Core Insights - Electro-Sensors, Inc. reported a quarterly revenue of $2,217,000 for Q2 2024, reflecting a 3.7% increase compared to the same period in the previous year [1][2][3] - The company's gross margin for Q2 2024 was 47.2%, down from 50.0% in Q2 2023, primarily due to rising material and labor costs [2][3] - The company experienced an operating loss of $107,000 in Q2 2024, compared to an operating income of $44,000 in Q2 2023, marking a significant decline [2][4] Financial Performance - Net sales for the first half of 2024 reached $4,461,000, a 6.7% increase from $4,182,000 in the same period of 2023 [2][5] - The gross profit for the first six months of 2024 was $2,127,000, slightly up from $2,090,000 in the prior year, despite a decrease in gross margin [5] - The net income for Q2 2024 was a loss of $4,000, compared to a net income of $116,000 in Q2 2023 [4][5] Operational Highlights - The increase in sales was primarily driven by the demand for HazardPROTM wireless hazard monitoring systems, which are valued for their ease of installation and cost-effectiveness [3] - The company maintains cash and investments of approximately $9.9 million as of June 30, 2024, showing stability in liquidity [1][6] - Total assets as of June 30, 2024, were reported at $14,467,000, a slight increase from $14,445,000 at the end of 2023 [6][8] Company Overview - Electro-Sensors, Inc. specializes in designing and manufacturing machine monitoring sensors and hazard monitoring systems, serving various industries [8] - The company is ISO9001:2015 certified, emphasizing its commitment to quality and customer service [8]

Financial Performance - Net sales for Q2 2024 were $2,217, an increase of $80, or 3.7%, from $2,137 in Q2 2023[44] - Gross profit for Q2 2024 was $1,047, a decrease of $21, or 2.0%, compared to Q2 2023, with a gross margin of 47.2%[45] - Total operating expenses for Q2 2024 increased by $130, or 12.7%, to $1,154, representing 52.0% of net sales[47] - Net non-operating income increased by $15, or 16.0%, for Q2 2024 compared to Q2 2023, driven by higher interest income[51] - Income before income tax expense was $2 for Q2 2024, a decrease of $136 compared to $138 in Q2 2023[52] Cash Position - Cash and cash equivalents were $9,888 at June 30, 2024, reflecting an increase from $9,870 at December 31, 2023[55] Operating Expenses - The company experienced a 12.7% increase in total operating expenses for the six months ended June 30, 2024, compared to the same period in 2023[47] Taxation - The effective tax rate for the six-month period ended June 30, 2024, was 61.1%, compared to 22.6% in the same period of 2023[54] Growth Strategy - The company is actively seeking growth opportunities through technology partnerships and potential acquisitions[59] Operational Challenges - Supply chain disruptions and labor market challenges are impacting the company's operations and may affect sales and profit margins[57]

Financial Performance - Net sales for Q1 2024 were $2,244, an increase of $199, or 9.7%, from $2,045 in Q1 2023, driven by larger orders for facility upgrades and increased sales of wired and wireless systems [61]. - Gross profit for Q1 2024 was $1,080, an increase of $58, or 5.7%, with a gross margin decrease to 48.1% from 50.0% in Q1 2023 due to rising material and labor costs [62]. - Total operating expenses for Q1 2024 were $1,180, an increase of $20, or 1.7%, but decreased as a percentage of net sales to 52.6% from 56.7% in Q1 2023 [63]. - Net non-operating income increased by $23, or 24.7%, in Q1 2024 compared to Q1 2023, attributed to higher interest income from Treasury Bills [64]. - Income before income tax expense was $16 in Q1 2024, an increase of $61 compared to a loss of $45 in Q1 2023, driven by higher revenues and increased interest income [65]. Cash Flow - Cash and cash equivalents were $10,072 at March 31, 2024, up from $9,870 at December 31, 2023, primarily due to increased cash from operating activities [68]. - Cash from operating activities was $202 for Q1 2024, compared to cash used of $112 in Q1 2023, reflecting increased net income and decreased trade receivables [69]. Taxation - The effective tax rate for Q1 2024 was 31%, compared to 2.2% in Q1 2023, due to changes in deferred taxes [66]. Operational Challenges - The company is facing supply chain disruptions and price increases for components, which may affect gross margins and timely deliveries [72]. Strategic Growth - The company continues to seek growth opportunities through internal product development and external acquisitions, with a special committee exploring strategic alternatives [73].

