Table of Contents





|                                                          
|----------------------------------------------------------
|UNITED STATES                                             
|SECURITIES AND EXCHANGE COMMISSION                        
|Washington, DC 20549                                      
|                                                          
|                                                          
|Form 10-Q                                                 
|                                                          
|                                                          
|xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE 
|SECURITIES
 EXCHANGE ACT OF 1934                          
|                                                          
|For the quarterly period ended
 March 31, 2009            
|                                                          
|oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
 OF THE
|SECURITIES
 EXCHANGE ACT OF 1934                          
|                                                          
|For
 the transition period from ______ to ______          
|                                                          
|Commission File Number 0-9587                             
|                                                          
|                                                          
|                                                          
|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)



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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 xNoo

Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted 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 and post
such files). Yes oNoo

Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act.

|                                                                      |  |                            
|--------------------------------------------------------------------- |  | ---------------------------
|Large
 accelerated filer o                                            |  | Accelerated filer o        
|Non-accelerated filer o(Do not check if a smaller reporting
 company) |  | Smaller reporting company x

Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YesoNox

The number of shares
outstanding of the registrants common stock, $0.10 par value, on May 11, 2009
was 3,368,450.





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ELECTRO-SENSORS, INC.
Form 10-Q
For the Period Ended March 31, 2009

TABLE OF CONTENTS

|                                                                                                                  |  |   
|----------------------------------------------------------------------------------------------------------------- |  | --
|PART I  FINANCIAL
 INFORMATION                                                                                   |  |   
|                                                                                                                  |  |   
|Item 1.
 Financial Statements:                                                                                    |  |   
|                                                                                                                  |  |   
|Condensed
 Consolidated Balance Sheet  As of March 31, 2009 and December 31, 2008                                |  | 3 
|Condensed
 Consolidated Statements of Operations  
 For the Three months ended March 31, 2009 and March 31, 2008 |  | 4 
|Condensed
 Consolidated Statements of Cash Flows  
 For the Three months ended March 31, 2009 and March 31, 2008 |  | 5 
|Notes to
 Condensed Consolidated Financial Statements                                                             |  | 6 
|                                                                                                                  |  |   
|Item 2.
 Managements Discussion and Analysis of Financial Condition and Results of
 Operations                   |  | 11
|Item 3.
 Quantitative and Qualitative Disclosures About Market Risk                                               |  | 13
|Item 4(T).
 Controls and Procedures                                                                               |  | 13
|                                                                                                                  |  |   
|PART II  OTHER
 INFORMATION                                                                                      |  |   
|                                                                                                                  |  |   
|Item 1. Legal
 Proceedings                                                                                        |  | 14
|Item 1A. Risk
 Factors                                                                                            |  | 14
|Item 2.
 Unregistered Sales of Equity Securities and Use of Proceeds                                              |  | 14
|Item 3.
 Defaults Upon Senior Securities                                                                          |  | 14
|Item 4.
 Submission of Matters to a Vote of Security Holders                                                      |  | 14
|Item 5. Other
 Information                                                                                        |  | 14
|Item 6.
 Exhibits                                                                                                 |  | 14
|                                                                                                                  |  |   
|SIGNATURES                                                                                                        |  | 15
|                                                                                                                  |  |   
|EXHIBITS                                                                                                          |  | 16

2

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Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ELECTRO-SENSORS,
INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET(in thousands
except share and per share amounts)

