U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 55343-9108
(Address of Principal Executive Offices) (Zip Code)
(612)930-0100
(Issuer's telephone number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Shares of $.10 par value common stock outstanding at November 4,
1997: 1,958,362
Transitional Small Business Disclosure Format (check one):
Yes No X
<PAGE>
Part I. Financial Information
The interim financial statements included in this form 10-QSB are unaudited and
reflect in the opinion of management all adjustments (which include only normal
recurring adjustments) necessary for a fair presentation of the results of
operations for these periods.
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
SALES $1,596,353 $1,508,733 $4,835,188 $4,554,085
- -----
COST OF SALES 658,531 642,490 1,997,834 1,949,854
- ------------- --------- --------- --------- ---------
GROSS MARGIN 937,822 866,243 2,837,354 2,604,231
- ------------ --------- --------- --------- ---------
OPERATING EXPENSES:
Selling expense 419,215 328,431 1,135,538 1,031,639
Administrative expense 172,419 192,574 579,037 603,010
Research and development 161,282 168,601 495,314 531,277
--------- --------- --------- ---------
TOTAL OPERATING EXPENSES 752,916 689,606 2,209,889 2,165,926
- ------------------------ --------- --------- --------- ---------
INCOME FROM OPERATIONS 184,906 176,637 627,465 438,305
- ---------------------- --------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Gain (loss) on sale of
investment securities 4,397 71,457 9,929 203,113
Interest income 29,224 28,444 88,529 82,402
Other (28,272) (36,210) (110,680) (110,999)
--------- --------- --------- ---------
TOTAL OTHER INCOME 5,349 63,691 (12,222) 174,516
- ------------------ --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 190,255 240,328 615,243 612,821
- --------------------------
PROVISION FOR INCOME TAXES 69,600 77,000 225,200 222,500
- -------------------------- --------- --------- --------- ---------
NET INCOME $ 120,655 $ 163,328 $ 390,043 $ 390,321
- ---------- ========= ========= ========= =========
</TABLE>
<PAGE>
(Continued)
<TABLE>
<CAPTION>
Three Months ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES:
PRIMARY 1,981,768 1,964,465 1,973,628 1,969,370
------- ========= ========= ========= =========
ASSUMED FULLY DILUTED 2,005,474 1,964,465 2,005,474 1,969,370
--------------------- ========= ========= ========= =========
EARNINGS PER COMMON
AND COMMON EQUIVALENT
SHARES:
PRIMARY $.06 $.09 $.20 $.20
------- === === === ===
ASSUMED FULLY DILUTED $.05 $.09 $.19 $.20
--------------------- === === === ===
</TABLE>
<PAGE>
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
------ ------------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 2,687,026 $ 2,581,588
Investment in available-for-sale securities 5,803,896 5,356,210
Trade receivables, less allowance
for doubtful accounts of $40,000
and $18,000, respectively 696,349 726,628
Inventories 952,758 829,428
Prepaid expenses 86,918 76,018
Prepaid income tax 621 -0-
Deferred taxes 77,200 77,200
---------- ----------
TOTAL CURRENT ASSETS 10,304,768 9,647,072
- --------------------
PROPERTY AND EQUIPMENT, NET 1,812,771 1,838,270
- --------------------------- ---------- ----------
TOTAL ASSETS $12,117,539 $11,485,342
- ------------ ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 329,593 $ 421,383
Accounts payable 178,628 115,666
Accrued expenses 274,140 387,594
Accrued income taxes -0- 14,748
---------- ----------
TOTAL CURRENT LIABILITIES 782,361 939,391
- ------------------------- ---------- ----------
DEFERRED INCOME TAXES 1,593,800 1,398,900
- --------------------- ---------- ----------
SHAREHOLDERS' EQUITY:
Common stock - par value $.10 per share;
Authorized 10,000,000 shares; issued
1,958,362 and 1,942,282
shares, respectively 195,836 194,228
Additional paid-in capital 666,704 618,135
Retained earnings 6,204,669 5,988,629
Unrealized holding gain on investment
securities, net 2,676,471 2,408,385
Notes receivable (2,302) (62,326)
---------- ----------
Total shareholders' equity 9,741,378 9,147,051
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $12,117,539 $11,485,342
- ------------------------------------------ ========== ==========
</TABLE>
<PAGE>
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
------ ------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers $4,791,217 $4,564,514
Cash paid to suppliers and employees (4,330,940) (4,173,172)
Interest received 88,529 82,402
Income taxes paid (240,569) (328,733)
---------- ----------
Net cash provided by operating activities 308,237 145,011
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in available-for-sale activities:
Sales 25,229 216,168
Purchases -0- (31,250)
Purchase of property and equipment (72,436) (45,574)
Notes receivable 60,024 1,622
Net advances to Employee Stock
Ownership Trust -0- 41,951
---------- ----------
Net cash (used in) investing activities 12,817 182,917
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (175,163) (1,144,820)
Payments on short-term borrowings (91,790) (105,474)
Proceeds from issuance of stock 51,337 34,101
---------- ----------
Net cash (used in) financing activities (215,616) (1,216,193)
---------- ----------
Increase (decrease) in cash 105,438 (888,265)
CASH AND CASH EQUIVALENTS
Beginning 2,581,588 3,273,873
---------- ----------
End $ 2,687,026 $ 2,385,608
========== ==========
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 390,043 $ 390,321
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 97,935 94,897
Provision for losses on trade receivables 74,250 15,750
Realized (gain) loss on sale of marketable
securities (9,929) (203,113)
(Increase) decrease in:
Trade receivables (43,971) 10,429
Inventory (123,330) (101,208)
Prepaid expenses (10,900) (20,072)
Prepaid income taxes (621) (17,302)
Increase (decrease) in:
Accounts payable 62,962 64,532
Accrued expenses (113,454) (292)
Accrued income taxes payable (14,748) (88,931)
--------- ---------
Net cash provided by operating activities $ 308,237 $ 145,011
========= =========
NONCASH INVESTING AND FINANCING ACTIVITIES
Tax benefit of stock options exercised $ 1,160 $ -0-
Unrealized gain(loss) on marketable securities 462,986 (351,719)
--------- ---------
Total noncash investing and financing $ 464,146 $ (351,719)
========= =========
</TABLE>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATION
The Company's sales increased by 5.8% and 6.2%, respectively during the third
quarter and first nine months of 1997 when compared to the same periods of 1996.
