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, 1998
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 31, 1998 was 3,217,048.
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
July 31, April 30,
1998 1998
(unaudited)
Current assets:
Cash and cash equivalents $619,934 $940,687
Accounts receivable, net of allowance
for doubtful accounts and allowance
for sales returns of $102,367 at
July 31, 1998 and $88,213 at
April 30, 1998 1,569,511 1,410,785
Short-term investments 646,018 557,080
Inventories 1,268,932 1,237,051
Prepaid expenses 31,127 29,194
Income taxes receivable 9,894 45,695
Other receivables 28,990 3,671
Deferred income taxes 258,814 232,596
--------- ---------
Total current assets 4,433,220 4,456,759
--------- ---------
Property and equipment, at cost:
Land 568,940 568,940
Building & improvements 1,618,330 1,619,595
Vehicles 22,196 22,196
Machinery and equipment 3,579,194 3,514,185
Office furniture and fixtures 1,202,385 1,197,821
--------- ---------
6,991,045 6,922,737
Less accumulated depreciation (4,372,534) (4,409,773)
--------- ---------
Net property and equipment 2,618,511 2,512,964
--------- ---------
Other assets
Note receivable 111,014 78,483
Other assets, net of amortization 110,745 117,515
--------- ---------
Total other assets 221,759 195,998
TOTAL ASSETS: $7,273,490 $7,165,721
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
(Continued)
Page 2 of 10
ENGINEERING MEASUREMENTS COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDER'S EQUITY
July 31, April 30,
1998
(unaudited)
Current liabilities:
Accounts payable $415,522 $462,220
Accrued liabilities 640,078 580,567
--------- ---------
Total current liabilities 1,055,600 1,042,787
--------- ---------
Long-term liabilities:
Deferred income taxes 194,200 189,700
--------- ---------
Total long-term liabilities 194,200 189,700
--------- ---------
Stockholders' equity:
Common stock, $.01 par value;
5,000,000 shares authorized;
3,389,948 shares issued at July 31, 1998,
3,376,218 shares issued at April 30, 1998,
3,199,548 shares outstanding at July 31, 1998,
3,185,818 shares outstanding at April 30, 1998, 33,899 33,762
Capital in excess of par value 2,518,499 2,487,290
Unrealized holding losses (net of taxes) (41,939) (26,270)
Retained earnings 4,142,930 4,068,151
Treasury stock at cost; 190,400 shares at
July 31, 1998, and April 30, 1998 (629,699) (629,699)
--------- ---------
Total stockholders' equity 6,023,690 5,933,234
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY: $7,273,490 $7,165,721
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3 of 10
ENGINEERING MEASUREMENTS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
July 31,
1998 1997
Sales $2,469,249 $2,290,337
Cost of sales 1,394,593 1,430,265
--------- --------
Gross margin on sales 1,074,656 860,072
--------- --------
Operating expenses:
Selling 594,252 542,751
General and administrative 265,729 238,044
Research and development 160,558 170,729
--------- --------
Total operating expenses 1,020,539 951,524
--------- --------
Income from operations 54,117 (91,452)
--------- --------
Other income/(expense):
Gain/(loss) on sale of stock 9,713 45,533
Interest expense 0 (9,157)
Other income 36,415 14,911
--------- --------
Total other income 46,128 51,287
Income/(loss) from operations before
income taxes 100,245 (40,165)
Income tax provision/(benefit) 25,466 (13,555)
--------- ---------
Net income/(loss) 74,779 (26,610)
========= =========
Net earnings/(loss) per share $0.02 ($0.01)
Net earnings/(loss) per share on a
fully diluted basis $0.02 ($0.01)
========= =========
Weighted average number of shares
outstanding 3,192,808 2,798,719
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4 of 10
ENGINEERING MEASUREMENTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS: INCREASE/(DECREASE) IN CASH
(Unaudited)
1998 1997
Cash flows from operating activities:
Net income $ 74,779 $ (26,610)
Adjustments to reconcile net income to
net cash provided by operating activities--
Depreciation and amortization 109,773 108,747
Deferred tax provision/(benefit) (11,700) 2,100
Provision for doubtful accounts 14,154 2,836
(Gain)/Loss on sales of investments (9,713) (35,637)
(Gain)/Loss on disosal of assets (5,000) ---
Changes in assets and liabilities-
Receivables (198,199) 268,299
Inventories (31,881) (69,341)
Income taxes receivable and prepaid expenses 33,868 (83,414)
Accounts payable and accrued liabilities 12,813 166,245
---------- ---------
Net cash provided/(used) by
operating activities (11,106) 333,225
---------- ---------
Cash flows from investing activities:
Capital expenditures, net (208,550) (367,698)
Expenditures for intangible assets --- (1,542)
Expenditures for note receivable (32,531) ---
Investment purchases (135,398) (757,352)
Proceeds from sale of investments 30,486 547,704
Proceeds from sale of fixed assets 5,000 ---
---------- ----------
Net cash provided by/(used)in investing activities (340,993) (578,888)
---------- ----------
Cash flows from financing activities:
Payments of long and short term debt --- (17,616)
Proceeds from exercise of stock options 31,346 6,250
---------- ----------
Net cash used in financing activities 31,346 (11,366)
---------- ----------
Net increase/(decrease) in cash and cash equivalents (320,753) (257,029)
Cash and cash equivalents at beginning of period 940,687 547,837
---------- ----------
Cash and cash equivalents at end of period $ 619,934 $ 290,808
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during period for--
Interest $ --- $ 9,157
Income taxes 1,424 3,033
The accompanying notes are an integral part of these consolidated financial
statements.
