FORM 10-QSB

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                   Quarterly Report under Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

For Quarter Ended:  March 31, 1998
Commission File Number:  0-18393

                            WINLAND ELECTRONICS, INC.
        (Exact name of small business issuer as specified in its charter)

          Minnesota                                              41-0992135
(state or other juris-                                       (I.R.S. Employer
diction of incorporation)                                   Identification No.)

                   1950  Excel  Drive,  Mankato,  Minnesota  56001  (Address  of
               principal executive offices)(zip code)

               Registrant's telephone number, including area code:
                                 (507) 625-7231

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 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

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common  stock,  as of the  latest  practicable  date:  As of May  5,  1998,  the
Registrant had 2,833,039 shares of Common Stock, $.01 par value, outstanding.

         Transitional Small Business Disclosure Format (check one):

         Yes                        No   x

<PAGE>
                          PART I-FINANCIAL INFORMATION



                            WINLAND ELECTRONICS, INC.
                                  BALANCE SHEET
                                   (UNAUDITED)

                                             March 31,   December 31,
                                               1998          1997
                                           -----------   -----------
CURRENT ASSETS:
Cash                                       $   134,445   $    23,542
Accounts Receivable, Net                     1,961,118     1,581,368
Inventories                                  4,466,325     3,753,342
Prepaid Items                                   90,742       109,314
                                           -----------   -----------
     Total Current Assets                    6,652,630     5,467,566

Property and Equipment, Net                  3,226,062     3,141,279
Property Under Capital Lease, Net            1,761,090     1,715,500
OTHER ASSETS:
     Intangibles                                 6,652         7,034
     Deferred Income Taxes                      17,741        17,741
                                           -----------   -----------
             TOTAL ASSETS                  $11,664,175   $10,349,120

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
     Notes Payable                         $ 2,557,227   $ 1,733,227
     Accounts Payable                        1,405,865     1,200,177
     Payroll Taxes Payable                      45,304        24,690
     Wages and Commissions Payable              92,965        61,150
     Other Accruals                            135,632       162,709
     Obligations Under Capital Lease           348,220       323,876
     Deferred Revenue                           27,001        27,001
     Income Taxes Payable                       93,865         4,414
     Current Maturities                        171,628       170,730
                                           -----------   -----------
             Total Current Liabilities       4,877,707     3,707,974

LONG TERM LIABILITIES:
     Long Term Maturities                    2,246,021     2,289,193
     Obligations Under Capital Lease
     Less: Current Portion                   1,272,737     1,254,268
                                           -----------   -----------
             TOTAL LONG TERM LIABILITIES     3,518,758     3,543,461

OTHER LIABILITIES:
     Deferred Revenue
     Less: Current Portion                     182,256       189,006
                                           -----------   -----------
             TOTAL LIABILITIES               8,578,721     7,440,441

SHAREHOLDERS' EQUITY:
     Common Stock                               28,330        28,080
     Additional Paid-In Capital              2,080,250     2,079,001
     Retained Earnings                         976,874       801,598
                                           -----------   -----------
             Total Shareholders' Equity      3,085,454     2,908,679
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY   $11,664,175   $10,349,120


<PAGE>
                            WINLAND ELECTRONICS, INC.
                             STATEMENT OF OPERATIONS
                                   (UNAUDITED)



                                                       QUARTER ENDED
                                                          MARCH 31,

                                                   1998          1997
                                               -----------    -----------
NET SALES:                                     $ 4,402,960    $ 2,822,095
       Less, Cost of Goods Sold                  3,572,075      2,156,152
                                               -----------    -----------
       Gross Profit on Sales                       830,885        665,943

OPERATING EXPENSES:
       General and Administrative                  312,574        264,005
       Marketing                                    66,790         66,806
       Research and Development                    166,732        100,173
                                               -----------    -----------
                    Total Operating Expenses       546,096        430,984

INCOME BEFORE OTHER INCOME
       AND EXPENSE                                 284,789        234,959
                                               -----------    -----------
MISCELLANEOUS INCOME                                40,223          8,863
MISCELLANEOUS EXPENSE                                 (460)       (43,000)

