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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
x QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1995
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ............ to .............
For the Quarter Ended April 30, 1995
Commission file number 0-14100
SCIENTIFIC MEASUREMENT SYSTEMS, INC.
(Exact name of Registrant as specified in charter)
TEXAS 74-2048763
(State of other jurisdiciton of (I.R.S. Employer
incorporation or organization) Identification No.)
2210 Denton Drive, Suite 106
Austin, Texas 78758
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(512) 837-4712
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 the 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 each of the registrant s
classes of common stock, as of the latest practical date:
Shares outstanding as of
Title of Class May 31 ,1995
$0.05 Par Value Common Stock 13,030,355
Transitional Small Business Disclosure Format (check one):
Yes _ No x
<PAGE>
<PAGE>
SCIENTIFIC MEASUREMENT SYSTEMS, INC.
INDEX
Part I - Financial Information
Item 1: Financial Statements (Unaudited):
Condensed Balance Sheet: 3
April 30, 1995
and July 31, 1994
Condensed Statement of Income: 4
Three and Nine Months Ended
April 30, 1994 and 1995
Statement of Cash Flows: 5
Nine Months Ended
April 30, 1995 and 1994
Notes to Condensed Financial Statements 6
Item 2: Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7
Part II - Other Financial Information
Items 1-6 11
Signatures 12
<PAGE>
<TABLE>
Condensed Balance Sheet
(In thousands)
<CAPTION>
April 30, July 31,
1995 1994
(Unaudited)
ASSETS
Current Assets
<S> <C> <C>
Cash $115 $81
Trade accounts receivable,
net 113 34
Costs and earned profits
on long-term
contracts in excess
of related billings 29 55
Inventory 18 21
Prepaid expenses 42 18
Total current assets 317 209
Property and equipment, net 20 1,014
Scanning equipment, net 215 245
Other assets, net 46 39
$598 $1,507
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Billings in excess
of related costs and earned
profits on
long-term contracts $81 $230
Current installments
of long-term debt 0 96
Accounts payable and
accrued expenses 312 163
Borrowings on line of
credit agreement 176 31
Total current
liabilities 569 520
Long-term debt,
less current installments 0 506
Total liabilities 569 1,026
Stockholders' equity:
<PAGE>
Common stock of $0.05
par value, 40,000,000
shares authorized;
issued and outstanding
13,030,355 651 651
Additional paid-in capital 8,316 8,316
Accumulated deficit (8,938) (8,486)
Total stockholders'
equity 29 481
$598 $1,507
The accompanying notes are an integral part of these
financial statements.
</TABLE>
<PAGE>
<TABLE>
Condensed Statement of Income
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
1995 1994 1995
1994
Contract
revenues:
<S> <C> <C> <C> <C>
System sales $177 $7 $422 $478
Service contracts
and upgrades 145 175 612 912
Total revenues 322 182 1,034 1,390
Contract costs 290 148 859 748
Gross profit 32 34 175 642
Operating costs:
Marketing 57 99 198 251
Research and development 14 11 48 87
General and administrative 109 122 362 358
Total operating costs 180 232 608 696
Income from operations (148) (198) (433) (54)
Other expense (income):
Interest expense 4 15 32 47
Interest and other income (3) (219) (21) (221)
Loss on sale of asset 0 0 8 0
Other - net 1 (204) 19 (174)
Net income ($149) $6 ($452) $120
Weighted average
shares outstanding 13,030 13,030 13,030 13,030
Net income (loss)
per share ($0.011) $ 0.00 ($0.035) $0.009
The accompanying notes are an integral part of these
financial statements.
<PAGE>
<PAGE>
</TABLE>
<TABLE>
Statement of Cash Flows
Nine Months Ended April 30, 1995 and 1994
(In thousands)
(Unaudited)
1995 1994
<CAPTION>
Operating activities:
<S> <C> <C>
Net Income ($452) $120
Adjustments to reconcile
net income to net cash
used in operating activities:
Depreciation and amortization 46 62
Loss on sale of asset 8 0
Changes in operating assets and
liabilities:
Trade accounts receivable (80) 188
Costs and earned profits on long-term
contracts in excess of related billings27 58
Inventories 2 0
Prepaid expenses (32) (8)
Other assets 0 0
Accounts payable and accrued expenses 150 (323)
Billings in excess of related costs
and earned profits on long-term contracts (150) (149)
Net cash flows used in operating activities (481) (52)
Investing activities:
Capital expenditures (1) (1)
Proceeds from sale of building and land 972 0
Net cash flows provided by (used in) investing
activities 971 (1)
Financing activities:
Borrowings under line of credit 247 239
Repayments under line of credit (102) (239)
Principal payments on long-term debt (601) (66)
Net cash flows used in financing activitie (456) (66)
Net increase in cash and cash equivalents 34 (119)
Cash and cash equivalents at
beginning of period 81 137
Cash and cash equivalents at end of period $115 $18
The accompanying notes are an integral part of these
financial statements.
