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, 1998
or
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission File No.: 0-9880
E N G I N E E R I N G M E A S U R E M E N T S C O M P A N Y
(Exact name of Registrant as specified in its charter)
Colorado 84-0572936
(State or other jurisdiction of (I.R.S. Identification No.)
incorporation or organization)
600 Diagonal Highway, Longmont, Colorado 80501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303)651-0550
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No ____.
The number of shares outstanding of Registrant's $.01 par value common stock, as
of February 25, 1998 was 2,840,052.
Transitional Small Business Disclosure Format.
Yes No X .
Page 1 of 10
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ENGINEERING MEASUREMENTS COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
ASSETS
<S> <C> <C>
January 31, April 30,
1998 1997
(unaudited)
Current assets:
Cash and cash equivalents $763,266 $547,837
Accounts receivable, net of allowance for doubtful
accounts and allowance for sales returns of
$73,089 at January 31, 1998 and
$61,104 at April 30, 1997 1,626,100 1,557,566
Short-term investments 721,492 904,724
Inventories 1,131,815 1,256,597
Prepaid expenses 67,904 23,845
Income taxes receivable 0 160,848
Other receivables 295 62,602
Deferred income taxes 247,374 224,342
---------- ----------
Total current assets 4,558,246 4,738,361
---------- ----------
Property and equipment, at cost:
Land 568,940 568,940
Building & improvements 1,619,595 1,619,595
Vehicles 22,196 22,196
Machinery and equipment 3,471,155 3,106,342
Office furniture and fixtures 1,164,656 950,271
----------- ----------
6,846,542 6,267,344
Less accumulated depreciation (4,290,344) (3,981,412)
----------- ----------
Net property and equipment 2,556,198 2,285,932
----------- ----------
Other assets 153,250 109,335
TOTAL ASSETS: $7,267,694 $7,133,628
=========== ==========
</TABLE>
Page 2 of 10
<PAGE>
ENGINEERING MEASUREMENTS COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C>
January 31, April 30,
1998 1997
(unaudited)
Current liabilities:
Current portion of long-term debt $353,790 $418,382
Accounts payable 565,901 612,538
Accrued liabilities 562,369 515,848
---------- -----------
Total current liabilities 1,482,060 1,546,768
---------- -----------
Long-term liabilities:
Deferred income taxes 179,700 188,100
---------- -----------
Total long-term liabilities 179,700 188,100
---------- -----------
Stockholders' equity:
Common stock, $.01 par value;
5,000,000 shares authorized;
3,030,452 shares issued at January 31, 1998,
2,988,452 shares issued at April 30, 1997,
2,840,052 shares outstanding at January 31, 1998,
2,798,052 shares outstanding at April 30, 1997, 30,305 29,885
Capital in excess of par value 2,136,957 2,047,877
Unrealized holding losses (36,247) (30,409)
Retained earnings 4,104,618 3,981,106
Treasury stock at cost; 190,400 shares at
January 31, 1998, 190,400 shares at
April 30, 1997 (629,699) (629,699)
---------- -----------
Total stockholders' equity 5,605,934 5,398,760
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY: $7,267,694 $7,133,628
========== ===========
</TABLE>
Page 3 of 10
<PAGE>
ENGINEERING MEASUREMENTS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
Three Months Ended Nine Months Ended
January 31, January 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Sales $2,575,432 $2,402,136 $7,628,677 $7,433,055
Cost of sales 1,533,057 1,335,880 4,530,073 4,099,979
---------- ---------- ---------- ----------
Gross margin on sales 1,042,375 1,066,256 3,098,604 3,333,076
---------- ---------- ---------- ----------
Operating expenses:
Selling 576,075 620,754 1,792,938 1,784,805
General and administrative 237,561 204,280 733,869 660,741
Research and development 137,895 167,973 471,941 463,641
---------- ---------- ---------- ----------
Total operating expenses 951,531 993,007 2,998,748 2,909,187
