Electro-Sensors(ELSE) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents unaudited financial statements and management's analysis of the company's financial performance and condition Item 1. Financial Statements (unaudited) Presents unaudited condensed financial statements, including balance sheets, statements of operations, equity, and cash flows, with notes Condensed Balance Sheets | ASSETS (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Cash and cash equivalents | $10,182 | $9,948 | | Investments | $56 | $56 | | Trade receivables, net | $1,282 | $1,309 | | Inventories, net | $2,010 | $1,964 | | Total current assets | $13,782 | $13,474 | | Total assets | $15,160 | $14,885 | | LIABILITIES AND STOCKHOLDERS' EQUITY (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------------------------ | :------------ | :---------------- | | Accounts payable | $287 | $146 | | Accrued expenses | $482 | $365 | | Total current liabilities | $769 | $552 | | Total stockholders' equity | $14,391 | $14,333 | | Total liabilities and stockholders' equity | $15,160 | $14,885 | Condensed Statements of Operations | (in thousands except per share) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $2,400 | $2,217 | $4,639 | $4,461 | | Gross profit | $1,228 | $1,047 | $2,312 | $2,127 | | Total operating expenses | $1,230 | $1,154 | $2,483 | $2,334 | | Operating loss | $(2) | $(107) | $(171) | $(207) | | Net income (loss) | $59 | $(4) | $(5) | $7 | | Basic Net income per share | $0.02 | $0.00 | $0.00 | $0.00 | | Diluted Net income per share | $0.02 | $0.00 | $0.00 | $0.00 | Condensed Statements of Changes in Stockholders' Equity | (in thousands) | Common Stock Issued (Amount) | Additional Paid-in Capital | Retained Earnings | Total Stockholders' Equity | | :------------- | :--------------------------- | :------------------------- | :---------------- | :------------------------- | | June 30, 2025 ||||| | Balance Dec 31, 2024 | $344 | $2,360 | $11,629 | $14,333 | | Stock-based comp. | | $63 | | $63 | | Net loss | | | $(5) | $(5) | | Balance June 30, 2025 | $344 | $2,423 | $11,624 | $14,391 | | June 30, 2024 ||||| | Balance Dec 31, 2023 | $342 | $2,230 | $11,183 | $13,755 | | Stock-based comp. | | $67 | | $67 | | Net income | | | $7 | $7 | | Balance June 30, 2024 | $342 | $2,297 | $11,190 | $13,829 | Condensed Statements of Cash Flows | (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------- | :----------------------------- | :----------------------------- | | Net cash from operating activities | $247 | $44 | | Net cash used in investing activities | $(13) | $(26) | | Net increase in cash and cash equivalents | $234 | $18 | | Cash and cash equivalents, beginning | $9,948 | $9,870 | | Cash and cash equivalents, ending | $10,182 | $9,888 | Notes to Condensed Financial Statements Provides detailed explanations and disclosures supporting the condensed financial statements - The Company manufactures and markets monitoring and control systems for industrial machine applications, selling products through internal staff and distributors across the United States, Canada, Latin America, Europe, and Asia[21] - Cash and cash equivalents include highly liquid debt instruments with maturities of three months or less, primarily invested in commercial paper, money market accounts, and Treasury Bills. Cash equivalents were $7,973 thousand as of June 30, 2025, and $7,980 thousand as of December 31, 2024[22] - The allowance for credit losses on trade receivables increased to $28 thousand at June 30, 2025, from $11 thousand at December 31, 2024[27] - Product revenue is recognized upon shipment, while service revenue is recognized when provided, typically within a week. Certain contracts may have a second performance obligation for HazardPRO product initialization[28] - The Company's investments consist of common equity securities in two private U.S. companies, valued at an estimated fair value of $56 thousand as of both June 30, 2025, and December 31, 2024. These are classified as Level 3 inputs in the fair value hierarchy due to an undeterminable market[39][40][42] Inventories, net (in thousands) | Inventory Component | June 30, 2025 | December 31, 2024 | | :------------------ | :------------ | :---------------- | | Raw Materials | $1,300 | $1,334 | | Work In Process | $365 | $301 | | Finished Goods | $365 | $339 | | Reserve for Obsolescence | $(20) | $(10) | | Total Inventories, net | $2,010 | $1,964 | - Total unrecognized compensation expense for outstanding stock options was $95 thousand as of June 30, 2025, expected to be recognized through October 2028. For restricted stock units, unrecognized compensation expense was $273 thousand, expected through August 2028[46][51] - On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law, making permanent 100% bonus depreciation and immediate deduction for domestic R&E expenses. The Company is evaluating the impact on deferred tax balances for the quarter ended September 30, 2025[56] - On