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, 2000
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, 2000: 2,006,708
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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.
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ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES $1,373,799 $1,318,634 $3,154,199 $2,906,219
COST OF SALES 552,571 616,879 1,225,168 1,303,977
GROSS MARGIN 821,228 701,755 1,929,031 1,602,242
OPERATING EXPENSES:
Selling expense 345,162 444,724 709,993 942,309
Administrative expense 194,912 237,894 422,249 411,224
Research and development 213,831 190,530 436,368 373,906
TOTAL OPERATING EXPENSES 753,905 873,148 1,568,610 1,727,439
---------- ---------- ---------- ----------
INCOME(LOSS) FROM OPERATIONS 67,323 (171,393) 360,421 (125,197)
---------- ---------- ---------- ----------
OTHER INCOME(EXPENSE)
Interest income 29,542 20,993 58,236 42,517
Other (21,657) (28,996) (86,923) (53,853)
---------- ---------- ---------- ----------
TOTAL OTHER INCOME(EXPENSE) 7,885 (8,003) 28,687 (11,336)
---------- ---------- ---------- ----------
INCOME(LOSS) BEFORE INCOME TAXES 74,608 (179,396) 331,734 (136,533)
PROVISION FOR INCOME TAXES 25,875 (65,600) 118,425 (51,100)
---------- ---------- ---------- ----------
NET INCOME(LOSS) $ 49,333 $ (113,796) $ 213,309 $ (85,433)
========== ========== ========== ==========
</TABLE>
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(Continued)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------- -----------------------------------
2000 1999 2000 1999
---------- --------------- ---------- ----------------
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES:
BASIC 1,992,630 1,979,773 1,990,256 1,979,773
========== =========== ========== ===========
DILUTED 2,058,941 1,981,106 2,040,949 1,981,106
========== =========== ========== ===========
EARNINGS PER COMMON
AND COMMON EQUIVALENT
SHARES:
BASIC $ .02 $ (.05) $ .11 $ (.04)
========== =========== ========== ===========
DILUTED $ .02 $ (.05) $ .10 $ (.04)
========== =========== ========== ===========
</TABLE>
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ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $2,638,052 $2,507,689
Investment in available-for-sale securities 3,140,908 254,699
Trade receivables, less allowance
for doubtful accounts of $37,600
and $23,000, respectively 686,172 682,015
Inventories 959,034 867,144
Prepaid expenses 38,046 86,166
Prepaid income taxes -0- 125,609
------------ -----------
TOTAL CURRENT ASSETS 7,462,212 4,523,322
PROPERTY AND EQUIPMENT, NET 1,651,289 1,690,387
INVESTMENTS 24,671,880 2,164,902
------------ -----------
TOTAL ASSETS $33,785,381 $8,378,611
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 148,022 $ 144,324
Customer deposits -0- 353,645
Accrued expense 273,177 142,050
Income taxes payable 94,150
Deferred taxes 1,013,969 1,500
------------ -----------
TOTAL CURRENT LIABILITIES 1,529,318 641,519
------------ -----------
DEFERRED INCOME TAXES 8,168,240 297,100
------------ -----------
SHAREHOLDERS' EQUITY:
Common stock - par value $.10 per share;
Authorized 10,000,000 shares;
issued 1,998,208 and 1,985,608
shares, respectively 199,821 198,561
Additional paid-in capital 757,054 720,306
Retained earnings 6,043,195 5,949,317
Accumulated other comprehensive income 17,087,753 571,808
------------ -----------
Total shareholders' equity 24,087,823 7,439,992
------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $33,785,381 $8,378,611
============ ===========
</TABLE>
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ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers $ 2,796,397 $3,016,219
Cash paid to suppliers and employees (2,744,162) (2,984,030)
Interest received 58,609 42,517
Income taxes paid -0- 5,668
Income tax refunds 131,540 -0-
----------- ----------
Net cash provided by operating activities 242,384 80,374
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (30,598) (44,725)
----------- ----------
Net cash (used in) investing activities (30,598) (44,725)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (119,431) (118,527)
Payments on short-term borrowings -0- (44,843)
Proceeds from exercise issuance of common stock 38,008 8,826
----------- ----------
Net cash (used in) financing activities (81,423) (154,544)
----------- ----------
Increase (decrease) in cash 130,363 (118,895)
CASH AND CASH EQUIVALENTS
Beginning 2,507,689 2,313,606
----------- ----------
End $2,638,052 $2,194,711
=========== ==========
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 213,309 $ (85,433)
Adjustments to reconcile net income(loss) to net
Cash provided by operating activities:
Depreciation and amortization 69,696 72,190
Deferred taxes 6,367 (40,600)
(Increase) decrease in: 126,500
Trade receivables (4,157) 110,000
Inventory (91,890) 47,045
Prepaid expenses 48,120 (17,341)
Prepaid income taxes 125,609 (4,832)
Increase (decrease) in:
Accounts payable 3,698 (32,835)
Accrued expenses 131,127 15,680
Customer deposits (353,645) -0-
Income taxes payable 94,150 -0-
----------- ----------
Net cash provided by operating activities 242,384 $ 80,374
=========== ==========
NONCASH INVESTING AND FINANCING ACTIVITIES
Unrealized gain(loss) on marketable securities 25,393,187 5,740
----------- ----------
Total noncash investing and financing $25,393,187 $ 5,740
=========== ==========
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
During the quarter ended June 30, 2000, August Technology Corporation, a company
for which Electro-Sensors had provided seed capital completed its initial public
offering. Electro-Sensor's investment, which had been carried at its cost, is
now reported on the balance sheet at its quoted market price. A significant
portion of the Company's investment in August Technology is subject to various
restriction on their sale. Investments with a value of $27,813,000 at June
30,2000 are included in the balance sheet as both currently available for sale
and other assets.
