UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________.
COMMISSION FILE NO.: 0-9273
--------------------
MOCON, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0903312
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7500 BOONE AVENUE NORTH
MINNEAPOLIS, MINNESOTA 55428
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (763) 493-6370
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.10 PAR VALUE
--------------------
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. _X_
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES ___ NO _X_
The aggregate market value of the Registrant's Common Stock, excluding
outstanding shares beneficially owned by directors and executive officers,
computed by reference to the price at which the Common Stock was last sold as of
June 28, 2002 (the last business day of the Registrant's second quarter) as
reported by the Nasdaq Stock Market, was $46,496,878.
As of March 14, 2003, 5,412,669 shares of Common Stock of the registrant
were deemed outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates by reference
information (to the extent specific sections are referred to herein) from the
registrant's Proxy Statement for its 2003 Annual Meeting of Shareholders to be
held May 20, 2003.
1
PART I
This Annual Report on Form 10-K includes certain statements that are deemed to
be "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. All statements contained in this Annual Report, other
than statements of historical facts, are forward-looking statements. These
statements are based on certain assumptions and analyses made by us in light of
our experience and our perception of historical trends, current conditions,
expected future developments, and other factors we believe are appropriate in
the circumstances. Such statements are subject to a number of assumptions,
risks, and uncertainties, many of which are beyond our control. You can identify
forward-looking statements by those that are not historical in nature,
particularly those that use terminology such as "may," "will," "should,"
"expects," "believes," "anticipates," "estimates," "continues," "projects,"
"potential," or "plan" or the negative of these or other similar terms. We
caution you that any such statements are not guarantees of future performance
and that actual results or developments may differ materially from those
projected in the forward-looking statements.
ITEM 1. BUSINESS
MOCON, Inc. designs, manufactures, markets, and services products and
provides consulting services primarily in the measurement and analytical
instrument and services markets. Our products include instruments that detect,
measure and monitor gases and chemical compounds as well as products that
prepare samples of various substances for laboratory analysis.
Our principal business strategy is to employ our product development and
technological capabilities, manufacturing processes, and marketing skills in
market niches where we can successfully penetrate the market and then strive to
become a leader in the market segment. Our management team continually
emphasizes product innovation, product performance, quality improvements, cost
reductions and other value-adding activities. Although some of the markets for
our products are maturing, we continually seek growth opportunities through
technological and product improvement, by acquiring and developing new products,
and by acquiring new companies.
MOCON, Inc. was incorporated in February 1966 and was initially involved in
the commercialization of technology developed for the measurement of water vapor
permeating through various materials. Prior to 1998, we expanded our business
primarily through internally developing new products and technologies, acquiring
product lines and technology, and licensing our products and technology. In 1998
and 2001, we supplemented our internal growth by acquiring a total of three
companies that have provided us with additional technologies, products and
product development expertise.
In January 1998, we acquired Microanalytics Instrumentation Corp. which is
located near Austin, Texas. Microanalytics produces various gas chromatographic
(GC) instruments and provides services with an emphasis on multidimensional gas
chromatography. A variety of GC specific applications have been developed by
Microanalytics personnel, ranging from petroleum and petrochemical purity assay
to aroma and off-odor analysis for the food and packaging fields.
In December 1998, we acquired Lab Connections, Inc. which is located near
Boston, Massachusetts. Lab Connections manufactures hardware and software
interfaces that allow the components of a particular substance to be identified
by spectrometry and spectroscopy after they have
2
been separated through chromatography. Lab Connections' products extend and
enhance customers' productivity by allowing for the rapid preparation of samples
for laboratory analysis furnishing information regarding the identity,
composition and configuration of complex mixtures. Lab Connections' products are
used by a variety of customers, including bio-pharmaceutical, polymer and
consumer products companies as well as companies that analyze proteins,
pharmaceutical compounds, polymers, adhesives and other materials.
In October 2001, we acquired Questar Baseline Industries, Inc. from Questar
InfoComm, Inc., a subsidiary of Questar Corporation. We have subsequently
renamed this company "Baseline-MOCON, Inc." (Baseline). Baseline is located near
Denver, Colorado. Baseline produces advanced gas analysis and monitoring
instrumentation used in applications such as oil and gas exploration, process
gas analysis, and industrial hygiene and safety applications.
Our principal executive offices are located at 7500 Boone Avenue North,
Minneapolis, Minnesota 55428 and our telephone number is (763) 493-6370. Our
website address is www.mocon.com.
PRODUCTS AND SERVICES
We develop, manufacture, market, and service measurement, analytical,
monitoring, sample preparation and consulting products used to detect, measure,
and analyze gases and chemical compounds.
PERMEATION PRODUCTS
Permeation products consist of systems and services that measure the rate
at which various gases and vapors are transmitted through various materials.
These products perform measurements under precise temperature and relative
humidity conditions. The principal market for these products consists of
manufacturers of packaging materials (including manufacturers of papers,
plastics and coatings) and the users of such packaging materials, such as
companies in the food, beverage, pharmaceutical and chemical industries.
We also provide certain laboratory testing services to companies that use
our permeation products. These services consist primarily of testing film and
package permeation for companies that:
o have insufficient business to justify the purchase of our products;
o are not familiar with such equipment; or
o have purchased our products but have a need for additional capacity.
Permeation products accounted for approximately 53%, 62%, and 63% of our
consolidated sales in 2002, 2001, and 2000, respectively. Permeation instruments
that we currently manufacture include OX-TRAN(R) systems for oxygen transmission
rates, PERMATRAN-W(R) systems for water vapor transmission rates, and
PERMATRAN-C(TM) systems for carbon dioxide transmission rates.
WEIGHING PRODUCTS
We manufacture weighing products that automatically determine the weight of
pharmaceutical capsules and tablets and reject those that are out of acceptable
limits. Our VERICAP(R) high-speed
3
capsule weighing system runs at rates up to 2,000 capsules per minute and can be
integrated into a capsule production line in pharmaceutical factories. Other
weighing systems that we sell are designed for off-line use, and we market these
products primarily to the pharmaceutical industry. Weighing products accounted
for less than 10% of our consolidated sales in each of 2002, 2001 and 2000. In
addition to the VERICAP(R) high-speed capsule weighing systems, we also
manufacture the AB(TM) automatic balance weighing systems for both tablets and
capsules.
CONSULTING AND ANALYTICAL SERVICES
We provide consulting and analytical services, on a special project basis,
for customers that require custom solutions to unique problems. Services that we
typically provide relate to:
o absorption or diffusion of various compounds;
o harsh environment applications;
o shelf-life concerns;
o flavor or odor detection; or
o other special permeation applications.
In providing consulting and analytical services, we use our most advanced
measurement technologies, including proprietary TRANSORPTION(R) technology. The
principal market for the consulting and analytical services consists of
manufacturers of foods, beverages, pharmaceuticals, plastics, chemicals,
electronics, and personal care products.
HEADSPACE ANALYZER PRODUCTS
Our headspace analyzers are used to analyze the amount of oxygen and carbon
dioxide present in the headspace of flexible and rigid packages. Some analyzers
measure the oxygen and carbon dioxide content in flushing gases used in modified
or controlled atmosphere packaging. The principal market for these products
consists of packagers of foods, beverages and pharmaceuticals. The headspace
analyzer products that we currently manufacture include the PAC CHECK(TM) series
of headspace analyzers and the GSA(TM) series of on-line gas stream analyzers
for continuous and intermittent monitoring of modified atmosphere packaging
(MAP) and other gas flushing operations.
SAMPLE PREPARATION PRODUCTS
We design, manufacture, market, and service products used in sample
preparation. These products consist of hardware and software interfaces that
allow the components of a particular substance to be identified by spectroscopy
after they have been separated through chromatography. The most time-consuming
part of chemical analysis is sample preparation and any product that reduces
total sample preparation time is of benefit to companies who analyze chemical
compounds. Our products provide fully automatic sample collection from various
Liquid Chromatographs and Gel Permeation Chromatographs in a form suitable for
immediate examination by Fourier transform infra-red spectroscopy (FTIR) and/or
matrix assisted laser desorption ionization mass spectrometry (MALDI-MS). The
principal market for these products is laboratories that analyze proteins,
polymeric compounds and adhesives. The sample preparation products that we
currently manufacture are the LC-Transform(R) for interfacing to FTIR and the
LC-Transform for interfacing to MALDI-MS.
4
GAS CHROMATOGRAPHY ANALYZER PRODUCTS
We integrate gas chromatography components that we purchase from third
parties with GCs purchased from third parties to form multidimensional GC
analyzer systems. The multidimensional GC analyzers that are formed through the
integration of gas chromatography components with GCs represent state of the art
technology in gas chromatographic separations and are used in identifying
compounds causing off-odors in various products, in identifying critical aroma
compounds, and in high purity analysis of single component matrixes. The GC
analyzer products that we currently manufacture are the AROMATRAX(TM) systems
for odor and aroma analysis and profiling, the PURI-TRAX(TM) systems consisting
of a vinyl chloride monomer purity analysis system and a system for measuring
trace levels of oxygenated hydrocarbons in a variety of hydrocarbon products and
process streams such as liquefied petroleum gases, and the VAPO-JECT(TM)
automated vaporizing injector system for permanent and liquefied petroleum
gases. The principal markets for our GC analyzer products consist of food,
beverage, petroleum, chemical and petrochemical manufacturers.
LEAK DETECTION PRODUCTS
The leak detection products that we manufacture detect leaks in sterile
medical trays, pouches, blister packs and a wide range of other packages. We
currently manufacture two types of leak detection instruments. The first type of
instrument is a non-destructive leak detector that senses small amounts of
carbon dioxide escaping from a package or tray. The second type of instrument
detects leaks and checks for seal integrity by applying and measuring pressure
within a package. The principal market for these products are packagers of
sterile medical items, pharmaceuticals, and food products.
GAS ANALYZER PRODUCTS
The company sells its gas analyzer products in two categories. Its
permanent gas analyzers and systems are installed in fixed locations at the
monitoring sites and generally perform their functions continually or at regular
intervals. Its portable gas analyzers are hand-held, compact and are used on
occasions requiring mobile equipment. The gas analyzer products are for use in
(1) industrial hygiene (detection of hazardous gases in the workplace), (2)
hydrocarbon gas analysis for oil and gas exploration, and gas pipeline
monitoring, (3) contaminant detection in the manufacture of specialty gases, and
(4) environmental monitoring (tracking the release of, or the presence of, toxic
substances).
We acquired the gas analyzer product line effective October 1, 2001. Gas
analyzer products accounted for approximately 19%, 7%, and 0% of our
consolidated sales in 2002, 2001, and 2000, respectively.
COMPETITION
We have several competitors in both foreign and domestic markets for all of
our products and services. The principal competitive factors for our products
and services are:
o product performance;
o product reliability;
o product support; and
o price.
