SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995
Commission file number 0-9587
ELECTRO-SENSORS, INC.
(Name of Small Business Issuer in its Charter)
Minnesota 41-0943459
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
6111 Blue Circle Drive
Minnetonka, Minnesota 55343-9108
(Address of Principal Executive Offices; Zip Code)
Issuer's telephone number Including Area Code: (612) 930-0100
Securities registered Under Section 12(b) of the Act: None
Securities registered Under Section 12(g) of the Act: Common Stock,
$.10 par value
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. _X_ Yes ___ No
Check if no disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is 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]
The issuer's revenues for the fiscal year ended December 31, 1995 were
$6,184,880.
The aggregate market value of the Issuer's Common Stock held by nonaffiliates
(persons other than officers, directors or holders of more than 5% of the
outstanding stock) as of March 18, 1996, was approximately $3,200,310 (based on
the closing sale price of the Issuer's Common Stock on such date).
Shares of Common Stock, $.10 par value, outstanding on March 18, 1996: 1,940,270
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended December 31, 1995 are incorporated into Part II of this Form 10-KSB.
Portions of the Registrant's Proxy Statement for its 1996 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Form 10-KSB.
Transitional Small Business Disclsore Format (check one): Yes___ No _X_
INDEX
PART I Page
----
Item 1. Description of Business.............................. 1
Item 2. Description of Property.............................. 8
Item 3. Legal Proceedings.................................... 9
Item 4. Submission of Matters to a
Vote of Security Holders........................... 9
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters................................ 9
Item 6. Management's Discussion and Analysis
or Plan of Operation............................... 9
Item 7. Financial Statements................................. 9
Item 8. Changes in and Disagreements with
Accountants on Accounting
and Financial Disclosure........................... 9
PART III
Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance
with Section 16(a) of the Exchange Act............. 10
Item 10. Executive Compensation............................... 11
Item 11. Security Ownership of Certain
Beneficial Owners and Management................... 11
Item 12. Certain Relationships and Related
Transactions....................................... 11
Item 13. Exhibits and Reports on Form 8-K..................... 11
Signatures......................................................... 12
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Electro-Sensors, Inc. (the "Company"), a Minnesota corporation, is
engaged in three distinct business lines: (i) the manufacture and distribution
of industrial production monitoring and process control systems through its
Controls Division, (ii) the manufacture and distribution of small gas torches
and related accessories through its Microflame, Inc. subsidiary, and (iii) the
development and distribution of hand printed character recognition software
through its AutoData Systems division.
In addition, through its ESI Investment Co. subsidiary, the Company
invests in other businesses and companies. Although Electro-Sensors, Inc.,
through its ESI Investment Co. subsidiary, invests in other businesses or
companies, Electro-Sensors, Inc. does not intend to become an investment company
and intends to remain primarily an operating company. Unless indicated
otherwise, the term "Company" when used herein includes the Company and its
subsidiaries.
NARRATIVE DESCRIPTION OF BUSINESS
(1) PRINCIPAL PRODUCTS AND MARKETS.
PRODUCTION MONITORING SYSTEMS - CONTROLS DIVISION. The Company's
Controls Division manufactures and sells several different types of monitoring
systems that measure actual machine production and operation rates, as well as
systems that regulate the speed of related machines in production processes.
1. Speed Monitoring Systems Unit. Traditionally, the Company's products
have compared machine revolutions per minute or speed against acceptable rates
as determined by the customers. The monitors generally have the same general
operating principle and use a non-contacting sensing head that translates the
speed at which a shaft rotates into electronic information. The systems include
both the sensing device and a signal-generating pulser disc or wrap that
attaches to the rotating shaft. The systems vary in complexity from a simple
system that detects gross slow-downs or stoppages to more sophisticated systems
that warn of deviations from precise tolerances and that permit various
subsidiary operations to be determined through monitoring a single critical
shaft speed. In 1987, the Company created a separate Drive Control Systems Unit
to market products that regulate machine speeds, as discussed below. The
Company's Controls Division's traditional products remain in the "Speed
Monitoring Systems Unit."
The Speed Monitoring Systems Unit also markets a line of digital
products that translate sensor impulses from its production monitoring systems
into digital readouts indicating production counts or rates, such as parts,
gallons, or board feet. The Speed Monitoring Systems Unit also manufactures and
sells alarm systems, tachometers, and other devices that translate impulses from
the sensors into alarm signals, computer inputs, or digital displays that are
understandable to and usable by the customer. The Company now manufactures both
digital and analog monitoring systems.
The Speed Monitoring Systems Unit manufactures and sells two production
monitoring devices that do not operate by measuring shaft speeds. These devices
are the tilt switch and vibration monitor. A tilt switch is designed to alert
the operator when a storage bin or production system reaches a certain capacity,
for example, when grain fills a silo. A vibration monitor will alert an operator
when the vibration in a production system exceeds a certain level.
The Speed Monitoring Systems Unit production monitoring systems are
sold to businesses in all major standard industrial classifications, including
food processing, chemicals, mining, utility, forest products, steel, tire, glass
and electronics. Any business that uses machinery with a rotating shaft is a
potential customer.
The Speed Monitoring Systems Unit markets its speed monitoring systems
primarily through five home office salesmen who deal directly with customers,
and a number of non-exclusive distributors located throughout the United States.
The Company advertises its products in industrial periodicals that
cover a wide range of industrial products. The Company maintains its own
advertising and sales promotion departments to service customer inquiries and
provides support for the Company salesmen, representatives and distributors.
2. Drive Control Systems Unit
During the last several years, the Company has developed and introduced
products that not only monitor machine operation levels, but that also regulate
the speed of related machines in the same production sequence to ensure that the
performance of the various machines is coordinated.
In late 1986 and early 1987, the Company began marketing a Model SDC-l
Synchronous Drive Controller. The SDC-l is designed for use as a precision speed
reference for use with DC regenerative drives. Typical applications for the
SDC-l Controller include draw control involving web processes, precision
conveyors and electronic line shaft applications.
In 1988, the Company entered into a sales agreement with MKS
MaschinenKontroll Systeme GmbH ("MKS"), the West German manufacturer of the
SDC-1 Controller product line under which the Company has the exclusive right to
distribute in the United States drive controls manufactured by MKS. MKS is the
manufacturer of the Synchronizer, a drive control product that coordinates a
number of motors in a production machine. The Synchronizer product lines enable
a manufacturer to match speed/velocity and phase/position of independently
driven machines so they operate together. Applications include synchronizing
overhead and floor conveyors and load sharing of multiple motors.
In 1988, the Company began research and development of a digital
control for motors that utilize a complete P.I.D. (proportional integral
derivative) closed control. These products have been introduced to the market
under the name MicroSpeed, designed as a closed loop speed control. The
MicroSpeed is marketed, for example, for applications such as speed control of
motors transporting variable loads, mixing chambers that combine raw materials
in varying ratios and accordingly require varying speed ratios, and screw
conveyor feeding systems. For example, the MicroSpeed will digitally establish a
designated motor speed and maintain that speed regardless of loading.
The Drive Control Systems unit product sales accounted for
approximately twenty-two percent of Controls Division revenues in 1993, eighteen
percent in 1994, and twenty-three percent in 1995. The Company expects to
continue to expend resources in 1996 in development and marketing of products
for its Drive Control Systems unit.
The Company believes that significant savings in both time and
materials can be achieved by manufacturing companies by adding drive control
technology to existing manufacturing processes to coordinate operation of
related machines. The Company intends to continue to market its products for
sale in this "retrofit" market and also to companies building new manufacturing
machinery or processing systems.
AUTODATA SYSTEMS. The Company initially invested in AutoData Systems as
a development project chartered to create opportunities using proprietary,
pattern recognition technology. The outcome of the project was a Windows(TM)
software-based system that reads hand-printed characters, check marks, and bar
code information from scanned or faxed forms.
The system offers customers a new data entry solution that converts
information from forms into a text file compatible with most computer databases.
This intelligent, data entry alternative saves time, strain and money compared
to the current method of manual data entry. The basis of the hand print reading
capability is the Associative Pattern Memory(TM) (APM), a patented, pattern
recognition algorithm. The APM is a trainable, neural network based memory that
was incorporated in a Windows Dynamic Link Library (DLL). This DLL is the
foundation of the two products marketed by AutoData Systems.
AutoData Systems became an operating unit in January 1993. The first
software package, AUTODATA PRO(TM), was released in May 1993. This software was
designed for the end user. AUTODATA PRO served as a utility software package
designed to process only check mark and hand print information from scanned
forms. The software would allow the user to export the data in an ASCII file
format. In September 1993, AUTODATA PRO II was released as an upgrade along with
AUTODATA SDK. AUTODATA SDK II was designed for Windows developers. The software
included the AUTODATA DLL which developers could embed in their application in
order to provide automated data entry from scanned or faxed forms.
