<PAGE> 1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-QSB
------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 2000
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
ENGINEERING MEASUREMENTS COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
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)
</TABLE>
Registrant's telephone number, including area code: (303) 651-0550
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
The number of shares outstanding of Registrant's $.01 par value common
stock, as of September 6, 2000, was 4,225,342.
Transitional Small Business Disclosure Format. Yes [ ] No [X]
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENGINEERING MEASUREMENTS COMPANY
BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JULY 31, 2000 APRIL 30, 2000
------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 583,610 $ 609,050
Accounts receivable, net of allowance for doubtful
accounts and allowance for sales returns of $89,563 at
July 31, 2000 and $78,927 at April 30, 2000............ 1,353,084 1,219,365
Short-term investments.................................... 638,251 615,793
Inventories............................................... 1,653,791 1,516,251
Prepaid expenses.......................................... 71,603 89,439
Income taxes receivable................................... 75,027 75,000
Deferred income taxes..................................... 573,810 382,551
----------- -----------
Total current assets.............................. 4,949,176 4,507,449
----------- -----------
Property and equipment, at cost:
Land...................................................... 568,940 568,940
Building and improvements................................. 1,697,984 1,689,824
Vehicles.................................................. 22,196 22,196
Machinery and equipment................................... 4,359,428 4,268,002
Office furniture and fixtures............................. 1,247,534 1,223,750
----------- -----------
7,896,082 7,772,712
Less accumulated depreciation............................. (4,928,856) (4,811,402)
----------- -----------
Net property and equipment........................ 2,967,226 2,961,310
----------- -----------
Other assets:
Other assets, net of amortization of $133,282 at April 30,
2000 and $147,048 at July 31, 2000..................... 295,754 298,488
----------- -----------
Total other assets................................ 295,754 298,488
----------- -----------
Total Assets...................................... $ 8,212,156 $ 7,767,247
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
(Continued)
2
<PAGE> 3
ENGINEERING MEASUREMENTS COMPANY
BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JULY 31, 2000 APRIL 30, 2000
------------- --------------
<S> <C> <C>
Current liabilities:
Accounts payable.......................................... $ 386,773 $ 332,161
Accrued compensation...................................... 282,995 301,513
Accrued liabilities....................................... 444,711 441,889
----------- -----------
Total current liabilities......................... 1,114,479 1,075,563
----------- -----------
Long-term liabilities:
Deferred income taxes..................................... 235,500 244,400
----------- -----------
Total long-term liabilities....................... 235,500 244,400
----------- -----------
Stockholders' equity:
Common stock, $.01 par value; 15,000,000 shares
authorized; 4,321,006 shares issued at April 30, 2000,
4,419,589 shares issued at July 31, 2000, 4,125,259
shares outstanding at April 30, 2000, 4,223,842 shares
outstanding at July 31, 2000........................... 44,196 43,210
Capital in excess of par value............................ 3,531,161 3,001,606
Unrealized holding losses (net of taxes).................. (41,223) (49,262)
Retained earnings......................................... 3,994,500 4,118,187
Treasury stock at cost; 195,747 shares at April 30, 2000,
and July 31, 2000...................................... (666,457) (666,457)
----------- -----------
Total stockholders' equity........................ 6,862,177 6,447,284
----------- -----------
Total Liabilities and Stockholders' Equity........ $ 8,212,156 $ 7,767,247
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
ENGINEERING MEASUREMENTS COMPANY
STATEMENTS OF INCOME AND OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JULY 31,
------------------------
2000 1999
---------- ----------
<S> <C> <C>
Sales....................................................... $2,462,131 $2,227,590
Cost of sales............................................... 1,474,266 1,356,913
---------- ----------
Gross margin on sales....................................... 987,865 870,677
---------- ----------
Operating expenses:
Selling................................................... 576,983 453,997
General and administrative................................ 379,855 231,354
Research and development.................................. 267,302 237,627
---------- ----------
Total operating expenses.......................... 1,224,140 922,978
---------- ----------
Loss from operations........................................ (236,275) (52,301)
---------- ----------
Other income/(expense):
Gain/(loss) on sale of stock.............................. (2,309) 14,985
Interest expense.......................................... (8) (164)
Interest and dividend income.............................. 17,068 13,439
