FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: October 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission File No.: 0-9880
E N G I N E E R I N G M E A S U R E M E N T S C O M P A N Y
(Exact name of Registrant as specified in its charter)
Colorado 84-0572936
(State or other jurisdiction of (I.R.S. Identification No.)
incorporation or organization)
600 Diagonal Highway, Longmont, Colorado 80501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303)651-0550
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No .
The number of shares outstanding of Registrant's $.01 par value common stock, as
of December 2, 1999, was 4,087,886.
Transitional Small Business Disclosure Format.
Yes No X .
Page 1 of 10
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
(Unaudited)
ASSETS
October 31,1999 April 30,1999
Current assets:
Cash and cash equivalents $478,493 $697,697
Accounts receivable, net of allowance
for doubtful accounts and allowance
for sales returns of $101,210 at
October 31, 1999 and $75,990
April 30, 1999 1,406,069 1,097,330
Short-term investments 657,409 556,288
Inventories 1,379,434 1,667,011
Prepaid expenses 65,642 31,757
Deferred income taxes 297,694 260,649
---------- ---------
Total current assets 4,284,741 4,310,732
---------- ---------
Property and equipment, at cost:
Land 568,940 568,940
Building & improvements 1,661,870 1,624,950
Vehicles 22,196 22,196
Machinery and equipment 4,340,390 4,099,524
Office furniture and fixtures 1,347,630 1,301,489
---------- ---------
7,941,026 7,617,099
Less accumulated depreciation (4,976,354) (4,725,996)
---------- ----------
Net property and equipment 2,964,672 2,891,103
---------- ---------
Other assets
Note receivable --- 138,920
Other assets, net of amortization of
$112,019 at October 31, 1999 and
$103,306 at April 31, 1999 280,371 132,351
---------- --------
Total other assets 280,371 271,271
TOTAL ASSETS: $7,529,784 $7,473,106
============ ============
The accompanying notes are an integral part of these financial statements.
(Continued)
Page 2 of 10
<PAGE>
ENGINEERING MEASUREMENTS COMPANY
BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS EQUITY
October 31, 1999 April 30, 1999
Current liabilities:
Accounts payable $324,559 $320,853
Accrued compensation 254,821 278,238
Accrued liabilities 385,943 372,218
------------ ------------
Total current liabilities 965,323 971,309
------------ ------------
Long-term liabilities:
Deferred income taxes 220,100 220,500
------------ ------------
Total long-term liabilities 220,100 220,500
------------ ------------
Stockholders' equity:
Common stock, $.01 par value;
5,000,000 shares authorized;
4,260,261 shares issued at October 31,1999,
4,232,774 shares issued at April 30, 1999,
4,069,861 shares outstanding at October 31, 1999,
4,042,374 shares outstanding at April 30, 1999, 42,603 42,328
Capital in excess of par value 2,761,155 2,650,332
Unrealized holding losses (net of taxes) (102,908) (38,711)
Retained earnings 4,273,210 4,257,047
Treasury stock at cost; 190,400 shares at
October 31, 1999, and April 30, 1999 (629,699) (629,699)
------------ ------------
Total stockholders' equity 6,344,361 6,281,297
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY: $7,529,784 $7,473,106
============ ============
The accompanying notes are an integral part of these financial statements.
