WINLAND ELECTRONICS, INC.

BALANCE SHEETS

December 31, 2000 and 1999

ASSETS (Note 3)

2000

1999

Current Assets

Cash

$ 38,961

$ 40,017

Accounts receivable, less allowance for doubtful accounts of

$10,000 in 2000; $4,000 in 1999 (Note 9)

3,435,030

2,531,872

Income tax receivable (Note 6)

127,252

19,000

Inventories (Note 2)

5,270,029

3,453,778

Prepaid expenses and other assets

56,599

58,591

Deferred taxes (Note 6)

244,100

112,800

Total current assets

9,171,971

6,216,058

Other Assets

Patents and trademarks, net of accumulated amortization of

$31,741 in 2000; $30,269 in 1999

2,498

3,971

Property and Equipment, at cost (Note 4)

Land and land improvements

272,901

272,901

Building

2,983,586

2,980,268

Machinery and equipment

3,778,392

3,234,166

Data processing equipment

1,277,413

1,305,425

Office furniture and equipment

351,960

367,898

Total property and equipment

8,664,252

8,160,658

Less accumulated depreciation

3,131,612

2,522,088

Net property and equipment

5,532,640

5,638,570

Total assets

$ 14,707,109

$ 11,858,599

See Notes to Financial Statements.

LIABILITIES AND STOCKHOLDERS' EQUITY

2000

1999

Current Liabilities

Note payable to bank (Note 3)

$ 3,924,501

$ 1,518,501

Current maturities of long-term debt

713,845

656,671

Accounts payable

2,107,319

1,091,964

Accrued expenses:

Compensation

225,767

337,846

Other

125,719

109,583

Total current liabilities

7,097,151

3,714,565

Deferred Revenue (Note 5)

195,238

202,161

Long-Term Debt, less current maturities (Notes 3 and 4)

2,924,885

3,238,995

Deferred Taxes (Note 6)

189,300

166,000

Total long-term liabilities

3,309,423

3,607,156

Total liabilities

10,406,574

7,321,721

Commitments and Contingencies (Note 4)

Stockholders' Equity (Notes 7 and 8)

Common stock, par value $0.01 per share; authorized 20,000,000

Shares; issued and outstanding 2,952,313 shares in 2000, and

2,901,620 shares in 1999

29,523

29,016

Additional paid-in capital

2,242,423

2,169,750

Retained earnings

2,028,589

2,338,112

Total stockholders' equity

4,300,535

4,536,878

Total liabilities and stockholders' equity

$ 14,707,109

$ 11,858,599

WINLAND ELECTRONICS, INC.

STATEMENTS OF INCOME

Years Ended December 31, 2000 and 1999

2000

1999

Net sales (Note 9)

$ 19,500,336

$ 19,863,703

Cost of sales

16,559,411

15,977,721

Gross profit

2,940,925

3,885,982

Operating expenses:

General and administrative

1,412,967

1,344,714

Research and development

1,045,773

835,577

Marketing

589,647

405,914

3,048,387

2,586,205

Operating income (loss)

(107,462)

1,299,777

Other income (expenses):

Interest expense

(485,816)

(413,216)

Interest income

75,352

77,983

Other, net

42,603

44,375

(367,861)

(290,858)

Income (loss) before income taxes

(475,323)

1,008,919

Income tax expense (benefit) (Note 6)

(165,800)

328,000

Net income (loss)

$ (309,523)

$ 680,919

Earnings (loss) per share data:

Basic

$ (0.11)

$ 0.24

Diluted

(0.11)

0.23

Weighted-average number of common shares outstanding:

Basic

2,936,033

2,894,219

Diluted

2,936,033

3,001,247

See Notes to Financial Statements.

WINLAND ELECTRONICS, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Years Ended December 31, 2000 and 1999

Additional

Common Stock

Paid-In

Retained

Shares

Amount

Capital

Earnings

Total

Balance on December 31, 1998

2,886,786

$ 28,867

$ 2,142,008

$ 1,657,193

$ 3,828,068

Issuance of common stock in accordance with

employee stock option and purchase plans

(Notes 7 and 8)

14,834

149

27,742

-

27,891

Net income

-

-

-

680,919

680,919

Balance on December 31, 1999

2,901,620

29,016

2,169,750

2,338,112

4,536,878

Issuance of common stock in accordance with

employee stock option and purchase plans

and warrants exercised (Notes 7 and 8)

50,693

507

72,673

-

73,180

Net loss

-

-

-

(309,523)

(309,523)

Balance on December 31, 2000

2,952,313

$ 29,523

$ 2,242,423

$ 2,028,589

$ 4,300,535

See Notes to Financial Statements.

WINLAND ELECTRONICS, INC.

STATEMENTS OF CASH FLOWS

Years Ended December 31, 2000 and 1999

2000

1999

Cash Flows From Operating Activities

Net income (loss)

$ (309,523)

$ 680,919

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization

814,147

774,340

Loss on disposal of equipment

14,986

-

Deferred taxes

(108,000)

66,200

Changes in assets and liabilities:

Accounts receivable

(903,158)

(1,911)

Income tax receivable

(108,252)

(19,000)

Inventories

(1,816,251)

310,161

Prepaid expenses

1,992

4,291

Accounts payable

1,015,355

(171,362)

Accrued expenses, including deferred revenue

(102,866)

82,613

Income taxes payable

-

(228,843)

Net cash provided by (used in) operating activities

(1,501,570)

1,497,408

Cash Flows From Investing Activities

Proceeds from disposal of equipment

3,285

-

Purchases of property and equipment

(283,417)

(1,060,971)

Net cash used in investing activities

(280,132)

(1,060,971)

Cash Flows From Financing Activities

Net borrowings (payments) on revolving credit agreement

2,406,000

(110,726)

Proceeds from long-term borrowings

-

513,725

Principal payments on long-term borrowings, including capital lease obligations

(698,534)

(847,966)

Proceeds from issuance of common stock

73,180

27,891

Net cash provided by (used in) financing activities

1,780,646

(417,076)

Net increase (decrease) in cash

(1,056)

19,361

Cash

Beginning of year

40,017

20,656

End of year

$ 38,961

$ 40,017

Supplemental Disclosures of Cash Flow Information

Cash payments for:

Interest

$ 482,996

$ 423,166

Income taxes

98,852

510,241

Supplemental Schedule of Noncash Investing and Financing Activities

Capital lease obligations incurred for the use of equipment

$ 441,598

$ 226,785

See Notes to Financial Statements.