---------- ---------- ---------- ----------
Income from operations 90,844 73,249 99,856 423,889
---------- ---------- ---------- ----------
Other income/(expense):
Gain/(loss) on sale of stock 37,014 7,812 75,629 13,800
Interest expense (7,930) (9,381) (26,593) (30,281)
Royalty and other income 6,206 63,292 46,164 135,313
---------- ---------- ---------- ----------
Total other income 35,290 61,723 95,200 118,832
Income/(loss) from operations before
income taxes 126,134 134,972 195,056 542,721
Income tax provision/(benefit) 44,301 47,461 71,544 205,910
---------- ---------- ---------- ----------
Net income/(loss) 81,833 87,511 123,512 336,811
======== ======== ======== ========
Net earnings/(loss) per share $0.03 $0.03 $0.04 $0.12
Net earnings/(loss) per share on a
fully diluted basis $0.03 $0.03 $0.04 $0.11
======== ======== ======== ========
Weighted average number of
shares outstanding 2,828,385 2,781,385 2,810,830 2,766,941
======== ======== ======== ========
</TABLE>
Page 4 of 10
<PAGE>
ENGINEERING MEASUREMENTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS: INCREASE/(DECREASE) IN CASH
(Unaudited)
<TABLE>
Nine Months Ended January 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 123,512 $ 336,811
Adjustments to reconcile net income to
net cash provided by operating activities--
Depreciation and amortization 348,044 245,398
Deferred tax provision/(benefit) (27,700) (72,300)
Provision for doubtful accounts 11,985 (5,831)
Gain/(Loss) on sales of investments (95,705) (13,800)
Gain on disosal of assets 2,805 2,352
Changes in assets and liabilities-
Receivables (18,212) (64,598)
Inventories 124,782 123,614
Income taxes receivable and prepaid expenses 116,789 (4,813)
Accounts payable and accrued
liabilities (116) 117,148
Net cash provided/(used) by ---------- ----------
operating activities 586,184 663,981
---------- ----------
Cash flows from investing activities:
Capital expenditures, net (604,304) (396,666)
Expenditures for intangible assets (60,726) (22,197)
Investment purchases (1,356,732) (951,102)
Proceeds from sale of investments 1,626,099 692,166
Net cash provided by/(used) in ---------- ----------
investing activities (395,663) (677,799)
---------- ----------
Cash flows from financing activities:
Payments of long and short term debt (64,592) (108,404)
Proceeds from exercise of stock options 89,500 60,000
Principle payment under capital lease
obligations 0 (11,538)
---------- ----------
Net cash used in financing activities 24,908 (59,942)
Net increase/(decrease) in cash and cash ---------- ----------
equivalents 215,429 (73,760)
Cash and cash equivalents at beginning of
period 547,837 532,721
---------- ----------
Cash and cash equivalents at end of period $ 763,266 $ 458,961
========= =========
Supplemental disclosure of cash flow information:
Cash paid during period for--
Interest $ 26,593 $ 30,995
Income taxes 6,659 303,932
</TABLE>
Page 5 of 10
<PAGE>
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, 1998 are not necessarily indicative of the results
that may be expected for the fiscal year ending April 30, 1998. 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, 1997.
1. Inventories
Inventories, stated at the lower of cost (first-in, first-out method) or market,
are as follows:
<TABLE>
<S> <C> <C>
January 31, 1998 April 30, 1997
Raw materials and work-in-process $ 973,888 $1,081,823
Finished goods 157,927 174,774
------------- -------------
$1,131,815 $1,256,597
========== ==========
</TABLE>
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. 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 the quarter ended January 31, 1998, there were a total of
197,275 shares outstanding under the Company's stock option plans. Any
dillutive effect of the outstanding options and conversion of debt into common
stock of 543,041 shares as of January 31, 1998 is reflected in the financial
statements.
