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 March 31, 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 May 2,
1997: 1,944,911
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)
Three Months Ended
March 31,
1997 1996
SALES $1,668,709 $1,575,421
COST OF SALES 704,425 680,499
--------- ---------
GROSS MARGIN 964,284 894,922
--------- ---------
OPERATING EXPENSES:
Selling 340,133 324,940
Administrative 204,988 219,620
Research and development 171,092 178,882
--------- ---------
TOTAL OPERATING EXPENSES 716,213 723,442
--------- ---------
INCOME FROM OPERATIONS 248,071 171,480
--------- ---------
OTHER INCOME (EXPENSE):
Gain on sale of
investment securities 5,532 35,852
Interest income 29,581 27,477
Other (44,341) (37,461)
--------- ---------
TOTAL OTHER INCOME (9,228) 25,868
--------- ---------
INCOME BEFORE INCOME TAXES 238,843 197,348
PROVISION FOR INCOME TAXES 87,500 81,400
--------- ---------
NET INCOME $ 151,343 $ 115,948
========= =========
2
<PAGE>
(Continued)
Three Months Ended
March 31,
1997 1996
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES:
PRIMARY 1,954,387 1,966,582
========= =========
ASSUMED FULLY DILUTED 1,954,387 1,966,582
========= =========
EARNINGS PER COMMON
AND COMMON EQUIVALENT
SHARES:
PRIMARY $.08 $.06
=== ===
ASSUMED FULLY DILUTED $.08 $.06
=== ===
3
<PAGE>
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $2,727,971 $2,581,588
Investment in available-for-sale securities 4,179,695 5,356,210
Trade receivables, less allowance
for doubtful accounts of $45,150
and $18,000, respectively 750,752 726,628
Inventories 802,383 829,428
Prepaid expenses 82,997 76,018
Deferred taxes 77,200 77,200
--------- ---------
TOTAL CURRENT ASSETS 8,620,998 9,647,072
PROPERTY AND EQUIPMENT, NET 1,850,047 1,838,270
--------- ---------
TOTAL ASSETS $10,471,045 $11,485,342
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 378,203 $ 421,383
Accounts payable 161,101 115,666
Accrued expenses 303,847 387,594
Accrued income taxes 101,166 14,748
--------- ---------
TOTAL CURRENT LIABILITIES 944,317 939,391
--------- ---------
DEFERRED INCOME TAXES 953,400 1,398,900
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock - par value $.10 per share;
Authorized 10,000,000 shares; issued
1,944,911 and 1,942,282
shares, respectively 194,491 194,228
Additional paid-in capital 625,135 618,135
Retained earnings 6,081,622 5,988,629
Unrealized holding gain on investment
securities, net 1,678,421 2,408,385
Notes receivable (6,341) (62,326)
--------- ---------
Total shareholders' equity 8,573,328 9,147,051
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $10,471,045 $11,485,342
========== ==========
</TABLE>
4
<PAGE>
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers $1,616,335 $1,494,416
Cash paid to suppliers and employees (1,423,190) (1,351,957)
Interest received 29,581 27,477
Income taxes paid (1,082) (101,333)
--------- ---------
Net cash provided by operating activities 221,644 68,603
CASH FLOWS FROM INVESTING ACTIVITIES --------- ---------
Investments in available-for-sale securities:
Sales 6,583 41,107
Purchases -0- (31,250)
Purchase of equipment (43,562) (8,644)
Repayments of notes receivable 55,985 707
Net repayment from Employee Stock
Ownership Trust -0- 41,951
--------- ---------
Net cash (used in) investing activities 19,006 43,871
CASH FLOWS FROM FINANCING ACTIVITIES --------- ---------
Dividends paid (58,350) (1,028,343)
Payments on short-term borrowings (43,180) (39,964)
Proceeds from Employee Stock Purchase Plan 7,263 -0-
--------- ---------
Net cash (used in) financing activities (94,267) (1,068,307)
--------- ---------
Increase (decrease) in cash 146,383 (955,833)
CASH AND CASH EQUIVALENTS
Beginning 2,581,588 3,273,873
--------- ---------
End $2,727,971 $2,318,040
========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 151,343 $ 115,948
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 31,785 30,236
Provision for losses on trade receivables 28,250 5,250
Employee Stock Ownership Plan shares
released by plan -0- 25,549
Realized (gain) loss on sale of
investment securities, net (5,532) (35,852)
Deferred taxes -0- -0-
(Increase) decrease in:
Trade receivables (52,374) (81,005)
Inventory 27,045 9,827
Prepaid expenses (6,979) (6,587)
Increase (decrease) in:
Accounts payable 45,435 71,537
Accrued expenses (83,747) (46,367)
Accrued income taxes payable 86,418 (19,933)
--------- ---------
Net cash provided by operating activities $ 221,644 $ 68,603
========= =========
NONCASH INVESTING AND FINANCING ACTIVITIES
Employee Stock Ownership Plan shares
released by plan -0- 25,549
Unrealized gain(loss) on marketable securities $1,175,464 $ 247,102
--------- ---------
Total noncash investing and financing $1,175,464 $ 272,651
========= =========
</TABLE>
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATION
Net income increased 30.5% during the first quarter of 1997. The increased
earnings are attributed to the increase in sales activity experienced during the
period.