INTEREST EXPENSE                                   (54,911)       (49,485)
                                               -----------    -----------
       TOTAL OTHER INCOME & EXPENSE                (15,148)       (83,622)
                                               -----------    -----------
NET INCOME BEFORE TAXES                            269,641        151,337
                                               -----------    -----------
PROVISION FOR INCOME TAXES                          94,365         23,000
                                               -----------    -----------
NET INCOME                                     $   175,276    $   128,337

BASIC EARNINGS PER SHARE                       $     0.062    $     0.046
WEIGHTED AVERAGE NUMBER OF SHARES
       OUTSTANDING                               2,833,039      2,776,384

DILUTED EARNINGS PER SHARE                     $     0.061    $     0.045
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING, INCLUDING DILUTIVE AHARES           2,867,882      2,836,684


<PAGE>
                            WINLAND ELECTRONICS, INC.
                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                           THREE MONTHS ENDED   THREE MONTHS ENDED
                                                                             MARCH 31, 1998       MARCH 31, 1997
                                                                              -----------          -----------
CASH FLOW FROM OPERATING ACTIVITIES:
<S>                                                                           <C>                  <C>        
       Cash Received from Customers                                           $ 4,022,940          $ 2,707,935
       Interest Received                                                           31,473                2,128
       Other Miscellaneous Operating Receipts                                       2,000                 --
       Cash Paid to Suppliers and Employees                                    (4,361,084)          (2,724,098)
       Interest Paid                                                             (128,143)            (109,094)
       Income Taxes Paid                                                           (4,914)                (920)
                                                                              -----------          -----------
           Net Cash Provided (Used) by Operating Activities                      (437,728)            (124,049)
                                                                              -----------          -----------
CASH FLOW FROM INVESTING ACTIVITIES:
       Purchases of Property and Equipment                                       (148,558)             (48,944)
       Cash Proceeds From Sales of Equipment                                          200                 --   
                                                                              -----------          -----------
           Net Cash Provided  (Used) by Investing Activities                     (148,358)             (48,944)
                                                                              -----------          -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
       Net Advances on Credit Line                                                824,000              355,000
       Proceeds from Debt                                                            --                   --
       Payments on Debt                                                           (42,277)             (41,110)
       Payments on Capital Lease Obligations                                      (86,234)             (52,738)
       Sale of Common Stock                                                         1,500                2,891
                                                                              -----------          -----------
           Net Cash Provided by Financing Activities                              696,989              264,043
                                                                              -----------          -----------
NET INCREASE IN CASH                                                              110,903               91,050
CASH - BEGINNING OF YEAR                                                           23,542               19,499
                                                                              -----------          -----------
CASH - END OF PERIOD                                                          $   134,445          $   110,549
                                                                              -----------          -----------

                 RECONCILIATION OF NET INCOME TO NET CASH (USED)
                             BY OPERATING ACTIVITIES


Net Income (Loss)                                                             $   175,276          $   128,337
Adjustments:
Disposition of Assets                                                                 460                   15
Depreciation & Amortization                                                       146,956              102,813
(Increase) Decrease in Accounts Receivable                                       (379,750)             (71,160)
(Increase) Decrease in Inventory                                                 (712,983)            (311,138)
(Increase) Decrease in Prepaid Items                                               18,572              (28,520)
(Decrease) Increase in Accounts Payable                                           205,688               38,306
(Decrease) Increase in Wages Payable                                               31,815               22,437
(Decrease) Increase in Accrued Payroll Taxes                                       20,614               (3,092)
(Decrease) Increase in Other Accruals                                             (27,077)             (17,377)
(Decrease) Increase in Deferred Revenue                                            (6,750)              (6,750)
(Decrease) Increase in Income Taxes Payable                                        89,451               22,080
                                                                              -----------          -----------
Net Cash Provided (Used) by Operating Activities                              $  (437,728)         $  (124,049)
                                                                              -----------          -----------