|                                                                                                                                             |  |                              |       |                     |   |        | 
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ----- | ------------------- | - | ------ | 
|                                                                                                                                             |  | March 31,
 2009
 (unaudited) |       | December
 31,
 2008 |  
|ASSETS                                                                                                                                       |  |                              |       |                     |   |        | 
|                                                                                                                                             |  |                              |       |                     |   |        | 
|Current assets                                                                                                                               |  |                              |       |                     |   |        | 
|                                                                                                                                             |  |                              |       |                     |   |        | 
|Cash and cash equivalents                                                                                                                    |  | $                            | 480   |                     | $ | 5,529  | 
|Treasury Bills                                                                                                                               |  |                              | 4,975 |                     |   | 0      | 
|Available for sale securities                                                                                                                |  |                              | 1,044 |                     |   | 1,215  | 
|Trade receivables, less allowance for
 doubtful accounts of $9 and $8, respectively                                                          |  |                              | 620   |                     |   | 575    | 
|Inventories                                                                                                                                  |  |                              | 1,182 |                     |   | 1,239  | 
|Income tax receivable                                                                                                                        |  |                              | 136   |                     |   | 117    | 
|Other current assets                                                                                                                         |  |                              | 100   |                     |   | 87     | 
|                                                                                                                                             |  |                              |       |                     |   |        | 
|Total current assets                                                                                                                         |  |                              | 8,537 |                     |   | 8,762  | 
|                                                                                                                                             |  |                              |       |                     |   |        | 
|Property and equipment, net                                                                                                                  |  |                              | 1,309 |                     |   | 1,336  | 
|                                                                                                                                             |  |                              |       |                     |   |        | 
|Total assets                                                                                                                                 |  | $                            | 9,846 |                     | $ | 10,098 | 
|                                                                                                                                             |  |                              |       |                     |   |        | 
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                         |  |                              |       |                     |   |        | 
|                                                                                                                                             |  |                              |       |                     |   |        | 
|Current liabilities                                                                                                                          |  |                              |       |                     |   |        | 
|                                                                                                                                             |  |                              |       |                     |   |        | 
|Accounts payable                                                                                                                             |  | $                            | 105   |                     | $ | 59     | 
|Accrued expenses                                                                                                                             |  |                              | 199   |                     |   | 155    | 
|Deferred revenue                                                                                                                             |  |                              | 75    |                     |   | 86     | 
|Deferred income tax                                                                                                                          |  |                              | 410   |                     |   | 475    | 
|                                                                                                                                             |  |                              |       |                     |   |        | 
|Total current liabilities                                                                                                                    |  |                              | 789   |                     |   | 775    | 
|                                                                                                                                             |  |                              |       |                     |   |        | 
|Commitments and contingencies                                                                                                                |  |                              |       |                     |   |        | 
|                                                                                                                                             |  |                              |       |                     |   |        | 
|Stockholders equity                                                                                                                         |  |                              |       |                     |   |        | 
|                                                                                                                                             |  |                              |       |                     |   |        | 
|                                                                                                                                             |  |                              |       |                     |   |        | 
|Common stock par value $0.10 per share;
 authorized 10,000,000 shares; issued and outstanding: 3,368,450 and 3,366,880
 shares, respectively |  |                              | 337   |                     |   | 337    | 
|Additional paid-in capital                                                                                                                   |  |                              | 1,517 |                     |   | 1,513  | 
|Retained earnings                                                                                                                            |  |                              | 6,619 |                     |   | 6,783  | 
|Accumulated other comprehensive income
 (unrealized gain on available for sale securities, net of income tax)                                |  |                              | 584   |                     |   | 690    | 
|                                                                                                                                             |  |                              |       |                     |   |        | 
|Total stockholders equity                                                                                                                   |  |                              | 9,057 |                     |   | 9,323  | 
|                                                                                                                                             |  |                              |       |                     |   |        | 
|Total liabilities and stockholders equity                                                                                                   |  | $                            | 9,846 |                     | $ | 10,098 | 

See accompanying notes to
condensed consolidated financial statements

3

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Table of Contents

ELECTRO-SENSORS,
INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share and per share amounts)
(unaudited)

|                                                              |  |                                |           |      |   |           |  
|------------------------------------------------------------- |  | ------------------------------ | --------- | ---- | - | --------- | -
|                                                              |  | Three
 Months Ended
 March 31, |          
|                                                              |  | 2009                           |           | 2008 |  
|                                                             
|Net sales                                                     |  | $                              | 1,279     |      | $ | 1,839     |  
|Cost of goods sold                                            |  |                                | 521       |      |   | 667       |  
|                                                              |  |                                |           |      |   |           |  
|Gross profit                                                  |  |                                | 758       |      |   | 1,172     |  
|                                                              |  |                                |           |      |   |           |  
|Operating expenses:                                           |  |                                |           |      |   |           |  
|                                                              |  |                                |           |      |   |           |  
|Selling and marketing                                         |  |                                | 340       |      |   | 408       |  
|General and administrative                                    |  |                                | 303       |      |   | 323       |  
|Research and development                                      |  |                                | 168       |      |   | 170       |  
|                                                              |  |                                |           |      |   |           |  
|Total operating expenses                                      |  |                                | 811       |      |   | 901       |  
|                                                              |  |                                |           |      |   |           |  
|Operating income (loss)                                       |  |                                | (53       | )    |   | 271       |  
|                                                              |  |                                |           |      |   |           |  
|Non-operating income:                                         |  |                                |           |      |   |           |  
|                                                              |  |                                |           |      |   |           |  
|Interest income                                               |  |                                | 3         |      |   | 39        |  
|Other income                                                  |  |                                | 2         |      |   | 2         |  
|                                                              |  |                                |           |      |   |           |  
|Total non-operating income                                    |  |                                | 5         |      |   | 41        |  
|                                                              |  |                                |           |      |   |           |  
|Income (loss) before income taxes                             |  |                                | (48       | )    |   | 312       |  
|                                                              |  |                                |           |      |   |           |  
|Income taxes (benefit)                                        |  |                                | (19       | )    |   | 113       |  
|                                                              |  |                                |           |      |   |           |  
|Net income (loss)                                             |  | $                              | (29       | )    | $ | 199       |  
|                                                              |  |                                |           |      |   |           |  
|Other comprehensive loss:                                     |  |                                |           |      |   |           |  
|Change in unrealized value of investments,
 net of income tax |  | $                              | (106      | )    | $ | (329      | )
|Total comprehensive loss                                      |  | $                              | (135      | )    | $ | (130      | )
|                                                              |  |                                |           |      |   |           |  
|Net income per share data:                                    |  |                                |           |      |   |           |  
|                                                              |  |                                |           |      |   |           |  
|Basic                                                         |  |                                |           |      |   |           |  
|Net income (loss) per share                                   |  | $                              | (0.01     | )    | $ | 0.06      |  
|Weighted average shares                                       |  |                                | 3,368,363 |      |   | 3,366,096 |  
|                                                              |  |                                |           |      |   |           |  
|Diluted                                                       |  |                                |           |      |   |           |  
|Net income (loss) per share                                   |  | $                              | (0.01     | )    | $ | 0.06      |  
|Weighted average shares                                       |  |                                | 3,399,143 |      |   | 3,396,876 |  
|                                                              |  |                                |           |      |   |           |  
|Dividends paid per share                                      |  | $                              | 0.04      |      | $ | 0.04      |  

