FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: January 31, 1996
or
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission File No.: 0-9880
E N G I N E E R I N G M E A S U R E M E N T S C O M P A N Y
(Exact name of Registrant as specified in its charter)
Colorado 84-0572936
(State or other jurisdiction of (I.R.S.
incorporation or organization) Identification No.)
600 Diagonal Highway, Longmont, Colorado 80501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303)651-0550
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 .
The number of shares outstanding of Registrant's $.01 par value common stock, as
of February 28, 1996 was 2,753,052.
Transitional Small Business Disclosure Format.
Yes No X .
Page 1 of 10
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ENGINEERING MEASUREMENTS COMPANY CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
January 31, 1996
(unaudited) April 30, 1995
Current assets:
Cash and cash equivalents $280,664 $312,183
Accounts receivable, net of allowance
for doubtful accounts of $130,947
at January 31, 1996 and $135,913
at April 30, 1995 1,307,264 1,272,481
Short-term investments 721,846 744,672
Inventories 1,743,018 1,479,384
Prepaid expenses 73,766 34,296
Other receivables 38,694 67,020
Deferred income taxes 510,210 437,175
---------- ----------
Total current assets 4,675,462 4,347,211
---------- ----------
Property and equipment, at cost:
Land 568,940 568,940
Building & improvements 1,587,845 1,534,811
Vehicle 16,791 16,791
Machinery and equipment 2,614,908 2,515,343
Office furniture and fixtures 1,036,093 1,004,285
---------- ----------
5,824,577 5,640,170
Less accumulated depreciation (3,961,246) (3,735,375)
---------- ----------
Net property and equipment 1,863,331 1,904,795
---------- ----------
Other 94,414 68,159
Investment in common stock of Marcum
Natural Gas Services, Inc. 248,625 357,001
---------- ----------
Total other assets 343,039 425,160
---------- ----------
TOTAL ASSETS: $6,881,832 $6,677,166
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
(Continued)
Page 2 of 11
ENGINEERING MEASUREMENTS COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDER'S EQUITY
January 31, 1996
(unaudited) April 30, 1995
Current liabilities:
Current portion of long-term debt $175,289 $220,556
Accounts payable 390,572 504,201
Accrued liabilities 714,835 582,226
---------- ----------
Total current liabilities 1,280,696 1,306,983
---------- ----------
Long-term liabilities:
Loans from stockholder less current 435,998 544,402
maturities
Leases less current maturities --- 11,608
Deferred income taxes 175,100 167,000
---------- ----------
Total long-term liabilities 611,098 723,010
---------- ----------
Stockholders' equity:
Common stock, $.01 par value;
5,000,000 shares authorized;
2,943,452 shares issued at January 31, 1996,
2,923,452 shares issued at April 30, 1995,
2,753,052 shares outstanding at January 31, 1996,
2,733,052 shares outstanding at April 30, 1995 29,435 29,235
Capital in excess of par value 1,988,327 1,956,927
Deferred Compensation --- ---
Unrealized holding losses (77,752) (18,555)
Retained earnings 3,679,727 3,309,265
Treasury stock at cost;
190,400 shares at January 31, 1996,
190,400 shares at April 30, 1995 (629,699) (629,699)
---------- ----------
Total stockholders' equity 4,990,038 4,647,173
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY: $6,881,832 $6,677,166
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3 of 11
ENGINEERING MEASUREMENTS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
January 31, January 31,
1996 1995 1996 1995
Sales $2,179,253 $2,222,522 $6,458,074 $7,279,084
Cost of sales 1,254,957 1,351,035 3,627,697 4,285,680
--------- --------- ---------- ---------
Gross margin on sales 924,296 871,487 2,830,377 2,993,404
--------- --------- ---------- ---------
Operating expenses:
Selling 464,130 587,555 1,476,617 1,886,089
General and administrative 219,448 367,372 603,893 692,142
Research and development 101,221 112,578 298,393 335,236
Provision for doubtful
accounts 10,773 10,926 47,040 25,293
