U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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
(Address of Principal Executive Offices) (Zip Code)
(612)930-0100
(Issuer's telephone number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Shares of $.10 par value common stock outstanding at July 31, 1996: 1,940,270
<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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES $ 1,469,931 $ 1,600,614 $ 3,045,352 $ 3,144,065
COST OF SALES 626,865 734,713 1,307,364 1,384,132
----------- ----------- ----------- -----------
GROSS MARGIN 843,066 865,901 1,737,988 1,759,933
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling expense 378,268 328,971 703,208 684,270
Administrative expense 190,816 190,068 410,436 408,525
Research and development 183,794 146,961 362,676 311,518
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 752,878 666,000 1,476,320 1,404,313
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 90,188 199,901 261,668 355,620
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Gain (loss) on sale of
investment securities 95,804 128,992 131,656 131,180
Interest income 26,481 39,734 53,958 77,294
Dividend income -0- 3,705 -0- 8,229
Other (37,328) (39,947) (74,789) (77,952)
----------- ----------- ----------- -----------
TOTAL OTHER INCOME 84,957 132,484 110,825 138,751
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 175,145 332,385 372,493 494,371
PROVISION FOR INCOME TAXES 64,100 118,000 145,500 177,200
----------- ----------- ----------- -----------
NET INCOME $ 111,045 $ 214,385 $ 226,993 $ 317,171
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES:
PRIMARY 1,971,631 1,905,193 1,971,078 1,907,193
=========== =========== =========== ===========
ASSUMED FULLY DILUTED 1,975,298 1,905,193 1,975,298 1,907,193
=========== =========== =========== ===========
EARNINGS PER COMMON
AND COMMON EQUIVALENT
SHARES:
PRIMARY $ .05 $ .11 $ .11 $ .16
=========== =========== =========== ===========
ASSUMED FULLY DILUTED $ .05 $ .11 $ .11 $ .16
=========== =========== =========== ===========
</TABLE>
<PAGE>
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 2,327,147 $ 3,273,873
Investment in available-for-sale securities 7,475,196 6,330,262
Trade receivables, less allowance
for doubtful accounts of $29,100
and $21,500, respectively 799,854 791,445
Inventories 853,398 788,282
Prepaid expenses 63,970 80,182
Prepaid income taxes 16,802 -0-
Deferred taxes 29,100 29,100
------------ ------------
TOTAL CURRENT ASSETS 11,565,467 11,293,144
PROPERTY AND EQUIPMENT, NET 1,853,263 1,887,648
------------ ------------
TOTAL ASSETS $ 13,418,730 $ 13,180,792
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 505,616 $ 586,516
Accounts payable 194,341 98,404
Accrued expenses 197,230 216,692
Dividends payable -0- 970,135
Accrued income taxes -0- 88,931
------------ ------------
TOTAL CURRENT LIABILITIES 897,187 1,960,678
------------ ------------
DEFERRED INCOME TAXES 2,112,900 1,754,100
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock - par value $.10 per share;
Authorized 10,000,000 shares; issued
1,940,270 and 1,940,270
shares, respectively 194,027 194,027
Additional paid-in capital 609,785 584,236
Retained earnings 5,869,305 5,758,728
Unrealized holding gain on investment
securities, net 3,798,871 3,035,733
Unearned ESOP shares -0- (41,951)
Notes receivable (63,345) (64,759)
------------ ------------
Total shareholders' equity 10,408,643 9,466,014
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 13,418,730 $ 13,180,792
============ ============
</TABLE>
4
<PAGE>
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
------------ --------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers $3,026,443 $3,086,564
Cash paid to suppliers and employees (2,732,813) (2,832,523)
Interest received 53,958 77,294
Dividend income -0- 8,229
Income taxes paid (251,233) (71,557)
--------- ---------
Net cash provided by operating activities 96,355 268,007
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in available-for-sale securities:
Sales 139,910 145,364
Purchases (31,250) (43,500)
Purchase of equipment (27,655) (22,103)
Repayments of notes receivable 1,414 6,679
Net advances to Employee Stock
Ownership Trust 41,951 12,781
--------- ---------
Net cash (used in) investing activities 124,370 99,221
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (1,086,551) (189,850)
Payments on short-term borrowings (80,900) (108,870)
Proceeds from exercise of stock options -0- 7,125
--------- ---------
Net cash (used in) financing activities (1,167,451) (291,595)
--------- ---------
Increase (decrease) in cash (946,726) 75,633
CASH AND CASH EQUIVALENTS
Beginning 3,273,873 2,826,778
--------- ---------
End $2,327,147 $2,902,411
========= =========
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 226,993 $ 317,171
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 62,040 61,382
Provision for losses on trade receivables 10,500 14,250
Employee stock ownership plan shares 25,549 -0-
Realized (gain) loss on sale of marketable
securities (131,656) (131,180)
Deferred taxes -0- (5,900)
(Increase) decrease in:
Trade receivables (18,909) (57,501)
Inventory (65,116) (68,727)
Prepaid expenses 16,212 23,741
Prepaid income taxes (16,802) 51,754
Increase (decrease) in:
Accounts payable 95,937 10,728
Accrued expenses (19,462) (7,500)
Accrued income taxes payable (88,931) 59,789
------- -------
Net cash provided by operating activities $ 96,355 $ 268,007
======= =======
NONCASH INVESTING AND FINANCING ACTIVITIES
Employee stock ownership plan shares
released by plan 25,549 -0-
Unrealized gain(loss) on marketable securities $763,138 $401,821
------- -------
Total noncash investing and financing $788,687 $401,821
======= =======
</TABLE>
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATION
The company's sales decreased by 8.2% and 3.4%, respectively during the second
quarter and first six months of 1996 when compared to the same periods of 1995.
