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 June 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
(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 July 31, 1995: 1,898,500
<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 Six Months Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
SALES $ 1,600,614 $ 1,578,017 $ 3,144,065 $ 3,087,611
COST OF SALES 743,124 659,106 1,401,088 1,305,097
----------- ----------- ----------- -----------
GROSS MARGIN 857,490 918,911 1,742,977 1,782,514
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling expense 332,079 406,671 690,533 770,056
Administrative expense 191,869 188,879 412,156 391,646
Research and development 150,166 175,419 317,981 354,150
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 674,114 770,969 1,420,670 1,515,852
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 183,376 147,942 322,307 266,662
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Gain (loss) on sale of
investment securities 128,992 8,746 131,180 163,941
Interest income 39,734 27,520 77,294 50,306
Dividend income 3,705 12 8,229 24
Other (23,422) (21,193) (44,639) (42,915)
----------- ----------- ----------- -----------
TOTAL OTHER INCOME 149,009 15,085 172,064 171,356
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 332,385 163,027 494,371 438,018
----------- ----------- ----------- -----------
PROVISION FOR INCOME TAXES 118,000 60,400 177,200 158,300
----------- ----------- ----------- -----------
NET INCOME $ 214,385 $ 102,627 $ 317,171 $ 279,718
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES:
PRIMARY 1,905,139 1,919,985 1,907,193 1,921,032
=========== =========== =========== ===========
ASSUMED FULLY DILUTED 1,905,139 1,919,985 1,907,193 1,921,032
=========== =========== =========== ===========
EARNINGS PER COMMON
AND COMMON EQUIVALENT
SHARES:
PRIMARY $ .11 $ .05 $ .16 $ .14
=========== =========== =========== ===========
ASSUMED FULLY DILUTED $ .11 $ .05 $ .16 $ .14
=========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1995 1994
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 2,902,411 $ 2,826,778
Investment in available-for-sale securities 2,188,359 1,539,022
Trade receivables, less allowance
for doubtful accounts of $40,200
and $32,000, respectively 772,463 729,212
Inventories 761,548 692,821
Prepaid expenses 65,402 89,143
Prepaid Income taxes -0- 51,754
Deferred taxes -0- 4,300
----------- -----------
TOTAL CURRENT ASSETS 6,690,183 5,933,030
PROPERTY AND EQUIPMENT, NET 1,940,968 1,980,247
----------- -----------
TOTAL ASSETS $ 8,631,151 $ 7,913,277
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 700,000 $ 808,870
Accounts payable 186,562 175,834
Accrued expenses 196,425 203,925
Income taxes payable 59,789 -0-
Deferred income taxes 208,700 -0-
----------- -----------
TOTAL CURRENT LIABILITIES 1,351,476 1,188,629
----------- -----------
DEFERRED INCOME TAXES 31,300 32,000
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock - par value $.10 per share;
Authorized 10,000,000 shares; issued
1,898,500 and 1,895,500
shares, respectively 189,850 189,550
Additional paid-in capital 491,726 484,901
Retained earnings 6,209,678 6,082,357
Unrealized holding gain on investment
securities, net 455,060 53,239
Unearned ESOP shares (31,116) (43,897)
Notes receivable (66,823) (73,502)
----------- -----------
Total shareholders' equity 7,248,375 6,692,648
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,631,151 $ 7,913,277
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
Six Months Ended
June 30,
1995 1994
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers $ 3,086,564 $ 2,971,133
Cash paid to suppliers and employees (2,832,523) (2,833,538)
Interest received 77,294 50,330
Dividend income 8,229 -0-
Income taxes paid (71,557) (123,795)
----------- -----------
Net cash provided by operating activities 268,007 64,130
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in available-for-sale securities:
Sales 145,364 202,670
Purchases (43,500) (150,000)
Purchase of equipment (22,103) (215,871)
Repayments of notes receivable 6,679 6,679
Net advances to Employee Stock
Ownership Trust 12,781 25,569
----------- -----------
Net cash (used in) investing activities 99,221 (130,953)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (189,850) (189,550)
Payments on short-term borrowings (108,870) -0-
Proceeds from exercise of stock options 7,125 7,125
----------- -----------
Net cash (used in) financing activities (291,595) (182,425)
----------- -----------
Increase (decrease) in cash 75,633 (249,248)
CASH AND CASH EQUIVALENTS
Beginning 2,826,778 3,208,168
----------- -----------
End $ 2,902,411 $ 2,958,920
=========== ===========
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 317,171 $ 279,718
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 61,382 32,200
Provision for losses on trade receivables 14,250 9,000
Realized (gain) loss on sale of marketable
securities (131,180) (163,941)
Deferred taxes (5,900) -0-
(Increase) decrease in:
Trade receivables (57,501) (116,478)
Inventory (68,727) 6,541
Prepaid expenses 23,741 (29,954)
Prepaid income taxes 51,754 25,236
Increase (decrease) in:
Accounts payable 10,728 39,101
Accrued expenses (7,500) (26,562)
Accrued income taxes payable 59,789 9,269
----------- -----------
Net cash provided by operating activities $ 268,007 $ 64,130
=========== ===========
NONCASH INVESTING AND FINANCING ACTIVITIES
Unrealized gain(loss) on marketable securities $ 401,821 $ 164,545
----------- -----------
Total noncash investing and financing $ 401,821 $ 164,545
=========== ===========
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATION
The company's income from operations increased 23.9% and 20.9%, respectively
during the second quarter and first six months of 1995 as compared to the same
periods of 1994. This increase in income from operations was provided through
increased sales and a decrease in operating expenses. In addition, second
quarter earnings benefitted from profits generated by the sales of marketable
securities.
