ELECTRO SENSORS INC - Quarter Report: 2021 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number 000-09587
(Exact name of registrant as specified in its charter)
|
|
41-0943459 |
|
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
6111 Blue Circle Drive
Minnetonka, 55343-9108
(Address of principal executive offices)
(952) 930-0100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common stock | ELSE |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
| 1 |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
|
|
Large accelerated filer |
☐ |
Accelerated filer ☐ |
|
|
|
☒ |
Smaller reporting company |
|
|
|
|
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares outstanding of the registrant’s common stock, $0.10 par value, on November 4, 2021 was 3,395,521.
| 2 |
ELECTRO-SENSORS, INC.
Form 10-Q
For the Periods Ended September 30, 2021
| 3 |
ELECTRO-SENSORS, INC.
(in thousands except share and per share amounts)
|
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
(unaudited) |
|
|
|
|
||
|
ASSETS |
|
|
|
|
|
|
||
|
Current assets |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
4,620 |
|
|
$ |
1,090 |
|
|
Investments |
|
|
5,041 |
|
|
|
8,041 |
|
|
Trade receivables, less allowance for doubtful accounts of $11 |
1,325 |
|
|
|
957 |
|
||
|
Inventories |
|
|
1,477 |
|
|
|
1,572 |
|
|
Other current assets |
|
|
207 |
|
|
|
170 |
|
| Income tax receivable | 0 | 26 | ||||||
|
Total current assets |
|
|
12,670 |
|
|
|
11,856 |
|
|
Deferred income tax asset, net |
|
|
270 |
|
|
|
246 |
|
|
Intangible assets, net |
|
|
50 |
|
|
|
228 |
|
|
Property and equipment, net |
|
|
919 |
|
|
|
989 |
|
|
Total assets |
|
$ |
13,909 |
|
|
$ |
13,319 |
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
Current maturities of financing lease |
|
$ |
6 |
|
|
$ |
6 |
|
|
Accounts payable |
|
|
175 |
|
|
|
197 |
|
|
Accrued expenses |
|
|
629 |
|
|
|
330 |
|
| Accrued income tax | 85 | 0 | ||||||
|
Total current liabilities |
|
|
895 |
|
|
|
533 |
|
| Long-term liabilities | ||||||||
| Financing lease, net of current maturities | 8 | 12 | ||||||
| Total long-term liabilities | 8 | 12 | ||||||
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
|
|
|
|
|
|
|
|
Common stock par value $0.10 per share; authorized 10,000,000 shares; 3,395,521 shares issued and outstanding |
|
|
339 |
|
|
|
339 |
|
|
Additional paid-in capital |
|
|
2,040 |
|
|
|
2,036 |
|
|
Retained earnings |
|
|
10,627 |
|
|
|
10,398 |
|
| Accumulated other comprehensive gain (unrealized gain on available-for-sale securities, net of income tax) | 0 | 1 | ||||||
|
Total stockholders’ equity |
|
|
13,006 |
|
|
|
12,774 |
|
|
Total liabilities and stockholders’ equity |
|
$ |
13,909 |
|
|
$ |
13,319 |
|
See accompanying notes to unaudited condensed financial statements
| 4 |
ELECTRO-SENSORS, INC.
