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, 20172019
Or
☐ TRANSITION REPORT PURSUANTPURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number 000-09587
ELECTRO-SENSORS, INC.
(Exact name of registrant as specified in its charter)
Minnesota | 41-0943459 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
6111 Blue Circle Drive
Minnetonka, Minnesota 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 | Nasdaq Capital Market |
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐
1 |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or 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 ☐ | |
Non-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 10, 201711, 2019 was 3,395,521.3,395,521.
ELECTRO-SENSORS, INC.
Form 10-Q
For the Periods Ended September 30, 20172019
ELECTRO-SENSORS, INC.
(in thousands except share and per share amounts)
|
| September 30, |
|
| December 31, |
| ||
|
| (unaudited) |
|
|
|
| ||
ASSETS |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 1,185 |
|
| $ | 840 |
|
Treasury bills |
|
| 7,420 |
|
|
| 7,427 |
|
Trade receivables, less allowance for doubtful accounts of $8 | 1,042 |
|
|
| 770 |
| ||
Inventories |
|
| 1,528 |
|
|
| 1,515 |
|
Other current assets |
|
| 177 |
|
|
| 174 |
|
Income tax receivable |
|
| 0 |
|
|
| 66 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
| 11,352 |
|
|
| 10,792 |
|
|
|
|
|
|
|
|
|
|
Deferred income tax asset, net |
|
| 254 |
|
|
| 198 |
|
|
|
|
|
|
|
|
|
|
Intangible assets, net |
|
| 858 |
|
|
| 1,035 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
| 992 |
|
|
| 1,033 |
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 13,456 |
|
| $ | 13,058 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of contingent earn-out |
| $ | 142 |
|
| $ | 0 |
|
Accounts payable |
|
| 133 |
|
|
| 239 |
|
Accrued expenses |
|
| 439 |
|
|
| 304 |
|
Accrued income tax |
|
| 73 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
| 787 |
|
|
| 543 |
|
|
|
|
|
|
|
|
|
|
Long-term liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent earn-out, net of current maturities |
|
| 0 |
|
|
| 195 |
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
| 0 |
|
|
| 195 |
|
|
|
|
|
|
|
|
|
|
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 |
|
| 2,001 |
|
|
| 1,953 |
|
Retained earnings |
|
| 10,348 |
|
|
| 10,057 |
|
Accumulated other comprehensive loss (unrealized loss on available-for-sale securities, net of income tax benefit) |
|
| (19 | ) |
|
| (29 | ) |
|
|
|
|
|
|
|
|
|
Total stockholders’ equity |
|
| 12,669 |
|
|
| 12,320 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
| $ | 13,456 |
|
| $ | 13,058 |
|
|
| September 30, |
|
| December 31, |
| ||
|
| (unaudited) |
|
|
|
| ||
ASSETS |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 3,117 |
|
| $ | 1,057 |
|
Investments |
|
| 5,786 |
|
|
| 7,742 |
|
Trade receivables, less allowance for doubtful accounts of $11 | 965 |
|
|
| 896 |
| ||
Inventories |
|
| 1,719 |
|
|
| 1,618 |
|
Other current assets |
|
| 194 |
|
|
| 155 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
| 11,781 |
|
|
| 11,468 |
|
|
|
|
|
|
|
|
|
|
Deferred income tax asset, net |
|
| 196 |
|
|
| 192 |
|
|
|
|
|
|
|
|
|
|
Intangible assets, net |
|
| 555 |
|
|
| 565 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
| 1,063 |
|
|
| 1,050 |
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 13,595 |
|
| $ | 13,275 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of financing lease |
| $ | 5 |
|
| $ | 5 |
|
Accounts payable |
|
| 196 |
|
|
| 116 |
|
Accrued expenses |
|
| 510 |
|
|
| 405 |
|
Accrued income tax | 30 | 0 | ||||||
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
| 741 |
|
|
| 526 |
|
|
|
|
|
|
|
|
|
|
Long-term liabilities | ||||||||
Financing lease, net of current maturities | 20 | 24 | ||||||
|
|
|
|
|
|
|
|
|
Total long-term liabilities | 20 | 24 | ||||||
|
|
|
|
|
|
|
|
|
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 |
|
| 2,027 |
|
|
| 2,019 |
|
Retained earnings |
|
| 10,426 |
|
|
| 10,335 |
|
Accumulated other comprehensive gain (unrealized gain on available-for-sale securities, net of income tax) |
|
| 42 |
|
| 32 | ||
|
|
|
|
|
|
|
|
|
Total stockholders’ equity |
|
| 12,834 |
|
|
| 12,725 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
| $ | 13,595 |
|
| $ | 13,275 |
|
See accompanying notes to unaudited condensed financial statements
ELECTRO-SENSORS, INC.