Other income.............................................. 4,738 45
---------- ----------
Total other income................................ 19,489 28,305
Loss from operations before income taxes.................... (216,786) (23,996)
Income tax benefit.......................................... (93,099) (29,457)
---------- ----------
Net earnings/(loss)......................................... $ (123,687) $ 5,461
========== ==========
Other comprehensive income
Unrealized holding gain/(loss)............................ 13,180 (1,313)
Tax benefit of stock option exercise...................... 112,201 0
---------- ----------
Comprehensive income........................................ $ 1,694 $ 4,148
========== ==========
Net earnings/(loss) per share -- basic...................... $ (0.03) $ 0.00
========== ==========
Net earnings/(loss) per share -- diluted.................... $ (0.03) $ 0.00
========== ==========
Weighted average number of shares outstanding -- basic and
diluted................................................... 4,155,717 4,021,729
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
ENGINEERING MEASUREMENTS COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31,
----------------------------
INCREASE/(DECREASE) IN CASH 2000 1999
--------------------------- ------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings/(loss)....................................... $(123,687) $ 5,461
Adjustments to reconcile net earnings/(loss) to net cash
provided by operating activities --
Depreciation and amortization.......................... 149,312 129,824
Deferred tax benefit................................... (200,159) (9,800)
Provision for doubtful accounts........................ 10,637 8,156
(Gain)/Loss on sales of investments.................... 2,308 (14,985)
(Gain)/Loss on disposal of assets...................... 4,982 0
Stock compensation..................................... 0 1,000
Changes in assets and liabilities --
Receivables.......................................... (144,356) (48,684)
Inventories.......................................... (137,540) 109,248
Income taxes receivable and prepaid expenses......... 17,809 (17,797)
Accounts payable and accrued liabilities............. 38,916 (113,664)
--------- ---------
Net cash provided/(used) by operating activities............ (381,778) 48,759
--------- ---------
Cash flows from investing activities:
Capital expenditures, net................................. (146,444) (74,118)
Expenditures for intangible assets........................ (11,032) 0
Proceeds from note receivable............................. 0 1,800
Investment purchases...................................... (179,686) (223,972)
Proceeds from sale of investments......................... 162,959 125,700
--------- ---------
Net cash provided used in investing activities.............. (174,203) (170,590)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options................... 530,541 76,098
--------- ---------
Net cash used in financing activities....................... 530,541 76,098
--------- ---------
Net decrease in cash and cash equivalents................... (25,440) (45,733)
Cash and cash equivalents at beginning of period............ 609,050 697,697
--------- ---------
Cash and cash equivalents at end of period........ $ 583,610 $ 651,964
========= =========
Supplemental disclosure of cash flow information:
Cash paid during period for --
Interest............................................... $ 8 $ 164
Income taxes........................................... 27 0
Supplemental disclosure for non cash items:
Stock Compensation........................................ $ -- $ 1,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
ENGINEERING MEASUREMENTS COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited, condensed financial statements have been
prepared in accordance with the instructions to the Form 10-QSB and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three months ended July 31, 2000, are not necessarily indicative
of the results that may be expected for the fiscal year ending April 30, 2001.
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, 2000.
1. INVENTORIES
Inventories, stated at the lower of cost (first-in, first-out method) or
market, are as follows:
<TABLE>
<CAPTION>
JULY 31, 2000 APRIL 30, 2000
------------- --------------
<S> <C> <C>
Raw materials and work-in-process.................. $1,356,459 $1,201,216
Finished goods..................................... 297,332 315,035
---------- ----------
$1,653,791 $1,516,251
========== ==========
</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 stockholders' equity, net of related taxes. The
impact of these unrealized gains and losses, net of related taxes, is shown as a
part of other comprehensive income on the statements of income and comprehensive
income.
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. REVENUE RECOGNITION
Revenue from manufactured products is recognized at the time of shipment to
the customer. Service revenue is recognized at the time of shipment of goods or
delivery of services to the customer. The sale price is fixed at the time of
shipment or delivery of the service and all risks transfer to the customer at
that point. Commissioned sales representatives do not stock product. Returns,
exchanges and restock charges are handled on a case-by-case basis.
5. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed by dividing net income by the
weighted average number of shares outstanding during the period. During the
three months ended July 31, 2000, there were a total of 239,663 shares
outstanding under the Company's stock option plans. There was no dilutive effect
of the outstanding
6
<PAGE> 7
ENGINEERING MEASUREMENTS COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
options for the three months ended July 31, 2000, as a result from a net
operating loss. For the three months ended July 31, 1999, the dilutive effect
was immaterial.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JULY 31, 2000
------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ -------------- ----------
<S> <C> <C> <C>
Net Income................................. $(123,687)
=========
BASIC EPS
Net Income available to common
stockholders............................. $(123,687) 4,155,717 $(0.03)
EFFECT OF DILUTIVE SECURITIES
Options.................................... 0 0
--------- ---------
DILUTED EPS
Income available to stockholders plus
assumed conversions...................... $(123,687) 4,155,717 $(0.03)
========= ========= ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JULY 31, 1999
------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ -------------- ----------
<S> <C> <C> <C>
Net Income................................. $5,461
======
BASIC EPS
Net Income available to common
stockholders............................. $5,461 4,054,682 $0.00
EFFECT OF DILUTIVE SECURITIES
Options.................................... 0 88,909
------ ---------
DILUTED EPS
Income available to stockholders plus
assumed conversions...................... $5,461 4,143,591 $0.00
====== ========= =====
</TABLE>
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 the
filing of the Company's 10-QSB for the period ending October 31, 1999, EMCO
adopted 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 nine month periods ending
January 31, 2000, 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 (losses) are computed at the same level as income from operations on the
Statements of Income and Operations. Segment assets for ATG are for directly
7
<PAGE> 8
ENGINEERING MEASUREMENTS COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
purchased long term equipment and do not reflect any allocation of the building
or other assets such as cash, accounts receivable or inventory.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31,
-------------------------------------------------------------------------------------
2000 1999
----------------------------------------- -----------------------------------------
CONTRACT CONTRACT
ELECTRONICS ELECTRONICS
FLOW PRODUCTS MANUFACTURING TOTALS FLOW PRODUCTS MANUFACTURING TOTALS
------------- ------------- --------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ 2,077,278 384,853 2,462,131 1,944,120 283,470 2,227,590
Depreciation and
Amortization.......... 110,042 39,270 149,312 94,749 35,075 129,824
Segment Profits
(Losses).............. (223,118) (13,157) (236,275) (89,845) 37,544 (52,301)
Segment Assets.......... 7,728,387 483,769 8,212,156 6,940,135 498,653 7,438,788
Expenditures for Segment
Assets................ 118,944 38,532 157,476 71,330 6,788 78,118
</TABLE>
7. MERGER AGREEMENT WITH ADVANCED ENERGY INDUSTRIES, INC.
Engineering Measurements Company signed a definitive agreement to enter
into a merger with Advanced Energy Industries, Inc., (NASDAQ: AEIS) on July 6,
2000. Under the terms of the agreement, EMCO securities holders will receive
900,000 shares of Advanced Energy stock. The agreement is subject to the
approval of 2/3 of EMCO's shareholders and certain other conditions detailed in
the proxy statement/ prospectus. A special meeting of EMCO shareholders
scheduled for October 23, 2000, will be held to vote on the merger. The
agreement does not require the approval of Advanced Energy's stockholders.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
A. FINANCIAL CONDITION
The Company's net working capital increased approximately $403,000 during
the three months ended July 31, 2000. The most significant items impacting
working capital in this period are increases in accounts receivable, inventories
and deferred income tax assets. The current ratio was at 4.4 at July 31, 2000
and April 30, 2000.
Cash and cash equivalents decreased approximately $25,000 at July 31, 2000,
compared to April 30, 2000. Higher accounts receivable of approximately
$134,000, higher inventory balances of approximately $138,000 and capital and
intangibles expenditures of approximately $157,000 were the principal consumers
of cash during the period. Cash used in operations was approximately $382,000 in
the quarter. Proceeds from stock option exercises of approximately $531,000 were
a primary source of cash during the first three 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 $144,000 at July 31, 2000,
due to higher sales and slightly slower collections. The Days Sales Outstanding
(DSO) improved to 43.9 days for the three months ended July 31, 2000, compared
to 47.6 days for the year ended April 30, 2000.
Inventories increased approximately $138,000 in the first three months of
the fiscal year. The inventory turnover ratio for the three months ended July
31, stayed about the same at 1.46 compared to 1.47 for fiscal year 2000.
Inventory turns have remained steady while inventory levels have increased,
reflecting a build up prior to the introduction of the Mach-One mass flow
controller for the semiconductor market and inventories associated with turnkey
orders for the contract electronics manufacturing business, which previously had
not required the Company to buy and hold inventory. Management will continue to
review inventory levels in order to optimize shipments.
The Company had a note receivable of $138,920 at April 30, 1999, with an
unaffiliated third party to provide financing for the development of a new
flowmeter technology. The Company exercised the option to purchase the undivided
one-half interest of the developed technology for the balance of the receivable
during May 1999. This undivided one-half interest of the developed technology is
reflected on the balance sheet within "Other assets" and will be amortized over
its expected life.
