S

 

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 March 31,June 30, 2020

 

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

 

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 classTrading Symbol(s)Name of each exchange on which registered
Common stockELSENasdaq 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 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 ☐

 

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 May 8,August 12, 2020 was 3,395,521.

 

 

 

2

 

ELECTRO-SENSORS, INC.

Form 10-Q

For the Periods Ended March 31,June 30, 2020

 

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION4
  
Item 1. Financial Statements (unaudited):4
  
Condensed Balance Sheets – As of March 31,June 30, 2020 and December 31, 20194
Condensed Statements of Comprehensive LossIncome (Loss) – For the Three and Six Months ended March 31,June 30, 2020 and March 31,June 30, 20195
Condensed Statements of Changes in Stockholders' Equity – For the Three and Six Months ended March 31,June 30, 2020 and March 31,June 30, 20196
Condensed Statements of Cash Flows – For the ThreeSix Months ended March 31,June 30, 2020 and March 31,June 30, 20197
Notes to Condensed Financial Statements8
  
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations13
Item 3. Quantitative and Qualitative Disclosures About Market Risk18
Item 4. Controls and Procedures18
  
PART II – OTHER INFORMATION19
  
Item 1. Legal Proceedings19
Item 1A. Risk Factors19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds19
Item 3. Defaults Upon Senior Securities19
Item 4. Mine Safety Disclosures19
Item 5. Other Information19
Item 6. Exhibits19
  
SIGNATURES20
  

  

3

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

ELECTRO-SENSORS, INC.

CONDENSED BALANCE SHEETS

(in thousands except share and per share amounts)

 

March 31,
2020

 

December 31,
2019

 

 

June 30,
2020

 

December 31,
2019

 

 

(unaudited)

 

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,850

 

$

8,785

 

 

$

2,262

 

$

8,785

 

Investments

 

1,041

 

45

 

 

6,790

 

45

 

Trade receivables, less allowance for doubtful accounts of $11


934

 

1,036

 


1,054

 

1,036

 

Inventories

 

1,721

 

1,695

 

 

1,735

 

1,695

 

Other current assets

 

 

204

 

 

159

 

 

 

163

 

 

159

 

Income tax receivable

15

0


11

0

Total current assets

 

 

11,765

 

 

11,720

 

 

 

12,015

 

 

11,720

 

Deferred income tax asset, net

 

207

 

203

 

 

221

 

203

 

Intangible assets, net

 

 

424

 

 

489

 

 

 

359

 

 

489

 

Property and equipment, net

 

 

1,038

 

 

1,063

 

 

 

1,024

 

 

1,063

 

Total assets

 

$

13,434

 

$

13,475

 

 

$

13,619

 

$

13,475

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

Current maturities of financing lease

 

$

6

 

$

5

 

 

$

6

 

$

5

 

Accounts payable

 

198

 

129

 

 

144

 

129

 

Accrued expenses

 

 

411

 

 

431

 

 

 

632

 

 

431

 

Total current liabilities

 

615

 

565

 

 

782

 

565

 


Long-term liabilities

Financing lease, net of current maturities

16

19


15

19

Total long-term liabilities
16
19

15
19

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

 

 

339

 

339

 

Additional paid-in capital

 

2,033

 

2,030

 

 

2,034

 

2,030

 

Retained earnings

 

 

10,431

 

 

10,522

 

 

 

10,449

 

 

10,522

 


Total stockholders’ equity

 

 

12,803

 

 

12,891

 

 

 

12,822

 

 

12,891

 


Total liabilities and stockholders’ equity

 

$

13,434

 

$

13,475

 

 

$

13,619

 

$

13,475

 

See accompanying notes to unaudited condensed financial statements

4
 

ELECTRO-SENSORS, INC.

CONDENSED STATEMENTS OF COMPREHENSIVE LOSSINCOME (LOSS)

(in thousands except share and per share amounts)  

(unaudited)  

 Three Months Ended
March 31,		  Three Months Ended
June 30,		 

Six Months Ended

June 30,


 2020 2019  2020 2019 
2020
2019
 
    
     





Net sales $1,923  $2,008
 $2,092  $2,260

$4,015
$4,268
Cost of goods sold  924  
941   994  
1,025 

1,918

1,966
           





Gross profit 
999  
1,067  
1,098  
1,235 

2,097

2,302
           





Operating expenses             





Selling and marketing 458   485   443   516 

901
1,001
General and administrative 465   472   440   418 

905
890
Research and development 
217  
196  
196  
213 

413

409
           





Total operating expenses  
1,140  
1,153  
1,079  
1,147 

2,219

2,300
           





Operating loss  (141)  (86)
Operating income (loss)  19  88

(122)

