[10-Q] Electro-Sensors Inc Quarterly Earnings Report

Rhea-AI Filing Summary

Electro-Sensors, Inc. reported improving operational performance for the quarter ended June 30, 2025, with net sales rising to $2.40 million, an 8.3% increase versus the prior-year quarter, and six-month sales of $4.64 million, up 4.0% year-over-year. Gross profit for the quarter rose to $1.23 million and gross margin expanded to 51.2% from 47.2%, driven by higher average selling prices implemented to offset material cost increases. The company posted net income of $59 thousand in the quarter compared with a small net loss in the prior-year quarter.

Operating expenses increased primarily from additional headcount and higher selling and marketing costs, while interest income declined due to lower interest rates. Cash and cash equivalents rose to $10.18 million and operating cash flow improved to $247 thousand for the six months. The company discloses ongoing supply-chain and labor risks, is evaluating tax effects of recently enacted federal tax legislation, and recorded no material contingencies. Shares outstanding were 3,449,021.

Positive

• Net sales increased 8.3% in Q2 2025 to $2.40 million, and six-month sales rose 4.0% to $4.64 million
• Gross margin expanded to 51.2% in Q2 2025 from 47.2% a year earlier, improving profitability per sale
• Reported net income of $59k in Q2 2025 versus a small loss in Q2 2024, reflecting operating improvement
• Operating cash flow strengthened to $247k for the six months, and cash and equivalents increased to $10.18M

Negative

• Total operating expenses rose (selling and marketing up due to sales leadership hires), pressuring operating results over six months
• Interest income declined due to lower rates, reducing non-operating income compared with prior year
• Supply-chain and labor risks disclosed (price increases, delivery delays, harder-to-fill positions) that could materially affect margins and deliveries
• Tax-effect uncertainty as management will re-evaluate deferred tax balances following recent federal tax law changes

Insights

Financial Analyst

TL;DR: Revenue growth and margin expansion produced a small quarterly profit and stronger cash flow, offset by rising operating costs.

Electro-Sensors delivered notable sequential improvement: Q2 net sales increased 8.3% to $2.40M and gross margin expanded to 51.2%, yielding $59K net income versus a prior-year quarter loss. Operating cash flow strengthened to $247K for six months, supporting liquidity of $10.18M. Key positives are margin recovery and cash generation. Offsets include higher selling and marketing spend tied to new sales hires and lower interest income reducing non-operating income. Overall this is an impactful operational improvement but still modest in absolute dollar terms given company size.

Risk Analyst

TL;DR: Supply-chain, labor and tax-rule changes introduce near-term execution and accounting uncertainty despite improved results.

The company explicitly warns of component price increases, delivery delays, and a challenging labor market that could erode margins or delay shipments. Management will evaluate deferred tax balances following recently enacted tax legislation, introducing potential tax adjustments in upcoming filings. Additionally, operating expense increases from hiring and marketing raise break-even requirements. These items make the current quarter encouraging but expose execution and tax risks that are material to near-term results.

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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 June 30, 2025

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 class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.10 par value	ELSE	Nasdaq 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 August 11, 2025 was 3,449,021. 

2

 ELECTRO-SENSORS, INC.

Form 10-Q

For the Period Ended June 30, 2025

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION	4
Item 1. Financial Statements (unaudited):	4
Condensed Balance Sheets – As of June 30, 2025 and December 31, 2024	4
Condensed Statements of Operations – For the Three and Six Months Ended June 30, 2025 and June 30, 2024	5
Condensed Statements of Changes in Stockholders' Equity – For the Three and Six Months Ended June 30, 2025 and June 30, 2024	6
Condensed Statements of Cash Flows – For the Six Months Ended June 30, 2025 and June 30, 2024	7
Notes to Condensed Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3. Quantitative and Qualitative Disclosures About Market Risk	19
Item 4. Controls and Procedures	20
PART II – OTHER INFORMATION	21
Item 1. Legal Proceedings	21
Item 1A. Risk Factors	21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3. Defaults Upon Senior Securities	21
Item 4. Mine Safety Disclosures	21
Item 5. Other Information	21
Item 6. Exhibits	21
SIGNATURES	22

3

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ELECTRO-SENSORS, INC.