See accompanying notes to
condensed consolidated financial statements

4

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Table of Contents

ELECTRO-SENSORS,
INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)(unaudited)

|                                                                               |  |                                |        |      |   |       |  
|------------------------------------------------------------------------------ |  | ------------------------------ | ------ | ---- | - | ----- | -
|                                                                               |  | Three
 Months Ended
 March 31, |       
|                                                                               |  | 2009                           |        | 2008 |  
|Cash flows from operating activities                                           |  |                                |        |      |   |       |  
|                                                                               |  |                                |        |      |   |       |  
|Net income (loss)                                                              |  | $                              | (29    | )    | $ | 199   |  
|                                                                               |  |                                |        |      |   |       |  
|Adjustments
 to reconcile net income to net cash used in operating activities: |  |                                |        |      |   |       |  
|                                                                               |  |                                |        |      |   |       |  
|Depreciation                                                                   |  |                                | 29     |      |   | 31    |  
|Provision for losses on trade receivables                                      |  |                                | 1      |      |   | (9    | )
|Interest accrued on investments                                                |  |                                | (3     | )    |   | 0     |  
|(Increase)/decrease in:                                                        |  |                                |        |      |   |       |  
|Trade receivables                                                              |  |                                | (46    | )    |   | (7    | )
|Inventories                                                                    |  |                                | 57     |      |   | (78   | )
|Income taxes receivable                                                        |  |                                | (19    | )    |   | 0     |  
|Other current assets                                                           |  |                                | (13    | )    |   | (2    | )
|Accounts payable                                                               |  |                                | 46     |      |   | 130   |  
|Accrued expenses                                                               |  |                                | 44     |      |   | (53   | )
|Deferred revenue                                                               |  |                                | (11    | )    |   | (5    | )
|Accrued income taxes                                                           |  |                                | 0      |      |   | (326  | )
|                                                                               |  |                                |        |      |   |       |  
|Net cash provided by (used in) operating activities                            |  |                                | 56     |      |   | (120  | )
|                                                                               |  |                                |        |      |   |       |  
|Cash flows from investing activities                                           |  |                                |        |      |   |       |  
|                                                                               |  |                                |        |      |   |       |  
|Proceeds from sale of available for sale
 securities                           |  |                                | 0      |      |   | 3     |  
|Purchase of investments                                                        |  |                                | (4,972 | )    |   | 0     |  
|Purchase of property and equipment                                             |  |                                | (2     | )    |   | 0     |  
|                                                                               |  |                                |        |      |   |       |  
|Net cash provided by (used in) investing activities                            |  |                                | (4,974 | )    |   | 3     |  
|                                                                               |  |                                |        |      |   |       |  
|Cash flows from financing activities                                           |  |                                |        |      |   |       |  
|                                                                               |  |                                |        |      |   |       |  
|Proceeds from issuance of stock                                                |  |                                | 4      |      |   | 3     |  
|Dividends paid                                                                 |  |                                | (135   | )    |   | (135  | )
|                                                                               |  |                                |        |      |   |       |  
|Net cash used in financing activities                                          |  |                                | (131   | )    |   | (132  | )
|                                                                               |  |                                |        |      |   |       |  
|Net decrease in cash and cash equivalents                                      |  |                                | (5,049 | )    |   | (249  | )
|                                                                               |  |                                |        |      |   |       |  
|Cash and cash equivalents, beginning of
 period                                |  |                                | 5,529  |      |   | 5,779 |  
|Cash and cash equivalents, ending end of
 period                               |  | $                              | 480    |      | $ | 5,530 |  
|                                                                               |  |                                |        |      |   |       |  
|Supplemental schedule of non-cash investing and financing activities           |  |                                |        |      |   |       |  
|Net change
 in unrealized loss on investments                                  |  | $                              | (106   | )    | $ | (329  | )
|Cash paid
 for income taxes                                                    |  | $                              | 0      |      | $ | 450   |  

See
accompanying notes to condensed consolidated financial statements

5

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Table of Contents

ELECTRO-SENSORS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(unaudited)

Note 1. Basis of Presentation and Summary of
Recently Issued Accounting Pronouncements

The
accompanying unaudited condensed consolidated 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, 2008, including the audited financial statements and
footnotes therein.

It is the
opinion of management that the unaudited condensed consolidated financial
statements include all adjustments, consisting of normal recurring accruals,
necessary to fairly state the financial position and results of operations for
the three months ended March 31, 2009. The results of interim periods may not
be indicative of results to be expected for the year.