Page 3 of 10
<PAGE>
<TABLE>
ENGINEERING MEASUREMENTS COMPANY
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
October 31, October 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Sales $2,452,300 $2,479,486 $4,679,890 $4,948,735
Cost of sales 1,457,149 1,489,431 2,814,062 2,884,024
----------- ---------- ----------- ---------
Gross margin on sales 995,151 990,055 1,865,828 2,064,711
----------- ---------- ----------- ---------
Operating expenses:
Selling 506,236 534,641 960,233 1,128,893
General and administrative 211,142 221,604 442,496 487,333
Research and development 222,192 173,280 459,819 333,838
----------- ---------- ----------- ---------
Total operating expenses 939,570 929,525 1,862,548 1,950,064
----------- ---------- ----------- ---------
Income from operations 55,581 60,530 3,280 114,647
----------- ---------- ----------- ---------
Other income/(expense):
Gain on sale of stock 1,395 3,714 16,380 13,427
Interest expense (110) (204) (274) (204)
Other income 14,882 28,869 28,366 65,284
----------- ---------- ----------- ---------
Total other income 16,167 32,379 44,472 78,507
Income from operations before
income taxes 71,748 92,909 47,752 193,154
Income tax provision 61,046 7,640 31,589 33,106
----------- ---------- ----------- ---------
Net income $10,702 $85,269 $16,163 $160,048
=========== ========== =========== =========
Other comprehensive income
Unrealized holding gain/(loss) (62,884) (14,997) (64,197) (30,667)
Tax benefit of stock option
exercise 22,000 0 22,000 0
----------- ---------- ----------- ---------
Comprehensive income (loss) ($30,182) $70,272 ($26,034) $129,381
=========== ========== =========== =========
Net earnings per share $0.00 $0.02 $0.00 $0.04
Net earnings per share on
a fully diluted basis $0.00 $0.02 $0.00 $0.04
=========== ========== ========== =========
Weighted average number of
shares outstanding 4,068,194 4,021,237 4,061,438 4,010,282
=========== ========== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4 of 10
<PAGE>
ENGINEERING MEASUREMENTS COMPANY
STATEMENTS OF CASH FLOWS: INCREASE/(DECREASE) IN CASH
(Unaudited)
Six Months Ended October 31,
1999 1998
Cash flows from operating activities:
Net income $ 16,163 $ 160,048
Adjustments to reconcile net income to
net cash provided by operating activities--
Depreciation and amortization 262,147 227,291
Deferred tax provision/(benefit) 3,600 (45,700)
Provision for doubtful accounts 25,220 2,806
(Gain)/Loss on sales of investments (16,380) (13,427)
(Gain)/Loss on disposal of assets --- (5,000)
Stock compensation 1,000 ---
Changes in assets and liabilities-
Receivables (333,959) (80,879)
Inventories 287,577 (102,484)
Income taxes receivable and prepaid expenses (33,885) 18,666
Accounts payable and accrued liabilities (5,986) 461,654
----------- ----------
Net cash provided/(used) by operating activities 205,497 622,975
----------- ----------
Cash flows from investing activities:
Capital expenditures, net (323,927) (701,514)
Expenditures for intangible assets (22,689) ---
Proceeds from/(expenditures for) note receivable 1,800 (51,297)
Investment purchases (499,623) (187,220)
Proceeds from sale of investments 309,640 275,292
Proceeds from sale of fixed assets --- 5,000
----------- ----------
Net cash provided by/(used) in investing activities (534,799) (659,739)
----------- ----------
Cash flows from financing activities:
Proceeds from exercise of stock options 88,098 87,814
Tax benefit of stock options exercised 22,000 ---
----------- ----------
Net cash used in financing activities 110,098 87,814
----------- ----------
Net increase/(decrease) in cash and cash equivalents (219,204) 51,050
Cash and cash equivalents at beginning of period 697,697 940,687
----------- ----------
Cash and cash equivalents at end of period $ 478,493 $ 991,737
Supplemental disclosure of cash flow information:
Cash paid during period for--
Interest $ 274 $ 204
Income taxes 6,335 2,048
Supplemental disclosure for non cash items:
Stock Compensation $ 1,000 -
The accompanying notes are an integral part of these financial statements.
Page 5 of 10
<PAGE>
ENGINEERING MEASUREMENTS COMPANY
NOTES TO FINANCIAL STATEMENTS
The accompanying unaudited, condensed financial statements have been prepared in
accordance with the instructions to the Form 10-QSB and do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation have been included. Operating results for the
six months ended October 31, 1999, are not necessarily indicative of the results
that may be expected for the fiscal year ending April 30, 2000. These
statements should be read in conjunction with the financial statements and
footnotes thereto included in the Company's Form 10-KSB for the fiscal year
ended April 30, 1999.