(in thousands except share and per share amounts)
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net sales | $ | 2,054 | $ | 1,837 | $ | 6,005 | $ | 5,562 | ||||||||
Cost of goods sold | 920 | 835 | 2,648 | 2,452 | ||||||||||||
Gross profit | 1,134 | 1,002 | 3,357 | 3,110 | ||||||||||||
Operating expenses | ||||||||||||||||
Selling and marketing | 342 | 387 | 1,127 | 1,262 | ||||||||||||
General and administrative | 402 | 386 | 1,225 | 1,199 | ||||||||||||
Research and development | 168 | 200 | 590 | 561 | ||||||||||||
Total operating expenses | 912 | 973 | 2,942 | 3,022 | ||||||||||||
Operating income | 222 | 29 | 415 | 88 | ||||||||||||
Non-operating income (expense) | ||||||||||||||||
Interest expense | 0 | 0 | 0 | (1 | ) | |||||||||||
Interest income | 9 | 3 | 22 | 18 | ||||||||||||
Other income | 3 | 3 | 8 | 12 | ||||||||||||
Total non-operating income, net | 12 | 6 | 30 | 29 | ||||||||||||
Income before income taxes | 234 | 35 | 445 | 117 | ||||||||||||
Provision for income taxes | 82 | 12 | 154 | 43 | ||||||||||||
Net income | $ | 152 | $ | 23 | $ | 291 | $ | 74 | ||||||||
Other comprehensive income | ||||||||||||||||
Change in unrealized value of available-for-sale securities, net of income tax | $ | 6 | $ | 2 | $ | 10 | $ | 6 | ||||||||
Other comprehensive income | 6 | 2 | 10 | 6 | ||||||||||||
Net comprehensive income | $ | 158 | $ | 25 | $ | 301 | $ | 80 | ||||||||
Net income per share data: | ||||||||||||||||
Basic | ||||||||||||||||
Net income per share | $ | 0.04 | $ | 0.01 | $ | 0.09 | $ | 0.02 | ||||||||
Weighted average shares | 3,395,521 | 3,395,521 | 3,395,521 | 3,395,521 | ||||||||||||
Diluted | ||||||||||||||||
Net income per share | $ | 0.04 | $ | 0.01 | $ | 0.09 | $ | 0.02 | ||||||||
Weighted average shares | 3,400,988 | 3,396,776 | 3,396,899 | 3,396,102 |
Three Months Ended September 30, | Nine Months Ended September 30 | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net sales | $ | 2,049 | $ | 2,146 | $ | 6,317 | $ | 5,642 | ||||||||
Cost of goods sold | 975 | 951 | 2,941 | 2,559 | ||||||||||||
Gross profit | 1,074 | 1,195 | 3,376 | 3,083 | ||||||||||||
Operating expenses | ||||||||||||||||
Selling and marketing | 494 | 406 | 1,495 | 1,242 | ||||||||||||
General and administrative | 404 | 414 | 1,294 | 1,370 | ||||||||||||
Research and development | 194 | 176 | 603 | 628 | ||||||||||||
Total operating expenses | 1,092 | 996 | 3,392 | 3,240 | ||||||||||||
Operating income (loss) | (18 | ) | 199 | (16 | ) | (157 | ) | |||||||||
Non-operating income (expense) | ||||||||||||||||
Interest expense | 0 | 0 | (1 | ) | 0 | |||||||||||
Interest income | 41 | 36 | 126 | 83 | ||||||||||||
Other income | 2 | 2 | 7 | 7 | ||||||||||||
Total non-operating income, net | 43 | 38 | 132 | 90 | ||||||||||||
Income (loss) before income tax expense (benefit) | 25 | 237 | 116 | (67 | ) | |||||||||||
Provision for (benefit of) income tax | 6 | 50 | 25 | (9 | ) | |||||||||||
Net income (loss) | $ | 19 | $ | 187 | $ | 91 | $ | (58 | ) | |||||||
Other comprehensive income | ||||||||||||||||
Change in unrealized value of available-for-sale securities, net of income tax | $ | 2 | $ | 0 | $ | 10 | $ | 7 | ||||||||
Other comprehensive income | 2 | 0 | 10 | 7 | ||||||||||||
Net comprehensive income (loss) | $ | 21 | $ | 187 | $ | 101 | $ | (51 | ) | |||||||
Net income (loss) per share data: | ||||||||||||||||
Basic | ||||||||||||||||
Net income (loss) per share | $ | 0.01 | $ | 0.06 | $ | 0.03 | $ | (0.02 | ) | |||||||
Weighted average shares | 3,395,521 | 3,395,521 | 3,395,521 | 3,395,521 | ||||||||||||
Diluted | ||||||||||||||||
Net income (loss) per share | $ | 0.01 | $ | 0.06 | $ | 0.03 | $ | (0.02 | ) | |||||||
Weighted average shares | 3,398,533 | 3,398,238 | 3,397,385 | 3,395,521 |
See accompanying notes to unaudited condensed financial statements
ELECTRO-SENSORS, INC.
