SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996 Commission File No.: 0-18393
WINLAND ELECTRONICS, INC.
(Name of small business issuer in its charter)
Minnesota 41-0992135
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1950 Excel Drive, Mankato, Minnesota 56001
(Address of principal executive offices)
(507) 625-7231
(Issuer's telephone number)
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
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Check whether the Issuer (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 Issuer was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. Yes [ X ] No [ ]
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form and no disclosure will be contained, to
the best of Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ X ]
Issuer's revenues for fiscal year ended December 31, 1996: $8,361,226
The aggregate market value of the Common Stock held by non-affiliates as of
March 10, 1997 was approximately $5,412,514 based on the closing sale price of
the Issuer's Common Stock on such date.
There were 2,795,011 shares of Common Stock, $.01 par value, outstanding as of
March 10, 1997.
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DOCUMENTS INCORPORATED BY REFERENCE
Documents incorporated by reference pursuant to Rule 12b-23: Portions of the
Company's Proxy Statement for its 1997 Annual Meeting are incorporated by
reference into Items 9, 10 and 11 of Part III.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [ X ]
<PAGE>
I N D E X
Description Page
PART I
ITEM 1. DESCRIPTION OF BUSINESS........................ 1
ITEM 2. DESCRIPTION OF PROPERTY........................ 4
ITEM 3. LEGAL PROCEEDINGS.............................. 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS........................................ 5
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS............................ 5
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION................................... 6
ITEM 7. FINANCIAL STATEMENTS........................... 9
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE..................................... 25
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT............................ 25
ITEM 10. EXECUTIVE COMPENSATION......................... 25
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.......................... 25
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS................................... 25
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K............... 25
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Winland Electronics, Inc. (the "Company") was incorporated as a
Minnesota corporation in October of 1972. Before 1985, the Company derived most
of its revenues from the sale of security devices which monitor and detect
temperature, power failure, water leakage and other environmental emergencies to
farms and businesses. In 1984, in a effort to diversify its business, the
Company began to develop and manufacture products for other companies on a
contract basis.
Products
The Company currently designs, produces and distributes products in two
product categories defined as "Contract Design and Manufacturing" and
"Security/Industrial Products."
Contract Design and Manufacturing. The Company's contract design and
manufacturing services include design and production engineering, material
sourcing, various levels of product assembly, field repair services, and
warehousing and shipping services. Customers may select any combination of the
services offered. The Company provides contract design and manufacturing
services to four key customers, Johnson World Wide Associates, Inc. ("Johnson"),
CIC Systems, Inc. ("CIC"), Scotsman Industries, Inc. ("Scotsman") and Select
Comfort, Inc. ("Select Comfort"). There is no assurance that the Company will
continue to be engaged by any of these contract design and manufacturing
customers. Contract design and manufacturing accounted for approximately 76% and
73% of the Company's total sales during 1996 and 1995.
Security/Industrial Products. The Company is a supplier of simple and
sophisticated microprocessor and mechanically controlled sensors and alarms.
These products monitor and detect environmental changes, such as changes in
temperature, humidity, water leakage and power failures. With the Company's
"ALERT" series of products, many burglar or fire alarm panels can be converted
to monitor and report unfavorable environmental conditions. Security/industrial
product sales accounted for approximately 24% and 27% of the Company's sales for
1996 and 1995, respectively.
Marketing and Distribution
The Company markets its contract design and manufacturing services
primarily through direct telephone contact and mail solicitation of potential
customers. The Company markets its security/industrial products in a variety of
ways, including through an established security distribution network,
instrumentation catalogs, direct mail order companies, and national and regional
trade expositions. In 1993, the Company added exhibits in the HVAC (Heating,
Ventilating, Air Conditioning), Refrigeration, and Industrial Industries
national and regional trade expositions. The Company intends to continue to
expand its advertising efforts in 1997 in all areas of opportunity. The
Company's primary distribution outlet for the security/industrial products is a
network of over 300 distributors.
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Source of Materials
The components and subassemblies which are included in products
manufactured by the Company are purchased from outside vendors, tested and
incorporated into the products by the Company's manufacturing assembly
personnel. Certain purchased components and subassemblies are manufactured to
design specifications furnished by the Company, while others are standard
off-the-shelf items. The Company has multiple sources for the off-the-shelf
components, but generally maintains only one source for items manufactured to
design specifications. If the Company were to lose one or more of its major
suppliers, some delay and additional costs may be incurred while obtaining
alternative sources.
In addition to manufacturing its own products, the Company has
contracted with companies in the United States and foreign countries to provide
both finished goods assemblies and component assemblies designed to the
Company's specifications. Although alternative sources for such items may be
found, if the Company were to lose one or more of these suppliers, some delay
and additional costs may be incurred while obtaining a new source.
Patents, Trademarks and Licenses
The Company holds federal trademark registrations for marks used in the
Companies business as follows: WATERBUG(R) and ENVIRONMENTAL SECURITY(R).
Seasonality and Working Capital
The seasonality of the Company's business is dependent in part on the
products produced for the contract design and manufacturing customers. Since
1985, the Company has experienced increased working capital demands in the
fourth quarter as production of various contract manufacturing products
increases to meet spring orders. Changes in the types of products produced in
the contract design and manufacturing portion of the Company's business could
materially affect seasonality and the timing of working capital requirements.
Significant Customers
The Company is dependent on certain customers for a significant portion
of its total sales. Total sales to customers whose individual sales equaled or
exceeded 10% of the Company's total sales for the years ended December 31, 1996
and 1995 were $4,751,478 or 56.8% of total sales and $3,856,354 or 65.9% of
total sales, respectively. Contract design and manufacturing services provided
to Johnson accounted for approximately 31% and 27% of the Company's total sales
for the years ended December 31, 1996 and 1995, respectively. Johnson
manufactures and markets recreation products.
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The Company also recorded significant sales to Select Comfort, which
has been a customer of the Company for over two years. Select Comfort is an
air-sleep system manufacturer in the bedding industry. The Company recorded
sales of contract design and manufacturing services to Select Comfort of
approximately 26% of the total sales for the year ended December 31, 1996.
On December 6, 1996, the Company received a $5.5 million purchase order
from a new customer, PeopleNet Communications, to manufacture the "Intouch
System," a locating and mobile communications system for the long-haul trucking
industry. The order is cancelable by PeopleNet at any time and there is no
assurance that the Company will receive all or any portion of the $5.5 million
as revenues. The Company has not scheduled delivery of this product and cannot
determine when revenues, if any, relating to this purchase order will be
realized. The loss of any contract customer could have an adverse effect on the
Company's short-term results. The management of the Company believes that the
contract design and manufacturing portion of its business has potential for
growth and is actively promoting this portion of the business.
