SecProbe.io

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August 19, 2005

VIA EDGAR AND FACSIMILE

Mr. Jay Webb
Reviewing Accountant
Securities and Exchange Commission
Division of Corporate Finance
450 Fifth Street, N.W.
Washington, D.C. 20549

         RE:  ELECTRO-SENSORS, INC.
         FORM 10-KSB FOR FISCAL YEAR ENDED DECEMBER 31, 2004
         FILE NO. 000-09587

Dear Mr. Webb:

         This letter is being filed to respond on behalf of Electro-Sensors,
Inc., a Minnesota corporation formed in July 1968 (the "Company"), to the
comments raised by your letter dated May 9, 2005 regarding the above-referenced
filing. By letter dated May 27, 2005, the Company formally responded to the
comments raised in your letter. Subsequently, you requested the Company provide
additional information and analyses of certain matters pertaining to comment
numbers 1. and 2. in your May 9, 2005 letter. Please accept this letter as the
Company's formal response to your request for additional information.

         For ease of reference, we have included comments 1. and 2. below,
followed by the Company's original response to such comments and the additional
information and analyses requested. The Company's additional responses are
denoted by italicized text.

         The Company believes the additional information and analyses contained
in this letter, when read together with the Company's original responses to
comments 1. and 2., further support the Company's conclusion that it is
primarily engaged in a business other than investing, reinvesting, owning,
holding or trading in securities and entitled to rely upon Section 3(b)(1) of
the Investment Company Act.

             FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

General
-------

         1.       SEC COMMENT: Please explain whether you are an investment
                  company under Section 3(a)(1)(C) of the Investment Company Act
                  of 1940 ("Investment Company Act"). Please explain how you
                  have made this determination and provide data indicating

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Mr. Jay Webb
August 19, 2005
Page 2

                  the value of your "investment securities" and total assets on
                  an unconsolidated basis as of the fiscal year ended December
                  25, 2004.

         2.       SEC COMMENT: If you are an investment company under Section
                  3(a)(1)(C), please explain how you are in compliance with the
                  Investment Company Act. For example, please explain fully
                  whether you can rely on Rule 3a-l of the Investment Company
                  Act.

         COMPANY RESPONSE: The Company acknowledges that its asset and income
         compositions have exceeded the quantitative factors of Section 3(c)(1)
         of the Investment Company Act and Rule 3a-1 adopted thereunder.
         However, the Company believes that the limited number of investment
         securities it owns and the circumstances surrounding its two primary
         securities holdings, together with the nature of its historical
         operations, the activities of its management and its consistent
         characterization of its business to the public, are consistent with a
         conclusion that the Company is primarily engaged in a business other
         than that of investing, reinvesting, owning, holding or trading in
         securities. The Company, therefore, is entitled to rely upon Section
         3(b)(1) of the Investment Company Act and is not an investment company.

         The Investment Company Act
         --------------------------

                  Section 3(a)(1)(C) of the Investment Company Act defines
         "investment company" to include any company that: (i) is engaged or
         proposes to engage in the business of investing, reinvesting, owning,
         holding, or trading in securities and (ii) that owns investment
         securities (essentially all securities except federal government
         securities and securities of majority-owned subsidiaries) with a value
         exceeding 40% of its total assets (excluding cash items, money market
         accounts and federal government securities). The Securities and
         Exchange Commission ("SEC") often interprets this statute solely as a
         quantitative test, though some federal courts consider the quantitative
         test to be primarily a "red flag" and view the "primary business" test
         as the ultimate determinant of investment company status.(1)

                  Section 3(b)(1) exempts any company from the provisions of
         Section 3(a)(1)(C) if the company is primarily engaged in a business
         other than that of investing, reinvesting, owning, holding or trading
         in securities. The determination of whether a company is eligible to
         rely upon Section 3(b)(1) is based upon an analysis of a five-part,
         facts-and-circumstances standard involving the following criteria:

         (1) the company's historic development;

         (2) the company's public representations of policy;

----------------------
(1) SEE Allison Lynne Siimes v. Salvatore Giordana (1992 U.S. Dist. LEXIS 16235)
(Dist. N.J. Oct. 8, 1992). SEE ALSO Wilkie Farr & Gallagher, SEC No-Action
Letter (publicly available Oct. 23, 2000).