The FASB issued Statements of Financial Accounting Standards (SFAS) 128,
Earnings per Share, which will be effective for periods ending after December
15, 1997. Early application is not permitted. Had SFAS 128 been adopted, the
following table illustrates the Basic and Diluted EPS for the nine months ended
January 31, 1998:
Page 6 of 10
<PAGE>
<TABLE>
For the Nine Months Ended January 31, 1998
Income Shares Per-Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Net Income $123,512
Basic EPS
Net Income available to common
stockholders $123,512 2,810,830 $0.04
Effective of Dilutive Securities
Options and convertible debt 15,581 350,564
Diluted EPS
Income available to stockholders plus $139,093 3,161,394 $0.04
assumed conversions
</TABLE>
5. Changes in Accounting Principles
There have been no changes in accounting principles during these reporting
periods.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
A. Financial Condition
The Company's net working capital decreased approximately $115,000 during the
nine months ended January 31, 1998, primarily due to decreases in short-term
investments $183,000, current portion of long term debt $65,000, income taxes
receivable $160,000, inventories $125,000, and other receivables $62,000, and
increases in accounts receivable $69,000. The current ratio remained relatively
unchanged, 3.06 at April 30, 1997, to 3.08 at January 31, 1998.
Cash and cash equivalents increased approximately $215,000 at January 31, 1998,
compared to April 30, 1997. Capital expenditures were approximately $604,000
during the period, offset by proceeds from investments of approximately $228,000
and cash provided by operations of approximately $586,000. 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 $18,000 at January 31, 1998,
primarily due to higher sales in the third quarter. The Days Sales Outstanding
(DSO) rose to 56.4 days for the nine months ended January 31, 1998, compared to
53.5 days for the fiscal year ended April 30, 1997.
Inventories decreased approximately $125,000 in the first nine months of the
fiscal year. The inventory turnover ratio for the six months ended January 31,
1998, increased to 2.36 compared to 2.03 in fiscal year 1997. Increased sales
and better management of the inventory contributed to the improvement in
inventory turns. Management will continue to emphasize inventory management.
The Company is making monthly payments of interest, of approximately $2,400 to
pay off loans from a stockholder; this loan will be paid in full by the end of
the current fiscal year. The company does not expect any material capital
expenditures in the next six months, and anticipates all cash needs will be
satisfied from operations. The Company currently does not have any line of
credit arrangements.
Page 7 of 10
<PAGE>
B. Results of Operations
Nine months ended January 31, 1998 compared
to the nine months ended January 31, 1997
Sales were approximately $196,000 higher in 1998 compared to 1997, a 2.6%
increase for the current year. New product sales year to date are approximately
$542,000. The Company's order backlog is lower at January 31, 1998 at
approximately $1,162,000, compared to approximately $987,000 at January 31,
1997.
Gross profit decreased by approximately $234,000 to 40.6% of sales in 1998
compared to 44.8% in 1997. The lower gross profit is due primarily to labor and
overhead being higher at 2.5% and 1.3% respectively. Operating expenses are up
approximately $90,000 from last year due primarily to increased selling costs
related to new product introduction and product development costs, and increases
in bad debt reserves and legal fees. Income from operations decreased
approximately $324,000 for the nine months ended January, 1998, compared to the
same period a year ago.
The Company recognized gains of approximately $76,000 from the sale of stock for
the nine months ended January 31, 1998, compared to approximately $14,000 for
the nine months ended January 31, 1997.
Royalty and other income for the nine months ended January 31, 1998, decreased
approximately $89,000 to approximately $46,000 due to lower interest and
dividend income from high grade investment securities and the termination of the
royalty agreement at April 30, 1997, compared the same period last year. The
Company's interest expense has decreased approximately $3,700 for the nine
months ended January 31, 1998, compared to the same period ended in 1997, due to
the Company's lower outstanding debt.
The income tax provision for the nine months ended January 31, 1998 was
approximately $72,000 compared to approximately $206,000 for the same period in
1997. The impact of deferred tax items resulted in current tax rates of
approximately 36.7% and 37.9% in 1998 and 1997, respectively.
Net cash provided by operating activities was $586,184, due to decreases in
inventories, income tax receivables and prepaid expenses, along with increased
depreciation and amortization costs.