MINNETONKA, Minn., March 21, 2024 /PRNewswire/ -- Electro-Sensors, Inc. (NASDAQ: ELSE), a leading global provider of machine monitoring sensors and hazard monitoring systems, today announced financial results for the year ended December 31, 2023. Annual revenue of $8.6 million, down 5.2% over prior year Gross Margin of 49.6% Cash and investments of $9.9 million Table in thousands, except per share data FY22 FY21 Change Net Sales $8,555 $9,029 (5.2) % Gross Margin 49.6 % 53.6 %(400) bps Operating Income (Los ...

Financial Performance - Net sales for 2023 were $8,555, a decrease of $474, or 5.2%, from $9,029 in 2022[75]. - Gross profit for 2023 decreased $596, or 12.3%, to $4,245 from $4,841 in 2022, with a gross margin of 49.6% compared to 53.6% in 2022[76]. - Total operating expenses decreased $605, or 12.4%, to $4,273 in 2023 from $4,878 in 2022, representing 50.0% of net sales[77]. - Operating loss was $28 in 2023 compared to $37 in 2022, a decrease of $9, or 24.3%[78]. - Non-operating income increased $297 to $406 in 2023 from $109 in 2022, primarily due to higher interest income[79]. - Net income for 2023 was $275 compared to $100 in 2022, an increase of $175, or 175.0%[83]. - Cash generated from operating activities was $130 in 2023 compared to cash used in operating activities of $147 in 2022, an increase of $277[92]. - Total stockholders' equity increased to $13,755,000 in 2023 from $13,414,000 in 2022, reflecting a 2.5% growth[126]. - The total federal and state income taxes for 2023 amounted to $103, compared to a tax provision of $(28) in 2022[211]. Research and Development - The company aims to continue investing in research and development to create new products and enhance existing ones, which is crucial for future sales growth[44]. - Research and development expenses increased $137, or 16.4%, to $973 in 2023 compared to $836 in 2022[81]. - Research and development expenses rose to $973,000 in 2023, up from $836,000 in 2022, indicating a 16.4% increase[158]. Supply Chain and Operations - The company experienced supply chain disruptions in 2023, leading to increased costs for parts and materials, and has been modifying product designs to accommodate more readily available components[34]. - The company is facing supply chain disruptions and price increases for components, which may affect profit margins and operational efficiency[97]. Employee Relations - The company had 35 full-time employees as of December 31, 2023, and emphasizes the importance of employee relations and retention for maintaining competitive advantage[47]. - The Company has an employee stock ownership plan (ESOP) covering substantially all employees, with 94,434 shares held by participants as of December 31, 2023[206]. Mergers and Acquisitions - The company announced a terminated merger agreement with Mobile X Global, Inc. on January 30, 2023, and is exploring other business development opportunities[41]. - The merger agreement with Mobile X was terminated due to unavailability of necessary PIPE investment financing amid challenging financial market conditions[189]. Investments and Cash Flow - Cash and cash equivalents were $9,870 and $7,646 at December 31, 2023 and 2022, respectively, reflecting an increase in available funds[91]. - Cash generated from investing activities increased to $2,100 in 2023 from $964 in 2022, primarily due to increased maturities of Treasury Bills[93]. - Cash used in financing activities was $6 in 2023, a significant decrease from cash generated of $116 in 2022[94]. - The company purchased Treasury Bills totaling $13,830,000 in 2023, compared to $6,971,000 in 2022, marking a 98.5% increase[128]. Intellectual Property - The company holds six patents related to its production monitoring systems and actively seeks to protect its intellectual property[38]. - The company has established the HazardPRO trademark and intends to register it, reflecting its commitment to brand recognition and market presence[37]. Market Presence - In 2023, international sales represented approximately 10% of total revenues, with sales occurring in countries such as Canada, Mexico, and the United Kingdom[29]. - The company sells a range of products from simple sensors to complex integrated monitoring systems, targeting industries such as manufacturing and power generation[29]. - The company continues to explore new industries and applications to expand sales and may consider acquiring compatible businesses as part of its growth strategy[30]. Stock and Compensation - The Company had issued 25,000 shares and had 175,000 options outstanding under the 2013 Equity Incentive Plan, with 95,000 options exercisable[192]. - The Company granted 105,000 restricted stock units in 2023, with a weighted-average grant-date fair value of $4.11[202]. - The unrecognized compensation expense related to outstanding stock options is $111, expected to be recognized over four years[198]. - The Company recognized compensation expense of approximately $38 for stock options and $29 for restricted stock units during the year ended December 31, 2023[198][203]. - The company incurred stock-based compensation expenses of $67,000 in 2023, significantly higher than $3,000 in 