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, 1998
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, 1998: 1,969,086
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,
------------------
1998 1997
---- ----
SALES $1,615,298 $1,668,709
COST OF SALES 682,939 704,425
--------- ---------
GROSS MARGIN 932,359 964,284
--------- ---------
OPERATING EXPENSES:
Selling 507,040 340,133
Administrative 181,344 204,988
Research and development 143,732 171,092
--------- ---------
TOTAL OPERATING EXPENSES 832,116 716,213
--------- ---------
INCOME FROM OPERATIONS 100,243 248,071
--------- ---------
OTHER INCOME (EXPENSE):
Gain on sale of
investment securities -0- 5,532
Interest income 27,277 29,581
Other (40,557) (44,341)
--------- ---------
TOTAL OTHER INCOME (13,280) (9,228)
--------- ---------
INCOME BEFORE INCOME TAXES 86,963 238,843
PROVISION FOR INCOME TAXES 31,800 87,500
--------- ---------
NET INCOME $ 55,163 $ 151,343
========= =========
<PAGE>
(Continued)
Three Months Ended
March 31,
------------------
1998 1997
---- ----
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES:
BASIC 1,964,586 1,947,839
========= =========
DILUTED 1,980,664 1,954,387
========= =========
EARNINGS PER COMMON
AND COMMON EQUIVALENT
SHARES:
BASIC $.03 $.08
=== ===
DILUTED $.03 $.08
=== ===
<PAGE>
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1998 1997
---------- -----------
ASSETS
CURRENT ASSETS
Cash $2,406,090 $2,536,685
Investment in available-for-sale securities 4,945,656 4,698,710
Trade receivables, less allowance
for doubtful accounts of $24,500
and $18,000, respectively 756,935 746,049
Inventories 992,959 876,189
Prepaid expenses 85,413 76,921
Prepaid income taxes 68,952 100,752
Deferred taxes 51,500 51,500
---------- ----------
TOTAL CURRENT ASSETS 9,307,505 9,086,806
PROPERTY AND EQUIPMENT, NET 1,814,359 1,807,950
---------- ----------
TOTAL ASSETS $11,121,864 $10,894,756
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 197,956 $ 240,775
Accounts payable 183,177 97,998
Accrued expense 204,919 263,688
---------- ----------
TOTAL CURRENT LIABILITIES 586,052 602,461
---------- ----------
DEFERRED INCOME TAXES 1,273,400 1,184,400
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock - par value $.10 per share;
Authorized 10,000,000 shares;
issued 1,964,586 and 1,964,586
shares, respectively 196,459 196,459
Additional paid-in capital 674,284 674,284
Retained earnings 6,211,148 6,214,922
Unrealized holding gain on investment
securities, net 2,181,512 2,023,566
Notes receivable (991) (1,336)
---------- ----------
Total shareholders' equity 9,262,412 9,107,895
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $11,121,864 $10,894,756
========== ==========
<PAGE>
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
Three Months Ended
March 31,
----------------------
1998 1997
----------------------
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers $1,599,162 $1,616,335
Cash paid to suppliers and employees (1,615,908) (1,423,190)
Interest received 27,277 29,581
Income taxes paid -0- (1,082)
--------- ---------
Net cash provided by operating activities 10,531 221,644
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Sales of investments in available-for-sale
securities: -0- 6,583
Purchase of equipment (39,370) (43,562)
Repayments of notes receivable -0- 55,985
--------- ---------
Net cash (used in) investing activities (39,370) 19,006
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (58,937) (58,350)
Payments on short-term borrowings (42,819) (43,180)
Proceeds from Employee Stock Purchase Plan -0- 7,263
--------- ---------
Net cash (used in) financing activities (101,756) (94,267)
--------- ---------
Increase (decrease) in cash (130,595) 146,383
CASH AND CASH EQUIVALENTS
Beginning 2,536,685 2,581,588
--------- ---------
End $2,406,090 $2,727,971
========= =========
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 55,163 $ 151,343
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 32,961 31,785
Provision for losses on trade receivables 5,250 28,250
Realized (gain) loss on sale of
investment securities, net -0- (5,532)
(Increase) decrease in:
Trade receivables (16,136) (52,374)
Inventory (116,770) 27,045
Prepaid expenses (8,147) (6,979)
Prepaid income taxes 31,800 -0-
Increase (decrease) in:
Accounts payable 85,179 45,435
Accrued expenses (58,769) (83,747)
Accrued income taxes payable -0- 86,418
-------- --------
Net cash provided by operating activities $ 10,531 $ 221,644
======== ========
NONCASH INVESTING AND FINANCING ACTIVITIES
Unrealized gain(loss) on marketable securities $ 246,946 $(1,175,464)
--------- ----------
Total noncash investing and financing $ 246,946 $(1,175,464)
========= ==========
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATION
Sales for the first quarter of 1998 decreased 3.2% to $1,615,298 as compared to
$1,668,709 for the first quarter of 1997. The decrease in sales occurred within
the Speed Monitoring, Drive Control Systems and Microflame, Inc., segments.
