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: September 30, 1996
Commission File Number: 0-18393
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 November 4, 1996, the
Registrant had 2,659,911 shares of Common Stock, $.01 par value, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No x
1
<PAGE>
PART I-FINANCIAL INFORMATION
ITEM 1: Financial Statements
<TABLE>
<CAPTION>
WINLAND ELECTRONICS, INC.
BALANCE SHEET
(Unaudited)
ASSETS SEPTEMBER 30 DECEMBER 31
1996 1995
------------ -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 90,511 $ 2,839
Accounts Receivable, Net 1,431,848 995,231
Inventories 2,538,860 2,195,042
Prepaid Items 52,346 40,924
----------- -----------
Total Current Assets 4,113,565 3,234,036
Property and Equipment, Net 2,991,954 2,884,759
Property Under Capital Lease, Net 757,786 426,857
OTHER ASSETS:
Intangibles 8,947 10,093
----------- -----------
TOTAL ASSETS $ 7,872,252 $ 6,555,745
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes Payable 1,995,227 1,075,452
Accounts Payable 595,268 630,460
Payroll Taxes Payable 19,071 11,770
Wages and Commission Payable 68,993 25,622
Other Accruals 68,223 73,126
Obligations Under Capital Lease 171,246 108,081
Deferred Revenue 27,001 27,001
Current Maturities 65,468 60,662
----------- -----------
Total Current Liabilities 3,010,497 2,012,174
LONG TERM LIABILITIES:
Long Term Maturities 2,093,323 2,086,499
Obligations Under Capital Lease
Less: Current Portion 528,521 300,373
----------- -----------
TOTAL LONG TERM LIABILITIES 2,621,844 2,386,872
OTHER LIABILITIES:
Deferred Revenue
Less:Current Portion 222,757 243,008
----------- -----------
TOTAL LIABILITIES 5,855,098 4,642,054
SHAREHOLDERS' EQUITY:
Common Stock 25,999 25,833
Additional Paid-In Capital 1,918,304 1,917,094
Retained Earnings 72,851 (29,236)
----------- -----------
Total Shareholders' Equity 2,017,154 1,913,691
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,872,252 $ 6,555,745
=========== ===========
</TABLE>
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WINLAND ELECTRONICS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
1996 1995
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<S> <C> <C>
NET SALES: $ 2,183,619 $ 1,284,021
Less, Cost of Goods Sold (1,787,402) (1,131,253)
----------- -----------
Gross Profit on Sales 396,217 152,768
OPERATING EXPENSES:
General and Administrative 188,970 159,122
Marketing 48,407 46,822
Research and Development 88,073 49,594
----------- -----------
Total Operating Expenses 325,450 255,538
INCOME BEFORE OTHER INCOME
AND EXPENSE 70,767 (102,770)
----------- -----------
MISCELLANEOUS INCOME 14,336 7,714
INTEREST EXPENSE (43,390) (15,334)
----------- -----------
TOTAL OTHER INCOME AND EXPENSE (29,054) (7,620)
----------- -----------
NET INCOME BEFORE TAXES 41,713 (110,390)
----------- -----------
PROVISION FOR INCOME TAXES (500) (733)
----------- -----------
NET INCOME $ 41,213 $ (111,123)
=========== ===========
NET INCOME PER COMMON SHARE $ 0.016 $ (0.043)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
AS OF SEPTEMBER 30, 1996 AND 1995 2,599,991 2,583,311
</TABLE>
<PAGE>
WINLAND ELECTRONICS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1996 1995
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<S> <C> <C>
NET SALES: $ 5,499,326 $ 4,317,637
Less, Cost of Goods Sold (4,400,044) (3,559,375)
----------- -----------
Gross Profit on Sales 1,099,282 758,262
OPERATING EXPENSES:
General and Administrative 579,699 537,154
Marketing 143,132 154,541
Research and Development 222,665 143,855
----------- -----------
Total Operating Expenses 945,496 835,550
INCOME BEFORE OTHER INCOME
AND EXPENSE 153,786 (77,288)
----------- -----------
MISCELLANEOUS INCOME 63,147 7,450
INTEREST EXPENSE (113,348) (61,222)
----------- -----------
TOTAL OTHER INCOME AND EXPENSE (50,201) (53,772)
-----------
NET INCOME BEFORE TAXES 103,585 (131,060)
----------- -----------
PROVISION FOR INCOME TAXES (1,500) (2,199)
----------- -----------
NET INCOME $ 102,085 $ (133,259)
=========== ===========