August 7, 2025, Michael Zipoy retired from the Board, resulting in the acceleration of vesting for his outstanding options and RSU awards[57] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and results of operations, covering sales, profit, expenses, liquidity, and future outlook Forward-Looking Statements Discusses statements regarding future financial results, growth strategies, and business developments, subject to inherent risks - The report contains forward-looking statements regarding growth strategy, future financial results, product development, sales efforts, and other business matters, which are subject to uncertainties and risks[59][60][61] Critical Accounting Estimates Identifies key accounting estimates that require significant judgment and could materially impact financial results - There have been no changes to the Company's critical accounting estimates during the three and six-month periods ended June 30, 2025[62] Recent Developments Highlights significant events and changes impacting the company's operations and financial position - Michael Zipoy retired from the Board effective August 8, 2025, leading to the acceleration of vesting for his outstanding options and RSU awards[63] Selected Financial Information Selected Financial Information as a Percentage of Net Sales | | Three Months Ended June 30 | Six Months Ended June 30 | | :-------------------------- | :------------------------- | :----------------------- | | | 2025 | 2024 | 2025 | 2024 | | Net sales | 100.0% | 100.0% | 100.0% | 100.0% | | Cost of goods sold | 48.8% | 52.8% | 50.2% | 52.3% | | Gross profit | 51.2% | 47.2% | 49.8% | 47.7% | | Total operating expenses | 51.3% | 52.0% | 53.5% | 52.3% | | Operating loss | (0.1)% | (4.8)% | (3.7)% | (4.6)% | | Net income (loss) | 2.4% | (0.2)% | (0.1)% | 0.2% | Results of Operations Analyzes the company's financial performance, including net sales, gross profit, and operating expenses, for the reported periods Net Sales (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :----- | :--- | :--- | :--------- | :--------- | | Q2 | $2,400 | $2,217 | $183 | 8.3% | | YTD | $4,639 | $4,461 | $178 | 4.0% | - The increase in Q2 net sales was primarily driven by increased sales to international and OEM customers[66] Gross Profit (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :----- | :--- | :--- | :--------- | :--------- | | Q2 | $1,228 | $1,047 | $181 | 17.3% | | YTD | $2,312 | $2,127 | $185 | 8.7% | Gross Margin | Period | 2025 | 2024 | | :----- | :---- | :---- | | Q2 | 51.2% | 47.2% | | YTD | 49.8% | 47.7% | - The increase in gross margin for both periods was due to an increase in average selling prices implemented to partially offset increased material costs[67] Total Operating Expenses (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :----- | :--- | :--- | :--------- | :--------- | | Q2 | $1,230 | $1,154 | $76 | 6.6% | | YTD | $2,483 | $2,334 | $149 | 6.4% | - Total operating expenses increased primarily due to costs associated with additional employee headcount[68] Operating Expense Breakdown (in thousands) | Expense Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Selling & Marketing | $441 | $353 | $861 | $704 | | General & Administrative | $575 | $537 | $1,162 | $1,104 | | Research & Development | $214 | $264 | $460 | $526 | - Selling and marketing expenses increased due to higher wages and benefits from hiring sales leadership. General and administrative expenses rose due to independent auditor expenses and nonreimbursable sales tax, partially offset by reduced contract personnel. Research and development expenses decreased due to reduced employee headcount[70] Net Non-Operating Income (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :----- | :--- | :--- | :--------- | :--------- | | Q2 | $82 | $109 | $(27) | (24.8)% | | YTD | $170 | $225 | $(55) | (24.4)% | - The decrease in non-operating income was a result of lower interest income earned due to lower interest rates on Treasury Bills[69] Income (Loss) Before Income Tax Expense (in thousands) | Period | 2025 | 2024 | Change ($) | | :----- | :--- | :--- | :--------- | | Q2 | $80 | $2 | $78 | | YTD | $(1) | $18 | $(19) | - Q2 income before tax increased due to higher net sales and gross margin, partially offset by higher operating expenses and lower interest income. YTD loss before tax decreased due to higher operating expenses and lower interest income, partially offset by higher net sales and gross margin[71] Income Tax Expense (in thousands) and Effective Tax Rate | Period | Income Tax Expense 2025 | Income Tax Expense 2024 | Effective Tax Rate 2025 | Effective Tax Rate 2024 | | :----- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Q2 | $21 | $6 | 26.3% | 300.0% | | YTD | $4 | $11 | 400.0% | 61.1% | - The 2025 YTD effective tax rate was higher than normal due to the adjustment of the calendar year 2024 balance due. The 2024 effective tax rates were higher than normal due to the write-off of deferred tax