FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: March 31, 1997
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 April 30, 1997, the
Registrant had 2,795,011 shares of Common Stock, $.01 par value, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ x ]
<PAGE>
PART I-FINANCIAL INFORMATION
ITEM 1: Financial Statements
WINLAND ELECTRONICS, INC.
BALANCE SHEET
(Unaudited)
ASSETS MARCH 31 DECEMBER 31
1997 1996
CURRENT ASSETS:
Cash $ 110,549 $ 19,499
Accounts Receivable, Net 1,398,546 1,327,386
Inventories 3,280,815 2,969,677
Prepaid Items 92,153 63,633
---------- ----------
Total Current Assets 4,882,063 4,380,195
Property and Equipment, Net 3,123,060 3,128,588
Property Under Capital Lease, Net 1,000,363 721,066
OTHER ASSETS:
Intangibles 8,182 8,564
Deferred Income Taxes 52,535 52,535
---------- ----------
TOTAL ASSETS $9,066,203 $8,290,948
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes Payable 1,935,227 1,580,227
Accounts Payable 721,712 683,406
Payroll Taxes Payable 31,799 34,891
Wages and Commission Payable 64,252 41,815
Other Accruals 125,085 120,382
Obligations Under Capital Lease 212,541 163,636
Deferred Revenue 27,001 27,001
Income Taxes Payable -0- 336
Current Maturities 162,194 161,267
---------- ----------
Total Current Liabilities 3,279,811 2,812,961
LONG TERM LIABILITIES:
Long Term Maturities 2,417,607 2,459,644
Obligations Under Capital Lease
Less: Current Portion 718,083 492,120
---------- ----------
TOTAL LONG TERM LIABILITIES 3,135,690 2,951,764
OTHER LIABILITIES:
Deferred Revenue
Less:Current Portion 209,257 216,007
---------- ----------
TOTAL LIABILITIES 6,624,758 5,980,732
SHAREHOLDERS' EQUITY:
Common Stock 27,950 27,511
Additional Paid-In Capital 2,050,246 2,047,794
Retained Earnings 363,249 234,911
---------- ----------
Total Shareholders' Equity 2,441,445 2,310,216
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $9,066,203 $8,290,948
========== ==========
2
<PAGE>
WINLAND ELECTRONICS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
QUARTER ENDED
MARCH 31
1997 1996
----------- -----------
NET SALES: $ 2,822,095 $ 1,753,052
Less, Cost of Goods Sold (2,156,152) (1,360,631)
----------- -----------
Gross Profit on Sales 665,943 392,421
OPERATING EXPENSES:
General and Administrative 264,005 204,153
Marketing 66,806 52,461
Research and Development 100,173 60,330
----------- -----------
Total Operating Expenses 430,984 316,944
INCOME BEFORE OTHER INCOME
AND EXPENSE 234,959 75,477
----------- -----------
MISCELLANEOUS INCOME 8,863 29,876
MISCELLANEOUS EXPENSE, PROVISION FOR BAD DEBT (43,000) -0-
INTEREST EXPENSE (49,485) (33,782)
----------- -----------
TOTAL OTHER INCOME AND EXPENSE (83,622) (3,906)
----------- -----------
NET INCOME BEFORE TAXES 151,337 71,571
----------- -----------
PROVISION FOR INCOME TAXES 23,000 -0-
----------- -----------
NET INCOME $ 128,337 $ 71,571
=========== ===========
NET INCOME PER COMMON SHARE $ 0.046 $ 0.028
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
AS OF MARCH 31, 1997 AND 1996 2,776,384 2,583,311
3
<PAGE>
WINLAND ELECTRONICS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received from Customers $ 2,707,935 $ 1,680,794
Interest Received 2,128 -0-
Other miscellaneous operating receipts -0- 6,891
Cash Paid to Suppliers and Employees (2,724,098) (2,270,371)
Interest Paid (109,094) (28,760)
Income Tax Paid (920) -0-
----------- -----------
Net Cash (Used) by Operating Activities (124,049) (611,446)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Property and Equipment (48,944) (77,153)
----------- -----------
Cash Proceeds From Sales of Equipment -0- -0-
Net Cash (Used) by Investing Activities (48,944) (77,153)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Advances on Credit Line 355,000 749,775
Proceeds from Debt -0- -0-
Payments on Debt (41,110) (14,821)
Payments on Capital Lease Obligations (52,738) (21,531)
Sale of Common Stock 2,891 -0-
----------- -----------
Net Cash Provided by Financing Activities 264,043 713,423