2022[128]. Financial Position - Total current assets rose to $13,139 in 2023, compared to $12,813 in 2022, with cash and cash equivalents increasing to $9,870 from $7,646[122]. - The company reported total inventories of $1,751,000 as of December 31, 2023, slightly up from $1,745,000 in 2022, showing a marginal increase[180]. - The total property and equipment net value decreased to $951,000 in 2023 from $975,000 in 2022, representing a decline of approximately 2.46%[183]. - Accrued expenses decreased to $323,000 in 2023 from $350,000 in 2022, reflecting a reduction of about 7.71%[185]. - The company reported an allowance for credit losses of $11 against trade receivables of $1,283 in 2023, reflecting a cautious approach to credit risk[122]. - The allowance for credit losses on trade receivables remained stable at $11,000 for both 2023 and 2022[140]. - The company had no customers exceeding 10% of accounts receivable as of December 31, 2023, compared to one customer at 12% in 2022[141]. Accounting and Compliance - The company adopted a new accounting standard on January 1, 2023, which had no significant impact on the financial statements[166]. - The lease expense for the year ended December 31, 2023, was $1, a decrease from the previous year[187].

Financial Performance - Net sales for Q3 2023 were $2,057, a decrease of $159, or 7.2%, from $2,216 in Q3 2022; for the nine months ended September 30, 2023, net sales were $6,239, a decrease of $676, or 9.8%, from $6,915 in the same period in 2022[69]. - Gross profit for Q3 2023 was $993, a decrease of $170, or 14.6%, compared to Q3 2022; gross profit for the nine months ended September 30, 2023, was $3,083, a decrease of $654, or 17.5%, from the same period in 2022[70]. - Income before income tax expense for Q3 2023 was $83, a decrease of $71 compared to $154 in Q3 2022; for the nine months ended September 30, 2023, it was $176, an increase of $393 compared to a loss of $217 in the same period in 2022[74]. - For the three months ended September 30, 2023, the Company reported a Net Income (Loss) of $8 million, compared to a Net Income of $122 million for the same period in 2022[91]. - Adjusted Net Income for the three months ended September 30, 2023, was $8 million, while it was $184 million for the same period in 2022, reflecting a decrease of approximately 95.65%[91]. - For the nine months ended September 30, 2023, the Company reported a Net Income (Loss) of $80 million, compared to a Net Loss of $171 million for the same period in 2022[91]. - Adjusted Net Income for the nine months ended September 30, 2023, was $80 million, down from $505 million for the same period in 2022, indicating a decrease of approximately 84.24%[91]. Operating Expenses - Total operating expenses for Q3 2023 decreased by $25, or 2.4%, to $1,019, while as a percentage of net sales, it increased to 49.5% from 47.1%; for the nine months ended September 30, 2023, total operating expenses decreased by $794, or 19.9%, to $3,203[72]. Cash Flow - Cash and cash equivalents were $3,902 at September 30, 2023, down from $7,646 at December 31, 2022; total cash, cash equivalents, and investments were $9,928 at September 30, 2023, compared to $9,682 at December 31, 2022[77]. - Cash from operating activities was $92 for the nine months ended September 30, 2023, compared to cash used in operating activities of $213 for the same period in 2022, reflecting a $305 increase due to higher net income and decreased trade receivables[78]. - Cash used in investing activities was $3,831 for the nine months ended September 30, 2023, compared to cash from investing activities of $2,991 for the same period in 2022, primarily due to increased purchases of Treasury Bills[79]. Non-Operating Income - Net non-operating income increased by $74, or 211.4%, for Q3 2023 compared to Q3 2022; for the nine months ended September 30, 2023, it increased by $253, or 588.4%[73]. Merger and Acquisition Activities - The company continues to seek growth opportunities through internal product development and external acquisitions, following the termination of a merger agreement with Mobile X[83]. - The Company and Mobile X jointly agreed to terminate the merger agreement on January 30, 2023, with no further non-GAAP information presented[89]. - The Company incurred approximately $79 million in legal and other professional fees related to the Mobile X merger opportunity for the three months ended September 30, 2022[90]. - Total merger-related expenses for the nine months ended September 30, 2022, amounted to approximately $856 million[90]. - The Company believes that adding back merger-related costs provides a more accurate portrayal of underlying business results and trends[88]. - The income tax benefit of merger-related expenses for the three months ended September 30, 2022, was $(17) million, and for the nine months ended September 30, 2022, it was $(180) million[91]. - The Company is using "Adjusted Net Income" as a non-GAAP financial measure to facilitate comparisons and analysis of its operating performance[87]. Supply Chain Issues - The company is experiencing supply chain disruptions and price increases for components, which may affect sales and profit margins[82].

