Shareholder Letter

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WSI Industries FY 2005 Annual Report
To Our Shareholders,

I am pleased to report that our objectives for fiscal 2005 were successfully accomplished. Through the efforts of our outstanding employees, we continued to position our company for growth and prosperity for years ahead.

WSI was pleased to report full year sales for fiscal 2005 ending August 28, 2005 of $15,654,000, an increase of 36% over the prior year. Income for the fiscal year was $335,000 or $.13/share versus $49,000 or $.02/share for fiscal 2004. In addition, we have continued with our objective to reward shareholders by paying $.0375/share in dividends for the prior 10 consecutive quarters.

The successful relocation into our newly acquired facility was one of the key fundamental steps in moving us forward. Our modern, state of the art facility sets the stage for manufacturing excellence. A core competency of our business is having a world class operation which includes dedicated employees, state of the art equipment, and competitive processes. I am very proud of our position and what this organization has accomplished over the past year. Our accomplishments were further evidenced with the ISO 9001:2000 certification that we achieved in August 2005.

Also in fiscal 2005, an addition to our customer base began through a partnering arrangement with a leader in the bioscience industry. The essential elements of this relationship are what WSI offers to all current and prospective customers:
• Ethics and honesty of the highest regard
• Mutually beneficial for both parties
• Proactive long term progress in quality, efficiency, and total value costing
• Mentorship in helping each other grow in business
• Development of the "one stop shop concept"

In addition to the accomplishments above, WSI’s financial position continued to improve. The Company remains on solid financial ground as evidenced by:
• Working capital of $2.2 million
• Current ratio of 2.24:1.0
• Debt to equity ratio of 37.4%
• Cash flow from operations of $1.3 million
• Year end cash balance of $938,000
• 3 Consecutive profitable years

Overall, we are pleased with fiscal 2005, but fully recognize the need for continued improvement if we are to successfully grow the business.

For the future, our number one challenge is to further diversify our customer base. We are fortunate in that our major customer is a recognized leader in their industry with innovative products. We have had an excellent relationship and project a long and lasting business association with them. We also recognize that to maintain this relationship, we must continually improve our service in the areas of cost, quality and delivery. The remainder of our customer base is very diverse. This allows us to pursue multiple industries and increases the opportunity to diversify and grow our business. To accomplish this, we have assigned individuals in our organization that are focused full time to growing and diversifying our customer base. With our securing a multi-year arrangement with a bioscience customer last year, we completed a step in the right direction but we also recognize that this is just the first step of many that are needed.

To be successful with this effort, WSI must continue to improve all aspects of the business. WSI must be able to compete on a global basis and offer an advantage for a full range of services that are demanded from our market. Our strategies to achieve this success will include the following initiatives.

•	We will continue to employ Lean Manufacturing initiatives to improve product flow.
•	We will invest in state of the art capital equipment to reduce machine cycle times.
•	Information systems will be enhanced to better plan and coordinate the business.
•	Training will be expanded to improve employee skills.
•	We will source raw materials and machined parts by partnering with foreign suppliers. Contract manufacturing is a global business and we must be able to compete at this level.

We will continue with all of our efforts to build on the success of last year. We have established ourselves as a leading contract manufacturer and look to grow and expand on this. Thanks to all of our employees for their commitment, and thanks to our shareholders and valued customers. Sincerely,

Michael J. Pudil
President & Chief Executive Officer