Backlog and Government Contacts
The Company has no significant backlog of orders at the fiscal year
end. The Company had no government contracts.
Competition
The Company's business includes the development and marketing of
security/industrial products and those produced for other companies(contract
design and manufacturing). Among the security/industrial products, competition
has continued to increase over the last two years as additional companies have
introduced competing products. The Company believes, however, that its products
offer desirable features at competitive prices. Despite the increased
competition, the sales of security/industrial products increased 28% for 1996
over 1995. The Company has continued to stress the development of new products
and the enhancement of existing products to meet the customers' changing needs.
The competition for the contract design and manufacturing services
offered by the Company has increased substantially, both domestically and
internationally. To enhance its ability to compete effectively, the Company has
invested in additional capital equipment to increase automation of the
production process. The Company has also positioned itself to offer a more
complete range of services than is available from the typical electronic "board"
house. These efforts have proven to be successful in fiscal 1996.
Research and Development
The technology in the retail electronics industry is evolving rapidly
and likely will result in the development of new products and systems which may
make the Company's present products obsolete. In order to remain competitive,
the Company believes that it will be required to continually improve existing
products and develop new ones. The Company has continued to identify
opportunities to enhance existing products and develop new products to meet the
changing needs in the marketplace. The Company spent $322,488 and $209,918 on
research and development, which represented 3.9% and 3.6% as a percentage of
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sales, during 1996 and 1995, respectively. Some of the research and development
costs are recovered through the billing of costs that are directly related to
contract design and activities. There is no assurance that the Company's
research and development activities will lead to the development of new products
or that such products, if developed, will be marketed successfully.
Effect on Environmental Regulations
To the extent that the Company's management can determine, there are no
federal, state, or local provisions regulating the discharge of materials into
the environment or otherwise relating to the protection of the environment with
which compliance by the Company has had, or is expected to have, a material
effect upon the capital expenditures, earnings, or competitive position of the
Company.
Foreign Operations and Export Sales
The Company has not received any significant revenues from sales
outside of the United States during the last two fiscal years.
Personnel
At December 31, 1996, the Company had 72 full-time employees. The
employees include five officers, one sales manager, two customer service, order
out employees, one administrative assistant, 44 production employees, including
technicians and supervisors, two shipping and receiving employees, three
accounting employees, four purchasing employees, eight research and development
employees, one quality assurance employee, and one management information
systems employee. The Company also uses temporary labor services extensively for
peak production purposes. The Company is not subject to a collective bargaining
agreement, and it considers its relations with its employees to be good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company owns its office and production facility located in Mankato,
Minnesota. The 53,000-square foot building consists of 10,500 square feet of
office space, 32,500 square feet of production space and 10,000 square feet of
warehouse space, all of which is being used by the Company. The funding of the
new facility, site and site improvements was acquired through a $1,700,000
building loan from the city of Mankato, a $500,000 state small cities loan, also
payable to the city of Mankato, and $270,000 from the city of Mankato in the
form of tax increment financing. The mortgage is payable in equal monthly
installments of $16,200 for both loans until January 1, 2000, at which time it
may be necessary for the Company to renew the financing on the building. As of
December 31, 1996, the outstanding principal balance on the loans was
$2,081,275. Management believes the Company's property adequately supports the
Company's present and near future operations. The Company has no expansion or
renovation plans for its property. Management believes its property is
adequately covered by insurance.
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ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders of the
Company during the fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock has been traded on the Nasdaq SmallCap
Market under the symbol WLET since May 26, 1995. Prior to that date, the
Company's Common Stock was traded on the national over-the-counter bulletin
board. The following table sets forth the high and low bid quotations, as
reported by either the Nasdaq SmallCap Market or the National Quotation Bureau
Incorporated of Jersey City, New Jersey or Metro Data Company of Minneapolis,
Minnesota. The bid quotations represent interdealer prices and do not include
retail mark-ups, mark-downs or commissions and may not necessarily represent
actual transactions.
Fiscal Year Ended
December 31, 1996 Low High
First Quarter 2 1/8 2 7/8
Second Quarter 2 1/8 2 5/8
Third Quarter 2 2 7/8
Fourth Quarter 2 1/8 4 1/2
Fiscal Year Ended
December 31, 1995 Low High
First Quarter 1 7/8 2 7/8
Second Quarter 2 3/4 3 1/2
Third Quarter 2 3/4 3 1/2
Fourth Quarter 2 1/2 3 1/4
On March 10, 1997, the fair market value of the Company's Common Stock
was $2.75, based on the closing sale price on at that date. As of December 31,
1996, the Company had approximately 493 shareholders of record.
The Company has never paid cash dividends on its Common Stock. The
Board of Directors presently intends to retain earnings for use in the Company's
business and does not anticipate paying cash dividends on Common Stock in the
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foreseeable future. Any future determinations as to the payment of dividends
will depend on the financial condition of the Company and such other factors as
are deemed relevant by the Board of Directors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Results of Operations - 1996 vs. 1995
Sales. Sales increased 43.0% to $8,361,226 for the year ended December
31, 1996 compared to $5,850,724 during the year ended December 31, 1995. The
sales growth during 1996 primarily reflects escalating shipments to OEM
customers under several large purchase orders. In addition to the Company's
growth in OEM sales during 1996, it experienced further growth in its
proprietary line of security/industrial products.
The Company believes that, for the foreseeable future, sales derived
from contract design and manufacturing services will grow at a faster rate than
sales from security/industrial products. Throughout 1996, management has
continued to direct considerable attention and resources toward expanding
existing customer relationships and securing new, long-term contract design and
manufacturing customer relationships. The Company's ability to increase sales
from contract design and manufacturing services or security/industrial products,
or both, is subject to numerous risks, including without limitation (i) the
Company's dependence on a small number of key customers, the loss of any of
which could adversely affect sales; (ii) a decrease in, or lack of, market
demand for the products being manufactured by the Company; and (iii) competition
from low cost manufacturers located in the United States and abroad.
Gross Profit. Gross profit increased to 21.9% of sales or $1,831,680
for the year ended December 31, 1996, compared to 18.1% of sales or $1,059,524
for the same period in 1995. The increase in gross profit during 1996 primarily
reflects better manufacturing efficiencies, improved training, measurement and
quality systems and benefits derived from capital equipment acquisitions.
Operating Expenses. General and administrative expense increased from
$726,333 or 12.4% of sales, to $901,356 or 10.8% of sales, during the year ended
December 31, 1996, as compared to 1995. The increase in general and
administrative expense during 1996 was required to support the higher level of
sales.
Marketing expense was $196,147 or 2.3% of sales for the year ended
December 31, 1996, compared to $202,528 or 3.5% of sales in 1995. The nominal
decrease in marketing expenditures during 1996 is primarily the result of a more
pronounced increase in product mix dominance by OEM sales over sales of
proprietary security/industrial products in 1996 than in previous years.
