<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 MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO_________
Commission File Number: 0-15383
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 [ ]
3,062,427 shares of the issuer's $.05 par value common stock, its only class of
common stock, were outstanding as of April 27, 2000.
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<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial statements
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended March 31, 2000
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
MARCH 31, 2000 AND JUNE 30, 1999
<TABLE>
<CAPTION>
(in thousands) (unaudited)
March 31, 2000 June 30, 1999
-------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................... $ 11,736 $ 2,865
Short-term investments ....................................... -- 6,262
Trade receivables, net ....................................... 5,893 6,634
Inventories, net ............................................. 5,001 5,335
Deferred taxes and other ..................................... 664 964
------------ ------------
Total current assets ...................................... 23,294 22,060
LONG-TERM INVESTMENTS ........................................... 546 476
PROPERTY, PLANT AND EQUIPMENT, NET .............................. 4,509 4,984
OTHER ASSETS .................................................... 1,277 1,036
------------ ------------
$ 29,626 $ 28,556
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current maturities of long-term debt ....... $ 8 $ 1,066
Accounts payable and accrued expenses ........................ 3,158 2,874
Deferred income .............................................. 1,615 1,402
Income taxes payable ......................................... 897 819
------------ ------------
Total current liabilities ................................. 5,678 6,161
LONG-TERM DEBT, NET OF CURRENT MATURITIES ....................... 318 173
DEFERRED TAXES .................................................. 127 127
SHAREHOLDERS' EQUITY:
Common stock ................................................. 153 152
Additional paid-in capital ................................... 194 --
Retained earnings ............................................ 23,788 22,422
Accumulated other comprehensive loss ......................... (632) (479)
------------ ------------
Total shareholders' equity ................................. 23,503 22,095
------------ ------------
$ 29,626 $ 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 MARCH 31, 2000 AND 1999
(UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Net sales ....................................................... $ 8,222 $ 7,537
Cost of goods sold .............................................. 3,804 3,526
------------ ------------
Gross profit ................................................ 4,418 4,011
Selling, general and administrative expenses .................... 2,957 2,751
Research and development expenses ............................... 765 835
------------ ------------
Income from operations ...................................... 696 425
Investment income ............................................... 134 101
Other expenses, net ............................................. (183) (37)
------------ ------------
Income before income taxes .................................. 647 489
Provision for income taxes ...................................... 205 162
------------ ------------
Net income .................................................. 442 327
Foreign Currency Translation .................................... (87) 219
------------ ------------
Comprehensive Income ........................................ $ 355 $ 546
============ ============
Net Income Per Share:
Basic ....................................................... $ .14 $ .11
============ ============
Diluted ..................................................... $ .14 $ .11
============ ============
Average Shares Outstanding:
Basic ....................................................... 3,062 3,075
============ ============
Diluted ..................................................... 3,063 3,075
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4 of 18
<PAGE> 5
CEM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Net sales ....................................................... $ 24,663 $ 23,180
Cost of goods sold .............................................. 11,766 11,098
------------ ------------
Gross profit ................................................ 12,897 12,082
Selling, general and administrative expenses .................... 8,513 8,062
Research and development expenses ............................... 2,311 2,341
------------ ------------
Income from operations ...................................... 2,073 1,679
Investment income ............................................... 370 313
Other expenses, net ............................................. (421) (78)
------------ ------------
Income before income taxes .................................. 2,022 1,914
Provision for income taxes ...................................... 638 603
------------ ------------
Net income .................................................. 1,384 1,311
Foreign Currency Translation .................................... (152) 389
------------ ------------
Comprehensive Income ........................................ $ 1,232 $ 1,700
============ ============
Net Income Per Share:
Basic ....................................................... $ .45 $ .42
============ ============
Diluted ..................................................... $ .45 $ .42
============ ============
Average Shares Outstanding:
Basic ...................................................... 3,050 3,107
============ ============
Diluted .................................................... 3,094 3,122
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 6
CEM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES ....................... $ 4,444 $ 2,210
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of available-for-sale investments ...................... 6,200 --
Investment in affiliate ..................................... (38) (38)
Acquisition of intangibles .................................. (130) (100)