5
We compete with a variety of competitors in each market in which we sell
our products. Some of our competitors have greater assets and resources than we
do, and some are smaller than we are.
MANUFACTURING AND SUPPLIES
We manufacture products at four locations in the United States. Our
manufacturing capabilities include electro-mechanical assembly, testing,
integration of components and systems, calibration, and validation of systems.
Certain components that we use in our products are currently purchased from
single source suppliers. An interruption of one of these sources could result in
delays in our production while we locate an alternative supplier, which in turn
could result in a loss of sales and income. There are other single source
components for which we have determined that other sources are readily
available. To date, we have experienced no significant production delays because
of a supplier's inability to ship an acceptable component.
MARKET RISK MANAGEMENT
Substantially all of our marketable securities are at fixed interest rates
and therefore the fair value of these instruments is affected by changes in
market interest rates. However, virtually all of the marketable securities that
we purchase mature within two years. Accordingly, we believe that the market
risk associated with the holding of these financial instruments is minimal.
We currently sell our products and services in United States dollars and
therefore have minimal foreign currency exchange risk.
BACKLOG
As of December 31, 2002, our total backlog was $1,722,421 for all of our
products as compared to $1,146,245 and $1,958,567 as of December 31, 2001 and
2000, respectively. We anticipate shipping the entire current backlog in 2003.
PATENTS AND LICENSES
We believe that the protection afforded us by our patent rights is
important to our business and we will continue to seek patent protection for our
technology and products. We require certain employees and consultants to assign
to us all inventions that are conceived and developed during their employment,
except to the extent prohibited by applicable law. We hold both United States
and international patents and have U.S. and international patents pending. We
currently hold 42 U.S. patents and 25 international patents. In addition, we
hold license rights under four U.S. patents subject to royalty payments. These
patents and licenses will expire during the period from 2005 through 2021.
We own or have applied for certain trademarks which protect and identify
our products. Among the trademarks we own is MOCON(R), which we have designated
as a house trademark under which all our products manufactured at our
headquarters are sold. In addition, we hold the following trademarks and
servicemarks: VERICAP(R), OX-TRAN(R), PERMATRAN-W(R), PROFILER(R), COULOX(R),
HERSCH(R), VERITAB(R), AROMATRAN(R), SKYE(R), PAC CHECK 200(R), LC-Transform(R),
TRANSORPTION(R), 1-TIME(R), AROMATRAX(R), PAC GUARD(R), and OPTIPERM(R). Our
trademarks and servicemarks have a life, subject to periodic maintenance, of 10
to 20 years, which may be extended in accordance with applicable law.
6
RESEARCH AND DEVELOPMENT
We incurred expenses of $1,286,220, $1,042,961 and $1,126,564 during the
fiscal years ended December 31, 2002, 2001 and 2000, respectively, for research
and development of our products. Research and development (R&D) costs were
approximately 6% of sales for the fiscal year ended December 31, 2002 and
approximately 5% and 7% of sales for the fiscal years ended December 31, 2001
and 2000, respectively. For the foreseeable future, we expect to spend, on an
annual basis, approximately 5% to 8% of our sales on research and development.
WORKING CAPITAL PRACTICES
We strive to maintain a level of inventory that is appropriate given our
projected sales. Our standard domestic payment terms are net 30 days.
International sales are, in some cases, transacted pursuant to letters of
credit.
FOREIGN AND DOMESTIC MARKETING
We market our products and services throughout the United States and
foreign markets. We sell the majority of our products in the United States and
Canada through our sales force directly to end-users. Most of our sales in
foreign markets are conducted through a network of independent representatives.
To our knowledge, none of our independent sales representatives sells a material
amount of product manufactured by any of our competitors.
We make almost all of our foreign sales in U.S. dollars and consequently do
not hedge against exchange rate fluctuations. Nonetheless, should the value of
the dollar rise relative to other currencies, our sales abroad could be
negatively impacted. Additionally, it is possible that changes to foreign
tariff, trade or tax policies or foreign economic conditions could negatively
affect our sales and earnings in the future.
For information concerning our export sales by geographic area, see Note 11
of the Notes to Consolidated Financial Statements contained on page F-18. No
single customer accounted for 10% or more of our consolidated revenues in any of
the fiscal years ended December 31, 2002, 2001 and 2000, and we do not believe
that the loss of any single customer would have a material adverse effect on our
business or financial performance. One of our independent representatives
accounted for approximately 8%, 10%, and 16% of sales in 2002, 2001, and 2000,
respectively. Another independent representative accounted for approximately 7%,
14%, and 9% of sales in 2002, 2001, and 2000, respectively. Our business is not
seasonal in nature.
EMPLOYEES
As of December 31, 2002, we had 106 full-time employees. Included in this
total are approximately 18 scientists and engineers who research and develop
potential new products. To protect our proprietary information, we have
confidentiality and non-compete agreements with those of our employees who have
access to sensitive information. None of our employees are represented by a
labor union, and we consider our employee relations to be satisfactory.
7
ITEM 2. PROPERTIES
We lease an aggregate of 61,100 square feet of office, engineering,
laboratory, and production space in Minnesota, Massachusetts, and Texas. We
believe that all of our facilities are generally adequate for their present
operations and that suitable space is readily available if any of our leases are
not extended.
Our headquarters and operations occupy approximately 47,200 square feet of
space in Minneapolis, Minnesota. This space is leased until June 2010.
Microanalytics' operations occupy approximately 8,600 square feet of space
in the metropolitan area of Austin, Texas. This space is leased until June 2004.
Lab Connections' operations occupy approximately 5,300 square feet of space
near Boston, Massachusetts. This space is leased until July 2004.
In addition to our leased facilities described above, we own a building
within forty miles of Denver, Colorado that consists of approximately 9,300
square feet of office and production space in which Baseline conducts its
operations. We also own the land, consisting of approximately two acres, on
which this building sits.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal, governmental, administrative or other
proceedings to which we are a party or of which any of our property is the
subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of our security holders during the fourth
quarter of 2002.
ITEM 4A. EXECUTIVE OFFICERS OF MOCON
Our executive officers, their ages, the year first elected or appointed as
an executive officer and the offices held, as of March 14, 2003, are as follows:
Executive
Officer
Name Age Title (1) Since
- -------------------------------------------------------------------------------------------------------
Robert L. Demorest (2) 57 President and Chief Executive Officer, 1985
Chairman of the Board
Daniel W. Mayer 52 Executive Vice President 1988
Dane D. Anderson (3) 41 Vice President and Chief Financial Officer, 2000
Treasurer and Secretary
Douglas J. Lindemann (4) 45 Vice President and General Manager 2001
Ronald A. Meyer (5) 52 Vice President 1985
- ------------------------
(1) All executive officers have been employed in the capacity set forth for at
least five years unless otherwise indicated.
8
(2) Mr. Robert L. Demorest has been our President, Chief Executive Officer, and
Chairman of the Board since April 2000. Prior to that time, Mr. Demorest
had been our President for more than five years.
(3) Mr. Dane D. Anderson has been our Chief Financial Officer, Vice President,
Treasurer and Secretary since January 2001. Mr. Anderson had been our Chief
Financial Officer, Treasurer and Secretary since August 2000, and was our
acting Vice President - Finance and Administration, Treasurer and Secretary
from May 2000 to August 2000. From July 1996 to May 2000, Mr. Anderson had
been one of our Business Managers.
(4) Mr. Douglas J. Lindemann has been a Vice President and General Manager for
us since January 2001. From July 2000 to December 2000 Mr. Lindemann served
as a General Manager for us. Prior to that time Mr. Lindemann had been one
of our Business Managers since 1995.
(5) Mr. Ronald A. Meyer has been a Vice President for us for more than five
years. From 1995 to April 2000, Mr. Meyer also served as our Chief
Financial Officer, Treasurer and Secretary.
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of March 14, 2003, there were 416 record holders of our common stock.
Our common stock trades on the Nasdaq Stock Marketsm under the symbol MOCO. The
following table sets forth, for the fiscal periods indicated, the high and low
quotations for our common stock as reported by the Nasdaq National Market
System.
2002 2001
---- ----
Quarter Low High Dividend Low High Dividend
- ------- --- ---- -------- --- ---- --------
1st Quarter.................. $ 8.25 $ 10.62 $ .06 $ 6.13 $ 7.31 $ .06
2nd Quarter.................. $ 8.20 $ 12.45 $ .06 $ 5.85 $ 7.70 $ .06
3rd Quarter.................. $ 6.01 $ 9.48 $ .06 $ 6.40 $ 9.40 $ .06
4th Quarter.................. $ 6.00 $ 7.97 $ .06 $ 7.00 $ 10.10 $ .06
ITEM 6. SELECTED FINANCIAL DATA
Years Ended December 31,
----------------------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
(in thousands, except per share data)
----------------------------------------------------------------------------
OPERATIONS DATA:
Sales....................................... $19,931 $19,261 $17,319 $17,001 $14,624
Net income.................................. $ 2,297 $ 3,421 $ 3,270 $ 2,899 $ 2,328
Net income per common share:
Basic.............................. $ .42 $ .62 $ .55 $ .46 $ .37
Diluted............................ $ .41 $ .61 $ .55 $ .46 $ .36
Dividends declared per share................ $ .24 $ .24 $ .225 $ .20 $ .20
As of December 31,
----------------------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
(in thousands)
----------------------------------------------------------------------------
BALANCE SHEET DATA:
Total assets................................ $19,821 $18,958 $18,418 $18,204 $17,675
Long-term liabilities....................... $ 326 $ 320 $ 187 $ 112 $ 98
Our acquisitions of Baseline-MOCON, Inc. in 2001 and of Lab Connections,
Inc. and Microanalytics Instrumentation Corp. in 1998 affect the comparability
of the information in the table above. The results of these subsidiaries have
been included from the effective dates of purchase.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SUMMARY
We have four operating locations, all of which are located in the United
States. On January 28, 1998 we acquired Microanalytics Instrumentation Corp. of
metro Austin, Texas and on December 7, 1998 we acquired Lab Connections, Inc. of
metro Boston, Massachusetts. In October 2001, we acquired Questar Baseline
Industries, Inc. from Questar InfoComm, Inc., a subsidiary of Questar
Corporation, which we subsequently renamed "Baseline-MOCON, Inc." (Baseline).
Baseline is located near Denver, Colorado. The acquisitions were recorded using
the purchase method of accounting and, accordingly, their results of operations
have been included since the effective acquisition dates. Sales increased 3% in
2002 compared to 2001, while net income decreased 33% for the same period. Our
financial position as of December 31, 2002 reflects an increase in working
capital of $857,252 to $10,529,891, compared to $9,672,639 at December 31, 2001.
Diluted earnings per share were $0.41 in 2002, $0.61 in 2001 and $0.55 in 2000.