NET INCOME PER COMMON SHARE $ 0.039 $ (0.054)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
AS OF SEPTEMBER 30, 1996 AND 1995 2,590,689 2,454,644
</TABLE>
<PAGE>
WINLAND ELECTRONICS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received from Customers $ 5,062,708 $ 4,204,437
Interest Received 27,622 -0-
Other miscellaneous operating receipts 15,428 9,083
Cash Paid to Suppliers and Employees (5,370,986) (4,210,406)
Interest Paid (239,292) (177,173)
Income Tax Paid (1,500) (5,661)
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Net Cash (Used) by Operating Activities (506,020) (179,720)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Property and Equipment (243,791) (2,488,445)
----------- -----------
Cash Proceeds From Sales of Equipment -0- 250
Net Cash (Used) by Investing Activities (243,791) (2,488,195)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net Advances on Credit Line 919,775 (273,000)
Proceeds from Debt 57,725 2,199,620
Payments on Debt (46,094) (37,862)
Payments on Capital Lease Obligations (95,299) (61,397)
Sale of Common Stock 1,376 887,253
----------- -----------
Net Cash Provided by Financing Activities 837,483 2,714,614
----------- -----------
NET INCREASE IN CASH 87,672 46,699
CASH - BEGINNING OF YEAR 2,839 17,797
CASH - END OF THE FIRST NINE MONTHS OF 1996 $ 90,511 $ 64,496
----------- -----------
RECONCILIATION OF NET INCOME TO NET CASH (USED)
BY OPERATING ACTIVITIES
Net Income (Loss) $ 102,085 $ (133,259)
Adjustments:
Disposition of Assets 155 1,633
Depreciation & Amortization 193,271 138,045
(Increase) in Accounts Receivable (436,617 (113,200)
(Increase) in Inventory (343,818) 43,919
(Increase) in Prepaid items (11,422) (13,841)
(Decrease) in Accounts Payable (35,192) (58,429)
Increase in Wages Payable 43,371 29,306
Increase in Accrued Payroll Taxes 7,301 8,221
(Decrease) in Other Accruals (4,903) (78,653)
(Decrease) in Deferred Revenue (20,251) -0-
(Decrease) in Income Taxes Payable -0- (3,462)
----------- -----------
Net Cash (Used) by Operating Activities $ (506,020) $ (179,720)
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</TABLE>
<PAGE>
WINLAND ELECTRONICS, INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 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
$4,770 at September 30, 1996 and $5,000 at December 31, 1995.
NOTE C - INVENTORY
Major components of inventory at September 30, 1996 and December 31, 1995 are as
follows:
September 30 December 31,
1996 1995
Raw Material $1,420,111 $1,458,611
Work in Process 606,210 405,102
Finished Goods 503,880 322,231
Manufacturing, Shipping, and Office Supplies 8,659 9,098
---------- ----------
Total $2,538,860 $2,195,042
========== ==========
NOTE D - PROPERTY AND EQUIPMENT
Property and Equipment not under capital leases consists of the following at
September 30, 1996 and December 31, 1995:
September 30, December 31,
1996 1995
Building.............................. $ 2,324,514 $ 2,268,510
Land.................................. 192,640 192,640
Office Equipment...................... 296,458 241,431
Research & Development Equipment...... 131,860 64,829
Marketing and Display Equipment....... 23,394 14,999
Factory Equipment..................... 448,236 410,570
Land Improvements..................... 77,369 77,369
Accumulated Depreciation.............. (502,517) (385,589)
--------- ---------
Net Book Value........................ $ 2,991,954 $ 2,884,759
========= =========
<PAGE>
WINLAND ELECTRONICS, INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30,1996
UNAUDITED
NOTE D - CONTINUED
Property and Equipment under capital leases consists of the following at
September 30, 1996 and at December 31, 1995:
September 30, December 31,
1996 1995
Factory Equipment..................... $ 860,682 $ 447,311
Office Equipment...................... 95,754 95,754
Research and Development Equipment.... 4,401 4,401
Accumulated Amortization.............. (203,051) (120,604)
---------- ----------
Total Leased Property and Equipment,
Net of Accumulated Amortization..... $ 757,786 426,857
