U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-QSB



                   QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

             For the quarterly period ended   June 30, 1998

                       Commission File Number 0-9587


                         ELECTRO-SENSORS, INC.
  (Exact Name of Small Business Issuer as Specified in Its Charter)

          MINNESOTA                                 41-0943459
(State or Other Jurisdiction of                  (I.R.S. Employer
 Incorporation or Organization)                 Identification No.)


6111 BLUE CIRCLE DRIVE, MINNETONKA, MINNESOTA                55343
(Address of Principal Executive Offices)                  (Zip Code)


                                  (612)930-0100
                (Issuer's telephone number, Including Area Code)



        (Former Name, Former Address and Former Fiscal Year, if Changed
                               Since Last Report)


Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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   X     No


Shares of $.10 par value common stock outstanding at July 31, 1998:   1,971,522





<PAGE>



Part I. Financial Information

The interim financial  statements included in this form 10-QSB are unaudited and
reflect in the opinion of management all adjustments  (which include only normal
recurring  adjustments)  necessary  for a fair  presentation  of the  results of
operations for these periods.


                 ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES

                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                                June 30,     December 31,
                                                                                                  1998            1997
                                                                                              ----------     -----------
           ASSETS
<S>                                                                                           <C>             <C>    
CURRENT ASSETS
  Cash                                                                                        $ 2,415,437     $ 2,536,685
  Investment in available-for-sale securities                                                   4,592,186       4,698,710
  Trade receivables, less allowance
    for doubtful accounts of $30,600
    and $24,500, respectively                                                                     723,998         746,049
  Inventories                                                                                   1,036,476         876,189
  Prepaid expenses                                                                                 70,225          76,921
  Prepaid income taxes                                                                             29,349         100,752
  Deferred taxes                                                                                   51,500          51,500
                                                                                               ----------      ----------
TOTAL CURRENT ASSETS                                                                            8,919,171       9,086,806

PROPERTY AND EQUIPMENT, NET                                                                     1,799,278       1,807,950
                                                                                               ----------      ----------
TOTAL ASSETS                                                                                  $10,718,449     $10,894,756
                                                                                               ==========      ==========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Note payable                                                                                $   149,720      $  240,775
  Accounts payable                                                                                197,372          97,998
  Accrued expense                                                                                 153,831         263,688
                                                                                               ----------      ----------
TOTAL CURRENT LIABILITIES                                                                         500,923         602,461
                                                                                               ----------      ----------
DEFERRED INCOME TAXES                                                                           1,142,400       1,184,400
                                                                                               ----------      ----------
SHAREHOLDERS' EQUITY:
  Common stock - par value $.10 per share;  
  Authorized 10,000,000 shares; issued
    1,971,522 and 1,964,586
    shares, respectively                                                                          197,152         196,459
  Additional paid-in capital                                                                      694,642         674,284
  Retained earnings                                                                             6,224,937       6,214,922
  Unrealized holding gain on investment
    securities, net                                                                             1,959,042       2,023,566
  Notes receivable                                                                                   (647)         (1,336)
                                                                                               ----------      ----------
    Total shareholders' equity                                                                  9,075,126       9,107,895
                                                                                               ----------      ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                    $10,718,449     $10,894,756
                                                                                               ==========      ==========

</TABLE>


<PAGE>



                 ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES

                         CONSOLIDATED INCOME STATEMENTS
                                   (Unaudited)

<TABLE>
<CAPTION>


                                                        Three Months Ended         Six Months Ended
                                                        ---------------------   --------------------
                                                             June 30,                  June 30,
                                                        ---------------------   --------------------
                                                          1998          1997         1998       1997
                                                        -------       -------      ------     ------
<S>                                                     <C>          <C>         <C>          <C>    
SALES                                                   $1,592,671   $1,570,126  $3,207,969   $3,238,835

COST OF SALES                                              666,000      634,878   1,348,939    1,339,303
                                                         ---------    ---------   ---------    ---------
GROSS MARGIN                                               926,671      935,248   1,859,030    1,899,532
                                                         ---------    ---------   ---------    ---------