MICROFLAME GAS TORCHES. Microflame manufactures and sells four kinds of
miniature brazing torches, under the names Cub, Super Cub, Microflame and
Dragon. During the past several years, a significant portion of Microflame
product sales have been from its Cub and Super Cub miniature hand-held torches.
Both the Cub and Super Cub torches utilize butane, which mixes with ambient air
to develop a flame about the size of a pencil. The Cub torch is sold exclusively
to Radio Shack stores.
The Company's "Microflame" torch is composed of two high pressure
cylinders, one containing fuel and the other containing an oxidizer, which
produce a flame with a tip the size of a pencil point. Microflame sells several
kits based upon this basic torch. The kits differ in the number of replacement
cylinders, brazing rods and other accessories which they contain.
The Company's fourth torch, marketed under the name "Dragon," has a
unique flame-action lever that operates on isobutane, which, when mixed with
ambient air, produces a larger flame than the Company's other torches.
Microflame's products are used primarily by hobbyists, electronic kit
assemblers, creators of jewelry and do-it-yourselfers.
(2) MARKETING AND DISTRIBUTION.
The Speed Monitoring Systems Unit markets its speed monitoring systems
primarily through five home office salesmen who deal directly with customers,
and a number of non-exclusive distributors located throughout the United States.
In 1987, the Company reorganized its Controls Division and created a
"Drive Control Systems" unit through which its Micro Speed and SDC-l are
marketed. The Company has established a separate marketing process for the Drive
Control Systems unit products, which are marketed through manufacturers'
representatives, integrators, and in-house application personnel.
The AutoData Systems division markets its products primarily through
two home office salesmen who deal directly with customers, and a number of
non-exclusive distributors located throughout the United States, Canada, Europe
and Asia.
Microflame's products are sold both directly by the Company and through
manufacturers' representatives. Direct sales are made both domestically and
internationally to selected house accounts. The house accounts consist of large
accounts and miscellaneous accounts which do not fit into the general categories
of hobby, hardware and electronics. Examples of miscellaneous accounts are
catalog and mail order houses, premium and incentive gift outlets, government
and industrial users, and dental and optical users. There are also a few dealers
and consumers with whom the Company deals directly because they are located in
pockets of the country not served by existing sales outlets.
The Company uses three manufacturers' representatives in the sale of
its Microflame products, each of whom has an exclusive territory within the
United States. These representatives collectively have a network of wholesale
distributors and dealers in the hobby, hardware and electronics fields and are
responsible for seeking out additional qualified new distributors.
(3) STATUS OF NEW PRODUCTS.
See Item (10) below.
(4) COMPETITION.
The potential market for the Company's monitoring products includes a
broad range of industrial and commercial businesses. Design, quality, and
multiplicity of application, rather than price, are the focus of competition in
selling these products. The Company has substantial competition for its
production monitoring systems. Many of these competitors are well established
and larger in terms of total sales volume. Among the larger competitors are
Veeder Root Corp., Newport Elect., Durant Corp., Allen Bradley Corp., and Fenner
Mfg. The Company's competitive advantages are that its products are sold as
ready-to-install units and that its products have a wide range of applications.
The Company's major disadvantages include the fact that its major competitors
are much larger, have a broader variety of sensing instruments, and have larger
sales forces and established names.
AutoData competitors are essentially in the same product entry phase of
marketing their software products to users and developers. The essential
differences are that few competitors have their own technology and some have
larger sales volume because they have been in the market longer.
The market for Microflame gas torches consists primarily of hobbyists,
electronic kit assemblers, creators of jewelry and do-it-yourselfers.
Competitive products come from foreign sources, but are of a totally different
design that projects them as a soldering iron rather than a torch. Large propane
torches are sold in the home improvement market by Cooper Tools and
Bernz-O-Matic which both have established names and broader product lines than
Microflame.
(5) SOURCES AND AVAILABILITY OF RAW MATERIALS.
The Controls Division purchases parts and materials for its production
monitoring systems from various manufacturers and distributors. In some
instances these materials are manufactured in accordance with proprietary
designs. Multiple sources of these supplies and materials are readily available,
and the Controls Division is not dependent on any single sources for these
supplies and materials. The Controls Division has not experienced any problem of
short supply or delays from its suppliers. AutoData Systems purchases supplies
and materials from various suppliers and is not dependent on any single source
for such supplies.
Except for the small compressed gas cylinders used in Microflame's gas
torches, Microflame's parts and materials are purchased from various
manufacturers and distributors. There are multiple sources of necessary supplies
and materials available to Microflame, and Microflame is not now dependent on
any single source for these supplies and materials. Compressed gas cylinders are
purchased from three sources, as follows:
Manufacturing Source Percentage
-------------------- ----------
ISI of North America 15.7%
Leland Industries (U.K.) 3.5%
Nippon Tansan Gas Company, 80.8%
Ltd. (Japan)
The loss of any of these sources or significant delays in delivery from any of
these sources could result in serious shortages which would have a material
adverse effect on Microflame's business. However, the Company has not yet
experienced any shortage or delay in shipment from any of these suppliers. The
cylinders are shipped in compliance with applicable D.O.T. regulations for gas
containers.
(6) CUSTOMER DEPENDENCE.
The Company is not dependent upon a single customer or a few customers
for a material portion of sales of any of its products.
(7) PATENTS AND TRADEMARKS.
The Company holds no patents, concessions, licenses or franchises that
relate to its production monitoring systems; however, AutoData has obtained two
patents related to recognition technology.
The names "Microflame," "Electro-Sensors" and "Auto Data" are
trademarks registered with the U.S. Patent and Trademark Office, respectively as
Reg. No. 809916, Reg. No. 1,142,310 and Reg. No. 1,874,543. The Company believes
its trademarks have been and will be useful in developing and protecting market
recognition for its products.
PPT Vision, Inc. has granted the Company an exclusive license which
allows the Company to incorporate a patented neural network algorithm in its
products. The initial use of this algorithm will be in the Company's automated
computer entry group under the name "AutoData Systems."
(8) GOVERNMENT APPROVALS.
The Company is not required to obtain governmental approval of its
products.
(9) EFFECT OF GOVERNMENTAL REGULATIONS.
The Company does not believe that any existing or proposed governmental
regulations will have a material effect on its business.
(10) RESEARCH AND DEVELOPMENT.
The Company has spent the following amounts on research and development
during the past two fiscal years:
1995: $621,763
1994: $658,945
All these expenditures were incurred by the Company's Controls Division. The
Company is currently conducting very limited research and development with
respect to certain products sold by its Microflame subsidiary. The Company has
conducted a very limited amount of customer sponsored research activities
relating to the development of new products, services or techniques or the
improvement of existing products, services or techniques. A portion of the
Company's development project was undertaken based upon the identified specific
needs of the Company's customer base.
During fiscal 1995 the Company has continued to fund the AutoData
Systems. The goal of this project is to create a software based system that
enables a computer to read hand printed characters. In January 1992, the Company
acquired an exclusive license from PPT Vision, Inc. (PPT) which offers the
Company protection of the algorithm necessary for the reading technology.
In the process of developing the reading software, the Company has
refined its vision of the initial product. The Company's goal is to develop a
technology that provides a data entry method that saves time, strain and money
compared to the current method of keystroke data entry. The product produced by
the Company will enter the hand printed information on forms into a data base
faster and more accurately than could be typed in by data entry personnel.
Larry Werth, former president of PPT, has been hired as a Research
Scientist charged with finalizing the software.
(11) ENVIRONMENTAL COMPLIANCE.
Compliance with federal, state and local environmental provisions has
only nominal effect on current or anticipated capital expenditures and has had
no material effect on earnings or on the competitive position of the Company.
(12) EMPLOYEES.
As of March 1, 1996, the Company had 46 employees, 4 of whom are
engaged by its Microflame subsidiary and 42 of whom are engaged in work for its
Controls Division.
CAUTIONARY STATEMENTS
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:
UNCERTAINTY OF MARKET ACCEPTANCE OF NEW DIVISION. The Company's
AutoData Systems division is in an early stage of development. There can be no
assurance that Company will be able to successfully market the products offered
by the AutoData Systems division. The ability of the Company to achieve
acceptable growth will be highly dependent on market acceptance of these
products.
FLUCTUATIONS IN OPERATING RESULTS. The Company's Drive Control Systems
division has experienced an increase in sales; however, the Company's Speed
Monitoring division and the Company's subsidiary, Microflame, Inc., have
experienced sales declines. Sales by the Drive Control Systems division has
been, and is expected to continue to be, subject to quarterly fluctuations due
to large system orders. There can be no assurance that the Drive Control Systems
division sales will continue to increase or that sales by the Speed Monitoring
division or Microflame, Inc. will improve.
Further, investments by the Company's subsidiary, ESI Investment Co.,
are subject to significant positive and negative changes in value. In
particular, a significant investment by ESI Investment Co. in PPT Vision has
experienced substantial value fluctuations, which are expected to continue. The
Company's current intention is to gradually liquidate its investment securities
to finance expansion of its operating activities. As a result of the foregoing
factors, the Company believes that its results of operations will continue to
fluctuate from period to period. Therefore, there can be no assurance that the
Company's earnings growth will equal that of prior years.
