was
appointed to consider the transaction and assess other strategic
alternatives, received the opinion of Brookwood Associates,
Inc., its financial advisor, dated as of December 29, 1999,
that, subject to the assumptions and limitations set forth in
its opinion, the $11.15 per share cash consideration to be
received by the shareholders of the Company (other than Mr.
Collins and his affiliate) pursuant to the merger is fair from a
financial point of view to such shareholders.
The transaction is subject to approval by the Company's
shareholders and to certain other customary conditions. The
Company currently believes that the shareholder vote and the
closing of the transaction (if approved by the shareholders)
could occur early in the Company's fourth fiscal quarter (the
second calendar quarter).
The transaction is not subject to any financing contingency. Mr.
Collins has accepted a commitment from Bank of America
Commercial Finance Corporation to provide the necessary
financing.
The affirmative vote of holders of 66 2/3% of the Company's
outstanding common stock is needed to approve the transaction.
Mr. Collins beneficially owns in excess of 15% of the
outstanding common stock of the Company.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
<S> <C> <C>
3.1 Restated Charter of the Company, as amended.(1)
3.2 Bylaws of the Company.(1)
10.1 * CEM Corporation 1986 Nonqualified Stock Option Plan, as amended, incorporated herein by
reference to the Company'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 Company's Registration Statement on Form S-8 (File No. 33-80136).
</TABLE>
14 of 18
<PAGE> 15
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
<S> <C> <C>
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
Company's Registration Statement on Form S-8 (File No. 33-75368).
10.5 * CEM Corporation Management Incentive Compensation Plan(2).
10.6 CEM Corporation 1993 Nonqualified Stock Option Plan for Non-Employee Directors,
incorporated herein by reference to the Company's Registration Statement on Form
S-8 (File No. 33-75366).
10.7 Agreement and Plan of Merger dated December 29, 1999 among Michael J. Collins, MJC Acquisition
Corporation and CEM Corporation, incorporated by reference to the Schedule 13D/A
(Amendment No. 2) filed by Michael J. Collins on January 4, 2000, and Exhibit 1 thereto.
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.
* This exhibit is one of the Company's management contracts and compensatory plans and
arrangements.
(1) Incorporated herein by reference to the Company's Form 10-K for the year ended June 30, 1994.
(2) Incorporated herein by reference to the Company's Form 10-K for the year ended June 30, 1997.
</TABLE>
(b) Reports on Form 8-K:
No Reports on Form 8-K were filed during the quarter ended
December 31, 1999.
15 of 18
<PAGE> 16
CEM CORPORATION
SIGNATURE
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.
Date: February 10, 2000 CEM CORPORATION
BY: \s\ Richard N. Decker
------------------------------
Richard N. Decker
Secretary, Treasurer and
Chief Financial Officer
16 of 18
<PAGE> 17
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
EXHIBITS
ITEM 6(a)
Quarterly Report on Form 10-Q
For the quarter ended December 31, 1999 Commission File Number: 0-15383
CEM CORPORATION
EXHIBIT INDEX
Exhibit Number: Exhibit Description
- --------------- -------------------
27 Financial Data Schedule (filed in electronic format only)
17 of 18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUN-30-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,561
<SECURITIES> 6,131
<RECEIVABLES> 6,516
<ALLOWANCES> 0
<INVENTORY> 5,228
<CURRENT-ASSETS> 23,270
<PP&E> 4,722
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,799
<CURRENT-LIABILITIES> 6,398
<BONDS> 0
0
0
<COMMON> 152
<OTHER-SE> 22,802
<TOTAL-LIABILITY-AND-EQUITY> 29,799
<SALES> 16,441
<TOTAL-REVENUES> 16,441
<CGS> 7,963
<TOTAL-COSTS> 7,963
<OTHER-EXPENSES> 7,101
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,376
<INCOME-TAX> 433
<INCOME-CONTINUING> 943
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 943
<EPS-BASIC> .31
<EPS-DILUTED> .31
</TABLE>
