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, 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 December 2, 1998 was 4,021,237.
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, April 30,
1998 1998
Current assets:
Cash and cash equivalents $991,737 $940,687
Accounts receivable, net of allowance
for doubtful accounts and allowance
for sales returns of $91,019 at
October 31, 1998 and $88,213 at
April 30, 1998 1,476,806 1,410,785
Short-term investments 432,161 557,080
Inventories 1,339,535 1,237,051
Prepaid expenses 56,223 29,194
Income taxes receivable 0 45,695
Other receivables 15,723 3,671
Deferred income taxes 258,603 232,596
--------- ---------
Total current assets 4,570,788 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 4,021,716 3,514,185
Office furniture and fixtures 1,252,827 1,197,821
--------- ---------
7,484,009 6,922,737
Less accumulated depreciation (4,484,680) (4,409,773)
--------- ---------
Net property and equipment 2,999,329 2,512,964
--------- ---------
Other assets
Note receivable 129,780 78,483
Other assets, net of amortization 105,373 117,515
--------- ---------
Total other assets 235,153 195,998
TOTAL ASSETS: $7,805,270 $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 STOCKHOLERS EQUITY
October 31, 1998 April 30, 1998
Current liabilities:
Accounts payable 810,131 462,220
Accrued liabilities 694,310 580,567
--------- ---------
Total current liabilities 1,504,441 1,042,787
--------- ---------
Long-term liabilities:
Deferred income taxes 150,400 189,700
--------- ---------
Total long-term liabilities 150,400 189,700
--------- ---------
Stockholders' equity:
Common stock, $.01 par value;
5,000,000 shares authorized;
4,211,637 shares issued at October
31, 1998, 3,376,218 shares issued
at April 30, 1998, 4,021,237 shares
outstanding at October 31, 1998,
3,185,818 shares outstanding at
April 30, 1998, 42,116 33,762
Capital in excess of par value 2,574,793 2,487,290
Unrealized holding losses (net of taxes) (56,937) (26,270)
Retained earnings 4,220,156 4,068,151
Treasury stock at cost; 190,400 shares
at October 31, 1998, and April 30, 1998 (629,699) (629,699)
--------- ---------
Total stockholders' equity 6,150,429 5,933,234
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY: $7,805,270 $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 INCOME
Three Months Ended Six Months Ended
October 31, October 31,
1998 1997 1998 1997
Sales $2,479,486 $2,762,908 $4,948,735 $5,053,245
Cost of sales 1,489,431 1,566,751 2,884,024 2,997,016
--------- --------- --------- ---------
Gross margin on sales 990,055 1,196,157 2,064,711 2,056,229
--------- --------- --------- ---------
Operating expenses:
Selling 534,641 674,112 1,128,893 1,216,863
General and administrative 221,604 258,264 487,333 496,308
Research and development 173,280 163,317 333,838 334,046
--------- --------- --------- ---------
Total operating expenses 929,525 1,095,693 1,950,064 2,047,217
--------- --------- --------- ---------
Income from operations 60,530 100,464 114,647 9,012
--------- --------- --------- ---------
Other income/(expense):
Gain/(loss) on sale of stock 3,713 (6,918) 13,427 38,615
Interest expense (204) (9,506) (204) (18,663)
Other income 28,870 25,047 65,284 39,958
--------- --------- --------- ---------
Total other income 32,379 8,623 78,507 59,910
Income/(loss) from operations
before income taxes 92,909 109,087 193,154 68,922
Income tax provision/(benefit) 7,640 40,798 33,106 27,243
--------- --------- --------- ---------
Net income/(loss) 85,269 68,289 160,048 41,679
========= ========= ========= =========
Net earnings/(loss) per share $0.02 $0.02 $0.04 $0.01
Net earnings/(loss) per share
on a fully diluted basis $0.02 $0.02 $0.04 $0.01
========= ========= ========= =========
Weighted average number of
shares outstanding 4,021,237 3,621,908 4,010,282 3,606,241
========= ========= ======= =======
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
Six Months Ended October 31,
1998 1997
Cash flows from operating activities:
Net income $160,048 $41,679
Adjustments to reconcile net income to
net cash provided by operating activities--
Depreciation and amortization 227,291 227,084
Deferred tax provision/(benefit) (45,700) (9,100)
Provision for doubtful accounts 2,806 (1,730)
(Gain)/Loss on sales of investments (13,427) (38,615)
(Gain)/Loss on disosal of assets (5,000) ---
Changes in assets and liabilities-
Receivables (80,879) (102,379)
Inventories (102,484) 68,895
Income taxes receivable and prepaid
expenses 18,666 87,905
Accounts payable and accrued liabilities 461,654 (18,240)
--------- ---------
Net cash provided/(used) by operating activities 622,975 255,499
--------- ---------
Cash flows from investing activities:
Capital expenditures, net (701,514) (442,801)
Expenditures for intangible assets --- (9,692)
Expenditures for note receivable (51,297) ---
Investment purchases (187,220) (847,577)
Proceeds from sale of investments 275,292 1,084,957
Proceeds from sale of fixed assets 5,000 ---
