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, 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 55343-9108
(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, 2000: 2,006,608
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,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES $ 1,503,980 $ 1,362,883 $ 4,658,179 $ 4,269,102
COST OF SALES 579,575 586,327 1,804,743 1,890,304
----------- ----------- ----------- -----------
GROSS MARGIN 924,405 776,556 2,853,436 2,378,798
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling expense 356,946 368,929 1,066,939 1,311,238
Administrative expense 192,897 144,087 615,146 555,311
Research and development 217,012 227,764 653,380 601,670
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 766,855 740,780 2,335,465 2,468,219
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 157,550 35,776 517,971 (89,421)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Gain (loss) on sale of
Investment securities 0 1,185 0 1,185
Interest income 32,188 22,655 90,424 65,172
Other (5,589) (24,431) 92,812 (78,284)
----------- ----------- ----------- -----------
TOTAL OTHER INCOME 26,599 (591) (2,088) (11,927)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 184,148 35,185 515,883 (101,348)
PROVISION FOR INCOME TAXES 67,350 12,900 185,775 (38,200)
----------- ----------- ----------- -----------
NET INCOME $ 116,799 $ 22,285 $ 330,108 $ (63,148)
=========== =========== =========== ===========
</TABLE>
<PAGE>
(Continued)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES:
BASIC 2,006,433 1,979,773 2,004,153 1,979,773
DILUTED 2,102,610 1,979,773 2,088,597 1,980,369
EARNINGS PER COMMON
AND COMMON EQUIVALENT
SHARES:
BASIC $.06 $ .01 $ .16 $ (.03)
DILUTED $.06 $ .01 $ .16 $ (.03)
</TABLE>
<PAGE>
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 2,809,552 $ 2,507,689
Investment in available-for-sale securities 3,339,000 254,699
Trade receivables, less allowance
for doubtful accounts of $43,008
and $19,500, respectively 679,906 682,015
Inventories 939,789 867,144
Prepaid expenses 56,819 86,166
Prepaid income taxes 0 125,609
----------- -----------
TOTAL CURRENT ASSETS 7,825,066 4,523,322
PROPERTY AND EQUIPMENT, NET 1,619,284 1,690,387
INVESTMENTS 19,795,950 2,164,902
----------- -----------
TOTAL ASSETS $29,240,300 $ 8,378,611
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 114,948 $ 144,324
Customer Deposits 6,493 353,645
Accrued expense 285,892 142,050
Income taxes payable 202,869 0
Deferred taxes 1,175,000 1,500
----------- -----------
TOTAL CURRENT LIABILITIES 1,785,202 641,519
----------- -----------
DEFERRED INCOME TAXES 6,546,125 297,100
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock par value $.10 per share;
Authorized 10,000,000 shares;
issued 2,006,708 and 1,985,608
Shares, respectively 200,671 198,561
Additional paid-in capital 778,704 720,306
Retained earnings 6,099,967 5,949,317
Accumulated other comprehensive income 13,829,631 571,808
----------- -----------
Total shareholders' equity 20,908,973 7,439,992
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $29,240,300 $ 8,378,611
=========== ===========
</TABLE>
<PAGE>
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers $ 4,279,806 $ 4,337,400
Cash paid to suppliers and employees (4,043,491) (4,258,217)
Interest received 90,424 65,172
Income taxes paid 0 5,668
Income tax refund 131,540 0
------------ ------------
Net cash provided by operating activities 458,279 150,023
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sales of investment in
Available-for-sale securities 0 1,185
Purchase of property and equipment (37,466) (51,800)
------------ ------------
Net cash (used in) investing activities (37,466) (50,615)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (179,458) (177,920)
Payments on short-term borrowings 0 (44,843)
Proceeds from issuance of stock 60,508 8,826
------------ ------------
Net cash (used in) financing activities (118,950) (213,937)
------------ ------------
Increase (decrease) in cash 301,863 (114,529)
CASH AND CASH EQUIVALENTS
Beginning 2,507,689 2,313,606
------------ ------------
End $ 2,809,552 $ 2,199,077
============ ============
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 330,108 $ (63,148)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 108,569 104,384
Provision for losses on trade receivables 23,508 (6,750)
Realized (gain) loss on sale of marketable
securities 0 (1,185)
(Increase) decrease in:
Trade receivables (21,399) 68,298