Capital Leases are summarized as follows:
Lease on factory equipment with lease
period expiring August, 2001, at interest
of 9.9%................................ $ 252,020 $ -0-
Lease on factory equipment with lease
period expiring May, 2001, at interest
of 9.96%............................... $ 118,145 $ -0-
Lease on factory, office, and R&D equipment
with lease period expiring July, 1997, at
interest of 8%......................... 11,797 21,185
Lease on factory and office equipment with
lease period expiring January, 2000, at
interest of 1% over prime.............. 268,618 325,050
Lease on factory equipment with lease
period expiring October, 1998 at interest
of 9.23%............................... 28,979 38,544
Lease on office equipment with lease
period expiring March, 2000 at interest
of 9%.................................. 20,207 23,675
Total.................................. $ 699,766 $ 408,454
Less Current Portion................... (171,245) (108,081)
--------- ---------
Long term Obligation under Capital Leases $ 528,521 $ 300,373
========= =========
NOTE E - SHORT TERM BORROWING
Short Term Borrowing consists of the following at September 30, 1996 and
December 31, 1995 balance sheet:
September 30, December 31,
Norwest Bank-Revolving Credit Line 1996 1995
-------- -------
September 30, 1996 Balance............ $ 1,995,227 $1,075,452
Stated Interest Rate Per Annum........ 9.0% * 9.25%
Maximum Amount Outstanding During the
Quarter......................... $ 1,995,227 $1,373,452
Average Amount Outstanding During the
Quarter......................... $ 1,928,561 $ 853,529
Unused Credit Available at September
30, 1996........................ $ 4,773 $ 126,548
Weighted Average Interest Rate........ 9.0% 9.6%
* The stated interest rate per annum is equal to 3/4 of a percent over the prime
rate
<PAGE>
WINLAND ELECTRONICS, INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
September 30, 1996
UNAUDITED
NOTE E - CONTINUED
The interest expense on the revolving loan was $43,390 and $113,348 for the
three and nine months ended September 30, 1996, respectively. Addition interest
expense was reported related to the leased capital equipment and other long term
borrowing. The interest expense on the leased capital equipment was $12,461 and
$31,100 for the three and nine months ended September 30, 1996, respectively.
The interest expense on other long term borrowing was $34,482 and $102,203 for
the three and nine months ended September 30, 1996, respectively.
NOTE F - STOCK OPTIONS AND WARRANTS
As of September 30, 1996, options to purchase an aggregate of 374,100 shares of
the Company's Common Stock were granted and outstanding under the Company's 1989
Stock Option Plan, and options to purchase 65,000 shares of the Company's Common
Stock granted outside of any plan were outstanding. As of September 30, 1996,
options to purchase 248,100 shares granted under the 1989 Stock Option Plan were
exercisable, and options to purchase 65,000 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 September 30, 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.
<PAGE>
ITEM 2: Management's Discussion and Analysis or Plan of
Operation
Results of Operations
Three and nine months ended September 30 1996 v.
Three and nine months ended September 30 1995
Net Sales:
Net sales increased 70.1% from $1,284,021 for the third quarter of 1995 to
$2,183,619 for the third quarter of 1996. The Company recorded net sales of
$5,499,326 for the first nine months of 1996, a 11.6% increase over $4,317,637
in net sales for the same period in 1995. The increased sales for both the
quarter and the first nine months of 1996 compared to 1995 are attributed to
increases in contract design and manufacturing sales, as well as increases in
sales of the Company's security/industrial products. Contract design and
manufacturing sales increased at a faster rate, as a percentage of total sales,
than the security/industrial product sales did for the quarter and nine months
ended September 30, 1996.
