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, 1997
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,
1997: 1,953,362
<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)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
SALES $1,570,126 $1,469,931 $3,238,835 $3,045,352
COST OF SALES 634,878 626,865 1,339,303 1,307,364
--------- --------- --------- ---------
GROSS MARGIN 935,248 843,066 1,899,532 1,737,988
--------- --------- --------- ---------
OPERATING EXPENSES:
Selling expense 376,190 378,268 716,323 703,208
Administrative expense 201,630 190,816 406,618 410,436
Research and development 162,940 183,794 334,032 362,676
--------- --------- --------- ---------
TOTAL OPERATING EXPENSES 740,760 752,878 1,456,973 1,476,320
--------- --------- --------- ---------
INCOME FROM OPERATIONS 194,488 90,188 442,559 261,668
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Gain (loss) on sale of
investment securities -0- 95,804 5,532 131,656
Interest income 29,724 26,481 59,305 53,958
Dividend income -0- -0- -0- -0-
Other (38,067) (37,328) (82,408) (74,789)
--------- --------- --------- ---------
TOTAL OTHER INCOME (8,343) 84,957 (17,571) 110,825
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 186,145 175,145 424,988 372,493
PROVISION FOR INCOME TAXES 68,100 64,100 155,600 145,500
--------- --------- --------- ---------
NET INCOME $ 118,045 $ 111,045 $ 269,388 $ 226,993
========= ========= ========= =========
<PAGE>
(Continued)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES:
PRIMARY 1,962,838 1,971,631 1,962,838 1,971,078
========= ========= ========= =========
ASSUMED FULLY DILUTED 1,962,838 1,975,298 1,962,838 1,975,298
========= ========= ========= =========
EARNINGS PER COMMON
AND COMMON EQUIVALENT
SHARES:
PRIMARY $.06 $.05 $.14 $.11
=== === === ===
ASSUMED FULLY DILUTED $.06 $.05 $.14 $.11
=== === === ===
<PAGE>
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1997 1996
---------- -----------
ASSETS
CURRENT ASSETS
Cash $ 2,653,037 $ 2,581,588
Investment in available-for-sale securities 4,242,067 5,356,210
Trade receivables, less allowance
for doubtful accounts of $25,300
and $18,000, respectively 673,408 726,628
Inventories 906,432 829,428
Prepaid expenses 74,941 76,018
Deferred taxes 77,200 77,200
---------- ----------
TOTAL CURRENT ASSETS 8,627,085 9,647,072
PROPERTY AND EQUIPMENT, NET 1,817,773 1,838,270
---------- ----------
TOTAL ASSETS $10,444,858 $11,485,342
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 333,981 $ 421,383
Accounts payable 157,316 115,666
Accrued expenses 281,003 387,594
Accrued income taxes 5,580 14,748
---------- ----------
TOTAL CURRENT LIABILITIES 777,880 939,391
---------- ----------
DEFERRED INCOME TAXES 1,010,500 1,398,900
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock - par value $.10 per share;
Authorized 10,000,000 shares;
issued 1,949,411 and 1,942,282
shares, respectively 194,941 194,228
Additional paid-in capital 640,435 618,135
Retained earnings 6,141,320 5,988,629
Unrealized holding gain on investment
securities, net 1,683,693 2,408,385
Notes receivable (3,911) (62,326)
---------- ----------
Total shareholders' equity 8,656,478 9,147,051
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $10,444,858 $11,485,342
========== ==========
<PAGE>
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
Six Months Ended
June 30,
1997 1996
--------- --------
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers $3,186,235 $3,026,443
Cash paid to suppliers and employees (2,849,480) (2,732,813)
Interest received 59,305 53,958
Income taxes paid (164,768) (251,233)
--------- ---------
Net cash provided by operating activities 231,292 96,355
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in available-for-sale securities:
Sales 6,583 139,910
Purchases -0- (31,250)
Purchase of equipment (43,755) (27,655)
Repayments of notes receivable 58,415 1,414
Net advances to Employee Stock
Ownership Trust -0- 41,951
--------- ---------
Net cash (used in) investing activities 21,243 124,370
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (116,695) (1,086,551)
Payments on short-term borrowings (87,402) (80,900)
Proceeds from exercise of stock options 15,750 -0-
Proceeds from Employee Stock Purchase Plan 7,261 -0-
--------- ---------
Net cash (used in) financing activities (181,086) (1,167,451)
--------- ---------
Increase (decrease) in cash 71,449 (946,726)
CASH AND CASH EQUIVALENTS
Beginning 2,581,588 3,273,873
--------- ---------
End $2,653,037 $2,327,147
========= =========
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 269,388 $ 226,993
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 64,252 62,040
Provision for losses on trade receivables 60,000 10,500
Employee stock ownership plan shares -0- 25,549
Realized (gain) loss on sale of marketable
securities (5,532) (131,656)
(Increase) decrease in:
Trade receivables (6,780) (18,909)
Inventory (77,004) (65,116)
Prepaid expenses 1,077 16,212
Prepaid income taxes -0- (16,802)
Increase (decrease) in:
Accounts payable 41,650 95,937
Accrued expenses (106,591) (19,462)
Accrued income taxes payable (9,168) (88,931)
-------- -------
Net cash provided by operating activities $ 231,292 $ 96,355
======== =======
NONCASH INVESTING AND FINANCING ACTIVITIES
Employee stock ownership plan shares
released by plan $ -0- $ 25,549
Unrealized gain(loss) on marketable securities (724,692) 763,138
-------- -------
Total noncash investing and financing $(724,692) $788,687
======== =======
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATION
The Company's sales increased by 6.8% and 6.4%, respectively during the second
quarter and first six months of 1997 when compared to the same periods of 1996.
