SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee required]
For the Fiscal Year ended: April 30, 1996
or
Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 [No Fee Required] for the transition period from to .
Commission File No.: 0-9880
ENGINEERING MEASUREMENTS COMPANY
(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)
Issuer's telephone number: (303) 651-0550
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock par value $.01
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the preceding 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
Check if the disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. X
Issuer's revenues for its most recent fiscal year: $8,665,808
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of July 22, 1996 was $8,947,419.
The number of shares outstanding of Registrant's $.01 par value common stock, as
July 22, 1996 was 2,753,052.
No documents are incorporated by reference into the text of this report.
Transitional Small Business Disclosure Format : Yes ; No X
Exhibit Index on Pages 35-37
Page 1 of 38
<PAGE>
PART I
ITEM 1. BUSINESS
General
Engineering Measurements Company ("EMCO" or the "Company") is a Colorado
corporation which was incorporated on January 4, 1967. The Company's executive
offices and factory are located at 600 Diagonal Highway, Longmont, Colorado
80501. Its telephone number is (303) 651-0550.
The Company designs, manufactures, and markets electronic and electro-mechanical
instruments (flowmeters) for measuring the flow of liquids, steam and gases.
The Company operates within the flow measurement devices and systems industry
segment (S.I.C. Code No. 3823). The Company generates its revenues from the
sales of flowmeter hardware, as well as from royalty income related to
technological licensing arrangements, both foreign and domestic. With its 29
years experience in the field of flow measurement, Engineering Measurements
Company is able to provide its customers with a family of products capable of
measuring almost any kind of fluid or gas flow. While the Company has
historically been strongest in energy utility flow measurement (particularly
steam metering) it has products capable of measuring most types of process
fluids, as well as fuel oils and natural gas. Utilizing a network of
distributors and commissioned sales representatives, the Company markets
flowmeters worldwide.
A new contract has been signed with Danfoss to extend the marketing agreement
through May 1, 1998. Terms of the alliance with Danfoss A/S allow the Company
to be the exclusive distributor for Danfoss' MAG and MASS flowmeters in the U.S.
industrial market under the "EMCO" label. In turn, Danfoss is allowed to market
and distribute EMCO's Vortex PhD flowmeter on a non-exclusive basis under the
"Danfoss" label in Europe. The marketing agreement signed with Danfoss A/S
completes the Company's "family of flowmeters". This family features five types
of flowmeters capable of handling a broad spectrum of applications (steam, gas
and liquid) as well as a large range of line sizes. It also positions the
Company to compete on a product level with any flowmeter manufacturer in the
world.
In June, 1991, the Company acquired 604,000 shares of Marcum Natural Gas (MGAS)
common stock as a result of a merger of Measurement Auditors Company, a former
75.6% subsidiary of the Company, with MGAS and the sale of the CNG dispenser and
certain other assets and rights to DVCO, a subsidiary of MGAS. In May, 1992,
the Company exchanged 300,000 shares of MGAS common stock for 300,000 shares of
Patrick Petroleum Company common stock. The exchange was made because although
MGAS common stock is publicly traded, its volume is lower than the Patrick
Petroleum Company common stock. The Company also receives a royalty from its
sale of the CNG dispenser and technology.
In July, 1993, the Company exchanged 50,000 shares of MGAS common stock with
Patrick Petroleum to eliminate certain rights of first refusal and option rights
related to the June, 1991, transaction with MGAS and sold 50,000 shares of MGAS
common stock in open market transactions. The Company retains 154,000 shares of
MGAS common stock at April 30, 1996, compared to the 204,000 shares held at
April 30, 1995. The MGAS common stock is valued at market in the "Other Assets"
portion of the Company's consolidated balance sheet. See Footnote 3,
Investments, in the Notes to Consolidated Financial Statements.
Mr. Charles E. Miller, chief executive officer, president and chairman of the
board of directors of the Company, has been appointed a director of MGAS and Mr.
Miller has entered into a consulting agreement with DVCO. Pursuant to the
consulting agreement, which expired December 31, 1994, approximately 50% of Mr.
Miller's time was spent working for DVCO, Inc.
Page 2 of 38
<PAGE>
Products
The Company has developed, and markets a series of products to measure the flow
of steam, chilled and hot water, natural gas, compressed gases and other fluids
in a pipeline. Also included are products which support the primary flow
measurements, such as pressure and temperature measurements and supporting
electronics.
The Company has two major technologies used in its product lines. The sales
contribution by each technology as a percent of sales for fiscal years 1996 and
1995 are as follows:
<TABLE>
Technology FY 1996 FY 1995
<S> <C> <C>
Volumetric 76% 75%
Mass 24% 25%
</TABLE>
Volumetric technologies include the following products: insertion, vortex
shedding, and positive displacement meters. Mass technologies include the
following products: electromagnetic, coriolis, flow processors and digital
valves.
The Company manufactures a series of insertion meters for various applications
of steam, liquids and compressed gas measurement. The insertion meters offer
customers solutions for metering flows in large size pipes. Each is available
with an assortment of options allowing for extremes in flow range, pressure and
temperature, with adaptation to various output requirements which provide mass
and energy measurement for totalizing or computer input.
The Company introduced a line of vortex shedding flowmeters in fiscal year 1992.
The Vortex PhD has no moving parts, provides high reliability, has low
maintenance requirements and is capable of operating with dirty fluids.
The Company also develops, manufactures and markets a series of positive
displacement meters which provide accurate measurements of fluid flow rates.
The products' primary applications relate to the measurement of viscous fluids,
such as crude oil, as well as applications requiring a high degree of accuracy.
As a result of the marketing agreement with Danfoss A/S of Denmark, EMCO serves
as the exclusive distributor for Danfoss' electromagnetic (MAG) flowmeters and
coriolis (MASS) flowmeters in the U.S. industrial marketplace. These two
Danfoss meters are marketed and distributed under the "EMCO" label in the U.S.,
establishing EMCO as one of the few companies in the world to offer a complete
line of flowmetering technologies.
Digital valves are digitally actuated control valves providing industry with a
unique means of controlling and measuring the flow of fluids. Because of their
accuracy and speed of response, these products are capable of providing a high
degree of control that cannot easily be matched by other valves. In addition,
this product can be configured as a metering valve, thus providing both
measurement and control.
All Company products utilize a family of digital flow processors to provide a
wide range of measurement processing. The flow processors provide the desired
outputs in engineering units, such as gallons, liters, etc., with provisions for
computing density, mass flow and enthalpy.
Product Distribution
The Company uses a network of distributors and commissioned sales
representatives to market the Company's flowmeters worldwide. The Company also
markets the Vortex PhD through Danfoss' network of wholly owned subsidiaries,
primarily in Western Europe.
Page 3 of 38
<PAGE>
Competition
The Company encounters various levels of competition in its different product
lines. The flow products face somewhat less competition when the application is
large size steam lines. Here, the product is sold primarily on the basis of
quality, performance and return on investment, with little price competition.
In smaller sized steam lines, as well as applications where other energy
utilities or process fluids are being measured, the Company faces a greater
level of competition and price is often a factor. However, no one company is a
major force in this market segment.
The positive displacement meter products encounter direct competition in most of
their markets. Two companies, one utilizing the same technology and the other
employing a different technological approach, comprise most of the competition.
Quality, performance and selling price are all important competitive factors.
Digital Valve products offer unique performance characteristics as regards
speed, accuracy and direct digital control. Where the application requires
these characteristics, the Company experiences no direct competition and price
is generally not a factor. In less demanding installations, the Company faces
direct competition from the manufacturers of more traditional control valves. In
such cases, price does become a competitive factor.
Raw Materials
The Company purchases electronic components, printed circuit boards, fabricated
sheet metal parts, machined components, raw steel and aluminum, metallic
castings, various other materials and electrical energy from various suppliers.
These purchased components are generally available and the loss of any one
supplier would not have a material adverse impact on the Company's operations.