                                       2
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Mr. Jay Webb
August 19, 2005
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         (3) the activities of the company's officers and directors;

         (4) the nature of the company's present assets; and

         (5) the source of the company's present income.(2)

         The SEC has stated that it considers the fourth and fifth factors to be
         the most important.(3)

                  Section 3(b)(1) is an "automatic" exemption; reliance on
         Section 3(b)(1) is not conditioned upon obtaining affirmative relief
         from the SEC.(4)

         The Company's Classification Under the Investment Company Act
         -------------------------------------------------------------

                  The Company believes that an application of the foregoing
         five-part facts-and-circumstances standard supports a conclusion that
         it is entitled to rely upon Section 3(b)(1) and therefore is not an
         investment company.

                  (1) THE ISSUER'S HISTORIC DEVELOPMENT. This factor considers
         whether a company has established a pattern of ordinary operations.

                  The Company has historically actively conducted two distinct
         operating businesses: its Controls Division and its AutoData(R) Systems
         Division.

                  Controls Division
                  -----------------

                  The Company's Controls Division manufactures and sells several
         different types of monitoring systems that measure actual machine
         production and operation rates, as well as systems that regulate the
         speed of related machines in production processes.

                  SPEED MONITORING SYSTEMS. The Company's original products,
         speed monitoring systems, compare machine revolutions per minute or
         speed against acceptable rates as determined by the customer. The
         monitors generally have the same relative operating principle, and use
         a non-contacting sensing head that translates the speed of a rotating
         shaft into analog readouts. The systems include a signal-generating
         pulser disc or wrap that attaches to a rotating shaft, the sensing
         device, and a control unit. The systems vary in complexity, from a
         simple system that detects slow-downs or stoppages, to more
         sophisticated systems that warn of deviations from precise tolerances
         and that permit various subsidiary operations to be determined through
         monitoring the shaft speed.

----------------------
(2) SEE Tonopah Mining Co. of Nevada, SEC No-Action Letter (publicly available
July 21, 1947).
(3) SEE Investment Company Act Release No. 10937 (Nov. 13, 1979).
(4) SEE Margaret A. Bancroft & Lawrence B. Stoller, AVOIDING CLASSIFICATION AS
AN INVESTMENT COMPANY: EXEMPTIONS AND EXCLUSIONS FOR BUSINESS CORPORATIONS, 65
C.P.S. (BNA).

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August 19, 2005
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                  The Company's speed monitoring systems include a line of
         digital products that translate sensor impulses from its production
         monitoring systems into digital readouts indicating production counts
         or rates, such as parts, gallons, or board feet. These speed monitoring
         systems also include alarm systems, tachometers, and other devices that
         translate impulses from the sensors into alarm signals, computer
         inputs, or digital displays that are usable by the customer.

                  Two production-monitoring devices that do not operate by
         measuring shaft speeds are also in the Company's speed monitoring
         systems product line. These devices are the tilt switch and vibration
         monitor. A tilt switch is designed to alert the operator when a storage
         bin or production system reaches a certain capacity (i.e. when grain
         fills a silo). A vibration monitor will alert an operator when the
         vibration in a production system exceeds or is below a specified level.

                  DRIVE CONTROL SYSTEMS. In 1987, the Company expanded its speed
         monitoring systems product line to include products that regulate and
         synchronize machine speeds. Drive control system products not only
         monitor machine operation levels, but also regulate the speed of motors
         on related machines in a production sequence to ensure that the
         performance of the various machine(s) is coordinated. The product line
         consists of a line of digital control products for motors that require
         a complete closed loop PID (Proportional Integral Derivative) control.
         The closed-loop controllers coordinate production speed among process
         motors and reduce waste.