The Company's management believes that, for the foreseeable future, net sales
from contract design and manufacturing services will continue to grow at a
faster rate than security/industrial products. In July 1996 the Company obtained
a $5.6 million purchase order from Select Comfort Corporation. The Company
expects to begin shipping product with respect to such order in the fourth
quarter of 1996. 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 $396,217 or 18.1% of net sales for the three months ended
September 30, 1996, compared to $152,768 or 11.9% of net sales for the same
period in 1995. Gross profit was $1,099,282 or 20.0% of net sales for the first
nine months of 1996, compared to $758,262 or 17.6% of net sales for the same
period in 1995. The increased gross profit for both the quarter and first nine
months of 1996 is primarily attributed to net sales increasing at a faster rate
than associated fixed costs. To a lesser degree, the sales mix for the periods
also had a favorable effect on the gross profits.
Operating Expenses:
General and administrative expense was $188,970 or 8.7% of net sales for the
three months ended September 30, 1996, compared to $159,122 or 12.4% of net
sales for the period in 1995. General and administrative expense for the first
nine months of 1996 was $579,699 or 10.5% of net sales, compared to $537,154 or
12.4% for the same period in 1995. The actual general and administrative
expenses increased only marginally, while declining as a percentage of net sales
for both the third quarter and first nine months of 1996. The additional
expenses were necessary to support an increased level of sales.
<PAGE>
Marketing expense was $48,407 or 2.2% of net sales for the quarter ended
September 30, 1996, compared to $46,822 or 3.6% for the same period in 1995.
Marketing expense was $143,132 or 2.6% of net sales for the first nine months of
1996, compared to $154,541 or 3.6% of net sales for the same period in 1995.
Marketing expense as a percentage of sales declined for both the first nine
months and the third quarter of 1996 compared to 1995. The nominal decrease in
marketing expenditures for the first half of 1996 reflects a temporary shift in
efforts due to the increased demands of new contract design and manufacturing
customer relationships.
Research and development expense was $88,073 or 4.0% of net sales for the third
quarter of 1996, compared to $49,594 or 3.9% of net sales for the same period in
1995. Research and development expense for the first nine months of 1996 was
$222,665 or 4.0% of net sales, compared to $143,855 or 3.3% of net sales for the
same period in 1995. The increased research and development expense is
attributed to increased technical staffing and the purchases of additional test
and development equipment. Both the addition of staff and the acquisition of
research and development equipment are intended to further assist the
development of new products, the enhancement of existing products and to
continue to provide full technical and development services to the Company's
customers.
Interest Expense:
Interest expense was $43,390 or 2.0% of net sales for the three months ended
September 30, 1996, compared to $15,334 or 1.2% of net sales for the same period
in 1995. Interest expense was $113,348 or 2.1% of net sales for the first nine
months ended September 30, 1996, compared to $61,222 or 1.4% of net sales for
the same period in 1995. The increase in interest expense reflected additional
borrowing needed to support increased sales and inventories.
Net Earnings:
The Company recorded net income of $41,213 or $0.016 per share for the third
quarter of 1996, compared to a net loss of $111,123 or $0.043 per share for the
same period in 1995. For the nine months ended September 30, 1996, the Company
reported net income of $102,085 or $0.039 per share, compared to a net loss of
$133,259 or $0.054 per share for the same period in 1995. The Company recorded
increased sales and increased net income for the first nine months of 1996
compared to 1995. The Company also reported increased interest income and rental
income during the first nine months of 1996 compared to the same period in 1995.
The Company believes inflation has not significantly affected its results of
operations.
Liquidity and Capital Resources
The current ratio on September 30, 1996 was 1.37 to 1, compared to 1.61 to 1 on
December 31, 1995. Working capital on September 30, 1996 was $1,103,068 compared
to $1,221,862 on December 31, 1995. The decrease is primarily the result of
increased short term borrowing and increased accounts receivable offset in part
by increased inventories.
The Company has entered into a new revolving credit agreement with the Norwest
Bank Minnesota South N.A.("Norwest"), first amendment dated October 21, 1996,
with a maximum loan limit of $3,500,000, subject to additional limitations set
forth in the credit agreement. The interest rate is calculated at 3/4% over the
prime interest rate, which is unchanged from the previous agreement. At
September 30, 1996, there was $1,995,227 outstanding under the line of credit.
In addition to the $1,500,000 increase on the revolving line of credit, the
Company also entered into a five year term loan agreement with Norwest for
$500,000. Management believes that with the total increase of $2,000,000 in
credit available, which doubles the previous credit available, together with
cash flows from operations that this will be sufficient to meets the Company's
capital needs in the foreseeable future.
