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   September 30, 1996

                       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:   November 1,
1996:   1,942,282

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)
<TABLE>
<CAPTION>
                                 Three Months ended        Nine Months Ended
                                    September 30,            September 30,
                                   1996       1995          1996       1995
<S>                            <C>          <C>          <C>         <C>
SALES                          $1,508,733   $1,733,628   $4,554,085  $4,877,693

COST OF SALES                     642,490      711,905    1,949,854   2,088,557
                                ---------    ---------    ---------   ---------
GROSS MARGIN                      866,243    1,021,723    2,604,231   2,789,136
                                ---------    ---------    ---------   ---------

OPERATING EXPENSES:
  Selling expense                 328,431      261,284    1,031,639     942,791
  Administrative expense          192,574      196,338      603,010     603,261
  Research and development        168,601      151,566      531,277     460,234
                                ---------    ---------    ---------   ---------
TOTAL OPERATING EXPENSES          689,606      609,188    2,165,926   2,006,286
                                ---------    ---------    ---------   ---------
INCOME FROM OPERATIONS            176,637      412,535      438,305     782,850
                                ---------    ---------    ---------   ---------
OTHER INCOME (EXPENSE):
  Gain (loss) on sale of
   investment securities           71,457       25,393      203,113     156,573
  Interest income                  28,444       38,818       82,402     116,112
  Dividend income                     -0-           42          -0-       8,271
  Other                           (36,210)     (11,782)    (110,999)   (104,429)
                                ---------    ---------    ---------   ---------
TOTAL OTHER INCOME                 63,691       52,471      174,516     176,527
                                ---------    ---------    ---------   ---------
INCOME BEFORE INCOME TAXES        240,328      465,006      612,821     959,377

PROVISION FOR INCOME TAXES         77,000      169,400      222,500     346,600
                                ---------    ---------    ---------   ---------
NET INCOME                     $  163,328   $  295,606   $  390,321  $  612,777
                                =========    =========    =========   =========
WEIGHTED AVERAGE NUMBER
 OF COMMON AND COMMON
  EQUIVALENT SHARES:

  PRIMARY                       1,964,465    1,919,705    1,969,370   1,912,709
                                =========    =========    =========   =========
  ASSUMED FULLY DILUTED         1,964,465    1,954,932    1,969,370   1,954,932
                                =========    =========    =========   =========
EARNINGS PER COMMON
 AND COMMON EQUIVALENT
  SHARES:

  PRIMARY                            $.09         $.16         $.20        $.32
                                      ===          ===          ===         ===
  ASSUMED FULLY DILUTED              $.09         $.15         $.20        $.31
                                      ===          ===          ===         ===
</TABLE>

<PAGE>



                 ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES

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

                                                                                        September 30,     December 31,
    ASSETS                                                                                  1996              1995
    ------                                                                            --------------      ------------
<S>                                                                                      <C>               <C>    
CURRENT ASSETS
  Cash                                                                                   $ 2,385,608       $ 3,273,873
  Investment in available-for-sale securities                                              5,996,738         6,330,262
  Trade receivables, less allowance
    for doubtful accounts of $34,500
    and $21,500, respectively                                                                765,266           791,445
  Inventories                                                                                889,490           788,282
  Prepaid expenses                                                                           100,254            80,182
  Prepaid Income taxes                                                                        17,302               -0-
  Deferred taxes                                                                              29,100            29,100
                                                                                          ----------        ----------
TOTAL CURRENT ASSETS                                                                      10,183,758        11,293,144

