FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: July 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO 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 September 10, 1999, was 4,067,361.
Transitional Small Business Disclosure Format.
Yes No X .
Page 1 of 10
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ASSETS
July 31, 1999 April 30, 1999
Current assets:
Cash and cash equivalents $651,964 $697,697
Accounts receivable, net of allowance for
doubtful accounts and allowance for sales
returns of $84,146 at July 31, 1999,
and $75,990 at April 30, 1999 1,137,858 1,094,954
Short-term investments 667,392 556,288
Inventories 1,557,763 1,667,011
Prepaid expenses 49,554 31,757
Other receivables 0 2,376
Deferred income taxes 269,389 260,649
--------- ---------
Total current assets 4,333,920 4,310,732
--------- ---------
Property and equipment, at cost:
Land 568,940 568,940
Building & improvements 1,635,885 1,624,950
Vehicles 22,196 22,196
Machinery and equipment 4,138,978 4,099,524
Office furniture and fixtures 1,325,218 1,301,489
--------- ---------
7,691,217 7,617,099
Less accumulated depreciation (4,849,902) (4,725,996)
--------- ---------
Net property and equipment 2,841,315 2,891,103
--------- ---------
Other assets:
Note receivable 0 138,920
Other assets, net of amortization 263,553 132,351
--------- ---------
Total other assets 263,553 271,271
TOTAL ASSETS: $7,438,788 $7,473,106
============ ============
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
July 31, 1999 April 30, 1999
Current liabilities:
Accounts payable $295,148 $320,853
Accrued liabilities 562,497 650,456
----------- ----------
Total current liabilities 857,645 971,309
----------- ----------
Long-term liabilities:
Deferred income taxes 218,600 220,500
----------- ----------
Total long-term liabilities 218,600 220,500
----------- ----------
Stockholders' equity:
Common stock, $.01 par value;
5,000,000 shares authorized;
4,257,761 shares issued at July 31, 1999,
4,232,774 shares issued at April 30,1999,
4,067,361 shares outstanding at July 31, 1999,
4,042,374 shares outstanding at April 30, 1999 42,578 42,328
Capital in excess of par value 2,727,180 2,650,332
Unrealized holding losses (net of taxes) (40,024) (38,711)
Retained earnings 4,262,508 4,257,047
Treasury stock at cost; 190,400 shares at
July 31, 1999, and April 30, 1999 (629,699) (629,699)
----------- ----------
Total stockholders' equity 6,362,543 6,281,297
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY: $7,438,788 $7,473,106
============ ============
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,
1999 1998
Sales $2,227,590 $2,469,249
Cost of sales 1,356,913 1,394,593
--------- ---------
Gross margin on sales 870,677 1,074,656
--------- ---------
Operating expenses:
Selling 453,997 594,252
General and administrative 231,354 265,729
Research and development 237,627 160,558
--------- ---------
Total operating expenses 922,978 1,020,539
--------- ---------
Income from operations (52,301) 54,117
--------- ---------
Other income/(expense):
Gain/(loss) on sale of stock 14,985 9,713
Interest (expense) (164) ---
Other income 13,484 36,415
--------- ---------
Total other income 28,305 46,128
Income/(loss) from operations
before income taxes (23,996) 100,245
Income tax provision/(benefit) (29,457) 25,466
--------- ---------
Net income/(loss) 5,461 74,779
========= =========
Net earnings/(loss) per share $0.00 $0.02
Net earnings/(loss) per share on
a fully diluted basis $0.00 $0.02
========= =========
Weighted average number of
shares outstanding 4,054,682 3,632,574
========= =========
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)
Three Months Ended July 31,
1999 1998
Cash flows from operating activities:
Net income $ 5,461 $ 74,779
Adjustments to reconcile net income to
net cash provided by operating activities--
Depreciation and amortization 129,824 109,773
Deferred tax provision/(benefit) (9,800) (11,700)
Provision for doubtful accounts 8,156 14,154
(Gain)/Loss on sales of investments (14,985) (9,713)
(Gain)/Loss on disposal of assets --- (5,000)
Stock compensation 1,000 ---
Changes in assets and liabilities-
Receivables (48,684) (198,199)
Inventories 109,248 (31,881)
Income taxes receivable and prepaid expenses (17,797) 33,868
Accounts payable and accrued liabilities (113,664) 12,813
----------- -----------
Net cash provided/(used) by operating activities 48,759 (11,106)
----------- -----------
Cash flows from investing activities:
Capital expenditures, net (74,118) (208,550)
Proceeds from/(expenditures for) note receivable 1,800 (32,531)
Investment purchases (223,972) (135,398)
Proceeds from sale of investments 125,700 30,486
Proceeds from sale of fixed assets --- 5,000
----------- -----------
Net cash provided by/(used) in investing activities (170,590) (340,993)
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock options 76,098 31,346
----------- -----------
Net cash used in financing activities 76,098 31,346
----------- -----------
Net increase/(decrease) in cash and cash
equivalents (45,733) (320,753)
Cash and cash equivalents at beginning of
period 697,697 940,687
----------- -----------
Cash and cash equivalents at end of period $ 651,964 $ 619,934
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during period for--
Interest $ 164 $ ---
Income taxes --- 1,424
Supplemental disclosure for non cash items:
Stock Compensation $ 1,000 $ ---
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, 1999, are not necessarily indicative of the results that may be
expected for the fiscal year ending April 30, 2000. 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, 1999.