Revenue Recognition

In recognizing revenue, the
Company applies the provisions of the Securities and Exchange Commission Staff
Accounting Bulletin (SAB) No. 101 (as amended by SAB No. 104), Revenue
Recognition. In some situations, the Company receives advance payments from its
customers. Revenue associated with these advance payments is deferred until the
product is shipped.

Revenue recognition of production
monitoring equipment

The Company recognizes
revenue from the sale of its production monitoring equipment when persuasive
evidence of an arrangement exists, the product has been delivered, the fee is
fixed and determinable and collection of the resulting receivable is reasonably
assured. The Company may offer discounts to its distributors or quantity
discounts that are recorded at the time of sale. The Company recognizes revenue
on products sold to customers and distributors upon shipment because the
contracts do not include post-shipment obligations. In addition to exchanges
and warranties, customers have refund rights. Our standard products are used in
a wide variety of industries, returns are minimal and insignificant to the
consolidated financial statements (currently approximately .9% of net sales)
and are recognized when the returned product is received by the Company.

Software revenue recognition

The Company recognizes
revenue upon shipment of its automated data collection software. The product is
sold to the end user and risk of loss is transferred, and the Company has no
continuing obligations, once its products are delivered to the shipper. To
recognize revenue, it must also be probable that the Company will collect the
accounts receivable from its customers. AutoData customers pay an annual
maintenance fee for software support, which is recognized as deferred revenue
on the balance sheet and is recognized in income, on a monthly basis, over the
life of the contract.

Income taxes

Deferred income taxes are
provided on an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income tax assets and liabilities are
computed for those differences that have future tax consequences using the
currently enacted tax laws and rates that apply to the periods in which they
are expected to affect taxable income. Income tax expense is the current tax payable
or refundable for the period plus or minus the net change in the deferred tax
assets and liabilities, excluding the portion of the deferred liability
allocated to other comprehensive income. Deferred taxes are reduced by a
valuation allowance to the extent that realization of the related deferred tax
asset is not assured.

Use of Estimates

The preparation of the
condensed consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, requires
management to make estimates and assumptions that affect the amounts reported
in the condensed consolidated financial statements and accompanying notes.
Actual results could differ from those estimates. Significant estimates,
including the underlying assumptions, consist of economic lives of property and
equipment, realizability of accounts receivable, valuation of deferred tax
assets/liabilities, valuation of inventory, and valuation of investments. It is
at least reasonably possible that these estimates may change in the near term.

6

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Table of Contents

Recently Issued Accounting Pronouncements

Relative to SFAS 107 and APB
Opinion 28, the FASB issued FASB Staff Positions (FSP) 107-1 and APB 28-1. FSP
107-1 and APB 28-1 amend SFAS 107 and APB Opinion 28 to require disclosure
about the fair value of financial instruments for interim reporting periods.
FSP 107-1 and APB 28-1 are effective for all interim reporting periods ending
after June 15, 2009 with early adoption permitted for periods ending after
March 15, 2009. The Company has disclosed fair value information of financial
instruments in Note 7 to the financial statements.

Note 2. Nature of Business

The accompanying condensed
consolidated financial statements include the accounts of Electro-Sensors, Inc.
and its wholly owned subsidiaries, ESI Investment Company and Senstar
Corporation. Senstar has no operations. Intercompany accounts, transactions and
earnings have been eliminated in consolidation. The consolidated entity is
referred to as the Company.

Electro-Sensors, Inc.
operates two distinct businesses. The first is the Production Monitoring
Division, which manufactures and markets a complete line of speed monitoring
and motor control systems for industrial machinery. The division utilizes
leading-edge technology to continuously improve its products and make them
easier to use. The divisions goal is to manufacture the industry-preferred
product for every market served. These products are sold through an internal
sales staff, manufacturers representatives, and distributors to a wide variety
of manufacturers, OEMs and processors who use the products to monitor process
machinery operations. The division markets its products to a number of
different industries located throughout the United States and abroad.

The second business is
AutoData Systems. AutoData designs and markets desktop software-based systems
that read hand printed characters, checkmarks and bar code information from
scanned or faxed forms, in addition to collecting and reporting data from web
forms. AutoData products are designed to provide capabilities to automate data
collection and are sold by internal sales staff to end users, resellers and
developers in the United States, Canada, Europe and Asia.

In addition, through its
subsidiary ESI Investment Company, the Company periodically makes strategic
investments in other businesses and companies, primarily when the Company
believes that such investments will facilitate development of technology
complementary to the Companys products. Although ESI, through ESI Investment
Company, invests in other businesses or companies, ESI does not intend to
become an investment company and intends to remain primarily an operating
company. The Companys primary investments are 343,267 shares of Rudolph
Technologies, Inc. (Rudolph) and 551,759 shares of PPT Vision Inc (PPT).
The Rudolph investment is accounted for using the available-for-sale method.
The PPT investment is accounted for under the equity method of accounting. See
Note 6 for additional information regarding its investments. The Companys
investments in securities are subject to normal market risks.