RESULTS OF OPERATIONS
Sales were $19,931,065 in 2002, compared to $19,261,334 in 2001 and
$17,319,165 in 2000. The increase in sales from 2001 to 2002 was primarily the
result of Baseline sales in 2002 totaling $3,881,781 (Baseline was acquired in
October, 2001, and therefore our 2001 results included sales of Baseline from
the effective date of acquisition, or $1,348,101), increases in the domestic
sales volume of our sample preparation products, domestic sales volume of our
permeation products, and the foreign sales volume of our leak detection
products, offset by decreases in the foreign sales volume of our permeation
products, domestic and foreign sales volume of our weighing products, and the
foreign sales volume of our sample preparation products. The impact of price
increases was not significant. In 2002, domestic sales increased 22% to
$13,354,090 and foreign sales decreased 21% to $6,576,975. International sales
were 33% of total sales in 2002, compared to $8,303,688, or 43% of sales in
2001, and $7,067,386, or 41% of total sales in 2000. The increase in the
domestic sales volume of our sample preparation products was primarily due to
sales of a new unit to one particular customer for use in the drug discovery and
life sciences markets. Total 2002 sales to this customer were approximately
$989,000. Due to a variety of factors, including the economic slowdown, we
anticipate that our sales of our sample preparation products will be less in
2003 compared to 2002.
We use a network of independent representatives to market and service our
products in foreign countries, and expect that international sales will continue
to account for a significant portion of our revenues for the foreseeable future.
The 2002 decrease in the foreign sales volume of our permeation products was
primarily due to decreased sales to Japan, and to a lesser extent to Europe and
Canada, which we believe was primarily the result of slow economies in these
major foreign markets. The increase in sales from 2000 to 2001 was due primarily
to increases in the foreign sales volume of our permeation products, domestic
and foreign sales volume of our weighing products, and the addition of Baseline,
offset by primarily domestic decreases in the sales volume of our sample
preparation products and consulting and analytical services products.
Total sales of our permeation products decreased in 2002 due primarily to
the decline in foreign markets. Permeation products accounted for approximately
53%, 62%, and 63% of our consolidated sales in 2002, 2001, and 2000,
respectively.
11
Weighing product sales decreased in 2002 due to declining sales of both our
VERICAP and AB weighing systems. We believe that the decline in sales of our
VERICAP systems is due both to increased competition in high speed capsule
weighing systems, and the slowness in the economy. We believe that decreased
sales of our AB weighing systems is due primarily to the slow economy. Weighing
products increased in 2001 versus 2000 due to increased sales of both the
VERICAP and the AB weighing systems. Weighing products accounted for
approximately 3%, 9% and 7% of the Company's consolidated sales in 2002, 2001,
and 2000, respectively.
Sales of sample preparation products increased in 2002 due to the
aforementioned sales to one particular customer. Sales of these products
decreased in 2001 versus 2000 due to the combined result of a slowing domestic
economy in 2001 and the change to a new domestic independent sales
representative organization in 2001, which proved to be unsuccessful.
The majority of consulting and analytical services sales are to domestic
customers. We believe that the primary cause for the decreases in these sales
between 2001 and 2002 was the slowdown in the domestic economy, which resulted
in a reduced demand for our advanced testing services. We believe the domestic
economic slowdown was also the cause of decreased sales between 2000 and 2001.
Sales of headspace analyzer products remained generally consistent in 2002
compared to 2001 and 2000. Sales of leak detection products increased in 2002
due to an increase in the sales of our non-destructive leak detector to foreign
markets, and remained generally consistent between 2001 and 2000.
Baseline, acquired effective October 1, 2001, manufactures our gas analyzer
products. Their sales for 2002 totaled $3,881,781 and were $1,348,101 for the
period from October 1, 2001 through December 31, 2001.
Our gross profit margin was 53%, 60% and 62% in each of the fiscal years
ended December 31, 2002, 2001 and 2000. The 2002 gross profit margin is lower
than our historical average primarily due to the product mix in 2002, including
Baseline sales, which on average carry a lower gross margin percentage than our
historical averages. We are currently working to increase Baseline's gross
margin percentage in several ways, including increasing prices where appropriate
and introducing new higher margin products. The 2001 gross profit margin
percentage was lower due in part to fair value assigned to acquired inventory
associated with the acquisition of Baseline.
Selling, general and administrative (SG&A) expenses in 2002 were
$6,107,066, or 31% of sales, compared to $5,814,588, or 30% of sales in 2001,
and $5,329,514, or 31% of sales in 2000. The increase in SG&A expenses from 2001
to 2002 is primarily due to a slight increase in commission and other selling
expenses associated with the increase in sales, including Baseline sales,
partially offset by a decrease in goodwill amortization expense of $77,000 in
2002 versus 2001 as goodwill was no longer being amortized. The increase in SG&A
expenses from 2000 to 2001 is primarily due to an increase in travel, marketing
and other expenses associated with the increase in sales, including fourth
quarter Baseline sales and marketing expenses, partially offset by a decrease in
legal expenses in 2001 versus 2000 for legal fees incurred in the prior year to
protect confidential information of the Company. The related matter was settled
in 2000.
Research and development expenses amounted to $1,286,220, or 6% of sales in
2002, compared to $1,042,961, or 5% of sales in 2001, and $1,126,564, or 7% of
revenue in 2000. Continued R&D expenditures are necessary as we develop new
products to expand in our niche markets. For the
12
foreseeable future, we expect to allocate on an annual basis approximately 5% to
8% of sales to research and development.
Investment income decreased to $195,468 in 2002 from $435,928 in 2001. The
decrease in 2002 is due both to lower average investment balances and lower
average investment yields during 2002. The decrease in investment income during
2001 versus 2000 was primarily due to lower average investment balances offset
by higher average investment yields during 2001.
The Company's provision for income taxes was 33.1% of income before income
taxes in 2002 and 32.5% and 32.0% of pretax income in 2001 and 2000,
respectively. Based on current operating conditions and income tax laws, we
expect the tax rate for 2003 to be in the range of 34% to 36%.
Net income was $2,297,214 in 2002 compared to $3,420,668 in 2001, and
$3,270,272 in 2000. Diluted net income per share was $.41 per share in 2002
compared to $.61 per share in 2001, and $.55 per share in 2000.
LIQUIDITY AND CAPITAL RESOURCES
We continue to maintain a strong financial position. Total cash, temporary
cash investments and marketable securities increased $1,224,981 during 2002 to
$6,159,898, primarily due to net income for the period and a decrease in
accounts receivable, offset somewhat by an increase in capital assets, dividend
payments totaling $1,318,095, and repurchases of the Company's common stock
during 2002 totaling $196,000. Our Board of Directors has authorized, depending
upon market conditions and other factors, the repurchase of up to an additional
$2,000,000 of our common stock at prices not exceeding the market price at the
time of the purchase. The $305,986 decrease in accounts receivable in 2002
versus 2001 is primarily due to improved accounts receivable collection efforts,
and a small decrease in sales in the fourth quarter of 2002 versus the fourth
quarter of 2001. Inventory increased approximately 3% during 2002, which is in
line with the increase in sales for the same period.
Cash flow from operations has historically been sufficient to meet our
liquidity requirements, capital expenditures and research and development costs.
Cash flow from operations totaled $3,424,407, $3,603,690 and $3,435,594 in 2002,
2001and 2000, respectively.
We have no long-term debt or material commitments for capital expenditures
as of December 31, 2002. Our plant and equipment do not require any major
expenditures to accommodate a significant increase in operating demands. We
anticipate that a combination of our existing cash, temporary cash investments
and marketable securities, plus an expected continuation of cash flow from
operations, will continue to be adequate to fund operations, capital
expenditures and dividend payments in the foreseeable future.
NEW ACCOUNTING PRONOUNCEMENTS
We adopted the provisions of Statement No. 142 effective January 1, 2002.
Goodwill and intangible assets determined to have an indefinite useful life
acquired in a purchase business combination completed after June 30, 2001 have
not been amortized, but will continue to be evaluated for impairment in
accordance with the appropriate pre-Statement No. 142 accounting literature.
Goodwill and intangible assets acquired in business combinations completed
before July 1, 2001 were amortized prior to the adoption of Statement No. 142.
13
We adopted the provisions of FASB Statement No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, effective January 1, 2002.
Statement 144 addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. While Statement No. 144 supersedes SFAS No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF, it retains many of the fundamental provisions of that statement.
The adoption of SFAS No. 144 did not impact our financial condition or results
of operations.
In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING
INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS. FIN 45 requires that a liability
be recorded in the guarantor's balance sheet upon issuance of a guarantee. In
addition, FIN 45 requires disclosures about the guarantees that an entity has
issued, including a roll-forward of the entity's product warranty liabilities.
We do not expect the adoption of FIN 45 to have an impact on our financial
position and results of operations.
In December 2002, the FASB issued Statement No. 148, ACCOUNTING FOR
STOCK-BASED COMPENSATION-TRANSITION AND DISCLOSURE, AN AMENDMENT OF FASB
STATEMENT NO. 123. This Statement amends FASB Statement No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures in both annual and interim
financial statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002 and are included in the notes to
these consolidated financial statements.
CRITICAL ACCOUNTING POLICIES
Our estimates related to certain assets and liabilities are an integral
part of the consolidated financial statements. These estimates are considered
critical to the consolidated financial statements because they require
subjective and complex judgments.
Allowance for doubtful accounts - This reserve is for accounts receivable
balances that are potentially uncollectible. The reserve is based on (1) an
analysis of customer accounts and (2) our historical experience with accounts
receivable write-offs. The analysis would include the age of the receivable, the
financial condition of a customer or industry, and general economic conditions.
We believe the results could be materially different if historical trends do not
reflect actual results or if economic conditions worsened for our customers.
Inventory reserves - This reserve is for shrinkage, slow moving, and
obsolete inventory. The reserve is based on an analysis of inventory trends. Our
analysis includes inventory levels, physical inventory counts, cycle count
adjustments, the nature of the finished product and its inherent risk of
obsolescence, the gross margin of the product, and the on-hand quantities
relative to the sales history of that finished product. We believe that the
results could be materially different if historical trends do not reflect actual
results or if demand for our products decreased because of economic or
competitive conditions.
Recoverability of Long-Lived Assets - We assess the recoverability of
goodwill and other long-lived assets annually or whenever events or changes in
circumstances indicate that expected future undiscounted cash flows might not be
sufficient to support the carrying amount of an asset. We deem an asset to be
impaired if a forecast of undiscounted future operating cash flows is less than
an asset's carrying amount. If an asset is determined to be impaired, the loss
is measured as the amount by which the carrying value of the asset exceeds its
fair value. Changes in our business strategies and/or changes in the economic
environment in which we operate may result in future impairment charges.
CERTAIN IMPORTANT FACTORS
IF WE EXPERIENCE ANY INCREASE IN THE COST OF RAW MATERIALS OR SUPPLIES, WE
MAY EXPERIENCE A DECREASE IN PROFIT MARGINS.