Inventory (72,645) 99,115
Prepaid expenses 29,347 (5,018)
Prepaid income taxes 125,605 (23,232)
Increase (decrease) in:
Accounts payable (29,376) (28,002)
Customer deposits (347,152) 0
Accrued expenses 143,842 14,861
Income taxes payable 202,869 0
------------ ------------
Deferred income taxes 34,997 (9,300)
------------ ------------
Net cash provided by operating activities $ 458,279 $ 150,023
============ ============
NONCASH INVESTING AND FINANCING ACTIVITIES
Unrealized gain(loss)on marketable securities
net of deferred taxes $ 12,686,015 $ (1,542,493)
============ ============
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATION
The Company's sales increased 10.4% and 9.1%, respectively, for the third
quarter and first nine months of 2000 when compared to the same periods of 1999.
The Company's Production Monitoring divisions continued their 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
Microflame and Drive Control operating segments. Increased sales for the
combined 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
two new products in late first and second quarters. The introduction of these
two new products by AutoData have resulted in a 59% sales increase for the
quarter ended September 30, 2000 and 4.5% for the nine months then ended. The
Company made a 15% reduction in its workforce during the second quarter of 1999
due to the decreased sales activities. The benefits of these changes are being
realized in year 2000.
The Company's wholly-owned subsidiary, Microflame, Inc., has experienced a 9%
decrease in sales during the first nine 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
$17,000 for the first nine months of 2000 versus a loss of $63,000 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 its previous product. During 1999, the Company also made a
$30,000 charge to reduce Microflame's inventory for obsolete products.
Operating expenses decreased $133,000, or 5.4%, during the first nine months of
2000 when compared to 1999, while sales increased 9.1% for the same period.
Expenses increased in the Administrative and Research and Development areas. The
increase in administrative and research expenses during the third quarter 2000
were 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 have declined since the
first quarter 2000.
The improved profitability in the third quarter was the direct result of
improved sales in the Production Monitoring and AutoData segments 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 short-term interest rates also contributed slightly to
the improved profits in 2000.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During June 2000, August Technology, 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 restrictions on their
sale. The Company's investments in various securities have a value of
$23,134,950 at September 30, 2000 and are included in the balance sheet as both
currently available for sale and other assets.
During the first nine months ended September 30, 2000, working capital increased
$2,158,000 to a total of $6,040,000. This increase in working capital resulted
primarily from the increase in the fair market value of marketable securities
net of deferred taxes. Inventory increased as the result of the release of two
new products, "Scannable Office" and "Survey 2000." In addition, the Company
generated $60,500 from the issuance of common stock during the first nine
months. The Company made three dividend payments, totaling $179,000, during the
first nine months of 2000. In addition, the Company invested an additional
$37,500 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
There were no matters submitted to vote of shareholders during
the period covered by this Form 10-QSB.
Item 5. Other Information
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
<PAGE>
Company's AutoData Systems division which is in the continuing stage of
development; fluctuations and declines in operating results of the
Company's Drive Control Systems, Speed Monitoring and Microflame
divisions; fluctuations in the value of the Company's investments,
particularly PPT Vision and August Technology, 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, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ELECTRO-SENSORS, INC.
Date November 7, 2000 By /s/ Bradley D. Slye
Bradley D. Slye, President
(principal financial officer)
<PAGE>
EXHIBIT INDEX
ELECTRO-SENSORS, INC.
FORM 10-QSB
For Fiscal Quarter Ended September 30, 2000
Exhibit No. Description
27 Financial Data Schedule