Customers
For Fiscal Year 1996, one customer, Danfoss, accounted for more than 10% of the
Company's reported revenues. The loss of this customer could have an adverse
effect on the Company.
Patents
EMCO has acquired, or is currently pursuing, patent protection on a number of
its products, although management believes that the protection afforded by
patenting is generally not important to the success of the Company. Patents are
prevalent in the flow metering industry and, since the Company has not conducted
exhaustive infringement searches on all of its products, it is possible that one
or more of its products may infringe upon the patents of others.
Depending on the product involved, a lawsuit against the Company for patent
infringement could result in damages in a material amount being assessed against
the Company which would have an adverse effect on the financial condition of the
Company. At this time the Company is not aware of any litigation regarding
matters involving the Company and its products.
Seasonal and Other Conditions
The Company's sales and production are affected by slight seasonality caused by
the Company's emphasis on steam energy measurement. However, the Company's
marketing initiatives designed to increase the importance of the Process Control
market (a nonseasonal market), should mitigate against the effect of seasonality
in the future. Sales are also affected by the capital budgeting plans of large
industrial firms, as well as by other economic and political conditions.
Page 4 of 38
<PAGE>
Working Capital Requirements
The Company is not required to carry significant amounts of inventory to meet
rapid delivery requirements of customers or to assure itself of a continuous
allotment of goods from suppliers. In addition, the Company's working capital
of approximately $3,440,000 as of April 30, 1996 is adequate to meet its current
obligations. The Company believes it has adequate cash flows from operations to
fund future operations and capital expenditure requirements.
Backlog
At April 30, 1996, the total order backlog was approximately $1,899,000 as
compared to $970,000 at April 30, 1995. It is anticipated that the entire
backlog outstanding at April 30, 1996 will be shipped in the fiscal year ending
April 30, 1997.
Government Approvals and Regulation
The Company's principal products and services are not subject to government
approvals. The Company does not expect any significant effect on its business
from existing or probable government regulations. No material portion of the
Company's sales is subject to renegotiation of profits or termination of
contracts or subcontracts at the election of the government.
Research and Development
The Company maintains research and development programs on a continuing basis.
Research activities are primarily directed toward flow measurement and control.
The Company spent approximately $427,000 for research and development in the
fiscal year ending April 30, 1996, and about $466,000 in the fiscal year ending
April 30, 1995.
Research and development expenses were slightly lower in 1996 than in 1995, due
to lower product approval costs.
In 1996, the emphasis of research and development was new product development,
and value engineering. Management believes that research and development
expenses will be higher in the future due to further new product development and
enhancements. The intent of the Company's research and development is twofold:
1) Develop new flowmeter products, and 2) Continue to improve product cost and
quality.
Effects of Environmental Regulations
Compliance with present federal, state and local regulations regarding the
discharge of materials into the environment or otherwise relating to the
protection of the environment should not have any material adverse effect on the
capital expenditures, earnings and competitive position of the Company. The
Company does not plan any capital expenditures for environmental control
facilities during the current and succeeding fiscal year.
Employees
At April 30, 1996, EMCO had 71 full-time employees, of which 8 are employed in
administrative duties, 7 in sales and marketing duties, 6 in research and
development and 50 in production, customer service and application engineering.
This compares with 75 full-time employees at April 30, 1995. The Company had 3
part time employees at April 30, 1996.
Page 5 of 38
<PAGE>
Foreign Sales
In fiscal year 1996, the Company had foreign sales of approximately $2,420,000,
or 27.9% of total sales, as compared to approximately $2,327,000 or 24.8% of
sales in fiscal year 1995. The increase of sales for fiscal year 1996 in Europe
is due primarily to one major project which accounted for approximately $190,000
in sales. The breakdown of foreign sales for fiscal years 1996 and 1995, in
dollars and percent of total sales are:
<TABLE>
FY 1996 FY1995
<S> <C> <C> <C> <C>
Europe $1,579,000 18.2% $1,469,000 15.6%
Asia 306,000 3.5% 367,000 3.9%
Other 535,000 6.2% 491,000 5.3%
</TABLE>
All foreign sales are exports from domestic operations.
ITEM 2. PROPERTIES
The Company maintains its executive offices and factory at 600 Diagonal Highway,
Longmont, Colorado in a 44,800 square foot brick, concrete and cinder block
facility. The purchase of this facility by the Company was financed through the
sale of tax exempt industrial development revenue bonds in 1981. Such bonds
constitute a lien on the real estate.
In Management's opinion, the current executive offices and factory space are
more than adequate for the Company's current operations and should provide
enough space through Fiscal Year 1997 or later. Management also believes the
building is in adequate condition for office and factory use, and will require
no substantial improvements through Fiscal Year 1997 or later.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Page 6 of 38
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
Market Information
The Company's common stock is traded over-the-counter and is quoted on the
NASDAQ National Market (Symbol EMCO). The table below represents the high and
low bid prices of the Company's common stock for its two most recent fiscal
years. Such prices reflect inter-dealer prices, without retail mark-up,
mark-down or commissions and may not necessarily represent actual transactions.
<TABLE>
Quarters Ended in Fiscal Year 1996
07/31/95 10/31/95 01/31/96 04/30/96
<S> <C> <C> <C> <C>
High $2.63 $2.81 $3.13 $3.63
Low $2.19 $2.06 $2.31 $2.81
</TABLE>
<TABLE>
Quarters Ended in Fiscal Year 1995
07/31/94 10/31/94 01/31/95 04/30/95
<S> <C> <C> <C> <C>
High $3.75 $3.88 $3.50 $2.88
Low $3.00 $3.13 $2.50 $2.25
</TABLE>
Approximate Number of Holders of Common Stock
The number of holders of record of the Company's common stock as of July 22,
1996, was 572.
Company Dividend Policy Disclosure
The Company has never paid cash dividends on its common stock and currently
has no plans to do so in the foreseeable future. The Company has no
restrictions on the ability to pay dividends.
Page 7 of 38
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain oral and written statements of management of the Company included in
the Form 10-KSB and elsewhere may contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934, which are intended to be covered by the
safe harbors created thereby. These statements include the plans and
objectives of management for future operations. The forward-looking
statements included herein and elsewhere are based on current expectations and
involve judgments which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Although the Company
believes that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could be inaccurate and, therefore, there
can be no assurance that the forward-looking statements will prove to be
accurate. In light of the significant uncertainties inherent in the forward-
looking statements, the inclusion of such information should not be regarded
as representation by the Company or any other person that the objectives and
plans of the Company will be achieved.
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION:
Liquidity, Capital Resources and Cash Flows
Net working capital increased approximately $402,000 during the fiscal year
ended April 30, 1996, primarily due to higher cash, receivables, and
inventory; and lower current maturities of long-term debt. The working
capital ratio for fiscal year 1996 increased to 3.9 from 3.3 the previous
fiscal year.
The Company does not have any lines of credit with any lenders. Currently the
Company pays approximately $21,000 (principal and interest) a month to pay off
the loans from a stockholder. Included in the $21,000 monthly payment is
approximately $12,000 for the building mortgage payments. The building
mortgage will mature in October 1996. The Company expects to make the
payments out of normal operating cash flow.
As indicated by the financial statements, the Company's short-term borrowings,
long-term debt, leases, and loans from stockholder have decreased from
approximately $777,000 at April 30, 1995, to approximately $556,000 at April
30, 1996. Management intends to further lower debt by scheduled repayment of
the stockholder loans from cash generated by operations. The Company uses
excess cash to invest in high grade securities until the cash is needed for
operations. As of April 30, 1996, the Company has invested approximately
$708,000 in high grade investment securities.
Cash and cash equivalents increased approximately $221,000, due to
management's desire to fund future capital expenditures out of operations.
Management believes it has adequate cash to support operations. This belief is
supported by the fact that positive cash flow from operating activities of
approximately $583,000 offset by investing activities of approximately
$173,000, and debt and lease obligations of approximately $189,000. The
Company will continue to manage cash in order to support operations.