OPERATING EXPENSES:
  Selling expense                                          465,882      376,190     972,922      716,323
  Administrative expense                                   185,122      201,630     366,466      406,618
  Research and development                                 152,348      162,940     296,080      334,032
                                                         ---------    ---------   ---------    ---------

TOTAL OPERATING EXPENSES                                   803,352      740,760   1,635,468    1,456,973
                                                         ---------    ---------   ---------    ---------

INCOME FROM OPERATIONS                                     123,319      194,488     223,562      442,559
                                                         ---------    ---------   ---------    ---------

OTHER INCOME (EXPENSE):
  Gain (loss) on sale of
   investment securities                                       -0-          -0-         -0-        5,532
  Interest income                                           26,392       29,724      53,669       59,305
  Other                                                    (34,749)     (38,067)    (75,306)     (82,408)
                                                         ---------    ---------   ---------    ---------

TOTAL OTHER INCOME                                          (8,357)      (8,343)    (21,637)     (17,571)
                                                         ---------    ---------   ---------    ---------

INCOME BEFORE INCOME TAXES                                 114,962      186,145     201,925      424,988

PROVISION FOR INCOME TAXES                                  42,100       68,100      73,900      155,600
                                                         ---------    ---------   ---------    ---------

NET INCOME                                              $   72,862   $  118,045  $  128,025   $  269,388
                                                         =========    =========   =========    =========
</TABLE>



<PAGE>



(Continued)

<TABLE>
<CAPTION>


                                                        Three Months Ended         Six Months Ended
                                                        ---------------------   --------------------
                                                             June 30,                  June 30,
                                                        ---------------------   --------------------
                                                          1998          1997         1998       1997
                                                        -------       -------      ------     ------


<S>                                                     <C>           <C>         <C>          <C>   
WEIGHTED AVERAGE NUMBER
 OF COMMON AND COMMON
  EQUIVALENT SHARES:

   BASIC                                                 1,971,522    1,949,411   1,971,522    1,949,411
                                                         =========    =========   =========    =========

   DILUTED                                               1,984,129    1,962,838   1,984,713    1,962,838
                                                         =========    =========   =========    =========

EARNINGS PER COMMON
 AND COMMON EQUIVALENT
  SHARES:

  BASIC                                                       $.03         $.06        $.06         $.14
                                                               ===          ===         ===          ===

  DILUTED                                                     $.03         $.06        $.06         $.14
                                                               ===          ===         ===          ===

</TABLE>



<PAGE>



                 ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES

                        CONSOLIDATED CASH FLOW STATEMENTS
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                   Six Months Ended
                                                                        June 30,
                                                           ---------------------------------
                                                              1998                    1997
                                                          ------------             ----------
<S>                                                        <C>                     <C>   
CASH FLOW FROM OPERATING ACTIVITIES
  Cash received from customers                             $3,219,520              $3,186,235
  Cash paid to suppliers and employees                     (3,145,608)             (2,849,480)
  Interest received                                            53,669                  59,305
  Income taxes paid                                            (2,497)               (164,768)
                                                            ---------               ---------
    Net cash provided by operating activities                 125,084                 231,292
                                                            ---------               ---------
CASH FLOWS FROM INVESTING ACTIVITIES
  Sales of investments in
    available-for-sale securities                                 -0-                   6,583
  Purchase of equipment                                       (58,318)                (43,755)
  Repayments of notes receivable                                  -0-                  58,415
                                                            ---------               ---------
      Net cash (used in) investing activities                 (58,318)                 21,243
                                                            ---------               ---------
CASH FLOWS FROM FINANCING ACTIVITIES
  Dividends paid                                             (118,010)               (116,695)
  Payments on short-term borrowings                           (91,055)                (87,402)
  Proceeds from exercise of stock options                      14,063                  15,750
  Proceeds from Employee Stock Purchase Plan                    6,988                   7,261
                                                            ---------               ---------
    Net cash (used in) financing activities                  (188,014)               (181,086)
                                                            ---------               ---------
      Increase (decrease) in cash                            (121,248)                 71,449