Capital expenditures ........................................ (613) (841)
------------ ------------
Net cash used in investing activities ................ 5,419 (979)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of notes payable .................................... (1,000) (94)
Exercising of options ....................................... 213 --
Proceeds from issuance of common stock ...................... -- 21
Repurchase of common stock .................................. (19) (1,312)
------------ ------------
Net cash used in financing activities ................ (806) (1,385)
------------ ------------
EFFECTS OF EXCHANGE RATES ON CASH ............................... (186) 5
------------ ------------
Net increase(decrease) in cash and cash equivalents ............. 8,871 (149)
Cash and cash equivalents at beginning of period ................ 2,865 2,963
------------ ------------
Cash and cash equivalents at end of period ...................... $ 11,736 $ 2,814
============ ============
</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 March 31, 2000 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 March 31, 2000 and June 30,
1999 are as follows:
(in thousands)
<TABLE>
<CAPTION>
March 31 June 30
------------ ------------
<S> <C> <C>
Parts and raw materials ......................................... $ 2,533 $ 3,233
Work-in-process and finished goods .............................. 2,468 2,102
------------ ------------
$ 5,001 $ 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
March 31, 2000 follows:
(in thousands, except per share data)
<TABLE>
<S> <C>
Net income .................................................................. $ 442
Less: preferred stock dividends ............................................. --
------------
Income available to shareholders ............................................ $ 442
============
</TABLE>
<TABLE>
<CAPTION>
Dates Shares Fraction Weighted
Outstanding Outstanding of Period Average Shares
----------- ----------- --------- --------------
<S> <C> <C> <C>
January 1, 2000 .................................. 3,043
Shares repurchased during the period ............. -- -- --
Stock options exercised during the period ........ 19 90/90 19
------------
Weighted average shares .......................... 3,062
============
Basic earnings per share ......................... $ .14
============
</TABLE>
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<PAGE> 8
3. NET INCOME PER COMMON SHARE (CONTINUED)
Income and share information for the three months ended March 31, 1999 follows:
(in thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C>
Net income .................................................................. $ 327
Less: preferred stock dividends ............................................. --
------------
Income available to shareholders ............................................ $ 327
============
</TABLE>
<TABLE>
<CAPTION>
Dates Shares Fraction Weighted
Outstanding Outstanding of Period Average Shares
----------- ----------- --------- --------------
<S> <C> <C> <C>
January 1, 1999 .................................. 3,079
Shares repurchased during the period ............. (16) 23/90 (4)
Stock options exercised during the period ........ -- -- --
------------
Weighted average shares .......................... 3,075
============
Basic earnings per share ......................... $ .11
============
</TABLE>
Income and share information for the nine months ended March 31, 2000 follows:
(in thousands, except per share data)
<TABLE>
<S> <C>
Net income .................................................................. $ 1,384
Less: preferred stock dividends ............................................. --
------------
Income available to shareholders ............................................ $ 1,384
============
</TABLE>
<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) 244/274 (2)
Stock options exercised during the period ........ 19 90/274 6
------------
Weighted average shares .......................... 3,050
============
Basic earnings per share ......................... $ .45
============
</TABLE>
8 of 18
<PAGE> 9
3. NET INCOME PER COMMON SHARE (CONTINUED)
Income and share information for the nine months ended March 31, 1999 follows:
(in thousands, except per share data)
<TABLE>
<S> <C>
Net income .................................................................. $ 1,311
Less: preferred stock dividends ............................................. --
------------
Income available to shareholders ............................................ $ 1,311
============
</TABLE>
<TABLE>
<CAPTION>
Dates Shares Fraction Weighted
Outstanding Outstanding of Period Average Shares
----------- ----------- --------- --------------
<S> <C> <C> <C>
July 1, 1998 ..................................... 3,180
Shares repurchased during the period ............. (121) 170/274 (75)
Stock options exercised during the period ........ 3 183/274 2
------------
Weighted average shares .......................... 3,107
============
Basic earnings per share ......................... .42
============
</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 nine months
March 31, 2000 ended March 31, 2000
-------------------------- --------------------
<S> <C> <C>
Income available to shareholders ................................ $ 442 $ 1,384
Plus: Preferred stock dividends ................................. -- --
-------------- --------------
Income available to shareholders ................................ $ 442 $ 1,384
============== ==============
Weighted average shares ......................................... 3,062 3,050
Dilutive potential shares (stock options) ....................... 1 44
-------------- --------------
Adjusted weighted average shares ................................ 3,063 3,094
============== ==============
Diluted earnings per share ...................................... $ .14 $ .45
============== ==============
</TABLE>
Options to purchase an additional 386,670 and 386,670 shares of common stock at
a weighted average price of $10.56 and $8.43 per share were outstanding during
the three and nine months ended March 31, 2000, 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.