assets related to expired unexercised stock options[72] Liquidity and Capital Resources Assesses the company's ability to meet short-term and long-term obligations and fund operations Cash and Cash Equivalents (in thousands) | Period | Amount | | :----- | :----- | | June 30, 2025 | $10,182 | | December 31, 2024 | $9,948 | - The increase in cash and cash equivalents was primarily due to an increase in cash from operating activities[73] Cash Flows from Operating Activities (in thousands) | Period | 2025 | 2024 | Change ($) | | :----- | :--- | :--- | :--------- | | YTD | $247 | $44 | $203 | - The increase in operating cash flow was primarily due to an increase in accounts payable and a decrease in accounts receivable, partially offset by an increase in inventory[74] - Cash used in investing activities was $13 thousand for the six months ended June 30, 2025, compared to $26 thousand in the prior year, primarily for the purchase of office equipment[75] - The Company expects existing cash, cash equivalents, investments, and cash generated from operations to be sufficient to meet cash requirements for at least the next 12 months[77] Supply Chain and Labor Dynamics Discusses the impact of supply chain stability, price increases, delivery delays, and labor market challenges on operations - The Company's supply chain is stabilizing but still experiences unexpected price increases and delivery delays, necessitating efforts to find alternative component sources and modify product designs[78] - Challenges in the labor market for qualified employees are leading to delays in filling positions and potentially impacting profit margins[79] - Changes in transportation and freight availability may hinder timely and cost-effective material and product shipments[79] Future Corporate and Business Development Activities Outlines the company's strategies for internal growth, technology partnerships, and potential acquisitions - The Company continues to seek growth opportunities internally through its existing product portfolio and externally through technology partnerships or acquisitions[80] - A special committee of the Board of Directors is exploring business development and other strategic alternatives[80] Off-balance Sheet Arrangements Reports on any material off-balance sheet transactions or obligations not recognized on the balance sheet - As of June 30, 2025, the Company had no off-balance sheet arrangements or transactions[81] Item 3. Quantitative and Qualitative Disclosures About Market Risk Confirms no applicable quantitative and qualitative disclosures regarding market risk for the reported period - Not Applicable[82] Item 4. Controls and Procedures Details the evaluation of disclosure controls and procedures and reports on changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures Assesses the effectiveness of controls designed to ensure timely and accurate financial reporting - The Company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of June 30, 2025[83] Changes in Internal Control Over Financial Reporting Reports on any material changes to the company's internal control system during the reporting period - There were no changes in the Company's internal control over financial reporting during the second quarter of 2025 that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[84] PART II – OTHER INFORMATION Provides additional information not covered in the financial statements, including legal proceedings and exhibits Item 1. Legal Proceedings Confirms the absence of any material legal proceedings involving the company - None[86] Item 1A. Risk Factors States that no new material risk factors are applicable to the company for the current reporting period - Not Applicable[88] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports no unregistered sales of equity securities or related use of proceeds during the period - None[88] Item 3. Defaults Upon Senior Securities Confirms that there were no defaults on senior securities during the reporting period - None[88] Item 4. Mine Safety Disclosures Indicates that mine safety disclosures are not applicable to the company's operations - Not Applicable[88] Item 5. Other Information States that there is no other material information to report for the period - None[88] Item 6. Exhibits Lists all exhibits filed as part of the Form 10-Q, including certifications and iXBRL financial data Exhibits Filed | Exhibit | Description | | :------ | :---------- | | 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. | | 101 | iXBRL financial information (Condensed Balance Sheets, Statements of Operations, Changes in Stockholders' Equity, Cash Flows, and Notes). | | 104 | Cover Page Interactive Data File (formatted as Inline XBRL). | SIGNATURES Contains the required signatures of the company's authorized officers, certifying the accuracy of the report - The report was duly signed on August 12, 2025, by David L. Klenk, Chief Executive Officer and Chief Financial Officer[89][91]