(in thousands except share and per share amounts)
(unaudited)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net sales | $ | 2,154 | $ | 1,899 | $ | 6,517 | $ | 5,914 | ||||||||
| Cost of goods sold | 950 | 907 | 2,947 | 2,825 | ||||||||||||
| Gross profit | 1,204 | 992 | 3,570 | 3,089 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling and marketing | 375 | 417 | 1,087 | 1,318 | ||||||||||||
| General and administrative | 620 | 420 | 1,521 | 1,325 | ||||||||||||
| Research and development | 189 | 209 | 675 | 622 | ||||||||||||
| Total operating expenses | 1,184 | 1,046 | 3,283 | 3,265 | ||||||||||||
| Operating income (loss) | 20 | (54 | ) | 287 | (176 | ) | ||||||||||
| Non-operating income | ||||||||||||||||
| Loss on investment | 0 | 0 | 0 | (3 | ) | |||||||||||
| Interest expense | (1 | ) | (2 | ) | (1 | ) | (3 | ) | ||||||||
| Interest income | 2 | 2 | 4 | 35 | ||||||||||||
| Other income | 0 | 0 | 0 | 2 | ||||||||||||
| Total non-operating income, net | 1 | 0 | 3 | 31 | ||||||||||||
| Income (loss) before income tax expense (benefit) | 21 | (54 | ) | 290 | (145 | ) | ||||||||||
| Provision for (benefit of) income tax | 4 | (8 | ) | 61 | (26 | ) | ||||||||||
| Net income (loss) | $ | 17 | $ |
(46 | ) | $ | 229 |
$ | (119 | ) | ||||||
| Other comprehensive loss | ||||||||||||||||
| Change in unrealized value of available-for-sale securities, net of income tax | $ | 0 | $ | 0 | $ | (1 | ) | $ |
0 | |||||||
| Other comprehensive loss | 0 | 0 | (1 | ) | 0 | |||||||||||
| Net comprehensive income (loss) | $ |
17 | $ | (46 | ) | $ | 228 | $ | (119 | ) | ||||||
| Net income (loss) per share data: | ||||||||||||||||
| Basic | ||||||||||||||||
| Net income (loss) per share | $ | 0.01 | $ | (0.01 | ) | $ | 0.07 | $ | (0.04 | ) | ||||||
| Weighted average shares | 3,395,521 | 3,395,521 | 3,395,521 | 3,395,521 | ||||||||||||
| Diluted | ||||||||||||||||
| Net income (loss) per share | $ |
0.00 | $ |
(0.01 | ) | $ | 0.07 | $ | (0.04 | ) | ||||||
| Weighted average shares | 3,439,377 | 3,395,521 | 3,435,595 | 3,395,521 | ||||||||||||
See accompanying notes to unaudited condensed financial statements
| 5 |
ELECTRO-SENSORS, INC.
(in thousands except share and per share amounts)
| For the three months ended September 30 |
||||||||||||||||||||||
|
|
Common Stock Issued |
|
|
Additional |
|
|
Retained |
|
|
Accumulated |
|
|
Total Equity |
|
||||||||
|
|
Shares |
|
|
Amount |
|
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2021 |
3,395,521
|
$ | 339 | $ | 2,039 | $ | 10,610 | $ | 0 | $ | 12,988 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock-based compensation expense | 1 | 1 | ||||||||||||||||||||
| Net income | 17 | 17 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance September 30, 2021 (unaudited) | 3,395,521 | $ | 339 | $ | 2,040 | $ | 10,627 | $ | 0 | $ | 13,006 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2020 | 3,395,521 | $ | 339 | $ | 2,034 | $ | 10,449 | $ | 0 | $ | 12,822 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock-based compensation expense | 1 | 1 | ||||||||||||||||||||
| Net loss | (46 | ) | (46 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance September 30, 2020 (unaudited) | 3,395,521 | $ | 339 | $ | 2,035 | $ | 10,403 | $ | 0 | $ | 12,777 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the nine months ended September 30 |
||||||||||||||||||||||
|
|
Common Stock Issued |
|
|
Additional |
|
|
Retained |
|
|
Accumulated |
|
|
Total Equity |
|
||||||||
|
|
Shares |
|
|
Amount |
|
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2020 | 3,395,521 | $ | 339 | $ | 2,036 | $ | 10,398 | $ | 1 | $ | 12,774 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other comprehensive loss | (1 | ) | (1) | |||||||||||||||||||
| Stock-based compensation expense | 4 | 4 | ||||||||||||||||||||
| Net income | 229 | 229 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance September 30, 2021 (unaudited) | 3,395,521 | $ | 339 | $ | 2,040 | $ | 10,627 | $ | 0 | $ | 13,006 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2019 | 3,395,521 | $ | 339 | $ | 2,030 | $ | 10,522 | $ | 0 | $ | 12,891 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock-based compensation expense | 5 | 5 | ||||||||||||||||||||
| Net loss | (119 | ) | (119 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance September 30, 2020 (unaudited) | 3,395,521 | $ | 339 | $ | 2,035 | $ | 10,403 | $ | 0 | $ | 12,777 | |||||||||||
| 6 |
ELECTRO-SENSORS, INC.