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<PAGE> 10
3. NET INCOME PER COMMON SHARE (CONTINUED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the three months ended For the nine months
March 31, 1999 ended March 31, 1999
-------------------------- --------------------
<S> <C> <C>
Income available to shareholders ................................ $ 327 $ 1,311
Plus: Preferred stock dividends ................................. -- --
-------------- --------------
Income available to shareholders ................................ $ 327 $ 1,311
============== ==============
Weighted average shares ......................................... 3,075 3,107
Dilutive potential shares (stock options) ....................... -- 15
-------------- --------------
Adjusted weighted average shares ................................ 3,075 3,122
============== ==============
Diluted earnings per share ...................................... $ .11 $ .42
============== ==============
</TABLE>
Options to purchase an additional 425,503 and 249,448 shares of common stock at
a weighted average price of $8.78 and $10.11 per share were outstanding during
the three and nine months ended March 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.
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.
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<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
------------------------------------------
3/31/00 3/31/99 % Change
-------- -------- --------
<S> <C> <C> <C>
Net sales .......................................... 100.0 100.0 9.1
Cost of goods sold ................................. 46.3 46.8 7.9
-------- --------
GROSS PROFIT ................................ 53.7 53.2 10.1
Selling, general and administrative expenses ....... 36.0 36.5 7.5
Research and development expenses .................. 9.3 11.1 (8.4)
-------- --------
INCOME FROM OPERATIONS ...................... 8.4 5.6 63.8
Investment income .................................. 1.6 1.3 32.7
Other expenses, net ................................ (2.2) (0.5) 494.6
-------- --------
INCOME BEFORE INCOME TAXES .................. 7.8 6.4 32.3
Provision for income taxes ......................... 2.5 2.1 26.5
-------- --------
NET INCOME .................................. 5.3 4.3 35.2
======== ========
</TABLE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2000
Net sales for the third quarter of fiscal 2000 increased by 9.1%, compared with
the third quarter of fiscal 1999, primarily due to increased demand in the
Asian and U.S. markets. These gains were partially offset by lagging sales 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 remained flat
at 42% in comparison to the third quarter of fiscal 1999.
Gross profit margins increased from 53.2% in the third quarter of fiscal 1999
to 53.7% in the third quarter of fiscal 2000, primarily due to increased
production efficiencies related to higher sales. Management expects the margin
to improve slightly as warranty costs associated with new products launched
during the 1999 fiscal year begin to decline as product adjustments and service
calls continue to resolve initial performance difficulties with the products.
Selling, general and administrative expenses increased 7.5% compared to the
third quarter of fiscal 1999, primarily due to increases in incentive
compensation ($40,000) and distributor commissions ($105,000) resulting from
increased sales. The 8.4% decrease in research and development expenses relates
to major project completion being at a lower level than the prior comparable
quarter. Management expects research and development expenses to remain between
8% and 10% of net sales for the foreseeable future.
Investment income increased 32.7% for the third 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 $9,000 to
$159,000 as compared with the third quarter of fiscal 2000.
