SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C.  20549 FORM 10-QSB T
  Quarterly
  Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For Quarter Ended:  March 31, 2001 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. Employerdiction 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. YesTNo£ Indicate the number of shares outstanding of
each of the issuer's classes of common stock, as of the latest practicable
date:  As of April 26, 2001, the issuer
had 2,952,313 shares of Common Stock, $.01 par value, outstanding. Transitional
Small Business Disclosure Format (check one): Yes£NoT   PART I - FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS

WINLAND
ELECTRONICS, INC.
BALANCE SHEET



ASSETS
  March
  31,
  December
  31,2001
  2000(UNAUDITED)CURRENT ASSETS:Cash
  $20,152
  $38,961Accounts Receivable,
  Net
  2,696,253
  3,435,030Income Tax Receivable
  196,252
  127,252Inventories
  5,049,313
  5,270,029Prepaid Expenses
  94,980
  56,599Deferred Taxes
  244,100
  244,100Total Current
  Assets
  8,301,050
  9,171,971Patent and Trademarks,
  net of amortization
  2,130
  2,498Property and
  Equipment, at cost:Land and Land Improvements
  272,901
  272,901Building
  2,983,586
  2,983,586Machinery and Equipment
  3,706,369
  3,778,392Data Processing Equipment
  1,309,216
  1,277,413Office Furniture and Equipment
  333,807
  351,960Total
  8,605,879
  8,664,252Less Accumulated Depreciation
  (3,253,845)
  (3,131,612)Property and Equipment, Net of
  Depreciation
  5,352,034
  5,532,640TOTAL ASSETS
  $13,655,214
  $14,707,109

WINLAND ELECTRONICS, INC.
BALANCE SHEET

LIABILITIES AND
  SHAREHOLDERS' EQUITY
  March
  31,
  December  31,2001
  2000(UNAUDITED)CURRENT LIABILITIES:Note Payable, Bank
  $3,569,501
  $3,924,501Current Maturities of
  Long Term Debt
  676,314
  713,845Accounts Payable
  1,779,261
  2,107,319Accrued Expenses:Compensation
  161,578
  225,767Other
  145,916
  125,719Total Current
  Liabilities
  6,332,570
  7,097,151LONG TERM LIABILITIES:Deferred Revenue
  193,203
  195,238Long Term Debt, Less
  Current Maturities
  2,769,160
  2,924,885Deferred Taxes
  189,300
  189,300Total Long Term
  Liabilities
  3,151,663
  3,309,423SHAREHOLDERS' EQUITY:Common Stock
  29,523
  29,523Additional Paid-In
  Capital
  2,242,423
  2,242,423Retained Earnings
  1,899,035
  2,028,589Total
  Shareholders' Equity
  4,170,981
  4,300,535TOTAL LIABILITIES
  & SHAREHOLDERS' EQUITY
  $13,655,214
  $14,707,109

WINLAND ELECTRONICS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)



Three
  Months EndedMarch
  31,2001
  2000NET SALES
  $4,531,107
  $4,217,690COST OF GOODS SOLD
  3,832,059
  3,397,381Gross Profit
  699,048
  820,309OPERATING EXPENSES:General and Administrative
  318,632
  338,551Marketing
  169,327
  144,823Research and Development
  254,340
  241,012Total Operating
  Expenses
  742,299
  724,386OPERATING INCOME
  (LOSS)
  (43,251)
  95,923INTEREST EXPENSE
  (155,941)
  (98,254)OTHER INCOME  (EXPENSE), NET
  638
  28,233(155,303)
  (70,021)NET INCOME (LOSS)
  BEFORE INCOME TAXES
  (198,554)
  25,902PROVISION FOR INCOME
  TAXES
  69,000
  (9,600)NET INCOME (LOSS)
  $(129,554)
  $16,302BASIC EARNINGS (LOSS)
  PER SHARE
  $(0.04)
  $0.01WEIGHTED AVERAGE
  NUMBER OF SHARESOUTSTANDING
  2,952,313
  2,911,851DILUTED EARNINGS
  (LOSS) PER SHARE
  $(0.04)
  $0.01WEIGHTED AVERAGE
  NUMBER OF SHARESOUTSTANDING, INCLUDING
  POTENTIALLYDILUTIVE SHARES
  2,952,313
  3,044,415

WINLAND ELECTRONICS, INC.
STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED MARCH 31, 2001 and 2000
(UNAUDITED)

