FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: March 31, 1996
Commission File Number: 0-15471
WINLAND ELECTRONICS, INC.
(Exact name of small business issuer as specified in its charter)
Minnesota 41-0992135
(state or other juris- (I.R.S. Employer
diction 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.
Yes x No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of May 8, 1996, the
Registrant had 2,583,311 shares of Common Stock, $.01 par value, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No x
<PAGE>
PART I-FINANCIAL INFORMATION
ITEM 1: Financial Statements
WINLAND ELECTRONICS, INC.
BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
ASSETS MARCH 31 DECEMBER 31
1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 27,663 $ 2,839
Accounts Receivable, Net 1,075,149 995,231
Inventories 2,661,385 2,195,042
Prepaid Items 53,414 40,924
----------- -----------
Total Current Assets 3,817,611 3,234,036
Property and Equipment, Net 2,923,844 2,884,759
Property Under Capital Lease, Net 405,508 426,857
OTHER ASSETS:
Intangibles 9,711 10,093
----------- -----------
TOTAL ASSETS $ 7,156,674 $ 6,555,745
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes Payable 1,825,227 1,075,452
Accounts Payable 414,884 630,460
Payroll Taxes Payable 26,563 11,770
Wages and Commission Payable 51,835 25,622
Other Accruals 72,859 73,126
Obligations Under Capital Lease 110,088 108,081
Deferred Revenue 27,001 27,001
Current Maturities 61,593 60,662
----------- -----------
Total Current Liabilities 2,590,050 2,012,174
LONG TERM LIABILITIES:
Long Term Maturities 2,070,747 2,086,499
Obligations Under Capital Lease
Less: Current Portion 274,355 300,373
----------- -----------
TOTAL LONG TERM LIABILITIES 2,345,102 2,386,872
OTHER LIABILITIES:
Deferred Revenue
Less:Current Portion 236,258 243,008
----------- -----------
TOTAL LIABILITIES 5,171,410 4,642,054
SHAREHOLDERS' EQUITY:
Common Stock 25,833 25,833
Additional Paid-In Capital 1,917,094 1,917,094
Retained Earnings 42,337 (29,236)
----------- -----------
Total Shareholders' Equity 1,985,264 1,913,691
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,156,674 $ 6,555,745
=========== ===========
</TABLE>
2
<PAGE>
WINLAND ELECTRONICS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31
1996 1995
------ ------
<S> <C> <C>
NET SALES: $ 1,753,052 $ 1,468,572
Less, Cost of Goods Sold (1,360,631) (1,148,855)
----------- -----------
Gross Profit on Sales 392,421 319,717
OPERATING EXPENSES:
General and Administrative 204,153 189,191
Marketing 52,461 50,374
Research and Development 60,330 38,651
---------- ----------
Total Operating Expenses 316,944 278,216
INCOME BEFORE OTHER INCOME AND EXPENSES 75,477 41,501
----------- ----------
MISCELLANEOUS INCOME 29,876 ( 226)
INTEREST EXPENSE (33,782) (30,061)
----------- -----------
TOTAL OTHER INCOME AND EXPENSE (3,906) (30,287)
NET INCOME BEFORE TAXES 71,571 11,214
---------- ----------
PROVISION FOR INCOME TAXES -0- ( 733)
---------- -----------
NET INCOME $ 71,571 $ 10,481
========== ===========
NET INCOME PER COMMON SHARE $ 0.028 $ 0.004
========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
AS OF MARCH 31, 1996 AND 1995 2,583,311 2,583,311
</TABLE>
3
<PAGE>
WINLAND ELECTRONICS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received from Customers $ 1,680,794 $ 1,098,396
Other miscellaneous operating receipts 6,891 226
Cash Paid to Suppliers and Employees (2,270,371) (1,532,586)
Interest Paid ( 28,760) ( 27,993)
Income Tax Paid -0- ( 4,195)
----------- -----------
Net Cash (Used) by Operating Activities ( 611,446) ( 466,152)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Property and Equipment ( 77,153) (2,423,634)
----------- -----------
Net Cash (Used) by Investing Activities ( 77,153) (2,423,634)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Advances on Credit Line 749,775 ( 155,000)
Proceeds from Debt -0- 2,199,620
Payments on Debt ( 14,821) ( 9,322)
Payments on Capital Lease Obligations ( 21,531) ( 17,573)