2
           





Non-operating income (expense)             





Loss on investment
(3)
0


0
0


(3)
0
Interest expense

(1)
(1
)

(1)
(1)
Interest income 32   44   1   41 

33
85
Other income 
2  
2  
0  
3 

2

5
           





Total non-operating income, net 
31  
46  
0  
43 

31

89
           





Loss before income tax benefit (110)  (40)
Income (loss) before income tax expense (benefit)  19  131

(91)
91
           





Benefit from income tax  (19) 
(9)
Provision for (benefit of) income tax  1 
28

(18)

19
           





Net loss $(91) $
(31)
Net income (loss) $18 $
103
$(73)
$72
           





Other comprehensive income          





Change in unrealized value of available-for-sale securities, net of income tax$0 $1$0 $7
$0
$8
Other comprehensive income 0  1  0  7

0
8
           






Net comprehensive loss $
(91) $(30)
Net comprehensive income (loss) $
18 $110
$(73)
$80
           





Net loss per share data:     
Net income (loss) per share data:      





           





Basic           





Net loss per share $(0.03) $(0.01)
Net income (loss) per share $0.01 $0.03
$(0.02)
$
0.02
Weighted average shares 3,395,521  3,395,521   3,395,521  3,395,521 

3,395,521
3,395,521
           





Diluted           





Net loss per share $
(0.03) $
(0.01)
Net income (loss) per share $
0.01 $
0.03
$(0.02)
$0.02
Weighted average shares 3,395,521  3,395,521   3,395,521  3,395,521 

3,395,521
3,395,521

See accompanying notes to unaudited condensed financial statements

5

ELECTRO-SENSORS, INC.

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands except share and per share amounts)















For the three months ended March 31 



























 

Common Stock Issued

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Income

 

 

Total
Stockholders’

Equity

 

   

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019 3,395,521

$339

$2,030

$10,522

$0

$12,891

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense







3










3
Net loss











(91)





(91)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance March 31, 2020 (unaudited)3,395,521

$339

$2,033

$10,431

$0

$12,803

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018  3,395,521

$339

$2,019

$10,335

$32

$12,725

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income















1


1
Stock-based compensation expense







3










3
Net loss











(31)





(31)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance March 31, 2019 (unaudited)3,395,521

$339

$2,022

$10,304

$33

$12,698

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 















For the three months ended June 30













 

Common Stock Issued

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Income

 

 

Total
Stockholders’

Equity

 

   

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020 (unaudited) 3,395,521

$339

$2,033

$10,431

$0

$12,803

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense







1










1
Net income











18





18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2020 (unaudited)3,395,521

$339

$2,034

$10,449

$0

$12,822

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019 (unaudited)  3,395,521

$339

$2,022

$10,304

$33

$12,698

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income















7


7
Stock-based compensation expense







2










2
Net income  











103





103

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2019 (unaudited)3,395,521

$339

$2,024

$10,407

$40

$12,810

For the six months ended June 30













 

Common Stock Issued

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Income

 

 

Total
Stockholders’

Equity

 

   

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019 3,395,521

$339

$2,030

$10,522

$0

$12,891

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense 







4










4
Net loss











(73)





(73)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2020 (unaudited)3,395,521

$339

$2,034

$10,449

$0

$12,822

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018  3,395,521

$339

$2,019

$10,335

$32

$12,725

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income















8


8
Stock-based compensation expense







5










5
Net income











72






72

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2019 (unaudited)3,395,521

$339

$2,024

$10,407

$40

$12,810

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

See accompanying notes to unaudited condensed financial statements
6

ELECTRO-SENSORS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited) 

 

Three Months Ended
March 31,

 

 

Six Months Ended
June 30,

 

 

2020

 

2019

 

 

2020

 

2019

 

Cash flows from (used in) operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(91

)

 

$

(31

)

Net income (loss)

 

$

(73

)

 

$

72


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net loss to net cash from (used in) operating activities:

 

 

 

 

 

 

 

 

Adjustments to reconcile net income (loss) to net cash from (used in) operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

90

 

 

 

77

 

 

 

181

 

 

 

154

 

