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, 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: November 1,
1996: 1,942,282
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 Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
SALES $1,508,733 $1,733,628 $4,554,085 $4,877,693
COST OF SALES 642,490 711,905 1,949,854 2,088,557
--------- --------- --------- ---------
GROSS MARGIN 866,243 1,021,723 2,604,231 2,789,136
--------- --------- --------- ---------
OPERATING EXPENSES:
Selling expense 328,431 261,284 1,031,639 942,791
Administrative expense 192,574 196,338 603,010 603,261
Research and development 168,601 151,566 531,277 460,234
--------- --------- --------- ---------
TOTAL OPERATING EXPENSES 689,606 609,188 2,165,926 2,006,286
--------- --------- --------- ---------
INCOME FROM OPERATIONS 176,637 412,535 438,305 782,850
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Gain (loss) on sale of
investment securities 71,457 25,393 203,113 156,573
Interest income 28,444 38,818 82,402 116,112
Dividend income -0- 42 -0- 8,271
Other (36,210) (11,782) (110,999) (104,429)
--------- --------- --------- ---------
TOTAL OTHER INCOME 63,691 52,471 174,516 176,527
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 240,328 465,006 612,821 959,377
PROVISION FOR INCOME TAXES 77,000 169,400 222,500 346,600
--------- --------- --------- ---------
NET INCOME $ 163,328 $ 295,606 $ 390,321 $ 612,777
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES:
PRIMARY 1,964,465 1,919,705 1,969,370 1,912,709
========= ========= ========= =========
ASSUMED FULLY DILUTED 1,964,465 1,954,932 1,969,370 1,954,932
========= ========= ========= =========
EARNINGS PER COMMON
AND COMMON EQUIVALENT
SHARES:
PRIMARY $.09 $.16 $.20 $.32
=== === === ===
ASSUMED FULLY DILUTED $.09 $.15 $.20 $.31
=== === === ===
</TABLE>
<PAGE>
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1996 1995
------ -------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 2,385,608 $ 3,273,873
Investment in available-for-sale securities 5,996,738 6,330,262
Trade receivables, less allowance
for doubtful accounts of $34,500
and $21,500, respectively 765,266 791,445
Inventories 889,490 788,282
Prepaid expenses 100,254 80,182
Prepaid Income taxes 17,302 -0-
Deferred taxes 29,100 29,100
---------- ----------
TOTAL CURRENT ASSETS 10,183,758 11,293,144
PROPERTY AND EQUIPMENT, NET 1,838,325 1,887,648
---------- ----------
TOTAL ASSETS $12,022,083 $13,180,792
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 481,042 $ 586,516
Accounts payable 162,936 98,404
Accrued expenses 216,400 216,692
Dividends payable -0- 970,135
Accrued income taxes -0- 88,931
---------- ----------
TOTAL CURRENT LIABILITIES 860,378 1,960,678
---------- ----------
DEFERRED INCOME TAXES 1,592,900 1,754,100
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock - par value $.10 per share; Authorized 10,000,000 shares; issued
1,942,282 and 1,940,270
shares, respectively 194,228 194,027
Additional paid-in capital 618,136 584,236
Retained earnings 5,974,364 5,758,728
Unrealized holding gain on investment
securities, net 2,845,214 3,035,733
Unearned ESOP shares -0- (41,951)
Notes receivable (63,137) (64,759)
---------- ----------
Total shareholders' equity 9,568,805 9,466,014
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $12,022,083 $13,180,792
========== ==========
</TABLE>
<PAGE>
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
------- -------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers $4,564,514 $4,606,979
Cash paid to suppliers and employees (4,173,172) (4,220,569)
Interest received 82,402 116,112
Dividend income -0- 8,271
Income taxes paid (328,733) (124,810)
---------- ----------
Net cash provided by operating activities 145,011 385,983
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in available-for-sale activities:
Sales 216,168 174,756
Purchases (31,250) (143,500)
Purchase of property and equipment (45,574) (30,897)
Notes receivable 1,622 (1,933)
Net advances to Employee Stock
Ownership Trust 41,951 (29,308)
---------- ----------
Net cash (used in) investing activities 182,917 (30,882)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (1,144,820) (189,850)
Payments on short-term borrowings (105,474) (171,322)
Proceeds from employee stock purchase plan 34,101 -0-
Proceeds from exercise of stock options -0- 17,813
Net cash (used in) financing activities (1,216,193) (343,359)
---------- ----------
Increase (decrease) in cash (888,265) 11,742
CASH AND CASH EQUIVALENTS
Beginning 3,273,873 2,826,778
---------- ----------
End $ 2,385,608 $ 2,838,520
========== ==========
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 390,321 $ 612,777
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 94,897 92,822
Provision for losses on trade receivables 15,750 19,500
Realized (gain) loss on sale of marketable
securities (203,113) (156,573)
Deferred taxes -0- (3,999)
(Increase) decrease in:
Trade receivables 10,429 (270,714)
Inventory (101,208) (117,799)
Prepaid expenses (20,072) (3,434)
Prepaid income taxes (17,302) 51,754
Increase (decrease) in:
Accounts payable 64,532 (34,841)
Accrued expenses (292) 22,455
Accrued income taxes payable (88,931) 174,035
--------- ---------
Net cash provided by operating activities $ 145,011 $ 385,983
========= =========
NONCASH INVESTING AND FINANCING ACTIVITIES
Unrealized gain(loss) on marketable
securities $ (351,719) $2,231,521
--------- ---------
Total noncash investing and financing $ (351,719) $2,231,521
========= =========
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATION
Sales for the third quarter and first nine months of 1996 decreased 13% and
6.6%, respectively, when compared to the same periods of 1995. The decline in
sales for the first nine months of 1996 occurred in both the Drive Control
Systems division and the company's wholly-owned subsidiary, Microflame, Inc.