Three months ended January 31, 1998 compared
to the three months ended January 31, 1997
Sales were approximately $173,000 higher in 1998 compared to 1997, a 7.2%
increase, due primarily to new product sales of approximately $244,000.
Gross margin decreased by approximately $24,000 to 40.5% of sales in 1998
compared to 44.4% for the same quarter in 1997. The decrease in gross margin in
1998 is due to increases in material cost due to product mix, labor associated
with new products and overhead, primarily depreciation, compared to the same
period last year. Operating expenses are $50,000 less than last year due
primarily to lower selling expenses of approximately $45,000.
The Company anticipates selling expenses related to new product sales, and R&D
expenses for new product development to continue for several quarters.
Management makes no assurance that any of the new products will produce
significant additional revenue for the Company.
Royalty and other income is approximately $57,000 less for the three months
ended January 31, 1998 than for the same period last year due primarily to the
termination of the royalty agreement at April 30, 1997, and the collection of a
bad debt written off in the same period last year.
Page 8 of 10
<PAGE>
The income tax provision for the three months ended January 31, 1998 was
approximately $44,000 compared to approximately $47,000 for the same period in
1997. The impact of deferred tax items resulted in current tax rates of
approximately 35.1% and 35.2% in 1998 and 1997, respectively.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
None filed in the quarter ended January 31, 1998.
B. Reports on Form 8-K
None filed in the quarter ended January 31, 1998.
Page 9 of 10
<PAGE>
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 4, 1998 By: /s/ Charles E. Miller
Charles E. Miller, Chairman
(Principal Financial Officer
and Chief Accounting
Officer)
Page 10 of 10
<PAGE>
March 4, 1998
ENGINEERING MEASUREMENTS COMPANY
(NASDAQ SYMBOL: EMCO)
Second Quarter Results
Corporate Contact: Charles E. Miller
(303) 651-0550
Longmont, Colorado: Engineering Measurements Company announced today a net
income of $81,833 ($.03 per share) for the second quarter ended January 31,
1998. Net income for the nine-month period ended January 31, 1998 was $123,512
($.04 per share). This compares to net income for the three-month and nine-
month periods last year of $87,511 ($.03 per share) and $336,811 ($.12 per
share), respectively. Sales for the quarter were approximately $2.58 million,
and for the nine-month period approximately $7.63 million; a 7.2% and a 2.6%
increase respectively over the comparable periods last year.
Income from operations for the three and nine month periods ended January 31,
1998, were approximately $82,000 and $124,000, as compared to approximately
$88,000 and $337,000 for the same 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
Third Quarter Ended January 31, 1998
<TABLE>
Three Months Ended Nine Months Ended
January 31, January 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $2,575,432 $2,402,136 $7,628,677 $7,433,055
Income from operations 90,844 73,249 99,856 423,889
Other income 35,290 61,723 95,200 118,832
Income taxes 44,301 47,461 71,544 205,910
Net income 81,833 87,511 123,512 336,811
Net earnings per share $.03 $.03 $.04 $.12
Number of shares outstanding 2,828,385 2,781,385 2,810,830 2,766,941
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet and statement of operations found on pages 2, 3 and 4 of the company's
form 10-QSB for the year-to-date, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> JAN-31-1998
<CASH> 763
<SECURITIES> 721
<RECEIVABLES> 1,699
<ALLOWANCES> 73
<INVENTORY> 1,132
<CURRENT-ASSETS> 4,558
<PP&E> 6,847
<DEPRECIATION> 4,290
<TOTAL-ASSETS> 7,268
<CURRENT-LIABILITIES> 1,482
<BONDS> 0
<COMMON> 30
0
0
<OTHER-SE> 5,576
<TOTAL-LIABILITY-AND-EQUITY> 7,268
<SALES> 7,629
<TOTAL-REVENUES> 7,629
<CGS> 4,530
<TOTAL-COSTS> 4,530
<OTHER-EXPENSES> 2,972
<LOSS-PROVISION> 27
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> 195
<INCOME-TAX> 71
<INCOME-CONTINUING> 124
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 124
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