Note 3. Stock-Based Compensation

The Company records
compensation expense for employee stock options based on the estimated fair
value of the options on the date of grant using the (Black-Scholes-Merton)
(BSM) 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 rate is based on the U.S. Treasury yield curve
in effect at the time of grant for the estimated life of the option. At
December 31, 2008, the Company had one stock-based employee compensation plan.
During the three months ended March 31, 2009, there were no stock options
exercised. There were no option grants in the three months ended March 31,
2009.

Note 4. Net Income Per Share

All common
share equivalents relating to stock options and warrants are included in the
diluted weighted average common shares.

Note 5. Treasury Bills

During
February 2009, the Company purchased $4,972,000 in six month Treasury Bills.
The Treasury Bills are due on August 15, 2009. It is the intention of
management to hold the Treasury Bills until maturity.

7

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Table of Contents

Note 6. Available for Sale Securities

ESI Investment Companys investments consist of equity securities,
primarily common stocks, government debt securities and money market funds. The
estimated fair value of publicly traded equity securities (other than those
accounted for based upon the equity method of accounting) is based on quoted
market prices, and therefore subject to the inherent risk of market
fluctuations. Shares of common stock for which there is no readily determinable
value (i.e., no quoted market price) are accounted for on a historical cost
method (unless accounted for based upon the equity method of accounting). Management determines the appropriate
classification of securities at the date individual investments are acquired,
and evaluates the appropriateness of such classification at each balance sheet
date.

Since the Company generally
does not make investments in anticipation of short-term fluctuations in market
prices, investments in equity securities are classified as available-for-sale
(unless accounted for on the equity method of accounting). Available-for-sale
securities with readily determinable values are stated at fair value, and
unrealized holding gains and losses, net of the related deferred tax effect,
are reported as separate component of stockholders equity.

Realized gains and losses on
securities, including losses from declines in value of specific securities
determined by management to be other-than-temporary (unless accounted for on
the equity method of accounting), are included in income in the period
realized.

At March 31, 2009, the
Companys significant investment in equity securities is 343,267 shares of
Rudolph Technologies, Inc. (Rudolph), accounted for under the
available-for-sale method. As of March 31, 2009, the aggregate value of the
Companys Rudolph shares as reported on the Nasdaq Stock Exchange was
approximately $1,040,000 with an approximate cost of $45,000.

Investment Reported on Equity Method:

At March 31, 2009, the
Company owned 551,759 shares of PPT Vision Inc. (PPT), which is 2.0% of PPTs
outstanding common stock. The fair value of its holdings based on the quoted
market price at March 31, 2009 was approximately $33,000 with an approximate
cost of $2,434,000.

Since the Company owns
approximately 2.0% of PPTs outstanding stock, and the Companys Secretary owns
a controlling interest, it has been determined that the Company has
significant influence over the operations of PPT, and as a result its
ownership interest should be reported using the equity method of accounting for
investments.

Under the equity
method of accounting, the Companys proportionate share of PPTs net loss would
ordinarily be directly reflected on the Companys income statement, along with
a corresponding reduction in the PPT investment account on the Companys
balance sheet. However, where net losses exceed the value of the initial
investment, these losses are no longer recognized in the financial statements,
but rather are suspended and applied against the investors proportionate share
in any future net earnings for the investee. Accordingly, since the Companys
proportionate share of PPTs previous net losses have already reduced the PPT
investment account on its balance sheet to $0, the Companys proportionate
share of PPTs net loss through March 31, 2009 has not been recognized on its
current financial statements. At March 31, 2009, the Company had approximately
$1,504,000 in suspended losses from its investment in PPT that will be used to
offset future recognition of equity method earnings from the investment.

8

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Note 7. Fair Value Measurements

Effective
January 1, 2008, we adopted Statement of Financial Accounting Standard No. 157,
Fair Value Measurements (SFAS 157), as it applies to our financial
instruments, and Statement of Financial Accounting Standard No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities  including an
amendment of FASB Statement No. 115 (SFAS 159). SFAS 157 defines fair value,
outlines a framework for measuring fair value, and details the required
disclosures about fair value measurements. SFAS 159 permits companies to
irrevocably choose to measure certain financial instruments and other items at
fair value. SFAS 159 also establishes presentation and disclosure requirements
designed to facilitate comparison between entities that choose different
measurement attributes for similar types of assets and liabilities.

Under SFAS 157, fair value
is defined as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date in the principal or most advantageous market. SFAS 157
establishes a hierarchy in determining the fair value of an asset or liability.
The fair value hierarchy has three levels of inputs, both observable and
unobservable. SFAS 157 requires the utilization of the lowest possible level of
input to determine fair value. Level 1 inputs include quoted market prices in
an active market for identical assets or liabilities. Level 2 inputs are market
data, other than Level 1, that are observable either directly or indirectly.
Level 2 inputs include quoted market prices for similar assets or liabilities,
quoted market prices in an inactive market, and other observable information
that can be corroborated by market data. Level 3 inputs are unobservable and
corroborated by little or no market data.