(in thousands)
(unaudited)
|
| Nine Months Ended |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Cash flows from (used in) operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 291 |
|
| $ | 74 |
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 233 |
|
|
| 235 |
|
Deferred income taxes |
|
| (62 | ) |
|
| (26 | ) |
Stock-based compensation expense |
|
| 48 |
|
|
| 66 |
|
Change in contingent earn-out fair value |
|
| (53 | ) |
|
| (72 | ) |
Other |
|
| (21 | ) |
|
| (18 | ) |
Change in: |
|
|
|
|
|
|
|
|
Trade receivables |
|
| (272 | ) |
|
| (149 | ) |
Inventories |
|
| (13 | ) |
|
| 47 |
|
Other current assets |
|
| (3 | ) |
|
| (17 | ) |
Accounts payable |
|
| (106 | ) |
|
| 21 |
|
Accrued expenses |
|
| 135 |
|
|
| 11 |
|
Income tax receivable/accrued income taxes |
|
| 139 |
|
|
| (21 | ) |
|
|
|
|
|
|
|
|
|
Net cash from operating activities |
|
| 316 |
|
| 151 |
| |
|
|
|
|
|
|
|
|
|
Cash flows from (used in) investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury bills |
|
| (5,956 | ) |
|
| (7,425 | ) |
Proceeds from the maturity of treasury bills |
|
| 6,000 |
|
|
| 7,889 |
|
Purchase of property and equipment |
|
| (15 | ) |
|
| (2 | ) |
|
|
|
|
|
|
|
|
|
Net cash from investing activities |
|
| 29 |
|
|
| 462 |
|
|
|
|
|
|
|
|
|
|
Cash flows used in financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt |
|
| 0 |
|
| (390 | ) | |
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
| 0 |
|
| (390 | ) | |
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
| 345 |
|
| 223 | ||
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning |
|
| 840 |
|
|
| 569 |
|
Cash and cash equivalents, ending |
| $ | 1,185 |
|
| $ | 792 |
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
Cash paid for income taxes |
| $ | 125 |
|
| $ | 90 |
|
Cash paid for interest |
| $ | 0 |
|
| $ | 10 |
|
See accompanying notes to unaudited financial statements
ELECTRO-SENSORS, INC.
FOR THE PERIOD ENDED SEPTEMBER 30, 2017
(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, 2019 | 3,395,521 | $ | 339 | $ | 2,024 | $ | 10,407 | $ | 40 | $ | 12,810 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income | 2 | 2 | ||||||||||||||||||||
Stock-based compensation expense | 3 | 3 | ||||||||||||||||||||
Net income | 19 | 19 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2019 (unaudited) | 3,395,521 | $ | 339 | $ | 2,027 | $ | 10,426 | $ | 42 | $ | 12,834 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018 | 3,395,521 | $ | 339 | $ | 2,010 | $ | 10,100 | $ | 26 | $ | 12,475 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income | 0 | 0 | ||||||||||||||||||||
Stock-based compensation expense | 1 | 1 | ||||||||||||||||||||
Net income | 187 | 187 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2018 (audited) | 3,395,521 | $ | 339 | $ | 2,011 | $ | 10,287 | $ | 26 | $ | 12,663 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30 | ||||||||||||||||||||||
Common Stock Issued | Additional Capital | Retained Earnings | Accumulated Other Comprehensive Income | Total Stockholders' Equity | ||||||||||||||||||
Shares | Amount | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018 | 3,395,521 |
|
| $ | 339 |
|
| $ | 2,019 |
|
| $ | 10,335 |
|
| $ | 32 |
| $ | 12,725 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 10 |
|
| 10 | ||
Stock-based compensation expense |
|
|
|
|
|
|
|
| 8 |
|
|
|
|
|
|
|
|
|
|
| 8 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
| 91 |
|
|
|
|
|
| 91 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2019 (unaudited) | 3,395,521 | $ | 339 | $ | 2,027 | $ | 10,426 | $ | 42 | $ | 12,834 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 | 3,395,521 |
|
| $ | 339 |
|
| $ | 2,004 |
|
| $ | 10,352 |
|
| $ | 12 |
| $ | 12,707 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 7 |
|
| 7 | ||
Stock-based compensation expense |
|
|
|
|
|
|
|
| 7 |
|
|
|
|
|
|
|
|
|
|
| 7 |
|
Change in accounting policy | (7 | ) | 7 | 0 | ||||||||||||||||||
Net loss |
|
|
|
|
|
|
|
|
|
|
|
| (58 | ) |
|
|
|
|
|
| (58 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2018 (unaudited) | 3,395,521 |
|
| $ | 339 |
|
| $ | 2,011 |
|
| $ | 10,287 |
|
| $ | 26 |
| $ | 12,663 |
|
6 |
ELECTRO-SENSORS, INC.