RESULTS OF OPERATION
The Company's sales increased 4.2% and 8.5%, respectively, for the second
quarter and first six months of 2000 when compared to the same periods of 1999.
The Company's Production Monitoring segment continued its strong sales growth
which started in December 1999. However, the overall sales increase within the
Speed Monitoring segment were partially offset by sales decreases in the
AutoData and Microflame operating segments. Increased sales for the Production
Monitoring divisions have resulted from resumed buying by customers who had
postponed capital expenditures until after year 2000 issues had passed.
Businesses had been holding back investments in plant and equipment improvements
while they addressed their Y2K issues. AutoData division introduced new products
in late first and second quarters. The Company made a 15% reduction in its
workforce during the second quarter of 1999 due to the declining sales
activities. The benefits of these changes are being realized in year 2000.
The Company's wholly-owned subsidiary, Microflame, Inc., has experienced a 12%
decrease in sales during the first six months of 2000 compared to 1999. The
decline in sales reflects the discontinued buying of the two-gas torch by its
largest customer. During 1999, the Company significantly reduced Microflame's
operating costs. These efforts have been effective in returning MicroFlame to
profitability despite the lower sales volume. Microflame generated net income of
$9,000 for the first six months of 2000 versus a loss of $66,000 for 1999.
Cost of sales decreased as a percentage of sales when compared to a year ago.
The increased margins resulted from changes initiated in 1999 for both labor and
material costs. These changes have improved gross margins for all divisions.
AutoData division introduced two new products in 2000. Both products have
greater margins than their predecessors. During the second quarter of 1999,
the Company also made a $30,000 charge to reduce Microflame's inventory for
obsolete products.
Operating expenses decreased $159,000, or 9.2%, during the first six months of
2000 when compared to 1999, while sales increased 8.5% for the same period.
Expenses increased in the Administrative and Research and Development areas.
Administrative expenses increased in the first quarter 2000 primarily due to
employee severance costs and increased effort in the development of speed
monitoring products. The Company has expended considerable effort in developing
new products and enhancing its old products. AutoData division completed the
Scannable Office product during the first quarter of 2000.
As a result their research and development costs declined in the second quarter
2000.
The Company reported a net profit for the second quarter of 2000 and a net loss
for the same period in 1999. The return to profitability was the direct result
of improved sales in the Production Monitoring segment combined with reductions
of operating expenses in MicroFlame and AutoData. The second quarter 1999 net
loss was affected by the one-time charges related to operational changes. The
increase in net income for 2000 reflects the results of these changes.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the first six months ended June 30, 2000, working capital increased
$2,051,091 to a total of $5,932,894. This increase in working capital resulted
primarily from the increase in the fair market value of marketable securities
net of deferred taxes. The Company holds an investment in August Technology,
Inc., which completed its initial public offering during June 2000. Accounts
receivable increased slightly due to higher sales levels. Inventory increased as
the result of the release of two new products, "Scannable Office" and "Survey
2000." In addition, the Company generated $38,008 from the issuance of common
stock during the first six months. The Company made two dividend payments,
totaling $119,431, during the first six months of 2000. In addition, the Company
invested an additional $30,598 in office and manufacturing equipment.
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 26, 2000.
b) Election of Directors as Follows:
Peter R. Peterson 1,822,538 For 5,725 Withheld Authority
Brad D. Slye 1,823,438 For 4,825 Withheld Authority
John S. Strom 1,823,438 For 4,825 Withheld Authority
Joseph A. Marino 1,823,438 For 4,825 Withheld Authority
Geoffrey W. Miller 1,823,438 For 4,825 Withheld Authority
c) Approval of Schweitzer Karon & Bremer LLC as independent Auditors.
1,822,638 For 5,125 Against 500 Abstain
There were no other matters submitted to vote of shareholders
during the period covered by this Form 10-QSB.
<PAGE>
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; 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 August Technology Corporation 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, 2000
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 12, 2000 By /s/ BRADLEY D. SLYE
Bradley D. Slye, President
(principal executive officer
and principal financial
and accounting officer)
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EXHIBIT INDEX
ELECTRO-SENSORS, INC.
FORM 10-QSB
For Fiscal Quarter Ended June 30, 2000
Exhibit No. Description
27 Financial Data Schedule