PROPERTY AND EQUIPMENT, NET                                                                1,838,325         1,887,648
                                                                                          ----------        ----------
TOTAL ASSETS                                                                             $12,022,083       $13,180,792
                                                                                          ==========        ==========
                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Note payable                                                                           $   481,042       $   586,516
  Accounts payable                                                                           162,936            98,404
  Accrued expenses                                                                           216,400           216,692
  Dividends payable                                                                              -0-           970,135
  Accrued income taxes                                                                           -0-            88,931
                                                                                          ----------        ----------
TOTAL CURRENT LIABILITIES                                                                    860,378         1,960,678
                                                                                          ----------        ----------
DEFERRED INCOME TAXES                                                                      1,592,900         1,754,100
                                                                                          ----------        ----------
SHAREHOLDERS' EQUITY:
  Common stock - par value $.10 per share;  Authorized 10,000,000 shares; issued
    1,942,282 and 1,940,270
    shares, respectively                                                                     194,228           194,027
  Additional paid-in capital                                                                 618,136           584,236
  Retained earnings                                                                        5,974,364         5,758,728
  Unrealized holding gain on investment
    securities, net                                                                        2,845,214         3,035,733
  Unearned ESOP shares                                                                           -0-           (41,951)
  Notes receivable                                                                           (63,137)          (64,759)
                                                                                          ----------        ----------
    Total shareholders' equity                                                             9,568,805         9,466,014
                                                                                          ----------        ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                               $12,022,083       $13,180,792
                                                                                          ==========        ==========
</TABLE>


<PAGE>

                 ELECTRO-SENSORS, INC. AND SUBSIDIARY COMPANIES

                        CONSOLIDATED CASH FLOW STATEMENTS
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                         Nine Months Ended
                                                            September 30,
                                                      1996              1995
                                                    -------           -------
<S>                                               <C>               <C>    
CASH FLOW FROM OPERATING ACTIVITIES
  Cash received from customers                    $4,564,514         $4,606,979
  Cash paid to suppliers and employees            (4,173,172)        (4,220,569)
  Interest received                                   82,402            116,112
  Dividend income                                        -0-              8,271
  Income taxes paid                                 (328,733)          (124,810)
                                                  ----------         ----------
    Net cash provided by operating activities        145,011            385,983
                                                  ----------         ----------
CASH FLOWS FROM INVESTING ACTIVITIES
  Investment in available-for-sale activities:
    Sales                                            216,168            174,756
    Purchases                                        (31,250)          (143,500)
  Purchase of property and equipment                 (45,574)           (30,897)
  Notes receivable                                     1,622             (1,933)
  Net advances to Employee Stock
   Ownership Trust                                    41,951            (29,308)
                                                  ----------         ----------
    Net cash (used in) investing activities          182,917            (30,882)
                                                  ----------         ----------
CASH FLOWS FROM FINANCING ACTIVITIES
  Dividends paid                                  (1,144,820)          (189,850)
  Payments on short-term borrowings                 (105,474)          (171,322)
  Proceeds from employee stock purchase plan          34,101                -0-
  Proceeds from exercise of stock options                -0-             17,813
    Net cash (used in) financing activities       (1,216,193)          (343,359)
                                                  ----------         ----------
      Increase (decrease) in cash                   (888,265)            11,742
CASH AND CASH EQUIVALENTS
  Beginning                                        3,273,873          2,826,778
                                                  ----------         ----------
  End                                            $ 2,385,608        $ 2,838,520
                                                  ==========         ==========
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income                                       $  390,321         $  612,777
Adjustments to reconcile net income to net
  cash provided by operating activities:
    Depreciation and amortization                    94,897             92,822
    Provision for losses on trade receivables        15,750             19,500
    Realized (gain) loss on sale of marketable
      securities                                   (203,113)          (156,573)
    Deferred taxes                                      -0-             (3,999)
      (Increase) decrease in:
      Trade receivables                              10,429           (270,714)
      Inventory                                    (101,208)          (117,799)
      Prepaid expenses                              (20,072)            (3,434)
      Prepaid income taxes                          (17,302)            51,754
    Increase (decrease) in:
      Accounts payable                               64,532            (34,841)
      Accrued expenses                                 (292)            22,455
      Accrued income taxes payable                  (88,931)           174,035
                                                  ---------          ---------
Net cash provided by operating activities        $  145,011         $  385,983
                                                  =========          =========
NONCASH INVESTING AND FINANCING ACTIVITIES
  Unrealized gain(loss) on marketable 
    securities                                   $ (351,719)        $2,231,521
                                                  ---------          ---------
    Total noncash investing and financing        $ (351,719)        $2,231,521
                                                  =========          =========
</TABLE>