                  In 1988, the Company entered into a sales agreement with MKS
         Maschinen Kontroll Systeme GmbH ("MKS"), the West German manufacturer
         of a Synchronous Drive Controller ("SDC") product line, giving the
         Company exclusive rights to distribute in the United States the drive
         control products manufactured by MKS. The SDC product line manufactured
         by MKS coordinates motors in a production machine with other parts of
         the machine process. The SDC products were designed for use as a
         precision speed reference for use with variable speed drives and enable
         manufacturers to match speed/velocity and phase/position of
         independently driven machines so they operate together. Applications
         include synchronizing overhead and floor conveyors and load sharing of
         multiple motors.

                  AutoData(R) Systems Division
                  ----------------------------

                  In 1993, the Company began development of its AutoData(R)
         Systems as a development project chartered to create opportunities
         using proprietary pattern recognition technology. The outcome of the
         project was a Microsoft(R) Windows(R) based software system that reads
         hand printed characters, checkmarks, and barcodes from scanned forms.

                  The Company's system offers an alternative to manual data
         entry, by automatically extracting information from paper forms and
         converting it into a format compatible with

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Mr. Jay Webb
August 19, 2005
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         most computer databases. This intelligent data entry alternative saves
         time, strain, and money compared to the method of manual data entry.
         The basis of the handprint reading capability is Associative Pattern
         Memory(TM) (APM), a patented pattern recognition algorithm. APM is a
         trainable, neural network-based memory that was incorporated in a
         Dynamic Link Library (DLL). This DLL is the foundation of the four
         products currently sold by AutoData(R) Systems Division. The Company
         periodically develops and releases upgrades to its software programs,
         as discussed in more detail in its Form 10-KSB.

                  The historical nature of the Company's businesses supports a
         conclusion that the Company is primarily engaged in a business other
         than investing, reinvesting, owning, holding or trading in securities.

                  (2) THE ISSUER'S PUBLIC REPRESENTATIONS OF POLICY. This factor
         considers a company's presentation of its primary business to the
         public. In its periodic reports filed with the SEC, the Company has
         consistently characterized its business in a manner consistent with the
         description of its business outlined in the first factor above.
         Although the Company's asset and income composition have exceeded the
         quantitative asset and income factors, the Company has affirmatively
         stated in its periodic reports that it does not intend to be an
         investment company, and that it intended to pursue a liquidation
         strategy with respect to its investment in August Technology
         Corporation (discussed more below). The Company has also stated in its
         periodic reports that it does not purchase securities based upon an
         expectation in short-term fluctuations in values, and as a result is
         entitled to classify its two primary investment as available-for-sale
         (which entitles the Company to record unrealized gains and losses as a
         separate component of its stockholders' equity rather than recording
         changes in value in its income statement). Each of these facts support
         a conclusion that the Company is primarily engaged in a business other
         than investing, reinvesting, owning, holding or trading in securities.

                  (3) THE ACTIVITIES OF THE ISSUER'S OFFICERS AND DIRECTORS.
         This factor considers the activities of a company's officers, directors
         and other management personnel. If such persons spend their time
         managing and seeking investments rather than managing operating
         businesses, a company is more likely to be primarily engaged in
         investment activities.

                  The Company' officers, directors and other management
         personnel principally spend their time managing and operating the
         Company's operations in a manner consistent with the Company's
         representations to the public regarding its primary businesses.
         Although the Company's officers may from time to time evaluate whether
         to make investments pending their investment in the Company's
         businesses, these activities are incidental to their primary activities
         and must be taken preserve value for the Company's shareholders
         consistent with management's fiduciary duties. As a result, the nature
         of the Company's management team activities is consistent with a
         conclusion that the Company is primarily engaged in a business other
         than investing, reinvesting, owning, holding or trading in securities.

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                  (4) THE NATURE OF A COMPANY'S PRESENT ASSETS. This factor
         evaluates the value of a company's investment in securities. Generally,
         under Rule 3a-1, if 45% or more of a company's adjusted total asset
         value is attributable to securities (other than government securities,
         among others)