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: October 31, 1997
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 December 5, 1997 was 2,815,052.
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
October 31, 1997 April 30, 1997
Current assets:
Cash and cash equivalents $576,241 $547,837
Accounts receivable, net of allowance for doubtful
accounts and allowance for sales returns of $59,374
at October 31, 1997 and $61,104 at April 30, 1997 1,723,922 1,557,566
Short-term investments 696,389 904,724
Inventories 1,187,702 1,256,597
Prepaid expenses 82,054 23,845
Income taxes receivable 14,734 160,848
Other receivables 355 62,602
Deferred income taxes 232,474 224,342
----------- -----------
Total current assets 4,513,871 4,738,361
----------- -----------
Property and equipment, at cost:
Land 568,940 568,940
Building & improvements 1,619,595 1,619,595
Vehicles 22,196 22,196
Machinery and equipment 3,488,607 3,106,342
Office furniture and fixtures 1,004,401 950,271
----------- -----------
6,703,739 6,267,344
Less accumulated depreciation (4,191,404) (3,981,412)
----------- -----------
Net property and equipment 2,512,335 2,285,932
----------- -----------
Other assets 108,341 109,335
TOTAL ASSETS: $7,134,547 $7,133,628
========== ==========
Page 2 of 10
ENGINEERING MEASUREMENTS COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDER'S EQUITY
October 31, 1997 April 30, 1997
Current liabilities:
Current portion of long-term debt $383,150 $418,382
Accounts payable 536,999 612,538
Accrued liabilities 573,147 515,848
----------- -----------
Total current liabilities 1,493,296 1,546,768
----------- -----------
Long-term liabilities:
Deferred income taxes 183,400 188,100
----------- -----------
Stockholders' equity:
Common stock, $.01 par value;
5,000,000 shares authorized;
3,000,452 shares issued at October 31, 1997,
2,988,452 shares issued at April 30, 1997,
2,810,052 shares outstanding at October 31, 1997,
2,798,052 shares outstanding at April 30, 1997, 30,005 29,885
Capital in excess of par value 2,071,007 2,047,877
Unrealized holding losses (36,247) (30,409)
Retained earnings 4,022,785 3,981,106
Treasury stock at cost; 190,400 shares at
October 31, 1997, 190,400 shares at
April 30, 1997 (629,699) (629,699)
----------- -----------
Total stockholders' equity 5,457,851 5,398,760
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY: $7,134,547 $7,133,628
========== ==========
Page 3 of 10
ENGINEERING MEASUREMENTS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Six
Months Ended Months Ended
October 31, October 31,
1997 1996 1997 1996
Sales $2,762,908 $2,578,617 $5,053,245 $5,030,919
Cost of sales 1,566,751 1,432,508 2,997,016 2,764,099
---------- ---------- ---------- ----------
Gross margin on sales 1,196,157 1,146,109 2,056,229 2,266,820
---------- ---------- ---------- ----------
Operating expenses:
Selling 674,112 602,112 1,216,863 1,164,051
General and administrative 258,264 221,250 496,308 456,461
Research and development 163,317 157,209 334,046 295,668
---------- ---------- ---------- ----------
Total operating expenses 1,095,693 980,571 2,047,217 1,916,180
---------- ---------- ---------- ----------
Income from operations 100,464 165,538 9,012 350,640
---------- ---------- ---------- ----------
Other income/(expense):
Gain/(loss) on sale of stock (6,918) 7,061 38,615 5,988
Interest expense (9,506) (9,981) (18,663) (20,900)
Royalty and other income 25,047 39,011 39,958 72,021
---------- ---------- ---------- ----------
Total other income 8,623 36,091 59,910 57,109
Income/(loss) from operations before
income taxes 109,087 201,629 68,922 407,749
Income tax provision/(benefit) 40,798 76,256 27,243 158,449
---------- ---------- ---------- ----------
Net income/(loss) 68,289 125,373 41,679 249,300
========= ========= ========= =========
Net earnings/(loss) per share $0.02 $0.04 $0.01 $0.09
Net earnings/(loss) per share on a fully
diluted basis $0.02 $0.04 $0.01 $0.08
====== ====== ====== ======
Weighted average number of
shares outstanding 2,805,385 2,766,385 2,802,052 2,759,719
========= ========= ========= =========
Page 4 of 10
ENGINEERING MEASUREMENTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS: INCREASE/(DECREASE) IN CASH
(Unaudited)
Six Months Ended
October 31,
1997 1996
Cash flows from operating activities:
Net income $ 41,679 $ 249,300
Adjustments to reconcile net income to
net cash provided by operating activities--
Depreciation and amortization 227,084 157,158
Deferred tax provision/(benefit) (9,100) (58,200)
Provision for doubtful accounts (1,730) (14,258)
Gain/(Loss) on sales of investments (38,615) (5,988)
Changes in assets and liabilities-
Receivables (102,379) 191,736
Inventories 68,895 190,706
Income taxes receivable and prepaid expenses 87,905 (44,644)
Accounts payable and accrued
liabilities (18,240) 110,509
Net cash provided/(used) by --------- ---------
operating activities 255,499 776,319
--------- ---------
Cash flows from investing activities:
