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, 1999
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, 1999: 1,975,454
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,
----------------------
1999 1998
---- ----
SALES $1,587,585 $1,615,298
COST OF SALES 687,098 682,939
---------- ----------
GROSS MARGIN 900,487 932,359
---------- ----------
OPERATING EXPENSES:
Selling 497,585 507,040
Administrative 173,330 181,344
Research and development 183,376 143,732
---------- ----------
TOTAL OPERATING EXPENSES 854,291 832,116
---------- ----------
INCOME FROM OPERATIONS 46,196 100,243
---------- ----------
OTHER INCOME (EXPENSE):
Gain on sale of
investment securities -0- -0-
Interest income 21,524 27,277
Other (24,857) (40,557)
---------- ----------
TOTAL OTHER INCOME (3,333) (13,280)
---------- ----------
INCOME BEFORE INCOME TAXES 42,863 86,963
PROVISION FOR INCOME TAXES 14,500 31,800
---------- ----------
NET INCOME $ 28,363 $ 55,163
========== ==========
2
<PAGE>
(Continued)
Three Months Ended
March 31,
------------------
1999 1998
---- ----
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES:
BASIC 1,976,273 1,964,586
========= =========
DILUTED 1,976,273 1,980,664
========= =========
EARNINGS PER COMMON
AND COMMON EQUIVALENT
SHARES:
BASIC $.01 $.03
=== ===
DILUTED $.01 $.03
=== ===
3
<PAGE>
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $2,234,034 $2,313,606
Investment in available-for-sale securities 170,478 215,778
Trade receivables, less allowance
for doubtful accounts of $18,200
and $22,500, respectively 803,355 720,289
Inventories 943,355 974,612
Prepaid expenses 85,863 69,969
Prepaid income taxes 82,757 97,257
Deferred taxes -0- -0-
--------- ----------
TOTAL CURRENT ASSETS 4,319,842 4,391,511
PROPERTY AND EQUIPMENT, NET 1,759,010 1,775,369
--------- ----------
INVESTMENTS 2,814,150 2,910,835
--------- ----------
TOTAL ASSETS $8,893,002 $9,077,715
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ -0- $ 44,843
Accounts payable 160,826 142,249
Accrued expense 197,377 182,938
Deferred income taxes 12,800 12,800
--------- ----------
TOTAL CURRENT LIABILITIES 371,003 382,830
--------- ----------
DEFERRED INCOME TAXES 508,800 561,900
--------- ----------
SHAREHOLDERS' EQUITY:
Common stock - par value $.10 per share;
Authorized 10,000,000 shares;
issued 1,975,454 and 1,975,454
shares, respectively 197,545 197,545
Additional paid-in capital 702,576 702,576
Retained earnings 6,178,143 6,209,044
Unrealized holding gain on investment
securities, net 934,935 1,023,820
---------- ---------
Total shareholders' equity 8,013,199 8,132,985
---------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,893,002 $ 9,077,715
========= =========
</TABLE>
4
<PAGE>
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers $1,496,225 $1,599,162
Cash paid to suppliers and employees (1,473,478) (1,615,908)
Interest received 21,524 27,277
--------- ---------
Net cash provided by operating activities 44,271 10,531
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (19,736) (39,370)
--------- ---------
Net cash (used in) investing activities (19,736) (39,370)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (59,264) (58,937)
Payments on short-term borrowings (44,843) (42,819)
Proceeds from Employee Stock Purchase Plan -0- -0-
Net cash (used in) financing activities (104,107) (101,756)
--------- ---------
Increase (decrease) in cash (79,572) (130,595)
CASH AND CASH EQUIVALENTS
Beginning 2,313,606 2,536,685
--------- ---------
End $2,234,034 $2,406,090
========= =========
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 28,363 $ 55,163
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 36,095 32,961
Provision for losses on trade receivables 8,250 5,250
(Increase) decrease in:
Trade receivables (91,316) (16,136)
Inventory 31,257 (116,770)
Prepaid expenses (15,894) (8,147)
Prepaid income taxes 14,500 31,800
Increase (decrease) in:
Accounts payable 18,577 85,179
Accrued expenses 14,439 (58,769)
-------- --------
Net cash provided by operating activities $ 44,271 $ 10,531
======== ========
NONCASH INVESTING AND FINANCING ACTIVITIES
Unrealized gain(loss) on marketable
and investment securities $ 88,885 $ 246,946
--------- ---------
Total noncash investing and financing $ 88,885 $ 246,946