CASH AND CASH EQUIVALENTS
  Beginning                                                 2,536,685               2,581,588
                                                            ---------               ---------
  End                                                      $2,415,437              $2,653,037
                                                            =========               =========

RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income                                                  $ 128,025               $ 269,388
Adjustments to reconcile net income to net
      cash provided by operating activities:
    Depreciation and amortization                              66,990                  64,252
    Provision for losses on trade receivables                  10,500                  60,000
    Realized (gain) loss on sale of marketable
      securities                                                  -0-                  (5,532)
    (Increase) decrease in:
      Trade receivables                                        11,551                  (6,780)
      Inventory                                              (160,287)                (77,004)
      Prepaid expenses                                          7,385                   1,077
      Prepaid income taxes                                     71,403                     -0-
    Increase (decrease) in:
      Accounts payable                                         99,374                  41,650
      Accrued expenses                                       (109,857)               (106,591)
      Accrued income taxes payable                                -0-                  (9,168)
                                                             --------                --------
Net cash provided by operating activities                   $ 125,084               $ 231,292
                                                             ========                ========

NONCASH INVESTING AND FINANCING ACTIVITIES
   Unrealized gain(loss) on marketable securities             (64,524)               (724,692)
                                                             --------                --------
    Total noncash investing and financing                   $ (64,524)              $(724,692)
                                                             ========                ========

</TABLE>


<PAGE>

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATION

RESULTS OF OPERATION

The Company's  sales for the second quarter  increased 1.4% but remained down 1%
for the first six  months of 1998 when  compared  to the same  periods  of 1997.
Increased  second quarter sales occurred in the Drive Control Systems segment as
the division felt a positive change in direction in the capital equipment arena.
Meanwhile,  the Speed  Monitoring  Systems,  AutoData  Systems and the Company's
wholly-owned subsidiary,  Microflame,  Inc., experienced slight decreases during
the same period.  The sluggish sales experienced by the Speed Monitoring Systems
are primarily  related to the effect of economic  uncertainties  on our customer
base caused by the Asian currency crisis.  Also, many of the AutoData  customers
have held off software  purchases  as they await  mandated  healthcare  changes,
which are scheduled for release during the second half of 1998.

The Company's wholly-owned subsidiary, Microflame, Inc., has experienced a 15.3%
decrease  in sales  during  the first six months of 1998.  The  decline in sales
reflects  an  overall  decrease  in product  sales as  Microflame  continues  to
experience decreasing customer demand.

Cost of sales  increased  as both a percentage  of sales and when  compared to a
year ago. The increased costs were primarily related to increased labor cost and
a slight increase in material costs in our electronic control segments.

Operating  expenses  increased  12.2%  during  the first six months of 1998 when
compared to the same periods of 1997. The increased expense is attributed to our
continued  emphasis on market expansion in the electronic  segments and AutoData
Systems.  The expenses were  concentrated  on development of both new literature
and ad campaigns.  The Company has experienced positive responses resulting from
this change in direction.

Net income was down as the Company  continued to invest heavily in its marketing
campaigns for both our  electronic  segments and AutoData  Systems.  The initial
setup or changeover  costs have been  primarily  completed  during the first six
months  of  1998.  We should  feel the  effectiveness of our marketing  campaign
investment during the second half of this year.


LIQUIDITY AND CAPITAL RESOURCES

During  the first six months  ended June 30,  1998,  working  capital  decreased
$66,097 to a total of  $8,418,248.  The  decrease  in the fair  market  value of
marketable  securities resulted from the declined quoted market price of certain
securities.  This  decline  in  market  value is the  principal  reason  for the
reduction in working capital. Accounts receivable remained relatively unchanged.
Inventory and accounts  payable  increased as a result of  additional  inventory
purchased  for the AutoData  Systems  segment.  In addition,  proceeds  from the
exercise of stock options and the employee stock purchase plan generated $14,063
and  $15,750,  respectively,  during  the first six  months.  The  Company  made
dividend payments of $58,938 and $59,072 during the first six months of 1998. In
addition,  the  Company  invested  both an  additional  $58,318  in  office  and
manufacturing equipment and $91,055 into the repayment of short-term borrowings.
The Company believes it can pay projected capital and operating  expenses out of
income and current  reserves.  The cost related to year 2000  conversion  is not
material to the Company.