1. Inventories
Inventories, stated at the lower of cost (first-in, first-out method) or market,
are as follows:
October 31, 1999 April 30, 1999
Raw materials and work-in-process $1,060,867 $1,263,617
Finished goods 318,567 403,394
------------ ------------
$1,379,434 $1,667,011
============ ============
2. Investments
Investments are carried at fair market value. The Company's investment
securities are classified as available for sale and recorded on the balance
sheet at fair market value with unrealized gains and losses on these investments
shown as a separate component of stockholders' equity, net of related taxes.
3. Income Taxes
Deferred income taxes are provided for items which are reported for tax purposes
in different periods than in the Statements of Operations.
4. Earnings Per Share
Earnings per share is computed by dividing net income by the weighted average
number of shares outstanding during the period. During the six months ended
October 31, 1999, there were a total of 340,432 shares outstanding under the
Company's stock option plans. Any dilutive effect of the outstanding options
into common stock as of October 31, 1999, is reflected in the financial
statements.
Page 6 of 10
<PAGE>
The FASB issued Statements of Financial Accounting Standards (SFAS) 128,
Earnings per Share, which is effective for periods ending after December 15,
1997.
For the Six Months Ended October 31, 1999
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net Income $16,163
Basic EPS
Net Income available to common stockholders $16,163 4,061,438 $0.00
Effect of Dilutive Securities Options 0 94,599
Diluted EPS
Income available to stockholders plus
assumed conversions $16,163 4,156,037 $0.00
5. Changes in Accounting Principles
There have been no changes in accounting principles during these reporting
periods.
6. Segment Information
EMCO's core business has been, and continues to be, in the manufacture of flow
measurement devices and systems segment, SIC Code No. 3823. In the past, EMCO
has reported all of its operations in this segment. Effective with this filing
of the Company's 10-QSB, EMCO adopts SFAS 131 related to reporting for segments
of the business. EMCO's contract electronics manufacturing (CEM) division,
operating under the trade name Advanced Technology Group (ATG), comes within the
definition of SIC Code No. 3672. ATG sales (all domestic) for the three and six
month periods ending October 31, 1999, exceeded 10% of the total Company's sales
which triggered the requirement to report information by segments.
The information reported below is similar to information used by the management
and directors of the company to assess the performance of the operating segments
and/or to allocate resources to those segments. This information is based upon
the Company's books, contains no inter-segment revenues and utilizes estimated
allocations of expenses and assets. Segment profits are computed at the same
level as income from operations on the Statement of Operations. Segment assets
for ATG are for directly purchased long term equipment and do not reflect any
allocation of the building or other assets such as cash, accounts receivable or
inventory. This information has not been audited.
<TABLE>
FY 2000 FY 1999
Contract Contract
Electronics Electronics
Flow Products Manufacturing Totals Flow Products Manufacturing Totals
<S> <C> <C> <C> <C> <C> <C>
Six Months Ended October 31:
Revenues 4,113,757 566,133 4,679,890 4,606,792 341,943 4,948,735
Depreciation & Amortization 191,365 70,782 262,147 193,761 33,530 227,291
Segment Profits (72,231) 75,511 3,280 80,762 33,885 114,647
Segment Assets 7,013,789 515,995 7,529,784 7,251,915 553,355 7,805,270
Expenditures for Segment Assets 268,090 55,837 323,927 337,598 363,916 701,514
Three months ended October 31:
Revenues 2,169,637 282,663 2,452,300 2,300,575 178,911 2,479,486
Depreciation & Amortization 96,616 35,707 132,323 97,710 19,808 117,518
Segment Profits 17,614 37,967 55,581 76,068 (15,538) 60,530
Segment Assets 7,013,789 515,995 7,529,784 7,251,915 553,355 7,805,270
Expenditures for Segment Assets 196,760 53,049 249,809 129,048 363,916 492,964
</TABLE>
Page 7 of 10
<PAGE>
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 $20,000 during the six
months ended October 31, 1999. The decrease is primarily due to decreases in
cash and inventory offset by increases in accounts receivable, short term
investments. The current ratio was at 4.4 at both October 31, 1999 and
April 30, 1999.