(in thousands)
(unaudited)
|
|
|
Nine Months Ended |
|
|||||
|
|
|
2021 |
|
2020 |
|
|||
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
229 |
|
$ |
(119 |
) | |
|
Adjustments to reconcile net income (loss) to net cash from operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
254 |
|
|
|
272 |
|
|
Deferred income taxes |
|
|
(24 |
) |
|
|
(24 |
) |
|
Stock-based compensation expense |
|
|
4 |
|
|
|
5 |
|
|
Interest accrued on treasury bills |
|
|
(2 |
) |
|
|
(2 |
) |
| Loss on investments | 0 | 3 | ||||||
| Loss on disposal of fixed assets | 8 | 0 | ||||||
|
Change in: |
|
|
|
|
|
|
|
|
|
Trade receivables |
|
|
(368 |
) |
|
|
(3 |
) |
|
Inventories |
|
|
95 |
|
|
36 |
||
|
Other current assets |
|
|
(37 |
) |
|
|
(37 |
) |
|
Accounts payable |
|
|
(22 |
) |
|
|
52 |
|
|
Accrued expenses |
|
|
299 |
|
|
|
142 |
|
|
Income tax receivable/payable |
|
|
111 |
|
|
(23 |
) | |
|
Net cash from operating activities |
|
|
547 |
|
|
302 |
||
|
|
|
|
|
|
|
|
|
|
|
Cash flows from (used in) investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury bills |
|
|
(10,999 |
) |
|
|
(7,747 |
) |
|
Proceeds from the maturity of treasury bills |
|
|
14,000 |
|
|
|
5,750 |
|
| Purchase of property and equipment | (14 | ) | (24 | ) | ||||
|
Net cash from (used in) investing activities |
|
|
2,987 |
|
|
(2,021 |
) | |
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in financing activities |
|
|
|
|
|
|
|
|
| Payments on financing lease | (4 | ) | (4 | ) | ||||
| Proceeds from Paycheck Protection Program | 0 | 645 | ||||||
| Repayment of Paycheck Protection Program loan | 0 | (645 | ) | |||||
|
Net cash used in financing activities |
|
|
(4 |
) |
|
|
(4 |
) |
|
Net increase (decrease) in cash and cash equivalents |
|
|
3,530 |
|
|
(1,723 |
) | |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning |
|
|
1,090 |
|
|
|
8,785 |
|
|
Cash and cash equivalents, ending |
|
$ |
4,620 |
|
|
$ |
7,062 |
|
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
1 |
|
|
$ |
20 |
|
| Cash paid for interest | $ | 1 | $ | 3 | ||||
See accompanying notes to unaudited condensed financial statements
| 7 |
ELECTRO-SENSORS, INC.
FOR THE PERIOD ENDED SEPTEMBER 30, 2021
(in thousands except share and per share amounts)
(unaudited)
Note 1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions and regulations of the Securities and Exchange Commission to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
This report should be read together with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, including the audited financial statements and footnotes therein.
Management believes that the unaudited financial statements include all adjustments, consisting of normal recurring accruals, necessary to fairly state the financial position and results of operations as of September 30, 2021 and for the three and nine-month periods ended September 30, 2021 and 2020, in accordance with accounting principles generally accepted in the United States of America. The results of interim periods may not be indicative of results to be expected for the year.
Nature of Business
Electro-Sensors, Inc. manufactures and markets a complete line of monitoring and control systems for a wide range of industrial machine applications. The Company uses leading-edge technology to continuously improve its products, with the ultimate goal of manufacturing the industry-preferred product for each of our served markets. The Company sells these products through an internal sales staff, manufacturers’ representatives, and distributors to a wide range of industries that use the products in a variety of applications to monitor process machinery operations. The Company markets its products to customers located throughout the United States, Canada, Latin America, Europe, and Asia.
