Electro-Sensors(ELSE) - 2022 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements (Unaudited) Unaudited Q2 2022 financial statements report total assets of $14.0 million, a net loss of $284 thousand, and a pending merger with Mobile X Global, Inc Condensed Balance Sheets Total assets slightly increased to $14.0 million by June 30, 2022, while current liabilities significantly rose to $1.1 million Condensed Balance Sheet Data (in thousands) | Account | June 30, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $6,429 | $6,713 | | Total current assets | $12,776 | $12,628 | | Total assets | $13,996 | $13,891 | | Liabilities & Equity | | | | Total current liabilities | $1,094 | $697 | | Total liabilities | $1,097 | $703 | | Total stockholders' equity | $12,899 | $13,188 | Condensed Statements of Comprehensive Income (Loss) Q2 2022 saw a net loss of $284 thousand, a reversal from prior year's income, despite a 4.1% sales increase, due to surging operating expenses Financial Performance Summary (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $2,564 | $2,462 | $4,699 | $4,363 | | Gross Profit | $1,408 | $1,376 | $2,574 | $2,366 | | Operating Income (Loss) | $(365) | $271 | $(379) | $267 | | Net Income (Loss) | $(284) | $214 | $(293) | $212 | | Diluted EPS | $(0.08) | $0.06 | $(0.09) | $0.06 | Condensed Statements of Cash Flows Operating activities used $272 thousand in cash for the first six months of 2022, a significant shift from prior year's generation, ending with $6.4 million cash Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash from (used in) operating activities | $(272) | $466 | | Net cash used in investing activities | $(9) | $(13) | | Net cash used in financing activities | $(3) | $(3) | | Net (decrease) in cash | $(284) | $450 | Notes to Condensed Financial Statements Notes detail accounting policies and significant disclosures, primarily outlining the pending reverse triangular merger with Mobile X Global, Inc., expected to close in H2 2022 - On June 10, 2022, the company entered a reverse triangular merger agreement with Mobile X Global, Inc., where Mobile X will become a wholly-owned subsidiary of Electro-Sensors (ELSE)[50][51] - Post-merger, former Mobile X stockholders will own approximately 76% of the combined company, legacy ELSE shareholders about 11%, and new investors about 13%[53] - Legacy Electro-Sensors shareholders are expected to receive special cash dividends totaling approximately $18.0 million, or about $4.83 per share (pre-reverse split)[55] - The merger's closing, anticipated in H2 2022, is contingent on shareholder approval, securing $20.0 million in equity financing, and Nasdaq listing approval[57][60] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 7.7% sales growth driven by agricultural applications, offset by a 40.7% surge in operating expenses due to merger costs, leading to a net loss and negative operating cash flow Results of Operations Net sales grew 4.1% in Q2 and 7.7% for six months, driven by agricultural applications, but a 145.6% surge in G&A expenses led to a Q2 operating loss of $365 thousand Net Sales Growth | Period | Net Sales 2022 (in thousands) | Net Sales 2021 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Q2 | $2,564 | $2,462 | +4.1% | | Six Months | $4,699 | $4,363 | +7.7% | - The sales increase was driven by broad-based strength in agricultural applications, including commodity refining and biofuels[74] - Total operating expenses for Q2 2022 increased by 60.5% year-over-year, primarily due to a 145.6% increase in General and Administrative expenses from merger-related legal and professional fees[77] - Research and development expenses decreased by 21.9% in Q2 2022 due to lower third-party engineering costs[77] Liquidity and Capital Resources Cash and cash equivalents were $6.4 million, with operating cash flow shifting to a $272 thousand use due to merger expenses, while supply chain disruptions pose ongoing risks - Cash used in operating activities was $272 thousand for the first six months of 2022, a shift from $466 thousand generated in 2021, primarily due to the net loss from merger expenses[81] - The company faces significant supply chain disruptions, including difficulty sourcing parts, component price increases, and shipping delays[87] - The company's primary business development activity culminated in the June 10, 2022 announcement of the Merger Agreement with Mobile X Global, Inc[88] Quantitative and Qualitative Disclosures About Market Risk This item is not applicable for the current reporting period - Not Applicable[91] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal controls during Q2 - The Company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of June 30, 2022[92] - No material changes occurred in the Company's internal control over financial reporting during Q2 2022[93] PART II – OTHER INFORMATION Other Information Summary This section confirms no legal proceedings, unregistered equity sales, or senior security defaults, and lists filed exhibits including amended bylaws and SOX certifications - The company reports no legal proceedings, unregistered sales of equity securities, or defaults upon senior securities[95] - Filed exhibits include amended bylaws and certifications by the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[95][96] Signatures Signatures The report was signed on August 2, 2022, by David L. Klenk, in his capacity as Chief Executive Officer and Chief Financial Officer - The Form 10-Q was signed on August 2, 2022, by David L. Klenk, the company's CEO and CFO[101]