Sale of Common Stock -0- 887,073
----------- -----------
Net Cash Provided by Financing Activities. 713,423 2,904,798
----------- -----------
NET INCREASE IN CASH 24,824 15,012
CASH - BEGINNING OF QUARTER 2,839 17,797
CASH - END OF QUARTER $ 27,663 $ 32,809
----------- -----------
RECONCILIATION OF NET INCOME TO NET CASH (USED)
BY OPERATING ACTIVITIES
Net Income $ 71,571 $ 10,481
Adjustments:
Disposition of Assets 155 -0-
Depreciation & Amortization 57,166 37,560
(Increase) in Accounts Receivable (79,918) (370,176)
(Increase) in Inventory (466,343) (176,026)
(Increase) in Prepaid items (12,490) (14,998)
Increase (Decrease) in Accounts Payable (215,576) 79,430
Increase in Wages Payable 26,213 23,079
Increase in Accrued Payroll Taxes 14,793 10,634
(Decrease) in Other Accruals ( 267) (62,674)
(Decrease) in Deferred Revenue ( 6,750) ( 3,462)
----------- -----------
Net Cash (Used) by Operating Activities $ (611,446) $ (466,152)
----------- -----------
</TABLE>
4
<PAGE>
WINLAND ELECTRONICS, INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
MARCH 31,1996
UNAUDITED
NOTE A - BASIS OF PRESENTATION
The 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 to 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. Except for those described in Note B
below, all such adjustments 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,
net operating loss carry-overs, 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 B - ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company maintains an allowance for doubtful accounts based on the aging of
accounts receivable. The balance of the allowance for doubtful accounts is
$4,903 at March 31, 1996 and $5,000 at December 31, 1995.
NOTE C - INVENTORY
Major components of inventory at March 31, 1996 and December 31, 1995 are as
follows:
March 31, December 31,
1996 1995
Raw Material $ 1,777,556 $1,458,611
Work in Process 453,348 405,102
Finished Goods 420,984 322,231
Manufacturing, Shipping, and Office Supplies 9,497 9,098
-------- -------
Total $ 2,661,385 $2,195,042
========= ========
NOTE D - PROPERTY AND EQUIPMENT
Property and Equipment not under capital leases consists of the following at
March 31, 1996 and December 31, 1995:
March 31, December 31,
1996 1995
Building $ 2,320,514 $ 2,268,510
Land 192,640 192,640
Office Equipment 243,202 241,431
Research & Development Equipment 71,913 64,829
Marketing and Display Equipment 14,999 14,999
Factory Equipment 424,569 410,570
Land Improvements 77,369 77,369
Accumulated Depreciation (421,362) (385,589)
------------ ------------
Net Book Value $ 2,923,844 $ 2,884,759
============ ============
5
<PAGE>
WINLAND ELECTRONICS, INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
MARCH 31,1996
UNAUDITED
NOTE D - CONTINUED
Property and Equipment under capital leases consists of the following at March
31, 1996 and at December 31, 1995:
March 31, December 31,
1996 1995
Factory Equipment $ 447,311 $ 447,311
Office Equipment 95,754 95,754
Research and Development Equipment 4,401 4,401
Accumulated Amortization (141,958) (120,604)
---------- ----------
Total Leased Property and Equipment,
Net of Accumulated Amortization $ 405,508 426,857
Capital Leases are summarized as follows:
Lease on factory, office, and R&D equipment
with lease period expiring July, 1997, at
interest of 8% $ 18,706 $ 21,185
Lease on factory and office equipment with
lease period expiring January, 2000, at
interest of 1% over prime 306,718 325,050
Lease on factory equipment with lease
period expiring October, 1998 at interest
of 9.23% 36,475 38,544
Lease on office equipment with lease
period expiring March, 2000 at interest
of 9% 22,544 23,675
Total $ 384,443 $ 408,454
Less Current Portion (110,088) (108,081)
--------- ---------
Long term Obligation under Capital Leases $ 274,355 $ 300,373
========= =========
NOTE E - SHORT TERM BORROWING
Short Term Borrowing consists of the following at March 31, 1996 and December
31, 1995 balance sheet:
March 31, December 31,
Norwest Bank-Revolving Credit Line 1996 1995