14
In the past, the overall cost of the materials that we purchase has not
risen much more than the rate of inflation, although the price of some of the
components that we purchase has increased in the past several years due in part
to our purchasing less of such components. Certain other material and labor
costs have increased, but we believe that such increases are approximately
consistent with overall inflation rates. We believe that the price of our
products and the prices of our competitors' products is a significant factor
affecting our customers' buying decisions and consequently, we may not be able
to pass along any cost increases in the form of price increases or sustain
profit margins that we have achieved in prior years.
THE MARKETS IN WHICH WE OPERATE HAVE EXPERIENCED MINIMAL GROWTH IN RECENT
YEARS, AND OUR ABILITY TO INCREASE OUR REVENUES WILL DEPEND IN PART ON OUR
ABILITY TO DEVELOP NEW PRODUCTS, DEVELOP NEW APPLICATIONS FOR OUR EXISTING
PRODUCTS AND TO ACQUIRE COMPLEMENTARY BUSINESSES AND PRODUCT LINES.
The analytical and measurement instrument markets in which we operate have
not shown significant growth in recent years. Although we have identified a
number of strategies that we believe will allow us to grow our business and
increase our sales, including developing new products and technologies,
developing new applications for our technologies, acquiring complementary
businesses and product lines, and strengthening our sales force, we can not
assure you that we will be able to successfully implement these strategies, or
that these strategies will result in the growth of our business or an increase
in sales.
IF WE ACQUIRE BUSINESSES IN THE FUTURE, WE MAY EXPERIENCE A DECREASE IN OUR
PROFIT MARGINS AND OUR NET INCOME.
One of our growth strategies is to supplement our internal growth with the
acquisition of businesses and technologies that complement or augment our
existing products. Some of the businesses that we previously acquired have
produced net operating losses or low levels of profitability. Businesses that we
may acquire in the future may be marginally profitable or unprofitable. We will
likely have to successfully change the operations of any companies that we
acquire in the future and improve the market penetration of such companies in
order to achieve the level of profitability that we desire. In addition,
acquisitions that we believe will be beneficial to our business and financial
results are difficult to identify and complete for a number of reasons,
including the competition among prospective buyers. We may not be able to
complete acquisitions in the future and any acquisitions that we do complete may
have an adverse effect on our financial performance and liquidity. It may be
necessary for us to raise additional funds either through public or private
financing in order to finance any future acquisitions. Any equity or debt
financing, if available at all, may be on terms that are not favorable to us and
may dilute the ownership of our existing shareholders.
WE FACE RISKS OF TECHNOLOGICAL CHANGES THAT MAY RENDER OUR PRODUCTS
OBSOLETE.
The markets for our products and services are characterized by rapid and
significant technological change and evolving industry standards. As a result of
such changes and evolving standards, our products may become noncompetitive or
obsolete and we may have to develop new products in order to maintain or
increase our revenues. New product introductions that are responsive to these
factors require significant planning, design, development and testing at the
technological, product, and manufacturing process levels and we may not be able
to timely develop new products. In addition, industry acceptance of new
technologies that we may develop may be slow to develop due to,
15
among other things, existing regulations or standards written specifically for
older technologies and general unfamiliarity of users with new technologies. As
a result, any new products that we may develop may not generate any meaningful
revenues or profits for us for a number of years, if at all.
ANY REDUCTION IN THE LEVEL OF CAPITAL EXPENDITURES BY OUR CUSTOMERS COULD
NEGATIVELY IMPACT OUR SALES.
Our customers include pharmaceutical, food, medical, and chemical
companies, laboratories, government agencies, and public and private research
institutions. The capital spending of these entities can have a significant
effect on the demand for our products. The continued slowness in the U.S.
economy has resulted in certain customers decreasing the amount of their capital
expenditures. Any decrease in capital spending by any of these customer groups
could have a material adverse effect on our business and results of operations.
A SIGNIFICANT PORTION OF OUR SALES ARE GENERATED FROM FOREIGN COUNTRIES AND
SELLING IN FOREIGN COUNTRIES ENTAILS A NUMBER OF RISKS WHICH COULD RESULT IN A
DECREASE TO OUR SALES OR AN INCREASE IN OUR OPERATING EXPENSES.
Sales outside the United States accounted for approximately 33% of our
revenues in 2002 and for approximately 43% and 41% of our revenues in 2001 and
2000. We expect that international sales will continue to account for a
significant portion of our revenues in the future. Sales to customers in foreign
countries are subject to a number of risks, including the following:
o agreements may be difficult to enforce;
o receivables may difficult to collect;
o certain regions are experiencing political unrest and conflict;
o foreign customers may have longer payment cycles;
o the countries into which we sell may impose tariffs or adopt other
restrictions on foreign trade;
o fluctuations in exchange rates may affect product demand; and
o export licenses, if required, may be difficult to obtain and the
protection of intellectual property in foreign countries may be more
difficult to enforce.
If any of these risks were to materialize, our sales into foreign countries
could decline, or our operating costs could increase, which would adversely
affect our financial results.
SOME OF OUR COMPETITORS HAVE GREATER RESOURCES THAN WE DO, WHICH MAY
PROVIDE OUR COMPETITORS WITH AN ADVANTAGE IN THE DEVELOPMENT AND MARKETING OF
NEW PRODUCTS.
We currently encounter, and expect to continue to encounter, competition in
the sale of our products. We believe that the principal competitive factors
affecting the market for our products include product quality and performance,
price, reliability and customer service.
Our competitors include large multinational corporations. Some of our
competitors have substantially greater financial, marketing, and other resources
than we do. As a result, they may be able to adapt more quickly to new or
emerging technologies and changes in customer requirements, or to devote greater
resources to the promotion and sale of their products than we can. In addition,
16
competition could increase if new companies enter the market or if existing
competitors expand their product lines or intensify efforts within existing
product lines. Our current products, products under development and our ability
to discover new technologies may be insufficient to enable us to compete
effectively with our competitors.
OUR RELIANCE UPON PATENTS, DOMESTIC TRADEMARK LAWS AND CONTRACTUAL
PROVISIONS TO PROTECT OUR PROPRIETARY RIGHTS MAY NOT BE SUFFICIENT TO PROTECT
OUR INTELLECTUAL PROPERTY FROM OTHERS WHO MAY SELL SIMILAR PRODUCTS.
We hold patents relating to various aspects of our products and believe
that proprietary technical know-how is critical to many of our products.
Proprietary rights relating to our products are protected from unauthorized use
by third parties only to the extent that they are covered by valid and
enforceable patents or are maintained in confidence as trade secrets. We can not
be certain that we will be issued any patents from any pending or future patent
applications owned by or licensed to us or that the claims allowed under any
issued patents will be sufficiently broad to protect our technology. In the
absence of patent protection, we may be vulnerable to competitors who attempt to
copy our products or gain access to our trade secrets and know-how. Our
competitors may initiate litigation to challenge the validity of our patents, or
they may use their resources to design comparable products that do not infringe
our patents. We may incur substantial costs if our competitors initiate
litigation to challenge the validity of our patents or if we initiate any
proceedings to protect our proprietary rights and if the outcome of any such
litigation is unfavorable to us, our business and results of operations could be
materially adversely affected. There may also be pending or issued patents held
by parties not affiliated with us that relate to our products or technologies
and we may need to acquire licenses to any such patents to continue selling some
or all of our products. If we had to obtain any such license in order to be able
to continue to sell some or all of our products, we may not be able to do so on
terms that were favorable to us, if at all.
In addition, we rely on trade secrets and proprietary know-how that we seek
to protect, in part, by confidentiality agreements with our collaborators,
employees, and consultants. These agreements may be breached and we may not have
adequate remedies for any such breach. Even if these confidentiality agreements
are not breached, our trade secrets may otherwise become known or be
independently developed by competitors.
THE MARKET PRICE OF OUR COMMON STOCK HAS FLUCTUATED SIGNIFICANTLY IN THE
PAST AND WILL LIKELY CONTINUE TO DO SO IN THE FUTURE AND ANY BROAD MARKET
FLUCTUATIONS MAY MATERIALLY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON
STOCK.
The market price of our common stock has been volatile in the past, and
several factors could cause the price to fluctuate substantially in the future.
These factors include:
o announcements of new products by us or our competitors;
o quarterly fluctuations in our financial results;
o customer contract awards;
o developments in regulation; and
o general economic and political conditions in the various markets where
our products are sold.
17
In addition, the stock prices of instrumentation companies have experienced
significant price and volume fluctuations that often have been unrelated to the
operating performance of such companies. This market volatility may adversely
affect the market price of our common stock.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Substantially all of our marketable securities are at fixed interest rates
and therefore the fair value of these instruments is affected by changes in
market interest rates. However, virtually all of our marketable securities
mature within two years. Accordingly, we believe that the market risk arising
from our holding of these financial instruments is minimal.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements and Independent Auditors'
Report are included on pages F-1 to F-19 of this Form 10-K and are incorporated
herein by reference.
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands, except per share data)
- --------------------------------------------------------------------------------
Quarter
1st 2nd 3rd 4th
- --------------------------------------------------------------------------------
2002
Sales $ 4,829 $ 4,955 $ 4,853 $ 5,294
Gross Profit $ 2,596 $ 2,659 $ 2,517 $ 2,860
Net Income $ 598 $ 605 $ 537 $ 557
Net Income
Per Common Share
Basic $ 0.11 $ 0.11 $ 0.10 $ 0.10
Diluted $ 0.11 $ 0.11 $ 0.10 $ 0.10
2001
Sales $ 4,539 $ 4,619 $ 4,624 $ 5,479
Gross Profit $ 2,780 $ 2,873 $ 2,847 $ 2,990
Net Income $ 844 $ 877 $ 881 $ 819
Net Income
Per Common Share
Basic $ 0.15 $ 0.16 $ 0.16 $ 0.15
Diluted $ 0.15 $ 0.16 $ 0.16 $ 0.15
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF MOCON
(a) DIRECTORS AND EXECUTIVE OFFICERS
The information under the captions "Election of Directors -- Information
About Nominees" and "Election of Directors -- Other Information About Nominees"
in MOCON's 2003 Proxy Statement is incorporated herein by reference. The
information concerning our executive officers is included in this Annual Report
under Item 4A, "Executive Officers of MOCON."
(b) COMPLIANCE WITH SECTION 16 OF THE EXCHANGE ACT
The information under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in MOCON's 2003 Proxy Statement is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the captions "Election of Directors -- Director
Compensation" and "Executive Compensation and Other Benefits" in MOCON's 2003
Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the caption "Principal Shareholders and Beneficial
Ownership of Management" and "Executive Compensation and Other Benefits - Equity
Compensation Plan Information" in MOCON's 2003 Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Election of Directors -- Other
Information About Nominees" in MOCON's 2003 Proxy Statement is incorporated
herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and President, and Vice President and
Chief Financial Officer, have evaluated the effectiveness of the Company's
disclosure controls and procedures (as such term is defined in Rules 13a-14(c)
and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"). Based on such evaluation, such officers
have concluded that, as of the Evaluation Date, the Company's disclosure
controls and procedures are effective in alerting them, on a timely basis, to
material information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company's periodic filings under
the Exchange Act.
