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corresp

May 19, 2005

Ms. Michele Gohlke

Branch Chief

Securities and Exchange Commission

Division of Corporation Finance

450 Fifth Street NW

Washington, D.C. 20549-0306

    Re:

    Winland Electronics, Inc.

    Form 10-KSB for year ended December 31, 2004 filed March 21, 2005,

    File No. 001-15637

    Your letter dated April 22, 2005

Dear Ms. Gohlke,

     On behalf of Winland Electronics, Inc., (“Winland” or “the Company”), I am
responding to the comments in your letter dated April 22, 2005 with respect to
the above-referenced filing. Each response is numbered to correspond to the
number of the relevant comment in your letter.

Form 10-KSB for the year ended December 31, 2004

Management’s Discussion and Analysis or Plan of Operation — Page 7

    1.
    We note throughout your MD&A in the results of operations you identify
significant changes that significantly impacted your operating results but
you do not quantify such changes or provide an adequate discussion or
explanation for such changes. For example, you indicate that gross profit
increased in 2004 due to increases in temporary employee wages, component
prep charges, equipment repairs and leases, small tooling, manufacturing
supplies and freight, which were offset in part by a reduction in
obsolescence and warranty reserves. In future filings please provide an
investor with an extensive discussion of the items that significantly
impacted your results for the periods being compared with the impact of
such item

The Company will comply with the aforesaid comment in its future filings.

    2.
    In future filings, revise this section to include a discussion of the
material components of Cost of Sales and General and Administrative
expenses so the reader understands your income statement presentation and
how gross margin is computed. Also include in your discussion the type of
costs that you capitalize in inventories.

The Company will comply with the aforesaid comment in its future filings.

- Critical Accounting Policies— Page 9

    3.
    In addition to identifying in MD&A all significant estimates, in future
filings include a discussion of the methodology used by management in
determining these particular estimates and the likelihood that materially
different amounts would be reported under different conditions or using
different methods. For example, expand your discussion in future filings
and tell us supplementally in regards to your inventory obsolescence
reserve the methodology that is used by Management to determine such
reserve and the significant assumptions made and estimates used. Refer to
the guidance provided in FR-60 and FR-72.

The Company will comply with the aforesaid comment in its future filings. The
Company intends to include the following discussion on estimates as they would
be disclosed in the Critical Accounting Policies in future filings to help the
reader better understand management’s methods used in determining reserves and
the significant assumptions made and estimates used:

“The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and related disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. We cannot assure you that actual results
will not differ from those estimates. We believe the following critical
accounting policies affect our more significant judgments and estimates used in
the preparation of our financial statements.

Inventory Valuation. Our inventories are stated at the lower of cost, using the
first-in, first-out (FIFO) method, or market value. Our industry is
characterized by rapid technological change, short-term customer commitments
and rapid changes in demand, as well as other market considerations. The
Company makes provisions for slow moving, estimated excess and obsolete
inventory based on an analysis of the existing inventory, and applying
probability of obsolescence percentages to the aged inventory brackets based on
historical experience and specific identification of obsolete inventory. In
addition, we conduct quarterly reviews for our major customers and annual
reviews for lower volume customers of inventory quantities on hand and on order
in conjunction with the latest forecasts of product demand and production
requirements from these customers. Inventory not specific to a particular
customer is reviewed at least annually. The Company believes that the
processes used to determine inventory obsolescence reserve ensure a more
accurate estimate of such reserve than any other methodology.

All parts specifically identified as obsolete, excess with no foreseeable
opportunity of usability and slow moving parts which become unusable due to
solderability or date code issues are periodically discarded as part of
inventory write downs. Management’s estimated reserve for slow moving and
obsolete inventories was valued at $150,000 and $200,000 for the periods ended
March 31, 2005 and 2004, respectively. The reserve balance is analyzed for
adequacy at least quarterly along with the periodic inventory reviews. If
actual market conditions or our customers’ product demands are less favorable
than those projected, additional reserves and inventory write-downs may be
required.