-------- -------
March 31, 1996 Balance $ 1,825,227 $1,075,452
Stated Interest Rate Per Annum 9.0% * 9.25%
Maximum Amount Outstanding During the
Quarter $ 1,825,227 $1,373,452
Average Amount Outstanding During the
Quarter $ 1,625,302 $ 853,529
Unused Credit Available $ 174,773 $ 126,548
Weighted Average Interest Rate 9.1% 9.6%
* The stated interest rate per annum is equal to 3/4 of a percent over the prime
rate
6
<PAGE>
WINLAND ELECTRONICS, INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
March 31, 1996
UNAUDITED
NOTE F - STOCK OPTIONS AND WARRANTS
As of March 31, 1996, options to purchase an aggregate of 340,100 shares of the
Company's Common Stock were granted and outstanding under the Company's 1989
Stock Option Plan, and options to purchase 81,600 shares of the Company's Common
Stock granted outside of any plan were outstanding. As of March 31, 1996,
options to purchase 220,000 shares granted under the 1989 Stock Option Plan were
exercisable, and options to purchase 81,600 shares granted outside of any plan
were exercisable. The exercise prices of all outstanding options range from
$0.06 to $3.64 per share.
As of March 31, 1996, warrants to purchase an aggregate of 37,000 shares of the
Company's Common Stock at $2.20 per share were granted and outstanding, all of
which warrants are exercisable.
7
<PAGE>
ITEM 2: Management's Discussion and Analysis or Plan of Operation
Results of Operations:
Three months ended March 31 1996 v.
Three months ended March 31 1995
Net Sales:
The Company recorded net sales of $1,753,052 for the three months ended March
31, 1996, an increase of 19.4% from net sales of $1,468,572 for the same period
in 1995. The increased sales were primarily attributed to an increase in
contract design and manufacturing and include several new products. During the
first quarter ended March 31, 1996, the Company has also experienced an increase
in sales of security/industrial products compared to the first quarter of 1995.
The Company's management believes that, for the foreseeable future, net sales
from contract design and manufacturing services will grow at a faster rate than
security/industrial products. The Company continues to direct considerable
attention toward expanding customer relationships and securing new, long-term
contract design and manufacturing customer relationships.
Gross Profits:
Gross profit was $392,421 or 22.4% of net sales for the three months ended March
31, 1996, compared to $319,717 or 21.8% of net sales for the same period in
1995. Gross profit margin performance was less than expected, primarily due to
production inefficiencies related to eight new OEM products. The Company is in
the process of establishing an improved method of monitoring the production
process, and management believes it will be an effective tool in improving
production efficiencies in upcoming quarters. The gross profit for the quarter
was further impacted because the Company incurred higher fixed costs in 1996
compared to 1995 due to the relocation of the Company's operations to new
facilities in February 1995. In addition, non-recurring costs associated with
the Company's move to the current facility had a significant impact on the gross
profits during 1995.
Operating Expenses:
General and administrative expense was $204,153 or 11.6% of net sales for the
three months ended March 31, 1996, compared to $189,191 or 12.9% of net sales
for the same period in 1995. The increase in general and administrative expense
during the first quarter ended March 31, 1996, compared to 1995, was due to
increases in expenses associated with the new facility and to additional
expenses related to supporting an increased level of sales.
Marketing expense was $52,461 or 3.0% of net sales for the first quarter of
1996, compared to $50,374 or 3.4% for the same period in 1995. The Company has
continued its emphasis on the marketing of its security/industrial products,
while actively pursuing new contract design and manufacturing relationships.