(b) CHANGES IN INTERNAL CONTROLS
19
Since the Evaluation Date, there have not been any significant changes in
the Company's internal controls or in other factors that could significantly
affect such controls.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS:
The following Consolidated Financial Statements of MOCON and its
subsidiaries are included herein:
Page
Independent Auditors' Report........................................... F-1
Consolidated Balance Sheets as of December 31, 2002 and 2001........... F-2
Consolidated Statements of Income for the years ended
December 31, 2002, 2001 and 2000....................................... F-3
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2002, 2001 and 2000....................................... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2001 and 2000....................................... F-5
Notes to Consolidated Financial Statements............................. F-6
2. FINANCIAL STATEMENT SCHEDULES:
The following financial statement schedules are included herein and should
be read in conjunction with the financial statements referred to above:
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Stockholders
MOCON, Inc.:
Under date of February 19, 2003, we reported on the consolidated balance
sheets of MOCON, Inc. and subsidiaries as of December 31, 2002 and 2001,
and the related consolidated statements of income, stockholders' equity and
cash flows for each of the years in the three-year period ended December
31, 2002, as contained in this annual report on Form 10-K for the year
2002. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related financial statement
schedule as included in the accompanying index. This financial statement
schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement
schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.
/s/ KPMG LLP
Minneapolis, Minnesota
February 19, 2003
20
Financial Statement Schedule:
II - Valuation and Qualifying Accounts
All other schedules are omitted as the required information is inapplicable
or the information is presented in the financial statements or related notes.
SCHEDULE II
MOCON, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Balance at
beginning of Charged to costs Deductions Balance at
Description year and expenses (1) end of year
- -----------------------------------------------------------------------------------------------------------------
Year ended December 31, 2002
allowance for doubtful accounts $200,000 20,000 18,000 202,000
- -----------------------------------------------------------------------------------------------------------------
Year ended December 31, 2001
allowance for doubtful accounts $159,000 49,000(2) 8,000 200,000
- -----------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000
allowance for doubtful accounts $166,000 0 7,000 159,000
- -----------------------------------------------------------------------------------------------------------------
(1) Bad debts written off.
Year ended December 31, 2002
allowance for inventory obsolescence $511,000 173,000 150,000 534,000
- -----------------------------------------------------------------------------------------------------------------
Year ended December 31, 2001
allowance for inventory obsolescence $156,000 403,000(2) 48,000 511,000
- -----------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000
allowance for inventory obsolescence $183,000 187,000 214,000 156,000
- -----------------------------------------------------------------------------------------------------------------
(1) Inventory written off.
(2) Includes adjustment for acquisition.
21
3. EXHIBITS
The exhibits to this Report are listed in the Exhibit Index.
A copy of any of the exhibits listed or referred to above will be furnished
at a reasonable cost to any person who was a shareholder of MOCON as of March
21, 2003, upon receipt from any such person of a written request for any such
exhibit. Such request should be sent to MOCON, Inc., 7500 Boone Avenue North,
Minneapolis, Minnesota 55428; Attn.: Shareholder Information.
The following is a list of each management contract or compensatory plan or
arrangement required to be filed as an exhibit to this Annual Report on Form
10-K pursuant to Item 14(c):
A. 1990 Non-Employee Director Stock Option Plan (incorporated by
reference to the Company's Registration Statement on Form S-8 (File
No. 33-42255)).
B. 1992 Stock Option Plan (incorporated by reference to the Company's
Registration Statement on Form S-8 (File No. 33-49752)).
C. 1998 Stock Option Plan (incorporated by reference to the Company's
Registration Statement on Form S-8 (File No. 33-58789)).
D. 1999 Compensation Committee resolutions setting forth the Incentive
Compensation Plan (incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
(File No. 0-9273)).
E. Paired Profit Sharing Plan effective July 1, 1996 (incorporated by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 (File No. 0-9273)).
F. Form of Executive Severance Agreement (incorporated by reference to
our Annual Report on Form 10-K for the fiscal year ended December 31,
2000 (File No. 0-9273)).
G. 2003 Compensation Committee resolution setting forth the Incentive
Compensation Plan for 2003 and subsequent years (filed herewith).
H. MOCON, Inc. Savings and Retirement Plan (filed herewith).
I. 1998 Stock Option Plan, as amended on May 21, 2002 (incorporated by
reference to the Company's Registration Statement on Form S-8 (File
No. 33-58789)).
(b) REPORTS ON FORM 8-K
On November 14, 2002, we furnished a report on Form 8-K under Item 9,
Regulation FD Disclosure, to announce that our Chief Executive Officer and Chief
Financial Officer were supplying the certification required by Section 906 of
the Sarbanes-Oxley Act of 2002 relating to our Quarterly Report on Form 10-Q for
the quarter ended September 30, 2002.
22
On November 20, 2002, we furnished a report on Form 8-K under Item 5, Other
Events, to announce that we issued a press release on November 20, 2002
announcing the Board of Directors had authorized a stock repurchase program and
filed under Item 7, Financial Statements and Exhibits, a copy of the press
release dated November 20, 2002.
(C) EXHIBITS
The exhibits to this Annual Report on Form 10-K are listed in the Exhibit
Index.
(D) FINANCIAL STATEMENT SCHEDULES
See Item 15, section (a) 2 above for the financial statement schedules
filed herewith.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 28, 2003 MOCON, INC.
By: /s/ Robert L. Demorest
--------------------------------------
Robert L. Demorest, President, Chief
Executive Officer and Chairman of the Board
(principal executive officer)
By: /s/ Dane D. Anderson
--------------------------------------
Dane D. Anderson, Vice President, Chief
Financial Officer, Treasurer and Secretary
(principal financial and accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated and on March 28, 2003.
Signature and Title
/s/ Robert L. Demorest
-------------------------------------------------------------------
Robert L. Demorest, President, Chief Executive Officer and Director
/s/ Dean B. Chenoweth
-------------------------------------------------------------------
Dean B. Chenoweth, Director
/s/ J. Leonard Frame
-------------------------------------------------------------------
J. Leonard Frame, Director
/s/ Daniel W. Mayer
-------------------------------------------------------------------
Daniel W. Mayer, Executive Vice President and Director
/s/ Ronald A. Meyer
-------------------------------------------------------------------
Ronald A. Meyer, Vice President and Director
/s/ Richard A. Proulx
-------------------------------------------------------------------
Richard A. Proulx, Director
/s/ Paul L. Sjoquist
-------------------------------------------------------------------
Paul L. Sjoquist, Director
/s/ Tom C. Thomas
-------------------------------------------------------------------
Tom C. Thomas, Director
24
I, Robert L. Demorest, certify that:
1. I have reviewed this Annual Report on Form 10-K of MOCON, Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date; and
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 28, 2003
/s/ Robert L. Demorest
- ---------------------------------
Robert L. Demorest
Chief Executive Officer and President
25
I, Dane D. Anderson, certify that:
1. I have reviewed this Annual Report on Form 10-K of MOCON, Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date; and
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 28, 2003
/s/ Dane D. Anderson
- ---------------------------------
Dane D. Anderson
Chief Financial Officer and Vice President
26
MOCON, INC. AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2002, 2001, and 2000
TABLE OF CONTENTS
PAGE
Independent Auditors' Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
27
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
MOCON, Inc.:
We have audited the accompanying consolidated balance sheets of MOCON, Inc. (the
Company) and subsidiaries as of December 31, 2002 and 2001, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 2002. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MOCON, Inc. and
subsidiaries as of December 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States of America.
As discussed in note 5 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS, on January 1, 2002.
/s/ KPMG LLP
Minneapolis, Minnesota
February 19, 2003
F-1
MOCON, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2002 and 2001
ASSETS 2002 2001
----------- -----------
Current assets:
Cash and temporary cash investments $ 3,082,610 1,030,596
Marketable securities, current 2,215,870 3,168,858
Trade accounts receivable, less allowance for doubtful accounts of
$202,000 in 2002 and $200,000 in 2001 3,965,444 4,271,430
Other receivables 37,836 30,527
Inventories 3,754,789 3,662,043
Prepaid expenses 323,050 250,319
Deferred income taxes 265,741 429,399
----------- -----------
Total current assets 13,645,340 12,843,172
----------- -----------
Marketable securities, noncurrent 861,418 735,463
Property, plant, and equipment, net 2,087,669 2,263,505
Other assets:
Software development costs, net of accumulated amortization of $162,634
in 2002 and $4,414 in 2001 638,660 422,660
Goodwill 1,346,795 1,346,795
Technology rights and other intangibles, net of accumulated
amortization of $600,059 in 2002 and $423,094 in 2001 1,095,876 1,207,794
Other 145,198 138,719
----------- -----------
Total other assets 3,226,529 3,115,968
----------- -----------
$19,820,956 18,958,108
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,171,575 1,301,097
Accrued compensation and vacation 630,321 773,906
Other accrued expenses 354,292 321,651
Accrued product warranties 266,933 251,318
Accrued income taxes 364,117 194,037
Dividends payable 328,211 328,524
----------- -----------
Total current liabilities 3,115,449 3,170,533
Deferred income taxes 325,685 319,603
----------- -----------
Total liabilities 3,441,134 3,490,136
----------- -----------
Stockholders' equity:
Capital stock - undesignated - authorized 3,000,000 shares -- --
Common stock - $0.10 par value. Authorized 22,000,000 shares; issued and
outstanding 5,470,189 shares in 2002 and 5,476,453 shares in 2001 547,019 547,645
Capital in excess of par value 45,567 105,057
Retained earnings 15,785,601 14,806,169
Accumulated other comprehensive income 1,635 9,101
----------- -----------
Total stockholders' equity 16,379,822 15,467,972
Commitments and contingencies (note 7)
----------- -----------
$19,820,956 18,958,108
=========== ===========
See accompanying notes to consolidated financial statements
F-2
MOCON, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2002, 2001, and 2000
2002 2001 2000
----------- ----------- -----------
Sales:
Products $17,848,806 16,934,902 14,845,148
Consulting services 2,082,259 2,326,432 2,474,017
----------- ----------- -----------
Total sales 19,931,065 19,261,334 17,319,165
----------- ----------- -----------
Cost of sales:
Products 8,225,876 6,516,224 5,269,118
Consulting services 1,073,157 1,254,821 1,252,873
----------- ----------- -----------
Total cost of sales 9,299,033 7,771,045 6,521,991
----------- ----------- -----------
Gross profit 10,632,032 11,490,289 10,797,174
Selling, general, and administrative expenses 6,107,066 5,814,588 5,329,514
Research and development expenses 1,286,220 1,042,961 1,126,564
----------- ----------- -----------
Operating income 3,238,746 4,632,740 4,341,096
Investment income 195,468 435,928 468,176
----------- ----------- -----------
Income before income taxes 3,434,214 5,068,668 4,809,272
Income taxes 1,137,000 1,648,000 1,539,000
----------- ----------- -----------
Net income $ 2,297,214 3,420,668 3,270,272
=========== =========== ===========
Net income per common share:
Basic $ 0.42 0.62 0.55
Diluted 0.41 0.61 0.55
Weighted average shares outstanding:
Basic 5,487,915 5,526,139 5,980,467
Diluted 5,606,332 5,609,079 5,995,353
See accompanying notes to consolidated financial statements.