<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 September 30, 1996.
<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: November 13, 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)
<PAGE>
WINLAND ELECTRONICS, INC.
EXHIBIT INDEX TO FORM 10-QSB
For The Quarter Ended
September 30, 1996
Exhibit
Number Item
10.1 First Amendment dated October 21, 1996 between the Company and Norwest
Bank Minnesota South, National Association.
10.2 Revolving Note dated October 21, 1996 in the principal amount of
$3,500,000 in favor of Norwest Bank Minnesota South, National
Association.
10.3 Term Note dated October 21, 1996 in the amount of $500,000 in favor of
Norwest Bank Minnesota South, National Association.
11 Statement Re: Computation of per share earnings.
27 Financial Data Schedule (filed only with electronic version).
Norwest Bank Minnesota South,
National Association First Amendment
This First Amendment (the "First Amendment") dated as of October 21, 1996 is
between Norwest Bank Minnesota South, National Association (the "Bank") and
Winland Electronics, Incorporated (the "Borrower").
BACKGROUND
The Borrower and the Bank entered into a credit agreement (the "Agreement")
dated January 31, 1996, pursuant to which the Bank extended to the Borrower a
$2,000,000.00 revolving line of credit (the "Line"). Borrowings under the Line
are evidenced by a revolving note dated the same date as the Agreement (the
"January 1996 Revolving Note").
The Borrower has requested that the Bank increase the Line to $3,500,000.00 and
provide it with a new $500,000.0 term loan to be used to payoff a portion of the
outstanding balance of the Line. The Bank is willing to grant these requests
subject to the terms and conditions of this First Amendment. Capitalized terms
not otherwise defined in this First Amendment shall have the meaning given them
in the Agreement.
In consideration of the premises, the Bank and the Borrower agree that the
Agreement is hereby amended as follows:
1. Section 1.1 of the Agreement is hereby deleted in its entirety and
restated as follows:
1.1 Line of Credit Amount. during the Line Availability Period defined
below, the Bank agrees to provide a conditional revolving line of
credit (the "Line") to the Borrower. Outstanding amounts under the Line
will not, at any one time, exceed the lesser of 1) the Borrowing Base
less the amount of principal and interest outstanding under the Term
Loan or 2) Three Million Five Hundred and 00/100 Dollars
($3,500,000.00). The Borrowing Base is defined in Exhibit A-1 of this
Agreement. This is a conditional revolving line of credit and each
advance under the Line, if made, will be at the sole discretion of the
Bank.
2. Section 1.4 of the Agreement is hereby deleted in its entirety and
restated as follows:
1.4 Mandatory Prepayment. If at any time the principal outstanding
under the Revolving Note exceeds the lesser of 1) the Borrowing Base
less the amount of principal and interest outstanding under the Term
Loan or 2) $3,500,000.00, the Borrower must immediately prepay the
Revolving Note to eliminate the excess.
3. A new Section 1A of the Agreement shall be added as follows:
1A. TERM LOAN
1A.1 Term Loan Amount. The Bank agrees to provide a term loan to the
Borrower in the amount of Five Hundred Thousand and 00/100 Dollars
($500,000.00) (the "Term Loan"), provided that all conditions precedent
described in this Agreement have been met and that the Borrower is not
otherwise in default as of the date of disbursement. The Term Loan is
available in one disbursement on the date of this First Amendment.
<PAGE>
1A.2 The Term Note. The Borrower's obligation to repay outstandings
under the Term Loan shall be evidenced by a promissory note (the "Term
Note") dated as of the date of this First Amendment. Reference is made
to the Term Note for terms relating to interest rate, repayment and
other conditions governing the Term Loan.
4. Section 7.2(a) of the Agreement is hereby deleted in its entirety and
restated as follows:
(a) Tangible Net Worth. Maintain a positive Tangible Net Worth as of
December 31, 1996 that is no less than the Borrower's Tangible Net
Worth as of December 31, 1995.
"Tangible Net Worth" means total assets less total liabilities and less
the following types of assets: (1) leasehold improvements; (2)
receivables and other investments in or amounts due from any
shareholder, director, officer, employee or other person or entity
related to or affiliated with the Borrower; (3) goodwill, patents,
copyrights, mailing lists, trade names, trademarks, servicing rights,
organizational and franchise costs, bond underwriting costs and other
like assets properly classified as intangible.