Net accounts receivable increased by approximately $41,000, due to slightly
slower collections. The slower collections are reflected by the slight
increase of the Company's Days Sales Outstanding (DSO) from 58.9 days to 59.7
days in fiscal years 1995 and 1996, respectively.
Short-term investments decreased approximately $37,000 due to the Company
selling investments during the year, offset by a lower adjustment of recording
investments at market value. The impact of recording investments at market
value decreased the cost by approximately $55,000.
Page 8 of 38
<PAGE>
Inventories increased approximately $95,000, and the inventory turn ratio
decreased from 2.34 in 1995 to 1.45 in 1996. The increase in inventory is due
primarily to lower inventory usage; the result of sales being approximately
$733,000 lower.
Accounts payable decreased approximately $42,000 due to lower material
purchases from lower sales volume.
Accrued liabilities increased approximately $11,000 due to higher income
taxes.
The Company does not have any material commitments for capital expenditure
Net working capital and the working capital ratio for the last two fiscal
years were:
<TABLE>
As of April 30
1996 1995
<S> <C> <C>
Working capital $3,441,931 $3,040,228
Working capital ratio 3.9 3.3
</TABLE>
<TABLE>
Material changes in cash flows are summarized as follows:
As of April 30
1996 1995
<S> <C> <C>
Net cash provided by
operating activities $582,783 $176,882
Net cash provided by (used in)
investing activities ($173,219) $29,139
Net cash provided by (used in)
financing activities (1) ($189,026) ($704,469)
Net increase (decrease) in cash
and cash equivalents $220,538 ($498,448)
</TABLE>
(1) The net cash used in financing activities in fiscal year 1995 includes
approximately $584,000 in treasury stock purchases.
Management believes EMCO will enjoy improved results in the future. The basis
of management's belief is that the Company has a strong foundation upon which
to grow. The Company has accomplished the following:
A. The Company received ISO 9001 certification in July 1995. ISO
certification is an international recognized standard for
manufacturers.
B. The Company plans to introduce new products to the market in the
coming year. The Company will conduct R&D activity for new products
to be introduced in coming years. The Company will also emphasize
value engineering to sustain margin despite increasing price
competition.
C. The Company continues to make improvements in overall production
efficiency; through increased investments in people and equipment.
The Company is now capable of manufacturing more product at little or
no increased fixed cost. The increase in gross margins in fiscal
year 1996, despite the decrease in sales volume, reflects the
greater efficiency.
D. The Company's balance sheet remains strong with the primary emphasis
on the elimination of debt. The significant reduction in debt will
reduce the amount of interest payments, which management believes
will directly improve profitability. The Company also recognized
approximately $67,000 in interest and dividend income from
investments during the fiscal year ended April 30, 1996.
Page 9 of 38
<PAGE>
Management is not aware of any known trends, events or uncertainties that have
had, or are likely to have an impact on short-term or long-term liquidity of
the Company.
RESULTS OF OPERATIONS:
Sales Revenues
Sales revenues for the Company decreased approximately $733,000 or 7.8% in
fiscal year 1996 as compared to fiscal year 1995. Domestic sales accounted
for the entire 7.8% decrease in overall sales. The domestic sales were slow,
in part, due to the late approval of the government budget. Government
spending was put on hold because there was no funding available. Sales were
also lower due to increased competition and more discounting. Additionally,
sales were slowed due to the long time required to get product approvals in
foreign developing nations. The Company has seen an increase in sales since
the budget was approved, and with product approvals in foreign countries. The
increase in backlog at April 30, 1996 further supports the volume increases
discussed. The Company continues to place a high priority on product quality
and customer satisfaction. Management believes this emphasis will have
long-term positive impacts on sales. Finally, the Company continues to make
major investments in manufacturing, and will continue to maintain a healthy
product development program.
Net Income
In fiscal year 1996, the Company recognized net income of $400,049, as
compared to a net loss of $54,160 for fiscal year 1995. The increase in
income in 1996 can be attributed to the following:
<TABLE>
1996 1995
<S> <C> <C>
Operating Income/(Loss)
from Operations $485,643 ($162,174)
Gain on Sale of Stock 34,524 22,171
Royalty and other income 141,771 136,671
Interest Expense (56,185) (84,800)
</TABLE>
The Company's increase in income from continuing operations in 1996 is due
primarily to management's emphasis on cost containment. The gross margin on
sales in 1996 was 44% as compared to 40% in 1995, which is attributable to
lower material costs. Gain on sale of stock is approximately $12,000 greater
in fiscal year 1996, and includes approximately $5,000 in gains from the sale
of 50,000 shares of Marcum Natural Gas Services, Inc. common stock. Royalty
and other income is approximately $5,000 higher in fiscal year 1996. Interest
expense decreased by approximately $29,000 due to the reduction of corporate
debt.
Page 10 of 38
<PAGE>
Gross Margins
Overall gross margins for the past two years are reflected as follows:
As of April 30
1996 1995
Gross margin 44% 40%
The increase in gross margin from 1996 to 1995 was due to lower material costs
(4.9%), partially offset by manufacturing fixed costs. Management in the
future will invest to make manufacturing more efficient.
Selling Expense
The Company incurred the following selling expenses as a percent of sales:
As of April 30
1996 1995
Selling expense 24% 27%
The decrease in selling expense is attributed to a decrease in product
promotion. Management in the future will continue to promote the Company's
products through increased in-field sales management, advertising in trade
journals, industry trade shows and telemarketing.
General and Administrative
General and administrative expense for the Company as a percent of sales for
the past two years is as follows:
As of April 30
1996 1995
General and administrative expense 9% 9%
General and administrative expenses as a percent of sales in fiscal year 1996
were similar to the prior year. Actual expenses were approximately $79,000
lower in fiscal year 1996. Management intends in the future for general and
administration expenses not to increase as quickly as sales.
Research and Development
Research and development expense as a percent of the Company's sales over the
past two years is:
As of April 30
1996 1995
Research and development expense 5% 5%
Research and development expenses decreased approximately $39,000 in 1996 due
to lower labor costs. Management intends in the future to increase product
development activities; while continuing to perform value engineering to lower
the product cost and improve product quality.
Page 11 of 38
<PAGE>
Provision for Doubtful Accounts
The provision for doubtful accounts has increased from $13,503 in 1995 to
$47,574 in 1996. Bad debt expense as a percent of sales for the past two
years is as follows:
As of April 30
1996 1995
Provision for doubtful accounts <.55% <.15%
Gains/(Losses) on Sale/Exchange of Stock
The Company recognized gains from the sale of stock in fiscal year 1996 from
the following activities: 1) Gain on the sale of 50,000 shares of Marcum
Natural Gas Services, Inc. common stock of approximately $5,000; 2) Gain on
sales of high grade investments of approximately $30,000. In fiscal year
1995, the Company recognized gains on sales of high grade investments of
approximately $22,000.
Interest Rates
The outstanding borrowed amounts, the interest expense, and the effective
interest rates, are shown below for the past two years:
<TABLE>
As of April 30
1996 1995
<S> <C> <C>
Amount Borrowed $555,940 $776,566
Interest Expense $56,214 $84,800
Interest Rates 8.4% 9.6%
</TABLE>
The borrowed amounts have decreased due to paying off debt. The interest
rate is lower in fiscal year 1996 because leases with higher interest rates
were paid off. Management believes the Company's interest rates in the future
will continue to stay at the same relative rate.
Income Taxes
Income taxes as a percentage of pre-tax income are depicted below:
As of April 30
1996 1995
Income tax expense 34% (39%)
The reasons income taxes have varied significantly are shown in Note 6 of the
Notes to Consolidated Financial Statements.
