ELECTRO-SENSORS, INC.

(in thousands except share and per share amounts) 

See accompanying notes to unaudited condensed financial statements

(in thousands except share and per share amounts)  

(unaudited)

See accompanying notes to unaudited condensed financial statements

(in thousands except share amounts)

(in thousands)

(unaudited) 

See accompanying notes to unaudited condensed financial statements

FOR THE PERIOD ENDED MARCH 31, 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:

ELECTRO-SENSORS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED MARCH 31, 2025

(in thousands except share and per share amounts)

(unaudited)

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.

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-month period ended March 31, 2025.

 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. 

The following paragraphs discuss the Company’s performance for the three months ended March 31, 2025 and 2024.

RESULTS OF OPERATIONS (in thousands) 

Net Sales

Net sales for the first quarter of 2025 were $2,239, a decrease of $5, or 0.2%, from $2,244 during the comparable period in 2024.  The decrease was primarily driven by reduced sales of HazardPRO wireless product sales, partially offset by an increase in sales of wired sensor products.

Gross Profit

Gross profit for the first quarter of 2025 was $1,084, an increase of $4, or 0.4%, over the same period in 2024. Gross margin increased in the first quarter of 2025 to 48.4% from 48.1% during the same period in 2024. The slight increase in gross margin for the quarter was primarily due to an increase in average selling prices for specific items, mostly offset by increased costs of raw materials across product lines. 

Operating Expenses

Total operating expenses increased $73, or 6.2%, to $1,253 for the first quarter of 2025 compared to the same period in 2024, and increased as a percentage of net sales to 56.0% from 52.6%. The increase in operating expenses for the period was primarily due to costs associated with additional employee headcount. 

Non-Operating Income

Net non-operating income decreased $28, or 24.1%, for the three-month period ended March 31, 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.

Income (Loss) Before Income Tax Expense (Benefit)

Loss before income tax benefit was $81 for the three-month period ended March 31, 2025, representing a decrease of $97 compared to income before income taxes of $16 for the same period in 2024. The decrease in the period was primarily due to higher operating expenses and a decrease in interest income as described above.

Income Tax Expense (Benefit)

Income tax benefit was $17, or (0.8)% of net sales, in the first quarter of 2025 compared to income tax expense of $5, or 0.2% of net sales, in the first quarter of 2024. The effective tax rate for the three-month period ended March 31, 2025 was 21% compared to 31% in the same period of 2024. The 2024 effective income tax rate 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 $9,918 at March 31, 2025 and $9,948 at December 31, 2024. The decrease was primarily the result of a decrease in cash from operating activities.

Cash used in operating activities was $30 for the three months ended March 31, 2025 as compared to cash from operating activities of $202 for the three months ended March 31, 2024. The $232 decrease in cash from operating activities was due primarily to a decrease in net income and an increase in trade receivables, partially offset by an increase in accounts payable. The decrease in net income is due to higher operating expenses and lower interest income. The increase in trade receivables is primarily due to the timing of orders. The increase in accounts payable is due to the timing of payments.

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.

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.  Recent geopolitical and economic dynamics, including actual or potential tariffs, may have a negative impact on our business.  We will monitor and remediate situations as they occur.  However, we may not be able to fully remediate, and it may have a negative impact on our business.

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 established a special committee and continues to explore business development and other strategic alternatives.

Off-balance Sheet Arrangements

As of March 31, 2025, the Company had no off-balance sheet arrangements or transactions.

Not Applicable.

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 March 31, 2025.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the first 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.