The Company has continued to emphasize the marketing of its
security/industrial products, while actively pursuing new, and maintaining
existing, contract design and manufacture relationships. In the future, the
marketing expenditures, as a percentage of sales, are expected to approximate
historical levels.
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Research and development expense was $322,488 or 3.9% of sales during
the year ended December 31, 1996, compared to $209,918 or 3.6% of sales during
1995. The increase in research and development expense is attributed to
increased technical staffing and the purchase of technically advanced test and
development equipment. Both the addition of staff and the acquisition of
research and development equipment are intended to further assist in the
development of new products and the enhancement of existing products. This
equipment will enable the Company to continue to provide full technical and
development services to its customers.
The research and development group has also worked closely with other
departments of the Company to help identify and secure new contract design and
manufacturing projects and customer relationships.
Interest Expense. Total interest expense, including interest related to
the building and capital lease obligations, was $341,693 for the year ended
December 31, 1996, compared to $248,212 for the year ended December 31, 1995.
The increase in interest expense was primarily due to increased short-term
borrowing needed to support increased sales and interest related to additional
obligations under capital lease agreements.
Net Income. The Company reported net income of $264,147 or $0.10 per
share for 1996, compared to a net loss of $149,907 or $0.06 per share for 1995.
The Company's return to profitability was primarily the result of increased
sales, combined with higher gross profit margins and an increase in operating
expenses that was less than the Company's increase in sales.
The Company believes inflation has not significantly affected its
results of operations.
Results of Operations - 1995 vs. 1994
Sales. Sales increased 8.4% to $5,850,724 for the year ended December
31, 1995 compared to $5,398,308 during the year ended December 31, 1994. The
increase in sales during 1995 was primarily due to a modest increase in the
value of shipments made to customers for whom the Company provides contract
design and manufacturing services. Also during 1995, the Company experienced
increased customer demand for its line of security/ industrial products,
resulting in a modest increase in sales of proprietary products compared to
1994.
Gross Profit. Gross Profit decreased from 28.1% of sales for the year
ended December 31, 1994 to 18.1% of sales for the year ended December 31, 1995.
The decline in gross profit was primarily the result of higher manufacturing
costs, which increased at a faster rate than the increase in sales. These higher
manufacturing costs consisted of: (1) higher fixed overhead costs associated
with the purchase of a 55,000 square foot facility; (2) the acquisition of new
manufacturing equipment and test equipment; (3) the cost of additional direct
and indirect labor and training required to support new equipment and expanded
manufacturing operations; and (4) manufacturing inefficiencies related to the
adjustment of personnel to new equipment and new manufacturing practices. During
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1995, gross profit was also adversely affected by the disruption of
manufacturing operations during February 1995 as a result of the Company's
relocation to the new facility.
During 1995, the Company directed considerable attention toward the
objective of improving gross profit by: (1) expanding sales in order to absorb
the higher fixed overhead costs associated with the Company's new facility and
equipment; and (2) improving production efficiencies through expanded training
and the implementation of additional controls.
Operating Expenses. General and administrative expense increased from
$591,433 or 11.0% of sales for the year ended December 31, 1994 to $726,333 or
12.4% of sales for the year ended December 31, 1995. The increase in general and
administrative expense during 1995 was primarily due to increased expenses and
associated with operating a larger facility.
Marketing expense was $202,528 or 3.5% of sales for the year ended
December 31, 1995 compared to $188,476, or 3.5% of sales in 1994. The increase
in marketing expense during 1995 was primarily due to increased advertising
expense, increased trade show attendance, and additional marketing activities
specifically related to expanding the Company's customer base for its contract
design and manufacturing services.
Research and development expense was $209,918, or 3.6% of sales during
the year ended December 31, 1995 compared to $174,676, or 3.2% of sales during
1994. The increase in research and development expense was primarily due to the
addition of staff and equipment required for new product development and the
enhancement of existing products, as well as to support increasing demand for
engineering services by customers for whom the Company provides contract design
and manufacturing services.
Interest Expense. Total interest expense, including interest related to
the building and equipment lease obligations was $248,212 for the year ended
December 31, 1995, compared to $74,179 in 1994. The increase in interest expense
was primarily due to the new facility and capital equipment leases.
Net Loss. As a result of the factors discussed above, the Company
recorded a net loss of $149,907, or $0.06 per share, for the year ended December
31, 1995, as compared to net income of $481,527, or $0.22 per share, during
1994.
The Company believes inflation has not significantly affected its
results of operations.
Liquidity and Capital Resources
At December 31, 1996, the current ratio was 1.56 to 1, compared to 1.61
to 1 on December 31, 1995. Working capital was $1,567,234 on December 31, 1996
compared to $1,221,862 on December 31, 1995. The increase in working capital
primarily reflects increases in accounts receivable and inventory, offset in
part by an increase in notes payable and accounts payable needed to support the
increased sales for the year.
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In February 1996, the Company executed a credit agreement with Norwest
Bank Minnesota South, National Association ("Norwest Bank") which provided a new
revolving line of credit to replace its existing line of credit with First Bank.
The new revolving credit agreement, which provided a maximum loan limit of
$2,000,000 and an interest rate calculated at 3/4% over the prime rate, also
permitted a more favorable method of calculating the borrowing limits of the
Company's inventory.
The Company amended its revolving credit agreement with Norwest Bank on
October 21, 1996, which increased the maximum loan limit to $3,500,000, subject
to additional limitations set forth in the credit agreement. The interest rate
remained at 3/4% over the prime interest rate. At December 31, 1996, there was
$1,580,227 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 the total increase of $2,000,000 in credit
available, which doubles the previous credit available, together with cash flows
from operations, will be sufficient to meet the Company's capital needs in the
foreseeable future.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are at the pages set forth below:
Page
Independent Auditors' Report dated February 5, 1997........................ 10
Balance Sheet as of December 31, 1996 and 1995 ............................ 11
Statement of Operations for Years Ended
December 31, 1996 and 1995................................................. 12
Statement of Changes in Stockholders' Equity for
Years Ended December 31, 1996 and 1995..................................... 13
Statement of Cash Flows for Years Ended
December 31, 1996 and 1995................................................. 14
Notes to Financial Statements.............................................. 15
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AHERN MONTAG & VOGLER, LTD.
Certified Public Accountants
227 East Main Street, Suite 110
P.O. Box 3745
Mankato, Minnesota 56002-3745
Telephone: (507) 625-8490 Fax: (507) 625-5391
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Winland Electronics, Inc.
