Basis of Presentation (Policy)

9 Months Ended

Sep. 30, 2021

Basis of Presentation [Abstract]

Nature of Business

Nature of Business

Electro-Sensors, Inc. manufactures and markets a complete line of monitoring and control systems for a wide range of industrial machine applications. The Company uses leading-edge technology to continuously improve its products, with the ultimate goal of manufacturing the industry-preferred product for each of our served markets. The Company sells these products through an internal sales staff, manufacturers’ representatives, and distributors to a wide range of industries that use the products in a variety of applications to monitor process machinery operations. The Company markets its products to customers located throughout the United States, Canada, Latin America, Europe, and Asia.

Revenue Recognition

Revenue Recognition

At contract inception, the Company assesses the goods and services to be provided to a customer and identifies a performance obligation for each distinct good or service. We also determine the transaction price for each performance obligation at contract inception. Our contracts, generally in the form of a purchase order, specify the product or service that is to be provided to the customer. The typical contract life is less than one month and contains a single performance obligation, to provide conforming goods or services to the customer. Certain contracts have a second performance obligation, which typically is the initialization of the HazardPRO^TM product. For contracts that have multiple performance obligations, we allocate the transaction price to each performance obligation using the relative stand-alone selling price. We generally determine stand-alone selling prices based on the observable stand-alone prices charged to customers. We recognize product revenue at the point in time when control of the product is transferred to the customer, which typically occurs when we ship the products. We recognize service revenue at the point in time when we have provided the service.  

Fair Value Measurements

Fair Value Measurements 

The carrying value of trade receivables, accounts payable, and other financial working capital items approximates fair value at September 30, 2021 and December 31, 2020, due to the short maturity nature of these instruments.

Intangibles

Intangibles

Intangible assets are comprised of the HazardPRO technology and a technology license.  The Company amortizes the cost of these intangible assets on a straight-line method over their estimated useful lives. 

Stock-Based Compensation

Stock-Based Compensation

The Company records compensation expense for stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes-Merton (“BSM”) option pricing model. The Company uses historical data, among other factors, to estimate the expected price volatility, the expected option life, and the expected forfeiture rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option. 

As of September 30, 2021, there was approximately $5 of unrecognized compensation expense related to unvested stock options. The Company expects to recognize this expense over one year.

Use of Estimates

Use of Estimates

The preparation of 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 financial statements and accompanying notes. Actual results could differ from those estimates. Current significant estimates, including the underlying assumptions, consist of economic lives of long-lived assets, realizability of trade receivables, valuation of deferred tax assets/liabilities, inventory, investments, stock compensation expense, and the potential estimated impact on operations resulting from the COVID-19 pandemic as it relates to potential disruptions to our supply chain and customer demand. It is at least reasonably possible that these estimates may change in the near term.  

Net Income (Loss) per Common Share

Net Income (Loss) per Common Share

Basic net income (loss) per common share excludes dilution and is determined by dividing net income (loss) attributable to common stockholders by the weighted-average common shares outstanding during the period.  Diluted net income (loss) per common share reflects the potential dilution that could occur if securities such as options and other contracts to issue common stock were exercised or converted into common stock.  Diluted net income (loss) per common share is determined by dividing net income (loss) attributable to common stockholders by the weighted-average common shares outstanding during the period.  

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

For the three-month periods ended September 30, 2021 and 2020, 288,644 and 332,500, respectively, weighted average common shares for underlying stock options have been excluded from the calculation.  For the nine-month periods ended September 30, 2021 and 2020, 292,426 and 332,500, respectively, weighted average common shares for underlying stock options have been excluded from the calculation.