COMPETITION. The Company's operating activities are subject to intense
competition. There can be no assurance that the Company will be able to
effectively compete within its existing markets or the new market it is entering
through its AutoData Systems division. Further, there can be no assurance that
others will not enter these markets. Competition in these markets is based
primarily on price, which subjects the Company to increasing pressures to make
price adjustments to remain competitive. Such price adjustments, if any, may
have an adverse impact on the Company's results of operations if not offset by
an increase in revenues or a reduction in expenses. Many of the Company's
competitors are large, well-established companies.
NEW PRODUCT DEVELOPMENT. The Company's future success is dependent in
part on its ability to develop new products. Difficulties or delays in the
Company's ability to develop, produce, test and market new products would have a
material adverse effect on future sales growth.
DEPENDENCE ON SUPPLIERS. The Company currently purchases, and will in
the future purchase, parts and components from vendors. While the Company
attempts to have more than a single source of supply for each part and
component, it is possible from time to time that the Company will have only one
supplier for any single part or component. Should a supplier be unwilling or
unable to supply any such part or component in a timely manner, the Company's
business could be materially adversely affected.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's Controls Division owns and occupies a 25,000 square foot
facility at 6111 Blue Circle Drive, MinnetonKa, Minnesota 55343.
Microflame occupies a building of 5,576 square feet located at 14873
DeVeau Place, Minnetonka, Minnesota 55345. This building is used for management,
sales and production. The building is leased for a period ending July 31, 1997.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of 1995.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Section entitled "Price Range of Common Stock" in the Company's
1995 Annual Report to Shareholders is incorporated herein by reference. Although
there were 229 shareholders of record as of March 12, 1996, the Company has
approximately 637 beneficial shareholders.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the 1995 Annual Report to Shareholders
is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
The Company's financial statements and notes contained in the 1995
Annual Report to Shareholders and the Section entitled "Quarterly Financial
Summary (Unaudited)" are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The names, ages and positions of the Company's executive officers are
as follows:
Name Age Office
---- --- ------
James P. Slattery 63 Chairman of the Board of
Directors, President,
Director of Marketing
Peter R. Peterson 62 Secretary and Director
Mark D. Laumann 41 Treasurer and Director
Mr. Slattery has been the President and Director of Marketing of the
Company since 1968 and became Chairman of the Board of Directors in January
1989.
Mr. Peterson has served as Secretary of the Company since 1969 and
served as Chairman of the Board until January 1989. Mr. Peterson is also a
director of PPT, Vision, Inc.
Mr. Laumann has been employed by the Company in various accounting
capacities since 1975, serving as Controller from March 1981 to January 1994,
when he was elected Treasurer and a Director.
The executive officers of the Company are elected each year by the
Board of Directors at its first meeting or by written action following the
annual meeting of shareholders to serve during the following year or until their
successors are elected and qualified.
Other Significant Employee
Richard Kurzeka, Microflame Manager, 47, started employment with
Electro-Sensors, Inc. in 1978, as manager of production control. He proceeded to
Operations Manager of the Controls Division, which involved responsibilities in
administration, purchasing, production and inventory control, sales, quality
control and manufacturing. In February 1981, Mr. Kurzeka was transferred to
Microflame. He presently is the Vice President and a Director of Microflame.
The information required by Item 9 relating to directors is
incorporated herein by reference to the section entitled "Election of Directors"
which appears in the Company's definitive proxy statement for its 1996 Annual
Meeting of Shareholders.
ITEM 10. EXECUTIVE COMPENSATION
The information required by Item 10 is incorporated herein by reference
to the section entitled "Executive Compensation" which appears in the Company's
definitive Proxy Statement for its 1996 Annual Meeting of Shareholders.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 11 is incorporated herein by reference
to the section entitled "Shareholdings of Principal Shareholders and Management"
which appears in the Company's definitive Proxy Statement for its 1996 Annual
Meeting of Shareholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 12 is incorporated herein by reference
to the section entitled "Certain Transactions" in the Company's definitive Proxy
Statement for its 1996 Annual Meeting of Shareholders.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. See "Exhibit Index" on page following signatures.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during
the fourth quarter ended December 31, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ELECTRO-SENSORS, INC.
("Registrant")
Dated: March 26, 1996 By: /s/ James P. Slattery
James P. Slattery,
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the
Registrant, in the capacities, and on the dates, indicated.
(Power of Attorney)
Each person whose signature appears below constitutes and appoints
JAMES P. SLATTERY and PETER R. PETERSON as his true and lawful attorneys-in-fact
and agents, each acting alone, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this Annual Report on Form 10-KSB
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, each acting alone, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Signature Title Date
- --------- ----- ----
/s/ James P. Slattery Chairman, President, and March 26, 1996
James P. Slattery Director (Chief Executive
Officer)
/s/ Mark D. Laumann Treasurer and Director March 26, 1996
Mark D. Laumann (Chief Financial and
Accounting Officer)
/s/ Peter R. Peterson Director and Secretary March 26, 1996
Peter R. Peterson
/s/ John S. Strom Director March 26, 1996
John S. Strom
/s/ Joseph A. Marino Director March 26, 1996
Joseph A. Marino
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBIT INDEX TO FORM 10-KSB
For the fiscal year
ended December 31, 1995 Commission File No.: 0-9587
ELECTRO-SENSORS, INC.
Exhibit
3.1 Registrant's Restated Articles of Incorporation, as
amended--incorporated by reference to Exhibit 3.1 to the Company's 1991
Form 10-K*
3.2 Registrant's By-Laws, as amended--incorporated by reference to Exhibit
3.2 to the Company's 1988 Form 10-K*
10.1 Lease between Microflame, Inc. and Minnetonka Business Associates dated
December 15, 1988, with respect to property at 14857 DeVeau Place,
Minnetonka, Minnesota--incorporated by reference to Exhibit 10.2 to the
Company's 1988 Form 10-K*
10.2 Agreement to Extend Lease, dated May 25, 1994, relating to property at
14857 DeVeau Place, Minnetonka, Minnesota--incorporated by reference to
Exhibit 10.2 to the Company's 1994 Form 10-KSB*
10.3 Agreement to Extend Lease, dated June 12, 1995, relating to property at
14857 DeVeau Place, Minnetonka, Minnesota
10.4** Electro-Sensors, Inc. 1987 Stock Option Plan--incorporated by reference
to Exhibit A to the Company's Proxy Statement dated April 21, 1987 for
the Company's 1987 Annual Meeting of Shareholders*
10.5** Employment Agreement dated December 10, 1980, between Electro-Sensors,
Inc. and James P. Slattery--incorporated by reference to Exhibit 10.5
to the Company's 1990 Form 10-K*
11 Statement Regarding Computation of Per Share Earnings
13 Portions of 1995 Annual Report to Shareholders that are incorporated in
this Form 10-KSB by reference
21 Subsidiaries of Registrant:
Name State of Incorporation
---- ----------------------
Microflame, Inc. Minnesota
ESI Investment Co. Minnesota
Senstar Corporation Minnesota
23 Consent of Independent Certified Public Accountants
24 Power of Attorney from certain Directors and Officers (See Signature
Page)
27 Financial Data Schedule
- ----------------
* Incorporated by reference to a previously filed report or document--SEC File
No. 0-9587
** Management contract or compensatory plan or arrangement
EXHIBIT 10.3
AGREEMENT TO EXTEND LEASE
This Agreement, made this 12th day of June, 1995, by and between 7100
BUILDING COMPANY LIMITED PARTNERSHIP, a Limited Partnership) hereinafter called
"Landlord") and MICROFLAME, INC., a Minnesota Corporation (hereinafter called
"Tenant").
WITNESSETH:
WHEREAS, Minnetonka Business Associates, a General Partnership and
Tenant entered into a certain Lease Agreement, dated June 1, 1990, and amended
May 25, 1994 (hereinafter called the "Lease") under which Tenant leased the
Leased Premises commonly known as 14873 DeVeau Place, Minnetonka, Minnesota; and
WHEREAS, the landlord's interest in the Lease was assigned to Landlord
by an Assignment & Assumption of Leases dated May 23, 1995; and
WHEREAS, said Lease is scheduled to expire by lapse of time on July 31,
1995; and
WHEREAS, Landlord and Tenant desire to amend said Lease so as to extend
the term thereof and to amend the rents payable thereunder during such period;
and
WHEREAS, it is intended by this Agreement to amend said Lease.
NOW, THEREFORE, in consideration of the premises, and of the covenants
and agreements herein undertaken to be kept and performed, it is agreed as
follows:
1. TERM. The Term of the Lease is hereby extended for a period of two
(2) years commencing on the 1st day of August, 1995, and expiring on the 31st
day of July, 1997, unless the Lease shall sooner terminate as provided therein.