2001
  2000CASH FLOW FROM
  OPERATING ACTIVITIES:Net Income (Loss)
  $(129,554)
  $16,302Adjustments to reconcile net income
  (loss) to net cash provided by(used in) operating activities:Depreciation and Amortization
  205,343
  208,790Loss on Disposal of Equipment
  4,854
  350Changes in Assets and LiabilitiesAccounts Receivable
  738,777
  61,892Income Taxes Receivable
  (69,000)
  5,558Inventories
  220,716
  (255,606)Prepaid Expenses
  (38,380)
  (21,381)Accounts Payable
  (328,058)
  12,761Accrued Expenses and Deferred
  Revenue
  (46,027)
  (124,791)Net
  Cash Provided By (Used In) Operating Activities
  558,671
  (96,125)CASH FLOW FROM
  INVESTING ACTIVITIES:Purchase of Equipment
  (43,223)
  (111,731)Proceeds from sale of Equipment
  14,000
  -Net
  Cash Used in Investing Activities
  (29,223)
  (111,731)CASH FLOW FROM
  FINANCING ACTIVITIES:Net Borrowings (Payments) on Revolving
  Credit Agreement
  (355,000)
  300,000Payments on Long Term Borrowings,
  IncludingCapital Lease Obligations
  (193,256)
  (181,293)Proceeds From Issuance of Common Stock
  -
  62,066Net
  Cash Provided by (Used In) Financing Activities
  (548,256)
  180,773Net
  Decrease in Cash
  (18,808)
  (27,083)CASHBeginning
  38,961
  40,017End
  $20,153
  $12,934SUPPLEMENTAL
  DISCLOSURES OF CASH FLOW INFORMATIONCash Payments For:Interest
  $156,421
  $99,250Income Taxes
  -
  4,043

WINLAND ELECTRONICS, INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
MARCH 31, 2001
(UNAUDITED)

NOTE
1 - BASIS OF PRESENTATIONThe
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 for 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.  All adjustments to the financial statements
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,
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
2 - INVENTORYMajor
components of inventory at March 31, 2001 and December 31, 2000 are as follows:

March 31,
  December 31,2001
  2000Raw
  Materials
  $3,975,469
  $4,713,476Work
  In Process
  311,059
  288,991Finished
  Goods
  804,842
  319,562Obsolescence
  reserve
  (42,057)
  (52,000)Total
  $5,049,313
  $5,270,029

NOTE
3 - FINANCING ARRANGEMENTThe Company has
a $4,500,000 revolving line-of-credit agreement through August, 2001.  Interest on advances is at the bank's
reference rate (8.5 percent at March 31, 2001) and is due monthly. Advances
outstanding on the revolving line-of-credit agreement at March 31, 2001and
December 31, 2000, were $3,569,501 and $3,924,501, respectively.

Advances are
due on demand, are secured by substantially all assets of the Company, and are
subject to a defined borrowing base equal to 80 percent qualified accounts
receivable and 60 percent of eligible inventories and 25 percent of work in
process.  In addition, the agreement
contains certain reporting and operating covenants.

NOTE
4 - STOCK OPTIONS AND WARRANTSAs of March 31,
2001, the Company's 1989 and 1997 Stock Option Plans in aggregate had options
to purchase 368,600 shares of common stock, of which 247,900 shares were
exercisable.  At March 31,  2001, the exercise prices of all outstanding
options range from $1.75 to $2.938 per share.

NOTE
5 - MAJOR CUSTOMERS AND ENTERPRISEWIDE DISCLOSURESMajor
Customers: The Company has customers that accounted for more than 10 percent of
net sales for the three months ended March 31, 2001, and 2000, as follows:



Three Months Ended
  Three Months EndedMarch 31, 2001
  March 31, 2000Sales
  percentage:Customer A
  35%
  9%Customer B
  22%
  36%Customer C
  13%
  12%

Enterprisewide Disclosures:The following table presents three month
revenues from external customers for each of the Company's groups of products
and services:

Three Months Ended
  Three Months EndedMarch 31, 2001
  March 31, 2000Proprietary
  microprocessors and mechanicallycontrolled sensors and alarms
  $598,491
  $603,203Electronic
  controls and assemblies forOEM customers
  3,932,616
  3,614,487$4,531,107
  $4,217,690NOTE
6 - EARNINGS (LOSS) PER SHARE

Basic per-share
amounts are computed, generally, by dividing net income or loss by the
weighted-average number of common shares outstanding.  Diluted per-share amounts assume the conversion, exercise, or
issuance of all potential common stock instruments unless the effect is
antidilutive.

