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 March 31, 1996
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 April 24,
1996: 1,940,270
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.
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
Consolidated Income Statements
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
SALES $1,575,421 $1,543,451
- -----
COST OF SALES 680,499 649,419
- ------------- --------- ---------
GROSS MARGIN 894,922 894,032
- ------------ --------- ---------
OPERATING EXPENSES:
Selling 324,940 355,299
Administrative 219,620 218,457
Research and development 178,882 164,557
--------- ---------
TOTAL OPERATING EXPENSES 723,442 738,313
- ------------------------ --------- ---------
INCOME FROM OPERATIONS 171,480 155,719
- ---------------------- --------- ---------
OTHER INCOME (EXPENSE):
Gain on sale of
investment securities 35,852 2,187
Interest income 27,477 42,085
Other (37,461) (38,005)
--------- ---------
TOTAL OTHER INCOME 25,868 6,267
- ------------------ --------- ---------
INCOME BEFORE INCOME TAXES 197,348 161,986
- --------------------------
PROVISION FOR INCOME TAXES 81,400 59,200
- -------------------------- --------- ---------
NET INCOME $ 115,948 $ 102,786
- ---------- ========= =========
</TABLE>
2
<PAGE>
(Continued)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES:
<S> <C> <C>
PRIMARY 1,966,582 1,906,027
------- ========= =========
ASSUMED FULLY DILUTED 1,966,582 1,906,027
--------------------- ========= =========
EARNINGS PER COMMON
AND COMMON EQUIVALENT
SHARES:
PRIMARY $.06 $.05
------- === ===
ASSUMED FULLY DILUTED $.06 $.05
--------------------- === ===
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
1996 1995
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $2,318,040 $3,273,873
Investment in available-for-sale securities 6,741,759 6,330,262
Trade receivables, less allowance
for doubtful accounts of $25,200
and $21,500, respectively 867,200 791,445
Inventories 778,455 788,282
Prepaid expenses 86,769 80,182
Deferred taxes 29,100 29,100
---------- ----------
TOTAL CURRENT ASSETS 10,821,323 11,293,144
- --------------------
PROPERTY AND EQUIPMENT, NET 1,866,056 1,887,648
- --------------------------- ---------- ----------
TOTAL ASSETS $12,687,379 $13,180,792
- ------------ ========== ==========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Note payable $ 546,552 $ 586,516
Accounts payable 169,941 98,404
Accrued expenses 170,325 216,692
Dividends payable -0- 970,135
Accrued income taxes 68,998 88,931
---------- ---------
TOTAL CURRENT LIABILITIES 955,816 1,960,678
- ------------------------- ---------- ---------
DEFERRED INCOME TAXES 1,892,500 1,754,100
- --------------------- ---------- ---------
SHAREHOLDERS' EQUITY:
Common stock - par value $.10 per share;
Authorized 10,000,000 shares; issued
1,940,270 and 1,940,270
shares, respectively 194,027 194,027
Additional paid-in capital 609,785 584,236
Retained earnings 5,816,468 5,758,728
Unrealized holding gain on investment
securities, net 3,282,835 3,035,733
Unearned ESOP shares -0- (41,951)
Notes receivable (64,052) (64,759)
---------- ---------
Total shareholders' equity 9,839,063 9,466,014
---------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $12,687,379 $13,180,792
- ------------------------------------------ ========== ==========
</TABLE>
4
<PAGE>
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
Consolidated Cash Flow Statements
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
------------ --------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers $1,494,416 $1,659,897
Cash paid to suppliers and employees (1,351,957) (1,499,428)
Interest received 27,477 42,085
Income taxes paid (101,333) (903)
--------- ---------
Net cash provided by operating activities 68,603 201,651
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in available-for-sale securities:
Sales 41,107 15,771
Purchases (31,250) (43,500)
Purchase of equipment (8,644) (11,662)
Repayments of notes receivable 707 5,340
Net repayment from Employee Stock
Ownership Trust 41,951 12,781
--------- ---------
Net cash (used in) investing activities 43,871 (21,270)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (1,028,343) -0-
Payments on short-term borrowings (39,964) (58,870)
Net cash (used in) financing activities (1,068,307) (58,870)
--------- ---------
Increase (decrease) in cash (955,833) 121,511
CASH AND CASH EQUIVALENTS
Beginning 3,273,873 2,826,778
--------- ---------
End $2,318,040 $2,948,289
========= =========
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 115,948 $ 102,786
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 30,236 30,104
Provision for losses on trade receivables 3,700 6,800
Employee Stock Ownership Plan shares
released by plan 25,549 -0-
Realized (gain) loss on sale of
investment securities, net (35,852) (2,187)
Deferred taxes -0- (2,100)
(Increase) decrease in:
Trade receivables (79,455) 118,646
Inventory 9,827 (86,368)
Prepaid expenses (6,587) (22,770)
Prepaid income taxes -0- 51,754
Increase (decrease) in:
Accounts payable 71,537 20,963
Accrued expenses (46,367) (24,620)
Accrued income taxes payable (19,933) 8,643
-------- --------
Net cash provided by operating activities $ 68,603 $ 201,651
======== ========
NONCASH INVESTING AND FINANCING ACTIVITIES
Employee Stock Ownership Plan shares
released by plan 25,549 -0-
Unrealized gain(loss) on marketable securities $ 247,102 $ 188,860
-------- --------
Total noncash investing and financing $ 272,651 $ 188,860
======== ========
</TABLE>
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATION
Net income increased 12.8% during the first quarter of 1996. The increased
earnings resulted primarily from a decrease in selling expense and an increase
in gain from sale of investment securities.