Cash and cash equivalents decreased approximately $219,000 at October 31, 1999,
compared to April 30, 1999. Net investment purchases of approximately $190,000
and capital and intangibles expenditures of approximately $346,000 were the
principal consumers of cash during the period. Cash from operations of
approximately $227,000 and proceeds from stock option exercises of approximately
$88,000 were the primary sources of cash during the first six months of the
fiscal year. The Company intends to continue investing excess cash in
investment securities until the cash is needed for operations.
Accounts receivable increased by approximately $334,000 at October 31, 1999,
due to higher sales. The Days Sales Outstanding (DSO) improved to 48.7 days
for the six months ended October 31, 1999, compared to 54.3 days for the year
ended April 30, 1999.
Inventories decreased approximately $288,000 in the first six months of the
fiscal year. The inventory turnover ratio for the six months ended October 31,
decreased to 1.54 compared to 1.84 in fiscal 1999. Management will continue to
review inventory levels in order to optimize shipments.
The Company currently has no loans outstanding. The Company does not expect any
material capital expenditures in the next six months and anticipates all cash
needs will be satisfied from operations. The Company has renewed its $500,000
revolving line of credit with Norwest Bank Colorado through September 2000.
The Company currently has no outstanding loan balance on the line of credit.
Page 8 of 10
<PAGE>
B. Results of Operations
Six months ended October 31, 1999, compared
To the six months ended October 31, 1998
Sales for the six months ended October 31, 1999, were approximately $269,000
less than the six months ended October 31, 1998. The decline in sales is
attributable to reduced domestic sales of flowmeter and digital valve products
partially offset by increases in sales of contract electronics manufacturing
services. Order backlog at October 31, 1999 is approximately $1,197,000
compare to $1,538,000 at October 31, 1998. The decrease in backlog is
attributable to the Company's emphasis on reducing lead times as well as
reflecting the reduced level of orders.
Gross profit is down approximately $199,000 from the same period a year ago to
39.9% of sales from 41.7% of sales in the period ending October 31, 1998.
Decreases in material costs as a percent of sales of 2.1% from the same period
in 1998 reflect the increase in sales of the contract electronics manufacturing
(ATG) operation in the product mix. This is also reflected in the increase in
labor of 3.1% and overhead of 1.3% from 1998 to 1999.
Operating expenses decreased approximately $88,000 from the same period a year
earlier. Reduced spending for selling and general and administrative expenses
more than offset a nearly $126,000 increase in engineering expenses. Income
from operations is approximately $3,000 in the six months ended October 31,
1999, compared to approximately $115,000 for the six months ended October 31,
1998, reflecting the decrease in gross profit.
Other income for the six months ended October 31, 1999, was approximately
$44,000 compared to approximately $79,000 in the same six month period a year
ago.
The income tax provision for the six month period ending October 31, 1999, was
approximately $32,000 compared to approximately $33,000 for the same period in
1998. The impact of deferred tax items and additional taxes for the year ended
April 30, 1999, resulted in a current tax rate of approximately 66.2% for the
six months ended October 31, 1999, while the impact of deferred tax items and
tax refunds resulted in a tax rate of approximately 17.1% for the six months
ended October 31, 1998.
Net cash provided by operating activities was $205,497 for the six months
ended October 31, 1999.
Three months ended October 31, 1999, compared
to the three months ended October 31, 1998
Sales were approximately $27,000 lower in 1999 compared to 1998, a 1.1%
decrease, due to lower demand throughout the domestic flowmeter market.
Gross profit increased by approximately $5,000 to 40.6% of sales in 1999
compared to 39.9% in 1998. Labor was 1% higher due to lower volume and a more
labor intensive product mix; material cost was down 2.0% and overhead was
up .3%, again due to product mix.
Operating expenses have increased approximately $10,000 from last year due to
increased research and development costs and partially offset by decreased
selling and general and administrative costs. Research and development
expenses increased approximately $49,000 over the same period in the prior
year. Income from operations decreased approximately $5,000 for the three
months ended October 31, 1999, compared to the same period a year ago.
Other income for the three months ended October 31, 1999, decreased
approximately $16,000 or 50% to $32,000 primarily due to lower interest income
from high grade investment securities, than in the period ending October 31,
1998. The Company had no interest expense attributable to debt in the periods
ending October 31, 1999, and 1998, respectively.