Allowance for Doubtful Accounts. We evaluate our allowance for uncollectible
accounts on a quarterly basis and review any significant customers with
delinquent balances to determine future collectibility. We base our
determinations on legal issues (such as bankruptcy status), past history,
current financial and credit agency reports, and experience. We reserve
accounts deemed to be uncollectible in the quarter in which we make the
determination. We maintain additional reserves based on our historical bad debt
experience. We believe these values are estimates and may differ from actual
results. We believe that,

based on past history and credit policies, the net
accounts receivable are of good quality. Write offs for the three months ended
March 31, 2005 and 2004 were $0 and $2,242, respectively. The Allowance for
Doubtful Accounts was valued at $20,000 for each period ended March 31, 2005
and 2004.

Allowance for Rework and Warranty Costs. We have established a warranty
reserve for rework, product warranties and customer refunds. We provide to
our OEM customers, a limited warranty that requires us to repair or replace
product, at no cost to the customer, which is defective due to Company
workmanship issues. In addition, we provide a limited warranty for our
proprietary products for a period of one year, which requires us to repair or
replace defective product at no cost to the customer or refund the purchase
price. Reserves are established based on historical experience and analysis
for specific known and potential warranty issues. The reserve reflecting
historical experience and potential warranty issues is determined based on a
percentage of sales for the prior six-month period. Any specific known
warranty issues are reserved for individually. The total of these is analyzed
to determine the probability and the Company’s financial exposure, and the
reserve is established. As of March 31, 2005 and 2004, the Allowance for
Rework and Warranty Costs was valued at $137,580 and $124,000, respectively.
The product warranty liability reflects management’s best estimate of probable
liability under our product warranties and may differ from actual results.”

Financial Statements

Note 1. Nature of Business and Significant Accounting Policies — Page 19

- Revenue Recognition — Page 19

    4.
    Please tell us supplementally and expand in greater detail in future
filings your revenue recognition policy, especially as it relates to the
different types of revenue you earn such as product sales, consisting of
electronic controls and assemblies, and proprietary products consisting of
sensors and alarms, out of warranty repairs and engineering design
services. Include in your discussion the types of post shipment
obligations or acceptance provisions you may have and how you account for
such obligations when they exist. Refer to the guidance provided in SAB
104.

In most cases, the Company recognizes revenue from the sale of products and out
of warranty repairs when the product is delivered to a common carrier for
shipment and title transfers.

With one particular customer, the Company recognizes revenue from the sale of
customized products when the product is delivered to a customer rented
warehouse location within the Company as title transfers and risk of loss and
ownership passes to the buyer. These sales are subject to written purchase
orders including a fixed schedule for delivery and the date for delivery is
reasonable and consistent with the buyer’s business purpose. The product,
which is segregated from other inventory, cannot be used to fulfill other
customer’s orders as this is a unique product for this customer only. We are
the sole supplier source of this product for this customer. Because of the
unique nature of this product, the customer must have stock on hand and ready
to ship to their customers. Since the customer does not have its own
warehouse, they rent warehouse space from the Company by paying a monthly
rental charge based on the number of pallets containing their inventory. The
customer’s credit and payment terms are the same as all other OEM customers.

Another portion of the Company’s business involves the Company shipping product
to a primary customer’s location where it is held in a separate warehouse.
Revenue is recognized when that customer notifies the Company the inventory has
been removed from that warehouse and title to the product is transferred.

Revenue recognition occurs for engineering design services as the progress
billings are made and at the conclusion of the project.

Shipping and handling charges billed to customers are included in net sales,
and shipping and handling costs incurred by the Company are included in cost of
goods sold. For all sales, the Company uses either a binding purchase order or
customer accepted and signed engineering quote as evidence of the arrangement.
The Company does not generally accept returns, but does provide a limited
warranty as outlined below under Allowance for Rework and Warranty Costs.