Page 12 of 38
<PAGE>
Trends
Most of the Company's sales (approximately 72%) are generated in the United
States. Therefore, the health of the U.S. economy has a significant impact on
the Company. However, the Company has such a small share of the total market
currently that management believes the Company can continue to grow despite
the fluctuations in the domestic economy. While the Company generates
approximately 28% of sales internationally, management believes that the
Danfoss marketing agreement (in which Danfoss markets and distributes the
Company's Vortex PhD flowmeter in Europe and around the world), along with
continued sales emphasis in developing nations, will cause international sales
to increase beyond the current 28% in the near future.
The Company has a diverse product mix. Therefore, it is unlikely that any
single competitor can have a decidedly negative impact on EMCO. The Company
is able to address a number of different markets with a variety of products
and technologies. Therefore, the Company's product market risk is also lower
than many companies.
Finally, the Company has eliminated bank debt altogether and has such a low
level of total debt that management feels relatively insulated from any
developments which might impact capital markets.
The Company does not anticipate any events to cause material changes in the
revenue/cost relationship in the foreseeable future.
Page 13 of 38
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
The following consolidated financial statements of Engineering Measurements
Company are found on Pages 15 through 28.
Page
Report of Independent Certified Public Accountants 15
Consolidated Balance Sheets-April 30, 1996 and 1995 16,17
Consolidated Statements of Operations-Years Ended
April 30, 1996, and 1995 18
Consolidated Statements of Changes in Stockholders'
Equity-Years Ended April 30, 1996, and 1995 19
Consolidated Statements of Cash Flows-Years Ended
April 30, 1996, and 1995 20
Notes to Consolidated Financial Statements 21-28
Page 14 of 38
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
of Engineering Measurements Company
We have audited the accompanying consolidated balance sheets of Engineering
Measurements Company (a Colorado corporation) as of April 30, 1996 and 1995, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the years then ended. These consolidated financial statements
are the responsibility of the company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principals used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material repeats, the consolidated financial position of
Engineering Measurements Company as of April 30, 1996 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
each of the years then needed, in conformity with generally accepted accounting
principles.
/s/ GRANT THORNTON LLP
GRANT THORNTON LLP
Denver, Colorado
June 14, 1996
Page 15 of 38
<PAGE>
<TABLE>
ENGINEERING MEASUREMENTS COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
April 30,
1996 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $532,721 $312,183
Accounts receivable, net of allowance for doubtful
accounts of $75,687 at April 30, 1996
and $135,913 at April 30, 1995 1,313,033 1,272,481
Short-term investments 708,042 744,672
Inventories 1,574,547 1,479,384
Prepaid expenses 75,892 34,296
Other receivables 50,141 67,020
Deferred income taxes 380,969 437,175
---------- ----------
Total current assets 4,635,345 4,347,211
---------- ----------
Property and equipment, at cost:
Land 568,940 568,940
Building & improvements 1,589,118 1,534,811
Vehicles 16,791 16,791
Machinery and equipment 2,561,532 2,515,343
Office furniture and fixtures 1,209,306 1,004,285
---------- ----------
5,945,687 5,640,170
Less accumulated depreciation (4,032,724) (3,735,375)
---------- ----------
Net property and equipment 1,912,963 1,904,795
---------- ----------
Other assets:
Investment in common stock of Marcum Natural
Gas Services, Inc. 197,312 357,001
Other 90,237 68,159
---------- ----------
Total other assets 287,549 425,160
---------- ----------
TOTAL ASSETS $6,835,857 $6,677,166
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
(Continued)
Page 16 of 38
<PAGE>
<TABLE>
ENGINEERING MEASUREMENTS COMPANY
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
April 30,
1996 1995
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $137,558 $220,556
Accounts payable 462,332 504,201
Accrued liabilities 593,524 582,226
----------- -----------
Total current liabilities 1,193,414 1,306,983
----------- -----------
Long-term liabilities:
Loans from stockholder less current maturities 418,382 544,402
Leases less current maturities 0 11,608
Deferred income taxes 183,100 167,000
----------- -----------
Total long-term liabilities 601,482 723,010
----------- -----------
Stockholders' equity:
Common stock, $.01 par value;
5,000,000 shares authorized;
2,943,452 shares issued at April 30, 1996,
2,923,452 shares issued at April 30, 1995,
2,753,052 shares outstanding at April 30, 1996,
2,733,052 shares outstanding at April 30, 1995 29,435 29,235
Capital in excess of par value 1,988,327 1,956,927
Unrealized holding losses (56,416) (18,555)
Retained earnings 3,709,314 3,309,265
Treasury stock at cost; 190,400 shares at
April 30, 1996 and 1995 (629,699) (629,699)
----------- -----------
Total stockholders' equity 5,040,961 4,647,173
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,835,857 $6,677,166
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 17 of 38
<PAGE>
<TABLE>
ENGINEERING MEASUREMENTS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended
April 30,
1996 1995
<S> <C> <C>
Sales $8,665,808 $9,399,114
Cost of sales 4,852,125 5,608,272
----------- -----------
Gross margin on sales 3,813,683 3,790,842
----------- -----------
Operating expenses:
Selling 2,040,468 2,581,608
General and administrative 812,966 892,021
Research and development 427,032 465,884
Provision for doubtful accounts 47,574 13,503
----------- -----------
Total operating expenses 3,328,040 3,953,016
----------- -----------
Income (loss) from operations 485,643 (162,174)
----------- -----------
Other income/(expense):
Gain on sale of stock 34,524 22,171
Interest expense (56,185) (84,800)
Royalty and other income 141,771 136,671
----------- -----------
Total other income 120,110 74,042
Income/(loss) from operations before
income taxes 605,753 (88,132)
Income tax provision/(benefit) 205,704 (33,972)
----------- -----------
Net income/(loss) $400,049 ($54,160)
=========== ===========
Net earnings/(loss) per share $0.15 ($0.02)
=========== ===========
Net earnings/(loss) per share on a fully
diluted basis $0.13 ($0.02)
=========== ===========
Weighted average number of
shares outstanding 2,741,385 2,786,785
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 18 of 38
<PAGE>
<TABLE>
ENGINEERING MEASUREMENTS COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Capital in
Common Stock excess of Deferred Unrealized Retained Treasury
Shares Par Value Par value Compensation (Losses) Earnings Stock
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1994 2,847,802 $28,478 $1,850,723 $(6,093) $0 $3,363,425 $(45,360)
Net income (loss) (54,160)
Stock Options
Exercised 75,650 757 127,297
Vested and charged
to operations 3,750
Expired (21,093) 2,343
Treasury stock purchases (584,339)
Investment valuation (18,555)
---------- --------- ---------- ---------- ---------- ---------- ----------
Balance at April 30, 1995 2,923,452 29,235 1,956,927 0 (18,555) 3,309,265 (629,699)
Net income (loss) 400,049
Stock Options
Exercised 20,000 200 31,400
Investment valuation (37,861)
---------- --------- ---------- ---------- ---------- ---------- ----------
Balance at April 30, 1996 2,943,452 $29,435 $1,988,327 $0 $(56,416) $3,709,314 $(629,699)
========== ========= ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 19 of 38
<PAGE>
<TABLE>
ENGINEERING MEASUREMENTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE/(DECREASE) IN CASH
Year Ended
April 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $400,049 $(54,160)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities--
Depreciation and amortization 311,955 347,296
Deferred tax provision/(benefit) 96,306 (72,427)
Provision for doubtful accounts (60,226) 10,913
Gain on sales of investments (34,524) (22,171)
Stock option compensation 0 12,628
Changes in assets and liabilities-
Receivables 36,553 382,299
Inventories (95,163) (142,719)
Prepaid expenses (41,596) 24,302
Accounts payable and accrued liabilities (30,571) (309,079)
Net cash provided by --------- ---------
operating activities 582,783 176,882
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (305,311) (257,805)
Expenditures for intangible assets (36,684) (14,953)
Investment purchases (236,721) (3,726,723)
Proceeds from sale of investments 405,497 4,028,620
Net cash provided by/(used) in --------- ---------
investing activities (173,219) 29,139
--------- ---------
Cash flows from financing activities:
Payments of long and short term debt (203,797) (203,798)
Purchase of treasury stock 0 (584,339)
Proceeds from exercise of stock options 31,600 100,426
Payments on capital lease obligations (16,829) (16,758)
--------- ---------
Net cash used in financing activities (189,026) (704,469)
Net increase/(decrease) in --------- ---------
cash and cash equivalents 220,538 (498,448)
Cash and cash equivalents at beginning of year 312,183 810,631
--------- ---------
Cash and cash equivalents at end of year $532,721 $312,183
========= =========
Supplemental disclosure of cash flow information:
Cash paid during year for--
Interest $56,185 $83,482
Income taxes 24,084 205,527
</TABLE>
The accompanying notes are an integral part of these statements.