The decline in second quarter sales occurred in both the Drive Control Systems
division and the company's wholly-owned subsidiary, Microflame, Inc. Meanwhile,
the Speed Monitoring division and the AutoData Systems division remained
relatively unchanged during the second quarter of 1996 as compared to the same
period of a year ago.
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 are being postponed into the latter
half of 1996 or the following year. AutoData Systems sales have improved
significantly in May and June of 1996 resulting from the release of an automated
survey software package for the medical industry. The survey software package
utilizes our optical mark recognition technology to automate the data entry
processing of responding participant questionnaires. The survey package is
receiving positive acceptance by its new users.
The company's wholly-owned subsidiary, Microflame, Inc., has experienced a 23.4%
decrease in sales during the first six months of 1996. The decline in sales
reflect a substantial decrease in sales to Microflame's largest customer (Radio
Shack) which compares to a substantial sales increase in the first six months of
1995. The substantial change in sales volume reflects both a lessening demand
and weak consumer marketplace for Microflame's gas torch products.
Cost of sales decreased both as a percentage of sales and when compared to a
year ago. The decreased costs resulted primarily from the decreased sales of
Microflame products, which have a lower profit margin. In addition, the Controls
division experienced cost savings due to both lower manufacturing and material
costs during the second quarter of 1996.
Operating expenses increased during the second quarter of 1996. The increased
expense occurred primarily in the marketing and engineering areas of the
Controls Division. These increased expenses were concentrated in the product
promotion and product development areas as the company continues its commitment
toward future sales growth.
Net income declined significantly in the second 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 six 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.
6
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the first six months ended June 30, 1995, working capital increased
$1,335,814 to a total of $10,668,280. The increase in marketable securities
which resulted from the reporting of unrealized gains on these holdings
accounted for $1,121,939 of this change in working capital. Both inventory and
accounts payable increased as a result of increased sales activity in the Speed
Monitoring unit. Accounts receivable increased due to timing differences. In
addition, proceeds from the sale of marketable securities generated $139,910.
The company received a loan payment from the ESOP plan of $41,951. The company
made dividend payments of $970,135, $58,208 and $58,208 during the first six
months of 1996. In addition, the company invested both an additional $27,655 in
office and manufacturing equipment and $80,900 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
The following matters were voted on by shareholders during the period
covered by this Form 10-QSB:
a) The Annual Meeting of Shareholders was held April 25, 1996.
b) Election of Directors as Follows:
Peter R. Peterson 1,802,278 For 4,050 Withheld Authority
--------- ------
James P. Slattery 1,801,978 For 4,350 Withheld Authority
--------- ------
Mark D. Laumann 1,801,978 For 4,350 Withheld Authority
--------- ------
John S. Strom 1,801,978 For 4,350 Withheld Authority
--------- ------
Joseph A. Marino 1,801,978 For 4,350 Withheld Authority
--------- ------
7
<PAGE>
c) Approval of the Electro-Sensors, Inc. 1996 Employee Stock
Purchase Plan.
1,489,944 For 5,100 Against 1,985 Abstain
d) Approval of Schweitzer Rubin Karon & Bremer as independent
Auditors.
1,806,328 For -0- Against -0- Abstain
There were no other 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.
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 June
30, 1996.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf of the undersigned
thereunto duly authorized.
ELECTRO-SENSORS, INC.
Date August 5, 1996 By /s/ JAMES P. SLATTERY
James P. Slattery, President
Date August 5, 1996 By /s/ MARK D. LAUMANN
Mark D. Laumann, Treasurer
(principal financial officer)
9
<PAGE>
Exhibit Index
Exhibit No. Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 2,327,147
<SECURITIES> 7,475,196
<RECEIVABLES> 828,954
<ALLOWANCES> 29,100
<INVENTORY> 853,398
<CURRENT-ASSETS> 11,565,467
<PP&E> 2,501,948
<DEPRECIATION> 648,685
<TOTAL-ASSETS> 13,418,730
<CURRENT-LIABILITIES> 897,187
<BONDS> 0
0
0
<COMMON> 194,027
<OTHER-SE> 10,214,616
<TOTAL-LIABILITY-AND-EQUITY> 13,418,730
<SALES> 3,045,352
<TOTAL-REVENUES> 3,230,966
<CGS> 1,307,364
<TOTAL-COSTS> 2,783,684
<OTHER-EXPENSES> 51,589
<LOSS-PROVISION> 10,500
<INTEREST-EXPENSE> 23,200
<INCOME-PRETAX> 372,493
<INCOME-TAX> 145,500
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 226,993
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