Mankato, Minnesota 56001
We have audited the accompanying balance sheets of Winland Electronics, Inc. as
of December 31, 1996 and 1995, and the related statements of operations, changes
in stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Winland Electronics, Inc. as of
December 31, 1996 and 1995 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ Ahern Montag & Vogler, Ltd.
AHERN MONTAG & VOGLER, LTD.
Certified Public Accountants
February 5, 1997
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WINLAND ELECTRONICS, INC.
BALANCE SHEET
DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995
Current
Cash $ 19,499 $ 2,839
Accounts Receivable, Net 1,327,386 995,231
Inventory 2,969,677 2,195,042
Prepaid Expenses 63,633 40,924
----------- -----------
Total Current Assets 4,380,195 3,234,036
NET PROPERTY AND EQUIPMENT 3,128,588 2,884,759
NET PROPERTY UNDER CAPITAL LEASES 721,066 426,857
NET PATENTS AND TRADEMARKS 8,564 10,093
DEFERRED INCOME TAXES 52,535
----------- -----------
TOTAL ASSETS $ 8,290,948 $ 6,555,745
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current
Notes Payable $ 1,580,227 $ 1,075,452
Accounts Payable 683,406 630,460
Wages Payable 41,815 25,622
Payroll Taxes Payable 34,891 11,770
Other Accruals 120,382 73,126
Income Taxes Payable 336
Deferred Revenue 27,001 27,001
Obligations Under Capital Leases 163,636 108,081
Current Maturities 161,267 60,662
----------- -----------
Total Current Liabilities 2,812,961 2,012,174
----------- -----------
Long-Term
Deferred Revenue, Less Current Portion 216,007 243,008
Obligations Under Capital Leases, Less
Current Obligations 492,120 300,373
Long-Term Debt, Less Current Maturities 2,459,644 2,086,499
----------- -----------
Total Long-Term Liabilities 3,167,771 2,629,880
----------- -----------
Total Liabilities 5,980,732 4,642,054
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock, Par Value $.01 per share,
20,000,000 shares authorized, 2,751,071
and 2,583,311 shares issued and
outstanding 27,511 25,833
Additional Paid-in Capital 2,047,794 1,917,094
Retained Earnings (Deficit) 234,911 (29,236)
----------- -----------
Total Stockholders' Equity 2,310,216 1,913,691
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 8,290,948 $ 6,555,745
=========== ===========
The Accompanying Notes are an Integral Part
of the Financial Statements
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WINLAND ELECTRONICS, INC.
STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
SALES $ 8,361,226 $ 5,850,724
COST OF SALES (6,529,546) (4,791,200)
----------- -----------
GROSS PROFIT 1,831,680 1,059,524
----------- -----------
OPERATING EXPENSES
General and Administrative 901,356 726,333
Marketing 196,147 202,528
Research and Development 322,488 209,918
----------- -----------
Total Operating Expenses 1,419,991 1,138,779
----------- -----------
OPERATING INCOME (LOSS) 411,689 (79,255)
----------- -----------
OTHER INCOME AND (EXPENSES)
Interest Income 31,237
Tax Increment Financing Income 27,001
Miscellaneous Income 15,428 10,300
Interest Expense (158,183) (79,591)
Sale of Assets (153) (1,361)
----------- -----------
Total Other Income and (Expenses) (84,670) (70,652)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 327,019 (149,907)
INCOME TAXES 62,872
----------- -----------
NET INCOME (LOSS) $ 264,147 ($ 149,907)
=========== ===========
EARNINGS PER SHARE DATA
Earnings Per Common and
Dilutive Common Equivalent Share $ 0.10 ($ 0.06)
=========== ===========
Weighted Average Number of
Common and Dilutive Common
Equivalent Shares 2,729,968 2,487,061
=========== ===========
The Accompanying Notes are an Integral Part
of the Financial Statements
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WINLAND ELECTRONICS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT)
---------- ---------- ----------
<S> <C> <C> <C>
BALANCES ON 1-1-95 $ 20,103 $1,035,571 $ 120,671
Common Stock
Issued Under Stock Options,
3,000 Shares at $.06 Per Share 30 150
Common Stock
Issued Under Private Placement,
370,000 Shares at $2.00 Per Share 3,700 633,373
Common Stock
Issued Under Warrants, 200,000
Shares at Average of $1.25 Per Share 2,000 248,000
Net (Loss) (149,907)
---------- ---------- ----------
BALANCES ON 12-31-95 25,833 1,917,094 (29,236)
Common Stock
Issued Under Stock Options,
167,760 Shares Ranging from
$.06 to $.25 Per Share 1,678 15,629
Income Tax Benefit from Exercise
of Nonqualified Stock Options 115,071
Net Income 264,147
---------- ---------- ----------
BALANCES ON 12-31-96 $ 27,511 $2,047,794 $ 234,911
========== ========== ==========
</TABLE>
The Accompanying Notes are an Integral Part
of the Financial Statements
13
<PAGE>
WINLAND ELECTRONICS, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received from Customers $ 8,036,058 $ 5,491,253
Other Miscellaneous Operating Receipts 46,665 10,300
Cash Paid to Suppliers and Employees (8,138,233) (5,820,030)
Interest Paid (357,884) (238,793)
Income Taxes Paid (4,394)
----------- -----------
Net Cash (Used) by Operating Activities (413,394) (561,664)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases Of Property and Equipment (432,070) (2,576,654)
Equipment Sale Proceeds 2,819
----------- -----------
Net Cash (Used) by Investing Activities (432,070) (2,573,835)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Advances on Credit Line 504,775 167,000
Proceeds from Debt 557,397 2,199,620
Payments on Debt (83,647) (52,459)
Payments on Capital Lease Obligations (133,708) (80,873)
Sale of Common Stock 17,307 887,253
----------- -----------
Net Cash Provided by Financing Activities 862,124 3,120,541
----------- -----------
NET INCREASE (DECREASE) IN CASH 16,660 (14,958)
CASH - BEGINNING OF YEAR 2,839 17,797
----------- -----------
CASH - END OF YEAR $ 19,499 $ 2,839
=========== ===========
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH (USED)
BY OPERATING ACTIVITIES
Net Income (Loss) $ 264,147 ($ 149,907)
Adjustment to Reconcile Net Income (Loss)
to Net Cash From Operating Activities
Depreciation & Amortization 276,418 193,922
Loss on Sale of Assets 153 1,361
Income Tax Benefit from Exercise
of Nonqualified Stock Options 115,071
Changes in Assets & Liabilities
(Increase) in Accounts Receivable (332,155) (345,271)
(Increase) in Inventory (774,635) (506,190)
(Increase) in Prepaid Expenses (22,709) (13,535)
(Increase) in Deferred Income Taxes (52,535)
Increase in Accounts Payable 52,946 291,947
Increase in Wages Payable 16,193 6,528
Increase (Decrease) in Payroll Taxes Payable 23,121 (428)
Increase (Decrease) in Other Accruals 47,256 (36,629)
Increase (Decrease) in Income Taxes Payable 336 (3,462)
(Decrease) in Deferred Revenue (27,001)
----------- -----------
Net Cash (Used) by Operating Activities ($ 413,394) ($ 561,664)
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part
of the Financial Statements
14
<PAGE>
WINLAND ELECTRONICS, INC.