Page 20 of 38
<PAGE>
ENGINEERING MEASUREMENTS COMPANY
Notes to Consolidated Financial Statements
1. Organization and Business
Engineering Measurements Company (EMCO or the Company) designs, manufactures,
and markets electronic and electro-mechanical instruments (flowmeters) for
measuring the flow of liquids, steam and gases. The Company sells products for
energy utility flow measurement (particularly steam metering), but it also has
products capable of measuring most types of process fluids, as well as fuel oils
and natural gas. Utilizing a network of distributors and commissioned sales
representatives, the Company markets flowmeters worldwide. (See Note 7 to the
Consolidated Financial Statements).
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary General Metrology Corporation. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Inventories
Inventories are stated at the lower of cost or market determined by the first-
in, first-out method.
Investments
Investments in debt and qualifying equity securities are classified as either
held-to-maturity, trading or available-for-sale. Held-to-maturity investments
are debt securities that the Company has the positive intent and ability to hold
to maturity. These investments are recorded at amortized cost. Debt and equity
securities purchased for the purpose of resale in the near term are classified
as trading investments and are recorded at fair value. Unrealized gains or
losses on these investments are included in earnings of the current period.
Other debt and equity securities that are not categorized as held-to-maturity or
trading are classified as available-for-sale and reported at fair value.
Unrealized gains or losses on these securities are reported as a separate
component of stockholders' equity, net of applicable income tax expense or
benefit. All of the debt and qualifying equity securities of the company are
considered available-for-sale.
Depreciation and Amortization
Depreciation of property and equipment is provided on the straight-line method
over the following estimated useful lives:
<TABLE>
<S> <C>
Building and improvements 10-25 years
Vehicles 3-8 years
Machinery and equipment 5-8 years
Office furniture and fixtures 4-8 years
</TABLE>
Warranty
An estimated liability for warranty costs, based on Management's estimate of
future warranty costs, is recorded in the year in which sales are made.
Page 21 of 38
<PAGE>
Earnings (Loss) Per Share
Earnings (loss) per share is computed by dividing net income (loss) 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 fiscal year 1996, there were a total of
197,275 shares outstanding under the Company's stock option plans. The effect
of the outstanding options and conversion right to purchase the 543,041 shares
as of April 30, 1996 is dilutive and reflected in the financial statements.
Cash Equivalents
For purpose of the statements of cash flows, the Company considers all highly
liquid cash investments with original maturity dates of three months or less to
be cash equivalents.
Reclassifications
Certain reclassifications have been made to conform prior year's information
with the current year presentation.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. Investments
The Company classifies debt and equity securities as available-for-sale
securities. Available-for-sale securities are measured at fair value, with net
unrealized gains and losses reported in equity.
The amortized cost, unrealized gains and losses, and fair values of the
Company's available-for-sale securities held at April 30, 1995 and 1996 are
amortized as follows:
<TABLE>
Gross Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
Available-for-sale securities
Equity securities $775,380 $46,200 $42,130 $779,450
Debt securities 356,710 --- 34,487 322,223
April 30, 1995 $1,132,090 $46,200 $76,617 $1,101,673
Available-for-sale securities
Equity securities $763,665 $57,640 $706,025
Debt securities 234,174 34,845 199,329
April 30, 1996 $997,839 $92,485 $905,354
</TABLE>
Page 22 of 38
<PAGE>
The following table lists the maturities of debt securities held at April 30,
1996 classified as available-for sale:
<TABLE>
Estimated
Amortized
Cost Fair Value
<S> <C> <C>
Due in one year or less $ ---- $ ----
Due after one year through five years 234,174 199,329
-------- --------
$234,174 $199,329
======== ========
</TABLE>
Proceeds on sales of securities classified as available-for-sale were $405,497
in fiscal year 1996, compared to $4,028,620 for fiscal year 1995. Gains of
$63,092 and losses of $28,568 were realized on these sales for 1996, and $67,000
in gains and $44,829 in losses for 1995. The Company uses the specific
identification method to determine cost of securities sold.
During fiscal year 1996, the Company sold 50,000 shares of Marcum Natural Gas
Services, Inc. (MGAS) stock, which resulted in a gain of approximately $5,000.
At April 30, 1996, the Company is holding 154,000 shares of MGAS common stock at
a cost of $234,624; and at April 30, 1995, 204,000 shares of MGAS common stock
at a cost of $310,801. The market value of the MGAS common stock was
approximately $197,000 at April 30, 1996, and $357,000 at April 30, 1995.
4. Inventories
<TABLE>
Inventories are as follows:
April 30
1996 1995
<S> <C> <C>
Raw material and work-in-process $1,272,573 $1,259,015
Finished goods 301,974 220,369
---------- ----------
$1,574,547 $1,479,384
========== ==========
</TABLE>
Page 23 of 38
<PAGE>
5. Long-term debt
<TABLE>
Long-term debt consists of the following: April 30
1996 1995
<S> <C> <C>
Loans from Charles E. Miller, an officer,
director and stockholder of the Company:
Prime plus 2% note (a) $348,982 $399,302
Prime plus 2% note (b) 139,864 160,009
Industrial revenue bonds (c) 55,556 188,889
-------- --------
544,402 748,200
Obligations under capital leases 11,538 28,366
-------- --------
Total $555,940 $776,566
======== ========
</TABLE>
(a) The note is collateralized by inventory, accounts and notes receivable and
fixed assets. In addition, up to 40% of the loan advances can be converted into
the Company's common stock at the option of the note holder. The conversion
prices are at 75% of the bid price for the Company's common stock on the date of
each advance under the loan agreement and range from $.61 to $2.25 per share.
At April 30, 1996, $252,538 of the loan could be converted into 280,674 shares
of common stock. While the note has been a demand note, the stockholder has
requested payment of the nonconvertible 60% portion of the note over a five year
period resulting in monthly principal payments of $4,193 plus interest on the
outstanding balance. The 40% convertible portion is due April 1998.
(b) The note is collateralized by inventory, accounts and notes receivable and
fixed assets. Up to 40% of the loan advances can be converted into the
Company's common stock at the option of the note holder. The conversion prices
are at 100% of the bid price for the Company's common stock on the date of each
advance under the loan agreement and range from $1.38 to $2.13 per share. At
April 30, 1996, $101,252 of the loan could be converted into 65,092 shares of
common stock through 1998. The nonconvertible 60% portion of the note is due
over a five year period resulting in monthly principal payments of $1,679 plus
accrued interest on the outstanding balance. The 40% convertible portion is due
April 1998.
(c) These bonds are payable at 70% of prime rate with a maximum of 15% and a
minimum of 9%, collateralized by real estate, inventory, accounts receivable and
equipment. They are payable at $11,111 per month until October 1, 1996, when
the balance is due. In August 1992, Mr. Miller purchased these bonds from an
unrelated third party. The prime rate at April 30, 1996, was 8.25%.
The following is a schedule of annual maturities of long-term debt.
<TABLE>
Year Ending April 30
<S> <C>
1997 $137,558
1998 418,382
--------
$555,940
========
</TABLE>
6. Income Taxes
The Company accounts for income taxes under the liability method. Deferred
taxes are provided based upon the tax rate at which items of income and expense
are expected to be settled in the Company's tax return.