--------- --------- ---------- ---------
Total operating expenses 795,572 1,078,431 2,425,943 2,938,760
--------- --------- ---------- ---------
Income from operations 128,724 (206,944) 404,434 54,644
--------- --------- ---------- ---------
Other income/(expense):
Gain/(loss) on sale of stock 877 (442) 23,546 (4,222)
Interest expense (13,212) (24,801) (43,481) (66,388)
Royalty and other income 43,172 50,523 118,123 119,266
--------- --------- ---------- ---------
Total other income 30,837 25,280 98,188 48,656
Income from operations
before income taxes 159,561 (181,664) 502,622 103,300
Income tax provision 10,351 (69,059) 132,160 42,116
--------- --------- ---------- ---------
Net income 149,210 (112,605) 370,462 61,184
========= ========= ========== =========
Earnings per share from
operations 0.06 (0.04) 0.14 0.02
Net earnings per share on a
fully diluted basis $0.04 ($0.04) $0.12 $0.02
========= ========= ========== =========
Weighted average number of
shares outstanding 2,746,385 2,749,619 2,737,496 2,808,030
========= ========= ========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4 of 11
ENGINEERING MEASUREMENTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS: INCREASE/(DECREASE) IN CASH
(Unaudited)
INCREASE/(DECREASE) IN CASH
Nine Months Ended January 31,
1996 1995
Cash flows from operating activities:
Net income $370,462 $61,184
Adjustments to reconcile net income
to net cash provided by
operating activities--
Depreciation and amortization 236,302 273,017
Deferred tax provision/(benefit) (27,085) (54,153)
Provision for doubtful accounts (4,966) ---
Gain on sales of investments (23,546) 4,222
Changes in assets and liabilities-
Receivables (1,491) 387,358
Inventories (263,634) (116,588)
Prepaid expenses (39,470) (34,742)
Accounts payable and accrued liabilities 18,980 (104,011)
--------- ----------
Net cash provided by operating activities 265,552 416,287
--------- ----------
Cash flows from investing activities:
Capital expenditures, net (184,407) (241,661)
Expenditures for intangible assets (36,686) (9,826)
Investment purchases (128,130) (3,726,723)
Proceeds from sale of investments 185,831 3,886,016
Net cash provided by/(used) in --------- ----------
investing activities (163,392) (92,194)
--------- ----------
Cash flows from financing activities:
Payments of long and short term debt (152,848) (152,848)
Purchase of treasury stock --- (531,626)
Proceeds from exercise of stock options 31,600 85,426
Principal payment under capital
lease obligations (12,431) (12,878)
--------- -----------
Net cash used in financing activities (133,679) (611,926)
Net increase/(decrease) in cash --------- -----------
and cash equivalents (31,519) (287,833)
Cash and cash equivalents at
beginning of period 312,183 810,631
--------- -----------
Cash and cash equivalents at
end of period $280,664 $ 522,798
========= ===========
Supplemental disclosure of cash
flow information:
Cash paid during period for--
Interest $ 44,499 $ 63,920
Income taxes 24,188 205,127
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5 of 11
ENGINEERING MEASUREMENTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited, condensed financial statements have been prepared
in accordance with the instructions to the Form 10-QSB and do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) considered
necessary in order to make the financial statements not misleading have
been included. Operating results for the nine months ended January 31, 1996
are not necessarily indicative of the results that may be expected for the
fiscal year ending April 30, 1996. These statements should be read in
conjunction with the financial statements and footnotes thereto included in
the Company's Form 10-KSB for the fiscal year ended April 30, 1995.
1. Principles of Consolidation
The consolidated financial statements include the accounts of Engineering
Measurements Company (the Company) and its subsidiary, General Metrology
Corporation. All significant intercompany accounts and transactions have been
eliminated in consolidation.
