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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
Commission File Number 0-9587
ELECTRO-SENSORS, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
MINNESOTA 41-0943459
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6111 Blue Circle Drive, Minnetonka, Minnesota 55343-9108
(Address of Principal Executive Offices) (Zip Code)
(612)930-0100
(Issuer's telephone number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Shares of $.10 par value common stock outstanding at November 1,
1995: 1,903,000
Transitional Small Business Disclosure Format (check one):
Yes No X
<PAGE>
Part I. Financial Information
The interim financial statements included in this form 10-QSB are unaudited and
reflect in the opinion of management all adjustments (which include only normal
recurring adjustments) necessary for a fair presentation of the results of
operations for these periods.
<TABLE>
<CAPTION>
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
Three Months ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
SALES $1,733,628 $1,355,896 $4,877,693 $4,443,507
- -----
COST OF SALES 711,905 618,845 2,112,993 1,923,942
- ------------- --------- --------- --------- ---------
GROSS MARGIN 1,021,723 737,051 2,764,700 2,519,565
- ------------ --------- --------- --------- ---------
OPERATING EXPENSES:
Selling expense 261,284 373,975 951,817 1,144,031
Administrative expense 196,338 195,010 608,494 586,656
Research and development 151,566 163,392 469,547 517,542
--------- --------- --------- ---------
TOTAL OPERATING EXPENSES 609,188 732,377 2,029,858 2,248,229
- ------------------------ --------- --------- --------- ---------
INCOME FROM OPERATIONS 412,535 4,674 734,842 271,336
- ---------------------- --------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Gain (loss) on sale of
investment securities 25,393 (1,005) 156,573 162,912
Interest income 38,818 28,179 116,112 78,509
Dividend income 42 191 8,271 215
Other (11,782) (17,267) (56,421) (60,182)
--------- --------- --------- ---------
TOTAL OTHER INCOME 52,471 10,098 224,535 181,454
- ------------------ --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 465,006 14,772 959,377 452,790
- --------------------------
PROVISION FOR INCOME TAXES 169,400 6,800 346,600 165,100
- -------------------------- --------- --------- --------- ---------
NET INCOME $ 295,606 $ 7,972 $ 612,777 $ 287,690
- ---------- ========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(Continued)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES:
PRIMARY 1,919,705 1,916,492 1,912,709 1,919,985
------- ========= ========= ========= =========
ASSUMED FULLY DILUTED 1,954,932 1,916,492 1,954,932 1,919,985
--------------------- ========= ========= ========= =========
EARNINGS PER COMMON
AND COMMON EQUIVALENT
SHARES:
PRIMARY $.16 $.01 $.32 $.15
------- === === === ===
ASSUMED FULLY DILUTED $.15 $.01 $.31 $.15
--------------------- === === === ===
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<S> <C> <C>
September 30, December 31,
ASSETS 1995 1994
------ ------------- ---------
CURRENT ASSETS
Cash $ 2,838,520 $2,826,778
Investment in available-for-sale securities 3,895,860 1,539,022
Trade receivables, less allowance
for doubtful accounts of $38,820
and $32,000, respectively 980,426 729,212
Inventories 810,620 692,821
Prepaid expenses 92,577 89,143
Prepaid Income taxes -0- 51,754
Deferred taxes -0- 4,300
---------- ---------
TOTAL CURRENT ASSETS 8,618,003 5,933,030
- --------------------
PROPERTY AND EQUIPMENT, NET 1,918,322 1,980,247
- --------------------------- ---------- ---------
TOTAL ASSETS $10,536,325 $7,913,277
- ------------ ========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 637,548 $ 808,870
Accounts payable 140,993 175,834
Accrued expenses 226,380 203,925
Income taxes payable 174,035 -0-
Deferred income taxes 782,300 -0-
---------- ---------
TOTAL CURRENT LIABILITIES 1,961,256 1,188,629
- ------------------------- ---------- ---------
DEFERRED INCOME TAXES 30,600 32,000
- --------------------- ---------- ---------
SHAREHOLDERS' EQUITY:
Common stock - par value $.10 per share; Authorized 10,000,000 shares; issued
1,903,000 and 1,895,500
shares, respectively 190,300 189,550
Additional paid-in capital 501,964 484,901
Retained earnings 6,505,284 6,082,357
Unrealized holding gain on investment
securities, net 1,495,561 53,239
Unearned ESOP shares (73,205) (43,897)
Notes receivable (75,435) (73,502)
---------- ---------
Total shareholders' equity 8,544,469 6,692,648
---------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $10,536,325 $7,913,277
- ------------------------------------------ ========== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
Nine Months Ended
September 30,
---------------------
1995 1994
------------- -------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers $4,606,979 $4,392,372
Cash paid to suppliers and employees (4,220,569) (4,169,260)
Interest received 116,112 78,509
Dividend income 8,271 -0-
Income taxes paid (124,810) (185,757)
---------- ----------
Net cash provided by operating activities 385,983 115,864
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in available-for-sale activities:
Sales 174,756 201,864
Purchases (143,500) (153,333)
Purchase of property and equipment (30,897) (1,367,629)
Notes receivable (1,933) 4,431
Net advances to Employee Stock
Ownership Trust (29,308) 25,569
---------- ----------
Net cash (used in) investing activities (30,882) (1,289,098)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (189,850) (189,550)
Payments on short-term borrowings (171,322) 808,870
Proceeds from exercise of stock options 17,813 7,125
---------- ----------
Net cash (used in) financing activities (343,359) 626,445
---------- ----------
Increase (decrease) in cash 11,742 (546,789)
CASH AND CASH EQUIVALENTS
Beginning 2,826,778 3,208,168
---------- ----------
End $ 2,838,520 $ 2,661,379
========== ==========
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 612,777 $287,690
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 92,822 48,300
Provision for losses on trade receivables 19,500 13,556
Realized (gain) loss on sale of marketable
securities (156,573) (163,127)
Deferred taxes (3,999) -0-
(Increase) decrease in:
Trade receivables (270,714) (49,191)
Inventory (117,799) 52,796
Prepaid expenses (3,434) (13,620)
Prepaid income taxes 51,754 (20,657)
Increase (decrease) in:
Accounts payable (34,841) (2,087)
Accrued expenses 22,455 (37,796)
Accrued income taxes payable 174,035 -0-
--------- --------
Net cash provided by operating activities $ 385,983 $ 115,864
========= ========
NONCASH INVESTING AND FINANCING ACTIVITIES
Unrealized gain(loss) on marketable securities $2,231,521 $ 147,747
--------- --------
Total noncash investing and financing $2,231,521 $ 147,747
========= ========
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATION
Net income increased by 113% during the first nine months of 1995 to $612,777 or
$.32 per share. The substantial increase is due to both increased sales during
the period and decreased operating expenses. Sales for the third quarter and
first nine months of 1995 increased 27.9% and 9.8%, respectively, when compared
to the same periods of 1994. Third quarter sales of $1,733,628 represent the
highest quarterly sales level achieved in the company history. The third quarter
and nine month sales increases were provided almost entirely by the Drive
Control Systems ("DCS") segment of the Controls Division.