Sales for the first quarter of 1997 increased 5.9% to $1,668,709 as compared to
$1,575,421 for the first quarter of 1996. The increase in sales was provided
primarily by the AutoData Systems segment. In addition, both the Speed
Monitoring Systems and Drive Control Systems segments experienced moderate sales
increases while Microflame experienced a sales decrease during the period. The
increase in AutoData Systems sales resulted from its development of a vertical
market survey package utilizing check mark recognition technology in the
processing of participant responses for the Healthcare industry. The AutoData
Systems survey package was released late during the first quarter 1996.
The Company's cost of sales increased when compared to a year ago, but decreased
as a percentage of sales. The increased cost during the comparable periods
resulted from both increased sales volume and a slight increase in material cost
of semiconductor components which are utilized by the electronic manufacturing
segments of our business.
Selling and administrative expenses remained relatively unchanged during the
first quarter of 1997 as compared to the same period of 1996. Decreased
personnel costs offset increased marketing expenses associated with the
promotion of the AutoData Survey package. Other selling and administrative
expenses remained relatively unchanged.
Research and development expense decreased during the first quarter of 1997 as
compared to 1996. The decreased expense resulted primarily from decreases in
both personnel cost and development expenses during the comparable periods.
However, the Company still continues its commitment toward new product
development as the key for future sales growth.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months ended March 31, 1997, working capital decreased
$1,031,000 to a total of $7,676,681. 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 increased and inventory
decreased due to the higher volume of sales during the first quarter of 1997.
Accounts payable increased as a result of additional raw material purchases late
during the first quarter. In addition, proceeds from the sales of marketable
securities and the employee stock purchase plan generated $6,583 and $7,263,
respectively, during the first three months. The Company received notes
receivable payments of $55,985. The Company made a dividend payment of $58,350
during the first quarter of 1997. In addition, the Company invested an
additional $43,562 in office and manufacturing equipment and repaid $43,180 of
short-term borrowings. The Company believes it can pay projected capital and
operating expenses out of income and current reserves.
6
<PAGE>
OTHER INFORMATION
PART II
Item 1. Legal Proceedings
There were no material developments in previously reported legal
proceedings.
Item 2. Changes in Securities
No changes have been made in any registered securities.
Item 3. Defaults Upon Senior Securities
No event constituting a default has occurred respecting any senior
security of the Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a 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 March
31, 1997.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
ELECTRO-SENSORS, INC.
Date MAY 7, 1997 By /s/ Bradley D. Slye
Bradley D. Slye, President
By /s/ Mark D. Laumann
Mark D. Laumann, Treasurer
(principal financial officer)
8
<PAGE>
EXHIBIT INDEX
ELECTRO-SENSORS, INC.
FORM 10-QSB
For Fiscal Quarter Ended March 31, 1997
Exhibit No. Description
27 Financial Data Schedule (filed in electronic format only)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 2,727,971
<SECURITIES> 4,179,695
<RECEIVABLES> 795,902
<ALLOWANCES> 45,150
<INVENTORY> 802,383
<CURRENT-ASSETS> 8,620,998
<PP&E> 2,568,308
<DEPRECIATION> 718,261
<TOTAL-ASSETS> 10,471,045
<CURRENT-LIABILITIES> 944,317
<BONDS> 0
0
0
<COMMON> 194,491
<OTHER-SE> 8,378,837
<TOTAL-LIABILITY-AND-EQUITY> 10,471,045
<SALES> 1,668,709
<TOTAL-REVENUES> 1,703,822
<CGS> 704,425
<TOTAL-COSTS> 1,420,638
<OTHER-EXPENSES> 35,935
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,406
<INCOME-PRETAX> 238,843
<INCOME-TAX> 87,500
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151,343
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