Revenue Recognition
At contract inception, the Company assesses the goods and services to be provided to a customer and identifies a performance obligation for each distinct good or service. We also determine the transaction price for each performance obligation at contract inception. Our contracts, generally in the form of a purchase order, specify the product or service that is to be provided to the customer. The typical contract life is less than one month and contains a single performance obligation, to provide conforming goods or services to the customer. Certain contracts have a second performance obligation, which typically is the initialization of the HazardPROTM product. For contracts that have multiple performance obligations, we allocate the transaction price to each performance obligation using the relative stand-alone selling price. We generally determine stand-alone selling prices based on the observable stand-alone prices charged to customers. We recognize product revenue at the point in time when control of the product is transferred to the customer, which typically occurs when we ship the products. We recognize service revenue at the point in time when we have provided the service.
Fair Value Measurements
The carrying value of trade receivables, accounts payable, and other financial working capital items approximates fair value at September 30, 2021 and December 31, 2020, due to the short maturity nature of these instruments.
| 8 |
ELECTRO-SENSORS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 2021
(in thousands except share and per share amounts)
(unaudited)
Intangibles
Intangible assets are comprised of the HazardPRO technology and a technology license. The Company amortizes the cost of these intangible assets on a straight-line method over their estimated useful lives.
Stock-Based Compensation
The Company records compensation expense for stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes-Merton (“BSM”) option pricing model. The Company uses historical data, among other factors, to estimate the expected price volatility, the expected option life, and the expected forfeiture rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option.
As of September 30, 2021, there was approximately $5 of unrecognized compensation expense related to unvested stock options. The Company expects to recognize this expense over one year.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Current significant estimates, including the underlying assumptions, consist of economic lives of long-lived assets, realizability of trade receivables, valuation of deferred tax assets/liabilities, inventory, investments, stock compensation expense, and the potential estimated impact on operations resulting from the COVID-19 pandemic as it relates to potential disruptions to our supply chain and customer demand. It is at least reasonably possible that these estimates may change in the near term.
Net Income (Loss) per Common Share
Basic net income (loss) per common share excludes dilution and is determined by dividing net income (loss) attributable to common stockholders by the weighted-average common shares outstanding during the period. Diluted net income (loss) per common share reflects the potential dilution that could occur if securities such as options and other contracts to issue common stock were exercised or converted into common stock. Diluted net income (loss) per common share is determined by dividing net income (loss) attributable to common stockholders by the weighted-average common shares outstanding during the period.
Diluted earnings per share ("Diluted EPS") considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect. Diluted EPS also excludes the impact of common shares issuable upon exercise of outstanding stock options in periods in which the option exercise price is greater than the average market price of our common stock during the period.
For the three-month periods ended September 30, 2021 and 2020, 288,644 and 332,500, respectively, weighted average common shares for underlying stock options have been excluded from the calculation. For the nine-month periods ended September 30, 2021 and 2020, 292,426 and 332,500, respectively, weighted average common shares for underlying stock options have been excluded from the calculation.
| 9 |
ELECTRO-SENSORS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 2021
(in thousands except share and per share amounts)
(unaudited)
Note 2. Investments
The Company has investments in commercial paper, Treasury Bills, and common equity securities of a private U.S. company. The commercial paper investment is in U.S. debt with ratings of A-1+, P-1, and F1+. The Treasury Bills have remaining terms ranging from one month to five months at September 30, 2021.
The Company classifies its investments in commercial paper and Treasury Bills as available-for-sale, accounted for at fair value with unrealized gains and losses recognized in accumulated other comprehensive gain on the balance sheet.