Sales for the first quarter of 1996 increased 2.1% to $1,575,421 as compared to
$1,543,451 for the first quarter of 1995. The increase in sales was provided by
both the Speed Monitoring and Drive Control Systems segments of the Controls
Division. Meanwhile, both Microflame and AutoData Systems experienced slower
than expected selling activity during the period. AutoData Systems experienced a
significant decline in sales during the first quarter of 1996 resulting from the
restructuring of its marketing efforts during the second quarter of 1995.
AutoData Systems has since developed a vertical market survey package utilizing
the character recognition technology in the processing of participant responses.
The AutoData Systems survey package was released late during the first quarter
1996.
The company's cost of sales increased as both a percentage of sales and when
compared to a year ago. The increased cost during the comparable periods
resulted from both a slight change in product mix and increased material cost of
semiconductor components utilized by the electronic segments of our business.
Selling and administrative expenses decreased 5% during the first quarter of
1996 as compared to the same period of 1995. The decline in expenses occurred
primarily from decreased selling expense which resulted from the restructuring
of the AutoData Systems marketing efforts.
Research and development expense increased during the first quarter of 1996 as
compared to 1995. The increased expense resulted primarily from an increase in
both personnel cost and development prototype expenses during the comparable
periods. The company still continues its commitment toward new product
development as the key for future sales growth.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months ended March 31, 1996, working capital increased
$533,041 to a total of $9,865,507. The increase in marketable securities, which
resulted from the reporting of unrealized gains on these holdings, accounted for
$385,502 of this change in working capital. Accounts receivable increased and
inventory decreased due to the higher volume of sales during the second half of
March 1996. Accounts payable increased as a result of additional raw material
purchases late during the first quarter. In addition, proceeds from the sales of
marketable securities generated $41,107. The company received a loan payment
from the ESOP plan of $41,951. The company made dividend payments of $970,135
and $58,208 during the first quarter of 1996. In addition, the company invested
both an additional $8,644 in office and manufacturing equipment and $39,964 into
the repayment of short-term borrowings. The company also invested $31,250 for
the purchase of marketable and investment securities. The company believes it
can pay projected capital and operating expenses out of income and current
reserves.
6
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There were no material developments in previously reported legal
proceedings.
Item 2. Changes in Securities
No changes have been made in any registered securities.
Item 3. Defaults Upon Senior Securities
No event constituting a default has occurred respecting any senior
security of the Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of shareholders during the
period covered by this Form 10-QSB.
Item 5. Other Information
As provided for under the Private Securities Litigation Reform Act of
1995, the Company wishes to caution investors that the following
important factors, among others, in some cases have affected and in
the future could affect the Company's actual results of operations and
cause such results to differ materially from those anticipated in
forward-looking statements made in this document and elsewhere by or
on behalf of the Company: the uncertainty of market acceptance of
products of the Company's AutoData Systems Division which is in an
early stage of development; fluctuations and declines in operating
results of the Company's Drive Control Systems, Speed Monitoring and
Microflame Division; fluctuations in the value of the Company's
investments, particularly PPT Vision, and sales of such investments;
competition, particularly with regard to the pricing of products; the
Company's ability to develop new products; and dependence on
suppliers. For additional information, please see the Company's Annual
Report on Form 10-KSB.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended March
31, 1996.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ELECTRO-SENSORS, INC.
/s/ James P. Slattery
Date May 8, 1996 By James P. Slattery, President
/s/ Mark D. Laumann
By Mark D. Laumann, Treasurer
(principal financial officer)
8
<PAGE>
EXHIBIT INDEX
ELECTRO-SENSORS, INC.
FORM 10-QSB
For Fiscal Quarter Ended March 31, 1996
Exhibit No. Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,318,040
<SECURITIES> 6,741,759
<RECEIVABLES> 892,400
<ALLOWANCES> 25,200
<INVENTORY> 778,455
<CURRENT-ASSETS> 10,821,323
<PP&E> 2,482,939
<DEPRECIATION> 616,883
<TOTAL-ASSETS> 12,687,379
<CURRENT-LIABILITIES> 955,816
<BONDS> 0
0
0
<COMMON> 194,027
<OTHER-SE> 9,645,036
<TOTAL-LIABILITY-AND-EQUITY> 12,687,379
<SALES> 1,575,421
<TOTAL-REVENUES> 1,638,750
<CGS> 680,499
<TOTAL-COSTS> 1,403,941
<OTHER-EXPENSES> 25,375
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,086
<INCOME-PRETAX> 197,348
<INCOME-TAX> 81,400
<INCOME-CONTINUING> 115,948
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115,948
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