--------- ---------
Net cash provided by/(used) in
investing activities (659,739) (215,113)
--------- ---------
Cash flows from financing activities:
Payments of long and short term debt --- (35,232)
Proceeds from exercise of stock options 87,814 23,250
--------- ---------
Net cash used in financing activities 87,814 (11,982)
--------- ---------
Net increase/(decrease) in cash and
cash equivalents 51,050 28,404
Cash and cash equivalents at beginning
of period 940,687 547,837
--------- ---------
Cash and cash equivalents at end of period $991,737 $576,241
========= =========
Supplemental disclosure of cash flow information:
Cash paid during period for--
Interest $ 204 $ 18,663
Income taxes 2,048 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 six months ended October 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 are as follows:
October 31, 1998 April 30, 1998
Raw materials and work-in-process $1,086,042 $1,115,210
Finished goods 253,493 121,841
---------- ----------
$1,339,535 $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 six months ended
October 31, 1998, there were a total of 315,681 shares outstanding under the
Company's stock option plans. Any dilutive effect of the outstanding options
converting into common stock as of October 31, 1998, is reflected in the
financial statements.
Earnings per share is calculated based on the FASB issued Statements of
Financial Accounting Standards (SFAS) 128, Earnings per Share, effective for
periods ending after December 15, 1997. The earnings per share calculations
include the five for four stock split, in the form of a stock dividend (804,189
shares) for all periods reported in this Form10-QSB.
Page 6 of 10.
For the Six Months Ended October 31, 1998
Income Shares Per-
(Numerator) (Denominator) Share Amount
Net Income $160,048
Basic EPS
Net Income available to common
stockholders $160,048 4,010,282 $0.04
Effective of Dilutive Securities Options 0 92,857
Diluted EPS
Income available to stockholders plus
assumed conversions $160,048 4,103,139 $0.04
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 $348,000 during the
six months ended October 31, 1998, due primarily to the increase in accounts
payable of approximately $348,000. The increase in accounts payable is due to
the increase in capital expenditures. The current ratio decreased to 3.0 at
October 31, 1998, compared to 4.3 at April 30, 1998.
Cash and cash equivalents increased approximately $51,000 at October 31, 1998
compared to April 30, 1998. Capital expenditures were approximately $702,000
offset by proceeds from the sale of investments, net of investment purchases, of
approximately $88,000, cash provided by operations of approximately $623,000,
and proceeds from the exercise of options of approximately $88,000. 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 $66,000 at October 31, 1998,
primarily due to higher sales volume. The Days Sales Outstanding (DSO) are
lower at 56.0 days for the six months ended October 31, 1998, compared to 57.6
days for the fiscal year ended April 30, 1998.
Inventories increased approximately $102,000 in the first six months of the
fiscal year. The inventory turnover ratio for the six months ended October 31,
1998, decreased to 2.14 compared to 2.42 in fiscal year 1998. Increased
finished goods to help facilitate sales, contributed to the decrease in
inventory turns. Management will continue to emphasize inventory management.
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 has a $500,000 revolving line of credit with Norwest Bank Colorado
through September 30, 1999, collaterized by accounts receivable, the interest
rate is at Norwest Colorado prime. The Company has no outstanding loan balance
on the line of credit currently.
Page 7 of 10.
B. Results of Operations
Six months ended October 31, 1998 compared
to the six months ended October 31, 1997
Sales were approximately $104,000 lower in 1998 compared to 1997, a 2.1%
decrease for the current year. The lower sales are due to weak foreign markets,
particularly Asia and Russia, and a soft domestic market, down approximately 6%.
New product sales, year to date have increased approximately $518,000. The
Company's order backlog is higher at October 31, 1998 at approximately
$1,538,000, compared to $1,370,000 at October 31, 1997.
Gross profit increased by approximately $8,000 to 41.7% of sales in 1998
compared to 40.7% in 1997. The higher gross profit is due to lower material and
overhead costs of 1.2% and 1.7%, respectively, offset by higher labor costs of
1.9%. Operating expenses are down approximately $97,000 from last year due
primarily to lower sales commissions. Income from operations increased
approximately $105,000 for the six months ended October 31, 1998, compared to
the same period a year ago.
The Company's interest expense has decreased approximately $19,000 for the six
months ended October 31, 1998, compared to the same period ended in 1997, due to
the Company's elimination of outstanding debt at April 30, 1998.