CONDENSED BALANCE SHEETS

(in thousands except share and per share amounts) 

		June 30, 2025				December 31, 2024
		(unaudited)
ASSETS
Current assets
Cash and cash equivalents		$	10,182			$	9,948
Investments			56				56
Trade receivables, less allowance for credit losses of $28 and $11, respectively			1,282				1,309
Inventories, net			2,010				1,964
Other current assets			180				197
Income tax receivable			72				0
Total current assets			13,782				13,474
Deferred income tax asset, net			501				501
Property and equipment, net			877				910
Total assets		$	15,160			$	14,885
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable		$	287			$	146
Accrued expenses			482				365
Accrued income taxes			0				41
Total current liabilities			769				552
Commitments and contingencies
Stockholders’ equity
Common stock par value $0.10 per share; authorized 10,000,000 shares; 3,449,021 shares issued and outstanding			344				344
Additional paid-in capital			2,423				2,360
Retained earnings			11,624				11,629
Total stockholders’ equity			14,391				14,333
Total liabilities and stockholders’ equity		$	15,160			$	14,885

See accompanying notes to unaudited condensed financial statements

4

ELECTRO-SENSORS, INC.

CONDENSED STATEMENTS OF OPERATIONS

(in thousands except share and per share amounts)  

(unaudited)

		Three Months Ended June 30,								Six Months Ended June 30,
		2025				2024				2025				2024
Net sales		$	2,400			$	2,217			$	4,639			$	4,461
Cost of goods sold			1,172				1,170				2,327				2,334
Gross profit			1,228				1,047				2,312				2,127
Operating expenses
Selling and marketing			441				353				861				704
General and administrative			575				537				1,162				1,104
Research and development			214				264				460				526
Total operating expenses			1,230				1,154				2,483				2,334
Operating loss			(2	)			(107	)			(171	)			(207	)
Non-operating income
Interest expense			(6	)			0				(6	)			0
Interest income			88				109				176				225
Total non-operating income, net			82				109				170				225
Income (loss) before income tax expense			80				2				(1	)			18
Income tax expense			21				6				4				11
Net income (loss)		$	59			$	(4	)		$	(5	)		$	7
Net income per share data:
Basic
Net income per share		$	0.02			$	0.00			$	0.00			$	0.00
Weighted average shares			3,449,021				3,428,021				3,449,021				3,428,021
Diluted
Net income per share		$	0.02			$	0.00			$	0.00			$	0.00
Weighted average shares			3,550,957				3,428,021				3,449,021				3,428,021

See accompanying notes to unaudited condensed financial statements

5

ELECTRO-SENSORS, INC.

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands except share amounts)

For the three months ended June 30
	Common Stock Issued							Additional Paid-in Capital				Retained Earnings				Total Stockholders’ Equity
	Shares			Amount
March 31, 2025 (unaudited)	3,449,021			$	344			$	2,391			$	11,565			$	14,300
Stock-based compensation expense									32								32
Net income													59				59
Balance June 30, 2025 (unaudited)	3,449,021			$	344			$	2,423			$	11,624			$	14,391
March 31, 2024 (unaudited)	3,428,021			$	342			$	2,259			$	11,194			$	13,795
Stock-based compensation expense									38								38
Net loss													(4	)			(4	)
Balance June 30, 2024 (unaudited)	3,428,021			$	342			$	2,297			$	11,190			$	13,829

For the six months ended June 30
	Common Stock Issued							Additional Paid-in Capital				Retained Earnings				Total Stockholders’ Equity
	Shares			Amount
December 31, 2024	3,449,021			$	344			$	2,360			$	11,629			$	14,333
Stock-based compensation expense									63								63
Net loss													(5	)			(5	)
Balance June 30, 2025 (unaudited)	3,449,021			$	344			$	2,423			$	11,624			$	14,391
December 31, 2023	3,428,021			$	342			$	2,230			$	11,183			$	13,755
Stock-based compensation expense									67								67
Net income													7				7
Balance June 30, 2024 (unaudited)	3,428,021			$	342			$	2,297			$	11,190			$	13,829

See accompanying notes to unaudited condensed financial statements 

6

ELECTRO-SENSORS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited) 