<PAGE>



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

RESULTS OF OPERATION

Sales for the third  quarter  and first nine  months of 1996  decreased  13% and
6.6%,  respectively,  when compared to the same periods of 1995.  The decline in
sales  for the first  nine  months of 1996  occurred  in both the Drive  Control
Systems division and the company's  wholly-owned  subsidiary,  Microflame,  Inc.
Drive  Control  Systems  achieved  record sales during the third quarter of 1995
resulting  from the shipment of a $225,000  integrated  system and was unable to
reach the same comparable sales level in 1996.  Meanwhile,  the Speed Monitoring
division  remained  relatively  unchanged  and  the  AutoData  Systems  division
provided an increase in sales during the third quarter of 1996.

The  company's  Speed  Monitoring  and  Drive  Control  Systems  divisions  have
experienced  increased  single  unit/replacement  orders  throughout  the  year.
However, the larger  re-industrialization  sales orders experienced in 1995 have
slowed  significantly as plant  expansions and  retrofitting  projects are being
postponed  into the last part of 1996 or the following  year.  AutoData  Systems
sales have improved  during mid 1996  resulting from the release of an automated
survey  software  package for health care providers.  Microflame  sales improved
slightly  during the third  quarter of 1996,  but still  reflected  a  lessening
demand and weak consumer marketplace for Microflame gas torch products.

Cost of sales for the first  nine  months  decreased,  but  remained  relatively
unchanged  as a  percentage  of sales when  compared to the same period of 1995.
Cost of sales for the third  quarter  increased  as a  percentage  of sales when
compared to the same period of 1995.  This change in cost of sales resulted from
the company  being able to spread the fixed  direct and  indirect  cost over the
increased  production provided by Drive Control Systems during the third quarter
of 1995.

Operating  expenses  increased during the third quarter and first nine months of
1996.  The increased  expense  occurred in both the  marketing  and  engineering
areas.  Marketing  expenses  increased  resulting from the  introduction  of the
AutoData  survey  software  package to health care  providers.  The  increase in
research  and  development  expenses  occurred  as  the  company  continues  its
commitment toward new product development and increased product enhancements.

Net income  declined  significantly  in the third quarter of 1996. The decreased
net income resulted  primarily from the decline in sales combined with increased
marketing and engineering expenses. In addition, interest income declined during
the first nine months of 1996.  The funds  which had  generated  the  additional
interest  income in 1995 were used for the special  dividend  paid in January of
1996.



<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

During the first nine months ended September 30, 1996, working capital decreased
$9,086  to a total of  $9,323,380.  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 along with the payment of the special
dividend  were the  principal  reasons  for the  reduction  in working  capital.
Inventories  increased  slightly  due to slower  than  anticipated  sales in the
Controls  Division.  The company  received a loan  payment from the ESOP plan of
$41,951.  In addition,  proceeds from the sale of marketable  securities and the
employee  stock  purchase  plan  generated  $216,168 and $34,101,  respectively,
during the first nine months.  The company made  dividend  payments of $970,135,
$58,208,  $58,208 and $58,269 during the first nine months of 1996. In addition,
the company  invested  both an additional  $45,574 for office and  manufacturing
equipment and $105,474 into the repayment of short-term borrowings.  The company
also invested $31,250 for the purchase of marketable and investment  securities.
The company believes it can pay projected capital and operating  expenses out of
income and current reserves.



                                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 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.

<PAGE>

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
               September 30, 1996.






                                   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  November 1, 1996       By   /s/ James P. Slattery
                                  James P. Slattery, President


Date  November 1, 1996       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 September 30, 1996

Exhibit No.                                    Description
    27                                   Financial Data Schedule