F-3
MOCON, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 2002, 2001, and 2000
COMMON STOCK ACCUMULATED
------------------------ CAPITAL IN OTHER
NUMBER EXCESS OF RETAINED COMPREHENSIVE
OF SHARES AMOUNT PAR VALUE EARNINGS INCOME TOTAL
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 6,073,097 $ 607,310 -- 14,647,668 -- 15,254,978
Stock options exercised 16,223 1,622 71,871 -- -- 73,493
Purchase and retirement
of common stock (279,889) (27,989) (71,871) (1,553,475) -- (1,653,335)
Dividends declared
($0.225 per share) -- -- -- (1,330,120) -- (1,330,120)
Net income and comprehensive
income -- -- -- 3,270,272 -- 3,270,272
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 2000 5,809,431 580,943 -- 15,034,345 -- 15,615,288
Stock options exercised 29,425 2,942 169,496 -- -- 172,438
Purchase and retirement
of common stock (362,403) (36,240) (64,439) (2,337,574) -- (2,438,253)
Dividends declared
($0.24 per share) -- -- -- (1,311,270) -- (1,311,270)
Net income -- -- -- 3,420,668 -- 3,420,668
Adjustment for unrealized gain on
marketable equity securities -- -- -- -- 9,101 9,101
-----------
Comprehensive income 3,429,769
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 2001 5,476,453 547,645 105,057 14,806,169 9,101 15,467,972
Stock options exercised 21,736 2,174 133,710 -- -- 135,884
Purchase and retirement
of common stock (28,000) (2,800) (193,200) -- -- (196,000)
Dividends declared
($.24 per share) -- -- -- (1,317,782) -- (1,317,782)
Net income -- -- -- 2,297,214 -- 2,297,214
Adjustment for unrealized gain on
marketable equity securities -- -- -- -- (7,466) (7,466)
-----------
Comprehensive income 2,289,748
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 2002 5,470,189 $ 547,019 45,567 15,785,601 1,635 16,379,822
=========== =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
F-4
MOCON, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2002, 2001, and 2000
2002 2001 2000
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 2,297,214 3,420,668 3,270,272
Adjustments to reconcile net income to net cash provided
by operating activities:
Loss on disposition of long-term assets 2,824 331 56,635
Depreciation and amortization 875,940 798,859 730,231
Deferred income taxes 170,000 17,000 77,000
Changes in operating assets and liabilities,
net of effect of acquisitions:
Trade accounts receivable 305,986 (826,753) (350,199)
Other receivables (7,309) 88,280 20,674
Inventories (92,746) (44,074) (22,471)
Prepaid expenses (72,731) 30,146 (81,704)
Accounts payable (129,522) 133,044 6,073
Accrued compensation and vacation (143,585) 77,828 (71,410)
Other accrued expenses 32,641 (38,150) (26,240)
Accrued product warranties 15,615 (50,384) (12,025)
Accrued income taxes 170,080 (3,105) (161,242)
----------- ----------- -----------
Net cash provided by operating activities 3,424,407 3,603,690 3,435,594
----------- ----------- -----------
Cash flows from investing activities:
Purchases of marketable securities (4,172,557) (1,211,734) (5,324,204)
Proceeds from sales or maturities of marketable securities 4,992,124 6,183,844 5,063,669
Cash paid in acquisitions, net of cash acquired -- (3,606,234) --
Purchases of property and equipment (378,392) (515,549) (540,097)
Proceeds from sale of property and equipment -- 705 18,686
Purchases and development of software (374,220) (427,074) --
Purchases of patents and trademarks (54,658) (34,884) (414,629)
Other (6,479) (6,632) (6,188)
----------- ----------- -----------
Net cash provided by (used in)
investing activities 5,818 382,442 (1,202,763)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from the exercise of stock options 135,884 109,658 40,368
Purchase and retirement of common stock (196,000) (2,378,473) (1,620,804)
Dividends paid (1,318,095) (1,328,663) (1,286,291)
----------- ----------- -----------
Net cash used in financing activities (1,378,211) (3,597,478) (2,866,727)
----------- ----------- -----------
Net increase (decrease) in cash and temporary
cash investments 2,052,014 388,654 (633,896)
Cash and temporary cash investments:
Beginning of year 1,030,596 641,942 1,275,838
----------- ----------- -----------
End of year $ 3,082,610 1,030,596 641,942
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes $ 797,180 1,677,736 1,623,242
Supplemental schedule of noncash investing and
financing activities:
Noncash purchase and retirement of common stock $ -- 59,780 32,531
Noncash exercise of stock options -- 62,780 33,125
Dividends accrued 328,211 328,524 348,916
See accompanying notes to consolidated financial statements.
F-5
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MOCON, Inc. (the Company) operates in a single industry segment: the
development, manufacturing, and marketing of measurement, analytical,
monitoring, sample preparation, and consulting products used to detect,
measure, and analyze gases and chemical compounds for customers in the
barrier packaging, food, pharmaceutical, and other industries throughout
the world. The following is a summary of the significant accounting
policies used in the preparation of the Company's consolidated financial
statements.
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All material intercompany
balances and transactions have been eliminated in consolidation.
(b) STATEMENTS OF CASH FLOWS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Temporary cash investments consist of short-term investments which are
readily convertible to cash.
(c) MARKETABLE SECURITIES
Marketable securities at December 31, 2002 consist of United States
government obligations, municipal bonds, and certificates of deposit.
The Company classifies its debt and marketable equity securities as
available-for-sale.
Available-for-sale securities are recorded at fair value. Unrealized
holding gains and losses on available-for-sale securities are excluded
from income and are reported as a separate component of stockholders'
equity until realized.
A decline in the market value of any available-for-sale security below
cost that is deemed other than temporary is charged to income
resulting in the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related held-to-maturity security as an adjustment to yield. Dividend
and interest income are recognized when earned. Realized gains and
losses for securities classified as available-for-sale are included in
income and are derived using the specific identification method for
determining the cost of securities sold.
(d) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method, and market
represents the lower of replacement cost or estimated net realizable
value.
(e) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are carried at cost. Depreciation and
amortization are computed using the straight-line method. When assets
are retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or
loss is recognized
F-6
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000
in income for the period. The cost of maintenance and repairs is
charged to income as incurred and significant renewals and betterments
are capitalized.
(f) INTANGIBLE ASSETS
Intangible assets consist of goodwill, technology rights, patents,
software development costs, and trademarks. Technology rights,
patents, software development costs, and trademarks are carried at
cost less accumulated amortization. Costs incurred in connection with
applications for new patents are deferred until a final determination,
with respect to the application, is made by appropriate regulatory
agencies. Costs of patents abandoned are charged to income in the
period of abandonment. Technology rights and software development
costs are amortized on a straight-line basis over 3 to 10 years.
Patent costs are amortized over the lesser of 17 years or their
estimated useful lives using the straight-line method. Trademarks are
amortized over five years.
Goodwill represents the excess of the purchase price over the fair
value of assets acquired.
(g) INCOME TAXES
The Company uses the asset-and-liability method for computing its
deferred taxes. Under the asset-and-liability method, deferred taxes
are based on the difference between the financial statement and tax
basis of assets and liabilities and the enacted tax rates that will be
in effect when these differences reverse. Deferred tax expense
represents the change in deferred tax assets and liabilities during
the year.
(h) USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Estimates
that could significantly affect the results of operations or financial
condition of the Company include the estimation of doubtful accounts
receivable and inventory obsolescence.
(i) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED
OF
The Company reviews its long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted
net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell.
(j) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments are recorded in its consolidated
balance sheet. The carrying amount for cash and temporary cash
investments, accounts receivable, accounts payable, and accrued
liabilities approximates fair value due to the immediate or short-term
maturity of these financial
F-7
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000
instruments. The fair values of investments in marketable securities
are based on quoted market prices and are summarized in note 2.
(k) REVENUE RECOGNITION
Revenue is recognized upon shipment of product or upon completion of
services.
(l) ADVERTISING COSTS
The Company incurs advertising costs associated with trade shows,
print advertising, and brochures. Such costs are charged to expense as
incurred. Advertising expense was $325,000, $302,000, and $211,000 in
2002, 2001, and 2000, respectively.
(m) NET INCOME PER COMMON SHARE
Basic net income per common share is computed by dividing net income
by the weighted average of common shares outstanding during the year.
Diluted net income per share is computed by dividing net income by the
weighted average of common and dilutive potential common shares
outstanding during the year.
(n) STOCK-BASED EMPLOYEE COMPENSATION
The Company uses the intrinsic-value method for employee stock-based
compensation pursuant to Accounting Principles Board Opinion No. 25
(Opinion 25), ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Under the
guidelines of Opinion 25, compensation cost for stock-based employee
compensation plans is recognized based on the difference, if any,
between the quoted market price of the stock on the date of grant and
the amount an employee must pay to acquire the stock. The Company
adopted the disclosure provisions for employee stock-based
compensation and the fair-value method for nonemployee stock-based
compensation of Statement of Financial Accounting Standards (SFAS) No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION.
F-8
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000
The Company has adopted the disclosure-only provisions of SFAS No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION. Accordingly, no
compensation cost has been recognized with respect to the Company's
stock option plans. Had compensation cost for these plans been
determined based on the fair value methodology prescribed by SFAS No.
123, the Company's net income and income per common share would have
been reduced to the pro forma amounts indicated below:
2002 2001 2000
------------- ------------ ------------
Net income - as reported $ 2,297,214 3,420,668 3,270,272
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (253,251) (287,151) (203,645)
------------- ------------ ------------
Net income - pro forma $ 2,043,963 3,133,517 3,066,627
============= ============ ============
Net income per common share - as reported:
Basic $ 0.42 0.62 0.55
Diluted 0.41 0.61 0.55
Net income per common share - pro forma:
Basic 0.37 0.57 0.51
Diluted 0.36 0.56 0.51
The pro forma amounts may not be representative of the effects on
reported net income for future years. The fair value of each option
grant is estimated on the date of grant using the binomial
option-pricing model with the following weighted average assumptions
used for grants in 2002, 2001, and 2000:
2002 2001 2000
------------------- ------------------- ------------------
Dividend yield 3.0% 3.1% 3.3%
Expected volatility 38% 44% 53%
Risk-free interest rate 4.0% 4.6% 6.2%
Expected lives (in years) 7.9 8.0 7.9
(o) RECLASSIFICATIONS
Certain 2001 and 2000 amounts have been reclassified to conform to the
2002 presentation.
