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, 1999
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 March 8, 1999 was 4,036,237.
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
January 31, 1999 April 30, 1998
(Unaudited)
Current assets:
Cash and cash equivalents $603,953 $940,687
Accounts receivable, net of allowance
for doubtful accounts and allowance
for sales returns of $91,351 at
January 31, 1999 and $88,213 at
April 30, 1998 1,444,600 1,410,785
Short-term investments 688,423 557,080
Inventories 1,415,800 1,237,051
Prepaid expenses 26,245 29,194
Income taxes receivable --- 45,695
Other receivables 5,303 3,671
Deferred income taxes 261,956 232,596
--------- ---------
Total current assets 4,446,280 4,456,759
--------- ---------
Property and equipment, at cost:
Land 568,940 568,940
Building & improvements 1,620,441 1,619,595
Vehicles 22,196 22,196
Machinery and equipment 4,015,532 3,514,185
Office furniture and fixtures 1,275,420 1,197,821
--------- ---------
7,502,529 6,922,737
Less accumulated depreciation (4,604,957) (4,409,773)
--------- ---------
Net property and equipment 2,897,572 2,512,964
--------- ---------
Other assets
Note receivable 155,638 78,483
Other assets, net of amortization 103,505 117,515
--------- ---------
Total other assets 259,143 195,998
TOTAL ASSETS: $7,602,995 $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 STOCKHOLDERS EQUITY
January 31, 1999 April 30, 1998
(Unaudited)
Current liabilities:
Accounts payable 387,402 462,220
Accrued liabilities 716,888 580,567
--------- ---------
Total current liabilities 1,104,290 1,042,787
--------- ---------
Long-term liabilities:
Deferred income taxes 212,100 189,700
--------- ---------
Total long-term liabilities 212,100 189,700
--------- ---------
Stockholders' equity:
Common stock, $.01 par value;
5,000,000 shares authorized;
4,226,637 shares issued at
January 31, 1999,
3,376,218 shares issued at
April 30, 1998,
4,036,237 shares outstanding at
January 31, 1999,
3,185,818 shares outstanding at
April 30, 1998, 42,266 33,762
Capital in excess of par value 2,634,643 2,487,290
Unrealized holding losses (net of taxes) (60,461) (26,270)
Retained earnings 4,299,856 4,068,151
Treasury stock at cost; 190,400
shares at January 31, 1999, and
April 30, 1998 (629,699) (629,699)
--------- ---------
Total stockholders' equity 6,286,605 5,933,234
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY: $7,602,995 $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
(Unaudited)
Three Months Ended Nine Months Ended
January 31, January 31,
1999 1998 1999 1998
Sales $2,605,677 $2,575,432 $7,554,412 $7,628,677
Cost of sales 1,550,189 1,533,057 4,434,213 4,530,073
---------- ---------- ---------- ----------
Gross margin on sales 1,055,488 1,042,375 3,120,199 3,098,604
---------- ---------- ---------- ----------
Operating expenses:
Selling 527,116 576,075 1,656,009 1,792,938
General and administrative 234,007 237,561 721,340 733,869
Research and development 197,621 137,895 531,459 471,941
---------- ---------- ---------- ----------
Total operating expenses 958,744 951,531 2,908,808 2,998,748
---------- ---------- ---------- ----------
Income from operations 96,744 90,844 211,391 99,856
---------- ---------- ---------- ----------
Other income/(expense):
Gain/(loss) on sale of stock 3,182 37,014 16,609 75,629
Interest expense (60) (7,930) (264) (26,593)
Other income 29,163 6,206 94,447 46,164
---------- ---------- ---------- ----------
Total other income 32,285 35,290 110,792 95,200
Income/(loss) from operations
before income taxes 129,029 126,134 322,183 195,056
Income tax provision/(benefit) 49,329 44,301 82,435 71,544
---------- ---------- ---------- ----------
Net income/(loss) 79,700 81,833 239,748 123,512
========== ========== ========== ==========
Net earnings/(loss) per share $0.02 $0.03 $0.06 $0.04
Net earnings/(loss) per
share on a fully diluted basis $0.02 $0.03 $0.06 $0.04
========== ========== ========== ==========
Weighted average number of
shares outstanding 4,026,237 3,632,574 4,015,600 3,615,019
========= ========= ========= =========
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
Nine Months Ended January 31,
1999 1998