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
three months ended July 31, 1998 are not necessarily indicative of the results
that may be expected for the fiscal year ending April 30, 1999. 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, 1998.
1. Inventories
Inventories, stated at the lower of cost (first-in, first-out method) or market,
are as follows:
July 31, 1998 April 30, 1998
Raw materials and work-in-process $1,171,522 $1,115,210
Finished goods 97,410 121,841
------------ -------------
$1,268,932 $1,237,051
========== =============
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. During the quarter ended July
31, 1998, there were a total of 218,545 shares outstanding under the Company's
stock option plans. Any dilutive effect of the outstanding options into common
stock as of July 31, 1998 is reflected in the financial statements.
Page 6 of 10
The FASB issued Statements of Financial Accounting Standards (SFAS) 128,
Earnings per Share, which is effective for periods ending after December 15,
1997.
For the Quarter Ended July 31, 1998
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net Income $74,779
=======
Basic EPS
Net Loss available to common stockholders $74,779 3,192,808 $0.02
Effective of Dilutive Securities
Options 0 38,043
------- ---------
Diluted EPS
Income available to stockholders plus assumed conversions $74,779 3,230,851 $0.02
======= ========= =====
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 $37,000 during the
three months ended July 31, 1998, primarily due to decreases in cash, income
taxes receivable, and accounts payable and increases in accounts receivable,
inventory, and accrued liabilities. The current ratio was 4.2 at July 31, 1998
compared to 4.3 at April 30, 1998.
Cash and cash equivalents decreased approximately $321,000 at July 31, 1998
compared to April 30, 1998, due to capital expenditures of approximately
$224,000 and increases in accounts receivable 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 $224,000 at July 31, 1998,
primarily due to higher sales and slightly slower collections. The Days Sales
Outstanding (DSO) were 55.6 days for the three months ended July 31, 1998
compared to 57.6 days for the year ended April 30, 1998.
Inventories increased approximately $32,000 in the first three months of the
fiscal year. The inventory turnover ratio for the three months ended July 31,
increased to 2.09 compared to 1.99 in fiscal 1998. Management will continue to
emphasize inventory management.
The Company currently has no loans outstanding. The Company was making monthly
payments of principal and interest, of approximately $9,000 to pay off loans
from a stockholder in the first quarter of last 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
Three months ended July 31, 1998 compared
to the three months ended July 31, 1997
Sales were approximately $179,000 higher in 1998 compared to 1997, a 7.8%
increase, due to the introduction of new products and higher demand in the
domestic market in the current year. The Company's order backlog is higher at
July 31, 1998 at approximately $1,434,000, compared to $1,237,000 at July 31,
1997.
Gross profit increased by approximately $215,000 to 43.5% of sales in 1998
compared to 37.6% in 1997. Labor was 2% lower due to volume and a favorable
product mix, material cost was down 1% and overhead was down 3% due to
favorable product mix. Operating expenses are up approximately $69,000 from
last year due to increased selling and general and administrative costs.
Income from operations increased approximately $146,000 for the three months
ended July 31, 1998 compared to the same period a year ago.
The Company recognized gains of approximately $10,000 from the sale of stock for
the three months ended July 31, 1998, compared to approximately $46,000 for the
three months ended July 31, 1997.
Other income for the three months ended July 31, 1998, increased approximately
$22,000 to approximately $36,000 due to higher interest and dividend income from
high grade investment securities, gains on the disposal of fixed assets and the
recognition of miscellaneous income in 1998 versus a loss in 1997, compared the
same period last year. The Company's interest expense was zero for the period
ended July 31, 1998 compared to approximately $9,000 for the same period in
1997, due to the conversion of outstanding shareholder debt to equity in April
of 1998.
The income tax provision for the three months ended July 31, 1998 was
approximately $25,000 compared to an income tax benefit of approximately $14,000
the same period in 1997. The impact of deferred tax items resulted in current
tax rates of approximately 25.4% and 33.7% in 1998 and 1997, respectively.
Net cash provided by operating activities was $3,976.
Page 8 of 10
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
None filed in the quarter ended July 31, 1998.
B. Reports on Form 8-K
None filed in the quarter ended July 31, 1998.
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: September 14, 1998 By: /s/ Charles E. Miller
Charles E. Miller, Chairman
(Principal Financial Officer
and Chief Accounting Officer)
Page 10 of 10
September 14, 1998
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 $74,779 $.02 per share for the first quarter ended July 31, 1998. Sales for
the period were approximately $2.47 million; compared to sales of approximately
$2.29 million for the same period last year.
Net income for the first quarter was 3.0% of sales, compared to net loss of
1.2% 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, 1998
Three Months Ended July 31,1998
1998 1997
Net sales $2,469,249 $2,290,337
Income (loss) from operations before taxes 100,245 (91,452)
Income(loss) 74,779 (26,610)
Net earnings(loss) per share $.02 ($.01)
Number of shares outstanding 3,199,548 2,798,719