(p) NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted the provisions of Statement No. 142 effective
January 1, 2002. Goodwill and intangible assets determined to have an
indefinite useful life acquired in a purchase business combination
completed after June 30, 2001 have not been amortized, but will
continue to be evaluated for impairment in accordance with the
appropriate pre-Statement No. 142 accounting literature. Goodwill and
intangible assets acquired in business combinations completed before
July 1, 2001 were amortized prior to the adoption of Statement No.
142.
F-9
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000
The Company adopted the provisions of FASB Statement No. 144,
ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS,
effective January 1, 2002. Statement 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived
assets. While Statement No. 144 supersedes SFAS No. 121, ACCOUNTING
FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF, it retains many of the fundamental provisions of that
statement. The adoption of SFAS No. 144 did not impact the Company's
financial condition or results of operations.
In November 2002, the FASB issued FASB Interpretation No. 45
(FIN 45), GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR
GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS.
FIN 45 requires that a liability be recorded in the guarantor's
balance sheet upon issuance of a guarantee. In addition, FIN 45
requires disclosures about the guarantees that an entity has issued,
including a roll-forward of the entity's product warranty liabilities.
The Company does not expect the adoption of FIN 45 to have an impact
on its financial position and results of operations.
In December 2002, the FASB issued Statement No. 148, ACCOUNTING FOR
STOCK-BASED COMPENSATION--TRANSITION AND DISCLOSURE, AN AMENDMENT OF
FASB STATEMENT NO. 123. This Statement amends FASB Statement No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, to provide alternative
methods of transition for a voluntary change to the fair value method
of accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of Statement No. 123 to
require prominent disclosures in both annual and interim financial
statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002 and are included in the
notes to these consolidated financial statements.
(2) MARKETABLE SECURITIES
The amortized cost, gross unrealized holding gains, gross unrealized
holding losses, and fair value for available-for-sale securities by major
security type at December 31, 2002 and 2001 were as follows:
2002
---------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
---------------------------------------------------------------
Available for sale:
Municipal bonds $ 396,782 1,635 -- 398,417
Certificates of deposit 2,678,871 -- -- 2,678,871
---------- ---------- ---------- ----------
$3,075,653 1,635 -- 3,077,288
========== ========== ========== ==========
F-10
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000
2001
--------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------------------
Available for sale:
Municipal bonds $1,085,799 9,101 -- 1,094,900
Certificates of deposit 2,809,421 -- -- 2,809,421
---------- ---------- ---------- ----------
$3,895,220 9,101 -- 3,904,321
========== ========== ========== ==========
For the years ended December 31, 2002, 2001, and 2000, gross realized gains
were $0, $18,753, and $0, respectively. For the years ended December 31,
2002, 2001, and 2000, gross realized losses were $0, $1,253, and $0,
respectively.
Maturities of investment securities classified as available-for-sale were
as follows at December 31, 2002 and 2001:
2002 2001
-------------------------------- ------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
-------------------------------- ------------------------------
Available-for-sale:
Due within one year $2,215,870 2,215,870 3,160,430 3,168,858
Due after one
through five years 859,783 861,418 734,790 735,463
---------- ---------- ---------- ----------
$3,075,653 3,077,288 3,895,220 3,904,321
========== ========== ========== ==========
(3) INVENTORIES
The major components of inventories at December 31, 2002 and 2001 were as
follows:
2002 2001
---------- ----------
Finished products $ 449,870 338,852
Work-in-process 1,323,996 1,316,881
Raw materials 1,980,923 2,006,310
---------- ----------
$3,754,789 3,662,043
========== ==========
(4) PROPERTY, PLANT, AND EQUIPMENT
F-11
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000
Property, plant, and equipment at December 31, 2002 and 2001 consisted of
the following:
ESTIMATED
2002 2001 USEFUL LIVES
----------- ----------- -------------
Land $ 200,000 200,000 --
Buildings 445,833 445,833 27 years
Machinery and equipment 3,537,747 3,197,277 3 to 10 years
Office equipment 667,738 651,960 2 to 15 years
Leasehold improvements 660,984 654,526 1 to 5 years
Vehicles 168,759 168,759 3 to 5 years
----------- ----------- -------------
Total property, plant, and 5,681,061 5,318,355
equipment
Less accumulated depreciation (3,593,392) (3,054,850)
----------- -----------
Net property, plant, and
equipment $ 2,087,669 2,263,505
=========== ===========
Depreciation and amortization of property, plant, and equipment charged to
earnings was $539,387, $525,254, and $468,613 for the years ended December
31, 2002, 2001, and 2000, respectively.
(5) GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the Financial Accounting Standards Board approved for
issuance Statement of Financial Accounting Standards (SFAS) 141, BUSINESS
COMBINATIONS, and SFAS 142, GOODWILL AND OTHER INTANGIBLE ASSETS. For all
business combinations initiated after June 30, 2001, these Statements
require the use of the purchase, rather than the pooling, method of
accounting. Intangible assets acquired in a business combination are
recorded separately from goodwill if they arise from contractual or other
legal rights or are separable from the acquired entity and can be sold,
transferred, licensed, rented or exchanged, either individually or as part
of a related contract, asset or liability.
The Statements also provide that effective January 1, 2002, goodwill is no
longer amortized. Instead, goodwill and intangible assets with indefinite
lives are tested for impairment annually and whenever there is an
impairment indicator. We adopted SFAS 142 effective January 1, 2002. As
required by SFAS 142, we performed an initial assessment to determine
whether there was an indication that goodwill was impaired at the date of
adoption. To test for potential impairment, we first determined that the
Company consisted of a single reporting unit. We next determined the fair
value of our single reporting unit based upon the quoted market price of
the Company's common stock at January 1, 2002. We then compared the fair
value of the Company with the carrying value of our net assets. Based on
this comparison we determined that no impairment existed. Accordingly, we
were not required to perform step two of the impairment analysis, in which
the exact amount of an impairment would have been determined. In step two
of the impairment analysis, the Company would have been required to compare
the implied fair value of goodwill, determined by allocating the reporting
unit's fair value to all of its assets and liabilities, to its carrying
amount, both of which would be measured as of the date of adoption.
F-12
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000
The following table presents a reconciliation of net income and income per
share adjusted for the exclusion of goodwill, net of tax:
Twelve Months Ended
December 31,
-----------------------------
2002 2001
---------- ----------
Reported net income $2,297,214 $3,420,668
Add: Goodwill amortization, net of tax -- 77,140
---------- ----------
Adjusted net income $2,297,214 $3,497,808
========== ==========
Reported basic income per share $ 0.42 $ 0.62
Add: Goodwill amortization, net of tax -- .01
---------- ----------
Adjusted basic income per share $ 0.42 $ 0.63
========== ==========
Reported diluted income per share $ 0.41 $ 0.61
Add: Goodwill amortization, net of tax -- .01
---------- ----------
Adjusted diluted income per share $ 0.41 $ 0.62
========== ==========
As of December 31, 2002, we have unamortized goodwill in the amount of
$1,346,795. Other intangible assets (all of which are being amortized
except projects in process) are as follows:
As of December 31, 2002
-----------------------------------
Carrying Accumulated
Amount Amortization Net
-------------------------------------
Patents $ 544,087 $157,141 $ 386,946
Trademarks and tradenames 84,088 53,916 30,172
Technology rights 784,008 307,908 476,100
Other intangibles 270,150 81,094 189,056
Projects in process 13,602 -- 13,602
-------------------------------------
$1,695,935 $600,059 $1,095,876
=====================================
Total amortization expense for the twelve months ended December 31, 2002
was $178,597. Estimated amortization expense for each of the five
succeeding fiscal years based on the intangible assets as of December 31,
2002 is as follows:
Estimated Expense
-----------------
2003 $176,828
2004 176,472
2005 176,378
2006 163,071
2007 156,499
F-13
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000
(6) WARRANTY GUARANTEES
The Company provides a warranty for most of its products. Warrantees are
for periods ranging from ninety days to one year, and cover parts and labor
for non-maintenance repairs, at our location. Operator abuse, improper use,
alteration, damage resulting from accident, or failure to follow
manufacturer's directions, are excluded from warranty coverage.
Warranty expense is accrued at the time of sales based on historical claims
experience. Special warranty reserves are also accrued for special rework
campaigns for known major product modifications. The Company also offers
service contracts for select products when the factory warranty period
expires.
Warranty provisions and claims for the years ended December 31, 2002, 2001,
and 2000 were as follows:
Balance at Balance
beginning Warranty Warranty at end
Years: of year Provisions Claims of year
------ ----------- ---------- -------- --------
Year ended December 31, 2002
Allowance for product warranties $251,000 401,000 385,000 267,000
------------------------------------------------------------------------------------------------------------
Year ended December 31, 2001
Allowance for product warranties $272,000 336,000(1) 357,000 251,000
------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000
Allowance for product warranties $284,000 318,000 330,000 272,000
------------------------------------------------------------------------------------------------------------
(1) Includes adjustment for acquisition.
(7) COMMITMENTS AND CONTINGENCIES
(a) LEASES
The Company leases its facilities and certain equipment pursuant to
operating leases. The facility leases expire at various times through
June 2010 and require the Company to pay operating costs, including
real estate taxes.
Rental expense, including charges for operating costs, was as follows:
2002 2001 2000
------------------ ------------------ ------------------
$ 440,580 429,329 410,303
F-14
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000
The following is a schedule of future minimum lease payments,
excluding charges for operating costs, for operating leases as of
December 31, 2002:
Year ending December 31:
2003 $ 333,000
2004 297,000
2005 254,000
2006 260,000
2007 260,000
Later years 673,000
-------------------
$ 2,077,000
===================
(b) EXECUTIVE SEVERANCE AGREEMENTS
The Company has entered into severance agreements with four executives
that require payment of two times their annual salary if they are
terminated within 24 months after a change of control occurs or upon
the occurrence of other events as described in the agreements.