(in thousands)
(unaudited)
|
| Nine Months Ended |
| |||||
|
| 2019 |
| 2018 |
| |||
Cash flows from (used in) operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 91 |
| $ | (58 | ) | |
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income (loss) to net cash from (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 231 |
|
|
| 238 |
|
Deferred income taxes |
|
| (6 | ) |
|
| 0 | |
Stock-based compensation expense |
|
| 8 |
|
|
| 7 |
|
Interest accrued on treasury bills |
|
| (120 | ) |
|
| (78 | ) |
Change in: |
|
|
|
|
|
|
|
|
Trade receivables |
|
| (69 | ) |
|
| (142 | ) |
Inventories |
|
| (101 | ) |
|
| (52 | ) |
Other current assets |
|
| (39 | ) |
|
| (30 | ) |
Accounts payable |
|
| 80 |
|
| 15 | ||
Accrued expenses |
|
| 105 |
|
|
| 45 |
|
Income tax receivable/payable |
|
| 30 |
|
| 28 | ||
|
|
|
|
|
|
|
|
|
Net cash from (used in) operating activities |
|
| 210 |
|
| (27 | ) | |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury bills |
|
| (7,662 | ) |
|
| (10,654 | ) |
Proceeds from the maturity of treasury bills |
|
| 9,750 |
|
|
| 10,750 |
|
Purchase of intangible asset | (150 | ) | 0 | |||||
Purchase of property and equipment |
|
| (84 | ) |
|
| (29 | ) |
|
|
|
|
|
|
|
|
|
Net cash from investing activities |
|
| 1,854 |
|
|
| 67 |
|
|
|
|
|
|
|
|
|
|
Cash flows used in financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on financing lease | (4 | ) | 0 | |||||
Payment of contingent earn-out |
|
| 0 |
|
| (150 | ) | |
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
| (4 | ) |
|
| (150 | ) |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
| 2,060 |
|
| (110 | ) | |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning |
|
| 1,057 |
|
|
| 963 |
|
Cash and cash equivalents, ending |
| $ | 3,117 |
|
| $ | 853 |
|
|
|
|
|
|
|
|
| |
Supplemental cash flow information |
|
|
|
|
|
|
|
|
Cash paid for income taxes |
| $ | 1 |
|
| $ | 0 |
|
Cash paid for interest | $ | 1 | $ | 0 |
See accompanying notes to unaudited condensed financial statements
7 |
ELECTRO-SENSORS, INC.
FOR THE PERIOD ENDED SEPTEMBER 30, 2019
(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, 20162018, 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, 20172019 and for the three and nine-month periods then ended 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 variety of industrial machinery. The Company uses leading-edge technology to continuously improve its products and make them easier to use,expand the number of applications they can be used in, with the ultimate goal of manufacturing the industry-preferred product for every market served. The Company sells these products through an internal sales staff, manufacturers’ representatives, and distributors to a wide variety 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 promised to a customer and identifies a performance obligation for each distinct promised 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 promised 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. On some contracts, we 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, 20172019 and December 31, 20162018, due to the short maturity nature of these instruments.
8 |
ELECTRO-SENSORS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 2019
(in thousands except share and per share amounts)
(unaudited)
Intangibles
Intangible assets are comprised of a non-compete agreement, 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.
On September 30, 2019, the Company purchased a royalty-free, perpetual technology license for wireless communication technologies for $150.
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, 2019, there was approximately $17 of unrecognized compensation expense related to unvested stock options. The Company expects to recognize this expense over the next three years.
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. 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, contingent earn-out, and stock compensation expense. It is at least reasonably possible that these estimates may change in the near term.term.
Net Income (Loss) per Common Share
Basic and 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. For the three and nine-month periods ended September 30, 2018, the common shares underlying stock options have been excluded from the calculation because their effect would be anti-dilutive. Therefore, the weighted-average shares outstanding used to calculate both basic and diluted loss per common shares are the same.
For the three and nine months ended September 30, 2019, options to purchase 329,488 and 330,636 weighted-average common shares, respectively, have been excluded from the computations of diluted weighted-average shares outstanding because their effect would be anti-dilutive. For the three and nine months ended September 30, 2018, options to purchase 304,783 and 307,500 weighted-average common shares, respectively, have been excluded from the computations of diluted weighted-average shares outstanding because their effect would be anti-dilutive.
ELECTRO-SENSORS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 20172019
(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 three months at September 30, 2019.
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.
Prior to January 1, 2018, the Company accounted for equity securities at fair value with unrealized gains and losses recognized in accumulated other comprehensive gain on the balance sheet. Realized gains and losses on equity securities sold or impaired were recognized in non-operating income on the statement of comprehensive income (loss).
On January 1, 2018, the Company adopted ASU 2016-01, which changed how the Company accounted for equity securities. Equity securities are now measured at fair value and starting January 1, 2018, unrealized gains and losses have been recognized in non-operating income. Upon adoption, the Company reclassified $7 of net unrealized losses related to equity securities from accumulated other comprehensive gain to retained earnings.