Financial Performance - Net sales for Q2 2023 were $2,137, a decrease of $427, or 16.7%, from $2,564 in Q2 2022[55] - Gross profit for Q2 2023 was $1,068, a decrease of $340, or 24.1%, compared to Q2 2022, with a gross margin of 50.0% down from 54.9%[56] - Total operating expenses decreased by $749, or 42.2%, to $1,024 in Q2 2023, representing 47.9% of net sales, down from 69.2% in Q2 2022[57] - Income before income tax expense was $138 for Q2 2023, an increase of $496 compared to a loss of $358 in Q2 2022[59] - For the three months ended June 30, 2023, the Company reported a GAAP Net Income of $116 million, compared to a loss of $284 million in the same period of 2022[76] - Adjusted Net Income for the three months ended June 30, 2023, was $135 million, down from $255 million in the same period of 2022[76] - For the six months ended June 30, 2023, the GAAP Net Income was $72 million, compared to a loss of $293 million in the same period of 2022[76] - Adjusted Net Income for the six months ended June 30, 2023, was $105 million, down from $321 million in the same period of 2022[76] Cash Flow and Expenses - Cash and cash equivalents were $5,600 at June 30, 2023, down from $7,646 at December 31, 2022[62] - Cash used in operating activities was $136 for the six months ended June 30, 2023, compared to $272 for the same period in 2022[63] - Cash used in investing activities increased to $1,907 for the six months ended June 30, 2023, compared to $9 in the same period in 2022[64] - The Company incurred merger-related expenses of approximately $24 million for the three months ended June 30, 2023, significantly lower than $682 million in the same period of 2022[76] - The Company incurred approximately $42 million in merger-related expenses for the six months ended June 30, 2023, compared to $777 million in the same period of 2022[76] - The income tax benefit of merger-related expenses for the three months ended June 30, 2023, was $(5) million, compared to $(143) million in the same period of 2022[76] - The income tax benefit of merger-related expenses for the six months ended June 30, 2023, was $(9) million, compared to $(163) million in the same period of 2022[76] Strategic Initiatives - The company is exploring growth opportunities through technology partnerships and potential acquisitions following the termination of the merger agreement with Mobile X[68] Operational Challenges - Supply chain disruptions and increased component costs are impacting production efficiency and profit margins[67] Non-Operating Income - Net non-operating income increased by $87, or 1,242.9%, for Q2 2023 compared to Q2 2022, driven by higher interest income[58]

Financial Performance - Net sales for Q1 2023 were $2,045, a decrease of $90 or 4.2% from $2,135 in Q1 2022, attributed to reduced domestic sales of wired and wireless sensor products [54]. - Gross profit for Q1 2023 was $1,022, a decrease of $144 or 12.3% year-over-year, with gross margin declining to 50.0% from 54.6% due to increased material costs [55]. - Total operating expenses for Q1 2023 were $1,160, a decrease of $20 or 1.7% from Q1 2022, but increased as a percentage of net sales to 56.7% from 55.3% [57]. - Non-operating income increased by $92 or 9,200.0% in Q1 2023, primarily due to higher interest income from Treasury Bills [57]. - Cash used in operating activities was $148 for Q1 2023, compared to $106 in Q1 2022, reflecting an increase in net loss attributed to decreased gross profit [62]. Cash and Investments - Cash and cash equivalents decreased to $5,540 as of March 31, 2023, from $7,646 at December 31, 2022, mainly due to increased Treasury Bill investments [61]. - The company anticipates ongoing cash requirements for capital expenditures, R&D, and working capital will be met through existing cash and operations for at least the next 12 months [64]. Research and Development - Research and development expenses increased by $37 or 16.0% in Q1 2023, rising to 13.1% of net sales from 10.8% in Q1 2022, driven by higher third-party engineering costs [60]. Strategic Initiatives - The company is exploring growth opportunities through technology partnerships and potential acquisitions following the termination of a merger agreement with Mobile X [66]. Supply Chain Challenges - Supply chain disruptions are impacting the sourcing of components and material costs, leading to potential delays and increased costs that may affect sales and profit margins [65].