Meanwhile, the Company's AutoData Systems segment experienced a strong sales
increase during the period. The Drive Control Systems sales decreased 30% during
the first quarter due to slowed sales in the large capital equipment area.
Microflame also experienced a 25% reduction in sales resulting from inventory
reductions by its largest customer, Radio Shack.
The Company's cost of sales decreased when compared to a year ago, but increased
slightly as a percentage of sales. The slight increase in percentage of sales
resulted from changing product mix in the AutoData Systems segment.
Selling expenses increased substantially during the first quarter of 1998 as
compared to the same period of 1997. Increased personnel costs from the
formation of an AutoData marketing department and increased advertising expenses
in the Speed Monitoring, Drive Control Systems and AutoData Systems segments
were the primary reasons for the increased selling expenditures during the
period. The Company has been receiving positive responses from its increased
marketing efforts in the Speed Monitoring and AutoData Segments, while the Drive
Control Systems division has not experienced any noticeable change at this time.
Administrative and research and development expenses decreased during the first
quarter of 1998 as compared to 1997. The decrease in administrative expense
resulted from a decrease in bad debt expense. The Company had experienced a
large write-off in 1997 from a prior year receivable. Research and development
expense decreased 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 increased
$172,058 to a total of $8,721,453. The increase in the fair market value of
marketable securities resulted from an increase in the quoted market price of
certain securities. This increase in market value is the principal reason for
the increase in working capital. The increased March sales activity resulted in
a slight increase in the March 31st accounts receivable balance. Inventory and
accounts payable increased as a result of additional inventory purchased for the
AutoData Systems segment during the first quarter. The Company made a dividend
payment of $58,937 during the first quarter of 1998. In addition, the Company
invested an additional $39,370 in office and manufacturing equipment and repaid
$42,819 of short-term borrowings. The Company believes it can pay projected
capital and operating expenses out of income and current reserves.
<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, 1998.
<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, 1998 By /s/ BRADLEY D. SLYE
Bradley D. Slye, President
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 March 31, 1998
Exhibit No. Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 2,406,090
<SECURITIES> 4,945,656
<RECEIVABLES> 781,435
<ALLOWANCES> 24,500
<INVENTORY> 992,959
<CURRENT-ASSETS> 9,307,505
<PP&E> 2,585,013
<DEPRECIATION> 770,654
<TOTAL-ASSETS> 11,121,864
<CURRENT-LIABILITIES> 586,052
<BONDS> 0
0
0
<COMMON> 196,459
<OTHER-SE> 9,065,953
<TOTAL-LIABILITY-AND-EQUITY> 11,121,864
<SALES> 1,615,298
<TOTAL-REVENUES> 1,642,575
<CGS> 682,939
<TOTAL-COSTS> 1,515,055
<OTHER-EXPENSES> 40,557
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,783
<INCOME-PRETAX> 86,962
<INCOME-TAX> 31,800
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,162
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