Deferred income taxes

 

 

(4

)

 

 

3

 

 

(18

)

 

 

(13

)

Stock-based compensation expense

 

 

3

 

 

 

3

 

 

 

4

 

 

 

5

 

Interest accrued on treasury bills

 

 

0

 

 

(44

)

 

 

0

 

 

(84

)
Loss on investments

3


0


3


0

Change in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade receivables

 

 

102

 

 

(179

)

 

 

(18

)

 

 

(399

)

Inventories

 

 

(26

)

 

 

(20

)

 

 

(40

)

 

 

(94

)

Other current assets

 

 

(45

)

 

 

(12

)

 

 

(4

)

 

 

0

Accounts payable

 

 

69

 

 

91

 

 

15

 

 

125

Accrued expenses

 

 

(20

)  

 

 

12

 

 

 

201

  

 

 

150

 

Income tax receivable/payable

 

 

(15

)

 

 

(12

)

 

 

(11

)

 

 

32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash from (used in) operating activities

 

 

66

 

 

(112

)

 

 

240

 

 

(52

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from (used in) investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of treasury bills

 

 

(999

)

 

 

(3,945

)

 

 

(6,748

)

 

 

(6,916

)

Proceeds from the maturity of treasury bills

 

 

0

 

 

 

4,000

 

 

 

0

 

 

 

7,000

 

Purchase of property and equipment

 

 

0

 

 

(45

) 

 

 

(12

)

 

 

(61

) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash from (used in) investing activities

 

 

(999

)

 

 

10

 

 

 

(6,760

)

 

 

23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows used in financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

  

 

Payments on financing lease

(2)

(1)

(3)

(3)
Proceeds from loans

645


0
Repayment of loan principal

(645)

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in financing activities

 

 

(2

)

 

 

(1

)

 

 

(3

)

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(935

)

 

 

(103

)

 

 

(6,523

)

 

 

(32

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning

 

 

8,785

 

 

 

1,057

 

 

 

8,785

 

 

 

1,057

 

Cash and cash equivalents, ending

 

$

7,850

 

 

$

954

 

 

$

2,262

 

 

$

1,025

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

0

 

 

$

0

 

 

$

11

 

 

$

1

 

Cash paid for interest
$1

$1

 

See accompanying notes to unaudited condensed financial statements

7

ELECTRO-SENSORS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED MARCH 31JUNE 30, 2020

(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, 2019, 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 March 31,June 30, 2020 and for the three-monththree and six-month periods ended March 31,June 30, 2020 and 2019,  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, 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 March 31,June 30, 2020 and December 31, 2019, due to the short maturity nature of these instruments.


8

ELECTRO-SENSORS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED MARCH 31,JUNE 30, 2020

(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 March 31,June 30, 2020, there was approximately $12$11 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, stock compensation expense, and the potential estimated impact on operations due to the COVID-19 pandemic as it relates to disruptions to our supply chain and customer demand. It is at least reasonably possible that these estimates may change in the near term.

  

Net LossIncome (Loss) per Common Share


Basic and diluted net lossincome (loss) per common share is determined by dividing net lossincome (loss) attributable to common stockholders by the weighted-average common shares outstanding during the period. For the three and six -monthmonth periods ended March 31,June 30, 2020 and 2019, 332,500 weighted average common shares for 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 lossincome (loss) per common shares are the same. 


9

ELECTRO-SENSORS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED MARCH 31JUNE 30, 2020

(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 tenseven months at March 31,June 30, 2020. 


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
unrealized
gain

 

Gross
unrealized
loss

 

 

Fair
value

 

 

Cost

 

Gross
unrealized
gain

 

Gross
unrealized
loss

 

 

Fair
value

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Paper

 

$

763

 

$

0

 

$

0

 

 

$

763

 

 

$

765

 

$

0

 

$

0

 

 

$

765

 

Treasury Bills

 

 

7,749

 

 

0

 

 

0

 

 

 

7,749

 

 

 

7,748

 

 

0

 

 

0

 

 

 

7,748

 

Equity Securities

 

 

45

 

 

0

 

 

(3

)

 

 

42

 

 

 

54

 

 

0

 

 

(12

)

 

 

42

 

 

 

8,557

 

 

0

 

 

(3

)

 

 

8,554

 

 

 

8,567

 

 

0

 

 

(12

)

 

 

8,555

 

Less Cash Equivalents

 

 

7,513

 