2. Inventories
Inventories, stated at the lower of cost (first-in, first-out method) or market,
are as follows:
January 31, 1996 April 30, 1995
Raw materials and work-in-process $1,442,989 $1,259,015
Finished goods 300,029 220,369
---------- ----------
$1,743,018 $1,479,384
========== ==========
3. Investments
Investments are carried at fair market value. The Company's investment
securities are classified as available for sale and recorded on the balance
sheet at fair market value with unrealized gains and losses on these
investments shown as a separate component of stockholder's equity, net of
related taxes.
4. Income Taxes
Deferred income taxes are provided for items which are reported for tax
purposes in different periods than in the Statements of Operations.
5. Earnings Per Share
Earnings per share is computed by dividing net income by the weighted average
number of shares outstanding during the period. Pursuant to the terms of a loan
agreement, a stockholder may convert up to $353,790 in principal and accrued
interest into 345,766 shares of common stock at an average price of $1.02 per
share. There are a total of 197,275 shares subject to outstanding options under
the Company's stock option plans at January 31, 1996. The effect of the
outstanding options and conversion right to purchase the total of 543,041 shares
as of January 31, 1996 is dilutive and reflected in the financial statements.
Year to date earnings per share on a fully dilutive basis using the treasury
stock method was $.14 at January 31, 1996. In 1995 the shares issuable pursuant
to the terms of a stockholder loan agreement were dilutive. Earnings per share
on a fully dilutive basis using the treasury stock method was $.02 at January
31, 1995.
Page 6 of 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
A. Financial Condition
The Company's net working capital increased approximately $355,000 during the
nine months ended January 31, 1996. Increases in inventories and deferred taxes
and decreases in current maturities of long term debt account for much of the
increase in working capital. The current ratio increased to 3.6 from 3.3.
Cash and cash equivalents decreased approximately $31,500 at January 31, 1996
compared to April 30, 1995, due to the Company's investment in higher
inventories as well as the continued reduction of debt. The Company intends on
investing excess cash in high grade investment securities until the cash is
needed for operations.
Accounts receivable are at the same level as at April 30, 1995. The Days Sales
Outstanding (DSO) improved nearly 3 days during the latest quarter to 59.3 days
for the nine months ended January 31, 1996 compared to 56.0 days for the same
period last year.
Inventories increased approximately $264,000 in the first nine months of the
fiscal year. The value of inventory decreased $100,000 during the quarter. The
inventory turnover ratio for the nine months ended January 31, decreased from
2.42 in 1995 to 1.44 in fiscal 1996. The increase in inventories in part
reflects management's decision to make more parts internally rather than buying
them from vendors. Internal reorganization put in place in the second quarter
has added new emphasis on inventory management.
Investments in common stock of Marcum Natural Gas Services, Inc. decreased
approximately $108,000 in accordance with FASB 115, in which available for trade
securities will be carried on the books at fair value and unrealized gains and
losses will be included in stockholders equity.
The Company is making monthly payments of principal and interest, of
approximately $22,000 to pay off the loans from shareholder. The Company does
not expect any material capital expenditures in the next six months, and
anticipates all cash needs will be satisfied from operations. The Company
currently does not have any line of credit arrangements.
Page 7 of 11
B. Results of Operations
Nine months ended January 31, 1996 compared
to the Nine months ended January 31, 1995
Sales were approximately $821,000 lower in the first nine months of 1996
compared to the first nine months of 1995, an 11.3% decrease, due to lower
demand in the domestic market. The Company's order backlog is approximately
$927,000 at January 31, 1996, compared to $946,000 at January 31, 1995.
Gross profit increased to 43.8% in 1996 compared to 41.1% in 1995, due to
improved purchasing methods resulting in better material costs. Operating
expenses were down approximately $513,000 from last year including a $100,000
reduction in commissions expense, reflecting the lower sales level attained to
date. Income from operations improved to 6.3% of sales for the nine months
ended January 31, 1996 versus 0.8% for the same period a year ago.
The Company recognized gains on the sale of stock of approximately $24,000 in
the nine months ended January 31, 1996. The Company recognized a loss of
approximately $4,000 from the sale of stock for the nine months ended January
31, 1995.