2. BASE RENT. Tenant shall pay Landlord the base rent of $2,611.00 per
month from the 1st day of August, 1995 through and including the 31st day of
July, 1997, over and above the other and additional payments to be made by
Tenant for the Leased Premises, payable in advance on the first day of each and
every calendar month.
3. Except as herein specifically amended, all other terms, covenants,
and conditions of the Lease shall remain in full force and effect, and the same
are hereby ratified and confirmed.
IN WITNESS WHEREOF, Landlord and Tenant have executed the within
Agreement as of the day and year first above written.
LANDLORD: TENANT:
7100 BUILDING COMPANY MICROFLAME, INC.
LIMITED PARTNERSHIP A Minnesota Corporation
BY: 7100 BUILDING CORPORATION
Its General Partner
By: By:
Its: President Its: Gen. Mgr.
Date: 6/25/95 Date: 6/12/95
ELECTRO-SENSORS, INC. AND SUBSIDIARIES
CALCULATION OF WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND
INCOME FOR DETERMINATION OF EARNINGS PER SHARE OF COMMON STOCK
EXHIBIT 11
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common shares:
Weighted average common shares:
Outstanding 1,901,840 1,878,278 1,880,767
For stock options 13,085 23,172 35,807
- ------------------------------------------------------------------------------------------------
Weighted average number of common
shares and common stock
equivalents outstanding 1,914,925 1,901,450 1,916,574
Additional shares for stock options 8,912 808 1,153
- ------------------------------------------------------------------------------------------------
Weighted average number of common
shares and common stock
equivalents outstanding
assuming full dilution 1,923,837 1,902,258 1,917,727
- ------------------------------------------------------------------------------------------------
Net income applicable to common shares
and common stock equivalents $ 785,256 $ 459,713 $505,223
- ------------------------------------------------------------------------------------------------
Net income applicable to common shares
and common stock equivalents,
assuming full dilution $ 785,256 $ 459,713 $505,223
- ------------------------------------------------------------------------------------------------
</TABLE>
[LOGO]
ELECTRO-SENSORS, INC.
1995 ANNUAL REPORT
CORPORATE PROFILE
ELECTRO-SENSORS, INC. AND SUBSIDIARIES
BRIEF SUMMARY OF BUSINESS
Electro-Sensors, Inc. operates three distinct businesses. The first is the
Controls Division which carries the name of Electro-Sensors, Inc. This division
manufactures and markets a complete line of speed monitoring and control systems
for industrial machinery. The Controls Division utilizes leading-edge technology
to continuously improve its products and make them easier to use. The Controls
Division's goal is to manufacture the industry-preferred product for every
market served. These products are sold through telemarketing and distributors to
a wide variety of manufacturers and processors to monitor the efficiency of
process machinery.
The second business is AutoData Systems, a division of Electro-Sensors, Inc.
AutoData Systems designs and markets a desktop software-based system that reads
hand-printed characters, check marks and bar code information from scanned or
faxed forms. AutoData systems products are designed to both provide the
capabilities to automate data collection and meet their customers complete forms
processing needs. These software packages are sold through telemarketing to end
users, resellers and developers in the United States, Canada, Europe and Asia.
The third business is operated through a wholly-owned subsidiary, Microflame,
Inc. Microflame produces small hand held gas torches used primarily by
hobbyists, electronic kit assemblers, creators of jewelry and do-it-yourselfers.
The Microflame products are sold through distributors to retailers of hardware,
hobby craft and electronic products.
In addition, through its ESI Investment Company subsidiary, the Company has
invested funds in other companies and businesses. The value of the Company's
investments fluctuates. It is the Company's intention over a substantial period
of time to liquidate such investments in order to finance expansion of its
operating activities. Although the Company has invested in other companies and
businesses, Electro-Sensors, Inc. intends to remain primarily an operating
company.
SELECTED FINANCIAL DATA (CONSOLIDATED)
Electro-Sensors, Inc. and Subsidiaries
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
-----------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 6,185 $6,076 $5,231 $4,806 $4,653
Gross Profit 3,525 3,424 2,920 2,701 2,512
Selling Expenses 1,214 1,501 1,128 908 810
General and Administrative Expenses 777 801 718 653 636
Research and Development Expenses 622 659 647 598 460
Provision for Income Taxes 371 222 246 247 320
Net Income 785 460 505 515 567
Earnings Per Share .41 .24 .26 .27 .31
Working Capital 9,332 4,772 5,711 5,749 5,321
Total Assets 13,181 7,941 6,771 6,442 6,076
Shareholders' Equity 9,466 6,693 6,398 6,057 5,607
</TABLE>
PAGE 2
LETTER TO SHAREHOLDERS
ELECTRO-SENSORS, INC. AND SUBSIDIARIES
March 21, 1996
TO THE SHAREHOLDERS:
Net income increased by 70% during 1995 to $785,256 or $.41 per share. The
substantial increase resulted from both a slight increase in sales and decreased
operating expenses. Slowed fourth quarter sales limited the sales increase for
1995 to 2% as compared to a 16% increase in 1994. The decline in fourth quarter
sales is a general reflection of the economic decline in industrial activity
being experienced on a national basis. However our customer base in the
established divisions is expected to continue generating profitable business in
1996.
For Electro-Sensors, Inc., 1996 will be a year that will be dominated by new
product introductions in our Speed Monitoring, Drive Control Systems and Auto
Data Systems segments. These product releases will have an impact late in 1996
and into 1997. The Speed Monitoring Division products are primarily technology
upgrades, moving our product line into the next generation of industrial
controls. Drive Control Systems is anticipating increasing implementation of
computers in the manufacturing sector and will be introducing products with both
new protocols and cost reductions. Auto Data Systems is beginning introduction
of low priced survey software products aimed primarily at quality assessment
tasks. Auto Data Systems has begun marketing in the health care industry and
will move progressively to other markets.
The Company experienced an additional increase in shareholders' equity due to an
increase in unrealized gain on investment securities. The Company holds 366,056
shares of PPT Vision, which has experienced a particularly significant increase
in market value. (PPT Vision has recently announced a 3-for-2 stock split for
shareholders of record as of March 25, 1996. The Company will receive one
additional share for every two shares held on that date.) The value of the
Company's investment securities should be expected to fluctuate. The Company's
current intention is to liquidate its investment securities over a substantial
period of time in order to finance expansion of our operating activities.
Sincerely,
/s/ James P. Slattery
James P. Slattery
President
PAGE 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ELECTRO-SENSORS, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
The Company experienced record earnings for 1995 of $785,256, or $.41 per share
as compared to $459,713 or $.24 per share in 1994. The record earnings were
achieved through a slight increase in sales revenue combined with both an
increase in operating efficiencies and a decrease in operating expenses. Several
of the cost savings were attributable to the relocation of the Company in 1994.
Increased interest income and gain on sales of marketable securities also
contributed to the increase.
The Company's sales increased 1.8% in 1995, to $6,184,880 as compared to 1994
sales of $6,076,294. The entire sales increase was provided by the Drive Control
Systems ("DCS") segment of the Controls Division. The Speed Monitoring unit,
AutoData Systems and Microflame, Inc. experienced decreased sales during the
year. The limited sales growth for 1995 was a general reflection of the economic
decline in industrial activity during the fourth quarter of 1995. Price
increases had an insignificant effect on sales during the year.
Controls Division's sales increased 5.1% in 1995 and was entirely provided by
the DCS segment. DCS achieved continued sales growth of the MicroSpeed products
throughout the year. A significant portion of the DCS sales growth is attributed
to DCS's ability to adapt its products to specific customer needs. However, the
Controls Division has felt the overall impact from both the decline in the
durable goods market and the slow down in the auto industry experienced in the
last parts of 1994 and 1995. These trends have been particularly evident in the
Speed Monitoring division and were reflected in the slowed sales activity during
the year.
AutoData Systems, is presently in the process of changing its marketing efforts
based on focus group studies performed earlier in the year. As a result,
AutoData Systems developed a vertical market survey package utilizing the
character recognition technology in the processing of participant responses. The
changes in market and product design has resulted in a decline of 22.2% in
AutoData Systems sales for 1995. The AutoData Systems survey package is due to
be released in February 1996.
Microflame sales decreased 6.4% in 1995 as the Company continues to compete in a
diminishing market. The sales decrease occurred in the last half of the year as
Microflame felt the impact of a weak consumer market.
The Company's cost of sales increased slightly for 1995 but decreased as a
percentage of sales when compared to 1994. Lower fixed production costs were
able to offset increased direct labor charges while material costs remained
relatively constant during the year.
Overall operating expenses decreased 12% during 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 benefited from cost savings
resulting from the purchase of a new building during the last half of 1994.