Drive Control Systems achieved record sales during the third quarter of 1995
resulting from the shipment of a $225,000 integrated system and was unable to
reach the same comparable sales level in 1996. Meanwhile, the Speed Monitoring
division remained relatively unchanged and the AutoData Systems division
provided an increase in sales during the third quarter of 1996.
The company's Speed Monitoring and Drive Control Systems divisions have
experienced increased single unit/replacement orders throughout the year.
However, the larger re-industrialization sales orders experienced in 1995 have
slowed significantly as plant expansions and retrofitting projects are being
postponed into the last part of 1996 or the following year. AutoData Systems
sales have improved during mid 1996 resulting from the release of an automated
survey software package for health care providers. Microflame sales improved
slightly during the third quarter of 1996, but still reflected a lessening
demand and weak consumer marketplace for Microflame gas torch products.
Cost of sales for the first nine months decreased, but remained relatively
unchanged as a percentage of sales when compared to the same period of 1995.
Cost of sales for the third quarter increased as a percentage of sales when
compared to the same period of 1995. This change in cost of sales resulted from
the company being able to spread the fixed direct and indirect cost over the
increased production provided by Drive Control Systems during the third quarter
of 1995.
Operating expenses increased during the third quarter and first nine months of
1996. The increased expense occurred in both the marketing and engineering
areas. Marketing expenses increased resulting from the introduction of the
AutoData survey software package to health care providers. The increase in
research and development expenses occurred as the company continues its
commitment toward new product development and increased product enhancements.
Net income declined significantly in the third quarter of 1996. The decreased
net income resulted primarily from the decline in sales combined with increased
marketing and engineering expenses. In addition, interest income declined during
the first nine months of 1996. The funds which had generated the additional
interest income in 1995 were used for the special dividend paid in January of
1996.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months ended September 30, 1996, working capital decreased
$9,086 to a total of $9,323,380. The decrease in the fair market value of
marketable securities resulted from the declined quoted market price of certain
securities. This decline in market value along with the payment of the special
dividend were the principal reasons for the reduction in working capital.
Inventories increased slightly due to slower than anticipated sales in the
Controls Division. The company received a loan payment from the ESOP plan of
$41,951. In addition, proceeds from the sale of marketable securities and the
employee stock purchase plan generated $216,168 and $34,101, respectively,
during the first nine months. The company made dividend payments of $970,135,
$58,208, $58,208 and $58,269 during the first nine months of 1996. In addition,
the company invested both an additional $45,574 for office and manufacturing
equipment and $105,474 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.
OTHER INFORMATION
PART II
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 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.
<PAGE>
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
September 30, 1996.
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, 1996 By /s/ James P. Slattery
James P. Slattery, President
Date November 1, 1996 By /s/ Mark D. Laumann
Mark D. Laumann, Treasurer
(principal financial officer)
<PAGE>
EXHIBIT INDEX
ELECTRO-SENSORS, INC.
FORM 10-QSB
For Fiscal Quarter Ended September 30, 1996
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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 2,385,608
<SECURITIES> 5,996,738
<RECEIVABLES> 799,766
<ALLOWANCES> 34,500
<INVENTORY> 889,490
<CURRENT-ASSETS> 10,183,758
<PP&E> 2,519,867
<DEPRECIATION> 681,542
<TOTAL-ASSETS> 12,022,083
<CURRENT-LIABILITIES> 860,378
<BONDS> 0
0
0
<COMMON> 194,228
<OTHER-SE> 9,374,577
<TOTAL-LIABILITY-AND-EQUITY> 12,022,083
<SALES> 4,554,085
<TOTAL-REVENUES> 4,839,600
<CGS> 1,949,854
<TOTAL-COSTS> 4,115,780
<OTHER-EXPENSES> 110,999
<LOSS-PROVISION> 15,750
<INTEREST-EXPENSE> 33,584
<INCOME-PRETAX> 612,821
<INCOME-TAX> 222,500
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 390,321
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
