Winland Electronics (WELX) 8-K Winland Electronics, Inc. Announces Record Revenue for 2006

FOR IMMEDIATE RELEASE

WINLAND ELECTRONICS, INC. ANNOUNCES RECORD REVENUE FOR 2006

CONTACT:	Lorin E. Krueger	Brett Maas or Cameron Donahue
	Chief Executive Officer	Hayden Communications
	(507) 625-7231	(651) 653-1854
	http://www.winland.com/

• FULL-YEAR REVENUE OF $37.9 MILLION, UP 24.7% FROM $30.4 MILLION IN 2005

• FOURTH QUARTER REVENUES UP 5.0% TO $9.2 MILLION VS. $8.7 MILLION IN Q4 2005

• FULL-YEAR NET INCOME OF $1.0 MILLION, OR $0.29 PER SHARE

• STOCKHOLDERS’ EQUITY INCREASES 14.4% TO $10.4 MILLION

MANKATO, Minn. /March 13, 2007 / PR Newswire /Winland Electronics, Inc. (Amex: WEX), a leading designer and manufacturer of custom electronic control products and systems, today announced financial results for the fourth quarter and full-year period ended December 31, 2006.

Revenues for the fourth quarter were $9.2 million, an increase of 5.0 percent compared to the $8.7 million reported for the fourth quarter of fiscal 2005. The sales for the quarter and year to date were led by new customer wins and expanding sales to our current customer base, combined with continued progress of the Company’s proprietary products sales.

Gross profit for the fourth quarter was $1.5 million, or 16.1 percent of sales, down as a percent of sales from the $2.0 million or 22.5 percent of sales for the fourth quarter last year. Margins decreased due to lower margins from the Company’s new agreement with Select Comfort, margins received from new business as well as increased costs relating to the introduction of 26 new or revised products for the quarter, partially offset by a contribution from higher-margin proprietary products. Total operating expenses increased 25.0 percent to $1.3 million when compared to $1.1 million in the fourth quarter last year due to a 32.4 percent increase in general and administrative expenses and a 24.2 percent increase in research and development expenses.

Income from operations decreased 85.1 percent to $131,538 compared to $885,154 for the fourth quarter last year. Net income decreased 92.4 percent to $51,036, or $0.01 per basic and fully diluted share (based on 3.6 million fully diluted shares) compared to net income of $671,171, or $0.19 per basic and fully diluted share (based on 3.6 million fully diluted shares) for the fourth quarter last year.

Lorin Krueger, Winland’s Chief Executive Officer, commented, “ We are pleased to see growth in revenue in the fourth quarter over the fourth quarter in 2005 however we did notice a softening in sales within the quarter. The most important revenue accomplishment was the increasing balance of business among our revenue base. We have seen an increase in complete product assembly, another objective of 2006.

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For fiscal 2006, net sales were $37.9 million, up 24.7 percent compared to sales of $30.4 million for last year. Gross profit was $6.5 million, or 17.1 percent gross profit margin, compared to gross profit of $7.3 million, or 24.0 percent gross profit margin, for fiscal 2005. Total operating expenses were $4.8 million, up 16.7 percent, compared to $4.1 million for the comparable year-ago period. Operating income was $1.7 million, down 45.8 percent compared to $3.2 million last year. Net income was $1.0 million, or $0.29 per basic share and $0.28 per fully diluted share, compared to net income of $2.0 million, or $0.59 per basic and $0.57 per fully diluted share, for last year.

Stockholders’ equity increased 14.4 percent to $10.4 million as of December 31, 2006, from $9.1 million on December 31, 2005. The Company completed the fourth quarter with $6.7 million in working capital and a current ratio of 2.05 to 1.

Mr. Krueger concluded, “The revenue for 2006 set another record for the Company up over 24 percent from year end 2005. As we have previously announced orders and agreements are also taking shape for 2007. Profit margins for 2006 were overall as expected with some additional costs incurred due to the mid-year product enhancement expense in our proprietary line. Cost overruns on both manufacturing and contract engineering projects also contributed to added expenses in 2006. Going forward we will continue to build on the successes of 2006 and work on improvements in our execution and efficiencies. Growth initiatives in our manufacturing business as well as proprietary products will be paramount as we work to rebuild our margins from our new business base.

Management will conduct a conference call to discuss its financial results today at 4:30 p.m. ET. Interested parties may access the call by calling 888-802-2280 from within the United States, or 913-312-1266 if calling internationally, approximately five minutes prior to the start of the call. A replay will be available through March 20, 2007, and can be accessed by dialing 888-203-1112 (U.S.), 719-457-0820 (Int’l), passcode 2974608. This call is being web cast by ViaVid Broadcasting and can be accessed at Winland Electronics’ website at www.winland.com. The web cast may also be accessed at ViaVid’s website at www.viavid.net. The web cast can be accessed until April 13, 2007 on either site. To access the web cast, you will need to have the Windows Media Player on your desktop. For the free download of the Media Player please visit: http://www.microsoft.com/windows/windowsmedia/en/download/default.asp.