</TABLE>

                                                                               

<PAGE>
                            WINLAND ELECTRONICS, INC.
                    NOTES TO THE INTERIM FINANCIAL STATEMENTS
                                 MARCH 31, 1998
                                   (UNAUDITED)

NOTE A - BASIS OF PRESENTATION
The  accompanying  unaudited  financial  statements  have been  prepared  by the
Company in accordance with generally accepted accounting principles, pursuant to
the  rules  and  regulations  of the  Securities  and  Exchange  Commission.  In
management's  opinion all  adjustments  necessary to a fair  presentation of the
results for the  interim  period have been  reflected  in the interim  financial
statements. The results of operations for any interim period are not necessarily
indicative of the results for a full year.  Except for those described in note B
below,  all  other  adjustments  are  of  a  normal  recurring  nature.  Certain
information and footnote  disclosures  normally included in financial statements
have  been  condensed  or  omitted.   Such  disclosures  are  those  that  would
substantially  duplicate  information  contained  in  the  most  recent  audited
financial  statements of the Company,  such as significant  accounting policies,
net operating loss carry-overs, lease and license commitments and stock options.
Management  presumes  that  users of the  interim  statements  have read or have
access to the audited financial statements included in the Company's most recent
annual report on Form 10-KSB.

NOTE B - ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company  maintains an allowance for doubtful  accounts based on the aging of
accounts  receivable.  The balance of the  allowance  for  doubtful  accounts is
$5,074 at March 31, 1998 and $5,074 at December 31, 1997.

NOTE C - INVENTORY
Major  Components  of  inventory  at March 31, 1998 and December 31, 1997 are as
follows:
                                                     March 31,   December 31,
                                                       1998         1997
                                                    ----------   ----------
Raw Materials                                       $3,483,393   $2,775,668
Work In Process                                        434,772      490,428
Finished Goods                                         536,665      479,900
Manufacturing, Shipping, and Office Supplies            11,495        7,346
                                                    ----------   ----------
         Total                                      $4,466,325   $3,753,342

NOTE D - PROPERTY AND EQUIPMENT
Property and  Equipment not under  capital  leases  consists of the following at
March 31, 1998 and December 31, 1997:

                                                     March 31,    December 31,
                                                      1998           1997
                                                   -----------    -----------
Building                                           $ 2,376,511    $ 2,376,511
Land                                                   192,640        192,640
Office Equipment                                       183,481        167,528
Computer & Telephone Equipment                         469,047        402,444
Research & Development                                 128,966        110,608
Marketing and Display Equipment                         18,152         18,152
Factory Equipment                                      606,598        562,026
Land Improvements                                       77,369         77,369
Accumulated Deprecation                               (826,702)      (765,999)
                                                   -----------    -----------
         Net Book Value                            $ 3,226,062    $ 3,141,279


<PAGE>

                            WINLAND ELECTRONICS, INC.
                    NOTES TO THE INTERIM FINANCIAL STATEMENTS
                                 MARCH 31, 1998
                                   (UNAUDITED)

NOTE D - CONTINUED
Property and Equipment  under capital leases  consists of the following at March
31, 1998 and at December 31, 1997:

                                                       March 31,    December 31,
                                                         1998           1997
                                                     -----------    -----------
Factory Equipment                                    $ 1,991,070    $ 1,982,281
Office Equipment                                          41,623         60,408
Computer & Telephone Equipment                           169,985        120,415
Research & Development                                    42,335          9,396
Accumulated Amortization                                (483,923)      (457,000)
                                                     -----------    -----------
      Total Leased Property and Equipment, Net of
            Accumulated Amortization                 $ 1,761,090    $ 1,715,500
                                                     -----------    -----------
<TABLE>
<S>                                                              <C>            <C>