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
Operating Characteristics - The Corporation was formed October 30, 1972,
and was originally named Crown-Toupe North Central, Inc. Development
stage activities were conducted in the electronics field. On August 26,
1975, the name was changed to Winland, Inc. Subsequent to December 31,
1983, the name was changed to Winland Electronics, Inc. The Company is
engaged in the design and assembly of electronic devices and extends
unsecured credit to its customers in this industry.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect amounts and
disclosures reported in the financial statements. Actual results could
differ from such estimates and assumptions.
Accounts Receivable/Uncollectibles - The Company maintains an allowance
for doubtful accounts based on the aging of accounts receivable. The
balance of the allowance for doubtful accounts at December 31, 1996 and
1995 is $4,455 and $5,000, respectively.
Inventories - Inventories are stated at the lower of cost or market.
Cost of raw materials and purchased parts or subassemblies is determined
principally by the first-in, first-out method. Cost of finished goods is
determined principally by the standard cost method, which approximates
average costs.
Property and Depreciation - Property and equipment are carried at cost.
Maintenance and repairs are charged to operations and improvements are
capitalized. Items sold, retired, or otherwise disposed of are removed
from the asset and accumulated depreciation accounts and any gains or
losses thereon are reflected in operations.
Depreciation is computed using the straight-line method at rates based
on the estimated service lives of the various assets as follows:
Building 39 Years
Land Improvements 20 Years
Office Equipment 5-7 Years
Factory Equipment 5-7 Years
Research & Development Equipment 5-7 Years
Display Equipment 5-7 Years
Property Under Capital Leases 4-7 Years
Intangibles - Costs of Patents and Trademarks are capitalized and
amortized over the estimated useful life of the related products,
approximately 20 years.
Income Taxes - The Company uses the asset and liability method as
identified in SFAS 109, Accounting for Income Taxes. Investment tax
credits are accounted for by the flow-through method of accounting.
15
<PAGE>
WINLAND ELECTRONICS, INC.
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Earnings Per Share - Earnings per common and dilutive common equivalent
share is based upon the weighted average of common and dilutive common
equivalent shares outstanding during the year under the treasury stock
method. All stock options and warrants are considered to be common stock
equivalents. However, the earnings per share calculation for the year
ended December 31, 1995 does not consider stock options and warrants
because their inclusion would be anti-dilutive. The differences between
primary and fully diluted earnings per share are insignificant.
Stock-Based Compensation - The Company follows the intrinsic value based
method of accounting as prescribed by APB 25, Accounting for Stock
Issued to Employees, for its stock-based compensation. Under the
Company's fixed stock option plan, the exercise price is equal to or
greater than the fair value of the options at the grant date and no
compensation cost is recognized.
2. INVENTORIES
Inventories are Comprised of:
1996 1995
---- ----
Raw Materials $1,695,764 $1,458,611
Work in Progress 554,090 405,102
Finished Goods 709,860 322,231
Supplies 9,963 9,098
---------- ----------
Total $2,969,677 $2,195,042
========== ==========
3. PROPERTY AND EQUIPMENT
Property and Equipment consists of:
1996 1995
---- ----
Land $192,640 $192,640
Land Improvements 77,369 77,369
Building 2,343,275 2,268,510
Office Equipment 341,658 241,431
Factory Equipment 549,567 410,570
Research & Development Equipment 143,941 64,829
Display Equipment 31,413 14,999
--------- --------
Total $3,679,863 $3,270,348
Accumulated Depreciation (551,275) (385,589)
--------- --------
Net Property and Equipment $3,128,588 $2,884,759
========== ==========
Depreciation and amortization charged to expense for the years ended
December 31, 1996 and 1995 was $274,889 and $192,393, respectively.
These amounts include amortization of property under capital lease
assets.
16
<PAGE>
WINLAND ELECTRONICS, INC.
Notes to Financial Statements
4. LEASES
Leased Property under capital leases consists of the following:
1996 1995
---- ----
Factory Equipment $863,473 $447,311
Office Equipment 95,754 95,754
Research & Development Equipment 4,401 4,401
-------- --------
Total $963,628 $547,466
Accumulated Amortization (242,562) (120,609)
-------- --------
Net Leased Property Under
Capital Leases $721,066 $426,857
======== ========
Capital lease obligations are summarized as follows:
1996 1995
---- ----
Lease on factory, office and R & D
equipment with lease period expiring
July, 1997, at interest of 8%. $ 6,195 $ 21,185
Lease on factory and office equipment
with lease period expiring January,
2000 at interest 10.2%. 239,648 313,495
Lease on factory equipment with
lease period expiring January, 2000
at interest of 10.37%. 9,178 11,555
Lease on factory equipment with
lease period expiring October, 1998
at interest of 9.23%. 25,641 38,544
Lease on office equipment with
lease period expiring March, 2000
at interest of 9%. 18,992 23,675
Lease on factory equipment with
lease period expiring August, 2001
at interest of 9.49%. 242,293
Lease on factory equipment with
lease period expiring July, 2001
at interest of 9.96% 113,809
-------- --------
Total $655,756 $408,454
Less: Current Portion (163,636) (108,081)
-------- --------
Obligation under capital leases,
less current portion $492,120 $300,373
======== ========
17
<PAGE>
WINLAND ELECTRONICS, INC.
Notes to Financial Statements
4. LEASES - (Continued)
The Company leases equipment and vehicles under noncancellable operating
leases that expire from 1997 to 1998. The lessee is responsible for all
repairs and maintenance, insurance, and other related expenses in
connection with these leases.
Rental and other related expenses for the above leases for the years
ended December 31, 1996 and 1995 was $107,670 and $95,470, respectively.
Minimum future annual lease payments under these leases as of December
31, 1996 are as follows:
Years Ended Capital Operating
December 31, Leases Leases
------------ ------- --------
1997 $227,209 $ 41,801
1998 200,247 9,624
1999 185,429
2000 99,913
2001 89,292
-------- -------
Total Minimum Lease Payments $802,090 $ 51,425
Less Amounts ========
Representing Interest (146,334)
Present Value of Net --------
Minimum Lease Payments $655,756
========
5. INTANGIBLES
Costs related to patents and trademarks that pertain to the Company's
products have been capitalized to Patents and Trademarks.