The cost and estimated fair value of the Company’s investments are as follows:
|
|
|
Cost |
|
|
Gross |
|
|
Gross |
|
|
Fair |
|
||||
|
September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Paper |
|
$ |
1,420 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
1,420 |
|
|
Treasury Bills |
|
|
7,999 |
|
|
|
0 |
|
|
|
0 |
|
|
|
7,999 |
|
|
Equity Securities |
|
|
54 |
|
|
|
0 |
|
|
|
(12 |
) |
|
|
42 |
|
|
|
|
|
9,473 |
|
|
|
0 |
|
|
|
(12 |
) |
|
|
9,461 |
|
|
Less Cash Equivalents |
|
|
4,420 |
|
|
|
0 |
|
|
|
0 |
|
|
|
4,420 |
|
|
Total Investments, September 30, 2021 |
|
$ |
5,053 |
|
|
$ |
0 |
|
|
$ |
(12 |
) |
|
$ |
5,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Paper |
|
$ |
718 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
718 |
|
|
Treasury Bills |
|
|
7,998 |
|
|
|
1 |
|
|
|
0 |
|
|
|
7,999 |
|
|
Equity Securities |
|
|
54 |
|
|
|
0 |
|
|
|
(12 |
) |
|
|
42 |
|
|
|
|
|
8,770 |
|
|
|
1 |
|
|
|
(12 |
) |
|
|
8,759 |
|
|
Less Cash Equivalents |
|
|
718 |
|
|
|
0 |
|
|
|
0 |
|
|
|
718 |
|
|
Total Investments, December 31, 2020 |
|
$ |
8,052 |
|
|
$ |
1 |
|
|
$ |
(12 |
) |
|
$ |
8,041 |
|
| 10 |
ELECTRO-SENSORS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 2021
(in thousands except share and per share amounts)
(unaudited)
Note 3. Fair Value Measurements
The following table provides information on those assets and liabilities measured at fair value on a recurring basis.
September 30, 2021
|
|
Carrying amount |
|
|
|
|
|
Fair Value Measurement Using |
|
||||||||||||
|
|
|
in balance sheet |
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
|
$ |
1,420 |
|
|
$ |
1,420 |
|
|
$ |
1,420 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
Treasury bills |
3,000 | 3,000 | 3,000 | 0 | 0 | |||||||||||||||
|
Treasury bills |
|
|
4,999 |
|
|
|
4,999 |
|
|
|
4,999 |
|
|
|
0 |
|
|
|
0 |
|
|
Equity Securities |
|
|
42 |
|
|
|
42 |
|
|
|
0 |
|
|
|
0 |
|
|
|
42 |
|
December 31, 2020
|
|
Carrying amount |
|
|
|
|
|
Fair Value Measurement Using |
|
||||||||||||
|
|
in balance sheet |
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Commercial paper |
$ |
718 |
|
|
$ |
718 |
|
|
$ |
718 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
|
Treasury bills |
7,999 |
|
|
|
7,999 |
|
|
|
7,999 |
|
|
|
0 |
|
|
|
0 |
|
||
|
Equity Securities |
|
42 |
|
|
|
42 |
|
|
|
0 |
|
|
|
0 |
|
|
|
42 |
|
|
The fair value of the commercial paper and treasury bills is based on quoted market prices in an active market. The equity securities owned by the Company are investments in two non-publicly traded companies. There is an undeterminable market for each of these two companies and the Company has determined the fair value based on financial and other factors that are considered level 3 inputs in the fair value hierarchy.
The changes in level 3 assets measured at fair value on a recurring basis are as follows:
| Nine Months Ended September 30, | ||||||||
| 2021 |
2020 |
|||||||
| Beginning Balance | $ | 42 | $ | 45 | ||||
|
Change in Fair Value |
0 | (3 | ) | |||||
| Ending Balance | $ | 42 | $ | 42 | ||||
| 11 |
ELECTRO-SENSORS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 2021
(in thousands except share and per share amounts)
(unaudited)
Note 4. Inventories
|
September 30, 2021 |
December 31, 2020 |
||||||
| Raw Materials | $ | 921 | $ | 922 | |||
| Work In Process | 257 | 292 | |||||
|
Finished Goods |
304 | 363 | |||||
| Reserve for Obsolescence | (5 | ) | (5 | ) | |||
| Total Inventories, net | $ | 1,477 | $ | 1,572 | |||
| 12 |
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding our expectations, beliefs, intentions or strategies regarding the future. Forward-looking statements include, but are not limited to, statements about the success of our marketing efforts; our efforts to accelerate future growth or income; our business development activities; our efforts to maintain or reduce production costs; our expected use of cash on hand; our cash requirements; and the sufficiency of our cash flows. Any statement that is not based solely upon historical facts, including our strategies for the future and the outcome of events that have not yet occurred, is a forward-looking statement.