Capital Leases are summarized as follows:
Lease on factory equipment with lease period expiring
May of 2002, at an interest rate of 10.04%                       $    56,078    $    58,564
Lease on factory equipment with lease period expiring
June of 2002, at an interest rate of 10.04%                           70,058         73,093
Lease on factory equipment with lease period expiring
March of 2002, at an interest rate of 9.94%                           53,455         56,005
Lease on factory equipment with lease period expiring
March of 2002, at an interest rate of 8.88%                          179,564        188,113
Lease on computer and telephone equipment with lease
period expiring February of 2000, at an interest rate of 9.01%        27,932         31,019
Lease on factory equipment with lease period expiring
August of 2001, at an interest rate of 9.49%                         190,051        200,999
Lease on factory equipment with lease period expiring
July of 2001, at an interest rate of 9.96%                            90,446         95,354
Lease on factory and office equipment with lease period
expiring January of 2000, at interest  of 1% over prime              139,249        157,905
Lease on factory equipment with lease period expiring
October of 1998 at an interest rate of 9.23%                           7,752         11,496
Lease on office equipment with lease period expiring
March of 2000 at an interest rate of 9%                               12,530         13,882
Lease on factory and office equipment with lease period
expiring March of 2001 at an interest rate of 8.5%                    77,015           --
Lease on factory and R&D equipment with lease period
expiring April of 2003 at an interest rate of 8.68%                   46,981           --
Lease on factory equipment with lease period expiring
November of 2004 at an interest rate of 8.97%                        593,702        607,456
Lease on factory equipment with lease period expiring
October of 2002 at an interest rate of 9.5%                           17,846         18,910
Lease on factory equipment with lease period expiring
October of 2000 at an interest rate of 8.95%                          25,719         27,908
Lease on factory equipment with lease period expiring
January of 2001 at an interest rate of 9.02%                          32,579         37,440
                                                                 -----------    -----------
Total                                                            $ 1,620,957    $ 1,578,144
Less Current Portion                                                (348,220)      (323,876)
                                                                 -----------    -----------
Long Term Obligation Under Capital Leases                        $ 1,272,737    $ 1,254,268


</TABLE>

<PAGE>
                            WINLAND ELECTRONICS, INC.
                    NOTES TO THE INTERIM FINANCIAL STATEMENTS
                                 MARCH 31, 1998
                                   (UNAUDITED)

NOTE E - SHORT TERM BORROWING
Short term  borrowing  consists of the  following at March 31, 1998 and December
31, 1997 balance sheet:

                                                       March 31,    December 31,
                                                          1998           1997
                                                      -----------    -----------
Norwest Bank - Revolving Credit Line
Balance                                               $2,557,227     $1,733,227
Stated Interest Rate per Annum                              9.0%*          9.0%*
Maximum Amount Outstanding During the Quarter         $2,557,227     $2,050,227
Average Amount Outstanding During the Quarter         $2,212,560     $1,842,073
Unused Credit Available                               $  942,773     $1,400,121

* The stated  interest  rate per annum was equal to 1/2 of a percent  over prime
rate.  The interest on the revolving loan was $54,911 for the three months ended
March 31, 1998.  Additional  interest was reported related to the leased capital
equipment and other term borrowing. The interest expense on leased equipment was
$39,959 for the three  months ended March 31,  1998.  Interest  expense on other
long term borrowing was $32,952 for the three months ended March 31, 1998.

NOTE F - STOCK OPTIONS AND WARRANTS
As of March 31, 1998,  options to purchase an aggregate of 278,000 shares of the
Company's  common stock were granted and  outstanding  under the Company's  1989
Stock Option  Plan(the "1989 Plan").  As of March 31, 1998,  options to purchase
160,050 shares granted under the 1989 Plan were exercisable. The exercise prices
of all  outstanding  options under the 1989 Plan range from  $0.125to  $3.64 per
share.  Options to purchase 60,000 shares were granted and outstanding under the
1997 Stock Option Plan(the "1997 Plan"), as of March 31, 1998, 6,000 shares were
exercisable. The exercise price of options under the 1997 Plan range from $2.375
to $3.125.

