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, 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 May 9, 2000: 1,990,108
Transitional Small Business Disclosure Format (check one): Yes No X
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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.
ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
Three Months Ended
March 31,
-------------------
2000 1999
---- ----
SALES $1,780,400 $1,587,585
COST OF SALES 672,597 687,098
---------- ----------
GROSS MARGIN 1,107,803 900,487
---------- ----------
OPERATING EXPENSES:
Selling expense 364,831 497,585
Administrative expense 227,337 173,330
Research and development 222,537 183,376
---------- ----------
TOTAL OPERATING EXPENSES 814,705 854,291
---------- ----------
INCOME FROM OPERATIONS 293,098 46,196
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 28,694 21,524
Other (65,266) (24,857)
---------- ----------
TOTAL OTHER INCOME (36,572) (3,333)
---------- ----------
INCOME BEFORE INCOME TAXES 256,526 42,863
PROVISION FOR INCOME TAXES 92,550 14,500
---------- ----------
NET INCOME $ 163,976 $ 28,363
========== ==========
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES:
BASIC 1,987,858 1,976,273
========== ==========
DILUTED 1,987,858 1,976,273
========== ==========
EARNINGS PER COMMON
AND COMMON EQUIVALENT
SHARES:
BASIC $.08 $.01
==== ====
DILUTED $.08 $.01
==== ====
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ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
ASSETS 2000 1999
-------- -----------
CURRENT ASSETS
Cash $2,454,604 $2,507,689
Investment in available-for-sale securities 196,896 254,699
Trade receivables, less allowance
for doubtful accounts of $30,900
and $23,000, respectively 764,178 682,015
Inventories 885,682 867,144
Prepaid expenses 50,745 86,166
Prepaid income taxes -0- 125,609
Deferred tax asset 20,000 -0-
---------- ----------
TOTAL CURRENT ASSETS 4,372,105 4,523,322
PROPERTY AND EQUIPMENT, NET 1,675,995 1,690,387
INVESTMENTS 3,857,683 2,164,902
---------- ----------
TOTAL ASSETS $9,905,783 $8,378,611
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 142,194 144,324
Customer deposits 59,225 353,645
Accrued expense 226,863 142,050
Accrued income taxes 1,941 -0-
Deferred taxes -0- 1,500
---------- ----------
TOTAL CURRENT LIABILITIES 430,223 641,519
---------- ----------
DEFERRED INCOME TAXES 669,400 297,100
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock par value $.10 per share;
Authorized 10,000,000 shares;
issued 1,990,108 and 1,985,608
Shares, respectively 199,011 198,561
Additional paid-in capital 731,668 720,306
Retained earnings 6,054,495 5,949,317
Accumulated other comprehensive income 1,820,986 571,808
---------- ----------
Total shareholders' equity 8,806,160 7,439,992
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $9,905,783 $8,378,611
========== ==========
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ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
Three Months Ended
March 31,
-------------------
2000 1999
---- ----
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers $1,403,817 $1,496,225
Cash paid to suppliers and employees (1,418,154) (1,473,478)
Interest received 28,694 21,524
---------- ----------
Net cash provided by operating activities 14,357 44,271
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (20,456) (19,736)
---------- ----------
Net cash (used in) investing activities (20,456) (19,736)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (58,798) (59,264)
Payments on short-term borrowings -0- (44,843)
Proceeds from issuance of stock 11,812 -0-
---------- ----------
Net cash (used in) financing activities (46,986) (104,107)
---------- ----------
Increase (decrease) in cash (53,085) (79,572)
CASH AND CASH EQUIVALENTS
Beginning 2,507,689 2,313,606
---------- ----------
End $ 2,454,604 $ 2,234,034
========== ==========
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 163,976 $ 28,363
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 34,848 36,095
Provision for losses on trade receivables (7,900) 8,250
(Increase) decrease in:
Trade receivables (74,263) (91,316)
Inventory (18,538) 31,257
Prepaid expenses 35,421 (15,894)
Prepaid income taxes 125,609 14,500
Increase (decrease) in:
Accounts payable (2,130) 18,577
Customer deposits (294,420) -0-
Accrued expenses 84,813 14,439
Accrued income taxes 1,941 -0-
Deferred income taxes (35,000) -0-
---------- ----------
Net cash provided by operating activities $ 14,357 $ 44,271
========== ==========
NONCASH INVESTING AND FINANCING ACTIVITIES
Unrealized gain(loss) on marketable securities (1,634,978) (88,885)
---------- ----------
Total noncash investing and financing $(1,634,978) $ (88,885)
========== ==========
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATION
The Company's sales for the first quarter increased 12.1% to $1,780,400 as
compared to $1,587,585 the first quarter of 1999. This increase resulted
principally in the Speed monitoring division where during the first quarter of
2000 the speed monitoring division completed a large shipment to a significant
end user. This order started shipment late in the forth quarter of 1999 and was
completed early in the first quarter.
