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  March 31, 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             55343-9108
(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  May 2, 1998:   1,969,086

Transitional Small Business Disclosure Format (check one):
Yes         No   X








<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 INCOME STATEMENTS
                                   (Unaudited)

                                                  Three Months Ended
                                                      March 31,
                                                  ------------------
                                                  1998         1997
                                                  ----         ----

      SALES                                   $1,615,298    $1,668,709

      COST OF SALES                              682,939       704,425
                                               ---------     ---------
      GROSS MARGIN                               932,359       964,284
                                               ---------     ---------
      OPERATING EXPENSES:
        Selling                                  507,040       340,133
        Administrative                           181,344       204,988
        Research and development                 143,732       171,092
                                               ---------     ---------

      TOTAL OPERATING EXPENSES                   832,116       716,213
                                               ---------     ---------
      INCOME FROM OPERATIONS                     100,243       248,071
                                               ---------     ---------
      OTHER INCOME (EXPENSE):
        Gain on sale of
         investment securities                       -0-         5,532
        Interest income                           27,277        29,581
        Other                                    (40,557)      (44,341)
                                               ---------     ---------

      TOTAL OTHER INCOME                         (13,280)       (9,228)
                                               ---------     ---------
      INCOME BEFORE INCOME TAXES                  86,963       238,843
      
      PROVISION FOR INCOME TAXES                  31,800        87,500
                                               ---------     ---------

      NET INCOME                              $   55,163    $  151,343
                                               =========     =========


<PAGE>






      (Continued)

                                                  Three Months Ended
                                                      March 31,
                                                  ------------------
                                                  1998         1997
                                                  ----         ----

                                                  
      WEIGHTED AVERAGE NUMBER
       OF COMMON AND COMMON
        EQUIVALENT SHARES:

        BASIC                                 1,964,586      1,947,839
                                              =========      =========

        DILUTED                               1,980,664      1,954,387
                                              =========      =========

      EARNINGS PER COMMON
       AND COMMON EQUIVALENT
        SHARES:

        BASIC                                      $.03           $.08
                                                    ===            ===

        DILUTED                                    $.03           $.08
                                                    ===            ===





<PAGE>

                 ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES

                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

                                                    March 31,     December 31,
                                                      1998            1997    
                                                   ----------     -----------
      ASSETS 

  CURRENT ASSETS
    Cash                                           $2,406,090      $2,536,685
    Investment in available-for-sale securities     4,945,656       4,698,710
    Trade receivables, less allowance
      for doubtful accounts of $24,500
      and $18,000, respectively                       756,935         746,049
    Inventories                                       992,959         876,189
    Prepaid expenses                                   85,413          76,921
    Prepaid income taxes                               68,952         100,752
    Deferred taxes                                     51,500          51,500
                                                   ----------      ----------

  TOTAL CURRENT ASSETS                              9,307,505       9,086,806
 
  PROPERTY AND EQUIPMENT, NET                       1,814,359       1,807,950
                                                   ----------      ----------
  TOTAL ASSETS                                    $11,121,864     $10,894,756
                                                   ==========      ==========



                      LIABILITIES AND SHAREHOLDERS' EQUITY

  CURRENT LIABILITIES:
    Note payable                                  $   197,956      $  240,775
    Accounts payable                                  183,177          97,998
    Accrued expense                                   204,919         263,688
                                                   ----------      ----------

  TOTAL CURRENT LIABILITIES                           586,052         602,461
                                                   ----------       ----------
  DEFERRED INCOME TAXES                             1,273,400       1,184,400
                                                   ----------      ----------
  SHAREHOLDERS' EQUITY:
    Common  stock - par value  $.10 per  share;  
      Authorized  10,000,000  shares;
      issued 1,964,586 and 1,964,586
      shares, respectively                            196,459         196,459
    Additional paid-in capital                        674,284         674,284
    Retained earnings                               6,211,148       6,214,922
    Unrealized holding gain on investment
      securities, net                               2,181,512       2,023,566
    Notes receivable                                     (991)         (1,336)
                                                   ----------      ----------
      Total shareholders' equity                    9,262,412       9,107,895
                                                   ----------      ----------

  TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY      $11,121,864     $10,894,756
                                                   ==========      ==========


<PAGE>

                 ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES

                        CONSOLIDATED CASH FLOW STATEMENTS
                                   (Unaudited)