		Six Months Ended June 30,
		2025				2024
Cash flows from operating activities
Net income (loss)		$	(5	)		$	7
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation			45				47
Deferred income taxes			0				25
Stock-based compensation expense			63				67
Change in allowance for credit losses			17				0
Loss on disposal of fixed assets			1				0
Change in:
Trade receivables			10				103
Inventories			(46	)			(114	)
Other current assets			17				2
Accounts payable			141				(92	)
Accrued expenses			117				116
Income tax payable/receivable			(113	)			(117	)
Net cash from operating activities			247				44
Cash flows used in investing activities
Purchase of property and equipment			(13	)			(26	)
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
Supplemental cash flow information
Cash paid for income taxes		$	117			$	101
Cash paid for interest			6				0

See accompanying notes to unaudited condensed financial statements

7

ELECTRO-SENSORS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED JUNE 30, 2025

(in thousands except share and per share amounts)

(unaudited)

Note 1. Basis of Presentation 

The accompanying unaudited condensed 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, 2024, 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 Company's financial position as of June 30, 2025 and results of operations for the three and six-month periods ended June 30, 2025 and 2024, 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. (the "Company") manufactures and markets a complete line of monitoring and control systems for a wide range of industrial machine applications. The Company uses leading-edge technology to continuously improve its products, with the goal of manufacturing the industry-preferred product for each of our served markets. The Company sells these products through an internal sales staff and distributors to a wide range 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. 

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Cash equivalents are invested in commercial paper, money market accounts, and may also be invested in Treasury Bills with an original maturity of three months or less. Cash equivalents are carried at fair value.  Cash equivalents were $7,973 and $7,980 as of June 30, 2025 and December 31, 2024, respectively.

The Company maintains its cash and cash equivalents primarily in two bank deposit accounts, which, at times, may have a balance that exceeds federally insured limits. The Company has not experienced any losses on these accounts. The Company believes it is not exposed to significant credit risk on cash.

Trade receivables and credit policies

Trade receivables are uncollateralized customer obligations due under normal trade terms generally requiring payment within 30 days from the invoice date. Trade receivables are stated at the amount billed to the customer. Customer account balances with invoices over 90 days are considered delinquent. The Company does not accrue interest on delinquent trade receivables.

8

ELECTRO-SENSORS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED JUNE 30, 2025

(in thousands except share and per share amounts)

(unaudited)

Payments of trade receivables are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoices.

The Company maintains an allowance for credit losses on trade receivables, which is recorded as an offset to trade receivables. Changes in the allowance for credit losses are included as a component of operating expenses in the Statements of Operations. The Company assesses credit losses on a collective basis where similar risk characteristics exist.  Receivables that do not share risk characteristics with other receivables, or where known collectability issues exist, are evaluated on an individual basis.

The allowance is based on the credit losses expected to arise over the life of the receivable (contractual term). The Company considers historical loss rates and current economic conditions when determining the expected credit losses. Receivables deemed uncollectible are written off against the allowance for credit losses. The allowance for credit losses was $28 and $11 at June 30, 2025 and December 31, 2024, respectively.

Revenue Recognition

At contract inception, the Company assesses the goods and services to be provided to a customer and identifies a performance obligation for each distinct good or service. The transaction price for each performance obligation is determined at contract inception. Contracts, generally in the form of a purchase order, specify the product or service that is to be provided 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. Certain contracts have a second performance obligation, which typically is the initialization of the HazardPRO^TM product. For contracts with multiple performance obligations, the transaction price is allocated to each performance obligation using the relative stand-alone selling price. Stand-alone selling prices are based on observable stand-alone prices charged to customers. Product revenue is recognized at the point in time when control is transferred to the customer, which typically occurs upon shipment. Service revenue is recognized when provided to the customer and typically takes less than a week to provide.

Fair Value Measurements 

The carrying value of cash equivalents, trade receivables, accounts payable, and other financial working capital items approximates fair value at June 30, 2025 and December 31, 2024, due to the short maturity nature of these instruments.

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.   