Part I [Item 1. Business](index=4&type=section&id=Item%201.%20Business) The company manufactures and sells industrial monitoring and control systems, serving various industries while exploring strategic alternatives - ESI manufactures and sells industrial production monitoring and process control systems, including speed, temperature, position, and vibration monitors[14](index=14&type=chunk)[16](index=16&type=chunk) - The company markets its wireless hazard technology monitoring system under the **HazardPRO** brand, which provides an integrated solution for monitoring safety and facility runtime[27](index=27&type=chunk) - Sales are conducted through an internal team and a network of national and international distributors, with international sales accounting for approximately **10% of total sales in 2022**[31](index=31&type=chunk) - Key competitors include 4B Components Ltd, Maxi-Tronic, Inc, Siemens Corporation, and Ag Growth International Inc (AGI), with competitive advantages cited as **superior product design and quality**[35](index=35&type=chunk) - The company experienced **supply chain disruptions** in 2022, leading to difficulties in sourcing parts and price increases for components, and is modifying product designs to adapt[37](index=37&type=chunk) - Following the termination of a merger agreement with Mobile X Global, Inc in January 2023, the Board of Directors is **exploring strategic alternatives**[44](index=44&type=chunk) [Item 1A. Risk Factors](index=11&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, this section is not required - As a smaller reporting company, Electro-Sensors, Inc is **not required** to provide a separate Risk Factors section[64](index=64&type=chunk) [Item 2. Properties](index=11&type=section&id=Item%202.%20Properties) The company owns and operates a 25,400 square foot facility in Minnetonka, Minnesota, which is adequate for its current needs - The company owns a **25,400 square foot facility** in Minnetonka, Minnesota, which houses all of its operations[65](index=65&type=chunk) [Item 3. Legal Proceedings](index=11&type=section&id=Item%203.%20Legal%20Proceedings) The company is not subject to any material legal proceedings - The company reports **no material legal proceedings** or threatened litigation[66](index=66&type=chunk) [Item 4. Mine Safety Disclosures](index=11&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company - No mine safety disclosures are applicable to the company[67](index=67&type=chunk) Part II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=11&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's stock trades on Nasdaq under "ELSE", and no shares were repurchased in 2022 or 2021 - The company's common stock is traded on the Nasdaq Capital Market under the ticker symbol **"ELSE"**[69](index=69&type=chunk) - As of February 28, 2023, there were **64 shareholders of record** and approximately 1,250 shareholders holding shares in street name[69](index=69&type=chunk) - **No common stock was repurchased** during the years ended December 31, 2022 and 2021[70](index=70&type=chunk) [Item 6. Selected Financial Data](index=11&type=section&id=Item%206.%20Selected%20Financial%20Data) As a smaller reporting company, this section is not required - As a smaller reporting company, Electro-Sensors, Inc is **not required** to provide selected financial data[71](index=71&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=12&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Net sales grew 4.9% in 2022, but higher operating expenses from a terminated merger led to a significant drop in net income [Results of Operations](index=12&type=section&id=Results%20of%20Operations) Sales grew 4.9% in 2022, but higher merger-related costs drove a 75.6% decline in net income to $100 thousand Financial Performance Comparison (2022 vs 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $9,029 | $8,607 | 4.9% | | Gross Profit | $4,841 | $4,677 | 3.5% | | Gross Margin | 53.6% | 54.3% | (0.7 pts) | | Operating Income (Loss) | ($37) | $441 | (108.4%) | | Net Income | $100 | $410 | (75.6%) | | Basic EPS | $0.03 | $0.12 | (75.0%) | - The increase in operating expenses was primarily due to **legal and other professional fees** associated with the announced merger with Mobile X Global, Inc that was terminated in January 2023[77](index=77&type=chunk) Non-GAAP Adjusted Net Income Reconciliation | Description | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Net Income - GAAP | $100 | $410 | | Plus merger related expenses | $875 | $304 | | Less income taxes on merger expenses | ($184) | ($64) | | **Adjusted Net Income** | **$791** | **$650** | [Liquidity and Capital Resources](index=15&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity remains strong with $7.6 