                                                     Three Months Ended
                                                          March 31,
                                                  ----------------------
                                                     1998           1997
                                                  ----------------------
CASH FLOW FROM OPERATING ACTIVITIES
  Cash received from customers                   $1,599,162       $1,616,335
  Cash paid to suppliers and employees           (1,615,908)      (1,423,190)
  Interest received                                  27,277           29,581
  Income taxes paid                                     -0-           (1,082)
                                                  ---------        ---------
    Net cash provided by operating activities        10,531          221,644
                                                  ---------        ---------
CASH FLOWS FROM INVESTING ACTIVITIES
    Sales of investments in available-for-sale
      securities:                                       -0-            6,583
   Purchase of equipment                            (39,370)         (43,562)
   Repayments of notes receivable                       -0-           55,985
                                                  ---------        ---------
      Net cash (used in) investing activities       (39,370)          19,006
                                                  ---------        ---------
CASH FLOWS FROM FINANCING ACTIVITIES
  Dividends paid                                    (58,937)         (58,350)
  Payments on short-term borrowings                 (42,819)         (43,180)
  Proceeds from Employee Stock Purchase Plan            -0-            7,263
                                                  ---------        ---------
    Net cash (used in) financing activities        (101,756)         (94,267)
                                                  ---------        ---------
      Increase (decrease) in cash                  (130,595)         146,383
CASH AND CASH EQUIVALENTS
  Beginning                                       2,536,685        2,581,588
                                                  ---------        ---------
  End                                            $2,406,090       $2,727,971
                                                  =========        =========

RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income                                        $  55,163        $ 151,343
Adjustments to reconcile net income to net
      cash provided by operating activities:
    Depreciation and amortization                    32,961           31,785
    Provision for losses on trade receivables         5,250           28,250
    Realized (gain) loss on sale of
      investment securities, net                        -0-           (5,532)
   (Increase) decrease in:
      Trade receivables                             (16,136)         (52,374)
      Inventory                                    (116,770)          27,045
      Prepaid expenses                               (8,147)          (6,979)
      Prepaid income taxes                           31,800              -0-
    Increase (decrease) in:
      Accounts payable                               85,179           45,435
      Accrued expenses                              (58,769)         (83,747)
      Accrued income taxes payable                      -0-           86,418
                                                   --------         --------
Net cash provided by operating activities         $  10,531        $ 221,644
                                                   ========         ========

NONCASH INVESTING AND FINANCING ACTIVITIES
  Unrealized gain(loss) on marketable securities $  246,946      $(1,175,464)
                                                  ---------       ----------
    Total noncash investing and financing        $  246,946      $(1,175,464)
                                                  =========       ==========


<PAGE>

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

RESULTS OF OPERATION

Sales for the first quarter of 1998  decreased 3.2% to $1,615,298 as compared to
$1,668,709 for the first quarter of 1997. The decrease in sales occurred  within
the Speed  Monitoring,  Drive Control  Systems and Microflame,  Inc.,  segments.
Meanwhile,  the Company's  AutoData  Systems segment  experienced a strong sales
increase during the period. The Drive Control Systems sales decreased 30% during
the first  quarter  due to slowed  sales in the large  capital  equipment  area.
Microflame  also  experienced a 25% reduction in sales  resulting from inventory
reductions by its largest customer, Radio Shack.

The Company's cost of sales decreased when compared to a year ago, but increased
slightly as a percentage  of sales.  The slight  increase in percentage of sales
resulted from changing product mix in the AutoData Systems segment.

Selling  expenses  increased  substantially  during the first quarter of 1998 as
compared  to the  same  period  of  1997.  Increased  personnel  costs  from the
formation of an AutoData marketing department and increased advertising expenses
in the Speed  Monitoring,  Drive Control Systems and AutoData  Systems  segments
were the  primary  reasons for the  increased  selling  expenditures  during the
period.  The Company has been  receiving  positive  responses from its increased
marketing efforts in the Speed Monitoring and AutoData Segments, while the Drive
Control Systems division has not experienced any noticeable change at this time.

Administrative and research and development  expenses decreased during the first
quarter of 1998 as compared to 1997.  The  decrease  in  administrative  expense
resulted  from a decrease in bad debt  expense.  The Company had  experienced  a
large write-off in 1997 from a prior year  receivable.  Research and development
expense   decreased   primarily  from  decreases  in  both  personnel  cost  and
development  expenses during the comparable periods.  However, the Company still
continues its  commitment  toward new product  development as the key for future
sales growth.


LIQUIDITY AND CAPITAL RESOURCES

During the first three months ended March 31, 1997,  working  capital  increased
$172,058 to a total of  $8,721,453.  The  increase  in the fair market  value of
marketable  securities  resulted  from an increase in the quoted market price of
certain  securities.  This increase in market value is the principal  reason for
the increase in working capital.  The increased March sales activity resulted in
a slight increase in the March 31st accounts receivable  balance.  Inventory and
accounts payable increased as a result of additional inventory purchased for the
AutoData  Systems segment during the first quarter.  The Company made a dividend
payment of $58,937  during the first quarter of 1998.  In addition,  the Company
invested an additional $39,370 in office and manufacturing  equipment and repaid
$42,819 of  short-term  borrowings.  The Company  believes it can pay  projected
capital and operating expenses out of income and current reserves.

<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

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

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 March
               31, 1998.



<PAGE>



                                   SIGNATURES

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



                                 ELECTRO-SENSORS, INC.



Date    MAY 7, 1998              By    /s/ BRADLEY D. SLYE
                                   Bradley D. Slye, President



                                 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 March 31, 1998



Exhibit No.                                    Description

    27                                   Financial Data Schedule