9

ELECTRO-SENSORS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED JUNE 30, 2025

(in thousands except share and per share amounts)

(unaudited)

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (US GAAP) 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. Current significant estimates, including the underlying assumptions, consist of realizability of trade receivables, and valuation of deferred tax assets/liabilities, inventory, investments, and stock compensation expense. It is at least reasonably possible that these estimates may change in the near term. 

Net Income per Common Share

Basic income per share excludes dilution and is determined by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted net income per share reflects the potential dilution that could occur if securities such as options or restricted stock units were exercised or converted into common stock.

Diluted earnings per share ("Diluted EPS") considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential shares would have an anti-dilutive effect. Diluted EPS also excludes the impact of common shares issuable upon the exercise of outstanding stock options in periods in which the option exercise price is greater than the average market price of our common stock during the period.

For the three-month periods ended June 30, 2025, and 2024, 83,064 and 175,000, respectively, weighted-average common shares for underlying stock options have been excluded from the calculation of diluted EPS because their effect would be anti-dilutive. For the six-month periods ended June 30, 2025 and 2024, 185,000 and 175,000 respectively, weighted average common shares for underlying stock options have been excluded from the calculation of diluted EPS for the same reason.

In addition, for each of the three and six-month periods ended June 30, 2025, and 2024, 84,000 and 105,000, respectively, restricted stock units have been excluded from the calculation of diluted EPS because their effect would be anti-dilutive. 

New Accounting Pronouncement Adopted

In December 2023, the FASB issued ASU No. 223-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid.  The updates in this ASU are effective for annual periods beginning after December 15, 2024.  The adoption will result in disclosure changes only.

10

ELECTRO-SENSORS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED JUNE 30, 2025

(in thousands except share and per share amounts)

(unaudited)

Note 2. Investments

The Company has investments in common equity securities of two private U.S. companies that have an undeterminable market.  

Equity securities are stated at estimated fair value and realized and unrealized gains and losses, if any, are reported in our Statements of Operations in non-operating income.

The cost and estimated fair value of the Company’s investments are as follows:

		Cost				Gross unrealized gain				Gross unrealized loss				Fair value
June 30, 2025
Equity Securities		$	54			$	2			$	0			$	56
Total Investments, June 30, 2025		$	54			$	2			$	0			$	56
December 31, 2024
Equity Securities		$	54			$	2			$	0			$	56
Total Investments, December 31, 2024		$	54			$	2			$	0			$	56

Note 3. Fair Value Measurements

The following table provides information on those assets measured at fair value on a recurring basis. 

June 30, 2025

		Carrying amount								Fair Value Measurement Using
		in balance sheet				Fair Value				Level 1				Level 2				Level 3
Assets:
Equity Securities		$	56			$	56			$	0			$	0			$	56

December 31, 2024

		Carrying amount								Fair Value Measurement Using
		in balance sheet				Fair Value				Level 1				Level 2				Level 3
Assets:
Equity Securities		$	56			$	56			$	0			$	0			$	56

The equity securities owned by the Company are investments in two non-publicly traded companies. There is an undeterminable market for each of these two companies and the Company has determined the fair value based on financial and other factors that are considered Level 3 inputs in the fair value hierarchy.  

There was no change in Level 3 assets measured at fair value on a recurring basis during the three and six-month periods ended June 30, 2025 and 2024.

11

ELECTRO-SENSORS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED JUNE 30, 2025

(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:

	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

Note 5. Stock-Based Compensation

Stock options

The 2013 Equity Incentive Plan (the “2013 Plan”) authorizes the issuance of nonqualified stock options. Payment for the shares may be made in cash, shares of the Company’s common stock or a combination thereof. Under the terms of the 2013 Plan, non-qualified stock options are granted at a minimum of 100% of fair market value on the date of grant and may be exercised at various times depending upon the terms of the option. All existing options expire 10 years from the date of grant, subject to early termination 12 months after termination of employment or service due to death, disability, or termination other than for cause. The grants include a provision providing for acceleration of vesting upon a change of control in the Company.

As of June 30, 2025, the total unrecognized compensation expense related to outstanding stock options was $95, which the Company expects to recognize through October 2028. The Company recognized compensation expense in connection with the vesting of stock options of $10 and $20 for the three and six months ended June 30, 2025, respectively. The Company recognized compensation expense in connection with the vesting of stock options of $16 and $24 for the three and six months ended June 30, 2024, respectively.