The cost and estimated fair value of the Company’s investments are as follows:
|
| Cost |
|
| Gross |
|
| Gross |
|
| Fair |
| ||||
September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Paper |
| $ | 810 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 810 |
|
Treasury Bills |
|
| 7,684 |
|
|
| 56 |
|
|
| 0 |
|
|
| 7,740 |
|
Equity Securities |
|
| 45 |
|
|
| 0 |
|
|
| 0 |
|
| 45 |
| |
|
|
| 8,539 |
|
|
| 56 |
|
|
| 0 |
|
| 8,595 |
| |
Less Cash Equivalents |
|
| 2,809 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,809 |
|
Total Investments, September 30, 2019 |
| $ | 5,730 |
|
| $ | 56 |
|
| $ | 0 |
| $ | 5,786 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Paper |
| $ | 667 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 667 |
|
Treasury Bills |
|
| 7,656 |
|
|
| 41 |
|
|
| 0 |
|
|
| 7,697 |
|
Equity Securities |
|
| 45 |
|
|
| 0 |
|
|
| 0 |
|
| 45 |
| |
|
|
| 8,368 |
|
|
| 41 |
|
|
| 0 |
|
| 8,409 |
| |
Less Cash Equivalents |
|
| 667 |
|
|
| 0 |
|
|
| 0 |
|
|
| 667 |
|
Total Investments, December 31, 2018 |
| $ | 7,701 |
|
| $ | 41 |
|
| $ | 0 |
| $ | 7,742 |
|
10 |
|
| Cost |
|
| Gross |
|
| Gross |
|
| Fair |
| ||||
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Paper |
| $ | 693 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 693 |
|
Treasury Bills |
|
| 7,396 |
|
|
| 24 |
|
|
| 0 |
|
|
| 7,420 |
|
Equity Securities |
|
| 54 |
|
|
| 0 |
|
|
| (54 | ) |
|
| 0 |
|
|
|
| 8,143 |
|
|
| 24 |
|
|
| (54 | ) |
|
| 8,113 |
|
Less Cash Equivalents |
|
| 693 |
|
|
| 0 |
|
|
| 0 |
|
|
| 693 |
|
Total Investments, September 30, 2017 |
| $ | 7,450 |
|
| $ | 24 |
|
| $ | (54 | ) |
| $ | 7,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Paper |
| $ | 348 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 348 |
|
Treasury Bills |
|
| 7,419 |
|
|
| 8 |
|
|
| 0 |
|
|
| 7,427 |
|
Equity Securities |
|
| 54 |
|
|
| 0 |
|
|
| (54 | ) |
|
| 0 |
|
|
|
| 7,821 |
|
|
| 8 |
|
|
| (54 | ) |
|
| 7,775 |
|
Less Cash Equivalents |
|
| 348 |
|
|
| 0 |
|
|
| 0 |
|
|
| 348 |
|
Total Investments, December 31, 2016 |
| $ | 7,473 |
|
| $ | 8 |
|
| $ | (54 | ) |
| $ | 7,427 |
|
ELECTRO-SENSORS, INC.
ELECTRO-SENSORS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 20172019
(in thousands except share and per share amounts)
(unaudited)
Note 3. Fair Value Measurements
The following tabletable provides informationinformation on those assets and liabilities measured at fair value on a recurring basis.
September 30, 20172019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Carrying amount |
|
|
|
|
| Fair Value Measurement Using |
| |||||||||||
|
| in balance sheet |
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
| $ | 693 |
|
| $ | 693 |
|
| $ | 693 |
|
| $ | 0 |
|
| $ | 0 |
|
Treasury bills |
|
| 7,420 |
|
|
| 7,420 |
|
|
| 7,420 |
|
|
| 0 |
|
|
| 0 |
|
Equity Securities |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent earn-out |
|
| 142 |
|
|
| 142 |
|
|
| 0 |
|
|
| 0 |
|
|
| 142 |
|
| Carrying amount |
|
|
|
|
| Fair Value Measurement Using |
| ||||||||||||
|
| in balance sheet |
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
| $ | 810 |
|
| $ | 810 |
|
| $ | 810 |
|
| $ | 0 |
|
| $ | 0 |
|
Treasury bills | 1,999 | 1,999 | 1,999 | 0 | 0 | |||||||||||||||
Treasury bills |
|
| 5,741 |
|
|
| 5,741 |
|
|
| 5,741 |
|
|
| 0 |
|
|
| 0 |
|
Equity Securities |
|
| 45 |
|
|
| 45 |
|
|
| 0 |
|
|
| 0 |
|
|
| 45 |
|
December 31, 20162018
|
| Carrying amount |
|
|
|
|
| Fair Value Measurement Using |
| |||||||||||
|
| in balance sheet |
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
| $ | 348 |
|
| $ | 348 |
|
| $ | 348 |
|
| $ | 0 |
|
| $ | 0 |
|
Treasury bills |
|
| 7,427 |
|
|
| 7,427 |
|
|
| 7,427 |
|
|
| 0 |
|
|
| 0 |
|
Equity Securities |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent earn-out |
|
| 195 |
|
|
| 195 |
|
|
| 0 |
|
|
| 0 |
|
|
| 195 |
|
| Carrying amount |
|
|
|
|
| Fair Value Measurement Using |
| ||||||||||||
| in balance sheet |
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Commercial paper | $ | 667 |
|
| $ | 667 |
|
| $ | 667 |
|
| $ | 0 |
|
| $ | 0 |
| |
Treasury bills | 7,697 |
|
|
| 7,697 |
|
|
| 7,697 |
|
|
| 0 |
|
|
| 0 |
| ||
Equity Securities | 45 |
|
|
| 45 |
|
|
| 0 |
|
|
| 0 |
|
|
| 45 |
|
The fair value of the commercial paper and treasury bills is based on quoted market prices in an active market. There is not a significantno public market for the available-for-sale equity security owned by the Company. The Company has determined the fair value for this equity security based on financial and other factors that are considered level 3 inputs in the fair value hierarchy.