All forward-looking statements in this document are based on information available to us as of the date of this Form 10-Q, and we assume no obligation to update any of these forward-looking statements, other than as required by law. Our actual results could differ materially from those projected or indicated in these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause future results to differ materially from our recent results or those projected in the forward-looking statements, including the accuracy of management’s assumptions with respect to industry trends, fluctuations in industry conditions, the accuracy of management’s assumptions regarding expenses and our cash needs and those listed under the heading “Cautionary Statements” under “Item 1—Business,” in our Annual Report on Form 10-K for the year ended December 31, 2020, as well as any effect the COVID-19 pandemic may have on the efficiency of our business operations, our customer base and the domestic or worldwide economy.
Based on rapidly changing dynamics in global supply chains of materials and components, we may experience both price increases and difficulty in sourcing materials and components. In addition, we may experience changes in transportation and freight availability that may make it difficult to have materials and components shipped to us or our products shipped to customers in a timely manner.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make decisions based upon estimates, assumptions, and factors it considers relevant to the circumstances. These decisions include the selection of applicable accounting principles and the use of judgment in their application and affect reported amounts and disclosures. Changes in economic conditions or other business circumstances may affect the outcomes of management’s estimates and assumptions. An in-depth description of our accounting estimates can be found in the interim financial statements included in this report and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
| 13 |
SELECTED FINANCIAL INFORMATION
The following table contains selected financial information, for the periods indicated, from our Statements of Comprehensive Income (Loss) expressed as a percentage of net sales.
|
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||||
|
|
2021 |
|
|
2020 |
|
2021 | 2020 | ||||||||||
|
Net sales |
|
100.0 |
% |
|
|
100.0 |
|
% | 100.0 | % | 100.0 | % | |||||
|
Cost of goods sold |
|
44.1 |
|
|
|
47.8 |
|
45.2 | 47.8 | ||||||||
|
Gross profit |
|
55.9 |
|
|
|
52.2 |
|
54.8 | 52.2 | ||||||||
|
Operating expenses |
|
|
|
|
|
|
|
||||||||||
|
Selling and marketing |
|
17.4 |
|
|
|
22.0 |
|
16.6 | 22.2 | ||||||||
|
General and administrative |
|
28.8 |
|
|
|
22.1 |
|
23.3 | 22.4 | ||||||||
|
Research and development |
|
8.8 |
|
|
|
11.0 |
|
10.4 | 10.5 | ||||||||
|
Total operating expenses |
|
55.0 |
|
|
|
55.1 |
|
50.3 | 55.1 | ||||||||
|
Operating income (loss) |
|
0.9 |
|
|
(2.9 |
) | 4.5 | (2.9 | ) | ||||||||
|
Non-operating income |
|
|
|
|
|
|
|
||||||||||
| Interest expense | 0.0 | (0.1 | ) | 0.0 | (0.1 | ) | |||||||||||
|
Interest income |
|
0.1 |
|
|
|
0.1 |
|
0.1 | 0.6 | ||||||||
|
Total non-operating income, net |
|
0.1 |
|
|
|
0.0 |
0.1 | 0.5 | |||||||||
|
Income (loss) before income tax expense (benefit) |
|
1.0 |
|
|
(2.9 |
) | 4.6 | (2.4 | ) | ||||||||
|
Provision for (benefit of) income taxes |
|
0.2 |
|
|
|
(0.5 |
) | 0.9 | (0.4 | ) | |||||||
|
Net income (loss) |
|
0.8 |
% |
|
|
(2.4 |
) | % | 3.7 | % | (2.0 | ) | % | ||||
The following paragraphs discuss the Company’s performance for the three and nine months ended September 30, 2021 and 2020.