Except for those assets and
liabilities which are required by authoritative accounting guidance to be
recorded at fair value in our condensed consolidated balance sheets, we have
elected not to record any other assets or liabilities at fair value, as
permitted by SFAS 159. No events occurred during the first quarter of 2009
which would require adjustment to the recognized balances of assets or
liabilities which are recorded at fair value on a nonrecurring basis.

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

|                    |  |                  |           |                 |   |                              |  |         |           |         |   |   |  |   |  
|------------------- |  | ---------------- | --------- | --------------- | - | ---------------------------- |  | ------- | --------- | ------- | - | - |  | - | -
|                    |  | Carrying
 amount |           |                 |   |                             
|                    |  | in
 condensed    |           |                 |   |                              |  |         |           |        
|                    |  | consolidated     |           |                 |   |                              |  |         |           |        
|                    |  | balance
 sheet   |           | Fair
 Value     |   | Fair
 Value Measurement Used
|                    |  | March 31, 2009   |           | March 31,
 2009 |   | Level 1                      |  | Level 2 |           | Level 3
|Assets:             |  |                  |           |                 |   |                              |  |         |           |         |   |   |  |   |  
|Money
 Market Funds |  | $                | 377,000   |                 | $ | 377,000                      |  | $       | 377,000   |         | $ |  |  | $ | 
|Treasury
 Bills     |  | $                | 4,975,000 |                 | $ | 4,975,000                    |  | $       | 4,975,000 |         | $ |  |  | $ | 
|Available-for-sale: |  |                  |           |                 |   |                              |  |         |           |         |   |   |  |   |  
|Investments         |  | $                | 1,044,000 |                 | $ | 1,044,000                    |  | $       | 1,044,000 |         | $ |  |  | $ | 

The fair value of the money
market funds and Treasury Bills are based on quoted market prices in an active
market. Investments include equity securities that are traded in an active
market. Closing stock prices are readily available from active markets and are
used as being representative of fair value. The Company classifies these
securities as level 1.

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Note 8. Segment Information

The Company
has three reportable operating segments based on the nature of its product
lines: Production Monitoring, AutoData Systems, and Investments. The Production
Monitoring Division manufactures and markets a complete line of production
monitoring equipment, in particular speed monitoring and motor control systems
for industrial machinery. The AutoData Systems Division designs and markets
desktop software-based systems that read hand printed characters, checkmarks,
and bar code information from scanned or faxed forms, in addition to collecting
and reporting data from web forms. Sales of these systems include software and
can include hardware. ESI Investment Company holds investments in marketable
and non-marketable securities.

The accounting
policies of the segments are the same as those described in Note 1 of the
Companys annual report on Form 10-K for the year ended December 31, 2008. In
evaluating segment performance, management focuses on sales and income before
taxes. The Company has no inter-segment sales.

The following
is financial information relating to the continuing operating segments (in
thousands):

|                                                  |  |                                |       |      |   |       |  
|------------------------------------------------- |  | ------------------------------ | ----- | ---- | - | ----- | -
|                                                  |  | Three
 Months Ended
 March 31, |      
|                                                  |  | 2009                           |       | 2008 |  
|External sales                                    |  |                                |       |      |   |       |  
|Production monitoring (products)                  |  | $                              | 1,189 |      | $ | 1,702 |  
|AutoData systems (software and related
 hardware) |  |                                | 90    |      |   | 137   |  
|Investments                                       |  |                                | 0     |      |   | 0     |  
|Total                                             |  | $                              | 1,279 |      | $ | 1,839 |  
|                                                  |  |                                |       |      |   |       |  
|Net income/(loss) before taxes                    |  |                                |       |      |   |       |  
|Production monitoring                             |  | $                              | 23    |      | $ | 333   |  
|AutoData systems                                  |  |                                | (23   | )    |   | (1    | )
|Investments                                       |  |                                | (48   | )    |   | (20   | )
|Total                                             |  | $                              | (48   | )    | $ | 312   |  

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

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. Such decisions include the selection
of applicable accounting principles and the use of judgment in their
application, the results of which impact 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, 2008.

RESULTS OF OPERATIONS

Net
Sales

Net sales for
the three months ended March 31, 2009 decreased $560,000, or
30.5%, when compared to net sales for the same period in 2008.

For the three
months ended March 31, 2009 compared to the same period in 2008,
the Production Monitoring Division had a decrease in net sales of $513,000, or
30.1%, and the AutoData Systems Division had a decrease in net sales of
$47,000, or 34.3%.

The Production
Monitoring Division decrease was due in large part to the fluctuations of
commodity grain and feed product prices worldwide, which has decreased the
demand for biofuels, and the delay in plant construction and expansion. The
slowing of capital spending on plant construction and expansion projects that
started in the last half of 2008 has continued into the first quarter of 2009.
The continuing turmoil in the equity markets that resulted in a slowdown in
spending across all of our major market segments has impacted sales for the
first quarter. Management expects these trends to continue into the second and,
possibly, the third quarter of 2009. While customers have shown an interest in
the new Electro Sentry product, the aforementioned slowing of capital spending
has negatively impacted sales of the product. The bulk of our sales volume, has
historically been, derived from the Speed Monitoring product lines to the
grain, feed, biofuels, power generation, and mining industries, as well as
other key industrial markets and equipment builders. Products sold into these
markets include shaft speed sensors and switches, ratemeters and counters,
motor controllers, vibration switches, and position monitors. Energy production
applications in both fossil fuel and biofuels applications continue to show
growth in the application of our products.