The income tax provision for the six months ended October 31, 1998, was
approximately $33,000 compared to approximately $27,000 for the same period in
1997. The impact of deferred tax items and tax refunds resulted in current tax
rates of approximately 17.5% and 39.5% in 1998 and 1997, respectively.
Three months ended October 31, 1998 compared
to the three months ended October 31, 1997
Sales were approximately $283,000 lower in 1998 compared to 1997, a 10.3%
decrease, due to a weak international economy ($175,000), and a weaker domestic
economy ($100,000), approximately a 6% decrease. The domestic flow meter
market, according to industry sources, is also down approximately 6% for the
current year.
Gross margin decreased by approximately $206,000 to 39.9% of sales in 1998
compared to 43.3% for the same quarter in 1997. The decrease in gross margin in
1998 is due to increases in labor, offset partly by lower material and overhead
compared to the same period last year. Operating expenses are approximately
$166,000 less than last year due primarily to lower selling expenses, and lower
general and administrative expenses.
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.
Interest expense is approximately $9,000 less in 1998, compared to the same
period last year due to the elimination of debt at April 30, 1998.
The income tax provision for the three months ended October 31, 1998 was
approximately $8,000 compared to approximately $41,000 for the same period in
1997. The impact of deferred tax items and tax refunds resulted in current tax
rates of approximately 8.2% and 37.4% in 1998 and 1997, respectively.
Year 2000 Compliance
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
Page 8 of 10.
(commonly known as the 'Year 2000 Problem'). The Company replaced its
inventory and financial software in fiscal year 1998 with a system which is Year
200 compliant. The Company has evaluated its other internal-use software and
hardware for Year 2000 compliance, and has implemented a plan to replace all
non-compliant items either through upgrade or replacement. The planned
completion date for this task is July 31, 1999, and the cost of these
upgrades/replacements is anticipated to be approximately $60,000.
The Company may be vulnerable to the failure of other companies to be Year 2000
compliant. The Company will begin shortly the assessment of whether third
parties with whom the Company has material relationships are Year 2000
compliant. The Company will also evaluate its vendors and suppliers to
determine if there would be a material effect on the Company's business if they
do not become Year 2000 compliant. The same analysis will also be made for
significant customers.
The Company's products do not use time/date logic for internal sequencing or
calculation, and therefore the Company believes its products are Year 2000
compliant.
Although management does not expect Year 2000 issues to have a material impact
on its business or future results of operation, there can be no assurance that
there will not be interruptions of operations or other system functionality
limitations or that the Company will not incur significant costs to avoid such
interruptions or limitations.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
99 Press release announcing the 25% stock dividend on Form 8-K filed
October 26, 1998, and hereby incorporated by reference.
B. Reports on Form 8-K
None filed in the quarter ended October 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: December 8, 1998 By: /s/ Charles E. Miller
Charles E. Miller, Chairman
(Principal Financial Officer and Chief
Accounting Officer)
Page 10 of 10.
December 8, 1998
ENGINEERING MEASUREMENTS COMPANY
(NASDAQ SYMBOL: EMCO)
Second Quarter Results
Corporate Contact: Charles E. Miller
(303) 651-0550
Longmont, Colorado: Engineering Measurements Company announced today net income
of $85,269 ($.03 per share) for the second quarter ended October 31, 1998. Net
income for the six-month period ended October 31, 1998 was $160,048 ($.04 per
share). This compares to net income for the three-month and six-month periods
last year of $68,289 ($.02 per share) and $41,679 ($.01 per share),
respectively. Sales for the quarter were approximately $2.48 million, and for
the six-month period approximately $4.95 million; a 10% and a 2% decrease
respectively over the comparable periods last year.
In a separate development, the Company announced that sales by its service
division (ATG) have more than double in the past six months reaching $100,000
in November. ATG, the newly formed business unit, provides advanced circuit
board assembly to a number of high-technology companies in the Colorado area.
Management anticipates the growth to continue in ATG, which should contribute to
the Company's growth and profitability.
Please keep in mind that forward-looking statements based on current
expectations involve risks and uncertainties. EMCO's actual results may differ
materially from the results discussed in the forward-looking statements.
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
Three Months Ended Six Months Ended
October 31, October 31,
1998 1997 1998 1997
Net sales $2,479,486 $2,762,908 $4,948,735 $5,053,245
Income from operations 60,530 100,464 114,646 9,012
Other income 32,379 8,623 78,508 59,910
Income taxes 7,640 40,798 33,106 27,243
Net income 85,269 68,289 160,048 41,679
Net earnings per share $.02 $02 $.04 $.01
Number of shares outstanding 4,021,237 3,621,908 4,010,282 3,606,241