5. Section 7.2(b) of the Agreement is hereby deleted in its entirety and
restated as follows:
(b) Total Liabilities to Tangible Net Worth Ratio. Maintain a ratio of
total liabilities to Tangible Net Worth equal to or less than 3.00 to
1.0 as of December 31, 1996.
6. Simultaneously with the execution of this First Amendment, the Borrower shall
execute and deliver to the Bank a revolving note (the "Revolving Note") in form
and content acceptable to the Bank, which shall replace, but not be deemed to
satisfy, the January 1996 Revolving Note. The initial balance of the Revolving
Note shall be the balance of the January 1996 Revolving Note as of the date of
this First Amendment. Each reference in the Agreement to the Revolving Note
shall be deemed to refer to the Revolving Note dated as of the date of this
First Amendment.
7. The Revolving Note and the Term Note shall collectively be referred to in the
Agreement as the "Notes". Each reference in Section 8 of the Agreement to the
"Revolving Note" shall be amended to refer to the "Notes".
8. Amended Exhibits A-1 and A-2 attached hereto shall replace Exhibits A-1 and
A-2 to the Agreement.
9. The Borrower hereby represents and warrants to the Bank as follows:
A. The Agreement as amended by this First Amendment remains in
full force and effect.
B. The Borrower has no knowledge of any default under the
terms of the Agreement or the Revolving Note, or of any event that with
notice or the lapse of time or both would constitute a default under
the Agreement or any such notes.
C. The execution, delivery and performance of this First
Amendment, the Revolving Note and the Term Note are within its
corporate powers, have been duly authorized and are not in
contravention of law or the terms of the Borrower's articles of
incorporation or by-laws, or of any undertaking to which the Borrower
is a part or by which it is bound.
D. The resolutions set forth in the Corporate Certificate of
Authority dated October 25, 1991 and delivered by the Borrower to the
Bank have not been amended or rescinded, and remain in full force and
effect.
10. Except as modified by this First Amendment, the Agreement remains unchanged
and in full force and effect.
IN WITNESS WHEREOF, the Bank and Borrower have executed this First Amendment as
of the date and year first above written.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION WINLAND ELECTRONICS, INCORPORATED
By /s/ Michael L. King By /s/ W. K. Hankins
Its: Vice President Its: President and CEO
<PAGE>
AMENDED EXHIBIT A-1
BORROWING BASE DEFINITION
"Borrowing Base" means the sum of 80% of Eligible Accounts Receivable (as
defined below) plus 60% of Eligible inventory (as defined below).
Eligible Accounts Receivable means all accounts receivable except those which
are:
1) Greater Than 90 days past the invoice date.
2) Due from an account debtor, 10% or more of whose accounts owed to
the Borrower are more than 90 days past the invoice date.
3) Subject to offset or dispute.
4) Due from an account debtor who is subject to any bankruptcy
proceeding.
5) Owed by a shareholder, subsidiary, affiliate, officer or employee of
the Borrower.
6) Not subject to a perfected first lien security interest in favor of
the Bank.
7) Due from an account debtor located outside the United States and not
supported by a standby letter of credit acceptable to the Bank.
8) Due from a unit of government, whether foreign or domestic.
9) Otherwise deemed ineligible by the Bank in its reasonable discretion.
Eligible inventory means all inventory of the Borrower, at the lower of cost or
market as determined by generally accepted accounting principals, except
inventory which is:
1) In transit; or located at any warehouse not approved by the Bank.
2) Covered by a warehouse receipt, bill of lading or other document of
title.
3)On consignment to or from any other person or subject to any bailment.
4) Damaged, obsolete or not salable in the Borrower's ordinary course of
business.
5) Subject to a perfected first lien security interest in favor of any
third party.
6) Supplies or parts inventory.
7) Otherwise deemed ineligible by the Bank in its reasonable discretion.