The contingent earn-out relates to the 2014 acquisition of the HazardPROTM product line. Management estimated the probability of meeting the revenue targets over the measurement period to determine the fair value of the contingent earn-out, which is considered a level 3 input in the fair value hierarchy.
The change in level 3 liabilities at fair value on a recurring basis infor the 2017nine months ended September 30, 2018 relate to the Harvest Engineering contingent earn-out and 2016 three and nine-month periods is summarizedare as follows:
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||||||
2017 | 2016 | 2017 | 2016 | Nine Months Ended September 30, 2018 | |||||||||||||||
Beginning Balance | $ | 142 | $ | 383 | $ | 195 | $ | 455 | $ | 150 | |||||||||
Change in Fair Value | 0 | 0 | (53 | ) | (72 | ) | 0 | ||||||||||||
Payments | (150 | ) | |||||||||||||||||
Ending Balance | $ | 142 | $ | 383 | $ | 142 | $ | 383 | $ | 0 |
Both the 2017 and 2016 decreases in the contingent liability reflect the Company's expectation of lower future contingent payments due to lower anticipated sales during the remaining term of the earn-out period.
ELECTRO-SENSORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 2017
(in thousands except share and per share amounts)
(unaudited)
Note 4. Stock-Based Compensation
During the first quarter of 2016, the Company granted its Chief Executive Officer options to purchase 50,000 shares of common stock. The options were priced at fair market value and vested 20% on the grant date, with an additional 20% vesting on the first four anniversaries of the grant date. The options expire ten years from the date of grant.
The assumptions made in estimating the fair value of the options on the grant date based upon the BSM option-pricing model for the nine months ended September 30, 2016 are as follows:
|
|
| ||
|
|
| ||
|
|
| ||
|
|
As of September 30, 2017, there was approximately $20 of unrecognized compensation expense related to unvested stock options. The Company expects to recognize this expense over the next three years.
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 relating to our marketing efforts orefforts; our efforts to accelerate growth;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, 20162018.
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, 20162018. We have not developed new estimates subsequent to those discussed in our Annual Report.
12 |
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, |
| ||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| |||||
Net sales |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % | |
Cost of goods sold |
|
| 44.8 |
|
|
| 45.5 |
|
|
| 44.1 |
|
|
| 44.1 |
| |
Gross profit |
|
| 55.2 |
|
|
| 54.5 |
|
|
| 55.9 |
|
|
| 55.9 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Selling and marketing |
|
| 16.7 |
|
|
| 21.1 |
|
|
| 18.8 |
|
|
| 22.7 |
| |
General and administrative |
|
| 19.5 |
|
|
| 21.0 |
|
|
| 20.4 |
|
|
| 21.5 |
| |
Research and development |
|
| 8.2 |
|
|
| 10.9 |
|
|
| 9.8 |
|
|
| 10.1 |
| |
Total operating expenses |
|
| 44.4 |
|
|
| 53.0 |
|
|
| 49.0 |
|
|
| 54.3 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating income |
|
| 10.8 |
|
|
| 1.5 |
|
|
| 6.9 |
|
| 1.6 | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Non-operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest income |
|
| 0.4 |
|
|
| 0.2 |
|
|
| 0.4 |
|
|
| 0.3 |
| |
Other income |
|
| 0.2 |
|
|
| 0.2 |
|
|
| 0.1 |
|
|
| 0.2 |
| |
Total non-operating income, net |
|
| 0.6 |
|
|
| 0.4 |
|
|
| 0.5 |
|
|
| 0.5 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income before income taxes |
|
| 11.4 |
|
|
| 1.9 |
|
|
| 7.4 |
|
| 2.1 | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Provision for income taxes |
|
| 4.0 |
|
|
| 0.7 |
|
|
| 2.6 |
|
| 0.8 | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income |
|
| 7.4 | % |
|
| 1.2 | % |
|
| 4.8 | % |
|
| 1.3 | % |
|
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
|
| 2019 |
|
| 2018 |
| 2019 | 2018 | ||||||||||||
Net sales |
|
| 100.0 | % |
|
| 100.0 |
| % | 100.0 | % | 100.0 | % | |||||||
Cost of goods sold |
|
| 47.6 |
|
|
| 44.3 |
| 46.6 | 45.4 | ||||||||||
Gross profit |
|
| 52.4 |
|
|
| 55.7 |
| 53.4 | 54.6 | ||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||
Operating expenses |
|
|
|
|
|
|
|
| ||||||||||||
Selling and marketing |
|
| 24.1 |
|
|
| 18.9 |
| 23.6 | 22.0 | ||||||||||
