-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WC4wlfpoD5GA3nOi3BvY8RvWDmDdRPGqf3poOrv790NEm1UOHlrKlwFOJLBhgr3j IIXwHpXEgyZGT6K79gFCYw== 0000205303-96-000002.txt : 19960729 0000205303-96-000002.hdr.sgml : 19960729 ACCESSION NUMBER: 0000205303-96-000002 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960430 FILED AS OF DATE: 19960726 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENGINEERING MEASUREMENTS CO CENTRAL INDEX KEY: 0000205303 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 840572936 STATE OF INCORPORATION: CO FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-09880 FILM NUMBER: 96599507 BUSINESS ADDRESS: STREET 1: 600 DIAGONAL HWY CITY: LONGMONT STATE: CO ZIP: 80501 BUSINESS PHONE: 3036510550 MAIL ADDRESS: STREET 1: 600 DIAGONAL HWY CITY: LONGMONT STATE: CO ZIP: 80501 10KSB 1 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 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 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: Technology FY 1996 FY 1995 Volumetric 76% 75% Mass 24% 25%
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 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 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 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: FY 1996 FY1995 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%
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 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. Quarters Ended in Fiscal Year 1996 07/31/95 10/31/95 01/31/96 04/30/96 High $2.63 $2.81 $3.13 $3.63 Low $2.19 $2.06 $2.31 $2.81
Quarters Ended in Fiscal Year 1995 07/31/94 10/31/94 01/31/95 04/30/95 High $3.75 $3.88 $3.50 $2.88 Low $3.00 $3.13 $2.50 $2.25
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 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 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: As of April 30 1996 1995 Working capital $3,441,931 $3,040,228 Working capital ratio 3.9 3.3
Material changes in cash flows are summarized as follows: As of April 30 1996 1995 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)
(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 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: 1996 1995 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)
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 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 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: As of April 30 1996 1995 Amount Borrowed $555,940 $776,566 Interest Expense $56,214 $84,800 Interest Rates 8.4% 9.6%
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 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 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 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 ENGINEERING MEASUREMENTS COMPANY CONSOLIDATED BALANCE SHEETS ASSETS April 30, 1996 1995 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 ========== ==========
The accompanying notes are an integral part of these statements. (Continued) Page 16 of 38 ENGINEERING MEASUREMENTS COMPANY CONSOLIDATED BALANCE SHEETS - CONTINUED LIABILITIES AND STOCKHOLDERS' EQUITY April 30, 1996 1995 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 ========== ==========
The accompanying notes are an integral part of these statements. Page 17 of 38 ENGINEERING MEASUREMENTS COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended April 30, 1996 1995 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 =========== ===========
The accompanying notes are an integral part of these statements. Page 18 of 38 ENGINEERING MEASUREMENTS COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Capital in Common Stock excess of Deferred Unrealized Retained Treasury Shares Par Value Par value Compensation (Losses) Earnings Stock 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) ========== ========= ========== ========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements. Page 19 of 38 ENGINEERING MEASUREMENTS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE/(DECREASE) IN CASH Year Ended April 30, 1996 1995 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
The accompanying notes are an integral part of these statements. Page 20 of 38 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: Building and improvements 10-25 years Vehicles 3-8 years Machinery and equipment 5-8 years Office furniture and fixtures 4-8 years
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 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: Gross Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Fair Value 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
Page 22 of 38 The following table lists the maturities of debt securities held at April 30, 1996 classified as available-for sale: Estimated Amortized Cost Fair Value Due in one year or less $ ---- $ ---- Due after one year through five years 234,174 199,329 -------- -------- $234,174 $199,329 ======== ========
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 Inventories are as follows: April 30 1996 1995 Raw material and work-in-process $1,272,573 $1,259,015 Finished goods 301,974 220,369 ---------- ---------- $1,574,547 $1,479,384 ========== ==========
Page 23 of 38 5. Long-term debt Long-term debt consists of the following: April 30 1996 1995 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 ======== ========
(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. Year Ending April 30 1997 $137,558 1998 418,382 -------- $555,940 ========
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 The following is a summary of the provision for income taxes: Year Ended April 30 1996 1995 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) ======== ========
The provision for income taxes differs from the amount determined by applying the statutory rate to income before taxes, due to the following reasons: Year Ended April 30 1996 1995 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) ======== ========
Page 25 of 38 Components of deferred tax assets and liabilities. April 30, 1996 1995 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 ======== ========
Included in the Company's balance sheets as follows: April 30, 1996 1995 Current assets $380,969 $437,175 Long-term liabilities (183,100) (167,000) -------- -------- Net Asset $197,869 $270,175 ======== ========
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: FY 1996 FY1995 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%
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 A summary of stock option transactions follows: Average price per Shares share 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 ======== =====
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 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: 1996 1995 Carrying Fair Carrying Fair Value Value Value Value 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
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 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None Page 29 of 38 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: Year Position, Date first held Name of Director Elected as and Principal Occupation or Officer Age Director (For Past Five Years) 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.
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 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 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: SUMMARY COMPENSATION TABLE
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 ($) 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 $1,217 Chairman of the Board
Other Compensation for Mr. Miller reflects the matching portion of the Company's 401K plan. Page 32 of 38 Option/SAR Grants in Last Fiscal Year Individual Grants None. Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values (a) (b) (c) (d) (e) Number of Securities Underlying Value of Unexercised Unexercised In-the-Money Options/SAR's at Options/SAR's at Shares FY-End (#) FY-End ($) Acquired On Value Exercisable/ Exercisable/ Name Exercise (#) Realized ($) Unexercisable Unexercisable 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
Long-Term Incentive Plans - Awards in Last Fiscal Year None. Page 33 of 38 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: Name of Amount and Nature Percent Title of Class Beneficial Owner of Ownership of Class 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
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 (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 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 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 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 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. 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 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
EX-27 2 ART. 5 FDS FOR 10-KSB
5 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. 1000 Year APR-30-1996 APR-30-1996 533 708 1,389 76 1,575 4,635 5,946 4,033 6,836 1,193 418 29 0 0 5,012 6,836 8,666 8,666 4,852 4,852 3,280 48 56 606 206 400 0 0 0 400 .15 .13 -----END PRIVACY-ENHANCED MESSAGE-----