There were no stock options granted or exercised in the six months ended June 30, 2025. 

During the second quarter of 2024, the Company granted 25,000 non-qualified stock options to a non-employee board member.  The options vested 20% on the grant date, with an additional 20% vesting annually thereafter.  There were no stock options exercised in the six months ended June 30, 2024.

12

ELECTRO-SENSORS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED JUNE 30, 2025

(in thousands except share and per share amounts)

(unaudited)

Restricted stock units

The 2013 Plan authorizes the issuance of restricted stock units. Stock-based compensation expense is determined on the grant date based on the closing market value of the Company's common stock. The amount of expense is calculated based on an estimate of the number of awards expected to vest at the end of each vesting period and is expensed evenly over the vesting period. In connection with the time of vesting and issuance of shares, an eligible recipient of common stock may elect to have some shares withheld by the Company to satisfy any requirement for withholding taxes. The grants include a provision providing for acceleration of vesting upon a change of control in the Company.

As of June 30, 2025, the total unrecognized compensation expenses related to outstanding restricted stock units is $273, which the Company expects to recognize through August 2028. The Company recognized compensation expense in connection with the vesting of restricted stock units of $22 and $43 for the three and six months ended June 30, 2025, respectively. The Company recognized compensation expense in connection with the vesting of restricted stock units of $22 and $43 for the three and six months ended June 30, 2024, respectively.

There were no restricted stock units granted in the six months ended June 30, 2025 and 2024. 

Note 6. Contingencies

The Company at times becomes subject to claims against it in the ordinary course of business. There are currently no pending or threatened claims against the Company that it believes will have a material adverse effect on its results of operations or liquidity.

Note 7.  Segment Information

The Company has a single reportable segment based on the nature of its services and regulatory environment under which it operates.  The nature of the business and the accounting policies of the segment are the same as described throughout Note 1. The Company’s Chief Operating Decision Maker (“CODM”) is its president.  The CODM assesses the reportable segment’s performance and determines the level of investment in the segment based on historical and projected operating results and net assets which are the same amounts in all material respects as those reported on the Statements of Operations and Balance Sheets. 

13

ELECTRO-SENSORS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED JUNE 30, 2025

(in thousands except share and per share amounts)

(unaudited)

Note 8. Subsequent Events

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act ("OBBBA"). The OBBBA codifies certain key elements of the Tax Cuts and Jobs Act, including making permanent the 100% bonus depreciation on qualified fixed assets, making permanent the immediate deduction for domestic research and experimentation expenses, and permanently changing the limitation on the deduction of business interest expense.  ASC 740 "Income Taxes," requires that the effect of changes in tax rates and laws on deferred taxes be recognized in the period in which the applicable legislation is enacted. Consequently, as of the date of enactment, and during the three months ended September 30, 2025, the Company will evaluate all deferred tax balances under the newly enacted tax law and identify any other changes required to the financial statements as a result of the OBBBA. The Company is still evaluating the impact of the OBBBA and anticipates the results of such evaluation will be reflected in the Company's Form 10-Q for the quarter ended September 30, 2025.  

On August 7, 2025, Michael Zipoy provided the Board with notice that he will be retiring from the Board effective as of August 8, 2025. Mr. Zipoy has served on the Board since 2012 and was most recently a member of the Audit, Compensation, and Nominating Committees of the Board. In recognition of his valuable service to the Board, the vesting of Mr. Zipoy’s outstanding options and RSU awards was accelerated.

14

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

FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. We have made, and may continue to make, forward-looking statements with respect to our business and financial matters, including statements contained in this document, other filings with the Securities and Exchange Commission, and reports to shareholders. Forward-looking statements generally include discussion of current expectations or forecasts of future events and can be identified by the use of terminology such as “believe,” “estimate,” “expect,” “intend,” “may,” “could,” “will,” and similar words or expressions. Any statement that does not relate solely to historical fact should be considered forward-looking.