As of March 31, 1998,  warrants to purchase an aggregate of 37,000 shares of the
Company's Common Stock at $2.20 per share were granted and  outstanding,  all of
which warrants are exercisable.







<PAGE>


ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Results of Operations
Three months ended March 31, 1998 v.
Three months ended March 31, 1997

Net Sales:
The Company  recorded net sales of  $4,402,960  for the three months ended March
31, 1998, an increase of 56% from  $2,822,095  for the same period in 1997.  The
increase in sales for the first  quarter of 1998  compared to 1997 is  primarily
attributed  to increases  in sales to Select  Comfort  Corporation.  The current
purchase  orders with Select Comfort  Corporation are in excess of $9.6 million,
and are  expected to be  fulfilled  in 1998 and early  1999.  In addition to the
increased   sales  to   Select   Comfort   Corporation,   sales   to   PeopleNet
Communications,  Inc. increased  significantly  during the first three months of
1998  compared to 1997,  marking the beginning of production of the $5.5 million
dollar  manufacturing  agreement to be  fulfilled in 1998 and 1999.  The Company
also has purchase agreements with Keyless Door Lock Company for $325,000,  and a
$2 million dollar,  three year,  manufacturing  agreement with CIC Systems (NZ),
Inc. In addition to the above  mentioned  contracts,  the Company  continues  to
initiate  new OEM  customer  relationships,  and has signed  firm  manufacturing
agreements  for smaller  amounts  with two new  customers  who fit our  customer
profile. During the first quarter of 1998, the Company has continued to actively
market its security/  industrial products,  and has maintained  consistent sales
for the three months ended March 31, 1998, compared to 1997.

The Company has  continued  to position  itself as a full  service  designer and
manufacturer  of custom  controls and assemblies for OEM customers.  The loss of
any OEM  customer  could  have an  adverse  effect on the  Company's  short-term
results.  The  Company's  marketing  research  indicates  that  there is a large
potential market for electronic design and manufacturing  services and that this
market is growing rapidly.

Gross Profits:
Gross profit was $830,885 or 18.9% of net sales for the three months ended March
31,  1998,  compared  to  $665,943  or 23.6% of net sales for the same period in
1997.  The reduction in gross  profits,  as a percentage of sales,  is primarily
attributed  to the sales mix  during  the first  quarter  of 1998  since the OEM
product  sales  generally  produce  lower gross  margins  than the lower  volume
proprietary  products  manufactured by the Company. The lower gross profits were
also due to expected lower gross margins associated with the production start up
of the new Peoplenet Communications product line.

Operating Expenses:
General and  administrative  expense  was  $312,574 or 7.1% of net sales for the
three months ended March 31, 1998, compared to $264,005 or 9.4% of net sales for
the same period in 1997.  As a percentage  of sales  general and  administrative
expense  declined.  The actual general and  administrative  expense  increase is
primarily  attributed  increased costs  associated  with the Company's  expanded
public  relations  efforts,  coordinated by Padilla,  Spear and  Beardsley,  and
consulting  consulting services provided by Inc. Business Resources to assist in
the promotion of the Company to the investment community.

Marketing  and customer  relations  expense was $66,790 or 1.5% of net sales for
the three months ended March 31, 1998,  compared to $66,806 or 2.4% of net sales
for the same period in 1997.  Marketing and customer  relations expense remained
steady for the first  quarter of 1998,  compared to 1997. As a percentage of net
sales,  marketing  and  customer  relations  expense  declined  for the  period,
compared to 1997. The Company has continued to expand its efforts to secure new,
long-term OEM customer  relationships to design and manufacture  custom controls
and   assemblies.   The  Company   also   continues   to  actively   market  its
security/industrial products.


<PAGE>

Research and development expense was $166,732 or 3.8% of net sales for the three
months ended March 31, 1998,  an increase from $100,773 or 3.5% of net sales for
the same period in 1997.  The  increase in research and  development  expense is
primarily  attributed to the addition of technical staff and equipment needed to
better  service  our  customers'  growing  requirements  for design and  support
services.  As a percentage of sales,  research and development  expense declined
for the period.

