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: July 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. Identification No.)
incorporation or organization)
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 August 29, 1996 was 2,773,052.
Transitional Small Business Disclosure Format.
Yes No X .
Page 1 of 11
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ENGINEERING MEASUREMENTS COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
July 31,1996
(unaudited) April 30,1996
Current assets:
Cash and cash equivalents $419,653 $532,721
Accounts receivable, net of allowance
for doubtful accounts of $74,052 at July
31, 1996 and $75,687 at April 30, 1996 1,675,491 1,313,033
Short-term investments 591,474 708,042
Inventories 1,473,706 1,574,547
Prepaid expenses 115,911 75,892
Other receivables 12,322 50,141
Deferred income taxes 407,209 380,969
--------- ---------
Total current assets 4,695,766 4,635,345
--------- ---------
Property and equipment, at cost:
Land 568,940 568,940
Building & improvements 1,603,565 1,589,118
Vehicles 16,791 16,791
Machinery and equipment 2,620,256 2,561,532
Office furniture and fixtures 1,223,336 1,209,306
--------- ---------
6,032,888 5,945,687
Less accumulated depreciation (4,106,350) (4,032,724)
--------- ---------
Net property and equipment 1,926,538 1,912,963
--------- ---------
Other 88,179 90,237
Investment in common stock of Marcum Natural
Gas Services, Inc. 178,063 197,312
--------- ---------
Total other assets 266,242 287,549
--------- ---------
TOTAL ASSETS: $6,888,546 $6,835,857
========== ==========
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
July 31, 1996
(unaudited) April 30,1996
Current liabilities:
Current portion of long-term debt $99,693 $137,558
Accounts payable 485,932 462,332
Accrued liabilities 533,307 593,524
-------- --------
Total current liabilities 1,118,932 1,193,414
-------- --------
Long-term liabilities:
Loans from stockholder less current
maturities 400,766 418,382
Leases less current maturities 0 0
Deferred income taxes 223,300 183,100
-------- --------
Total long-term liabilities 624,066 601,482
-------- --------
Stockholders' equity:
Common stock, $.01 par value;
5,000,000 shares authorized;
2,943,452 shares issued at July 31, 1996,
2,943,452 shares issued at April 30, 1996,
2,753,052 shares outstanding at July 31, 1996,
2,753,052 shares outstanding at April 30, 1996, 29,435 29,435
Capital in excess of par value 1,988,327 1,988,327
Unrealized holding losses (75,756) (56,416)
Retained earnings 3,833,241 3,709,314
Treasury stock at cost; 190,400 shares at
July 31, 1996, 190,400 shares at April 30, 1996
(629,699) (629,699)
-------- --------
Total stockholders' equity 5,145,548 5,040,961
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY: $6,888,546 $6,835,857
======== ========
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
July 31,
1997 1996
Sales $2,452,302 $2,092,689
Cost of sales 1,331,591 1,200,533
---------- ----------
Gross margin on sales 1,120,711 892,156
---------- ----------
Operating expenses:
Selling 561,939 499,211
General and administrative 227,368 187,691
Research and development 138,459 93,591
Provision for doubtful accounts 7,843 10,391
---------- ----------
Total operating expenses 935,609 790,884
---------- ----------
Income from operations 185,102 101,272
---------- ----------
Other income/(expense):
Gain/(loss) on sale of stock (1,073) 12,348
Interest expense (10,919) (16,051)
Royalty and other income 33,010 31,805
---------- ----------
Total other income 21,018 28,102
Income/(loss) from operations before
income taxes 206,120 129,374
Income tax provision/(benefit) 82,193 47,417
---------- ----------
Net income/(loss) 123,927 81,957
========== ==========
Net earnings/(loss) per share $0.05 $0.03
Net earnings/(loss) per share on
a fully diluted basis $0.04 $0.03
======== ========
Weighted average number of
shares outstanding 2,753,052 2,733,052
========= =========
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)
Three Months Ended July 31,
1997 1996
Cash flows from operating activities:
Net income $123,927 $81,957
Adjustments to reconcile net income to
net cash provided by operating activities--
Depreciation and amortization 77,803 80,951
Deferred tax provision/(benefit) 26,325 3,034
Provision for doubtful accounts (1,635) (11,404)
Gain on sales of investments (6,917) (12,347)
Stock option compensation --- ---
Changes in assets andliabilities-
Receivables (323,004) 4,315
Inventories 100,841 (132,013)
Prepaid expenses (40,019) (36,453)
Accounts payable and accrued
liabilities (36,617) 54,300
Net cash provided by ---------- --------
operating activities (79,296) 32,340
---------- --------
Cash flows from investing activities:
Capital expenditures, net (87,201) (53,904)
Expenditures for intangible assets (2,119) (16,109)
Investment purchases (10,345) (12,841)
Proceeds from sale of investments 121,374 18,630
Net cash provided by/(used) in ---------- ---------
investing activities 21,709 (64,224)
---------- ---------
Cash flows from financing activities:
Payments of long and short term debt (50,950) (50,949)
Purchase of treasury stock --- ---
Proceeds from exercise of stock options --- ---
Principle payment under capital lease
obligations (4,531) (4,020)
---------- ----------
Net cash used in financing activities (55,481) (54,969)
Net increase/(decrease) ---------- ----------
in cash and cash equivalents (113,068) (86,853)
Cash and cash equivalents
at beginning of period 532,721 312,183
---------- ----------
Cash and cash equivalents
at end of period $419,653 $225,330
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during period for--
Interest $11,169 $16,051
Income taxes 158,368 24,080
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 for a fair presentation have been included. Operating results for
the three months ended July 31, 1996 are not necessarily indicative of the
results that may be expected for the fiscal year ending April 30, 1997. 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, 1996.