Research and development expense was $60,330 or 3.4% of net sales for the three
months ended March 31, 1996, compared to $37,651 or 2.6% of net sales for the
same period in 1995. The Company has continued its efforts to develop new
products and enhance existing products in order to stay competitive in today's
marketplace.
The research and development department has also worked with other departments
to help identify and secure new contract design and manufacturing projects and
customer relationships.
Interest Expense:
Interest expense was 1.9% of net sales or $33,782 for the first quarter of 1996,
compared to 2.0% of net sales or $30,061 for the same period in 1995.
Net Earnings:
The Company recorded net income of $71,571 or $0.028 per share for the first
quarter of 1996, compared to net income of $10,481 or $0.004 per share for the
same period in 1995. The increase in net income was primarily the result of
higher net sales, higher gross profit, and increased interest income and rental
income.
The Company believes inflation has not significantly affected its results of
operations.
8
<PAGE>
Liquidity and Capital Resources
The current ratio on March 31, 1996 was 1.47 to 1, compared to 1.61 to 1 on
December 31, 1995. Working capital on March 31, 1996 was $1,227,561 compared to
$1,221,862 on December 31, 1995. The increase reflects increases in inventory
and accounts receivable that are offset by short term borrowing needed to
support the increased sales during the first quarter of 1996.
The Company has a revolving credit agreement with the Norwest Bank Minnesota
South N.A. with a maximum loan limit of $2,000,000, subject to additional
limitations set forth in the credit agreement. The interest rate is calculated
at 3/4% over the prime interest rate. At March 31, 1996, there was $1,825,227
outstanding under the line of credit. The Company executed a new credit
agreement with Norwest Bank Minnesota South N.A. in February of 1996, and has
moved substantially all of its banking activities to the Norwest Bank.
9
<PAGE>
PART II-OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
(a) See Exhibit Index following the signature page.
(b) There are no reports on form 8-K for the quarter
ended March 31, 1996.
10
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WINLAND ELECTRONICS, INC.
Dated: May 10, 1996 By: /s/ W. K. Hankins
William K. Hankins, President,
Chief Executive Officer and
Chief Financial Officer
(Principal Executive Officer
and Principal Financial and
Accounting Officer)
11
<PAGE>
WINLAND ELECTRONICS, INC.
EXHIBIT INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED
MARCH 31, 1996
Exhibit
Number Item
11 Statement Re: Computation of per share earnings.
27 Financial Data Schedule (filed with electronic version only)
12
EXHIBIT 11
WINLAND ELECTRONICS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
Three Months Ended
March 31,
1996 1995
Earning:
Net Income(Loss): $71,571 $10,481
Primary Earnings(Loss)Per Share $ 0.028 $ 0.004
Shares:
Weighted average number of
common shares outstanding 2,583,311 2,583,311
Assuming exercise of options
and warrants reduced by the
number of shares which could
have been purchased with the
proceeds from exercise of
options and warrants (treasury
stock method) using average
market price, except if
anti-dilutive. 283,934 195,586
Weighted average number of
common and common equivalent
shares outstanding 2,867,245 2,775,897
Fully Diluted Earnings(Loss)
Per Share $ 0.025 $ 0.004
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 27,663
<SECURITIES> 0
<RECEIVABLES> 1,080,052
<ALLOWANCES> 4,903
<INVENTORY> 2,661,385
<CURRENT-ASSETS> 3,817,611
<PP&E> 3,892,672
<DEPRECIATION> 563,320
<TOTAL-ASSETS> 7,156,674
<CURRENT-LIABILITIES> 2,590,050
<BONDS> 0
0
0
<COMMON> 25,833
<OTHER-SE> 1,959,431
<TOTAL-LIABILITY-AND-EQUITY> 7,156,674
<SALES> 1,753,052
<TOTAL-REVENUES> 1,782,928
<CGS> 1,360,631
<TOTAL-COSTS> 1,677,575
<OTHER-EXPENSES> 33,782
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,782
<INCOME-PRETAX> 71,571
<INCOME-TAX> 0
<INCOME-CONTINUING> 71,571
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,571
<EPS-PRIMARY> .028
<EPS-DILUTED> .025
</TABLE>