 

0

 

 

0

 

 

 

7,513

 

 

 

1,765

 

 

0

 

 

0

 

 

 

1,765

 

Total Investments, March 31, 2020

 

$

1,044

 

$

0

 

$

(3

)

 

$

1,041

 

Total Investments, June 30, 2020

 

$

6,802

 

$

0

 

$

(12

)

 

$

6,790

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Paper

 

$

797

 

$

0

 

$

0

 

 

$

797

 

 

$

797

 

$

0

 

$

0

 

 

$

797

 

Treasury Bills

 

 

7,734

 

 

0

 

 

0

 

 

 

7,734

 

 

 

7,734

 

 

0

 

 

0

 

 

 

7,734

 

Equity Securities

 

 

45

 

 

0

 

 

0

 

 

45

 

 

 

54

 

 

0

 

 

(9

)

 

 

45

 

 

 

8,576

 

 

0

 

 

0

 

 

8,576

 

 

 

8,585

 

 

0

 

 

(9

)

 

 

8,576

 

Less Cash Equivalents

 

 

8,531

 

 

0

 

 

0

 

 

 

8,531

 

 

 

8,531

 

 

0

 

 

0

 

 

 

8,531

 

Total Investments, December 31, 2019

 

$

45

 

$

0

 

$

0

 

$

45

 

 

$

54

 

$

0

 

$

(9

)

 

$

45

 

 

10

ELECTRO-SENSORS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED MARCH 31,JUNE 30, 2020

(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.

 

March 31,June 30, 2020


 

Carrying amount

 

 

 

 

 Fair Value Measurement Using 

 

 

Carrying amount

 

 

 

 

 Fair Value Measurement Using 

 

 

in balance sheet

 

Fair Value

 

 

Level 1

 

Level 2

 

 

Level 3

 

 

in balance sheet

 

Fair Value

 

 

Level 1

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

763

 

$

763

 

 

$

763

 

$

0

 

 

$

0

 

 

$

765

 

$

765

 

 

$

765

 

$

0

 

 

$

0

 

Treasury bills

6,750

6,750


6,750

0


0


1,000

1,000


1,000

0


0

Treasury bills

 

 

999

 

 

999

 

 

 

999

 

 

0

 

 

 

0

 

 

 

6,748

 

 

6,748

 

 

 

6,748

 

 

0

 

 

 

0

 

Equity Securities

 

 

42

 

 

42

 

 

 

0

 

 

0

 

 

 

42

 

 

 

42

 

 

42

 

 

 

0

 

 

0

 

 

 

42

 

 

December 31, 2019


 

Carrying amount

 

 

 

 

 

 Fair Value Measurement Using 

 


 

in balance sheet

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper


$

797

 

 

$

797

 

 

$

797

 

 

$

0

 

 

$

0

 

   Treasury bills



7,734

 

 

 

7,734

 

 

 

7,734

 

 

 

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 no 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 change in level 3 assets at fair value on a recurring basis are as follows:  

 


Three Months Ended March 31,
Six Months Ended June 30,


2020


2019


2020

2019






   

 
Beginning Balance
$45

$45 
$45

$45 

Change in Fair Value



(3)
 0

(3)
 0
Ending Balance
$42

$45 
$42
$45 

 

11

ELECTRO-SENSORS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED MARCH 31JUNE 30, 2020

(in thousands except share and per share amounts)

(unaudited)

Note 4. Inventories


Inventories used in the determination of cost of goods sold are as follows: 

Note 4.  Subsequent Events

June 30, 

2020



December 31, 

2019






Raw Materials$962

$973
Work In Process
410


383

Finished Goods


383


359
Reserve for Obsolescence 
(20)

(20)
Total Inventories$1,735

$1,695

On May 5, 2020, the Company recieved a $645 loan from the U.S. Small Business Administration through the Paycheck Protection Program (PPP). All or a portion of the loan is forgivable if the Company meets specified requirements regarding the use of these funds over the eight weeks following receipt of loan proceeds.  The unforgiven portion of the loan, if any, is payable over eighteen months, after the conclusion of a six month deferral period, and the Company is permitted to repay at any time without penalty.  The PPP loan is unsecured and is evidenced by a note in favor of US Bank National Association.  See Part II, Item 5, Other Information, in the Form 10-Q.


12


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

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 toabout 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, 2019.2019, as any effect that the COVID-19 pandemic may have on the efficiency of our business operations, our customer base and he domestic or worldwide economy.