========= =========
</TABLE>
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATION
Sales for the first quarter of 1999 decreased 1.7% to $1,587,585 as compared to
$1,615,298 for the first quarter of 1998. The Company's AutoData Systems segment
experienced a strong sales increase during the period. However, the overall
decrease in sales occurred within the Speed Monitoring, Drive Control Systems
and Microflame, Inc., segments. Slowed electronic control sales resulted from
the residual effects of the Asian currency crisis creating reduced product
demand within our consumer and agricultural customer base. The Asian currency
crisis has caused these market segments to lower their own production levels,
consequently lessening the demand for our control products. This is particularly
evident within the large capital equipment area where the majority of Drive
Control Systems' customers reside. Microflame also experienced a 36% reduction
in sales resulting from discontinued buying of the two-gas torch by its largest
customer, Radio Shack.
The Company's cost of sales increased as a percentage of sales and when compared
to a year ago. The increase in cost of sales resulted from moderate increases to
both material and production costs in all operating segments.
Selling and administrative expenses declined during the first quarter of 1999 as
compared to the same period of 1998. In 1998, the Company redirected its
marketing strategies and enhanced its marketing materials. This effort focused
on the AutoData and Speed Monitoring segments. During 1999, the Company is
focusing on the Drive Control marketing needs including the areas of advertising
and product literature. As a result, reduced 1999 AutoData and Speed Monitoring
marketing expenses have offset the increased Drive Control amounts when
comparing the two first quarter periods.
Research and development expense increased during the first quarter of 1999 as
compared to 1998. The expense increases occurred primarily in both the personnel
and development cost areas during the comparable periods. The cost increases
were focused in the AutoData and Speed Monitoring areas as the Company continues
its belief in sales growth through new product development.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months ended March 31, 1999, working capital decreased
$59,842 to a total of $3,948,839. The decrease in the fair market value of
marketable securities resulted from an decrease in the quoted market price of
certain securities. This decrease in market value is the primary reason for the
decrease in working capital. An increase in accounts receivable has resulted
from an overall increase in the average payment days. Inventory and accounts
payable decreased due to purchasing timing differences. The Company made a
dividend payment of $59,264 during the first quarter of 1999. In addition, the
Company invested an additional $19,736 in office and manufacturing equipment and
repaid $44,843 of short-term borrowings. The Company believes it can pay
projected capital and operating expenses out of income and current reserves.
YEAR 2000
The Company is presently requesting formal confirmation of supplier Y2K
compliance status. Informal communications have not revealed potential vendor
concerns. Also, the Company continues to address new Y2K issues as they are
discovered.
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, 1999.
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 12, 1998 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, 1999
Exhibit No. Description
27 Financial Data Schedule
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 2,234,034
<SECURITIES> 170,478
<RECEIVABLES> 821,555
<ALLOWANCES> 18,200
<INVENTORY> 943,355
<CURRENT-ASSETS> 4,319,842
<PP&E> 2,670,157
<DEPRECIATION> 911,146
<TOTAL-ASSETS> 8,810,246
<CURRENT-LIABILITIES> 289,246
<BONDS> 0
0
0
<COMMON> 197,545
<OTHER-SE> 7,801,855
<TOTAL-LIABILITY-AND-EQUITY> 8,810,246
<SALES> 1,587,585
<TOTAL-REVENUES> 1,609,109
<CGS> 687,098
<TOTAL-COSTS> 1,587,585
<OTHER-EXPENSES> 24,857
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 538
<INCOME-PRETAX> 42,863
<INCOME-TAX> 14,500
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,363
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