Page 9 of 10
<PAGE>
The income tax provision for the three months ended October 31, 1999, was
approximately $39,000 compared to an income tax provision of approximately
$8,000 for the same period in 1998. The impact of deferred tax items and the
impact of final adjustments on the Company's fiscal year 1999 tax returns
resulted in current tax rate of approximately 54.4% in 1999. The income tax
expense rate in the comparable period in 1998 was 8.2% due to the impact of
deferred tax items and the impact of income tax refunds.
Year 2000 Compliance
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(this is commonly known as the `Year 2000 Problem' or `Y2K' problem). The
Company replaced its inventory and financial software in fiscal year 1998 with
a system which is Year 2000 compliant. The Company has evaluated its other
internal-use software and hardware for Year 2000 compliance, and has
implemented a plan to replace all non-compliant items either through upgrade
or replacement. The planned completion date for this task is December 15, 1999,
and the cost of remaining upgrades/replacements is anticipated to be
approximately $15,000.
The Company may be vulnerable to the failure of other companies to be Year 2000
compliant. The Company has been assessing whether third parties with whom the
Company has material relationships are Year 2000 compliant. The Company is also
evaluating its vendors and suppliers to determine if there would be a material
effect on the Company's business if they do not become Year 2000 compliant.
The same analysis is also being made for significant customers.
The Company's products do not use time/date logic for internal sequencing or
calculation, and therefore the Company believes its products are Year 2000
compliant.
Although management does not expect Year 2000 issues to have a material
impact on its business or future results of operation, there can be no
assurance that there will not be interruptions of operations or other system
functionality limitations or that the Company will not incur significant costs
to avoid such interruptions or limitations.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
None filed in the quarter ended October 31, 1999.
B. Reports on Form 8-K
None filed in the quarter ended October 31, 1999.
Page 10 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: December 15, 1999 By: /s/ Charles E. Miller
Charles E. Miller, Chairman
(Principal Financial Officer
and Chief Accounting Officer)
December 15, 1999
ENGINEERING MEASUREMENTS COMPANY
(NASDAQ SYMBOL: EMCO)
First Quarter Results
Corporate Contact: Charles E. Miller
(303)651-0550
Longmont, Colorado: Engineering Measurements Company announced today net income
of $10,702 or $.00 per share for the second quarter ended October 31, 1999.
Net income for the six month period ended October 31, 1999, was $16,163, also
$.00 per share. This compares to net income for the three-month and six-month
periods last year of $85,269 ($.02 per share) and $160,048 ($.04 per share),
respectively. Sales for the quarter were approximately $2.45 million; compared
to sales of approximately $2.48 million for the same period last year. Six
month year to date sales were approximately $4.68 million, or approximately 5.5%
less than the year earlier period.
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
<TABLE> Operating Results
Three Months Ended Six Months Ended
October 31, October 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales $2,452,300 $2,479,486 $4,679,890 $4,948,735
Income from operations before taxes 71,748 92,909 47,752 193,154
Income 10,702 85,269 16,163 160,048
Net earnings per share $.00 $.02 $.00 $.04
Number of shares outstanding 4,068,194 4,021,237 4,061,438 4,010,282
========= ========= ========= =========
</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> 6-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-END> OCT-31-1999
<CASH> 478
<SECURITIES> 657
<RECEIVABLES> 1,406
<ALLOWANCES> 101
<INVENTORY> 1,379
<CURRENT-ASSETS> 4,285
<PP&E> 7,941
<DEPRECIATION> 4,976
<TOTAL-ASSETS> 7,530
<CURRENT-LIABILITIES> 965
<BONDS> 0
<COMMON> 43
0
0
<OTHER-SE> 6,301
<TOTAL-LIABILITY-AND-EQUITY> 7,530
<SALES> 4,680
<TOTAL-REVENUES> 4,680
<CGS> 2,814
<TOTAL-COSTS> 2,814
<OTHER-EXPENSES> 1,863
<LOSS-PROVISION> 13
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 48
<INCOME-TAX> 32
<INCOME-CONTINUING> 16
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38
<EPS-BASIC> .01
<EPS-DILUTED> .01