 

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, 2019. We have not developed new estimates subsequent to those discussed in our Annual Report.


13

SELECTED FINANCIAL INFORMATION

 

The following table contains selected financial information, for the periods indicated, from our statementsStatements of comprehensive lossComprehensive Income (Loss) expressed as a percentage of net sales.

 

 

Three Months Ended March 31,


 

Three Months Ended June 30,



Six Months Ended June 30,

 

2020


 

 

2019

 


 

2020


 

2019

 



2020

2019

Net sales

 

 

100.0


%

 

 

100.0

 

%

 

100.0


%

 

100.0

 

%
100.0
%
100.0
%

Cost of goods sold

 

 

48.0


 

 

 

46.9

 


 

 

47.5


 

 

45.4

 



47.8

46.1

Gross profit

 

 

52.0


 

 

 

53.1

 


 

52.5


 

54.6

 



52.2
53.9

 

 

 


 

 

 

 

 


 

 


 

 

 






Operating expenses

 

 

 


 

 

 

 

 


 

 


 

 

 







Selling and marketing

 

 

23.8


 

 

 

24.1

 


 

21.2


 

22.8

 


22.4
23.4

General and administrative

 

 

24.2


 

 

 

23.5

 


 

21.0


 

18.5

 



22.5
20.9

Research and development

 

 

11.3


 

 

 

9.8

 


 

 

9.4


 

 

9.4

 



10.3

9.6

Total operating expenses

 

 

59.3


 

 

 

57.4

 


 

 

51.6


 

 

50.7

 




55.2

53.9

 

 

 


 

 

 

 

 


 

 


 

 

 






Operating loss

 

 

(7.3

)

 

 

(4.3

)

Operating income (loss)

 

0.9


 

3.9



(3.0)
0.0

 

 

 


 

 

 

 

 


 

 


 

 

 






Non-operating income (expense)

 

 

 


 

 

 

 

 


 

 


 

 

 







Loss on investment

(0.2)


0.0

Interest income

 

 

1.7


 

 

 

2.2

 


 

0.0


 

1.8

 



0.8
2.0

Other income

 

 

0.1


 

 


0.1

 


 

 

0.0


 


0.1

 



0.0

0.1

Total non-operating income, net

 

 

1.6


 

 

 

2.3

 


 

 

0.0


 

 

1.9

 




0.8

2.1

 

 

 


 

 

 

 

 


 

 


 

 

 






Loss before income tax benefit

 

 

(5.7

)

 

 

(2.0

)

Income (loss) before income tax expense (benefit)

 

0.9


 

5.8



(2.2)
2.1

 

 

 


 

 

 

 

 


 

 


 

 

 






Benefit from income taxes

 

 

(1.0

)

  

 


(0.4

)

Provision for (benefit of) income taxes

 

 

0.0

  

 


1.2




(0.4)

0.4

 

 

 


 

 

 

 

 


 

 


 

 

 






Net loss

 

 

(4.7

)

%

 

 

(1.6

)% 

Net income (loss)

 

 

0.9

%

 

 

4.6

% 

(1.8)%

1.7
%

The following paragraphs discuss the Company’s performance for the three and six months ended March 31,June 30, 2020 and 2019.

 

RESULTS OF OPERATIONS (in thousands) 

 

Net Sales

 

Net sales for the three-month period ended March 31,June 30, 2020 were $1,923,$2,092, a decrease of $85,$168, or 4.2%7.4%, from $2,008$2,260 during the comparable period in 2019.  AsNet sales for the quarter progressed, sales became less predictablesix months as manyended June 30, 2020 were $4,015, a decrease of our customers were increasingly$253, or 5.9%, over the same period in 2019. The second calendar quarter of 2020 represents the first full quarter impacted by the COVID-19 pandemic.  During March 2020, severalpandemic, and we believe much of the revenue decrease during the period relates to reduced spending by our customers identified Electro-Sensors as an essential supplier, in part due to the use of our products in the agricultural production segmentimpact of the American economy, requiring uspandemic on their business.  While customers continued to remain fully operationalplace orders for smaller projects and maintenance items; many larger capital projects have been paused due to continue to supply critical infrastructure industries.continued uncertainty surrounding the pandemic and its related effects.