The Company will comply with the aforesaid comment in future filings by
incorporating the above discussion in future filings.

Note 9. Major Customers. International Sales and Enterprise Wide Disclosures — Page 29

    5.
    We note from the business section of your Form 10-KSB that you design and
manufacture electronic controls and assemblies for OEM customers and
provide proprietary products consisting of sensors and alarms for the
security/industrial markets. It appears that you have two products that
are sold to different types of customers and through different marketing
channels. We further note that the discussion of your results of
operations is based on revenue generated for each product. Tell us
supplementally why you believe you operate in one operating segment and
how you determined that you do not have more than one reportable segment
that meets the criteria of paragraph 10 of SFAS131. If you applied the
aggregation guidance provided in paragraph 17 of SFAS 131 that fact should
be disclosed in future filings along with why you believe the criteria for
aggregation outlined in paragraph 17 was met.

The Company has reviewed SFAS 131. We do not believe the Company has more than
one operating segment as defined in Paragraph 10. The Company is able to
distinguish sales revenue from various sources but discrete financial
information regarding profit or loss, expense items and assets is not available
and operating results are not regularly reviewed by the chief operating
decision maker to make decisions about resources to be allocated to each
revenue source or to assess the performance. In addition, information is not
reported or used for internal use and to require the Company to report this
would be impracticable. All products are produced in the same manufacturing
facility, utilizing the same major and miscellaneous manufacturing equipment
and using the same direct and indirect personnel. All products manufactured
by the Company represent electronic controls used in a variety of industries
and sold to our customers for resale by them to the end user or through various
distribution channels.

Item 8A. Controls and Procedures — Page 31

    6.
    Tell us supplementally and disclose in greater detail in future filings
the nature of the material weaknesses identified in your disclosure. In
this regard, tell us supplementally and disclose in future filings the
specific steps that you have taken to remediate the material weaknesses
and whether management believes that the material weaknesses have been
corrected.

Management was advised by our independent registered public accounting firm,
that we had two significant deficiencies in our internal control, not material
weaknesses. Management believes both significant deficiencies have been
appropriately addressed and corrected.

The first deficiency related to the methodology used to determine our inventory
obsolescence reserve. The Company previously determined the reserve for slow
moving and obsolete inventory solely by analyzing the existing inventory, and
applying probability of obsolescence
percentages to the aged inventory brackets and included specific identification
of obsolete inventory.

To address the identified deficiency, in addition to the above methodology
described in the preceding sentence, we are currently developing procedures
which will provide for estimated excess, slow moving and obsolete inventory
reserves based on quarterly reviews for our major customers and annual reviews
for lower volume customers of inventory quantities on hand and on order in
conjunction with the latest forecasts of product demand and production
requirements from these customers. Inventory not specific to a customer is
evaluated at least annually. We expect to have these procedures in place by
the end of the second quarter of 2005.

All parts specifically identified as obsolete, excess with no foreseeable
opportunity of usability and slow moving parts which become unusable due to
solderability or date code issues are periodically discarded as part of
inventory write downs.

The second deficiency related to the reporting of shipping revenue and the
related expense. Previously, the Company netted the shipping revenue charged
to the customer against the expense for such shipping. The net revenue or
expense was previously reported as part of net sales. Beginning with the
10-KSB for the year ended December 31, 2004, the Company reported the shipping
revenue in net sales and the related shipping expense as cost of sales. The
comparative information for the year ended December 31, 2003 was also restated
to reflect this change as will future comparative quarters. This did not
affect the gross profit dollars or net income and was not material in amount or
nature as to cause a material misstatement.

The Company hereby acknowledges that

    •
    The Company is responsible for the adequacy and accuracy of the
disclosure in the filings;

    •
    Staff comments or changes to disclosure in response to staff
comments in the filings reviewed by the staff do not foreclose the
Commission from taking any action with respect to the filing; and

    •
    The Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.

Please direct any questions or additional comments to the undersigned.

Sincerely,

/s/ Jennif