AutoData
Systems decrease in net sales was due in part to the declining economic
conditions. New potential customers are delaying the purchase of new systems.
After the bidding process has been completed, the turnaround time for receipt
of purchase orders has increased due to longer approval cycles.

Cost
of Goods Sold

Our cost of
goods sold decreased $146,000, or 21.9%, for the three months ended March 31,
2009 compared to the same period in 2008. This decrease was primarily a direct
result of decreased sales.

Gross
Profit

Gross margin
for the three months ended March 31, 2009 was 59.3% versus 63.7% for the same
period in 2008. The decrease in gross margin was due to an increase in
relative sales volume of lower margin items within the Production Monitoring
Division.

Operating
Expenses

Total
operating expenses decreased $90,000, or 10.0%, for the three months ended
March 31, 2009 when compared to the same period of 2008. Of this decrease, the
Production Monitoring Division had a decrease of $70,000, or 9.0%, and AutoData
Systems Division had a decrease of $20,000, or 16.0%.

Selling and
marketing costs decreased $68,000, or 16.7%, for the three months ended March
31, 2009 when compared to the same period in 2008. Of this decrease, the
Production Monitoring Division had a decrease of $51,000, or 14.3%, and
AutoData Systems Division had a decrease of $17,000, or 33.3%. Sales
representative commissions, marketing and advertising, travel, and trade show
are the predominant expenses that decreased in the Production Monitoring
Division. Marketing efforts are continuing to be directed to our core
industries. However, the Company has started to direct marketing efforts to
industries, such as the alternative energy industry and water utilities, that
are receiving funds in connection with the recently enacted economic stimulus
package. The decrease in AutoData Systems Division selling and marketing costs
was due to decreased expenses related to salaries and wage expense due to a
reduction in staff.

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General and
administrative costs decreased $20,000, or 6.2%, for the three months ended March
31, 2009 compared to the same period in 2008. Of this decrease, the Production
Monitoring Division contributed a decrease of $22,000, or 7.2%, offset by an
increase in the AutoData Systems Division of $2,000, or 10.5%. The decrease in
general and administrative costs from the Production Monitoring Division was
due to a reduction in the cost of computer supplies and a decrease in stock
handling fees, which fees are being allocated evenly throughout the year in
2009, whereas all such fees had been expensed in the first quarter of 2008,
offset by an increase in legal and professional fees, due to the timing of year
end work. The increase in the AutoData Systems Division general and
administrative costs was due to an increase in legal and professional fees, due
to the timing of year end work, and last years adjustment for the decline in
the allowance for doubtful accounts. The increase was offset by a decrease in
stock handling fees, which fees are being allocated evenly throughout the year
in 2009, whereas all such fees had been expensed in the first quarter of 2008.

Research and
development costs decreased $2,000, or 1.2%, for the three months ended March
31, 2009 compared to the same period in 2008. Of this decrease, the Production
Monitoring Division contributed an increase of $3,000, or 2.6%, offset by a
decrease in the AutoData Systems Division of $5,000, or 9.1%. The increase in
the Production Monitoring Division research and development costs was due to
increased lab testing and legal fees for trademark and patent expenses, offset
by a decrease in lab materials and prototypes. During 2008, the development of
the Electro-Sentry system substantially increased both lab material and
prototype expenses. We do not expect the lab material and prototype expenses to
increase significantly during the remainder of 2009, although that is dependent
on the products developed. The decrease in the AutoData Systems Division was
due to a decrease in contractor expenses.

Non-Operating
Income

Non-operating
income decreased by $36,000, or 87.8%, for the three months ended March 31,
2009 compared to the same period for 2008. This decrease was due primarily to a
decrease in the amount of interest income earned.

Interest
income decreased $36,000, or 92.3%, when comparing the three months ended March
31, 2009 to the same period in 2008. This decrease was due to the decreased
interest rate on Treasury Bills when comparing the three months ended March 31,
2009 to the same period in 2008. The interest rate on Treasury Bills at March
31, 2009 was 0.301% compared to 2.07% at March 31, 2008.

Income
(Loss) Before Income Taxes

The Company
had a loss before income taxes of $48,000 for the quarter ended March 31, 2009,
representing a decrease in income before income taxes of $360,000, or 115.4%,
when compared to an income before income taxes of $312,000 for the quarter
ended March 31, 2008.

The Production
Monitoring Division had income before income taxes of $23,000 for the three
months ended March 31, 2009 compared to $333,000 for the same period in 2008, a
decrease of $310,000, or 93.1%. Decreased sales for the division and decreased
gross margin contributed to the decrease in net income before income taxes.

The AutoData
Systems Division had a loss before income taxes of $23,000 for the three months
ended March 31, 2009 compared to a loss before income taxes of $1,000 for the
same period in 2008, an increased loss of $22,000, or 2,200%. This increase in
the loss before income taxes was due to decreased sales offset by a slight
increase in gross margin on product sales.