Cash flows from operating activities:
Net income $ 239,748 $ 123,512
Adjustments to reconcile net income to
net cash provided by operating activities--
Depreciation and amortization 353,436 348,044
Deferred tax provision/(benefit) 14,900 (27,700)
Provision for doubtful accounts 3,138 11,985
(Gain)/Loss on sales of investments (16,609) (95,705)
(Gain)/Loss on disposal of assets (9,600) 2,805
Changes in assets and liabilities-
Receivables (38,585) (18,212)
Inventories (178,749) 124,782
Income taxes receivable and prepaid expenses 48,644 116,789
Accounts payable and accrued liabilities 61,503 (116)
---------- ----------
Net cash provided/(used) by operating activities 477,826 586,184
---------- ----------
Cash flows from investing activities:
Capital expenditures, net (720,034) (604,304)
Expenditures for intangible assets (4,000) (60,726)
Expenditures for note receivable (77,155) ---
Investment purchases (716,028) (1,356,732)
Proceeds from sale of investments 545,243 1,626,099
Proceeds from sale of fixed assets 9,600 ---
---------- ----------
Net cash provided by/(used) in investing
activities (962,374) (395,663)
---------- ----------
Cash flows from financing activities:
Payments of long and short term debt --- (64,592)
Proceeds from exercise of stock options 147,814 89,500
---------- ----------
Net cash used in financing activities 147,814 24,908
---------- ----------
Net increase/(decrease) in cash and cash
equivalents (336,734) 215,429
Cash and cash equivalents at beginning of period 940,687 547,837
---------- ----------
Cash and cash equivalents at end of period $ 603,953 $ 763,266
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during period for--
Interest $ 264 $ 26,593
Income taxes 3,428 6,659
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
nine months ended January 31, 1999 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:
January 31, 1999 April 30, 1998
Raw materials and work-in-process $1,212,142 $1,115,210
Finished goods 249,707 121,841
---------- ----------
$1,415,800 $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 nine months ended
January 31, 1999, there were a total of 300,681 shares outstanding under the
Company's stock option plans. Any dilutive effect of the outstanding options
converting into common stock as of January 31, 1999, 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 Nine Months Ended January 31, 1999
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net Income $239,748
========
Basic EPS
Net Income available to common
stockholders $239,748 4,015,600 $0.06
Effective of Dilutive Securities
Options 0 89,782
-------- ------
Diluted EPS
Income available to stockholders plus
assumed conversions $239,748 4,105,382 $0.06
======== ========= =====
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 is down slightly from the beginning of the
year as it decreased approximately $72,000 during the nine months ended January
31, 1999. The current ratio decreased to 4.0 at January 31, 1999, compared to
4.3 at April 30, 1998.
Cash and cash equivalents decreased approximately $337,000 at January 31, 1999
compared to April 30, 1998. Capital expenditures were approximately $720,000.
Net purchases of investment securities were approximately $171,000. Cash
provided by operations was approximately $482,000, and proceeds from the
exercise of options were approximately $148,000. 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 $34,000 at January 31, 1999,
primarily due to higher sales volume. The Days Sales Outstanding (DSO) are
lower at 54.2 days for the nine months ended January 31, 1999, compared to 57.6
days for the fiscal year ended April 30, 1998.
Inventories increased approximately $179,000 in the first nine months of the
fiscal year. The inventory turnover ratio for the nine months ended January 31,
1999, decreased to 2.04 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, collateralized 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
Nine months ended January 31, 1999 compared
to the nine months ended January 31, 1998
Sales were down approximately $74,000, a 1.0% decrease for the current year.
The lower sales are due to weak foreign markets, particularly Asia and Russia.