The Company has
granted options to purchase shares of common stock at various amounts per
share.  Those options were not included
in the computation of diluted earnings per share because the Company incurred a
year-to-date loss.  The inclusion of
potential common shares in the calculation of diluted loss per share would have
an antidilutive effect.  Therefore,
basic and diluted loss per share amounts are the same in each period presented
for 2001.

ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION

Results
of OperationsThree months ended March 31, 2001 v.
Three months ended March 31, 2000

Net
Sales:The Company recorded net sales of $4,531,107
for the three months ended March 31, 2001, an increase of 7.4% from $4,217,690
for the same period in 2000. The increase in net sales for the period is
primarily attributed to increased sales of non-manufactured products for one of
the Companys OEM customers, which sell at a lower gross margin than regular
OEM sales.

Major OEM
customers have given the Company purchase orders and forecasts for delivery
during the remainder of 2001, having an aggregate value of $6 million.  These purchase commitments are at various
stages of completion.  The Company also
has several smaller agreements with various OEM customers to be fulfilled in
2001.

The Company has
continued to promote itself as a full service designer and manufacturer of
custom controls and assemblies for OEM customers.The Company has begun to explore additional geographic
regions to market its OEM services, primarily through networking with referral
sources in the Chicago area.  The loss
of any major OEM customer would likely have an adverse effect on the Companys
short-term, and potentially long-term, results.

Gross
Profits:Gross profit was $699,048 or 15.4% of net
sales for the three months ended March 31, 2001, compared to $820,309 or 19.5%
of net sales for the same period in 2000. 
The Company has experienced an erosion of gross profits on several
different OEM products due to increasing manufacturing costs.  The gross profits for the quarter have also
been adversely affected by changes in the product sales mix during the first
quarter of 2001, compared to 2000, resulting in a greater proportion of
products with a lower gross margin.

Operating
Expenses:   General and administrative expense was
$318,632 or 7.0% of net sales for the three months ended March 31, 2001,
compared to $338,551 or 8.0% of net sales for the same period in 2000.  The decrease in general and administrative
expense for the quarter is primarily due to the reallocation of certain
expenses, primarily relating to facility, information technology and leased
vehicles, to better match the costs with the departmental use.  The reduction of certain expenses was offset
in part by increased salaries and professional fees for the quarter.

Marketing and
customer relations expense was $169,327 or 3.7% of net sales for the three
months ended March 31, 2001, compared to $144,823 or 3.4% of net sales for the
same period in 2000.  The increased
marketing expense is primarily attributed to the reallocation of certain
expenses, offset in part by decreased trade show expense during the
quarter.  The Company has continued with
direct marketing efforts, in addition to using referral networks, to secure new
OEM customer business, as well as to promote the new DC motor controller
product line.

Research and
development expense was $254,304 or 5.6% of net sales for the first quarter of
2001, compared to $241,012 or 5.7% of net sales for the same period in
2000.   The increase in research and
development expense for the first three months of 2001 is primarily attributed
to the reallocation of certain costs, when compared to 2000.

Interest
Expense:Interest expense was $155,941 or 3.4% of net
sales for three months ended March 31, 2001, compared to $98,254 or 2.3% of net
sales for the same period in 2000.  The
increased Interest expense is attributed to increased levels of short-term
debt.  The additional debt was needed to
support increased inventory levels and to fund operating activities.

Net
Income:The Company reported a net loss of $129,554
or ($0.04) per diluted share for the three months ended March 31, 2001,
compared to net income of $16,302 or $0.0105 
per diluted share for the same period in 2000.  The net loss for the quarter is primarily due to increased
manufacturing costs, increased operating expenses, as well as increased
interest expense.

Liquidity
and Capital Resources:Cash provided by operating activities,
primarily from a reduction in accounts receivable and inventory offset by
decreased accounts payable was $558,670 for the first three months of 2001,
compared to cash used in operating activities of $96,125 for the same period in
2000.  Cash provided by operating
activities, was used for the purchase of capital equipment, and for the
reduction of short-term and long-term debt.