Page 24 of 38
<PAGE>
The following is a summary of the provision for income taxes:
<TABLE>
Year Ended April 30
1996 1995
<S> <C> <C>
Current provision (benefit)
Federal $130,200 $ 36,000
State (20,802) 2,455
-------- --------
$109,398 $ 38,455
======== ========
Deferred provision (benefit)
Federal $ 92,000 ($63,000)
State 4,306 (9,427)
-------- --------
$ 96,306 ($72,427)
======== ========
Total provision (benefit)
Federal $222,200 ($27,000)
State (16,496) (6,972)
-------- --------
$205,704 ($33,972)
======== ========
</TABLE>
The provision for income taxes differs from the amount determined by applying
the statutory rate to income before taxes, due to the following reasons:
<TABLE>
Year Ended April 30
1996 1995
<S> <C> <C>
Income taxes at statutory rate $236,000 ($34,000)
Change in estimate of state
income taxes (41,000) ----
Other 10,704 28
-------- --------
Income tax expense (benefit) $205,704 ($33,972)
======== ========
</TABLE>
Page 25 of 38
<PAGE>
Components of deferred tax assets and liabilities.
<TABLE>
April 30,
1996 1995
<S> <C> <C>
Assets
Reserve for bad debt $ 40,000 $ 53,000
Inventory cost capitalization 54,000 54,000
Reserve for obsolete inventory 83,000 83,000
Book basis of stock less than tax
basis 112,000 148,000
Accrued compensation 9,000 41,000
Investments stated at market 36,000 12,000
Other 46,969 46,175
-------- --------
$380,969 $437,175
Liabilities
Accelerated depreciation (183,100) (167,000)
-------- --------
Net Asset $197,869 $270,175
======== ========
</TABLE>
Included in the Company's balance sheets as follows:
<TABLE>
April 30,
1996 1995
<S> <C> <C>
Current assets $380,969 $437,175
Long-term liabilities (183,100) (167,000)
-------- --------
Net Asset $197,869 $270,175
======== ========
</TABLE>
7. Foreign Sales
The Company had foreign sales of 27.9% and 24.8% of total sales in the fiscal
years ended April 30, 1996 and 1995 respectively. The breakdown of foreign sales
for fiscal years 1996 and 1995, in dollars and percent of total sales are:
<TABLE>
FY 1996 FY1995
<S> <C> <C> <C> <C>
Europe $1,579,000 18.2% $1,469,000 15.6%
Asia 306,000 3.5% 367,000 3.9%
Other 535,000 6.2% 491,000 5.3%
</TABLE>
8. Stock Option Plans
The 1991 Nonemployee Director Stock Plan authorized 200,000 shares, while the
1991 Incentive Plan authorized 600,000 shares.
Page 26 of 38
<PAGE>
A summary of stock option transactions follows:
<TABLE>
Average
price per
Shares share
<S> <C> <C>
Outstanding at May 1, 1994 325,840 $1.32
Granted 117,245 $3.28
Exercised (75,650) $1.32
Expired (160,160) $1.38
-------- -----
Outstanding at April 30, 1995 207,275 $2.39
-------- -----
Total exercisable at April 30, 1995 127,275 $1.86
-------- -----
Outstanding at May 1, 1995 207,275 $2.39
Granted 12,500 $2.53
Exercised (20,000) $1.58
Expired (2,500) $2.63
-------- -----
Outstanding at April 30, 1996 197,275 $2.48
-------- -----
Total exercisable at April 30, 1996 134,775 $2.14
======== =====
</TABLE>
In addition to the above, at April 30, 1996 pursuant to the terms of the loans
from a stockholder, a portion of the loans and accrued interest could be
converted to a total of 345,766 shares of common stock. (See Note 5)
9. Related Party Transactions
Charles E. Miller, the Chairman and Chief Executive Officer of the Company, is
also a director of MGAS. The 154,000 shares of MGAS common stock which are
currently held by the Company represents approximately 2% of MGAS's currently
outstanding common stock.
On June 11, 1991, DVCO, Inc. ("DVCO"), a wholly owned subsidiary of MGAS entered
into a Sale and License Agreement with EMCO. Pursuant to that agreement, DVCO
acquired the compressed natural gas (CNG) Dispenser and certain licenses to the
underlying digital valve technology from EMCO. These licenses allow DVCO the
perpetual use of EMCO's digital valve technology, including any future
improvements made or additional rights obtained by EMCO, for purposes of CNG or
other compressed gas dispensing to vehicles. The Sale and License Agreement
also provided for the transfer of certain other assets to DVCO, including the
CNG Dispenser product designs, certain intellectual and other information
related thereto, inventory and capital assets, and the prototype CNG Dispenser
models. EMCO has also agreed not to compete with DVCO, in the business of
manufacturing or selling any products and/or systems for dispensing natural gas
or any other gaseous alternative fuels so long as the Sale and License Agreement
is in effect and thereafter, if such agreement is terminated due to a default of
EMCO. The Agreement automatically terminates in the event DVCO's sales of CNG
Dispenser products are less than $100,000 annually after six years, and can be
terminated by DVCO upon 30 days notice for any reason annually beginning with
the second anniversary. Either party will be in default for a material failure
to comply with the terms of the agreement, providing the right of termination to
the non-defaulting part.
Page 27 of 38
<PAGE>
EMCO and DVCO also entered into a Manufacturing and Lease Agreement, pursuant to
which EMCO agreed to manufacture the digital valve (a key component of the CNG
Dispenser) for up to 25 CNG Dispensers for DVCO. The agreement has been amended
and renewed by the parties for additional digital valves, and may be renewed in
the future by mutual agreement. Sale from the Company to DVCO was approximately
$61,000 for the fiscal year ending 1996 and $68,000 for the fiscal year ending
April 30, 1995. The Company recorded $50,000 royalty income from DVCO in fiscal
year ending 1996 and $50,000 in fiscal year ending 1995.
10. Employee Benefit Plan
The Company implemented a 401(k) Retirement Plan in July 1993. Employees may
join the plan after one year of service, providing they are 21 years or older.
The Company has a 5 year vesting schedule on the plan. The Company match for
the fiscal years ending 1996 and 1995 was $12,425 and $13,706 respectively.
11. Major Customer
The Company sells a significant portion of its product to one customer. During
fiscal years 1996 and 1995, sales to that customer aggregated $933,361 and
$1,004,446, respectively.
12. Fair Market Value of Financial Instruments
Estimated fair value of financial instruments held for purposes other than
trading are as follows as of April 30:
<TABLE>
1996 1995
Carrying Fair Carrying Fair
Value Value Value Value
<S> <C> <C> <C> <C>
Cash and cash equivalents $532,721 $532,721 $312,183 $312,183
Short-term investments 708,042 708,042 744,672 744,672
Investment in common stock
of MGAS 197,312 197,312 357,001 357,001
</TABLE>
The following methods and assumptions were used to estimate the fair market
value of each class of financial instruments for which it is practicable to
estimate that value.
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity of
those instruments.
Short-term Investments/Investment in MGAS
Carrying amount materially approximates fair value because of the type of
these investments.
Long-term Debt
In the opinion of management, the fair value cannot be estimated due to the
related party nature and conversion privileges of the notes payable.
Page 28 of 38
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
Page 29 of 38
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY; COMPLIANCE WITH SECTION
16(a) OF THE EXCHANGE ACT.
The following table sets forth the name and age of each Director and Executive
Officer of the Company, indicating all positions and offices with the Company
presently held by him, and the period during which he has served as such:
<TABLE>
Year Position, Date first held
Name of Director Elected as and Principal Occupation
or Officer Age Director (For Past Five Years)
<S> <C> <C> <C>
Charles E. Miller 58 1967 Chief Executive Officer, President, Director
and Chairman of the Board, previously
President from 1967 to 1987; Member of the
Compensation, and Non-Employee Director Stock
Plan Committees; and Director of Marcum
Natural Gas Services, Inc., a publicly traded
company.