1. Inventories
Inventories, stated at the lower of cost (first-in, first-out method)
or market, are as follows:
July 31, 1999 April 30, 1999
Raw materials and work-in-process $1,184,515 $1,263,617
Finished goods 373,248 403,394
------------ ------------
$1,557,763 $1,667,011
============ ============
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
stockholders' 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, 1999, there were a total of 342,932 shares
outstanding under the Company's stock option plans. Any dilutive
effect of the outstanding options into common stock as of
July 31, 1999, 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, 1999
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net Income $5,461
Basic EPS
Net Income available to common
stockholders $5,461 4,054,682 $0.00
Effect of Dilutive Securities
Options 0 88,909
Diluted EPS
Income available to stockholders plus
assumed conversions $5,461 4,143,591 $0.00
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 increased approximately $137,000
during the three months ended July 31, 1999. The increase is
primarily due to increases in accounts receivable, short term
investments and prepaid expenses and decreases in accounts payable and
accrued liabilities and partially offset by decreases in cash and
inventory. The current ratio was 5.1 at July 31, 1999, compared to
4.4 at April 30, 1999.
Cash and cash equivalents decreased approximately $46,000 at July 31,
1999, compared to April 30, 1999. The change in cash is due primarily
to net investment purchases of approximately $98,000, increases in
receivables of approximately $47,000, capital expenditures of
approximately $74,000 and reductions of accounts payable and accrued
liabilities of approximately $115,000 during the period. The Company
intends to continue investing excess cash in investment securities
until the cash is needed for operations.
Accounts receivable increased by approximately $47,000 at July 31,
1999, due to higher sales. The Days Sales Outstanding (DSO) improved
to 48.1 days for the three months ended July 31, 1999, compared to
54.3 days for the year ended April 30, 1999.
Inventories decreased approximately $109,000 in the first three months
of the fiscal year. The inventory turnover ratio for the three months
ended July 31, decreased to 1.38 compared to 1.84 in fiscal 1999.
Management will continue to review inventory levels in order to
optimize shipments.
The Company currently has no loans outstanding. 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 1999. The Company intends to renew the
letter of credit , and is currently in negotiation with Norwest Bank.
The Company currently has no outstanding loan balance on the line of
credit.
Page 7 of 10
B. Results of Operations
Three months ended July 31, 1999, compared
to the three months ended July 31, 1998
Sales were approximately $241,000 lower in 1999 compared to 1998, a
9.8% decrease, due to lower demand throughout the domestic flowmeter
market. The Company's order backlog is lower at July 31, 1999, at
approximately $1,133,000, compared to $1,434,000 at July 31, 1998.
Gross profit decreased by approximately $204,000 to 39.0% of sales in
1999 compared to 43.5% in 1998. Labor was 5% higher due to lower
volume and a more labor intensive product mix; material cost was down
2% and overhead was up 2%, again due to product mix. Operating
expenses are down approximately $98,000 from last year due to
decreased selling and general and administrative costs. Research and
development expenses were up approximately $77,000 over the same
period in the prior year. Income from operations decreased
approximately $106,000 for the three months ended July 31, 1999,
compared to the same period a year ago.
The Company recognized gains of approximately $15,000 from the sale of
stock for the three months ended July 31, 1999, compared to approximately
$10,000 for the three months ended July 31, 1998.
Other income for the three months ended July 31, 1999, decreased
approximately $18,000 to approximately $28,000 due to lower interest
income from high grade investment securities, and the absence of gains
on the disposal of fixed assets and of miscellaneous income recognized
in the period ending July 31, 1998. The Company had no interest
expense attributable to debt in the periods ending July 31, 1999, and
1998, respectively.
The income tax benefit for the three months ended July 31, 1999, was
approximately $29,000 compared to an income tax provision of
approximately $25,000 for the same period in 1998. The impact of
deferred tax items and the impact of stock option exercises on the
Company's taxes resulted in current tax benefit applicable to pretax
income of approximately 122.8% in 1999. The income tax expense rate
in the comparable period in 1998 was 25.4%.
Net cash provided by operating activities was $48,759 for the three
months ended July 31, 1999.
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 (this is commonly known as the `Year 2000 Problem'
or `Y2K' problem). The Company replaced its inventory and financial
software in fiscal year 1998 with a system which is Year 2000
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 October 31, 1999, and the
cost of remaining upgrades/replacements is anticipated to be
approximately $30,000.
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.
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, 1999.
B. Reports on Form 8-K
None filed in the quarter ended July 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: September 14, 1999 By: /s/Charles E. Miller
Charles E. Miller, Chairman
(Principal Financial Officer
and Chief Accounting Officer)
Page 10 of 10