ESI Investment Company
had a loss before income taxes of $48,000 compared to a loss before income
taxes of $20,000 for the same period in 2008, an increased loss of $28,000, or
140.0%. This increase in the loss before income taxes was a result of the lower
interest rate available on Treasury Bills in 2009 as compared to 2008.

LIQUIDITY AND CAPITAL RESOURCES

Cash
and cash equivalents were $480,000 at March 31, 2009, $5,529,000 at
December 31, 2008, and $5,530,000 at March 31, 2008.

Cash
provided by operating activities of $56,000 for the quarter ended March 31,
2009 and cash used in operating activities of $120,000 for the quarter ended March
31, 2008, was primarily the result of depreciation expense on capital assets, accounts
receivables, inventories, accounts payable, accrued expenses, income taxes
receivable and accrued income taxes.

Cash
used in investing activities was $4,974,000 for the three month period ended
March 31, 2009 and cash provided by investing activities was $3,000 for the
three month period ended March 31, 2008. This significant increase in cash used by
investing activities was due to purchases of six month Treasury Bills in the
aggregate amount of $4,972,000 in 2009, while there were no such purchases in 2008.

Cash
used in financing activities was $131,000 and $132,000 for the three months
ended March 31, 2009 and March 31, 2008, respectively. During the quarter ended
March 31, 2009 and 2008, we had $4,000 and $3,000, respectively, in stock
purchases under the Employee Stock Purchase Plan. We paid dividends of $135,000
in each quarter.

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Our
ongoing cash requirements will be primarily for capital expenditures, research
and development in both the Production Monitoring and AutoData divisions, and
working capital. Management believes that cash on hand and any cash provided by
operations will be sufficient to meet our cash requirements through at least
the next 12 months.

Our primary
investments are 343,267 shares of Rudolph Technologies, Inc. (Rudolph), listed
on the Nasdaq stock market and 551,759 shares of PPT Vision, Inc, (PPT)
listed on the Pink Sheets. The Rudolph investment is accounted for using the
available-for-sale method. The PPT investment is accounted for under the equity
method of accounting. The Rudolph stock is subject to fluctuations in market
price and could have a negative effect on our liquidity.

Off-balance Sheet Arrangements

As of March 31, 2009, the Company had no
off-balance sheet arrangements or transactions.

FORWARD-LOOKING STATEMENTS

This Form 10-Q
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
including statements regarding the Companys expectations, beliefs, intentions
or strategies regarding the future. Forward-looking statements include, but are
not limited to, statements relating to managements beliefs with respect to the
spending slowdown in our market segments; our marketing efforts; our intention
to hold our Treasury Bills until maturity; our expectations with respect to lab
material and prototype expenses for our Electro-Sentry product; our expected
use of cash on hand; our cash requirements; and the sufficiency of our cash
flows. Any statement that is not based solely upon historical facts, including
strategies for the future and the outcome of events that have not yet occurred,
is considered a forward-looking statement.

All
forward-looking statements in this document are based on information available
to us as of the date hereof, and we assume no obligation to update any such
forward-looking statements. It is important to note that our actual results
could differ materially from those in such forward-looking statements. The
forward-looking statements we make in this Quarterly Report are subject to
certain risks and uncertainties that could cause future results to differ
materially from our recent results or those projected in the forward-looking
statements, including the accuracy of managements assumptions with respect to
industry trends, fluctuations in industry conditions, particularly commodity
grain and feed product prices, caused by the downturn in the global economy, a
prolonged slowdown in plant construction and expansion projects, the impact of
any prolonged recessionary conditions or worsening of the global economy, the
impact of the recently enacted economic stimulus package, the accuracy of
managements assumptions regarding expenses and our cash needs and those listed
in the Cautionary Statements of the MD&A in our Annual Report on Form
10-K for the year ended December 31, 2008.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not
Applicable.

Item 4(T). Controls and Procedures

Based on an evaluation under
the supervision and with the participation of the Companys management, the
Companys principal executive officer and principal financial officer have
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, 2009 to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is (i) recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission
rules and forms and (ii) accumulated and communicated to the Companys
management, including its principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required
disclosure.

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
2009, which 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.

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|                                                                            |     |                                                        
|--------------------------------------------------------------------------- | --- | -------------------------------------------------------
|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. Submission
 of Matters to a Vote of Security Holders  None        
|                                                                           
|Item 5. Other
 Information  None                                          
|                                                                           
|Item 6. Exhibits                                                           
|                                                                           
|                                                                            | (a) | Exhibits -
 See Exhibit Index following signature page.

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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.                              
|             |                                                    
|May 15, 2009 | /s/ Bradley D. Slye                                
|             | Bradley D. Slye                                    
|             | Chief Executive Officer and Chief Financial Officer

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EXHIBIT INDEX

ELECTRO-SENSORS, INC.

FORM 10-Q FOR QUARTER ENDED MARCH 31, 2009

|        |  |                                                                                        
|------- |  | ---------------------------------------------------------------------------------------
|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

16

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