Saeid Hosseini 33 1995 Vice President of Sales and Marketing.
Previously National Sales Manager, Product
Line Manager, and Manager of Applications
Engineering. Employed by the Company for
more than five years prior to this report.
William A. Ringer 62 1978 Director, Member of the Compensation
Committee; President of Granville Phillips
Company, Boulder, Colorado, which is not an
affiliate of the Company. Employed by
Granville Phillips in an executive capacity
for more than five years prior to the date of
this report.
Thomas G. Miller 49 1995 Director, Member of the Audit, and Incentive
Plan Committees; CEO and physician of College
Park Family Care Center of Overland Park,
Kansas, which is not an affiliate of the
Company. Employed by College Park Family Care
Center in an executive capacity for more than
five years prior to the date of this report.
Walter Kluck 68 1995 Director, Member of the Audit and Incentive
Plan Committees; CEO of Industrial
Representatives, Inc. of Clifton, New Jersey,
which is not an affiliate of the Company.
Employed by Industrial Representatives, Inc.
in an executive capacity for more than five
years prior to the date of this report.
</TABLE>
The Board of Directors has standing Audit, Compensation, and Incentive Plan
Committees. Mr. Thomas Miller and Mr. Kluck constitute the members of the Audit
Committee, and Messrs. Charles Miller, Ringer, and Kluck serve on the
Compensation Committee. Mr. Kluck and Mr. Thomas Miller serve on the Incentive
Plan Committee. The Audit Committee reviews financial statements. The Audit
Committee met once during the fiscal year ending April 30, 1996. The
Compensation Committee meets informally as required to recommend to the Board of
Directors the compensation to be paid to the officers of the Company and to
recommend to the Board of Directors any other profit sharing and bonus issues
that may come before the Board of Directors. The Compensation Committee met
once during fiscal year 1996. The Incentive Plan Committee and the Non-Employee
Director Stock Plan Committee administer the respective Plans. Such Committees
did not meet formally during the last fiscal year.
The Board of Directors held four meetings during the fiscal year ending April
30, 1996. All Directors attended all meetings.
Page 30 of 38
<PAGE>
All Directors hold office until the next annual meeting of the shareholders of
the Company or until their successors have been elected and qualified. Officers
serve at the discretion of the Board of Directors and are elected annually.
None of Directors have been involved in any litigation or bankruptcy during the
past five years.
Charles E. Miller, Thomas G. Miller and David S. Miller are brothers.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent shareholders are required by
SEC regulation to furnish the Company with the copies of all Section 16(a) forms
they file. Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that during the last fiscal year, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten-percent beneficial
owners were complied with.
Page 31 of 38
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth all cash compensation awarded to, earned by, or
paid to the Company's Officer for services in all capacities to the Company
during the fiscal year ended April 30, 1996:
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation Long Term Compensation
Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities All
Name and Annual Restricted Underlying LTIP Other
Principal Compen- Stock Options/ Pay- Compen-
Position Year Salary ($) Bonus ($) sation ($) Awards ($) SAR's (#) outs ($) sation ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles E. 1994 $58,906 $22,911 0 0 0 0 $201
Miller, CEO 1995 $86,874 0 0 0 10,875 0 $1,098
and 1996 $121,664 $7,082 0 0 0 0 $1,217
Chairman of
the Board
</TABLE>
Other Compensation for Mr. Miller reflects the matching portion of the Company's
401K plan.
Page 32 of 38
<PAGE>
Option/SAR Grants in Last Fiscal Year
Individual Grants
None.
<TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values
(a) (b) (c) (d) (e)
Number of
Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Options/SAR's at Options/SAR's at
Shares FY-End (#) FY-End ($)
Acquired On Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Charles E. Miller 0 0 20,000/0 $25,000/$0
280,674/0 $589,415/$0
65,092/0 $93,732/$0
10,875/0 $0/$0
</TABLE>
Long-Term Incentive Plans - Awards in Last Fiscal Year
None.
Page 33 of 38
<PAGE>
Compensation of Directors
Directors who are not employees of the Company received an annual Director's fee
of $3,000. This fee is paid whether or not the Director attends meetings of the
Board and its Committees.
Under the 1988 Non-Statutory Stock Option Plan, options to purchase 40,000
shares were granted to directors, 20,000 shares each to William A. Ringer, and
Charles E. Miller, in fiscal year 1993 exercisable at $1.75 per share from July
1, 1993 to June 30, 1997. Under the 1991 Non-Employee Director Stock Plan, in
fiscal year 1993 options to purchase 20,000 shares were granted to William A.
Ringer exercisable at $1.58 per share from December 20, 1992 through December
20, 1995. Mr. Ringer exercised the options in December, 1995. Under the 1991
Non-Employee Director Stock Plan, in fiscal year 1995 options to purchase 60,000
shares were granted, 20,000 each to William A. Ringer, Walter Kluck, and Thomas
G. Miller, exercisable at $3.40 per share from October 14, 1995 through October
14, 1998.
Employment Contracts and Termination of Employment and Change in Control
Arrangements. None
Reporting on Repricing of Options/SAR's. None
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of July 9, 1996, the number and percentage of
the Company's shares of Common Stock owned of record and beneficially by each
person owning more than five percent (5%) of such Common Stock and by all
individual directors and officers as a group:
<TABLE>
Name of Amount and Nature Percent
Title of Class Beneficial Owner of Ownership of Class
<S> <C> <C> <C> <C>
Common Stock Charles E. Miller 1,246,021 (1) 39.8
Common Stock William A. Ringer 76,900 (2) 2.8
Common Stock Saeid Hosseini 51,400 (3) 1.8
Common Stock David S. Miller 376,677 (4) 13.7
Common Stock Walter Kluck 23,000 (5) 0.8
Common Stock Thomas G. Miller 339,000 (6) 12.2
</TABLE>
All Directors and Officers as a Group
(Five Persons) 1,736,231 53.2
(1) Record and Beneficial; includes 869,380 shares of common stock owned
directly; an option to purchase 20,000 shares of common stock under the
1988 Non-statutory Stock Option Plan; an option to purchase 10,875
shares of common stock under the 1991 Incentive Plan; and the right to
convert a portion of a loan balance into 345,766 shares of common stock
pursuant to loan agreements (See Note 4 to the Consolidated Financial
Statements). Mr. Miller has sole voting and investing power on 863,080
of the owned shares; the remaining 6,300 shares have shared voting and
investment power. Charles E. Miller's business address is 600 Diagonal
Highway, Longmont, CO 80501.
Page 34 of 38
<PAGE>
(2) Record and Beneficial; includes 36,900 shares of common stock owned with
sole voting and investment power; and an option to purchase 40,000
shares of common stock pursuant to the 1991 Non-Employee Director Stock
Plan. William A. Ringer's business address is 5675 Arapahoe Avenue,
Boulder, CO 80303.
(3) Record and Beneficial; includes an option to purchase 51,400 shares of
common stock under the 1991 Incentive Plan. Saeid Hosseini's business
address is 600 Diagonal Highway, Longmont, CO 80501.
(4) Record and Beneficial; includes 376,677 shares of common stock owned.
David Miller has sole voting and investment power for 317,352 of the
shares; the remaining 17,595 shares have shared voting and investment
power. David S. Miller's business address is 420 E. Armour, N. Kansas
City, MO 64166.
(5) Record and Beneficial; includes 3,000 shares of common stock owned with
sole voting and investment power; and an option to purchase 20,000
shares of common stock under the 1991 Non-Employee Director Stock Plan.
Walter Kluck's business address is P.O. Box 421, Clifton, NJ 07015.
(6) Record and Beneficial; includes 319,000 shares of common stock owned
directly; and an option to purchase 20,000 shares of common stock under
the 1991 Non-Employee Director Stock Plan. Thomas Miller has sole
voting and investment power for 316,000 owned shares; the remaining
3,000 shares have shared voting and investment powers. Thomas G.