million in cash, despite a decrease in cash from operations Key Liquidity Metrics (as of Dec 31) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $7,646 | $6,713 | | Working capital | $12,183 | $11,931 | Cash Flow Summary | Activity | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Net cash from (used in) operating activities | ($147) | $769 | | Net cash from investing activities | $964 | $4,860 | | Net cash from (used in) financing activities | $116 | ($6) | - Management believes that cash on hand and cash provided by operations will be **sufficient to meet cash requirements** for at least the next 12 months[95](index=95&type=chunk) [Critical Accounting Estimates](index=16&type=section&id=Critical%20Accounting%20Estimates) Key estimates involve asset lives, receivables, deferred taxes, inventory, investments, and stock-based compensation - Significant accounting estimates include: economic lives of long-lived assets, realizability of trade receivables, valuation of deferred tax assets/liabilities, inventory valuation, investment valuation, and stock compensation expense[99](index=99&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=17&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not applicable to the company - No quantitative and qualitative disclosures about market risk are applicable to the company[108](index=108&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=18&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited financial statements for 2022 and 2021, with an unqualified opinion from the auditor [Financial Statements](index=20&type=section&id=Financial%20Statements) Total assets grew slightly to $14.0 million in 2022, while net income decreased to $100 thousand from $410 thousand in 2021 Balance Sheet Summary (as of Dec 31, in thousands) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Total Current Assets | $12,813 | $12,628 | | **Total Assets** | **$14,044** | **$13,891** | | Total Current Liabilities | $630 | $697 | | **Total Liabilities** | **$630** | **$703** | | **Total Stockholders' Equity** | **$13,414** | **$13,188** | Statement of Comprehensive Income Summary (Year Ended Dec 31, in thousands) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Net Sales | $9,029 | $8,607 | | Gross Profit | $4,841 | $4,677 | | Operating Income (Loss) | ($37) | $441 | | **Net Income** | **$100** | **$410** | [Notes to Financial Statements](index=24&type=section&id=Notes%20to%20Financial%20Statements) Notes detail the terminated merger, investment holdings, employee benefit plans, and income tax components - The company's investments consist primarily of commercial paper and Treasury Bills, classified as available-for-sale, with a total fair value of **$9.4 million** at year-end 2022[171](index=171&type=chunk)[172](index=172&type=chunk) - On January 30, 2023, the company and Mobile X Global, Inc **mutually terminated their merger agreement** from June 10, 2022, because the required equity financing was not available[194](index=194&type=chunk)[214](index=214&type=chunk) - The company sponsors an Employee Stock Ownership Plan (ESOP) which held **94,434 shares** of company stock as of December 31, 2022[204](index=204&type=chunk) - The company has **R&D tax credits of $313 thousand** available to be carried forward[212](index=212&type=chunk) [Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure](index=41&type=section&id=Item%209.%20Changes%20In%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reported no changes in or disagreements with its accountants - There were **no disagreements** with accountants on accounting and financial disclosure[215](index=215&type=chunk) [Item 9A. Controls and Procedures](index=41&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal controls over financial reporting were effective as of year-end 2022 - The company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were **effective** as of December 31, 2022[216](index=216&type=chunk) - Management assessed internal control over financial reporting using the COSO framework and concluded that it was **effective** as of December 31, 2022[220](index=220&type=chunk) [Item 9B. Other Information](index=42&type=section&id=Item%209B.