Our forward-looking statements generally relate to our growth strategy, future financial results, product development, and sales efforts. We make forward-looking statements throughout this Form 10-Q, but primarily in this Management’s Discussion and Analysis of Financial Condition and Results of Operations section. These include statements relating to our beliefs and expectations and intentions with respect to (i) our growth and profitability, (ii) our marketing and product development, (iii) our ability to continue to obtain parts and materials for our products from various manufacturers and distributors in a timely manner and at reasonable prices, (iv) the value of our intellectual property, (v) our competitive position in the marketplace, (vi) the effect of governmental regulations on our business, (vii) our employee relations, (viii) the adequacy of our facilities, (ix) our intention to develop new products, (x) the possibility of us acquiring compatible businesses or product lines as part of our growth strategy, and (xi) our future cash requirements and use of cash.

Forward-looking statements cannot be guaranteed and our actual results may vary materially due to the uncertainties and risks, known and unknown, associated with these statements, including our ability to successfully develop new products and manage our cash requirements. We undertake no obligation to update any forward-looking statements. We cannot foresee or identify all factors that could cause actual results to differ from expected or historical results. As such, investors should not consider any list of these factors to be an exhaustive statement of all risks, uncertainties, or potentially inaccurate assumptions. These forward-looking statements are subject to certain risks and uncertainties that could cause future results to differ materially from our recent results listed under the heading “Forward-Looking Statements” under “Item 1—Business,” in our Annual Report on Form 10-K for the year ended December 31, 2024.

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, 2024. There have been no changes to our critical accounting estimates during the three and six-month periods ended June 30, 2025.

15

Recent Developments

On August 7, 2025, Michael Zipoy provided the Board with notice that he will be retiring from the Board effective as of August 8, 2025. Mr. Zipoy has served on the Board since 2012 and was most recently a member of the Audit, Compensation, and Nominating Committees of the Board. In recognition of his valuable service to the Board, the vesting of Mr. Zipoy’s outstanding options and RSU awards was accelerated.

SELECTED FINANCIAL INFORMATION

The following table contains selected financial information, for the periods indicated, from our Condensed Statements of Operations expressed 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
Operating expenses
Selling and marketing	18.4			15.9			18.6			15.8
General and administrative	24.0			24.2			25.0			24.7
Research and development	8.9			11.9			9.9			11.8
Total operating expenses	51.3			52.0			53.5			52.3
Operating loss	(0.1	)		(4.8	)		(3.7	)		(4.6	)
Non-operating income
Interest expense	(0.3	)		0			(0.1	)		0
Interest income	3.7			4.9			3.8			5.0
Total non-operating income, net	3.4			4.9			3.7			5.0
Income (loss) before income tax expense	3.3			0.1			(0.0	)		0.4
Income tax expense	0.9			0.3			0.1			0.2
Net income (loss)	2.4	%		(0.2	)%		(0.1	)		0.2

The following paragraphs discuss the Company’s performance for the three and six months ended June 30, 2025 and 2024.

RESULTS OF OPERATIONS (in thousands) 

Net Sales

Net sales for the second quarter of 2025 were $2,400, an increase of $183, or 8.3%, from $2,217 during the comparable period in 2024. Net sales for the six months ended June 30, 2025 were $4,639, an increase of $178, or 4.0%, from $4,461 during the comparable period in 2024.  The increase during the three-month period was primarily driven by increased sales to international and OEM customers.

16

 Gross Profit

Gross profit for the second quarter of 2025 was $1,228, an increase of $181, or 17.3%, over the same period in 2024. Gross profit for the six months ended June 30, 2025 was $2,312, an increase of $185, or 8.7%, over the same period in 2024. Gross margin increased in the second quarter of 2025 to 51.2% from 47.2% during the same period in 2024. Gross margin for the six months ended June 30, 2025 increased to 49.8% from 47.7% over the same period in 2024. The increase in gross margin for both periods was due to an increase in average selling prices implemented to partially offset increased material costs. 

Operating Expenses

Total operating expenses increased $76, or 6.6%, to $1,230 for the second quarter of 2025 compared to the same period in 2024, and decreased as a percentage of net sales to 51.3% from 52.0%. Total operating expenses increased $149, or 6.4%, to $2,483 for the six months ended June 30, 2025 compared to the same period in 2024, and increased as a percentage of net sales to 53.5% from 52.3%. The increase in total operating expenses for both periods was primarily due to costs associated with additional employee headcount. 