Increased third quarter sales were provided primarily by both the Speed
Monitoring Systems and AutoData Systems divisions. The Drive Control Systems
division continues to experience declining sales to its OEM customers during the
third quarter of 1997. Meanwhile, third quarter sales remained relatively
unchanged for 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 to 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 3.4%
decrease in sales during the first nine months of 1997. The decline in sales
reflects a decrease in single gas torch 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
<PAGE>
concentrated in the product promotion of its automated survey software packages
into the general and healthcare markets.
The Company's operating income increased 43.2% during the first nine months of
1997 resulting principally 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. This resulted
in net income remaining relatively unchanged during the first nine months of
1997 as compared to the same periods of 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months ended September 30, 1997, working capital increased
$814,726 to a total of $9,522,407. The increase in the fair market value of
marketable securities resulted from the increased quoted market price of certain
securities. This increase in market value accounted for $462,986 of this change
in working capital. Accounts receivable and inventory increased due to the
higher volume of sales during the first nine months of 1997. Accounts payable
decreased due to timing differences. In addition, proceeds from the exercise of
stock options and the employee stock purchase plan generated $33,160 and
$18,177, respectively, during the first nine months. The Company received
$25,229 from the sale of marketable securities. The Company also received notes
receivable payments of $60,024. The Company made dividend payments of $58,347,
$58,348 and $58,468 during the first nine months of 1997. In addition, the
Company invested both an additional $72,436 in office and manufacturing
equipment and $91,790 into the repayment of short-term borrowings. The Company
believes it can pay projected capital and operating expenses out of income and
current reserves.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
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
<PAGE>
There were no matters submitted to vote of shareholders during the
period covered by this Form 10-QSB.
Item 5. Other Information
As provided for under the Private Securities Litigation Reform Act of 1995, the
Company wishes to caution investors that the following important factors, among
others, in some cases have affected and in the future could affect the Company's
actual results of operations and cause such results to differ materially from
those anticipated in forward-looking statements made in this document and
elsewhere by or on behalf of the Company: the uncertainty of market acceptance
of products of the Company's AutoData Systems division which is in an early
stage of development; fluctuations and declines in operating results of the
Company's Drive Control Systems, Speed Monitoring and Microflame division;
fluctuations in the value of the Company's investments, particularly PPT Vision,
and sales of such investments; competition, particularly with regard to the
pricing of products; the Company's ability to develop new products; and
dependence on suppliers. For additional information, please see the Company's
Annual Report on Form 10-KSB.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
September 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf of the undersigned
thereunto duly authorized.
ELECTRO-SENSORS, INC.
Date November 4, 1997 By /s/ Bradley D. Slye
Bradley D. Slye, President
Date November 4, 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 September 30, 1997
Exhibit No. Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS CONTAINED IN THE REGISTRANT'S FORM
10-QSB FOR THE QUARTER ENDED 9/30/97 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 2,687,026
<SECURITIES> 5,803,896
<RECEIVABLES> 736,349
<ALLOWANCES> 40,000
<INVENTORY> 952,758
<CURRENT-ASSETS> 10,304,768
<PP&E> 2,597,182
<DEPRECIATION> 784,411
<TOTAL-ASSETS> 12,117,539
<CURRENT-LIABILITIES> 782,361
<BONDS> 0
0
0
<COMMON> 195,836
<OTHER-SE> 9,545,542
<TOTAL-LIABILITY-AND-EQUITY> 12,117,539
<SALES> 4,835,188
<TOTAL-REVENUES> 4,933,646
<CGS> 1,997,834
<TOTAL-COSTS> 4,207,723
<OTHER-EXPENSES> 110,680
<LOSS-PROVISION> 74,250
<INTEREST-EXPENSE> 23,109
<INCOME-PRETAX> 615,243
<INCOME-TAX> 225,200
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 390,043
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