Intangibles consist of:
1996 1995
---- ----
Patents and Trademarks $ 34,240 $ 34,240
Accumulated Amortization (25,676) (24,147)
-------- -------
Total Intangibles, Net of Amortization $ 8,564 $ 10,093
======== ========
Amortization charged to expense for the years ended December 31, 1996
and 1995 was $1,529 and 1,529, respectively.
6. LINE OF CREDIT
The Company has a working capital line of credit in the maximum amount
of $3,500,000 and $1,500,000 at December 31, 1996 and 1995,
respectively. Interest is calculated at .75% over prime and is due
monthly. Principal is due May 31. The line is secured by inventory,
equipment and accounts receivable and is subject to a defined borrowing
base equal to 80% of qualified accounts receivable and 60% of
inventories. In addition, other conditions including ratios and net
income levels must be met.
18
<PAGE>
WINLAND ELECTRONICS, INC.
Notes to Financial Statements
6. LINE OF CREDIT - (Continued)
Pertinent credit line information is as follows:
1996 1995
---- ----
Year End Balance $1,580,227 $1,075,452
Stated Interest Rate 9.0% 9.25%
Maximum Amount Outstanding $1,995,227 $1,373,452
Average Amount Outstanding $1,626,398 $853,529
Unused Credit Available $1,204,081 $126,548
7. LONG-TERM DEBT
The following is a summary of long-term debt:
1996 1995
---- ----
Note payable under tax increment
financing arrangement in monthly
installments of $13,117 including
interest at 6.941% to January 1, 2000
when the remaining balance is payable.
Secured by property and equipment. $1,615,278 $1,662,409
Note payable under tax increment
financing arrangement in monthly
installments of $3,030 including
interest at 4% to January 1, 2000, when
the remaining balance is payable.
Secured by property and equipment. 465,997 484,752
Note payable in monthly installments
of $8,334 plus interest at .75%
over prime, 9.0% at December 31, 1996,
to October, 2001. Secured by accounts
receivable. 483,332
Note payable in monthly installments
of $595 including interest at 9.25%
to April, 2001 when the remaining
balance is payable. Secured by
equipment. 56,304
---------- ----------
Total $2,620,911 $2,147,161
Amount due in one year or less (161,267) (60,662)
---------- ----------
Total Long-Term Debt $2,459,644 $2,086,499
========== ==========
19
<PAGE>
WINLAND ELECTRONICS, INC.
Notes to Financial Statements
7. LONG-TERM DEBT - (Continued)
Maturities of long-term debt are as follows:
1997 $161,267
1998 170,748
1999 175,294
2000 1,983,267
2001 130,335
----------
Total $2,620,911
==========
Interest expense for the years ended December 31, 1996 and 1995 was
$341,693 and $248,212, respectively. These amounts include interest paid
on capital lease obligations.
8. CUSTOMER DEPENDENCE
The Company is dependent on certain customers for a significant portion
of its total sales. Sales to customers whose individual sales equaled
or exceeded 10% of the Company's total sales consisted of two customers
totaling $4,751,478 and four customers totaling $3,856,354 for the
years ended December 31, 1996 and 1995, respectively.
9. INCOME TAXES
Deferred Tax Assets
The following future benefits are recognized by the Company as deferred
tax assets:
1996 1995
---- ----
Unused NOL Carryforwards $223,388 $259,884
Unused R & D Credit 37,140 17,766
Unused ITC Credit 12,971 12,971
Unused Jobs Credit 14,540 14,540
Unused AMT Credit 5,252 7,756
Inventory 45,502 47,785
Allowance for Doubtful Accounts 1,782
Compensated Absences Accrual 18,625
--------- --------
Total $359,200 $360,702
Valuation Allowance (306,665) (360,702)
--------- --------
Total Deferred Tax Assets $ 52,535 $ -0-
========= =========
Realization of deferred tax assets associated with the NOL and credit
carryforwards is dependent upon generating sufficient taxable income
prior to their expiration. Management believes that there is a risk
that certain of these NOL and credit carryforwards may expire unused
and, accordingly, has established a valuation allowance against them.
Although realization is not assured for the remaining deferred tax
assets, management believes it is more likely than not that they will
be realized through future taxable earnings or alternative tax
strategies.
20
<PAGE>
WINLAND ELECTRONICS, INC.
Notes to Financial Statements
9. INCOME TAXES - (Continued)
The deferred tax asset for NOL carryforwards and the valuation
allowance have been increased by $60,036 from the amounts previously
reported at December 31, 1995 due to a revision in prior operating loss
carryforwards.
Components of the provision for income taxes are as follows:
1996 1995
---- ----
Current Taxes Payable $ 336 $
Additional Paid-In Capital
from Benefit of Stock
Options Exercised 115,071
(Decrease) in Balance of
Valuation Allowance for
Deferred Tax Assets (52,535)
-------- -------
Provision for Income Taxes $ 62,872 $
======== =======
During 1996 the Company also received a tax benefit from the
carryforward of net operting losses totaling $26,941.
Statutory income tax rate reconciliation to effective rate:
1996 1995
---- ----
Statutory U.S. Income Tax Rate 35.0% 35.0%
State Taxes, Net of Federal Tax Benefit 3.59%
Operating Losses, no Current Tax Benefit (35.0%)
Tax Benefit of NOL Carryforwards (16.02%)
Graduated Rates Difference (3.34%)
Effective Income Tax Rate 19.23% 0%
Investment Tax Credits of $12,971 which were reduced 35% by the Tax
Reform Act of 1986 expire on December 31, 2000. Credits for increasing
research and development activities of $37,140 will expire on December
31, 2008 through 2011. Credits for alternative minimum tax of $5,252 and
a $14,540 targeted jobs credit are available for future use. Net
operating losses expire as follows:
December 31 Federal Loss Expires State Loss Expires
----------- ------- ------------ ----- ------------
1989 $ 51,834 12-31-2004 $
1991 191,106 12-31-2006
1995 457,626 12-31-2010 132,182 12-31-2010
-------- --------
Total $700,566 $132,182
======== ========
21
<PAGE>
WINLAND ELECTRONICS, INC.
Notes to Financial Statements
10. COMMON STOCK OPTION PLAN AND WARRANTS
The Company has a fixed option plan which reserves shares of common
stock for issuance to executives, key employees, directors and
consultants. The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation." Accordingly, no compensation cost has been
recognized for the stock option plans. Had compensation cost for the
Company's stock option plan and outstanding common stock warrants been
determined based on the fair value at the grant date for awards in 1996
and 1995 consistent with the provisions of SFAS No. 123, the Company's
net earnings and earnings per share would have been reduced to the pro
forma amounts indicated below:
1996 1995
---- ----
Net Earnings - as Reported $264,147 ($149,907)
Net Earnings - Pro Forma $224,457 ($221,807)
Earnings Per Share - as Reported $.10 ($.06)
Earnings Per Share - Pro Forma $.08 ($.09)
The assumption regarding stock options and warrants issued is that
compensation cost is recognized over the graded vesting period of the
options and warrants, which ranges from zero to five years. Options
granted before 1995 were not considered in the calculation.