About Winland
Winland Electronics is an electronic manufacturing services (EMS) company, providing product development and manufacturing expertise and innovation for more than 20 years. Winland also markets proprietary products for the security/industrial marketplace. Winland’s product development offering includes program management, analog circuit design, digital circuit design, printed circuit board design and embedded software design. Winland differentiates itself from the contract manufacturer competition with its integrated product development and manufacturing services to offer end-to-end product launch capability, including design for manufacturability, design for testability, transition to manufacturing and order fulfillment. Winland’s core competency is delivering time-to-market through superior program management, experience, integrated development processes, and cross-functional teams. Winland Electronics is based in Mankato, MN.

Cautionary Statements

Certain statements contained in this press release 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. Froward looking statements in this release include, but are not limited, to the statements regarding the following issues: (1) diversification of the customer base and balancing the Company’s business; (2) increase in profits; (3) ability to secure additional orders

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and agreements for 2007; (4) improvements in the Company’s execution and efficiencies of projects; and (5) success of growth initiatives with regard to the Company’s manufacturing business and its proprietary products. These statements involve a variety of risks and uncertainties, known and unknown, including, among others, the risks that (1) profit margins will decrease further due to competitive pressure and increased production cost; (2) the Company will not be able to control cost overruns on manufacturing and contract engineering projects; (3) unanticipated problems in design, manufacture or performance of the Company’s products will arise; and (4) the Company will not be able to expand or even maintain its current business base. Consequently, no forward-looking statement can be guaranteed and actual results may vary materially.

-Tables Follow-

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WINLAND ELECTRONICS, INC.

AUDITED STATEMENTS OF INCOME

For the Three and Twelve Months Ended December 31, 2006 and 2005

	Three Months Ended						Twelve Months Ended
	2006			2005			2006			2005
Net sales	$	9,185,724		$	8,745,926		$	37,945,004		$	30,432,960
Cost of sales		7,704,971			6,781,346			31,439,758			23,134,362
Gross profit		1,480,753			1,964,580			6,505,246			7,298,598
Operating expenses:
General and administrative		676,253			510,821			2,479,584			1,901,478
Sales and marketing		440,556			381,529			1,637,002			1,379,433
Research and development		232,406			187,076			642,330			798,138
		1,349,215			1,079,426			4,758,916			4,079,049
Operating income		131,538			885,154			1,746,330			3,219,549
Other income (expenses):
Interest expense		(78,113	)		(31,948	)		(187,570	)		(124,485	)
Other, net		1,094			19,865			9,336			37,292
		(77,019	)		(12,083	)		(178,234	)		(87,193	)
Income before income taxes		54,519			873,071			1,568,096			3,132,356
Income tax expense		(3,483	)		(201,900	)		(529,783	)		(1,083,000	)
Net income	$	51,036		$	671,171		$	1,038,313		$	2,049,356
Earnings per common share:
Basic	$	0.01		$	0.19		$	0.29		$	0.59
Diluted		0.01			0.19			0.28			0.57
Weighted-average number of common shares outstanding:
Basic		3,584,296			3,521,939			3,553,062			3,491,227
Diluted		3,640,255			3,635,643			3,653,891			3,626,717

See Notes to the Audited Financial Statements

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WINLAND ELECTRONICS, INC.

AUDITED BALANCE SHEETS

	December 31						December 31
ASSETS	2006						2005
Current Assets
Cash				$	50,498					$	865,181
Accounts receivable, net					5,165,014						4,033,241
Refundable Income taxes					237,154						48,298
Inventories
Raw materials		4,880,949						2,339,314
Work in process		327,212						163,778
Finished goods		1,976,236						1,212,297
Allowance for obsolete inventory		(189,900	)					(191,900	)
Total inventories					6,994,497						3,523,489
Prepaid expenses					359,735						311,240
Deferred income taxes					278,000						236,500
Total current assets					13,084,898						9,017,949
Other Assets					3,463						1,408
Property and Equipment, at cost:
Land and land improvements		382,901						272,901
Building		3,047,908						3,040,435
Machinery and equipment		6,862,761						5,537,094
Data processing equipment		1,052,302						1,205,585
Office furniture and equipment		408,263						412,219
Total property and equipment					11,754,135						10,468,234
Less accumulated depreciation					(5,975,111	)					(5,540,097	)
Net property and equipment					5,779,024						4,928,137
Total assets				$	18,867,385					$	13,947,494

See Notes to the Audited Financial Statements

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WINLAND ELECTRONICS, INC.

AUDITED BALANCE SHEETS

	December 31		December 31
LIABILITIES AND STOCKHOLDERS' EQUITY	2006		2005
Current Liabilities
Revolving line of credit agreement	$	1,924,000	$	—
Current maturities of long-term debt		627,290		537,537
Accounts payable		2,829,700		1,486,998
Accrued expenses:
Compensation		673,090		801,116
Allowance for rework and warranty costs		126,110		117,300
Other		196,679		82,880
Total current liabilities		6,376,869		3,025,831
Long Term Liabilities
Long-term debt, less current maturities		1,705,576		1,424,863
Deferred income taxes		255,000		261,900
Deferred revenue		146,398		154,539
Total long-term liabilities		2,106,974		1,841,302
Stockholders’ Equity
Common stock		35,999		35,279
Additional paid-in capital		4,429,184		4,165,035
Retained earnings		5,918,359		4,880,047
Total stockholders’ equity		10,383,542		9,080,361
Total liabilities and stockholders’ equity	$	18,867,385	$	13,947,494

See Notes to the Audited Financial Statements

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