(8) INCOME TAXES
The provision for income taxes consists of the following:
2002 2001 2000
---------- ---------- ----------
Current tax expense:
Federal $ 803,000 1,410,000 1,246,000
State 164,000 221,000 216,000
---------- ---------- ----------
Total current expense 967,000 1,631,000 1,462,000
Deferred 170,000 17,000 77,000
---------- ---------- ----------
Provision for income taxes $1,137,000 1,648,000 1,539,000
========== ========== ==========
The effective income tax rate varies from the federal statutory tax rate
for the following reasons:
PERCENTAGE OF PRETAX INCOME
FOR YEARS ENDED DECEMBER 31,
----------------------------------
2002 2001 2000
--------- --------- ----------
Tax at statutory federal income tax rate 34.0% 34.0% 34.0%
Increases (reductions) in taxes
resulting from:
State income taxes, net of federal
benefit 3.5 2.9 3.0
Export incentives (3.3) (2.9) (2.3)
Tax-exempt investment earnings (0.2) (0.8) (1.9)
Other (0.9) (0.7) (0.8)
------ ------ ------
Effective income tax rate 33.1% 32.5% 32.0%
====== ====== ======
F-15
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000
The tax effect of significant temporary differences representing deferred
tax assets and liabilities at December 31, 2002 and 2001 were as follows:
2002 2001
--------- ---------
Deferred tax assets:
Allowance for doubtful accounts $ 76,000 72,000
Inventory costs 24,000 17,000
Inventory reserves 214,000 161,000
Warranty reserves 100,000 85,000
Other accruals 100,000 113,000
--------- ---------
Total deferred tax assets 514,000 448,000
--------- ---------
Deferred tax liabilities:
Technology rights (135,000) (151,000)
Fixed assets and intangibles (439,000) (187,000)
--------- ---------
Total deferred tax liabilities (574,000) (338,000)
--------- ---------
Net deferred tax (liability) asset $ (60,000) 110,000
========= =========
The Company has determined that establishing a valuation allowance for the
deferred tax assets is not required since it is more likely than not that
the deferred tax assets will be realized through future taxable income.
(9) STOCKHOLDERS' EQUITY
From time to time, the Company's board of directors authorizes the
repurchase of common stock. In November 2002, the Company's board of
directors authorized the repurchase of up to $2 million of the Company's
common stock. No common stock has been acquired by the Company pursuant to
this authorization.
As of December 31, 2002, the Company has reserved 384,260 shares of common
stock for options that are still available for grant under the Company's
stock option plans, and 686,587 shares for options that have been granted
but have not yet been exercised.
Under the stock option plans, option exercise prices are 100% of the market
value of the common stock at the date of grant, except for incentive
options granted under the 1992 and 1998 plans to persons owning more than
10% of the Company's stock, in which case the option price is 110% of the
market value, and nonqualified options granted under the 1992 and 1998
plans, which may be granted at option prices no less than 25% of the market
value. Exercise periods are generally for five to ten years. Certain of the
plans allow for the granting of nonqualified stock options. Upon the
exercise of these nonqualified options, the Company may realize a
compensation deduction allowable for income tax purposes. The after-tax
effect of these tax deductions is included in the accompanying consolidated
financial statements as an addition to capital in excess of par value.
F-16
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000
Information regarding the Company's stock option plans for 2002, 2001, and
2000 was as follows:
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
----------- -----------
Options outstanding, December 31, 1999 228,893 $ 6.83
Granted 197,000 5.87
Exercised (16,223) 4.53
Canceled or expired (28,655) 6.29
----------- -----------
Options outstanding, December 31, 2000 381,015 6.47
Granted 216,750 6.94
Exercised (29,425) 5.86
Canceled or expired (28,545) 5.81
----------- -----------
Options outstanding, December 31, 2001 539,795 6.73
Granted 177,750 7.30
Exercised (21,736) 6.25
Canceled or expired (9,222) 6.89
----------- -----------
Options outstanding, December 31, 2002 686,587 $ 6.89
=========== ===========
2002 2001 2000
------------ ------------ -----------
Weighted average fair value of options,
granted during the year $ 2.51 2.68 2.67
Weighted average exercise price of
options, exercisable at end of year 6.90 6.73 6.66
Options exercisable, at end of year 451,879 332,333 221,440
At December 31, 2002, the weighted average remaining contractual life of
outstanding options was 8.0 years.
(10) NET INCOME PER COMMON SHARE
The following table presents a reconciliation of the denominators used in
the computation of net income per common share - basic and net income per
common share - diluted for the years ended December 31, 2002, 2001, and
2000:
2002 2001 2000
------------ ------------ -----------
Weighted shares of common stock
outstanding - basic 5,487,915 5,526,139 5,980,467
Weighted shares of common stock
assumed upon exercise of stock options 118,417 82,940 14,886
------------ ------------ -----------
Weighted shares of common stock
outstanding - diluted 5,606,332 5,609,079 5,995,353
============ ============ ===========
F-17
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000
The following represents securities outstanding at December 31, 2002, 2001,
and 2000, which have been excluded from the net income per common share
calculations because the effect on net income per common share would not
have been dilutive:
2002 2001 2000
--------- -------- --------
Options 250,020 59,780 94,620
(11) SALES
Export sales were $6,576,975, $8,303,688, and $7,067,386 in 2002, 2001, and
2000, respectively. Of the export sales, $1,716,372, $1,855,840, and
$3,182,898 in 2002, 2001, and 2000, respectively, were to customers in
Western Europe. Sales to customers in Japan were $1,752,285, $3,282,264,
and $1,833,964 for 2002, 2001, and 2000, respectively. The Company's
products are marketed outside of North America through various independent
representatives. One independent representative accounted for approximately
8%, 10%, and 16% of sales in 2002, 2001, and 2000, respectively. Another
independent representative accounted for approximately 7%, 14%, and 9% of
sales in 2002, 2001, and 2000, respectively.
(12) SAVINGS AND RETIREMENT PLAN
The Company has a 401(k) Savings and Retirement Plan covering substantially
all of its employees. The Company provides matching contributions in
accordance with the plan. The Company's contributions to this plan in 2002,
2001, and 2000 were $74,085, $53,412, and $47,895, respectively.
(13) ACQUISITION
Effective October 1, 2001, the Company acquired Baseline-MOCON, Inc.
(Baseline) of Lyons, Colorado, a manufacturer of gas analysis and
monitoring instrumentation used in applications such as oil and gas
exploration, process gas analysis, and industrial hygiene and safety
applications. This acquisition increases the number of gas chromatography
markets served by the Company and is expected to reduce costs through
economies of scale. The acquisition, valued at approximately $3.6 million,
was recorded using the purchase method of accounting and, accordingly, the
acquired operations of Baseline have been included in the results of
operations since the date of acquisition. The purchase price has been
allocated to the net assets acquired based on estimated fair market values
at the date of acquisition. The assets that comprise the $268,000 of other
intangibles include: trademarks of $3,000, customer list of $30,000,
backlog valuation of $15,000, product designs and drawings of $50,000,
product manuals and marketing materials of $40,000, computer software of
$80,000, and proprietary processes of $50,000. The cost of acquired
intangible assets are being amortized on a straight-line basis typically
over periods of 2 to 5 years. The estimated fair values of assets and
liabilities acquired in the acquisition are summarized as follows:
F-18
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000
TOTAL
-----------
Cash $ 3,397
Net current assets 2,124,712
Property, plant, and equipment 1,077,417
Goodwill 619,561
Other intangibles 268,000
Other assets 2,150
Current liabilities (468,151)
Long-term liabilities (17,455)
-----------
$ 3,609,631
===========
The following unaudited pro forma consolidated results of operations have
been prepared as if the acquisition of Baseline had occurred as of the
beginning of fiscal 2000. Pro forma adjustments consist primarily of
amortization of other intangibles:
2001 2000
--------------- ---------------
Net sales $ 22,055,156 22,392,429
Net income 3,270,669 3,422,911
Net income per common share:
Basic 0.59 0.57
Diluted 0.58 0.57
F-19
MOCON, INC.
EXHIBIT INDEX TO ANNUAL REPORT ON
FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 2002
Item Method of
No. Item Filing
- ----- ----------------------------------------------------------------------------- ----------------
3.1 Restated Articles of Incorporation of the Company (1)
3.2 Amendment to Restated Articles of Incorporation of the Company, effective
May 27, 1987 (2)
3.3 Amendment to Restated Articles of Incorporation of the Company, effective
June 28, 1991 (3)
3.4 Amendment to Restated Articles of Incorporation of the Company, effective
May 21, 1998 (11)
3.5 Amendment to Restated Articles of Incorporation of the Company, effective
May 26, 1999 (13)
3.6 Third Restated Bylaws of the Company (4)
10.1 Office/Warehouse Lease, dated July 29, 1994 (5)
10.2 Office/Warehouse Lease Extension, dated June 6, 1997 (8)
10.3 Office/Warehouse Lease, dated November 17, 1999 (13)
10.4 1990 Non-Employee Director Stock Option Plan (3)
10.5 1992 Stock Option Plan (6)
10.6 1998 Stock Option Plan, as amended (9)
10.7 1999 Compensation Committee resolutions setting forth the Incentive
Compensation Plan (12)
10.8 Paired Profit Sharing Plan effective July 1, 1996 (7)
10.9 Agency and Service Agreement, dated January 1, 1987, between the Company
and MoCon FSC, Inc. (4)
10.10 Foreign Sales Corporation Suppliers Agreement, dated March 28, 1985,
between the Company and MoCon FSC, Inc. (4)
10.11 Agreement and Plan of Merger, dated November 20, 1998, by and among Modern
Controls, Inc., MOCON Acquisition Corporation and Lab Connections, Inc. (10)
10.12 Form of Executive Severance Agreement (14)
10.13 Stock Purchase Agreement dated October 24, 2001 by and among MOCON, Inc.,
Questar InfoComm, Inc. and Questar Corporation (15)
10.14 2003 Compensation Committee resolution setting forth the Incentive
Compensation Plan (16)
10.15 MOCON, Inc. Savings and Retirement Plan (16)
21.1 Subsidiaries of the Company (16)
23.1 Independent Auditors' Consent (16)
99 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (16)
- -----------------------
(1) Incorporated by reference to our Annual Report on Form 10-K for the fiscal
year ended January 31, 1984 (File No. 0-9273).
(2) Incorporated by reference to our Annual Report on Form 10-K for the fiscal
year ended December 31, 1987 (File No. 0-9273).
(3) Incorporated by reference to our Registration Statement on Form S-8 (File
No. 33-42255).
(4) Incorporated by reference to our Annual Report on Form 10-K for the fiscal
year ended December 31, 1988 (File No. 0-9273).
(5) Incorporated by reference to our Annual Report on Form 10-K for the fiscal
year ended December 31, 1994 (File No. 0-9273).
(6) Incorporated by reference to our Registration Statement on Form S-8 (File
No. 33-49752).
(7) Incorporated by reference to our Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 (File No. 0-9273).
(8) Incorporated by reference to our Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 (File No. 0-9273).
(9) Incorporated by reference to our Registration Statement on Form S-8 (File
No. 33-58789).
(10) Incorporated by reference to our Report on Form 8-K filed on December 21,
1998 (File No. 0-9273)
(11) Incorporated by reference to our Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 (File No. 0-9273).
(12) Incorporated by reference to our Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999 (File No. 0-9273).
(13) Incorporated by reference to our Annual Report on Form 10-K for the fiscal
year ended December 31, 1999 (File No. 0-9273).
(14) Incorporated by reference to our Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 (File No. 0-9273).
(15) Incorporated by reference to our Report on Form 8-K filed on November 6,
2001 (File No. 0-9273).
(16) Filed herewith.