New product sales, year to date have increased approximately $779,000. The
Company's order backlog is higher at January 31, 1999 at approximately
$1,361,000, compared to $1,162,000 at January 31, 1998.
Gross profit increased by approximately $22,000 to 41.3% of sales in 1999
compared to 40.6% in 1998. The higher gross profit is due to lower material and
overhead costs of 2.9% and 0.6%, respectively, offset by higher labor costs of
2.8%. Operating expenses are down approximately $90,000 from last year due
primarily to lower sales commissions. Income from operations increased
approximately $116,000 for the nine months ended January 31, 1999, compared to
the same period a year ago.
The Company's interest expense has decreased approximately $26,000 for the nine
months ended January 31, 1999, compared to the same period ended in 1998, due to
the Company's elimination of outstanding debt at April 30, 1998.
Other Income, consisting primarily of interest and dividend income and net gains
on the sale of investment securities was approximately $111,000 in 1999 compared
to $121,000 for the nine months ended January 31, 1998.
The income tax provision for the nine months ended January 31, 1999, was
approximately $82,000 compared to approximately $72,000 for the same period in
1998. The impact of deferred tax items and tax refunds resulted in current tax
rates of approximately 25.6% and 36.7% in 1999 and 1998, respectively.
Three months ended January 31, 1999 compared
to the three months ended January 31, 1998
Sales were approximately $30,000 higher in 1999 compared to 1998, a 1.2%
increase. Increases in the sales of products and services introduced in fiscal
year 1998 offset the decreases in sales of the other technologies. The domestic
flow meter market, according to industry sources, is down approximately 6% for
the current year.
Gross margin increased by approximately $13,000 while remaining at 40.5% of
sales. As sales of the recently introduced products become a larger percentage
of our total revenue we are seeing increases in labor, offset partly by lower
material and overhead compared to the same period last year. Operating expenses
are approximately $7,000 greater than last year due primarily to increases in
R&D spending offset by lower commissions expenses.
The Company anticipates selling expenses related to restructuring of the sales
organization and R&D expenses for new product development to continue for
several quarters. Management makes no assurance that any of the new sales
efforts or new products will produce significant additional revenue for the
Company.
Other Income, consisting primarily of income from the company's investment
securities holdings was approximately $32,000 in 1999 compared to $43,000 in
1998.
Interest expense is approximately $8,000 less in 1999, 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 January 31, 1999 was
approximately $49,000 compared to approximately $44,000 for the same period in
1998. The impact of deferred tax items and tax refunds resulted in current tax
rates of approximately 38.2% and 35.1% in 1999 and 1998, respectively.
Page 8 of 10
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
(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 has begun the assessment of whether third parties with
whom the Company has material relationships are Year 2000 compliant. The
Company is also evaluating 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 is also being 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
None filed in the quarter ended January 31, 1999.
B. Reports on Form 8-K
None filed in the quarter ended January 31, 1999.
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: March 10, 1999 By: /s/ Charles E. Miller
Charles E. Miller, Chairman
(Principal Financial Officer and
Chief Accounting Officer)
Page 10 of 10
March 10, 1999
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 $79,700 ($.02 per share) for the third quarter ended January 31, 1999. Net
income for the nine-month period ended January 31, 1999, was $239,748 ($.06 per
share). This compares to net income for the three-month and nine-month periods
last year of $81,833 ($.03 per share) and $123,512 ($.04 per share),
respectively. Sales for the quarter were approximately $2.61 million, and for
the nine-month period approximately $7.55 million; a 1% increase and a 1%
decrease, respectively over the comparable 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
Three Months Ended Nine Months Ended
January 31, January 31,
1999 1998 1999 1998
---------- ---------- ---------- -----------
Net sales $2,605,677 $2,575,432 $7,554,412 $7,628,677
Income from operations 96,744 90,844 211,391 99,856
Other income 32,285 35,290 110,792 95,200
Income taxes 49,329 44,301 82,435 71,544
Net income 79,700 81,833 239,748 123,512
Net earnings per share $.02 $.03 $.06 $.04
Number of shares outstanding 4,026,237 3,632,574 4,015,600 3,615,019