The current
ratio on March 31, 2001 and December 31, 2000 was 1.3 to 1.  Working capital equaled $1,968,468 on March
31, 2001, compared to $2,074,820 on December 31, 2000.  The decrease in working capital is
attributed to decreased accounts receivable and inventories, as well as
decreases in short-term borrowing offset in part by increased income tax
receivable and prepaid expenses.

The Company has
a $4,500,000 revolving line-of-credit agreement with Wells Fargo Bank, through
August 2001.  Interest on advances is at
the banks reference rate (8.5 percent at March 31, 2001) and is due
monthly.   Advances outstanding on the
revolving line-of-credit agreement at March 31, 2001 and 2000, were $3,569,501
and $3,924,501, respectively.    Advances
are due on demand, are secured by substantially all assets of the Company, and
are subject to a defined borrowing base equal to 80 percent of qualified
accounts receivable and 60 percent of eligible inventory plus 25 percent of
work in process.  In addition, the
agreement contains certain reporting and operating covenants.

CAUTIONARY STATEMENTS

Certain
statements contained in this Annual Report on Form 10-KSB and other written and
oral statements made from time to time by the Company do not relate strictly to
historical or current facts.  As such,
they are considered forward-looking statements which provide current
expectations or forecasts of future events. 
Such statements can be identified by the use of terminology such as
anticipate, believe, estimate, expect, intend, may, could,
possible, plan, project, should, will, forecast and similar words
or expressions.  The Companys
forward-looking statements generally relate to the Companys growth strategies,
financial results, product development and sales efforts.  One must carefully consider forward-looking
statements and understand that such statements involve a variety of risks and
uncertainties, known and unknown, and may be affected by inaccurate
assumptions, including, among others, those discussed below.  Consequently, no forward-looking statement
can be guaranteed and actual results may vary materially.  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 Company
derives a significant portion of its revenues from a small number of major OEM
customers which are not subject to any long-term contracts with the
Company.  If any major customer should
for any reason decrease the volume of their business or stop doing business
with the Company, the Companys business would be adversely affected.   Some of the Companys key customers are not
large, well-established companies, and the business of each customer is subject
to various risks such as market acceptance of new products and continuing
availability of financing.  To the
extent that the Companys customers encounter difficulties, or the Company is
unable to meet the demands of its OEM customers, the Company could be adversely
affected.

The Companys
ability to increase revenues and profits is dependent upon its ability to
retain existing customers and obtain new customers.  The Company competes for new customers with numerous independent
contract design and manufacturing firms in the United States and abroad, many
of whom have greater financial resources and more established reputations.  The Companys ability to compete
successfully in this industry depends, in part, upon the price at which the
Company is willing to manufacture a proposed product and the quality of the
Companys design and manufacturing services. 
There is no assurance that the Company will be able to continue to
obtain contracts from existing and new customers on financially advantageous
terms, and the failure to do so could prevent the Company from achieving the
growth it anticipates.

The operations
and success of the Company depend, in part, upon the experience and knowledge
of W. Kirk Hankins, the Companys Chief Executive Officer and Lorin E. Krueger,
the Companys President and Chief Operating Officer.  The loss of either Mr. Hankins or Mr. Krueger would have a
temporary material adverse effect on the Company.

PART II  OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON 8-K

(a)
  The exhibit to this report is:10.1  
  Amendment dated August 14, 2000 to Employment Agreement dated January
  1, 1999 between the Company and W. Kirk Hankins.(b)
  The Company filed a Form 8-K as of March 5,
  2001 to report the amendment of its Bylaws regarding shareholder proposals
  and nominations.

SIGNATURES

Pursuant to the requirements of Section 13 of the
Securities Exchange Act of 1934, the Company has caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.



WINLAND
  ELECTRONICS, INC.(Company)Dated:  May 10, 2001
  /s/ W. Kirk HanknisW. Kirk Hankins,
  Chairman and ChiefExecutive Officer
  (Principal ExecutiveOfficer)/s/
  Jennifer A. ThompsonJennifer
  A. Thompson, Vice President ofFinancial
  Operations (Principal  Financial andAccounting
  Officer)

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

EXHIBIT INDEX TO FORM 10-QSB

For the
  fiscal quarter ended
  Commission
  File No. 0-18393March
  31, 2001




WINLAND ELECTRONICS, INC.




Exhibit No.
  Description10.1
  Amendment dated August 14, 2000 to Employment
  Agreement dated January 1, 1999 between the Company and W. Kirk Hankins*











*Management agreement or compensatory plan or arrangement.