DCS has achieved continued sales growth of the MicroSpeed products throughout
1995. In addition, DCS completed the sale of a production line control system of
approximately $225,000 during the third quarter of 1995. Speed Monitoring
segment sales experienced an 11% increase in third quarter sales, but remained
relatively unchanged for the year. Microflame sales remained 10.6% ahead of last
year; however, sales were down 10.5% during the third quarter of 1995 as
compared to the same period of a year ago. The company's newly formed division,
AutoData Systems, is presently in the process of changing its marketing efforts
based on focus group studies performed earlier in the year. This has resulted in
a decline of 6.3% in AutoData sales for the first nine months. Price increases
did not have a significant effect on sales.
Cost of sales for the first nine months increased, but remained relatively
unchanged as a percentage of sales when compared to the same period of 1994.
Cost of sales for the third quarter decreased as a percentage of sales when
compared to the same period of 1994. The increased sales volume allowed the
company to spread the fixed direct and indirect cost over the increased
production.
Operating expenses decreased during the third quarter and first nine months of
1995. The decreased expense occurred primarily from cost containment programs
implemented by management early in the year in anticipation of slower than
expected sales growth in 1995. The reduced expenses were concentrated primarily
in the marketing and engineering areas. In addition, the company benefitted from
cost savings resulting from the purchase of its new building during the last
half of 1994.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months ended September 30, 1995, working capital increased
$1,912,346 to a total of $6,656,747. The increase in marketable securities,
which resulted from the reporting of unrealized gains on these holdings,
accounted for $1,442,322 of this change in working capital. Both accounts
receivable and inventories increased due to both the increased sales activity of
the Controls Division and the slowed third quarter Microflame sales activity. A
note receivable advance of $29,308 was made to the ESOP plan. In addition,
proceeds from the sale of marketable securities and the exercise of stock
options generated $174,756 and $17,813, respectively, during the first nine
months. The company paid $189,850 in cash dividends during the second quarter of
1995. In addition, the company invested both an additional $30,897 for office
and manufacturing equipment and $171,322 into the repayment of short-term
borrowings. The company also invested $143,500 for the purchase of marketable
and investment securities. The company has declared a $.50 per share or
approximately $951,500 cash dividend payable January, 10, 1996 to
<PAGE>
shareholders of record December 26, 1995.
OTHER INFORMATION
PART II
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) There are no exhibits filed with this Form 10-QSB.
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf of the undersigned
thereunto duly authorized.
ELECTRO-SENSORS, INC.
Date November 1, 1995 By /s/ James P. Slattery
James P. Slattery, President
Date November 1, 1995 By /s/ Mark D. Laumann
Mark D. Laumann, Treasurer
(principal financial officer)
<PAGE>
ELECTRO-SENSORS, INC.
EXHIBIT INDEX TO FORM 10-QSB
FOR QUARTER ENDED SEPTEMBER 30, 1995
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 2,838,520
<SECURITIES> 3,895,860
<RECEIVABLES> 1,019,246
<ALLOWANCES> 38,820
<INVENTORY> 810,620
<CURRENT-ASSETS> 8,618,003
<PP&E> 2,542,281
<DEPRECIATION> 623,959
<TOTAL-ASSETS> 10,536,325
<CURRENT-LIABILITIES> 1,961,256
<BONDS> 0
<COMMON> 190,300
0
0
<OTHER-SE> 8,354,169
<TOTAL-LIABILITY-AND-EQUITY> 10,536,325
<SALES> 4,877,693
<TOTAL-REVENUES> 5,158,649
<CGS> 2,112,993
<TOTAL-COSTS> 4,142,851
<OTHER-EXPENSES> 56,421
<LOSS-PROVISION> 19,500
<INTEREST-EXPENSE> 48,008
<INCOME-PRETAX> 959,377
<INCOME-TAX> 346,600
<INCOME-CONTINUING> 612,777
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 612,777
<EPS-PRIMARY> .32
<EPS-DILUTED> .31
</TABLE>
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