<PAGE>

                                OTHER INFORMATION

PART II

Item 1.   Legal Proceedings

          There were no  material  developments  in  previously  reported  legal
          proceedings.

Item 2.   Changes in Securities

          No changes have been made in any registered securities.

Item 3.   Defaults Upon Senior Securities

          No event  constituting  a default has occurred  respecting  any senior
          security of the Registrant.

Item 4.   Submission of Matters to a Vote of Security Holders

          The following matters were voted on by shareholders  during the period
          covered by this Form 10-QSB:

            a) The Annual Meeting of Shareholders was held April 29, 1998.

            b) Election of Directors as Follows:

                Peter R. Peterson  1,799,888 For   2,425 Withheld Authority
                                   ---------       -----
                Brad D. Slye       1,799,888 For   2,425 Withheld Authority
                                   ---------       -----
                Mark D. Laumann    1,799,888 For   2,425 Withheld Authority
                                   ---------       -----
                John S. Strom      1,797,388 For   4,925 Withheld Authority
                                   ---------       -----
                Joseph A. Marino   1,799,888 For   2,425 Withheld Authority
                                   ---------       -----

            c) Approval of the amendment to the Electro-Sensors, Inc. 1997 Stock
               Option Plan.

                 1,751,198 For   45,915 Against    5,200 Abstain
                 ---------       ------           ------

            d) Approval of Schweitzer Rubin Karon & Bremer as independent
               Auditors.

                 1,797,363 For    3,200 Against    1,750 Abstain
                 ---------        -----           ------

               There were no other  matters  submitted  to vote of  shareholders
               during the period covered by this Form 10-QSB.


<PAGE>



Item 5.   Other Information

As provided for under the Private Securities  Litigation Reform Act of 1995, the
Company wishes to caution investors that the following important factors,  among
others, in some cases have affected and in the future could affect the Company's
actual  results of operations and cause such results to differ  materially  from
those  anticipated  in  forward-looking  statements  made in this  document  and
elsewhere by or on behalf of the Company:  the uncertainty of market  acceptance
of products of the  Company's  AutoData  Systems  division  which is in an early
stage of  development;  fluctuations  and declines in  operating  results of the
Company's  Drive Control  Systems,  Speed  Monitoring and  Microflame  division;
fluctuations in the value of the Company's investments, particularly PPT Vision,
and sales of such  investments;  competition,  particularly  with  regard to the
pricing  of  products;  the  Company's  ability  to develop  new  products;  and
dependence on suppliers.  For additional  information,  please see the Company's
Annual Report on Form 10-KSB.

Item 6.   Exhibits and Reports on Form 8-K

          (a)  Exhibits.

               27.  Financial Data Schedule

          (b)  Reports on Form 8-K.

               No reports on Form 8-K were filed  during the quarter  ended June
               30, 1998.


                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant has duly caused this report to be signed on behalf of the undersigned
thereunto duly authorized.


                                 ELECTRO-SENSORS, INC.



Date   August 11, 1998        By  /s/ BRADLEY D. SLYE
                                  Bradley D. Slye, President


Date   August 11, 1998        By  /s/ MARK D. LAUMANN
                                  Mark D. Laumann, Treasurer
                                  (principal financial officer)

                                     
<PAGE>




                                EXHIBIT INDEX
                              ELECTRO-SENSORS, INC.
                                   FORM 10-QSB
                     For Fiscal Quarter Ended June 30, 1998

Exhibit No.            Description
    27             Financial Data Schedule (filed in electronic format only)