Electro-Sensors(ELSE) - 2021 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) The company's unaudited statements show increased total assets and a return to profitability, with improved net income and operating cash flow Condensed Balance Sheets Total assets and liabilities grew as of September 30, 2021, alongside a slight increase in stockholders' equity Condensed Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 (unaudited) | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $12,670 | $11,856 | | Total Assets | $13,909 | $13,319 | | Total Current Liabilities | $895 | $533 | | Total Liabilities | $903 | $545 | | Total Stockholders' Equity | $13,006 | $12,774 | Condensed Statements of Comprehensive Income (Loss) The company returned to profitability in Q3 and the first nine months of 2021, driven by a 10.2% increase in net sales Financial Performance (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $2,154 | $1,899 | $6,517 | $5,914 | | Gross Profit | $1,204 | $992 | $3,570 | $3,089 | | Operating Income (Loss) | $20 | $(54) | $287 | $(176) | | Net Income (Loss) | $17 | $(46) | $229 | $(119) | | Basic EPS | $0.01 | $(0.01) | $0.07 | $(0.04) | Condensed Statements of Cash Flows Net cash from operations increased and investing activities generated a significant inflow due to Treasury bill maturities Net Cash Flow for Nine Months Ended Sep 30 (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash from operating activities | $547 | $302 | | Net cash from (used in) investing activities | $2,987 | $(2,021) | | Net cash used in financing activities | $(4) | $(4) | | Net increase (decrease) in cash | $3,530 | $(1,723) | | Cash and cash equivalents, ending | $4,620 | $7,062 | Notes to Condensed Financial Statements Notes clarify the company's business, revenue recognition policies, investment classifications, and inventory composition - The company manufactures and markets monitoring and control systems for industrial machine applications globally[18] - Revenue is recognized when control of the product is transferred to the customer, which typically occurs upon shipment[19] Inventories (in thousands) | Category | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Raw Materials | $921 | $922 | | Work In Process | $257 | $292 | | Finished Goods | $304 | $363 | | Total Inventories, net | $1,477 | $1,572 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses revenue growth from the agricultural sector, improved margins, and significant operational headwinds from COVID-19 Results of Operations Sales growth in the agricultural sector and improved factory utilization drove higher net sales and gross margins Net Sales Growth (in thousands) | Period | 2021 | 2020 | Increase $ | Increase % | | :--- | :--- | :--- | :--- | :--- | | Three Months | $2,154 | $1,899 | $255 | 13.4% | | Nine Months | $6,517 | $5,914 | $603 | 10.2% | - Gross margin increased in Q3 2021 to 55.9% and for the nine-month period to 54.8% due to improved factory utilization[49] - General and administrative expenses increased by 47.6% in Q3 and 14.8% in the nine-month period, primarily due to higher legal and professional fees[50] Liquidity and Capital Resources A significant increase in cash and cash equivalents, fueled by operations and investments, ensures sufficient liquidity for the next year - Cash generated from operating activities was $547 thousand for the first nine months of 2021, up from $302 thousand in the prior year[55] - Cash from investing activities was $2,987 thousand, a reversal from a $2,021 thousand use of cash in 2020, due to proceeds from Treasury Bill maturities[56] - The company believes its cash position is sufficient to meet requirements for at least the next 12 months[58] COVID-19 Pandemic Discussion The company faces ongoing operational challenges from the pandemic, including supply chain disruptions, price increases, and labor shortages - The company is experiencing significant disruptions in its supply chain, resulting in difficulty sourcing parts and component price increases[61] - Delays in shipping and transportation services may adversely affect the ability to make timely deliveries to customers[61] - The labor market for qualified production employees is challenging, which may result in delays in filling open positions[61] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is not applicable for the current quarterly report - Not Applicable[65] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The Company's disclosure controls and procedures were effective as of September 30, 2021[66] - There were no material changes in the Company's internal control over financial reporting during the third quarter of 2021[67] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company reported no legal proceedings during the period - None[69] Item 1A. Risk Factors This section is not applicable for the current Form 10-Q filing - Not Applicable[69] Item 6. Exhibits Filed exhibits include CEO/CFO certifications under Sarbanes-Oxley and iXBRL-formatted financial statements - The following exhibits were filed with the report[69][70][71](index=71&type=chunk]: * 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: Financial information formatted in iXBRL