</TABLE>
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. THE COMPANY
The accompanying condensed financial statements have
been prepared in accordance with generally accepted
accounting principles for interim financial
information. It is the opinion of management that all
adjustments and eliminations necessary for a fair
presentation of financial position and results of
operations for such periods have been included, and
that such adjustments and eliminations are only of a
normal, recurring type. The results of operations for
any interim period are not necessarily indicative of
results for the full year. These condensed financial
statements should be read in conjunction with the
financial statements and accompanying notes contained
in the Company's Annual Report on Form 10-KSB for the
year ended July 31, 1994 as filed with the Securities
and Exchange Commission.
During the past four years and in the first three
quarters of fiscal 1995, the Company's revenues declined
and the Company incurred net losses. Management
believes that the Company has the ability to meet its
known cash requirements during the fiscal year ending
July 31, 1995 based on revenues generated by the
Company's current backlog combined with further
reductions in operating costs, if necessary. The
ability of the Company to meet its long term cash
requirements is dependent on any one or a combination
of the following: returning to profitable operations
through increased system sales; securing new sources of
cash; further reducing operating costs and curtailing
Company operations; or developing new business
activities.
See Item 5 of Part II for a discussion of pending
business combination.
2. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest during the nine months ended
April 30, 1995 and 1994 was $16,000 and $46,000,
respectively.
3. LINE OF CREDIT AGREEMENT
In December 1994, the Company renewed a revolving
credit agreement with a bank which permits borrowings
up to $200,000 based on certain accounts receivable.
Interest is payable monthly at the bank's prime rate
plus 1.5%. The agreement contains various covenants
<PAGE>
which, among other items, require the Company to
maintain certain financial ratios. As of April 30,
1994 the Company was in technical default with respect
to net worth and liquidity covenants.
Also in December 1994, the company entered into a loan
agreement with a local bank as part of the Export-
Import Bank of the U.S.'s Working Capital Guarantee
program. This facility allows borrowing of up to
$225,000 collateralized by trade accounts receivable
and inventory for foreign sales. This agreement is
also subject to various covenants, which among other
items, require the Company to maintain certain
financial ratios. As of April 30, 1994 the Company was
in technical default with respect to net worth and
liquidity covenants.
4. SALE OF LAND AND BUILDING
On October 5, 1994, the Company sold its land and
building for $1,060,000. Proceeds from the sale were
used to retire all mortgage notes outstanding, in the
aggregate amount of $600,000. Prepayment penalties
associated with the early retirement of the debt were
approximately $16,000 and are included in other income
for the period. Net of all related expenses and
retirement of mortgage notes, the Company generated
approximately $350,000 in cash from the transaction,
while realizing a loss of $8,000. The Company leased
back the building for an initial sixth month period,
and is now leasing smaller, less expensive space on an
industrial park in Austin, Texas.
<PAGE>
Item 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
<TABLE>
The following tables set forth items from the Company's
statement of operations as a percentage of total revenues
and as a percentage change from the prior period.
Three Months Ended April 30,
<CAPTION>
1995 1994
Dollar % of % Change Dollar % of % Change
Amount Total from Prior Amount total from Prior
(000s) Revenue Year (000s) Revenue Year
Contract revenues:
<S> <C> <C> <C> <C> <C> <C>
System sales $177 55.0% 2428.6% $7 3.9% -96.3%
Service contracts
and upgrades 145 45.0% -17.1% 175 96.2% -35.4%
Total revenues 322 100.0% 76.9% 182 100.0% -60.3%
Contract costs 290 90.1% 96.0% 148 81.3% -63.4%
Gross profit 32 9.9% 5.9% 34 18.7% -37.0%
Operating costs:
Marketing 57 17.7% -42.4% 99 54.4% -1.0%
Research and
development 14 4.4% 27.3% 11 6.0% -81.0%
General and
administrative 109 33.9% -10.7% 122 67.0% -20.8%
Total operating
costs 180 55.9% -22.4% 232 127.5% -25.6%
Income from operations (148) -46.0% 25.3% (198) -108.8% -23.3%
Other (income) expense:
Interest expense 4 1.2% -73.3% 15 8.2% -6.3%
Interest and other
income (3) -0.09% -98.6% (219) 120.3% 1188.2%
Loss on sale of
asset 0 0.0% NM 0 0.0% 0.0%
Other - net 1 0.3% NM (204) -112.1% NM
Net income ($149) 46.3% NM $6 3.3% NM
NM - Not meaningful
</TABLE>
<PAGE>
<TABLE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATION.