The fair value of each option grant and warrant issued is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants:
1996 1995
---- ----
Expected Lives (Years) 3.84 3.83
Dividend Yield .0% .0%
Expected Volatility 0.67% 0.47%
Risk-Free Interest Rate 7.5% 7.5%
The total number of shares of common stock that may be granted under
the plan is 450,000. During 1994 the plan was amended to grant
non-employee directors an option to purchase 2,000 shares of common
stock at the time of election and each year thereafter upon
re-election, but not more than once in any year. The Company has also
granted common stock options outside of the stock option plan. In
addition, the Company has issued common stock warrants. The plan
provides that shares granted come from the Company's authorized but
unissued common stock. The price of the options granted to the plan
will not be less than 100% of the fair market value of the shares on
the date of grant. Options expire within five to six years from the
date of the grant.
22
<PAGE>
WINLAND ELECTRONICS, INC.
Notes to Financial Statements
10. COMMON STOCK OPTION PLAN AND WARRANTS - (Continued)
Information regarding the Company's common stock options is as follows:
1996 1995
---- ----
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
------ --------- ------ ---------
Options Outstanding,
Beginning of Year 421,700 1.01 342,700 .53
Options Exercised 167,760 .10 3,000 .06
Options Granted 43,000 2.57 82,000 3.1
Options Outstanding,
End of Year 296,940 1.80 421,700 1.01
Option Price Range
at End of Year .06 to 3.64 .06 to 3.64
Option Price Range for
Exercised Shares .06 to .25 .06
Weighted Average Fair Value
of Options Granted During
the year $1.44 $1.17
The following table summarizes information about fixed-price stock options
and warrants outstanding at December 31, 1996:
Outstanding Remaining Number Exercisable
Exercise Prices 12-31-96 Contractual Life at 12-31-96
--------------- ----------- ---------------- ------------------
.06 43,500 2 years 43,500
.07 25,440 1 year 25,440
.125 12,000 3 years 7,200
.8125 18,000 3 years 10,800
1.0 2,000 2 years 1,500
1.8125 25,000 3.3 years 13,200
2.0625 12,000 4 years 4,800
2.375 30,000 6 years -0-
2.4375 34,000 4.5 years 16,000
2.50 4,000 3 years 4,000
2.69 24,000 4 years 15,000
2.96 24,000 4 years 15,000
3.0 14,000 4 years 6,500
3.30 19,000 4.5 years 2,500
3.64 10,000 4 years 2,500
----------- ------- -------
.06 to 3.64 296,940 167,940
----------- ------- -------
The Company also has 37,000 common stock warrants at $2.20 per share which
were issued in April, 1995 and are outstanding at December 31, 1996. All of
these warrants were exercisable at December 31, 1996.
23
<PAGE>
WINLAND ELECTRONICS, INC.
Notes to Financial Statements
11. PENSION PLAN
The Company has adopted a qualified defined contribution 401K profit
sharing plan for its employees who meet certain age and service
requirements. Employees are allowed to contribute up to 15% of eligible
compensation and the employer, at management's discretion, makes a
contribution of one-third of the employees' contributions up to a
maximum of 9% for the employees, a maximum of 3% for the employer. The
Company contributed $37,650 and $27,003 to the Plan for the years ended
December 31, 1996 and 1995, respectively.
12. TAX INCREMENT FINANCING
The Company and the City of Mankato have entered into a tax increment
financing agreement. Per the agreement, the City has financed the
construction of the Company's new building. In addition, the City has
donated land and land improvements at a fair market value of $270,009
to the Company. The Company will recognize the $270,009 of deferred
revenue over the 10 year life of the tax increment finance district.
13. NON-CASH TRANSACTIONS
During the years ended December 31, 1996 and 1995, the Company acquired
$396,000 and $130,144, respectively, of property under capital leases
and incurred obligations under capital leases of $396,000 and $130,144,
respectively, in non-cash investing and financing activities. In
addition, during the year ended December 31, 1995, the Company attained
$270,009 of land and land improvements and recorded $270,009 of
deferred revenue in non-cash activities.
14. FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments approximate
fair value.
15. CONTINGENCIES
The Company has cash balances in bank accounts in excess of FDIC
insurance coverage of $262,433 at December 31, 1996.
24
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
The information required by Item 9 concerning the directors and
executive officers of the Company is incorporated by reference to the Company's
definitive proxy statement for its 1997 Annual Meeting of Shareholders under the
captions "Election of Directors" and "Executive Officers of the Company."
The information required by Item 9 concerning compliance with Section
16(a) of the Exchange Act is incorporated by reference to the Company's
definitive proxy statement for its 1997 Annual Meeting of Shareholders under the
caption "Compliance with Section 16(a) of the Exchange Act."
ITEM 10. EXECUTIVE COMPENSATION
The information required by Item 10 is incorporated by reference to the
Company's definitive proxy statement for its 1997 Annual Meeting of Shareholders
under the caption "Executive Compensation."
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 11 is incorporated by reference to the
Company's definitive proxy statement for its 1997 Annual Meeting of Shareholders
under the caption "Principal Shareholders and Management Shareholdings."
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following Exhibits are included in this report: See
"Exhibit Index" immediately following the signature page of this Form 10-KSB.
25
<PAGE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
quarter ended December 31, 1996.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Company has caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
WINLAND ELECTRONICS, INC.
("Company")
Dated: March 17, 1997 /s/ W. Kirk Hankins
W. Kirk Hankins, President, Chief
Executive Officer and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Company,
in the capacities, and on the dates, indicated.
(Power of Attorney)
Each person whose signature appears below constitutes and appoints W.
Kirk Hankins and Lorin E. Krueger as his true and lawful attorneys-in-fact and
agents, each acting alone, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments to this Annual Report on Form 10-KSB and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all said attorneys-in-fact and agents,
each acting alone, or his substitute or substitutes, may lawfully do or cause to
be done by virtue thereof.
27
<PAGE>
Signature and Title Date
/s/ W. Kirk Hankins March 17, 1997
W. Kirk Hankins, President, Chief Executive
Officer, Chief Financial Officer and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
/s/ Lorin E. Krueger March 17, 1997
Lorin E. Krueger, Senior Vice President of
Operations and Director
/s/ S. Robert Dessalet March 17, 1997
S. Robert Dessalet, Director
/s/ Kirk P. Hankins March 17, 1997
Kirk P. Hankins, Vice President of Marketing
and Director
/s/ Thomas J. de Petra March 17, 1997
Thomas J. de Petra, Director
28
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBIT INDEX TO FORM 10-KSB
For the fiscal year ended Commission File No. 0-18393
December 31, 1996
--------------------------
WINLAND ELECTRONICS, INC.