Gross Profit

 

Gross profit for the firstsecond quarter of 2020 decreased $68,$137, or 6.4%11.1%, over the same period in 2019. Gross profit for the six months endedJune 30, 2020 decreased $205, or 8.9%, over the same period in 2019. Gross margin decreased in the firstsecond quarter of 2020 to 52.052.5% from 53.1%54.6% during the same period in 2019. Gross margin for the six months ended June 30, 2020 decreased to 52.2% from 53.9% over the same period in 2019.The decrease in the gross margin percentage for both periods was primarily due to a change in product mix and higher material costs resulting fromlargely driven by the increase in government tariff charges that startedbegan to be assessed during the second half of 2019.

14

Operating Expenses

 

Total operating expenses decreased $13,$68, or 1.1%5.9%, for the firstsecond quarter of 2020 compared to the same period in 2019, andbut increased as a percentage of net sales to 59.2%51.6% from 57.4%50.7%.Total operating expenses decreased $81, or 3.5%, for the six months ended June 30, 2020 compared to the same period in 2019, but increased as a percentage of net sales to 55.2% from 53.9%. 

 

 

●

Selling and marketing expenses in the firstsecond quarter of 2020 decreased $27,$73, or 5.6%14.1%, from the same period in 2019 and decreased as a percentage of net sales to 23.8%21.2% from 24.1%22.8%. Selling and marketing expenses in the six months ended June 30, 2020 decreased $100, or 10.0%, from the same period in 2019 and decreased as a percentage of net sales to 22.4% from 23.4%. The decrease in the second quarter resulted primarily from lower outside sales representative compensation due to changes in commission plans and decreased net sales and a decrease in travel expenses due to the COVID-19 pandemic.  The decrease in the six months resulted primarily from lower outside sales representative compensation due to changes in commission plans, decreased net sales, and fewer manufacturer representatives and decreases in travel and trade show related expenses due to cancelled or rescheduled shows.shows both due to the COVID-19 pandemic.

 

 

●

General and administrative expenses decreased $7,increased $22, or 1.5%5.3%, for the firstsecond quarter of 2020 compared to the same period in 2019 butand increased as a percentage of net sales to 24.2%21.0% from 23.5%18.5%. General and administrative expenses increased $15, or 1.7%, for the six months ended June 30, 2020 compared to the same period in 2019 and increased as a percentage of net sales to 22.5% from 20.9%. The decreaseincrease in the second quarter was due primarily to amortization of the communication technology that began in October 2019 and higher legal fees. The increase for the six months was due primarily to the noted amortization and legal fees, partially offset by decreased expenses related to computer supplies, software, and training, partially offset by an increase in legal fees related to corporate governance.training. 

 

 

●

Research and development expenses increased $21,decreased $17, or 10.7%8.0%, in the firstsecond quarter of 2020 from the same period in 2019 and was unchanged as a percentage of net sales at 9.4%. Research and development expenses increased $4, or 1.0%, in the six months endedJune 30, 2020 from the same period in 2019 and increased as a percentage of net sales to 11.3%10.3% from 9.8%9.6%. The increasedecrease for the quarter was due to higher lab testinglower contract engineering costs related to obtainproduct enhancements.  The increase for the six months was due to third party certificationsproduct certification costs, partially offset by lower 2020 contract engineering costs related to product enhancements.

 

Non-Operating Income (Net)

 

Net non-operating income decreased by $15,$43, or 32.6%100.0%, for the firstsecond quarter of 2020 compared to the same period in 2019, 2019. Net non-operating income decreased by $58, or 65.2%, for the six months ended of June 30, 2020 compared to the same period in 2019.  The decrease in both periods was primarily a result of decreasedless interest income earned as a result of lower interest rates on Treasury Bills.

 

LossIncome (Loss) Before Income Tax BenefitExpense (Benefit)


LossIncome before income tax benefitexpense was $110$19 for the firstsecond quarter of 2020, representing an increasea decrease of $70,$112, or 175.0%85.5%, compared to a loss before income tax benefit of $40$131 for the same period in 2019. Loss before income tax benefit was $91 for the six months ended June 30, 2020, representing a decrease of $182, or 200.0%, compared to an income before income tax expense of $91 for the same period in 2019.The increasedecrease for both periods was primarily the result of the lower net sales and higher cost of sales discussed above.

 

Income Tax Benefit

 

The Company's income tax benefit increasedexpense decreased to $19,$1, or 1.0%0.0% of net sales, in the firstsecond quarter of 2020 compared to a benefitan expense of $9,$28, or 0.4%1.2% of net sales, in the firstsecond quarter of 2019.The Company's income tax benefit was $18, or 0.4% of net sales, for the six months ended June 30, 2020 compared to an expense of $19, or 0.4% of net sales, for the six months ended June 30, 2019.