General and administrative |
|
| 19.7 |
|
|
| 19.3 |
| 20.5 | 24.3 | ||||||||||
Research and development |
|
| 9.5 |
|
|
| 8.2 |
| 9.5 | 11.1 | ||||||||||
Total operating expenses |
|
| 53.3 |
|
|
| 46.4 |
| 53.6 | 57.4 | ||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||
Operating income (loss) |
|
| (0.9 | ) |
|
| 9.3 | (0.2 | ) | (2.8 | ) | |||||||||
|
|
|
|
|
|
|
|
| ||||||||||||
Non-operating income (expense) |
|
|
|
|
|
|
|
| ||||||||||||
Interest income |
|
| 2.0 |
|
|
| 1.7 |
| 2.0 | 1.5 | ||||||||||
Other income |
|
| 0.1 |
|
| 0.0 |
| 0.1 | 0.1 | |||||||||||
Total non-operating income, net |
|
| 2.1 |
|
|
| 1.7 |
| 2.1 | 1.6 | ||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||
Income (loss) before income tax expense (benefit) |
|
| 1.2 |
|
| 11.0 | 1.9 | (1.2 | ) | |||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||
Provision for (benefit from) income taxes |
|
| 0.3 |
|
| 2.3 | 0.4 | (0.2 | ) | |||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||
Net income (loss) |
|
| 0.9 | % |
|
| 8.7 | % | 1.5 | % | (1.0 | ) | % |
The following paragraphs discuss the Company’sperformance for thethree and ninemonths ended September 30, 20172019 and 20162018.
RESULTS OF OPERATIONS (in thousands)
Net Sales
Net sales for the three-monththree-month period ended September 30, 20172019 were $2,0542,049, a decrease of $97, or 4.5%, from $2,146 during the comparable period in 2018. Net sales for the nine months ended September 30, 2019 were $6,317, an increase of $217675, or 11.812.0%, over the corresponding period in 2018. The year-to-date sales increase has been primarily driven by increased sales of HazardPRO wireless monitoring systems. Additionally, international sales increased by 51% for the nine-month period, reaching 14.5% of sales as compared to 10.5% during the similar period in 2018, primarily driven by higher sales into Canada.
Gross Profit
Gross profit for the third quarter of 2019decreased $121, or 10.1%, over the same period in 20162018. Net salesGross profit for the nine-month period months endedSeptember 30, 2017 were2019increased $6,005, an increase of $443293, or 8.09.5%, over the same period in 20162018. GrowthGross margin decreased in the third quarter of 2019 to 52.4% from 55.7% during the same period in 2018. Gross margin decreased in the nine months endedSeptember 30, 2019 to 53.4%, versus 54.6% in the same period in 2018. The decrease in the gross margin percentage for the three-month periodboth periods was primarily due to ana change in product mix and higher material costs resulting from the increase in government tariff charges.
13 |
Operating Expenses
Total operating expenses increased $96, or 9.6%, for the average sizethird quarter of large orders, which we define as orders over five thousand dollars. The increase drove growth in both the HazardPRO Wireless Monitoring system and legacy product families. Furthermore, international sales were a significant contributor to our growth and were up 34% in the 2017 nine-month period as2019 compared to the same period in 2016. In addition, the Company benefitted from significant growth in sales into the bulk material handling2018 and OEM markets as compared to the same three-month period in 2016.
Gross Profit
Gross profit for the three months ended September 30, 2017 increased $132, or 13.2%, over the same period in 2016. Gross profit for the nine months ended September 30, 2017 increased $247, or 7.9%, over the same period in 2016. Both the three and nine-month gross profit increases were due to the higher level of sales. Gross margin, as a percentage of net sales increasedto 55.253.3% in the 2017 three-month period from 54.546.4% in the prior year, but remained constant at 55.9% in the 2017 and 2016 nine-month periods. The slight increase in gross margin percentage during the 2017 third quarter was due to a change in product mix.
Operating Expenses
.Total operating expenses decreasedincreased $61152, or 6.34.7%, for the threenine months ended September 30, 20172019 compared to the same period in 2016 and 2018 but decreased as a percentage of net sales to 44.453.6% from 53.057.4%. Total operating expenses decreased $80, or 2.6%, for the nine months ended September 30, 2017 compared to the same period in 2016 and decreased as a percentage of sales to 49.0% from 54.3%. The decreases in operating expenses as a percentage of sales were primarily due to increased revenues.