Nine Months Ended April 30,
1995 1994
Dollar % of % Change Dollar % of% Change
Amount Total from PriorAmount total from Prior
(000s) Revenue Year (000s) Revenue Year
<CAPTION>
Contract revenues:
<S> <C> <C> <C> <C> <C> <C>
System sales $422 40.8% -11.7% $478 34.4% -30.7%
Service contracts
and upgrades 612 59.2% -32.9% 912 65.6% 21.6%
Total revenues 1,034 100.0% -25.6% 1,390 100.0% -3.5%
Contract costs 859 83.1% 14.8% 748 53.8% 2.3%
Gross profit 175 16.9% -72.7% 642 46.2% -9.5%
Operating costs:
Marketing 198 19.2% -21.1% 251 18.1% 26.8%
Research and
development 48 4.6% -44.8% 87 6.3% -50.0%
General and
administrative 362 35.0% 1.1% 358 25.8% -20.6%
Total operating
costs 608 58.8% -12.6% 696 50.1% -15.4%
Income from operations (433) -41.9% 701.9% (54) -3.9% -52.6%
Other (income) expense:
Interest expense 32 3.1% -31.9% 47 3.4% -4.1%
Loss on sale of
asset (21) -2.0% -90.5% (221) -15.9% 1127.8%
Interest and
other income 8 0.8% NM 0 0.0% 0.0%
Other - net 19 1.8% NM (174) -112.5% -661.3%
Net income ($452) -43.7% NM $120 8.6% -182.8%
NM - Not meaningful
</TABLE>
<PAGE>
Item 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Results of Operations
Revenues
Total contract revenues increased for the third quarter of
fiscal 1995 compared to the third quarter of fiscal 1994,
driven by increased system sales. In the third quarter of
fiscal 1995 one of the Company's SMARTSCAN units was under
assembly, compared to none in the year earlier period.
For the first three quarters of fiscal 1995 revenues
decreased 25.6% over the first three quarters of fiscal
1994. Upgrade sales were comparatively lower for the
current fiscal year due mainly to a large, nonrecurring
contract in the prior year.
Over the next two or three quarters, the Company has
backlog contract backing to maintain current revenues at
approximately present levels. Additionally, management
believes that revenues may increase modestly over such
period based on verbal commitments from customers for
purchase orders for both systems and upgrade sales.
However, there can be no assurance that such verbal
commitments will become firm purchase orders.
Direct Contract Costs
Gross profits (revenues less contract costs) as a percentage
of revenue fell in both the three month and nine month
period of fiscal 1995 ended April 30 compared to the
corresponding periods of the prior fiscal year. This drop
in gross profits in the three months period ended April 30,
1995 is due primarily to revenue mix. In the three months
ended April 30, 1994, almost all revenues stemmed from
higher margin service contracts and upgrades. For the nine
month period ended April 30, 1995, revenue mix as well as
the effects of excess manufacturing capacity were the main
reasons for the decline in gross profits.
Operating Costs
Total operating costs decreased 22.4% and 12.6% in the third
quarter and the first three quarters of fiscal 1995,
respectively, compared to their respective year earlier
periods. The most notable reduction in absolute dollar
terms for the year to date is in marketing costs. Marketing
costs are reduced due to a new emphasis on the use of
external manufacturer's representatives, as opposed to
inside sales personnel, to market the Company's products.
Over the next several quarters, total operating costs should
approximate current levels in absolute dollar terms.
Backlog
<PAGE>
At May 31, 1995 the Company had, contract backlog of
approximately $550,000 for system sales, $300,000 for
maintenance and upgrade contracts, and $40,000 for scanning
services. As mentioned above, the Company is engaged in
detailed discussions with several customers which management
believes will likely result in CT system sales or upgrade
sales in the next several quarters; however, there can be no
assurance thereof.
DAA07F12 99999-1
<PAGE>
Liquidity and Capital Resources
Cash Flow
Cash flow from operations for the first nine months of
fiscal 1995 were negative $481,000, which compares
unfavorably to cash flows from operations of negative
$52,000 for the first nine months of fiscal 1994. Revenue
for the first nine months of fiscal 1994 were insufficient
to generate positive cash flows from operations.