ESI Investment continues to provide an alternative source of earnings for the
Company through investments in marketable securities. The investments provided a
realized gain of $222,608 on proceeds of $246,063 during the year. ESI
Investment made additional investments of $143,500 during the year. The
cumulative unrealized gain on securities was $4,751,933, $80,739 and $1,576,965
as of December 31, 1995, 1994 and 1993, respectively. The Company recognizes
investment gains and losses when realized and therefore, the change in net
unrealized gains and losses on securities have not been reflected in the net
income of the Company during the respective periods. The Company's investments
in marketable securities are subject to significant positive and negative
changes in value. During 1995, the Company's investment portfolio experienced an
increase in value above those of various market indexes.
PAGE 4
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to generate strong cash flows from operations. Increased
working capital and funds for capital expenditures have been provided through
current earnings. These funds have been placed in secure short-term investments.
The funds are being used primarily for dividend distributions, working capital
as needed and general corporate purposes, which may include acquisitions.
Accounts receivable increased due to timing differences which extended the
payment terms on a few customers and resulted in the payments being received in
early January. Inventories increased and accounts payable decreased due to
slower than expected sales during the fourth quarter. The Company experienced an
additional increase in shareholders' equity and marketable securities due to an
increase in unrealized gain on investment securities. This increase results
primarily from the Company's holding of 366,056 shares of PPT Vision, which has
experienced a particularly significant increase in market value. The value of
the Company's investment securities should be expected to fluctuate. Principal
payments made during the year decreased the building note payable. Capital
expenditures resulted mainly from the purchase of additional manufacturing and
office equipment. The Company does not anticipate the need for additional
working capital from outside sources. The Company declared an extraordinary cash
dividend payable in January 1996 which resulted in an accrual in current
liabilities. Also, the Company declared a first quarter cash dividend payable in
February 1996.
CHANGING PRICES AND INFLATION
The Company did not experience any significant inflationary pressure during
1995. Cost management programs and modest price increases have enabled the
Company to minimize inflation's impact on operating performance. The Company
continually works to control product cost increases through engineering
improvements, selection and use of more cost efficient product components and
through improved operating efficiency.
CAUTIONARY STATEMENT
For a description of factors which could affect the results of future operations
see "Cautionary Statements" under Item 1 of the Company's Form 10-KSB for the
fiscal year ended December 31, 1995.
PAGE 5
CONSOLIDATED BALANCE SHEETS
ELECTRO-SENSORS, INC. AND SUBSIDIARIES
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents, including temporary cash
deposits of $2,539,398 and $2,075,574, respectively $ 3,273,873 $2,826,778
Investment in available-for-sale securities (Note 2) 6,330,262 1,539,022
Trade receivables, less allowance for doubtful
accounts $21,500 and $32,000, respectively 791,445 729,212
Inventories (Note 3) 788,282 692,821
Prepaid:
Expenses 80,182 89,143
Income taxes 0 51,754
Deferred taxes (Note 12) 29,100 31,800
- --------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 11,293,144 5,960,530
- --------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT (Note 4) 1,887,648 1,980,247
- --------------------------------------------------------------------------------------
TOTAL ASSETS $13,180,792 $7,940,777
======================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable (Note 5) $ 586,516 $ 808,870
Accounts payable 98,404 175,834
Accrued expenses (Note 6) 216,692 203,925
Dividends payable 970,135 0
Accrued income taxes 88,931 0
- --------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,960,678 1,188,629
- --------------------------------------------------------------------------------------
DEFERRED INCOME TAXES (Note 12) 1,754,100 59,500
- --------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 9)
SHAREHOLDERS' EQUITY:
Common stock, par value $.10 per share; authorized
10,000,000 shares; issued 1,940,270 and 1,895,500
shares, respectively (Notes 8 and 11) 194,027 189,550
Additional paid-in capital 584,236 484,901
Retained earnings 5,758,728 6,082,357
Unrealized holding gain on investment securities,
net (Note 2) 3,035,733 53,239
Unearned ESOP shares (Note 9) (41,951) (43,897)
Notes receivable (Note 10) (64,759) (73,502)
- --------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 9,466,014 6,692,648
- --------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $13,180,792 $7,940,777
======================================================================================
</TABLE>
See Notes to Financial Statements.
PAGE 6
CONSOLIDATED STATEMENTS OF INCOME
ELECTRO-SENSORS, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $6,184,880 $6,076,294 $5,231,234
COST OF GOODS SOLD 2,659,733 2,651,988 2,311,302
- -----------------------------------------------------------------------------------
GROSS PROFIT 3,525,147 3,424,306 2,919,932
- -----------------------------------------------------------------------------------
OPERATING EXPENSES:
Selling 1,214,073 1,500,948 1,127,833
Administrative 777,379 801,237 718,257
Research and development 621,763 658,945 647,160
- -----------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 2,613,215 2,961,130 2,493,250
- -----------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 911,932 463,176 426,682
- -----------------------------------------------------------------------------------
NONOPERATING INCOME (EXPENSE):
Gain (loss) on sale of investment
securities (Note 2) 222,608 164,205 277,083
Interest income 156,187 117,763 114,346
Other (134,521) (63,331) (66,988)
- -----------------------------------------------------------------------------------
TOTAL NONOPERATING INCOME (EXPENSE) 244,274 218,637 324,441
- -----------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 1,156,206 681,813 751,123
FEDERAL AND STATE INCOME TAXES (NOTE 12) 370,950 222,100 245,900
- -----------------------------------------------------------------------------------
NET INCOME (LOSS) $ 785,256 $ 459,713 $ 505,223
===================================================================================
INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $ 0.41 $ 0.24 $ 0.26
===================================================================================
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES 1,914,925 1,901,450 1,916,574
===================================================================================
</TABLE>
See Notes to Financial Statements.
PAGE 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
ELECTRO-SENSORS, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash:
Received from customers $ 6,122,647 $ 6,008,065 $ 5,236,756
Paid to suppliers and employees (5,424,528) (5,482,675) (4,935,735)
Interest received 156,187 123,464 115,163
Income taxes paid (178,065) (247,718) (224,190)
- ---------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 676,241 401,136 191,994
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment 0 639 3,750
Purchase of property and equipment (34,006) (1,438,806) (508,598)
Investments in available-for-sale securities:
Sales 246,063 205,951 338,528
Purchases (143,500) (215,191) (306,500)
Repayments (net of advances) from Employee Stock
Ownership Plan 1,946 30,000 38,097
Repayments of notes receivable 8,743 8,436 0
- ---------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 79,246 (1,408,971) (434,723)
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (189,850) (189,550) (188,000)
Net proceeds (payments) on short-term borrowings (222,354) 808,870 0
Proceeds from exercise of stock options 103,812 7,125 13,062
- ---------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (308,392) 626,445 (174,938)
- ---------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 447,095 (381,390) (417,667)
CASH AND CASH EQUIVALENTS:
BEGINNING 2,826,778 3,208,168 3,625,835
- ---------------------------------------------------------------------------------------------------
ENDING $ 3,273,873 $ 2,826,778 $ 3,208,168
===================================================================================================
RECONCILIATION OF NET INCOME (LOSS)
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Net income (loss) $ 785,256 $ 459,713 $ 505,223
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 125,245 79,786 71,741
Provision for losses on trade receivables (10,500) 7,500 5,700
Common stock issued in exchange for services and
software agreement 0 0 10,000
Realized (gain) loss on sale of:
Investment securities, net (222,608) (164,205) (277,083)
Property and equipment 1,360 (615) (3,750)
Deferred taxes 8,600 900 (1,900)
(Increase) decrease in:
Trade receivables (51,734) (70,028) 639
Inventories (95,461) 45,214 (108,778)
Prepaid:
Expenses 8,961 8,718 731
Income taxes 51,754 (26,518) 23,610
Increase (decrease) in:
Accounts payable (77,430) 24,715 35,651
Accrued:
Rent 0 (31,441) (54,760)
Wages and commissions 13,405 18,613 23,729
Expenses (638) 48,784 (38,759)
Income taxes 140,031 0 0
- ---------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 676,241 $ 401,136 $ 191,994
===================================================================================================
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Stock options exercised in exchange for note
receivable $ 0 $ 0 $ 16,938
===================================================================================================
Common Stock issued in exchange for services and
software agreement $ 0 $ 0 $ 10,000
===================================================================================================
Net change in unrealized holding gains on investment
securities available-for-sale $2,982,494 $ 53,239 $ 0
===================================================================================================
Acrued dividends $ 970,135 $ 0 $ 0
===================================================================================================
Tax benefit of stock options exercised $ 43,600 $ 0 $ 0
===================================================================================================
</TABLE>
See Notes to Financial Statements.