Miller's business address is 11725 W. 112th St., Overland Park, KS
66210.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The terms and conditions pertaining to the Industrial Development Revenue Bond
purchased by Charles E. Miller from Colorado National Bank of Denver in August
1992, remain the same. The only difference is that Charles E. Miller now has
all rights, title and interest of the debt instrument instead of Colorado
National Bank of Denver. For terms and conditions please refer to note 5 of the
Notes to the Consolidated Financial Statements.
The related party transactions between the Company and Marcum Natural Gas are
set forth in Item 1 of this Form
10-KSB. Other related party transactions include the sales from the Company to
DVCO of approximately $61,000 in fiscal year ended April 30, 1996 and $68,000 in
fiscal year ended April 30, 1995. The Company also recognized $50,000 of
royalty income from DVCO during fiscal year ended April 30, 1996 and $50,000 for
fiscal year 1995.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(A) Exhibits
Exhibit
No. Item
3 Articles of Incorporation and By-laws filed as Exhibits 2.1 and 2.2,
respectively, to Registrant's Registration No. 2-69601 filed with the
Commission and hereby incorporated by reference.
3-1 Articles of amendment to Articles of Incorporation as filed as Exhibit
3-1 to Registrant's 10-K for the fiscal year ended April 30, 1988
filed with the commission and hereby incorporated by reference.
10-1 Loan agreement between the Registrant and the Colorado National Bank
of Denver, dated September 1, 1989, filed as Exhibit 10-2 to
Registrant's 10-K for the year ended April 30, 1990 filed with the
Commission and hereby incorporated by reference.
Page 35 of 38
<PAGE>
10-2 Financing Agreement, Mortgage and Security Agreement, Pledge
Agreement, UCC Financing Statement and Specimen Bond among County of
Boulder, Colorado, as issuer, the Colorado National Bank of Denver, as
Lender, and Engineering Measurements Company, as Borrower, all dated
as of September 1, 1981, used in connection with the issue and sale of
$2,000,000 in face value of Boulder County, Colorado, Industrial
Development Revenue Bonds (Engineering Measurements Company Project),
Series of 1981 filed as exhibits to the Company's report on Form 10-K
for the fiscal year ended April 30, 1982 and hereby incorporated
herein by reference.
10-4 Loan agreement between the Registrant and Charles E. Miller, dated
April 9, 1990, filed as Exhibit 10-4 to the Company's Report on Form
10-K for the year ended April 30, 1992 and hereby incorporated by
reference.
10-5 Voting Agreement, Agreement and Plan of Merger, Voting Trust
Agreement, Sale and Licensing Agreement, Amendment to Sale and
Licensing Agreement, Manufacturing and Lease Agreement, and Agreement
by and between the Company, Measurement Auditors Company, Marcum
Natural Gas Services, Inc., and Colorado National Bank of Denver
incorporated herein by reference to Exhibits 2.1, 2.2, 2.3, 2.4, 2.5,
2.6, and 2.7, respectively, to registrant's Form 8-K dated June 25,
1991.
10-6 1988 Non-Statutory Stock Option Plan, filed as Exhibit 10-7 to
Registrant's Annual Report on Form 10-K for fiscal year ended April
30, 1991 and incorporated herein by reference.
10-7 1991 Non-Employee Director Stock Plan, filed as Exhibit 10-7 to the
Company's Report on Form 10-K for the year ended April 30, 1992 and
hereby incorporated by reference.
10-8 Stock Purchase Agreement, dated May 20, 1992 by and among Registrant,
General Metrology Corporation, Patrick Petroleum Company and Patrick
Petroleum Corporation of Michigan; filed as Exhibit 10-8 to the
Company's Report on Form 10-K for the year ended April 30, 1992 and
hereby incorporated by reference.
10-9 Delivery Contract EMCO - Danfoss, Delivery Contract Danfoss - EMCO,
and License Agreement, dated May 3, 1991; filed as Exhibit 10-9 to the
Company's Report on Form 10-K for the year ended April 30, 1992 and
hereby incorporated by reference.
10-10 Loan agreement between the Registrant and Charles E. Miller, dated
June 10, 1993; filed as Exhibit 10-10 to the Company's Report on Form
10-KSB for the year ended April 30, 1993, and hereby incorporated by
reference.
10-11 1991 Incentive Plan filed as Exhibit 10-11 to the Company's Report on
Form 10-KSB for the year ended April 30, 1993, and hereby incorporated
by reference.
10-12 Agreement, dated July 9, 1993, among Patrick Petroleum Corporation of
Michigan, the Company and General Metrology Company, filed as Exhibit
10-12 to the Company's Report on Form 10-Q for the quarter ended
October 31, 1993, and hereby incorporated by reference.
10-13 Amendment to License Agreement, and Delivery Contract between Danfoss
and EMCO, dated June 13, 1995, filed herewith.
10-14 Termination agreement between Registrant and Douglas J. Collier, dated
January 30, 1995, filed herewith.
21 List of Registrant's Subsidiaries; filed as Exhibit 22 to the
Company's Report on Form 10-K for year ended April 30, 1992 and hereby
incorporated by reference.
Page 36 of 38
<PAGE>
23 Consent of Grant Thornton to incorporate auditors report into the
Registrant's S-8.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended April 30, 1996.
Page 37 of 38
<PAGE>
SIGNATURES
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
By: /s/ Charles E. Miller
Charles E. Miller
(President)
Date: July 26, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been duly signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
/s/ Charles E. Miller /s/ William A. Ringer
Charles E. Miller William A. Ringer
(Director, Principal Executive Officer, (Director)
Principal Financial Officer and July 26, 1996
Principal Accounting Officer)
July 26, 1996
/s/ Walter Kluck /s/ Thomas G. Miller
Walter Kluck Thomas G. Miller
(Director) (Director)
July 26, 1996 July 26, 1996
Page 38 of 38
<PAGE>
July 26, 1996
ENGINEERING MEASUREMENTS COMPANY
(NASDAQ SYMBOL: EMCO)
Year End Results
Corporate Contact: Charles E. Miller
(303) 651-0550
Longmont, Colorado: Engineering Measurements Company announced today a net
profit of $400,049, or $.15 per share, for the year ended April 30, 1996. This
represents an increase of approximately $454,000 from the year ended April
30,1995.
Sales for the year were approximately $8.7 million, an 8% decrease from the
prior year. The sales decrease was offset by better gross margins in the
current year 44% to 40%, and lower operating expenses of approximately $625,000.
The higher margins and lower expenses are attributed to cost savings and cost
containment, respectively.
<TABLE>
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
Year Ended April 30,
1996 1995
<S> <C> <C>
Net sales $8,665,808 $9,399,114
Operating income/(loss) 485,643 (162,174)
Net income/(loss) 400,049 (54,160)
Net earnings/(loss) per share $.15 ($.02)
Number of shares outstanding 2,741,385 2,786,785
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extrated from the Balance
Sheet and statement of operations found on pages 16, 17 and 18 of the company's
form 10-KSB for the year-to-date, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<CASH> 533
<SECURITIES> 708
<RECEIVABLES> 1,389
<ALLOWANCES> 76
<INVENTORY> 1,575
<CURRENT-ASSETS> 4,635
<PP&E> 5,946
<DEPRECIATION> 4,033
<TOTAL-ASSETS> 6,836
<CURRENT-LIABILITIES> 1,193
<BONDS> 418
<COMMON> 29
0
0
<OTHER-SE> 5,012
<TOTAL-LIABILITY-AND-EQUITY> 6,836
<SALES> 8,666
<TOTAL-REVENUES> 8,666
<CGS> 4,852
<TOTAL-COSTS> 4,852
<OTHER-EXPENSES> 3,280
<LOSS-PROVISION> 48
<INTEREST-EXPENSE> 56
<INCOME-PRETAX> 606
<INCOME-TAX> 206
<INCOME-CONTINUING> 400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 400
<EPS-PRIMARY> .15
<EPS-DILUTED> .13