<PAGE>
AMENDED EXHIBIT A-2
WINLAND ELECTRONICS, INCORPORATED
BORROWING BASE CERTIFICATE
To: Norwest Bank Minnesota South,
National Association
Second and Hickory Street
Mankato, Minnesota 56002-0168
(the "Bank")
Winland Electronics, Incorporated (the "Borrower") certifies that the following
computation of the Borrowing Base was performed as of __________________ in
accordance with the Borrowing Base definitions set forth in Amended Exhibit A-1
to the Credit Agreement between the Bank and the Borrower dated January 31,
1996, as amended by a First Amendment dated October 21, 1996.
Total Accounts Receivable $
Less: 1) Greater than 90 days in age $
2) Other ineligibles $
Eligible Accounts Receivable $
80% of Eligible Accounts Receivable $
Total Inventory $
Less: Ineligible Inventory $
Eligible Inventory $
60% of Eligible Inventory $
Total Borrowing Base $
Less balance of Term Loan $
Less Total Line Outstandings $
Excess (Deficit) $
WINLAND ELECTRONICS, INCORPORATED
By:
Its:
Norwest Bank Minnesota South,
National Association Revolving Note
$3,500,000.00 October 21, 1996
FOR VALUE RECEIVED, Winland Electronics, Incorporated (the "Borrower") promises
to pay to the order of Norwest Bank Minnesota South, National Association (the
"Bank"), at its principal office or such other address as the Bank or holder may
designate from time to time, the principal sum of Three Million Five Hundred
Thousand and 00/100 Dollars ($3,500,000.00), or the amount shown on the Bank's
records to be outstanding, plus interest (calculated on the basis of actual days
elapsed in a 360-day year) accruing on the unpaid balance at the annual interest
rate defined below. Absent manifest error, the Bank's records will be conclusive
evidence of the principal and accrued interest owing hereunder.
This Revolving Note is issued pursuant to a Credit Agreement dated January 31,
1996 and a First Amendment of even date between the Bank and the Borrower (as
amended, the "Agreement"), and replaces, but does not satisfy, the January 1996
Revolving Note (as defined in the First Amendment). The Agreement, and any
amendments or substitutions thereto, contain additional terms and conditions
including default and acceleration provisions. The terms of the Agreement are
incorporated into this Revolving Note by reference. Capitalized terms not
expressly defined herein shall have the meanings given them in the Agreement.
INTEREST RATE. The principal balance outstanding under this Revolving Note will
bear interest at an annual rate equal to the Base Rate plus 0.75%, floating.
"Base Rate" means the rate of interest established from time to time by Norwest
Bank Minnesota, National Association as its "base" or "prime" rate of interest
at its principal office in Minneapolis, Minnesota.
INTEREST AFTER MATURITY. The unpaid principal balance and interest due under
this Revolving Note after maturity (whether this Revolving Note matures by
demand, acceleration or lapse of time) shall bear interest until paid at the
Base Rate plus 0.75%, floating.
REPAYMENT TERMS
Interest. Interest will be payable on the first day of each month, beginning
November 1, 1996.
Principal. Principal, and any unpaid interest, will be payable in a single
payment due on May 31, 1997.
ADDITIONAL TERMS AND CONDITIONS. The Borrower agrees to pay all costs of
collection, including reasonable attorneys' fees and legal expenses incurred by
the Bank in the event this Revolving Note is not duly paid. Demand, presentment,
protest and notice of nonpayment and dishonor of this Revolving Note are
expressly waived. This Revolving Note will be governed by the substantive laws
of the State of Minnesota.
WINLAND ELECTRONICS, INCORPORATED
By /s/ W. K. Hankins
Its: President & CEO
Norwest Bank Minnesota South,
National Association Term Note
$500,000.00 October 21, 1996
FOR VALUE RECEIVED, Winland Electronics, Incorporated (the "Borrower") promises
to pay to the order of Norwest Bank Minnesota South, National Association (the
"Bank"), at its principal office or such other address as the Bank or holder may
designate from time to time, the principal sum of Five Hundred Thousand and
00/100 Dollars ($500,000.00), or the amount shown on the Bank's records to be
outstanding, plus interest (calculated on the basis of actual days elapsed in a
360-day year) accruing each day on the unpaid principal balance at the annual
interest rate defined below. Absent manifest error, the Bank's records shall be
conclusive evidence of the principal and accrued interest owing hereunder.