The company's sales increased by 1.4% and 1.8%, respectively during the second
quarter and first six months of 1995 when compared to the same periods of 1994.
The sales increase was provided primarily by both the Drive Control Systems
division and the company's wholly-owned subsidiary, Microflame, Inc. Meanwhile,
the AutoData Systems division experienced a moderate sales increase and the
Speed Monitoring division experienced a sales decrease during the first six
months of 1995. Price increases did not have a significant effect on sales.
Overall, the company has felt the impact from both the decline in the durable
goods market and the slow down in the auto industry experienced in the last part
of 1994 and the beginning of 1995. These trends have been particularly evident
in the Speed Monitoring division and were reflected in the slowed sales activity
during the first half of 1995. The Drive Control Systems sales growth of 16.5%
for the first six months was attributed to increased sales of the MicroSpeed
control unit and Drive Control Systems's ability to adapt these products to
specific customer needs. The company's wholly-owned subsidiary, Microflame,
Inc., experienced an increase in sales of 13.08% and 19.9%, respectively for the
second quarter and first six months of 1995 reflecting the increase in consumer
spending during the first half of the year.
Cost of sales increased both as a percentage of sales and when compared to a
year ago. The increased costs resulted primarily from the increased sales of
both the Drive Control Systems and Microflame products, which have a lower
profit margin. In addition, the cost of electronic components has increased
substantially due to both increased demand and lower currency exchange rates.
Operating expenses decreased during the first six months of 1995. The decreased
expense occurred primarily from cost containment programs implemented by
management in anticipation of slower than expected sales growth in 1995. The
reduced expenses were concentrated primarily in the marketing and engineering
area. In addition, the company also 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 six months ended June 30, 1995, working capital increased
$594,306 to a total of $5,338,707. The increase in marketable securities which
resulted from the reporting of unrealized gains on these holdings accounted for
$649,337 of this change in working capital. Both accounts receivable and payable
increased as a result of increased sales activity. A note receivable payment of
$12,781 was received from the ESOP plan. In addition, proceeds from both the
sale of marketable securities generated $145,364 and the exercise of stock
options generated $7,125 during the first six months. The company paid $189,850
in cash dividends during the second quarter of 1995. In addition, the company
invested both an additional $22,103 for office and manufacturing equipment and
$108,870 into the repayment of short-term borrowings. The company also invested
$43,500 in marketable securities.
<PAGE>
OTHER INFORMATION
PART II
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were voted on by shareholders during the period
covered by this Form 10-QSB:
a) The Annual Meeting of Shareholders was held April 26, 1995.
b) Election of Directors as Follows:
Peter R. Peterson 1,711,417 For 10,820 Withheld Authority
James P. Slattery 1,711,417 For 10,820 Withheld Authority
Mark D. Laumann 1,711,417 For 10,820 Withheld Authority
John S. Strom 1,711,417 For 10,820 Withheld Authority
Joseph A. Marino 1,710,417 For 11,820 Withheld Authority
c) Approval of Schweitzer Rubin Karon & Bremer as independent
Auditors.
1,721,677 For -0- Against 540 Abstain
There were no other matters submitted to vote of shareholders during
the period covered by this Form 10-QSB.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule (only filed with electronic
copy).
(b) No reports on Form 8-K were filed during the quarter ended June
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 August 5, 1995 By /s/ JAMES P. SLATTERY
James P. Slattery, President
Date August 5, 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 JUNE 30, 1995
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. dollars
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 2,902,411
<SECURITIES> 2,188,359
<RECEIVABLES> 812,663
<ALLOWANCES> 40,200
<INVENTORY> 761,548
<CURRENT-ASSETS> 6,690,183
<PP&E> 2,533,487
<DEPRECIATION> 592,519
<TOTAL-ASSETS> 8,631,151
<CURRENT-LIABILITIES> 1,351,476
<BONDS> 0
<COMMON> 189,850
0
0
<OTHER-SE> 7,058,525
<TOTAL-LIABILITY-AND-EQUITY> 8,631,151
<SALES> 3,144,065
<TOTAL-REVENUES> 3,360,768
<CGS> 1,401,088
<TOTAL-COSTS> 2,821,758
<OTHER-EXPENSES> 44,639
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,313
<INCOME-PRETAX> 494,371
<INCOME-TAX> 177,200
<INCOME-CONTINUING> 317,171
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 317,171
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