● | Selling and marketing expenses in the |
● | General and administrative expenses |
● | Research and development expenses |
Non-Operating Income (Expense)(Net)
Non-operatingNet non-operating income increased by $65, or 100.013.2%, for the 2017 three-month period compared to the same 2016 period. Non-operating income increased $1, or 3.4%, in the nine months ended September 30, 2017, whenthird quarter of 2019 compared to the same period in 20162018. The increase for both periods was primarily due to an increase in interest income.
Income Before Income Taxes
Income beforeNet non-operating income taxes wasincreased by $23442, or 46.7%, for the threenine months ended of September 30, 2017, representing an increase of $199, or 568.6%, when2019 compared to the same period in 20162018. The increase was primarily due to higher interest income earned from higher interest rates on Treasury Bills.
Income (Loss) Before Income Tax Expense (Benefit)
Income before income tax expense was $25 for the third quarter of 2019, representing a decrease in the third quarter income of $212, or 89.5%, compared to $237 for the same period in 2018. Income before income taxestax expense was $445116 for the nine months ended September 30, 20172019, representing an increase in income of $328183, or 280.3273.1%, when compared to a loss before income tax benefit of $67 for the same period in 2016. 2018. The decrease in income in the 2019 three-month period was primarily the result of lower third quarter net sales, while the increase for both 2017 periodsin the nine-month period was primarily the result of higher 2017 gross profit, primarily due to increased revenues, and a decrease2019 net sales, in operating expenses.each case as discussed above.
Income Taxes
The Company's income tax expense percentage remained relatively constant at 35.0% and 34.6%increased to 24.0% for the third quarter of 2019 from 21.1% of income tax benefit in the respective three and nine-month periods comparedthird quarter of 2018. The Company's income tax expense percentage increased to 34.3% and 36.8%21.6% for the nine months ended September 30, 2019 from 13.4% of income tax benefit in the comparable 2016 three and nine-month periods.nine months ended September 30, 2018.
14 |
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $1,1853,117 at September 30, 20172019 and $8401,057 at December 31, 20162018. The increase was mainlyprimarily the result of an increase in cash generated from operating activities.investing activities due to the maturity of treasury bills. Some of the treasury bills purchased during the third quarter of 2019 were considered cash equivalents.
Cash generated from operating activities was $316 and $151210 for the nine months ended September 30, 2017 and 2016, respectively.2019 as compared to cash used in operating activities of $27 for the nine months ended September 30, 2018. The $165237increase in cash from operations was due to thenet income in 2019 compared to a net loss in 2018, a decrease in trade receivables, an increase in net incomeaccounts payable, and an increase in accrued expenses;expenses, partially offset by an increase in inventory. The 2019 net income, as compared to the prior year net loss, was primarily due to increased net sales. The decrease in trade receivables is due the timing of sales and a decrease in accounts payable.collections on accounts. The increase in net incomeaccounts payable is due to higher gross profit and decreased expenses.timing of payments. The increase in accrued expenses is due to increased payroll related expenses.headcount and changes in compensation plans. The increase in accounts receivable is due to increased sales in the 2017 third quarter. The decrease in accounts payableinventory is due to the timing of payments.purchases.
Cash generated from investing activities was $291,854 and $46267 for the nine months ended September 30, 20172019 and 20162018, respectively.During the nine months ended September 30, 20172019 and 20162018, the Company had net proceeds from maturities of Treasury Bills with a maturity date of more than three months of $44$2,088 and $464,$96, respectively. In addition, we purchased $15234 and $2$29 of property, equipment, and equipmentintangibles during the nine-month periods of 2017 months ended2019and 2016,2018, respectively.
There was no cashCash used or provided byin financing activities in the nine months ended September 30, 2017. Cash 2019 and 2018 was $4 and $150, respectively. The cash used in 2019 was for principal payments on a financing activitieslease on right-to-use assets. The cash used in 2018 was $390 in the nine months ended September 30, 2016 to makefor the final payment on the long-term debtcontingent earn-out owed to Harvest Engineering, Inc. for the technology purchased from Harvest Engineering, Inc. in February 2014. 2014.
Our ongoing cash requirements will be primarily for capital expenditures, the contingent earn-out payment, research and development, working capital, and working capital. growth initiatives. Management believes that our cash on hand and any cash generated from operations will be sufficient to meet our cash requirements through at least the next 12 months.
Off-balance Sheet Arrangements
As of September 30, 2017, the Company had no off-balance sheet arrangements or transactions.
Future Business Development Activities
The Company continues to seek growth opportunities, both internally through the Company’s existing portfolio of products, technologies and markets, as well as externally through technology partnerships or related-product acquisitions. Although
Off-balance Sheet Arrangements
As ofSeptember 30, 2019, the Company is continuing to explore these external opportunities, it currently hashad no agreementsoff-balance sheet arrangements or understandings with any third parties.transactions.
Not Applicable.
Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and 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, 2017 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.2019.
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 2017, which2019 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.
16 |
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, |
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 | /s/ David L. Klenk |
David L. Klenk | |
Chief Executive Officer and Chief Financial Officer |
|
|
| |
|