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 Wells Fargo Bank West, N.A. through
September 2000. The Company currently has no outstanding loan balance on the
line of credit.
B. RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 2000, COMPARED TO THE THREE MONTHS ENDED JULY 31,
1999
Sales were approximately $235,000 higher in the period ending July 31,
2000, compared to the period ending July 31, 1999, a 10.5% increase, due to
higher domestic demand in the flowmeter market, the new Sono-Trak ultrasonic
flowmeter introduced in January 2000, and increased sales of contract electronic
printed circuit board assembly services. International sales fell 20%, or
approximately $122,000 from the same quarter last year. As a result,
international sales, which had accounted for 28% of total revenues in the
quarter ended July 31, 1999, fell to just 20% of revenues in the same quarter
this year. Aggressive pricing by European competitors and a strong Dollar
hindered international sales in the period.
Gross profit increased by approximately $117,000 to 40.1% of sales in 2000
compared to 39.1% in 1999. Labor was 1.3% higher due to a more labor intensive
product mix, material cost was down 1.6% and overhead was down .5%, again due to
product mix.
9
<PAGE> 10
Operating expenses have increased approximately $301,000 from last year.
Selling expenses increased approximately $123,000. General and administrative
costs increased approximately $149,000, which included about $110,000 in costs
directly associated with the merger with Advanced Energy Industries, Inc.
Research and development costs increased approximately $30,000 over the same
period in the prior year.
Other income for the three months ended July 31, 2000, decreased
approximately $9,000 or 31% primarily due to a small loss from the sale of
investment securities in 2000, compared to a gain of approximately $15,000 in
1999. The Company had no interest expense attributable to debt in the periods
ending July 31, 2000, and 1999, respectively.
The income tax benefit for the three months ended July 31, 2000, was
approximately $93,000 compared to an income tax benefit of approximately $29,000
for the same period in 1999. The impact of deferred tax items resulted in
current tax rate of approximately 42.9% in 2000. The income tax expense rate in
the comparable period in 1999 was 122.8% due to the impact of deferred tax
items.
Other Comprehensive Income for the three month period ended July 31, 2000,
consisted of approximately $13,000 of unrealized holding gains on investment
securities, net of the related tax effects, and $112,000 of tax benefits
associated with the exercise of stock options. This compares to approximately
$1,000 of unrealized holding losses on investment securities, net of the related
tax effects, in the three months ended July 31, 1999. Tax benefits associated
with the exercise of stock options in 1999 were not material.
Net cash used by operating activities was $381,778 for the three months
ended July 31, 2000. Net cash provided by operating activities was $48,759 for
the three months ended July 31, 1999. Major changes in net cash from operating
activities year over year are the change from a small net profit in 1999 to a
loss and its associated tax benefit in 2000, and the increases in inventories
and accounts receivable in 2000.
MERGER AGREEMENT WITH ADVANCED ENERGY INDUSTRIES, INC.
Engineering Measurements Company signed a definitive agreement to enter
into a merger with Advanced Energy Industries, Inc., (NASDAQ: AEIS) on July 6,
2000. Under the terms of the agreement, EMCO securities holders will receive
900,000 shares of Advanced Energy stock. The agreement is subject to the
approval of 2/3 of EMCO's shareholders and certain other conditions detailed in
the proxy statement/ prospectus. A special meeting of EMCO shareholders
scheduled for October 23, 2000, will be held to vote on the merger. The
agreement does not require the approval of Advanced Energy's stockholders.
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 evaluated its other
internal-use software and hardware for Year 2000 compliance, and implemented a
plan to replace all non-compliant items either through upgrade or replacement.
The cost of these replacement/upgrades was approximately $50,000.
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.
To date, any impacts of the Year 2000 problem have been minimal and dealt
with as they appear.
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None filed in the quarter ended July 31, 2000.
10
<PAGE> 11
(b) REPORTS ON FORM 8-K
One filed in the quarter ended July 31, 2000.
1. A press release dated July 6, 2000, announcing the signing of a merger
agreement with Advanced Energy Industries, Inc., of Fort Collins, Colorado.
11
<PAGE> 12
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
(Registrant)
By: /s/ CHARLES E. MILLER
------------------------------------
Charles E. Miller, Chairman
(Principal Financial Officer
and Chief Accounting Officer)
Date: September 14, 2000
12
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27 Financial Data Schedule
99 A press release dated July 6, 2000, announcing the signing
of a merger agreement with Advanced Energy, Inc., of Fort
Collins, Colorado.
</TABLE>