PAGE 8 & 9
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
ELECTRO-SENSORS, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COMMON STOCK ISSUED
------------------------
ADDITIONAL
PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 1,875,000 $187,500 $439,826 $5,494,971
Exercise of stock options
(Notes 8 and 10) 12,500 1,250 28,750
Stock issued for software agreement
(Note 11) 5,000 500 9,500
Net Income 505,223
Dividend on common stock $.10
per share on 1,880,000 shares (188,000)
- -----------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 1,892,500 189,250 478,076 5,812,194
Unrealized investment holding gain, net
of tax (Note 2)
Exercise of stock options (Note 8) 3,000 300 6,825
Repayment of note receivable (Note 10)
Net change in unrealized gain on
investment securities available for sale
Change in accounting policy for ESOP (Note 9)
Earned ESOP shares (Note 9)
Net Income 459,713
Dividend on common stock $.10
per share on 1,895,500 shares (189,550)
- -----------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 1,895,500 189,550 484,901 6,082,357
Exercise of stock options (Note 8) 44,770 4,477 99,335
Repayment of note receivable (Note 10)
Net change in unrealized gain on
investment securities available for sale
Collection in ESOP note receivable (Note 9)
Tax benefit of stock options exercised 43,600
Net Income 785,256
Dividend on common stock $.10
per share on 1,898,500 shares (189,850)
Dividend on common stock $.50
per share on 1,925,270 shares (962,635)
- -----------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 1,940,270 $194,027 $584,236 $5,758,728
===============================================================================================
</TABLE>
(TABLE CONTINUED)
UNREALIZED
HOLDING
GAIN ON UNEARNED TOTAL
INVESTMENT ESOP NOTE STOCKHOLDERS'
SECURITIES, NET SHARES RECEIVABLE EQUITY
- -------------------------------------------------------------
$ 0 $ 0 $(65,000) $6,057,297
(16,938) 13,062
10,000
505,223
(188,000)
- -------------------------------------------------------------
0 0 (81,938) 6,397,582
1,006,965 1,006,965
7,125
8,436 8,436
(953,726) (953,726)
(73,897) (73,897)
30,000 30,000
459,713
(189,550)
- -------------------------------------------------------------
53,239 (43,897) (73,502) 6,692,648
103,812
8,743 8,743
2,982,494 2,982,494
1,946 1,946
43,600
785,256
(189,850)
(962,635)
- -------------------------------------------------------------
$3,035,733 $(41,951) $(64,759) $9,466,014
=============================================================
See Notes to Financial Statements.
PAGE 10 & 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ELECTRO-SENSORS, INC. AND SUBSIDIARIES
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
The accompanying consolidated financial statements include the accounts of
Electro-Sensors, Inc. and its wholly-owned subsidiaries: Microflame, Inc.,
and ESI Investment Co.
ELECTRO-SENSORS, INC. manufactures production monitoring and software
systems, and Microflame, Inc. produces miniature brazing torches used for
hobbies and crafts. ESI Investment Co. manages a varied investment portfolio.
Intercompany accounts, transactions and earnings have been eliminated in
consolidation.
ELECTRO-SENSORS, INC. markets its products to a number of different
industries located throughout the United States and abroad. The Company
grants credit to customers under normal industry terms, generally 30 days.
Microflame, Inc. also markets its products throughout the U.S. and abroad
under normal credit terms. The majority of Microflame, Inc. sales are
concentrated in the hobby and craft industry. ESI Investment Co. has
investments in marketable securities which are subject to normal market
risks.
SIGNIFICANT ACCOUNTING POLICIES OF THE COMPANY ARE SUMMARIZED BELOW:
CASH AND CASH EQUIVALENTS:
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents. Cash equivalents are carried at cost plus accrued interest
which approximates market value.
INVESTMENT IN MARKETABLE EQUITY SECURITIES AND ACCOUNTING CHANGE:
The Company has investments in marketable equity securities. Marketable equity
securities consist primarily of common stocks that are traded or listed on
national exchanges. The estimated fair value of marketable equity securities is
based on quoted market prices and therefore subject to the inherent risk of
market fluctuations.
The Company adopted the provisions of FASB Statement No. 115, ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, as of January 1, 1994.
Statement 115 requires that management determine the appropriate classification
of securities at the date of adoption, and thereafter at the date individual
investment securities are acquired, and that the appropriateness of such
classification be reassessed at each balance sheet date. Since the Company does
not buy investment securities in anticipation of short-term fluctuations in
market prices, the investment in marketable equity securities has been
classified as available-for-sale in accordance with Statement 115.
Available-for-sale securities are stated at fair value, and unrealized holding
gains and losses, net of the related deferred tax effect, are reported as a
separate component of stockholders' equity. Prior to the adoption of Statement
115, the Company stated marketable equity securities at the lower of their
aggregate cost or market. Dividends on marketable equity securities are
recognized in income when declared.
Realized gains and losses, including losses from declines in value of specific
securities determined by management to be other-than-temporary, are included in
income. Realized gains and losses are determined on the basis of the specific
securities sold.
Note 2 to the financial statements provides further information about the effect
of adopting Statement 115.
INVENTORIES:
Inventories include material, labor, and overhead and are valued at the lower of
cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Expenditures for renewals and
betterments are capitalized and repairs and maintenance costs are charged to
expense as incurred. When items are disposed of, the cost and accumulated
depreciation are eliminated from the accounts, and any gain or loss is reflected
in the results of operations.
DEPRECIATION:
The cost of property and equipment is depreciated on the straight-line method
over the estimated useful lives.
ESTIMATED USEFUL LIVES ARE AS FOLLOWS:
YEARS
----------------------------------------------
Equipment 5-10
Furniture and fixtures 10
Building 7-40
Depreciation expense for the years ended December 31, 1995, 1994, and 1993 was
$125,245, $79,786, and $71,741, respectively.
INCOME TAXES:
Deferred income taxes are provided on an asset and liability approach to
financial accounting and reporting for income taxes. The difference between the
financial statement and tax bases of assets and liabilities is determined
annually. Deferred income tax assets and liabilities are computed for those
differences that have future tax consequences using the currently enacted tax
laws and rates that apply to the periods in which they are expected to affect
taxable income. Income tax expense is the current tax payable or refundable for
the period plus or minus the net change in the deferred tax assets and
liabilities.
INCOME PER SHARE:
Income per common and common equivalent share are computed based on the weighted
average number of common and common equivalent shares outstanding during the
year.
PAGE 12
Common equivalent shares are those issuable upon the assumed exercise of stock
options, reflected under the treasury stock method using the average market
price of the Company's shares during each year.
The number of shares used in the per share computations are as follows:
DECEMBER 31,
-------------------------------------
1995 1994 1993
- -------------------------------------------------------------
Total weighted
average outstanding
shares 1,901,840 1,878,278 1,880,767
Assumed exercise of
options at average
market price 13,085 23,172 35,807
- -------------------------------------------------------------
Weighted average
common and
common equivalent
shares 1,914,925 1,901,450 1,916,574
=============================================================
FAIR VALUE OF FINANCIAL INSTRUMENTS:
FAIR VALUE CONSIDERATIONS:
Substantially all of the Company's financial instruments are carried at fair
value or amounts which approximate fair value.
CASH AND CASH EQUIVALENTS:
The carrying amounts approximate fair value because of the short maturity of
these instruments.
INVESTMENT SECURITIES:
The estimate of fair values of the investments are based on quoted market prices
for those or similar investments. Additional information pertinent to the value
of the investment are provided in footnote 2.
NOTES RECEIVABLE:
The principal balance of notes receivable is assumed to approximate the fair
value of the notes based on the rates charged.
NOTE PAYABLE:
The principal balance of the note payable due July 1996 is assumed to
approximate the fair value of the note because of the short maturity and the
rates charged.
NOTE 2. INVESTMENT IN MARKETABLE SECURITIES
As discussed in Note 1, the Company adopted FASB Statement No. 115 as of January
1, 1994. The January 1, 1994 balance of stockholders' equity was increased by
$1,006,965, net of the $570,000 related deferred tax effect, to recognize the
net cumulative effect of the unrealized holding gain on securities held at that
date.