--------------------------
Exhibit
Number Item
3.1 Restated Articles of Incorporation, as amended (Incorporated by
reference to Exhibit 3.1 to Form 10-KSB for the fiscal year ended
December 31, 1994)
3.2 Restated Bylaws (Incorporated by reference to Exhibit 3.2 to
Registration Statement on Form S-4, SEC File No. 33-31246)
4.1 Specimen of Common Stock certificate (Incorporated by reference to
Exhibit 4 to Registration Statement on Form S-4, SEC File No. 33-31246)
10.1 Winland Electronics, Inc. 1989 Stock Option Plan (Incorporated by
reference to Exhibit 10.6 to Registration Statement on Form S-4, SEC
File No. 33-31246)**
10.2 Amendment to Winland Electronics, Inc. 1989 Stock Option Plan
(Incorporated by reference to Exhibit 10.4 to Form 10-KSB for the
fiscal year ended December 31, 1993)**
10.3 Form of Incentive Stock Option Agreement for use under the 1989 Stock
Option Plan (Incorporated by reference to Exhibit 10.7 to Registration
Statement on Form S-4, SEC File No. 33-31246)**
10.4 Amendment to Winland Electronics, Inc. 1989 Stock Option Plan dated
December 22, 1994 (Incorporated by reference to Exhibit 10.4 to Form
10-KSB for the fiscal year ended December 31, 1994)**
10.5 Form of Nonqualified Stock Option Agreement for use under the 1989
Stock Option Plan (Incorporated by reference to Exhibit 10.8 to
Registration Statement on Form S-4, SEC File No. 33-31246)**
10.6 Construction Loan Agreement dated October 5, 1994 between the Company
and The City of Mankato, Minnesota (Incorporated by reference to
Exhibit 10.9 to Form 10-KSB for the fiscal year ended December 31,
1994)
29
<PAGE>
10.7 $1,935,000 Combination Mortgage, Security Agreement and Fixture
Financing Statement dated August 3, 1994 by the Company to The City of
Mankato, Minnesota (Incorporated by reference to Exhibit 10.10 to Form
10-KSB for the fiscal year ended December 31, 1994)
10.8 Promissory Note of the Company in the principal amount of $1,699,620
dated October 6, 1994 in favor of The City of Mankato, Minnesota
(Incorporated by reference to Exhibit 10.11 to Form 10-KSB for the
fiscal year ended December 31, 1994)
10.9 Development Agreement dated July 29, 1994 between the Company and The
City of Mankato, Minnesota (Incorporated by reference to Exhibit 10.12
to Form 10-KSB for the fiscal year ended December 31, 1994)
10.10 Agreement for Loan of Small Cities Development Program Funds dated
October 6, 1994 between the Company and The City of Mankato, Minnesota
(Incorporated by reference to Exhibit 10.13 to Form 10-KSB for the
fiscal year ended December 31, 1994)
10.11 Promissory Note of the Company in the principal amount of $500,000
dated October 6, 1994 in favor of The City of Mankato, Minnesota
(Incorporated by reference to Exhibit 10.14 to Form 10-KSB for the
fiscal year ended December 31, 1994)
10.12 Supplemental Bonus Plan for W. Kirk Hankins and Lorin Krueger adopted
May 22, 1995 (Incorporated by reference to Exhibit 10.14 to Form 10-KSB
for the fiscal year ended December 31, 1995)**
10.13 Employment Agreement dated May 15, 1995 between the Company and W. Kirk
Hankins (Incorporated by reference to Exhibit 10.15 to Form 10- KSB for
the fiscal year ended December 31, 1995)**
10.14 Employment Agreement dated May 15, 1995 between the Company and Lorin
E. Krueger (Incorporated by reference to Exhibit 10.16 to Form 10-KSB
for the fiscal year ended December 31, 1995)**
10.15 Employment Agreement dated July 15, 1995 between the Company and Kirk
P. Hankins (Incorporated by reference to Exhibit 10.17 to Form 10- KSB
for the fiscal year ended December 31, 1995)**
10.16 Credit Agreement dated January 31, 1996 between the Company and Norwest
Bank Minnesota South, National Association (Incorporated by reference
to Exhibit 10.18 to Form 10-KSB for the fiscal year ended December 31,
1995)
10.17 Revolving Note of the Company dated January 31, 1996 in the principal
amount of $2,000,000 in favor of Norwest Bank Minnesota South, National
Association (Incorporated by reference to Exhibit 10.19 to Form 10-KSB
for the fiscal year ended December 31, 1995)
30
<PAGE>
10.18 Security Agreement dated January 31, 1996 between the Company and
Norwest Bank Minnesota South, National Association (Incorporated by
reference to Exhibit 10.20 to Form 10-KSB for the fiscal year ended
December 31, 1995)
10.19 First Amendment dated October 21, 1996 to Credit Agreement dated
January 31, 1996 between the Company and Norwest Bank Minnesota South,
National Association (Incorporated by reference to Exhibit 10.1 to Form
10-QSB for the quarter ended September 30, 1996)
10.20 Revolving Note dated October 21, 1996 in the principal amount of
$3,500,000 in favor of Norwest Bank Minnesota South, National
Association (Incorporated by reference to Exhibit 10.2 to Form 10-QSB
for the quarter ended September 30, 1996)
10.21 Term Note dated October 21, 1996 in the principal amount of $500,000 in
favor of Norwest Bank Minnesota South, National Association
(Incorporated by reference to Exhibit 10.3 to Form 10-QSB for the
quarter ended September 30, 1996)
23.1* Consent of Ahern Montag & Vogler, Ltd.
24.1* Power of Attorney for W. Kirk Hankins, Lorin E. Krueger, S. Robert
Dessalet, Kirk P. Hankins and Thomas J. de Petra (included on signature
page of this Form 10-KSB)
27* Financial Data Schedule (included with electronic filing only)
* Filed herewith.
** Management agreement or compensatory plan or arrangement.
31
EXHIBIT 23.1
Consent of Independent Auditors
As independent auditors for Winland Electronics, Inc. (the "Company"), we hereby
consent to the incorporation of our report dated February 5, 1997 included in
this Form 10-KSB into the Company's previously filed Registration Statements on
Form S-3, No. 333-723, and on Form S-8, No. 33-46710, No. 33-81880 and No.
33-73328.
/s/ Ahern Montag & Vogler, Ltd.
AHERN MONTAG & VOGLER, LTD.
March 7, 1997
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