----------- -----------
NET INCREASE IN CASH 91,050 24,824
CASH - BEGINNING OF YEAR 19,499 2,839
CASH - END OF THE FIRST NINE MONTHS OF 1996 $ 110,549 $ 27,663
----------- -----------
RECONCILIATION OF NET INCOME TO NET CASH (USED)
BY OPERATING ACTIVITIES
Net Income (Loss) $ 128,337 $ 71,571
Adjustments:
Disposition of Assets 15 155
Depreciation & Amortization 102,813 57,166
(Increase) in Accounts Receivable (71,160) (79,918)
(Increase) in Inventory (311,138) (466,343)
(Increase) in Prepaid items (28,520) (12,490)
(Decrease) in Accounts Payable 38,306 (215,576)
Increase in Wages Payable 22,437 26,213
Increase in Accrued Payroll Taxes (3,092) 14,793
(Decrease) in Other Accruals (17,377) (267)
(Decrease) in Deferred Revenue (6,750) (6,750)
(Decrease) in Income Taxes Payable 22,080 -0-
----------- -----------
Net Cash (Used) by Operating Activities $ (124,049) $ (611,446)
----------- -----------
</TABLE>
4
<PAGE>
WINLAND ELECTRONICS, INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
MARCH 31, 1997
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
$47,537 at March 31, 1997 and $4,455 at December 31, 1996. The allowance for
doubtful accounts was increased by $43,000 in the first quarter of 1997. The
Company was informed that a customer had filed for chapter eleven bankruptcy,
which required a significant increase the allowance.
NOTE C - INVENTORY
Major components of inventory at March 31, 1997 and December 31, 1996 are as
follows:
March 31, December 31,
1997 1996
--------- ---------
Raw Material................................. $ 1,753,846 $1,695,764
Work in Process............................... 728,556 554,090
Finished Goods................................ 789,701 709,860
Manufacturing, Shipping, and Office Supplies.. 8,712 9,963
-------- -------
Total................................$ 3,280,815 $2,969,677
========= =========
NOTE D - PROPERTY AND EQUIPMENT
Property and Equipment not under capital leases consists of the following at
March 31, 1997 and December 31, 1996:
March 30, December 31,
1997 1996
--------- ---------
Building.............................. $ 2,359,811 $ 2,343,275
Land.................................. 192,640 192,640
Office Equipment...................... 156,104 341,658
Computer & Telephone Equipment........ 328,617 -0-
Research & Development Equipment...... 95,223 143,941
Marketing and Display Equipment....... 18,152 31,413
Factory Equipment..................... 495,519 549,567
Land Improvements..................... 77,369 77,369
Accumulated Depreciation.............. (600,375) (551,275)
--------- ---------
Net Book Value........................ $ 3,123,060 $ 3,128,588
========= =========
5
<PAGE>
WINLAND ELECTRONICS, INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
MARCH 31, 1997
UNAUDITED
NOTE D - CONTINUED
Property and Equipment under capital leases consists of the following at March
31, 1997 and at December 31, 1996:
March 31, December 31,
1997 1996
---------- ----------
Factory Equipment..................... $1,117,546 $ 863,473
Office Equipment...................... 95,754 95,754
Computer and Telephone Equipment...... 110,640 -0-
Research and Development Equipment.... 4,401 4,401
Accumulated Amortization.............. (292,632) (242,561)
---------- ----------
Total Leased Property and Equipment,
Net of Accumulated Amortization..... $1,000,363 $ 721,066
Capital Leases are summarized as follows:
Lease on factory equipment with lease
period expiring March of 2002, at an
interest rate of 9.94%................ $ 63,288 $ -0-
Lease on factory equipment with lease
period expiring March of 2002, at an
interest rate of 8.88%................ 212,652 -0-
Lease on computer and telephone equipment
with lease period expiring February of
2000, at an interest rate of 9.01%... 39,875 -0-
Lease on factory equipment with lease
period expiring August, 2001, at interest
of 9.49%............................... 232,332 242,293
Lease on factory equipment with lease
period expiring July, 2001, at interest