Capital expenditures, net (442,801) (246,238)
Expenditures for intangible assets (9,692) (14,902)
Investment purchases (847,577) (766,819)
Proceeds from sale of investments 1,084,957 523,987
Net cash provided by/(used) in --------- ---------
investing activities (215,113) (503,972)
--------- ---------
Cash flows from financing activities:
Payments of long and short term debt (35,232) (90,788)
Proceeds from exercise of stock options 23,250 35,000
Principle payment under capital lease
obligations 0 (8,592)
--------- ---------
Net cash used in financing activities (11,982) (64,380)
Net increase/(decrease) in cash and cash --------- ---------
equivalents 28,404 207,967
Cash and cash equivalents at beginning of
period 547,837 532,721
--------- ---------
Cash and cash equivalents at end of period $ 576,241 $ 740,688
========= =========
Supplemental disclosure of cash flow information:
Cash paid during period for--
Interest $ 18,663 $ 20,900
Income taxes 3,033 169,000
Page 5 of 10
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
six months ended October 31, 1997 are not necessarily indicative of the results
that may be expected for the fiscal year ending April 30, 1998. 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, 1997.
1. Inventories
Inventories, stated at the lower of cost (first-in, first-out method) or market,
are as follows:
October 31, 1997 April 30, 1997
Raw materials and work-in-process $1,036,857 $1,081,823
Finished goods 150,845 174,774
---------- ----------
$1,187,702 $1,256,597
========== ==========
2. 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.
3. Income Taxes
Deferred income taxes are provided for items which are reported for tax purposes
in different periods than in the Statements of Operations.
4. 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. Also during the quarter ended October 31, 1997, there were a total of
203,275 shares outstanding under the Company's stock option plans. Any
dillutive effect of the outstanding options and conversion of debt into common
stock of 561,041 shares as of October 31, 1997 is reflected in the financial
statements.
The FASB issued Statements of Financial Accounting Standards (SFAS) 128,
Earnings per Share, which will be effective for periods ending after December
15, 1997. Early application is not permitted. Had SFAS 128 been adopted, the
following table illustrates the Basic and Diluted EPS for the six months ended
October 31, 1997:
Page 6 of 10
For the Six Months Ended October 31, 1997
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net Income $41,679
=======
Basic EPS
Net Income available to common $41,679 2,802,052 $0.01
stockholders
Effective of Dilutive Securities
Options and convertible debt 12,318 387,562
------- ---------
Diluted EPS
Income available to stockholders plus
assumed conversions $53,997 3,189,614 $0.01
======= ========= =====
5. 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 decreased approximately $171,000 during the
six months ended October 31, 1997, primarily due to decreases in short-term
investments $208,000, accounts payable $76,000, income taxes receivable
$146,000, inventories $69,000, and other receivables $62,000, and increases in
accounts receivable $166,000, and prepaid expenses $58,000. The current ratio
remained relatively unchanged, 3.06 at April 30, 1997, to 3.02 at October 31,
1997.
Cash and cash equivalents increased approximately $28,000 at October 31, 1997
compared to April 30, 1997. Capital expenditures were approximately $443,000
during the period, offset by proceeds from investments of approximately $237,000
and cash provided by operations of approximately $255,000. 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 $166,000 at October 31, 1997,
primarily due to higher sales in the second quarter. The Days Sales Outstanding
(DSO) remained the same at 54.4 days for the six months ended October 31, 1997
compared to 54.1 days for the fiscal year ended April 30, 1997.
Inventories decreased approximately $69,000 in the first six months of the
fiscal year. The inventory turnover ratio for the six months ended October 31,
1997, increased to 2.26 compared to 2.03 in fiscal 1997. Increased sales and
better management of the inventory contributed to the improvement in inventory
turns. Management will continue to emphasize inventory management.
The Company is making monthly payments of principal and interest, of
approximately $9,000 to pay off loans from a stockholder, this loan will be
paid in full by the end of the current fiscal year. 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 10
B. Results of Operations
Six months ended October 31, 1997 compared
to the six months ended October 31, 1996
Sales were approximately $22,000 higher in 1997 compared to 1996, a 0.4%
increase for the current year. New product sales year to date are approximately
$298,000. The Company's order backlog is lower at October 31, 1997 at
approximately $1,370,000, compared to $1,567,000 at October 31, 1996.