● Selling and marketing expenses in the second quarter of 2025 increased $88 to $441, or 24.9%, from the same period in 2024, and increased as a percentage of net sales to 18.4% from 15.9%. Selling and marketing expenses in the six months ended June 30, 2025 increased $157 to $861, or 22.3%, from the same period in 2024, and increased as a percentage of net sales to 18.6% from 15.8%. The increase in selling and marketing expenses for both periods was primarily due to higher wages and benefits due to the hiring of sales leadership.

● General and administrative expenses increased $38 to $575, or 7.1%, in the second quarter of 2025 compared to the same period in 2024, but decreased as a percentage of net sales to 24.0% from 24.2%. General and administrative expenses increased $58 to $1,162, or 5.3%, in the six months ended June 30, 2025 compared to the same period in 2024, and increased as a percentage of net sales to 25.0% from 24.7%. The increase in general and administrative expenses for both periods was primarily due to the timing of independent auditor expenses and nonreimbursable sales tax expense; partially offset by a decrease in contract personnel.

● Research and development expenses decreased $50 to $214, or 18.9%, in the second quarter of 2025 compared to the same period in 2024, and decreased as a percentage of net sales to 8.9% from 11.9%. Research and development expenses decreased $66 to $460, or 12.5%, in the six months ended June 30, 2025 compared to the same period in 2024, and decreased as a percentage of net sales to 9.9% from 11.8%. The decrease in research and development for both periods was due to reduced employee headcount. 

Non-Operating Income

Net non-operating income decreased $27, or 24.8%, for the three-month period ended June 30, 2025 compared to the same period in 2024. Net non-operating income decreased $55, or 24.4%, for the six months ended June 30, 2025 compared to the same period in 2024. The decrease for the period is the result of lower interest income earned as a result of lower interest rates on Treasury Bills.

17

Income (Loss) Before Income Tax Expense 

Income before income tax expense increased to $80 in the second quarter of 2025, representing an increase of $78 from $2 for the same period in 2024. Loss before income tax expense was $1 for the six months ended June 30, 2025, representing a decrease of $19 from income before income taxes of $18 for the same period in 2024. The increase in the quarter was primarily due to higher net sales and gross margin, partially offset by higher operating expenses and a decrease in interest income as described above.  The decrease for the six-month period was due primarily to higher operating expenses and lower interest income as discussed above, partially offset by higher net sales and gross margin.

Income Tax Expense

Income tax expense was $21, or 0.9% of net sales, in the second quarter of 2025 compared to $6, or 0.3% of net sales, in the second quarter of 2024. Income tax expense was $4, or 0.1% of net sales for the six months ended June 30, 2025 compared to $11, or 0.2% of net sales for the six months ended 2024.  The effective tax rate for the second quarter of 2025 was 26.3% compared to 300.0% for the same period in 2024.  The effective tax rate for the six-month period ended June 30, 2025 was 400.0% compared to 61.1% in the same period of 2024. The 2025 effective tax rate for the six-month period ended June 30, 2025 was higher than normal due to the adjustment of the calendar year 2024 balance due.  The 2024 effective income tax rate for both periods was higher than normal due to the write-off of deferred tax assets in conjunction with the expiration of unexercised stock options in the period.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were $10,182 at June 30, 2025 and $9,948 at December 31, 2024. The increase was primarily the result of an increase in cash from operating activities.

Cash from operating activities was $247 for the six months ended June 30, 2025 compared to $44 for the six months ended June 30, 2024. The $203 increase was due primarily to an increase in accounts payable and a decrease in accounts receivable, partially offset by an increase in inventory. The increase in accounts payable is due to the timing of payments.  The decrease in accounts receivable is due to the timing of customer payments.  The increase in inventory is due to the timing of customer sales.

Cash used in investing activities was $13 and $26 for the six months ended June 30, 2025 and 2024, respectively. The cash used was for the purchase of office equipment.

There was no cash flow from financing activities in the six months ended June 30, 2024 and 2025.