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:
July 31, 1996 April 30, 1996
Raw materials and work-in-process $1,225,141 $1,272,573
Finished goods 248,565 301,974
---------- ----------
$1,473,706 $1,574,547
========== ==========
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 219,775 shares subject to outstanding
options under the Company's stock option plans at October 31, 1995. The effect
of the outstanding options and conversion right to purchase the total of
565,541 shares as of July 31, 1996 is dilutive and reflected in the financial
statements. Earnings per share on a fully dilutive basis using the treasury
stock method was $.04 at July 31, 1996 for the three month period. In 1996
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 $.03 at July 31, 1995.
Page 6 of 11
6. Changes in Accounting Principles
There have been no changes in accounting principles during these reporting
periods.
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 $135,000 during the
three months ended July 31, 1996, primarily because of increases in
receivables, prepaid expenses and deferred income taxes and decreases in the
current maturities of long term debt and lower accrued liabilities, primarily
income taxes payable. The current ratio increased from 3.9 to 4.2 during the
period.
Cash and cash equivalents decreased approximately $113,000 at July 31, 1996
compared to April 30, 1996, due to the payment of income taxes and other
accrued liabilities during the period. The Company intends to continue
investing excess cash in high grade investment securities until the cash is
needed for operations.
Accounts receivable increased by approximately $362,000 at July 31, 1996,
primarily due to higher sales. The Days Sales Outstanding (DSO) improved to
57.7 days for the three months ended July 31, 1996 compared to 61.5 days for
the same period last year.
Inventories decreased approximately $101,000 in the first three months of the
fiscal year. The inventory turnover ratio for the three months ended July 31,
improved to 1.86 compared to 1.30 in fiscal 1996. The decrease in inventories
reflects management's renewed emphasis on inventory management as well as
increased sales levels.
Investments in common stock of Marcum Natural Gas Services, Inc. decreased
approximately $19,000 in the period when valued at market.
The Company is making monthly payments of principal and interest, of
approximately $21,000 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
Three months ended July 31, 1996 compared
to the three months ended July 31, 1995
Sales were approximately $360,000 higher in 1996 compared to 1995, a 17.2%
increase, due to higher demand in the international market. The Company's
order backlog is higher at July 31, 1996 at approximately $1,580,000, compared
to $1,300,000 at July 31, 1995.
Gross profit increased by approximately $229,000 to 45.7% of sales in 1996
compared to 42.6% in 1995. Improved purchasing methods and the Company's
value engineering efforts resulted in better material costs. Overhead
remained the same as last year at 9.2% of revenue. Operating expenses were up
approximately $145,000 from last year including a $65,000 increase in
commissions expense, reflecting the higher sales level attained to date and
higher commissions on Danfoss products than was offered a year ago. Income
from operations improved to 7.5% for the three months ended July 31, 1996
versus 4.8% for the same period a year ago.
The Company recognized a loss of approximately $1,000 from the sale of stock
for the three months ended July 31, 1996. The Company recognized a gain of
approximately $12,000 for the three months ended July 31, 1995.
Royalty and other income increased approximately $1,000 to approximately
$33,000 due to higher interest and dividend income from high grade investment
securities for the three months ended July 31, 1996 compared the same period
last year.
The Company's interest expense has decreased approximately $5,000 for the
period ended July 31, 1996 compared to the same period ended in 1995, due to
the Company's lower outstanding debt.
The income tax provision for the three months ended July 31, 1996 increased
approximately $35,000 compared to the same period in 1995. The impact of
deferred tax items resulted in current tax rates of approximately 39.9% and
36.6% in 1996 and 1995, respectively.
Net cash used by operating activities was $79,296, due primarily to increases
in receivables.
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 July 31, 1996.
B. Reports on Form 8-K
None filed in the quarter ended July 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: August 30, 1996 By: /s/ Charles E. Miller
Charles E. Miller, Chairman
(Principal Financial Officer
and Chief Accounting
Officer)
Page 10 of 11
August 30, 1996
ENGINEERING MEASUREMENTS COMPANY
(NASDAQ SYMBOL: EMCO)
First Quarter Results
Corporate Contact: Charles E. Miller
(303) 651-0550
Longmont, Colorado: Engineering Measurements Company announced today net income
of $123,193 ($.05 per share) for the first quarter ended July 31, 1996. Sales
for the period were approximately $2.45 million; compared to sales of
approximately $2.1 million for the same period last year.
Net income for the first quarter was 5.1% of sales, compared to 3.9% for the
same period 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
First Quarter Ended July 31, 1996
Three Months Ended
July 31,
1996 1995
Net Sales $2,452,302 $2,092,689
Income from operations before taxes 206,120 129,374
Net Income 123,927 81,957
Net earnings per share $.05 $.03
Number of shares outstanding 2,753,052 2,733,052
Page 11 of 11