%20Other%20Information) No other information was reported in this section - No information was reported under this item[224](index=224&type=chunk) Part III [Item 10. Directors, Executive Officers and Corporate Governance](index=43&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information is incorporated by reference from the 2023 Proxy Statement, and the company has a Code of Ethics - Required information is **incorporated by reference** from the 2023 Proxy Statement[227](index=227&type=chunk)[229](index=229&type=chunk) - The company has adopted the Electro-Sensors **Code of Ethics and Business Conduct**[228](index=228&type=chunk) [Item 11. Executive Compensation](index=43&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the 2023 Proxy Statement - Required information is **incorporated by reference** from the 2023 Proxy Statement under the caption "Executive Compensation"[230](index=230&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=43&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership information is incorporated by reference, with details provided on equity compensation plans - Security ownership information is **incorporated by reference** from the 2023 Proxy Statement[231](index=231&type=chunk) Equity Compensation Plan Information (as of Dec 31, 2022) | Plan Category | Securities to be issued upon exercise of outstanding options (a) | Weighted-average exercise price of outstanding options (b) | Securities remaining available for future issuance (c) | | :--- | :--- | :--- | :--- | | Approved by security holders | 300,000 | $4.36 | 275,000 | | Not approved by security holders | — | — | — | | **Total** | **300,000** | **$4.36** | **275,000** | [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=44&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related transactions and director independence is incorporated by reference from the 2023 Proxy Statement - Required information is **incorporated by reference** from the 2023 Proxy Statement[236](index=236&type=chunk) [Item 14. Principal Accountant Fees and Services](index=44&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information on accountant fees and services is incorporated by reference from the 2023 Proxy Statement - Required information is **incorporated by reference** from the 2023 Proxy Statement under the caption "Ratification of Independent Registered Public Accounting Firm"[237](index=237&type=chunk) Part IV [Item 15. Exhibits and Financial Statement Schedules](index=45&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements and exhibits included in the report, with schedules omitted as permitted - An index to the Financial Statements is provided on page 18 of the report[240](index=240&type=chunk) - Financial Statement Schedules were **omitted** because they were not required or the information was included in the financial statements or notes[241](index=241&type=chunk) [Item 16. Form 10-K Summary](index=45&type=section&id=Item%2016.%20Form%2010-K%20Summary) No summary is provided under this item - No Form 10-K summary was provided[242](index=242&type=chunk)

Financial Performance - Net sales for Q3 2022 were $2,216, an increase of $62, or 2.9%, from $2,154 in Q3 2021[73] - Net sales for the nine months ended September 30, 2022, were $6,915, an increase of $398, or 6.1%, from $6,517 in the same period in 2021[73] - Gross profit for Q3 2022 decreased by $41 to $1,163, or 3.4%, compared to Q3 2021, with a gross margin of 52.5%[74] - Total operating expenses for Q3 2022 decreased by $140, or 11.8%, to $1,044, representing 47.1% of net sales[76] - Income before income tax expense for Q3 2022 was $154, an increase of $133 compared to $21 in Q3 2021[78] Cash Flow and Liquidity - Cash and cash equivalents were $9,518 at September 30, 2022, up from $6,713 at December 31, 2021[81] - Cash used in operating activities was $213 for the nine months ended September 30, 2022, compared to cash generated of $547 in the same period in 2021[82] - Cash from investing activities was $2,991 for the nine months ended September 30, 2022, compared to $2,987 in the same period in 2021[83] - The company believes its cash on hand and generated from operations will be sufficient to meet cash requirements for at least the next 12 months[85] Business Environment and Challenges - The lingering effects of COVID-19 continue to create uncertainty in the business, potentially negatively affecting 2022 financial results[86] - Supply chain disruptions are causing difficulties in sourcing components and materials, along with price increases for many components, which may adversely affect sales and profit margins[87] Growth Strategy - The company is actively seeking growth opportunities through internal product development and external technology partnerships or acquisitions, with increased business development activities noted in the second half of 2021 and the first nine months of 2022[88] Internal Controls and Compliance - As of September 30, 2022, the company had no off-balance sheet arrangements or transactions[89] - The company's disclosure controls and procedures were deemed effective as of September 30, 2022, following management's evaluation[92] - There were no changes in the company's internal control over financial reporting during Q3 2022 that materially affected its internal controls[93]