Liquidity
As of May 31, 1995, the Company had a cash balance of
$23,000 and accounts receivable of approximately $100,000.
These cash and receivables balances are the Company's
primary sources of liquidity. The Company also has two
working capital lines of credit with a local bank, one
participated to the Export Import Bank of the U.S. for
support of working capital needs related to export sales,
the other for general corporate purposes collateralized by
specific trade account receivables. As of May 31, 1995,
there were $0 and $80,000 outstanding under these two
facilities, respectively. In applying the terms of these
credit facilities to the Company's financial condition on
May 31, 1995, the Company does not have the right to make
further draws under these facilities.
Additionally, the Company is experiencing difficulty with
paying all of its present operating expenses in a timely
fashion. Certain vendors of the Company have repeatedly
requested payment of overdue invoices. The Company is
working with these vendors individually on an on-going basis
to schedule satisfactory extended payment terms; however,
there is no assurance that the Company will succeed in
reaching acceptable agreements with all concerned parties.
Moreover, if the Company fails to secure acceptable extended
payment terms, its ability to continue operations will be in
jeopardy.
On October 5, 1994, the Company sold its land and building.
Through ownership of its building, the Company had been
bearing the costs of excess space for some period of time.
The sale of the building allowed the Company to retire all
of its long term debt and, net of associated expenses and
mortgages, to generate approximately $350,000 in working
capital. The Company leased back the building for an
initial six-month period and has now moved to smaller less
expensive lease space. Occupancy costs under this lease are
approximately half those incurred when the Company owned its
building.
During the past four years and in the first three quarters
of fiscal 1995, the Company's revenues declined and the
Company incurred net losses. Management believes that the
DAA07F12 99999-1
<PAGE>
Company has the ability to meet its known cash requirements
during the fiscal year ending July 31, 1995 based on
revenues generated by the Company's current backing combined
with further reductions in operating costs, if necessary.
The ability of the Company to meet its long term cash
requirements is dependent on any one or a combination of the
following: returning to profitable operations through
increased system sales; securing new sources of cash;
further reducing operating costs and curtailing Company
operations; or developing new business activities.
The Company is offering in a private placement convertible
debentures to directors, officers and affiliates. The
convertible debentures are one-year unsecured demand
debentures accruing interest at prime rate with a mandatory
conversion to SMS common stock at $.06 per share upon
closing of the Transaction described in Item 5 of Part 2.
To date, $90,000 has been raised from this offering.
<PAGE>
PART II-OTHER INFORMATION
Item 1 - Legal Proceedings
The Company is not a party to any pending lawsuits and
is not aware of any such proceedings known to be;
contemplated by governmental authorities or others.
but see Item 2 of Part 1.
Item 2 - Defaults Upon Senior Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
On February 27, 1995, the Company announced that it has
entered into an agreement for the acquisition of all of
the issued and outstanding stock of Applied Machine-
Tool Technology, Inc., a privately held company. Upon
consummation of the proposed transaction, the owners of
all the outstanding AMTT stock would be issued shares
representing approximately 60% of the SMS Common Stock
to be outstanding. The transaction is subject to the
approval of the SMS stockholders and to certain other
conditions prior to closing.
Item 6 - Exhibits and Reports on Form 8-K
a) Exhibits - None
b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
SCIENTIFIC MEASUREMENT SYSTEMS, INC.
/s/ Keith Jezek
BY
Keith Jezek
Vice President, Secretary-Treasurer,
and acting Chief Financial and
Accounting Officer
June 9, 1995
DAA07F12 99999-1
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000087814
<NAME> SCIENTIFIC MEASUREMENT SYSTEMS, INC./TX
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-END> APR-30-1995
<CASH> 115
<SECURITIES> 0
<RECEIVABLES> 113
<ALLOWANCES> 0
<INVENTORY> 18
<CURRENT-ASSETS> 317
<PP&E> 1157
<DEPRECIATION> 1136
<TOTAL-ASSETS> 598
<CURRENT-LIABILITIES> 569
<BONDS> 0
<COMMON> 651
0
0
<OTHER-SE> 8316
<TOTAL-LIABILITY-AND-EQUITY> 29
<SALES> 1034
<TOTAL-REVENUES> 1034
<CGS> 859
<TOTAL-COSTS> 608
<OTHER-EXPENSES> 19
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32
<INCOME-PRETAX> (452)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (452)
<EPS-PRIMARY> (.035)
<EPS-DILUTED> 0
</TABLE>
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