Royalty and other income decreased approximately $1,000 to approximately
$118,000 for the nine months ended January 31, 1996 compared to the same period
last year. The Company's interest expense has decreased approximately $23,000
for the period ended January 31, 1996 compared to the same period ended in 1995,
due to the Company's lower outstanding debt.
Net cash provided by operating activities for the first nine months of 1996 was
$266,000 compared to $416,000 for the same period last year. This was due
primarily to inventory increases and receivables remaining constant as compared
to the decline in the first nine months of 1995.
The income tax provision for the nine months ended January 31, 1996 increased
approximately $90,000 compared to the same period in 1995. The impact of
deferred tax items resulted in current tax rates of approximately 26.3% and
39.0% in 1996 and 1995, respectively.
Three months ended January 31, 1996 compared
to the three months ended January 31, 1995.
Sales were approximately $43,000 lower in the three months ended January 31,
1996 compared to the same period in 1995, a 2% decrease, due to lower demand in
the domestic market.
Gross margin on sales has increased approximately $53,000 on the lower sales
noted above and also improved significantly as a percentage of sales from 39.2%
in 1995 to 42.4% in the three months ended January 31, 1996. Reduced material
and labor costs were significant factors in this improvement. Operating
expenses decreased by approximately $283,000, and as a percentage to sales for
the quarter ended January 31, decreased from 48.5% in 1995 to 36.5% in 1996.
General and administrative expenses were higher in this quarter in 1995 as a
result of a separation agreement with a corporate officer. Selling expenses
were approximately 21% lower in 1996 as a result of staff reductions and open
positions as well as reduced spending for printing and advertising.
For the quarter ended January 31, royalty and other income decreased
approximately $7,000 in 1996 compared to 1995, due to lower interest and
dividend income from the Company's high grade investment securities.
The income tax provision for the three months ended January 31, decreased as a
percentage of income from 34.8% in 1995 to 6.5% in 1996. This year's tax
provision is lower because of the effect of deferred tax items and the tax
treatment of interest income and dividends received.
Page 8 of 11
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
None filed in the quarter ended January 31, 1996.
B. Reports on Form 8-K
None filed in the quarter ended January 31, 1996.
Page 9 of 11
S I G N A T U R E S
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, Engineering Measurements Company has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ENGINEERING MEASUREMENTS COMPANY
Registrant
Date: February 29, 1996 By: /s/ Charles E. Miller
Charles E. Miller, Chairman
(Principal Financial Officer
and Principal Accounting Officer)
Page 10 of 11
February 29, 1996
ENGINEERING MEASUREMENTS COMPANY
(NASDAQ SYMBOL: EMCO)
Third Quarter Results
Corporate Contact: Charles E. Miller
(303) 651-0550
Longmont, Colorado: Engineering Measurements Company announced today net income
of $149,210 ($.05 per share) for the third quarter ended January 31, 1996. Net
income for the nine-month period ended January 31, 1996 was $370,462 ($.14 per
share). The Company had a net loss of approximately $113,000 and net income of
approximately $61,000 for the three and nine-month periods last year. Sales for
the quarter were approximately $2.2 million, and for the nine-month period
approximately $6.5 million; a 2% and an 11% decrease respectively over the
comparable periods last year.
Income from operations for the three and nine-month periods ended January 31,
1996, were approximately $129,000 and $404,000, as compared to a loss of
approximately $207,000 and income of approximately $55,000 for the same periods
last year.
E N G I N E E R I N G M E A S U R E M E N T S C O M P A N Y
Operating Results
Third Quarter Ended January 31, 1996
Three Months Ended Nine Months Ended
January 31, January 31,
1996 1995 1996 1995
Net sales $2,179,253 $2,222,522 $6,458,074 $7,279,084
Income from operations 128,724 (206,944) 404,434 54,644
Other income 30,837 25,280 98,188 48,616
Income taxes 10,351 (69,059) 132,160 42,116
Net income 149,210 (112,605) 370,462 61,144
Net earnings per share $.06 ($.04) $.14 $.02
Average number of shares
outstanding 2,746,385 2,749,619 2,737,496 2,808,030
PAGE 11 OF 11