The cost and estimated fair value of the investment in marketable securities are
as follows:
<TABLE>
<CAPTION>
GROSS
UNREALIZED GROSS FAIR
COST GAIN UNREALIZED LOSS VALUE
- -----------------------------------------------------------------------------------------------
DECEMBER 31, 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Treasury Bills $ 2,539,398 $ 0 $ 0 $ 2,539,398
Money-market funds 127,618 0 0 127,618
Equity securities 1,578,329 4,867,352 (115,419) 6,330,262
- -----------------------------------------------------------------------------------------------
4,245,345 4,867,352 (115,419) 8,997,278
Less cash equivalents (2,667,016) 0 0 (2,667,016)
- -----------------------------------------------------------------------------------------------
Total investment securities $ 1,578,329 $4,867,352 $(115,419) $ 6,330,262
===============================================================================================
GROSS
UNREALIZED GROSS FAIR
COST GAIN UNREALIZED LOSS VALUE
- -----------------------------------------------------------------------------------------------
DECEMBER 31, 1994
- -----------------------------------------------------------------------------------------------
Treasury bills $ 1,938,248 $ 0 $ 0 $ 1,938,248
Money-market funds 259,402 0 0 259,402
Equity securities 1,458,283 258,990 (178,251) 1,539,022
- -----------------------------------------------------------------------------------------------
3,655,933 258,990 (178,251) 3,736,672
Less cash equivalents (2,197,650) 0 0 (2,197,650)
- -----------------------------------------------------------------------------------------------
Total investment securities $ 1,458,283 $258,990 $(178,251) $ 1,539,022
===============================================================================================
GROSS
UNREALIZED GROSS FAIR
COST GAIN UNREALIZED LOSS VALUE
- -----------------------------------------------------------------------------------------------
DECEMBER 31, 1993
- -----------------------------------------------------------------------------------------------
Treasury bills $ 2,292,929 $ 0 $ 0 $ 2,292,929
Money-market funds 443,531 0 0 443,531
Equity securities 1,284,838 1,644,820 (67,855) 2,861,803
- -----------------------------------------------------------------------------------------------
4,021,298 1,644,820 (67,855) 5,598,263
Less cash equivalents (2,736,460) 0 0 (2,736,460)
- -----------------------------------------------------------------------------------------------
Total investment securities $ 1,284,838 $1,644,820 $(67,855) $ 2,861,803
===============================================================================================
</TABLE>
PAGE 13
Realized gains and losses on investment securities are as follows:
DECEMBER 31,
----------------------------------
1995 1994 1993
- ------------------------------------------------------------
Gross realized gains $224,119 $165,241 $277,083
Gross realized losses (1,511) (1,036) 0
- ------------------------------------------------------------
Net realized gain $222,608 $164,205 $277,083
============================================================
At January 31, 1996, the fair value of marketable equity securities was
$6,650,576.
The change in the net unrealized holding gain on investment securities at
December 31, 1995 and 1994 consisted of the following:
1995 1994
- ----------------------------------------------------------
Unrealized gain on current
portfolio of marketable
equity securities $ 4,867,352 $ 258,990
Unrealized loss on current
portfolio of marketable
equity securities (115,419) (178,251)
Related deferred tax effect (1,716,200) (27,500)
- ----------------------------------------------------------
Total unrealized
holding gain, net $ 3,035,733 $ 53,239
==========================================================
NOTE 3. INVENTORIES
Inventories used in the determination of cost of goods sold are as follows:
DECEMBER 31,
----------------------------------
1995 1994 1993
- --------------------------------------------------------
Raw materials $518,524 $500,665 $499,647
Work in process 128,371 73,395 109,031
Finished goods 141,387 118,761 129,357
- --------------------------------------------------------
Total inventories $788,282 $692,821 $738,035
========================================================
NOTE 4. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
DECEMBER 31,
------------------------
1995 1994
- ----------------------------------------------------------
Equipment $ 464,348 $ 496,203
Furniture and fixtures 293,695 299,645
Building 1,301,711 1,300,996
Land 414,540 414,540
- ----------------------------------------------------------
2,474,294 2,511,384
Less accumulated depreciation 586,646 531,137
- ----------------------------------------------------------
Total property and equipment $1,887,648 $1,980,247
==========================================================
NOTE 5. NOTE PAYABLE
DECEMBER 31,
--------------------
1995 1994
- -------------------------------------------------
Unsecured bank note, due
July 1996, with interest
of 8.5% paid monthly $586,516 $808,870
=================================================
NOTE 6. ACCRUED EXPENSES
Accrued expenses at December 31, 1995 and 1994 include:
1995 1994
- ------------------------------------------------
Wages and commissions $163,140 $149,735
Other 53,552 54,190
- ------------------------------------------------
Total accrued expenses $216,692 $203,925
================================================
NOTE 7. COMMITMENTS
LEASE COMMITMENTS:
The Company is currently renting office space under a lease agreement which
expires July 1997. The agreement calls for basic monthly rentals of $2,611 plus
operating expenses. The Company is also leasing office equipment under operating
leases expiring at various dates through 1999.
Minimum lease payments required under non-cancelable operating leases are as
follows:
YEAR AMOUNT
- -----------------------------------------------
1996 $ 71,990
1997 55,286
1998 21,131
1999 13,927
2000 723
- -----------------------------------------------
Total minimum lease payments $163,057
===============================================
Rental expense charged to operations was $78,114, $235,632, and $247,859, for
years ended December 31, 1995, 1994 and 1993, respectively.
NOTE 8. COMMON STOCK OPTIONS
The Company has granted nonqualified and incentive stock options to certain
employees and directors. Payment for the shares may be made in cash, shares of
the Company's common stock or a combination thereof. Under the terms of the
stock option plan, incentive stock options are granted at 100% of fair market
value on the date of grant and may be exercised at various times depending upon
the term of the option. The plan also provides that as of the date of each
annual stockholders' meeting, a nonqualified stock option to purchase 4,500
shares of the Company's common stock will be granted to each person elected or
re-elected as a director. All existing options expire 10 years from the date of
grant or one year from the date of death.
PAGE 14
Transactions involving the Plan are summarized as follows:
NUMBER OF SHARES
--------------------------
INCENTIVE DIRECTOR
OPTIONS OPTIONS
- -------------------------------------------------------
Balance, December 31, 1992 40,000 99,000
Granted 0 13,500
Exercised (12,500) 0
- -------------------------------------------------------
Balance, December 31, 1993 27,500 112,500
Granted 0 22,500
Exercised (3,000) 0
Expired 0 (27,000)
- -------------------------------------------------------
Balance, December 31, 1994 24,500 108,000
Granted 0 22,500
Exercised (23,240) (27,000)
Expired 0 0
- -------------------------------------------------------
Balance, December 31, 1995 1,260 103,500
- -------------------------------------------------------
As of December 31, 1995:
Price range of
outstanding options $ 2.38 $2.63-$4.75
Expiration dates 1998 1997-2005
Options exercisable 1,260 103,500
During the year ended December 31, 1995, stock options which were exercised had
a range in exercise price of $2.38 - $3.50.
NOTE 9. EMPLOYEE STOCK OWNERSHIP PLAN
The Company sponsors a leveraged employee stock ownership plan (ESOP) that
covers substantially all employees who work 1,000 or more hours during the year.
The ESOP has, at various times, secured financing from the Company to purchase
the Company's shares on the open market. Dividends on shares held by the ESOP
are used to pay debt service. The ESOP shares purchased with the proceeds of the
Company loans are pledged as collateral for its debt. The shares are maintained
in a suspense account until released and allocated to participant account.
Allocation of released shares to participants' accounts is done at the
discretion of management.
ESOP compensation expense was $40,290, $36,586, and $39,800 for the years
ended December 31, 1995, 1994 and 1993, respectively.
Shares of the Company held by the ESOP at December 31, 1995 and 1994 are as
follows:
1995 1994
- -------------------------------------------------------
Allocated shares 115,681 73,099
Shares released for allocation 0 11,198
Unreleased (unearned) shares 15,000 16,384
- -------------------------------------------------------
Total 100,681 100,681
=======================================================
Fair value of
unreleased (unearned) shares $105,000 $ 53,248
=======================================================
In the event a terminated ESOP participant desires to sell his or her shares of
the Company's stock and the shares are not readily tradable, the Company may be
required to purchase the shares from the participant at their fair market value.
At December 31, 1995, approximately 100,681 shares of the Company's stock, with
an aggregate fair market value of approximately $704,767 are held by ESOP
participants, who if terminated, would be subject to the repurchase requirement.
NOTE 10. NOTES RECEIVABLE FOR THE PURCHASE OF COMMON STOCK
DECEMBER 31, 1995 1994
- ---------------------------------------------------------------
Note receivable for the purchase of
common stock is due from an officer
of the Company. Interest on the note is
paid monthly at a rate which is adjusted
annually (8.5% at December 31, 1995).
The note, which does not contain
scheduled principal payments, is due
February 1998, and is unsecured. $57,000 $61,000
Notes receivable for the purchase
of common stock are due from
employees of the Company. Interest
on the notes is 6%. Monthly
payments of interest and principal
are made through payroll
deductions. The notes are due
December 1998 and are unsecured. 7,759 12,502
- ---------------------------------------------------------------
Total notes receivable for the
purchase of common stock $64,759 $73,502
===============================================================
NOTE 11. STOCKHOLDERS' EQUITY
During the year ended December 31, 1993, the Company issued 5,000 shares of
common stock as compensation for research and development services. The shares
issued and the related compensation expense were recorded based on the quoted
market price of the shares at the date of issue.