Gross profit decreased by approximately $211,000 to 40.7% of sales in 1997
compared to 45.7% in 1996. The lower gross profit is due primarily to labor and
overhead being higher at 3% and 1.4% respectively. Operating expenses are up
approximately $131,000 from last year due primarily to increased selling costs
related to new product introduction, and product development costs. Income
from operations decreased approximately $342,000 for the six months ended
October, 1997 compared to the same period a year ago.
The Company recognized gains of approximately $39,000 from the sale of stock for
the six months ended October 31, 1997, compared to approximately $6,000 for the
six months ended October 31, 1996.
Royalty and other income for the six months ended October 31, 1997, decreased
approximately $32,000 to approximately $40,000 due to lower interest and
dividend income from high grade investment securities and the termination of the
royalty agreement at April 30, 1997, compared the same period last year. The
Company's interest expense has decreased approximately $2,000 for the six months
ended October 31, 1997 compared to the same period ended in 1996, due to the
Company's lower outstanding debt.
The income tax provision for the six months ended October 31, 1997 was
approximately $27,000 compared to approximately $158,000 for the same period in
1996. The impact of deferred tax items resulted in current tax rates of
approximately 39.5% and 38.9% in 1997 and 1996, respectively.
Net cash provided by operating activities was $255,499, due to decreases in
inventories, income tax receivables and prepaid expenses, along with increased
depreciation and amortization costs.
Three months ended October 31, 1997 compared
to the three months ended October 31, 1996
Sales were approximately $184,000 higher in 1997 compared to 1996, a 7.1%
increase, due primarily to new product sales of approximately $131,000.
Gross margin increased by approximately $50,000 to 43.3% of sales in 1997
compared to 44.4% for the same quarter in 1996. The decrease in gross margin in
1997 is due to slight increases in material, labor and overhead compared to the
same period last year. Operating expenses are $115,000 greater than last year
due primarily to higher selling expenses related to new product introduction
approximately $34,000, higher commissions as a result of higher sales volume
approximately $42,000, and higher bad debt expenses approximately $12,000.
The Company anticipates selling expenses related to new product sales, and R&D
expenses for new product development to continue for several quarters.
Management makes no assurance that any of the new products will produce
significant additional revenue for the Company.
Royalty and other income is approximately $14,000 less for the three months
ended October 31, 1997 than for the same period last year due primarily to the
termination of the royalty agreement at April 30, 1997, compared the same period
last year.
Page 8 of 10
The income tax provision for the three months ended October 31, 1997 was
approximately $41,000 compared to approximately $76,000 for the same period in
1996. The impact of deferred tax items resulted in current tax rates of
approximately 37.4% and 37.8% in 1997 and 1996, respectively.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
None filed in the quarter ended October 31, 1997.
B. Reports on Form 8-K
None filed in the quarter ended October 31, 1997.
Page 9 of 10
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: December 8, 1997 By: /s/ Charles E. Miller
Charles E. Miller, Chairman
(Principal Financial Officer
and Chief Accounting
Officer)
Page 10 of 10
December 8, 1997
ENGINEERING MEASUREMENTS COMPANY
(NASDAQ SYMBOL: EMCO)
Second Quarter Results
Corporate Contact: Charles E. Miller
(303) 651-0550
Longmont, Colorado: Engineering Measurements Company announced today a net
income of $68,289 ($.02 per share) for the second quarter ended October 31,
1997. Net income for the six-month period ended October 31, 1997 was $41,679
($.01 per share). This compares to net income for the three-month and six-month
periods last year of $125,373 ($.04 per share) and $249,300 ($.09 per share),
respectively. Sales for the quarter were approximately $2.76 million, and for
the six-month period approximately $5.05 million; a 7% and a 0.4% increase
respectively over the comparable periods last year.
Income from operations for the three and six month periods ended October 31,
1997, were approximately $100,000 and $9,000, as compared to approximately
$166,000 and $351,000 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
Second Quarter Ended October 31, 1997
Three Months Ended Six Months Ended
October 31, October 31,
1997 1996 1997 1996
Net sales $2,762,908 $2,578,617 $5,053,245 $5,030,919
Income from operations 100,464 165,538 9,012 350,640
Other income 8,623 36,091 59,910 57,109
Income taxes 40,798 76,256 27,243 158,449
Net income 68,289 125,373 41,679 249,300
Net earnings per share $.02 $.04 $.01 $.09
Number of shares outstanding 2,805,385 2,766,385 2,802,052 2,759,719