The Company's effective tax rate was 31.7% for the third quarter of fiscal
2000, which approximates the fiscal 1999 tax rate.
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<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 nine-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>
Nine Months Ended
------------------------------------------
3/31/00 3/31/99 % Change
-------- -------- --------
<S> <C> <C> <C>
Net sales .......................................... 100.0 100.0 6.4
Cost of goods sold ................................. 47.7 47.9 6.0
-------- --------
GROSS PROFIT ................................ 52.3 52.1 6.7
Selling, general and administrative expenses ....... 34.5 34.8 5.6
Research and development expenses .................. 9.4 10.1 (1.3)
-------- --------
INCOME FROM OPERATIONS ...................... 8.4 7.2 23.5
Investment income .................................. 1.5 1.4 18.2
Other expenses, net ................................ (1.7) (0.3) 439.7
-------- --------
INCOME BEFORE INCOME TAXES .................. 8.2 8.3 5.6
Provision for income taxes ......................... 2.6 2.6 5.8
-------- --------
NET INCOME .................................. 5.6 5.7 5.6
======== ========
</TABLE>
RESULTS OF OPERATIONS - NINE MONTHS ENDED MARCH 31, 2000
The increase in total sales for the first nine 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 remained
flat at 43% in the first nine months of fiscal 2000 in comparison to the same
period of the prior year.
Gross profit margins were flat at 52% for the two nine-month periods.
Selling, general and administrative expenses for the nine months ended March
31, 2000 were 5.6% higher as compared to the prior year period. This
unfavorable comparison was due to a $150,000 settlement of litigation initiated
to establish the validity of a patent for our microwave digestion system that
had occurred in the prior year period. In addition, the increase in revenue
created a corresponding increase in incentive compensation ($100,000) and
distributor commissions ($180,000). Research and development expenses were
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 March 31, 2000.
The Company's effective tax was 31.5% for the first nine months of fiscal 2000,
which approximates the fiscal 1999 tax rate.
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<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
Financial Condition
In the first nine months of fiscal 2000, the Company generated cash from
operations of approximately $3.4 million, including $1.4 million in net income.
In anticipation of completion of the pending merger, of the Company, in the
fourth quarter short-term investments have not been renewed. In addition, the
current maturity of long-term debt in the amount of two million Deutsche Marcs
became due and was paid utilizing the proceeds from a Deutsche Marc investment
that matured in the third quarter. 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 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 Banc 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 approximately 15% of the
outstanding common stock of the Company.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<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>
<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 March 31,
2000.
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: April 27, 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 March 31, 2000 Commission File Number: 0-15383
CEM CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number: Exhibit Description
- --------------- -------------------
<S> <C>
27 Financial Data Schedule (filed in electronic format only)
</TABLE>
17 of 18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CEM CORPORATION FOR THE NINE MONTHS ENDED MARCH 31, 2000
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 11,736
<SECURITIES> 0
<RECEIVABLES> 6,143
<ALLOWANCES> 250
<INVENTORY> 5,001
<CURRENT-ASSETS> 23,294
<PP&E> 4,509
<DEPRECIATION> 7,062
<TOTAL-ASSETS> 29,626
<CURRENT-LIABILITIES> 5,678
<BONDS> 0
0
0
<COMMON> 153
<OTHER-SE> 23,350
<TOTAL-LIABILITY-AND-EQUITY> 29,626
<SALES> 24,663
<TOTAL-REVENUES> 24,663
<CGS> 11,766
<TOTAL-COSTS> 11,766
<OTHER-EXPENSES> 10,824
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,022
<INCOME-TAX> 638
<INCOME-CONTINUING> 1,384
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,384
<EPS-BASIC> .45
<EPS-DILUTED> .45
<FN>
CERTAIN INFORMATION IN THE FINANCIAL DATA SCHEDULE ABOVE HAS BEEN CONDENSED FOR
INTERIM FINANCIAL REPORTING PURSUANT TO THE RULES AND REGULATIONS OF THE
SECURITIES AND EXCHANGE COMMISSION.
</FN>
</TABLE>