RESULTS OF OPERATIONS (in thousands)
Net Sales
Net sales for the three-month period ended September 30, 2021 were $2,154, an increase of $255, or 13.4%, from $1,899 during the comparable period in 2020. Net sales for the nine months ended September 30, 2021 were $6,517, an increase of $603, or 10.2%, from $5,914 during the comparable period in 2020. The increase was primarily a result of increased sales to domestic customers in the agricultural industry.
Gross Profit
Gross profit for the third quarter of 2021 increased $212, or 21.4%, over the same period in 2020. Gross profit for the nine months ended September 30, 2021 increased $481, or 15.6%, over the same period in 2020. Gross margin increased in the third quarter of 2021 to 55.9% from 52.2% during the same period in 2020. Gross margin for the nine months ended September 30, 2021 increased to 54.8% from 52.2% over the same period in 2020. The increase in gross margin percentage for both periods was primarily due to improved factory utilization resulting from higher levels of manufacturing and sales. In addition, the nine-month period was favorably affected by product mix.
| 14 |
Operating Expenses
Total operating expenses increased $138, or 13.2%, for the third quarter of 2021 compared to the same period in 2020, but decreased as a percentage of net sales to 55.0% from 55.1%. Total operating expenses increased $18, or 0.6%, for the nine months ended September 30, 2021 compared to the same period in 2020, and decreased as a percentage of net sales to 50.3% from 55.1%.
|
|
● |
Selling and marketing expenses in the third quarter of 2021 decreased $42, or 10.1%, from the same period in 2020 and decreased as a percentage of net sales to 17.4% from 22.0%. Selling and marketing expenses in the nine months ended September 30, 2021 decreased $231, or 17.5%, from the same period in 2020 and decreased as a percentage of net sales to 16.6% from 22.2%. The decrease in expense dollars in both the three and nine-month periods ending September 30, 2021 was primarily due to lower internal and external sales headcount, partially offset by an increase in tradeshow related expenses. The 2021 tradeshow expense increase occurred because a majority of 2020 tradeshows were cancelled due to the COVID-19 pandemic. |
|
|
● |
General and administrative expenses increased $200, or 47.6%, in the third quarter of 2021 compared to the same period in 2020 and increased as a percentage of net sales to 28.8% from 22.1%. General and administrative expenses increased $196, or 14.8%, for the nine months ended September 30, 2021 compared to the same period in 2020 and increased as a percentage of net sales to 23.3% from 22.4%. The increase in both periods was primarily due to increased legal and other professional fees related to the Company's corporate and business development activities. |
|
|
● |
Research and development expenses decreased $20, or 9.6%, in the third quarter of 2021 from the same period in 2020 and decreased as a percentage of net sales to 8.8% from 11.0%. Research and development expenses increased $53, or 8.5%, in the nine months ended September 30, 2021 from the same period in 2020, but decreased as a percentage of net sales to 10.4% from 10.5%. The decrease in the quarter was due to lower 2021 contract engineering costs related to product enhancements while the increase in the nine-month period was due to higher 2021 contract engineering costs related to product enhancements. |
Non-Operating Income
Net non-operating income decreased by $28, or 90.3%, for the nine months ended September 30, 2021 compared to the same period in 2020. The decrease in was primarily a result of less interest income earned due to lower interest rates on Treasury Bills.
Income (Loss) Before Income Tax Benefit.
Income before income tax expense was $21 for the third quarter of 2021, representing an increase of $75, or 138.9%, compared to a loss before income tax benefit of $54 for the same period in 2020. Income before income tax expense was $290 for the nine months ended of September 30, 2021, representing an increase of $435, or 300.0%, compared to a loss before income tax benefit of $145 for the same period in 2020. The increase for both periods was primarily the result of higher sales and gross profit.
Income Tax Expense (Benefit)
Income tax expense increased to $4, or 0.2% of net sales in the third quarter of 2021 compared to a benefit of $8 or 0.5%, in the third quarter of 2020. Income tax expense increased to $61, or 0.9% of net sales, in the nine months ended September 30, 2021 compared to a benefit of $26, or 0.4% of net sales, for the nine months ended September 30, 2020. The increase for both periods is due to net income before income tax expense in 2021 compared to a loss before income tax benefit in 2020.
| 15 |
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $4,620 at September 30, 2021 and $1,090 at December 31, 2020. The increase was primarily the result of an increase in cash generated from investment maturities discussed below.