Subject to the following section, entitled "Supply Chain and Labor Dynamics," the Company believes its ongoing cash requirements will be primarily for capital expenditures, research, and development, working capital, corporate and business development, and other strategic alternatives and that existing cash, cash equivalents, and investments and any cash generated from operations will be sufficient to meet these cash requirements through at least the next 12 months.

18

Supply Chain and Labor Dynamics

We purchase parts and materials from various manufacturers and distributors.  While we believe our supply chain has begun to stabilize, we still occasionally see unexpected price increases and delivery delays requiring us to intervene and remediate. To meet these challenges, we are seeking additional sources for components and modifying product designs to accommodate new components that are more readily available at competitive prices. There is no guarantee that we will continue to be successful in modifying these designs and sourcing alternative components and material. As a result, we could experience significant delays in receiving certain components needed to make timely customer deliveries, as well as increased costs that erode gross margins. Current supply chain dynamics may have a negative effect on the efficiency of our operations, our customer base, and the domestic or worldwide economy.  Changes in general economic and financial conditions, inflationary pressures, the potential for economic recession in the U.S., tariffs and trade restrictions, including the imposition of new and higher tariffs on imported goods, the uncertainty of evolving tariffs, and retaliatory tariffs implemented by other countries on U.S. goods may have a negative impact on our business and results of operations.  We will monitor and attempt to remediate situations as they occur.  However, we may not be able to fully remediate or offset costs, all of which could have a material negative impact on our business and results of operations.

Furthermore, the labor market for qualified employees able to fill our various open positions is challenging and becoming more costly.  These factors may result in delays in filling these positions and negatively impact profit margins. In addition, we may experience changes in transportation and freight availability that may make it difficult to have materials and components shipped to us, or our products shipped to customers, in a timely and cost-effective manner. While we continue to closely monitor and manage each of these activities, our actions may not be successful and may result in a negative effect on our sales and profit margins.

Future Corporate and Business Development Activities

We continue to seek growth opportunities, both internally through our existing portfolio of products, technologies, and markets, as well as externally through technology partnerships or related-product or business acquisitions. In addition, we may make strategic or other investments that we believe present good opportunities for the Company and its shareholders. The Company's Board of Directors has established a special committee and continues to explore business development and other strategic alternatives.

Off-balance Sheet Arrangements

As of June 30, 2025, the Company had no off-balance sheet arrangements or transactions.

19

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 June 30, 2025.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the second quarter of 2025 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. 

20

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 – None

Item 6. Exhibits

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		The following financial information from Electro-Sensors, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2025, formatted in iXBRL (Inline Extensible Business Reporting Language), (i) Condensed Balance Sheets as of June 30, 2025 and December 31, 2024, (ii) Condensed Statements of Operations for the three and six months ended June 30, 2025 and June 30, 2024, (iii) Condensed Statements of Changes in Stockholders' Equity for the three and six months ended June 30, 2025 and June 30, 2024, (iv) Condensed Statements of Cash Flows for the six months ended June 30, 2025 and June 30, 2024, and (v) Notes to Financial Statements.
104		Cover Page Interactive Data File (formatted as Inline XBRL) and contained in Exhibit 101.

21

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.
August 12, 2025	/s/ David L. Klenk
	David L. Klenk
	Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer)

22

FAQ

What were Electro-Sensors (ELSE) net sales for Q2 2025?

Net sales were $2.40 million for the three months ended June 30, 2025, an 8.3% increase versus Q2 2024.

Did ELSE report a profit in Q2 2025?

Yes. Electro-Sensors reported net income of $59 thousand for Q2 2025 versus a small net loss in the prior-year quarter.

How did gross margin change for ELSE in Q2 2025?

Gross margin improved to 51.2% in Q2 2025 from 47.2% in Q2 2024, driven by higher average selling prices.

What is ELSE's cash position and operating cash flow?

Cash and cash equivalents were $10.18 million at June 30, 2025 and net cash from operating activities was $247 thousand for the six months ended June 30, 2025.

What risks did Electro-Sensors disclose that could impact results?

The company disclosed supply-chain and labor challenges (price increases, delivery delays, hiring difficulties) and noted it is evaluating the impact of recent federal tax legislation on deferred taxes.