Interest Expense:
Interest expense, including interest on the revolving line of credit, other long
and short-term borrowing, and interest on capital leases was $127,822 or 2.9% of
net sales for the three  months  ended March 31,  1998,  compared to $106,550 or
3.8% of net sales for the same period in 1997. The increase in interest  expense
reflected  additional  short-term borrowing and borrowing through capital leases
needed to support increased sales volumes.

Net Earnings:
The Company  reported net income of $175,366 or $0.061 per diluted share for the
three months ended March 31, 1998,  compared to net income of $128,337 or $0.045
per diluted share for the same period in 1997.  Net income before taxes rose 78%
to $269,641 from $151,337 for the first quarter 1998 compared to the same period
in  1997.   The   provision   for  income  taxes  for  1997  included  tax  loss
carry-forwards,  which  will be used up in 1998.  As a result of this net income
after tax rose 37% for the first quarter of 1998 compared to 1997.

The Company  believes  inflation has not  significantly  affected its results of
operations.

Liquidity and Capital Resources

The  current  ratio on March 31,  1998 was 1.36 to 1,  compared  to 1.47 to 1 on
December 31, 1997. Working capital on March 31, 1998 was $1,774,923  compared to
$1,759,592  on December 31, 1997.  The increase in working  capital is primarily
attributed to increases in cash, accounts  receivable,  and inventory,  that are
offset by additional  short-term borrowing needed to support the increased sales
during the first three months of 1998.

The Company has a revolving  credit  agreement  with the Norwest Bank  Minnesota
South  N.A.("Norwest"),  with a maximum  loan  limit of  $3,500,000,  subject to
additional  limitations set forth in the credit agreement.  The interest rate is
calculated  at 1/2%  over the  prime  interest  rate.  At March  31,  1998,  the
principle outstanding balance on the revolving line of credit was 2,557,224. The
Company's  management believes that capital available through the current credit
agreement,  together with cash flows from  operations will be sufficient to meet
the Company's capital needs in the near future.








<PAGE>

                            PART II-OTHER INFORMATION



ITEM 1: LEGAL PROCEEDINGS


The Company is one of 18 different  companies  who are  defendants in a products
liability  case. The  plaintiffs  are Debmar,  Inc. and St. Paul Fire and Marine
Insurance  Company.  It is  venued in the  Superior  Court of  Maricopa  County,
Phoenix,  Arizona. The case was filed in May of 1997, although it was not served
on the Company until a few months later.  The plaintiff Debmar is a company that
provides vaccines to various medical  entities,  and St. Paul Fire and Marine is
Debmar's  insurance carrier.  Debmar claims that a refrigeration  system that it
purchased  to  store  certain  vaccines  was  defective,  causing  a drop in the
refrigeration  system's  temperatures  in May of 1995 and an alleged  subsequent
substantial loss of vaccines.  Debmar's  insurance carrier paid for the economic
loss and is now seeking  indemnification  for the payment from  virtually all of
the companies that had any relationship in manufacturing component parts for the
refrigeration system,  distributing or maintaining the refrigeration system. The
amount of the claimed  loss is in excess of $1.1  million.  It appears  that the
Company is a party in this case  because it  produced a small  component  of the
larger refrigeration system.



ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

     (a)  The exhibit to this report is:

            27.1 Financial Data Schedule (included in electronic version only)

     (b)  There are no reports on Form 8-K for the quarter ended March 31, 1998.
          Subsequently,  a Form 8-K dated  May 1,  1998 was filed to report  the
          change of audit firms.


<PAGE>



                                   SIGNATURES



Pursuant  to the  requirement  of the  Securities  Exchange  Act  of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                          WINLAND ELECTRONICS, INC.


Dated: May 12, 1998                       By: /s/ William K. Hankins

                                          William K. Hankins, President,
                                          Chief Executive Officer and
                                          Chief Financial Officer
                                          (Principal Executive Officer
                                          and Principal Financial and
                                          Accounting Officer)