 

15

LIQUIDITY AND CAPITAL RESOURCES

 

Cash and cash equivalents were $7,850$2,262 at March 31,June 30, 2020 and $8,785 at December 31, 2019. The decrease was primarily the result of cash used to purchase treasury bills.  Onebills considered as available-for-sale securities.  At December 31, 2019, all of the treasury bills purchased duringwere reported as cash equivalents and as of June 30, 2020, all but one of the first quarter of 2020 was considered an available-for-sale security.treasury bills were reported as investments.

 

Cash generated from operating activities was $66$240 for the threesix months ended March 31,June 30, 2020 as compared to cash used in operating activities of $112$52 for the threesix months ended March 31,June 30, 2019. The $178$292 increase in cash generated from operations was due to a decrease in trade receivables partially offset by an increase in other current assets and a decrease in accrued expenses.accounts payable. The decrease in trade receivables was due to decreased net sales and the timing of collections on accounts.  The increase in other current assetsaccounts payable was due to increased deposits for computers, trade shows,timing of inventory purchases and travel.  The decrease in accrued expenses was due to changes in accrued compensation due to modifications of outside and inside commission plans.vendor payments.  

 

Cash used in investing activities was $999$6,760 for the threesix months ended March 31,June 30, 2020 as compared to cash generated from investing activities of $10$23 for the threesix months ended March 31,June 30, 2019. During the threesix months ended March 31,June 30, 2020, the Company had net purchases of treasury bills of $999$6,748 compared to net proceeds from maturities of treasury bills of $55$84 during the threesix months ended March 31, 21019.June 30, 2019. In addition, the Company purchased $45$12 and $61 of property equipment, and intangiblesequipment during the threesix months ended March 31,June 30, 20202019. and June 30, 2019, respectively.


Cash used in financing activities in the threesix months ended March 31,June 30, 2020 and 2019 was $2 and $1, respectively.$3. The cash used in both periods was for principal payments on a financing lease on right-to-use assets.  In addition, during the second quarter of 2020, the Company received and subsequently repaid a Payroll Protection Loan of $645 from the Small Business Administration, as discussed in the next paragraph.


As previously disclosed, on May 5, 2020, we entered into a U.S. Small Business Administration Paycheck Protection Program promissory note in the principal amount of $645 (the “PPP Loan”). The PPP Loan was unsecured and was evidenced by a note in favor of US Bank National Association as the lender. Subsequent to receipt of the loan, our Board of Directors continued to monitor both our ongoing performance and the routinely issued clarifying guidance provided by the government. As a result of this analysis, the Board determined that given the strength of our operations and the government issued clarifications, we would repay the entire amount of the PPP Loan. We repaid the PPP Loan in full on June 4, 2020. There were no prepayment penalties in connection with this voluntary repayment.


Subject to the following section, the Company believe its ongoing cash requirements will be primarily for capital expenditures, research and development, working capital, and 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.

16


COVID-19 Pandemic and PPP LoanDiscussion

 

DuringAs a result of the quarter ended March 31, 2020, the Company’s net sales and gross profit decreased, which caused its net loss to increase.COVID-19 The Company alsopandemic, we experienced a softening in sales prospects lateweaker than anticipated performance in the first quarter and net sales remain unpredictable into the second quarter.quarters of 2020.  Due to the ongoing uncertainty about the severity and duration associated with the COVID-19 pandemic, the Companywe considered furloughing or eliminating employees and taking other measures to reduce operating costs until there iswas more certainty about the short-term and long-term effects of the COVID-19 pandemic on the nation’s economy and the Company’s business.

On May 5, 2020, the Company received $645 in support from the U.S. federal government in the form of a Paycheck Protection Program Loan (“PPP Loan”) established as part of the Coronavirus Aid, Relief, and Economic Security Act.The PPP Loan is unsecured and is evidenced by a note in favor of US Bank National Association.  See Part II, Item 5, Other Information, of this Form 10-Q. 