PAGE 15
NOTE 12. INCOME TAXES
The components of the income tax provision for the years ended December 31,
1995, 1994 and 1993, are as follows:
1995 1994 1993
- ----------------------------------------------------------
Current:
Federal $337,539 $209,217 $232,954
State 24,811 11,983 14,846
Deferred:
Federal 8,450 200 (900)
State 150 700 (1,000)
- ----------------------------------------------------------
Total federal and
state income taxes $370,950 $222,100 $245,900
==========================================================
The provision for income taxes for the years ended December 31, 1995, 1994
and 1993, differs from the amount obtained by applying the U.S. federal
income tax rate to pretax income due to the following:
1995 1994 1993
- --------------------------------------------------------------
Computed 'expected'
tax expense $407,297 $231,816 $255,382
Increase (decrease) in
taxes resulting from:
State income taxes,
net of federal
benefit 16,127 7,909 9,798
Credits (27,479) (27,552) (26,303)
Other (24,995) 9,927 7,023
- --------------------------------------------------------------
Total federal and
state income taxes $370,950 $222,100 $245,900
==============================================================
The components of the net deferred tax asset (liability) consist of:
1995 1994
- ---------------------------------------------------------
Deferred tax assets:
Vacation disallowance $ 21,300 $ 20,600
Allowance for
doubtful accounts 7,800 11,200
- ---------------------------------------------------------
Total deferred tax assets $ 29,100 $ 31,800
- ---------------------------------------------------------
Deferred tax liabilities:
Depreciation $ (37,900) $(32,000)
Unrealized investment
holding gain (1,716,200) (27,500)
- ---------------------------------------------------------
Total deferred liabilities (1,754,100) (59,500)
- ---------------------------------------------------------
Net deferred tax
asset (liability) $(1,725,000) $(27,700)
=========================================================
NOTE 13. OPERATIONS IN DIFFERENT INDUSTRIES
The following is a breakdown of selected financial statement information by
operating entity:
PRODUCTION MONITORING SYSTEMS
----------------------------------------
DECEMBER 31, 1995 1994 1993
- ------------------------------------------------------------
Total sales $5,164,674 $4,910,149 $4,478,979
Export sales 239,005 226,672 214,019
Income
from operations 1,351,987 978,027 1,001,633
Depreciation 106,984 62,270 52,142
Capital
expenditures 23,989 1,419,141 494,283
Year end
total assets 6,360,711 6,062,743 4,988,417
CHARACTER RECOGNITION IMAGING SYSTEMS
-------------------------------------
DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------
Total sales $ 349,256 $ 449,019 $ 57,058
Export sales 66,712 59,777 0
(Loss) from
operations (363,101) (437,168) (489,083)
Depreciation 13,443 12,721 10,476
Capital
expenditures 8,856 11,925 14,315
Year end
total assets 73,549 115,200 84,774
BRAZING TORCHES
----------------------------------
DECEMBER 31, 1995 1994 1993
- -----------------------------------------------------
Total sales $670,950 $717,126 $695,197
Export sales 26,998 37,962 38,954
(Loss) from
operations (69,454) (77,683) (85,868)
Depreciation 4,818 4,795 9,123
Capital
expenditures 1,161 7,740 0
Year end total
assets 239,260 233,837 238,855
PAGE 16
INDEPENDENT AUDITOR'S REPORT
ELECTRO-SENSORS, INC. AND SUBSIDIARIES
The Board of Directors and Shareholders
ELECTRO-SENSORS, INC.
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheets of Electro-Sensors,
Inc. and Subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall 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 respects, the financial position of Electro-Sensors,
Inc. and Subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for the three years in the period ended December
31, 1995, in conformity with generally accepted accounting principles.
SCHWEITZER RUBIN KARON & BREMER
Certified Public Accountants
Minneapolis, Minnesota
January 29, 1996
PAGE 17
PRICE RANGE OF COMMON STOCK
ELECTRO-SENSORS, INC. AND SUBSIDIARIES
The Company's Common Stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market(sm) under the symbol "ELSE". The following table sets forth
the quarterly high and low reported last sales prices for the Company's common
stock over the past two years as reported on the NASDAQ system.
PERIOD High Low
------ ---- ---
1995 FIRST QUARTER 3 -7/8 3
SECOND QUARTER 3 -5/8 2 -3/4
THIRD QUARTER 5 -1/2 2 -1/2
FOURTH QUARTER 9 -3/4 5
1994 First Quarter 5 3 -3/4
Second Quarter 4 -7/8 3 -1/2
Third Quarter 4 -1/2 3 -1/2
Fourth Quarter 4 3
On March 12, 1996 there were 229 shareholders of record. Electro-Sensors,
Inc. on May 20, 1994 paid a cash dividend on its common stock of $.10 per
share on 1,895,500 shares and on May 19, 1995 paid a cash dividend on its
common stock of $.10 per share on 1,898,500 shares. Electro-Sensors, Inc. on
January 12, 1996 paid a special dividend on its common stock of $.50 per
share on 1,940,270 shares.
QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
ELECTRO-SENSORS, INC. AND SUBSIDIARIES
FISCAL YEAR 1995
FOR THE THREE MONTHS ENDED
-------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- -----------------------------------------------------------------------------
Net Sales $1,543,451 $1,600,614 $1,733,628 $1,307,187
Gross Profit 885,487 857,490 1,021,723 760,447
Income Before
Taxes 161,986 332,385 465,006 196,829
Net Income 102,786 214,385 295,606 172,479
Income Per Share .05 .11 .16 .09
FISCAL YEAR 1994
FOR THE THREE MONTHS ENDED
-------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- -----------------------------------------------------------------------------
Net Sales $1,509,594 $1,578,017 $1,355,896 $1,632,787
Gross Profit 863,603 918,911 737,051 904,741
Income Before
Taxes 274,991 163,027 14,772 229,023
Net Income 177,091 102,627 7,972 172,023
Income Per Share .09 .05 .01 .09
PAGE 18
INVESTOR INFORMATION
ELECTRO-SENSORS, INC. AND SUBSIDIARIES
ANNUAL MEETING
The annual meeting of shareholders will be held at the Decathlon Club, 1700 East
79th Street, Bloomington, Minnesota on April 25, 1996. All shareholders are
welcome to attend and take part in the discussion of company affairs.
BOARD OF DIRECTORS
James P. Slattery
CHAIRMAN OF THE BOARD AND
PRESIDENT OF ELECTRO-SENSORS, INC.
P. R. Peterson
PRESIDENT OF P. R. PETERSON CO.
SECRETARY OF ELECTRO-SENSORS, INC.
Mark D. Laumann
TREASURER OF ELECTRO-SENSORS, INC.
John S. Strom
REALTOR
SCENIC POINT PROPERTIES
Joseph A. Marino
PRESIDENT/CHIEF EXECUTIVE OFFICER
APPLIED BIOMETRICS, INC.
OFFICERS
James P. Slattery
PRESIDENT
P. R. Peterson
SECRETARY
Mark D. Laumann
TREASURER
FORM 10-K AVAILABLE
A copy of Electro-Sensors, Inc. Form 10-KSB annual report filed with the
Securities and Exchange Commission is available without charge to shareholders
by writing to:
Mark Laumann
TREASURER
Electro-Sensors, Inc
6111 Blue Circle Drive
Minnetonka, MN 55343-9108
TRANSFER AGENT & REGISTRAR
Chemical Mellon Shareholder Services
Securities Transfer Services
111 Founders Plaza -- 11th Floor
East Hartford, CT 06108-3212
AUDITORS
Schweitzer Rubin Karon & Bremer
1400 TCF Tower
Minneapolis, MN 55402-9658
COUNSEL
Fredrikson & Byron, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, MN 55402-3397
PAGE 19
[LOGO] ELECTRO-SENSORS, INC.(R)
* 6111 Blue Circle Drive * Minnetonka, Minnesota 55343-9108
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED ACCOUNTANTS
We have issued our report, dated January 29, 1996, accompanying the consolidated
financial statements included or incorporated by reference in the Annual Report
on Form 10-KSB of Electro-Sensors, Inc. for the year ended December 31, 1995. We
hereby consent to the incorporation by reference of the above-mentioned report
in the Prospectus constituting part of the registration statement on Form S-8 of
Electro-Sensors, Inc. (File No. 2-97845) and in the registration statement on
Form S-8 of Electro-Sensors, Inc. (File No. 33-40037).
SCHWEITZER RUBIN KARON & BREMER
Certified Public Accountants
Minneapolis, Minnesota
March 25, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,273,873
<SECURITIES> 6,330,262
<RECEIVABLES> 812,945
<ALLOWANCES> 21,500
<INVENTORY> 788,282
<CURRENT-ASSETS> 11,293,144
<PP&E> 2,474,294
<DEPRECIATION> 586,646
<TOTAL-ASSETS> 13,180,792
<CURRENT-LIABILITIES> 1,190,678
<BONDS> 0
0
0
<COMMON> 194,027
<OTHER-SE> 9,271,987
<TOTAL-LIABILITY-AND-EQUITY> 13,180,792
<SALES> 6,184,880
<TOTAL-REVENUES> 6,563,675
<CGS> 2,659,733
<TOTAL-COSTS> 5,272,948
<OTHER-EXPENSES> 134,521
<LOSS-PROVISION> 2,505
<INTEREST-EXPENSE> 61,652
<INCOME-PRETAX> 1,156,206
<INCOME-TAX> 370,950
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 785,256
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