Cash generated from operating activities was $547 for the nine months ended September 30, 2021 as compared to $302 for the nine months ended September 30, 2020. The $245 increase in cash generated from operations was due primarily to an increase in net income, accrued expenses, and income tax payable, partially offset by an increase in trade receivables. The increase in net income was primarily due to higher sales and gross profit. The increase in accrued expenses is due to an increase in accrued bonuses and legal fees. The increase in income tax payable was due to net income in 2021 compared to a net loss in 2020. The increase in trade receivables was due to the timing of shipments and collections on accounts.
Cash from investing activities was $2,987 for the nine months ended September 30, 2021 as compared to cash used in investing activities of $2,021 for the nine months ended September 30, 2020. The increase in cash from investing activities was due to an increase in proceeds from Treasury Bill maturities classified as investments during 2021 and new purchases of Treasury Bills classified as cash and cash equivalents. During the first nine months of 2020, the majority of maturities of Treasury Bills were classified as cash and cash equivalents.
Cash used in financing activities in the nine months ended September 30, 2021 and 2020 was $4 for both periods.
Subject to the following section, entitled "COVID-19 Pandemic Discussion", the Company believe its ongoing cash requirements will be primarily for capital expenditures, research and development, working capital, and corporate and business development initiatives and that cash on hand and any cash generated from operations will be sufficient to meet these cash requirements through at least the next 12 months.
| 16 |
COVID-19 Pandemic Discussion
The COVID-19 pandemic continues to affect our operations, including limiting our ability to travel and fully engage customers at their facilities. While many regions of the US have reduced the severe restrictions implemented during 2020, many customers continue to operate under modified restrictions based on the number of COVID-19 cases. The uncertainty surrounding the ongoing fluctuations in regional case counts creates uncertainty in our business and may negatively affect our 2021 financial results.
We typically have robust sources for production components and materials. However, we are increasingly experiencing significant disruptions in our supply chain, resulting in difficulty sourcing parts. Additionally, we are experiencing price increases for many of the components used in our products. In certain situations, we are modifying product designs to accommodate new components that are more readily available. There is no guarantee that we will continue to be successful in updating these designs and sourcing alternative components, and we could experience significant delays or run out of certain components and materials. We are also seeing delays in shipping and transportation services, which may adversely affect our ability to make timely deliveries to our customers. Furthermore, the labor market for qualified employees able to fill our production positions is challenging and may result in delays in filling open positions. While we continue to closely manage each of these activities, our actions may not be successful and may result in a negative effect on our sales and profit margins.
Future Corporate and Business Development Activities
On an ongoing basis, the Company seeks business and corporate development opportunities. This includes expansion of the Company's existing portfolio of products, technologies, and markets via partnerships or acquisitions, and the exploration of possible strategic corporate alternatives.
Off-balance Sheet Arrangements
As of September 30, 2021, the Company had no off-balance sheet arrangements or transactions.
| 17 |
Not Applicable.
Evaluation of Disclosure Controls and Procedures
Based on an evaluation with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer has concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), were effective as of September 30, 2021.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the third quarter of 2021 that were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
| 18 |
|
Exhibit |
|
Description |
|
|
|
|
|
|
Certification of CEO and CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
Certification of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
101 |
|
The following financial information from Electro-Sensors, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021, formatted in iXBRL (Inline Extensible Business Reporting Language), (i) Condensed Balance Sheets as of September 30, 2021 and December 31, 2020, (ii) Condensed Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2021 and September 30, 2020 (iii) Condensed Statements of Changes in Stockholders' Equity for the three and nine months ended September 30, 2021 and September 30, 2020, (iv) Condensed Statements of Cash Flows for the nine months ended September 30, 2021 and September 30, 2020, and (v) Notes to Financial Statements. |
| 19 |
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. |
|
|
|
|
November 5, 2021 |
/s/ David L. Klenk |
|
|
David L. Klenk |
|
|
Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer) |
| 20 |