16


COVID-19 Pandemic Discussion


As a result of the COVID-19 pandemic,end of July 2020, however, we experienced a weaker than anticipated first quarter of 2020 and we expect these results may continue.have not furloughed any employees.  We currently expect our secondthird quarter financial results willto continue to be negatively impacted,affected, potentially to a material degree.degree, as the effects of the pandemic continue to permeate the economy.  Reductions in net sales have not been offset by a proportional decrease in expense, as we continue to incur cost such asrelated to employee compensation administrativeand operating expenses, and depreciation and amortization, resulting in a negative effect on the relationship between our costs and net sales.  The impact may be partially offset by the application of PPP loan forgiveness.  However, at this time we are unable to determine the effect of the offset as final guidance has not yet been published regarding the PPP loan forgiveness and related tax impacts.


We believe the pandemic will continue to slow larger orders as customers delay projects in order to conserve cash, which will slowweaken the demand for our products.

 

We, typically, have multiple sources for components.  AlthoughHowever, we are starting to experiencehave experienced some extended delivery times as vendors have difficulty either sourcing components, or were closedwe continue to believe we have adequate sources for a period of time.our key components to meet anticipated demand.

 

As of the date of this filing, we expect our business will continue to be negatively impacted,affected, but cannot currently determine the significance and duration of the pandemic on our business.


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. 


Off-balance Sheet Arrangements

 

As of March 31,June 30, 2020, the Company had no off-balance sheet arrangements or transactions.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not Applicable.

 

Item 4. Controls and Procedures

 

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 March 31,June 30, 2020.


Changes in Internal Control Over Financial Reporting


There were no changes in the Company’s internal control over financial reporting during the firstsecond quarter of 2020 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. 


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PART II – OTHER INFORMATION
 
Item 1. Legal Proceedings – None
Item 1A. Risk Factors – Not Applicable
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds – None
Item 3. Defaults Upon Senior Securities – None
Item 4. Mine Safety Disclosures – Not Applicable 
Item 5. Other Information

–
Paycheck Protection Plan Loan ("PPP Loan")None

On May 5, 2020, the Company received $645,180 in support (the “PPL Loan”) from the U.S. federal government in the form of a Paycheck Protection Program loan established as part of the Coronavirus Aid, Relief, and Economic Security Act.  The PPP Loan is unsecured and is evidenced by a note in favor of US Bank National Association as the lender (the “Note”), which is filed as Exhibit 10.1 to this Form 10-Q and incorporated by reference herein


The interest rate on the Note is 1.0% per annum. Payments of principal and interest are deferred for 180 days from the date of the Note (the deferral period). The Paycheck Protection Program provides a mechanism for forgiveness of up to the full amount borrowed as long as the Company uses the loan proceeds during the eight-week period after the loan origination for eligible purposes, including U.S. payroll costs, certain benefits costs, rent and utilities costs, and maintains its employment and compensation levels, subject to certain other requirements and limitations. The amount of loan forgiveness is subject to reduction, among other reasons, if the Company terminates employees or reduces salaries or wages during the eight-week period. Any unforgiven portion of the PPP Loan is payable over a two-year term, with payments deferred during the deferral period. The Company is permitted to prepay the Note at any time without payment of any premium. The Note contains customary events of default, including, among others, those relating to failure to make a payment, bankruptcy, material defaults on other indebtedness, breaches of representations, and material adverse changes.


Item 6. Exhibits



Exhibit

 

Description

 

 

 

10.1
Electro-Sensors, Inc. Small Business Administration Payroll Protection Program Loan Agreement for $645,180 dated as of May 5, 2020



31.1

 

Certification of CEO and CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

Certification of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

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The following financial information from Electro-Sensors, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended MarchJune 31,30, 2020, formatted in iXBRL (Inline Extensible Business Reporting Language), (i) Condensed Balance Sheets as of MarchJune 31,30, 2020 and December 31, 2019, (ii) Condensed Statements of Comprehensive LossIncome (Loss) for the three and six months ended MarchJune 31,30, 2020 and MarchJune 31,30, 2019 (iii) Condensed Statements of Changes in Stockholders' Equity for the three and six months ended MarchJune 31,30, 2020 and MarchJune 31,30, 2019, (iv) Condensed Statements of Cash Flows for the threesix months ended MarchJune 31,30, 2020 and MarchJune 31,30, 2019, and (v) Notes to Financial Statements. 

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

Electro-Sensors, Inc.

 

 

May 11,August 13, 2020

/s/ David L. Klenk

 

David L. Klenk

 

Chief Executive Officer and Chief Financial Officer

(Principal Executive Officer and Principal Financial Officer)

  


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