Increased second quarter sales for both the Speed Monitoring Systems and
AutoData Systems divisions offset decreased sales in both the Drive Control
Systems division and the Company's wholly-owned subsidiary, Microflame, Inc.
The Company's Speed Monitoring and Drive Control Systems divisions experienced
increased and decreased sales growth, respectively during 1997. The increased
Speed Monitoring sales have been provided by strong economic growth. Many of our
customers have been required to maintain or slightly improve their existing
manufacturing equipment to meet increasing production capacities. This has
provided an increased demand for our Speed Monitoring products as both
replacement and minor improvements. However, the same increased production
demands have prevented plants from performing major plant expansion and retrofit
projects. This has caused slowed Drive Control Systems sales during the second
quarter as a result of our customers being unable to temporarily stop production
to install enhancement devices capable of improving overall plant performance.
AutoData Systems sales have improved significantly in 1997. Increasing customer
acceptance of the AutoData survey software and increased scanner sales have been
attributed with the rising AutoData sales levels throughout 1997. The survey
software package utilizes our optical mark recognition technology to automate
the data entry processing of responding participant questionnaires. AutoData
Systems has experienced positive customer response since the release of its
automated survey software in 1996 and continues to concentrate marketing efforts
in this area.
The Company's wholly-owned subsidiary, Microflame, Inc., has experienced a 6.1%
decrease in sales during the first six months of 1997. The decline in sales
reflects a decrease in sales to its largest customer (Radio Shack).
Cost of sales decreased as a percentage of sales but increased when compared to
a year ago. The improved margin resulted from a change in product mix due to the
increased AutoData sales which contain a higher margin.
Operating expenses decreased slightly during 1997 when compared to the same
periods of 1996. Increased marketing expense in the AutoData operating segment
was offset by decreased personnel and engineering costs during the year. The
increased marketing expenses were concentrated in the product promotion of its
automated survey software packages into the general and healthcare markets.
Net income increased 6.3% and 18.7%, respectively during the second quarter and
first six months of 1997 as compared to the same periods of 1996. The Company's
operating income increased 69.1% during the first six months of 1997 and
resulted directly from the increased sales. However, the increase in operating
income was partially offset by lower income from the sale of investment
securities experienced during 1997 as compared to 1996.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the first six months ended June 30, 1997, working capital decreased
$858,476 to a total of $7,849,205. The decrease in the fair market value of
marketable securities resulted from the declined quoted market price of certain
securities. This decline in market value is the principal reason for the
reduction in working capital. Accounts receivable, inventory and accounts
payable increased due to the higher volume of sales during the first six months
of 1997. In addition, proceeds from the exercise of stock options and the
employee stock purchase plan generated $15,750 and $7,261, respectively, during
the first six months. The Company received $5,532 from the sale of marketable
securities. The Company also received notes receivable payments of $58,415. The
Company made dividend payments of $58,347 and $58,348 during the first six
months of 1997. In addition, the Company invested both an additional $43,755 in
office and manufacturing equipment and $87,402 into the repayment of short-term
borrowings. 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 29, 1997.
b) Election of Directors as Follows:
Peter R. Peterson 1,802,665 For 7,550 Withheld Authority
James P. Slattery 1,802,665 For 7,550 Withheld Authority
Mark D. Laumann 1,802,665 For 7,550 Withheld Authority
John S. Strom 1,802,665 For 7,550 Withheld Authority
Joseph A. Marino 1,802,665 For 7,550 Withheld Authority
<PAGE>
c) Approval of the Electro-Sensors, Inc. 1997 Stock Option Plan.
1,181,542 For 37,608 Against 10,250 Abstain
--------- ------ ------
d) Approval of Schweitzer Rubin Karon & Bremer as independent
Auditors.
1,805,615 For 3,900 Against 700 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, 1997.
<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 11, 1997 By /s/ Bradley D. Slye
Bradley D. Slye, President
Date August 11, 1997 By /s/ Mark D. Laumann
Mark D. Laumann, Treasurer
(principal financial officer)
<PAGE>
EXHIBIT INDEX
ELECTRO-SENSORS, INC.
FORM 10-QSB
For Fiscal Quarter Ended June 30, 1997
Exhibit No. Description
27 Financial Data Schedule
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<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 2,653,037
<SECURITIES> 4,242,067
<RECEIVABLES> 698,808
<ALLOWANCES> 25,400
<INVENTORY> 906,432
<CURRENT-ASSETS> 8,627,085
<PP&E> 2,568,501
<DEPRECIATION> 750,728
<TOTAL-ASSETS> 10,444,858
<CURRENT-LIABILITIES> 777,880
<BONDS> 0
0
0
<COMMON> 194,941
<OTHER-SE> 8,461,537
<TOTAL-LIABILITY-AND-EQUITY> 10,444,858
<SALES> 3,238,835
<TOTAL-REVENUES> 3,303,672
<CGS> 1,339,303
<TOTAL-COSTS> 2,796,276
<OTHER-EXPENSES> 82,408
<LOSS-PROVISION> 60,000
<INTEREST-EXPENSE> 16,207
<INCOME-PRETAX> 424,988
<INCOME-TAX> 155,600
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 269,388
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