INTEREST RATE. The principal balance outstanding under this Term Note shall bear
interest at an annual rate equal to the Base Rate plus 0.75%, floating. Base
Rate means the rate of interest established by Norwest Bank Minnesota, National
Association from time to time as its "base" or "prime" rate of interest at its
principal office in Minneapolis, Minnesota.
REPAYMENT TERMS
Principal and Interest. Principal and interest shall be payable in successive
monthly installments of Eight Thousand Three Hundred Thirty-Four Dollars
($8,334.00), beginning on November 10, 1996. The remaining principal balance,
plus any accrued interest, shall be fully due and payable on October 7, 2001.
Changes in Payment Amount. Following an increase in the interest rate and upon
at least 15 days advance written notice to the Borrower, the Bank, in its
discretion, may increase the Borrower's monthly payment in an amount sufficient
to insure that this Term Note will fully amortize over the remainder of the
original 60-month period used to calculate the original amortization of this
Term Note.
Application of Payments. Each payment shall be applied as scheduled or as the
Bank in its discretion deems appropriate.
PREPAYMENT. The Borrower may prepay this Term Note in full or in part at any
time. Each prepayment shall be applied as scheduled or as the Bank in its sole
discretion may deem appropriate. Such prepayment shall not excuse the Borrower
from making subsequent payments as scheduled above until the indebtedness is
paid in full.
ADDITIONAL TERMS AND CONDITIONS. This Term Note is issued pursuant to a Credit
Agreement dated January 31, 1996 and a First Amendment of even date between the
Bank and the Borrower (as amended, the "Agreement"). The Agreement, and any
amendments or substitutions, contains additional terms and conditions, including
default and acceleration provisions, which are incorporated into this Term Note
by reference.
<PAGE>
Capitalized terms not expressly defined herein shall have the meanings given
them in the Agreement. The Borrower agrees to pay all costs of collection,
including reasonable attorneys' fees and legal expenses incurred by the Bank if
this Term Note is not paid as provided above. This Term Note shall be governed
by the substantive laws of the State of Minnesota.
WAIVER OF PRESENTMENT AND NOTICE OF DISHONOR. Borrower and any other person who
signs, guarantees or endorses this Term Note, to the extent allowed by law,
hereby waives presentment, demand for payment, notice of dishonor, protest, and
any notice relating to the acceleration of the maturity of this Term Note.
WINLAND ELECTRONICS, INCORPORATED
By /s/ W. K. Hankins
Its President and CEO
EXHIBIT 11
WINLAND ELECTRONICS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Earning:
Net Income(Loss): $ 41,213 $ (111,123) $ 102,085 $ (133,259)
----------- ----------- ----------- -----------
Primary Earnings(Loss)Per Share $ 0.016 $ (0.043) $ 0.039 $ (0.054)
----------- ----------- ----------- -----------
Shares:
Weighted average number of
common shares outstanding 2,599,991 2,583,311 2,590,689 2,454,644
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 204,732 -0- 204,732 -0-
Weighted average number of
common and common equivalent
shares outstanding 2,804,723 2,583,311 2,795,421 2,454,644
----------- ----------- ----------- -----------
Fully Diluted Earnings(Loss)
Per Share $ 0.015 $ (0.043) $ 0.037 $ (0.054)
----------- ----------- ----------- -----------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 90,511
<SECURITIES> 0
<RECEIVABLES> 1,431,848
<ALLOWANCES> 4,770
<INVENTORY> 2,538,860
<CURRENT-ASSETS> 4,113,565
<PP&E> 4,455,308
<DEPRECIATION> 705,568
<TOTAL-ASSETS> 7,872,252
<CURRENT-LIABILITIES> 3,010,497
<BONDS> 2,102,012
25,999
0
<COMMON> 0
<OTHER-SE> 1,991,155
<TOTAL-LIABILITY-AND-EQUITY> 7,872,252
<SALES> 5,499,326
<TOTAL-REVENUES> 5,562,473
<CGS> 4,400,044
<TOTAL-COSTS> 545,888
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113,348
<INCOME-PRETAX> 103,585
<INCOME-TAX> 1,500
<INCOME-CONTINUING> 102,085
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102,085
<EPS-PRIMARY> 0.039
<EPS-DILUTED> 0.037
</TABLE>