AutoData sales of its survey product decreased when compared to 1999. Customers
purchased the product early in 1999 in anticipation of Medicare/Medicaid
mandated healthcare reporting requirements. However the reporting requirements
were delayed during the second quarter of 1999. AutoData concentrated
significant efforts in developing an advanced office productivity tool called
Scannable Office during the last six months of 1999 and the first quarter of
2000. This software product combines the Company's forms processing and
character recognition technology with the versatility of the Microsoft's Office
suite. Scannable Office "reads" and automatically places extracted data directly
into an Excel spreadsheet or Access database utilizing only a PC and scanner.
AutoData is working aggressively to establish a marketing mix capable of
securing the lead position in an evolving market.
The Company's wholly-owned subsidiary, Microflame, Inc., has experienced a 14.8%
decrease in sales during the first three months of 2000. The decline in sales
reflects the discontinued buying of the two-gas torch by its largest customer,
Radio Shack. Current sales volume has required the restructuring of Microflame
operations. This restructuring of Microflame's operations, which was initiated
in 1999, included the consolidation of its operations into the company's main
facilities and a reduction in administrative personnel. Despite the continued
decline in the division's revenues it contributed a small profit as a result of
the positive effects of the restructuring.
Company wide cost of sales decreased, and also decreased as a percentage of
sales when compared to a year ago. The increased product profit margins resulted
from the benefits realized from the changes in Microflame's operations and the
increased volume in the Speed Monitoring division.
Operating expenses decreased 4.6% during the first three months of 2000 when
compared to the same period of 1999. Increases in administrative and research
and development expenses were more than offset by decreases in selling expenses.
The Company delayed AutoData's marketing expenses until completion of its
Scannable Office product. Selling expenses also decreased in both Speed
Monitoring and Drive Controls. The Company had increased its marketing
expenditures to improve and update both divisions' marketing and media materials
in 1999. Research and Development expenses increased in the Speed Monitoring,
Drive Control, and AutoData divisions. All three segments continue to work
aggressively toward new product development.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to generate strong cash flows from operations. Working
capital and funds for capital expenditures have been provided through current
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earnings. These funds have been placed in secure short-term investments. The
funds are being used primarily for dividend distributions, working capital needs
and general corporate purposes, which may include acquisitions. Accounts
receivable increased due to AutoData shipment of its Scannable Office late in
the quarter. Accounts payable increased slightly from timing differences. The
customer deposits resulting from customer prepayments for plant upgrade orders
and for Scannable Office decreased as a result of the shipment of these orders
in the first quarter 2000.
The Company experienced an increase in investments and the related accumulated
other comprehensive income due to an increase in unrealized gain on investment
securities. This increase resulted primarily from the Company's holding of PPT
Vision. The Company has made investments in developing start-up companies in the
hopes of helping new business ideas reach their full potential. One such
company, August Technology Corporation, recently started the process of
registering their securities with the Securities Exchange Commission for sale in
an offering. At this point we are unable to predict the outcome of the
registration process or the market's acceptance of this offering, but we are
hopeful that the value of the Company's investment will increase as a result.
The company carries its investments in unregistered closely-held securities on
its balance sheet at cost which may not reflect the investments' fair value at
any give time. The Company believes that the current fair value of the
investments in unregistered holdings exceeds its carrying value. The carrying
value of the Company's investments in marketable securities should be expected
to fluctuate with changes in the market value of the individual investments.
The company does not anticipate the need for additional working capital from
outside sources. Also, the Company declared a second quarter cash dividend
payable in May 2000.
During the first three months ended March 31, 2000, working capital increased
$60,079 to a total of $3,941,882. The increase in the fair market value of
marketable securities resulted from the increased quoted market price of certain
securities.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
There were no material developments in previously reported
legal proceedings.
Item 2. Changes in Securities and Use of Proceeds
No changes have been made in any registered securities.
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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 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, 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 May 10, 2000 By /s/ Bradley D. Slye
Bradley D. Slye, President
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EXHIBIT INDEX
ELECTRO-SENSORS, INC.
FORM 10-QSB
For Fiscal Quarter Ended March 31, 2000
Exhibit No. Description
27 Financial Data Schedule
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<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
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<CASH> 2,454,604
<SECURITIES> 196,899
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0
0
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<INCOME-TAX> 92,550
<INCOME-CONTINUING> 0
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