of 9.96%............................... 109,365 113,809
Lease on factory, office, and R&D equipment
with lease period expiring July, 1997, at
interest of 8%......................... 4,606 6,195
Lease on factory and office equipment with
lease period expiring January, 2000, at
interest of 1% over prime.............. 228,520 248,826
Lease on factory equipment with lease
period expiring October, 1998 at interest
of 9.23%............................... 22,225 25,641
Lease on office equipment with lease
period expiring March, 2000 at interest
of 9%.................................. 17,761 18,992
Total.................................. $ 930,624 $ 655,756
Less Current Portion................... (212,541) (163,636)
--------- ---------
Long term Obligation under Capital Leases $ 718,083 $ 492,120
========= =========
6
<PAGE>
WINLAND ELECTRONICS, INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
March 31, 1997
UNAUDITED
NOTE E - SHORT TERM BORROWING
Short Term Borrowing consists of the following at March 31, 1997 and December
31, 1996 balance sheet:
March 31, December 31,
Norwest Bank-Revolving Credit Line 1997 1996
---------- ---------
Balance.............. $ 1,935,227 $1,580,227
Stated Interest Rate Per Annum........ 9.0% * 9.0% *
Maximum Amount Outstanding During the
Quarter...................... $ 1,935,227 $1,995,227
Average Amount Outstanding During the
Quarter...................... $ 1,858,560 $1,626,398
Unused Credit Available............... $ 682,156 $1,204,081
* The stated interest rate per annum is equal to 3/4 of a percent over the prime
rate
The interest expense on the revolving loan was $49,485 for the three months
ended March 31, 1997. Additional interest expense was reported related to the
leased capital equipment and other long term borrowing. The interest expense on
the leased capital equipment was $23,157 and the interest expense on other long
term borrowing was $33,908 for the three months ended March 31, 1997.
NOTE F - STOCK OPTIONS AND WARRANTS
As of March 31, 1997, options to purchase an aggregate of 309,000 shares of the
Company's Common Stock were granted and outstanding under the Company's 1989
Stock Option Plan. As of March 31, 1997, options to purchase 126,400 shares
granted under the 1989 Stock Option Plan were exercisable. The exercise prices
of all outstanding options range from $0.06 to $3.64 per share.
As of March 31, 1997, warrants to purchase an aggregate of 37,000 shares of the
Company's Common Stock at $2.20 per share were granted and outstanding, all of
which warrants are exercisable.
7
<PAGE>
ITEM 2: Management's Discussion and Analysis or Plan of Operation
Results of Operations
Three months ended March 31 1997 v.
Three months ended March 31 1996
Net Sales:
The Company recorded net sales of $2,822,095 for the three months ended March 31
1997, an increase of 61% from net sales of $1,753,052 for the same period in
1996. The increase in sales for the first quarter of 1997 compared to 1996 was
primarily attributed to sales to Select Comfort Corporation pursuant to a $5.6
million dollar purchase order which was approximately thirty percent complete at
March 31, 1997.
The Company has continued to identify and secure new contract design and
manufacturing customers, as well as to actively market its security/industrial
products. 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.
Gross Profits:
Gross profit was $665,943 or 23.6% of net sales for the three months ended March
31, 1997, compared to $392,421 or 22.4% of net sales for the same period in
1996. The increase in gross profit margins is due in part to the addition of
capital equipment. This equipment has helped to streamline production processes
and improved monitoring and reporting methods. To a lesser degree, the sales mix
has also impacted the gross margins for the period.
Operating Expenses:
General and administrative expense was $264,005 or 9.4% of net sales for the
three months ended March 31 1997, compared to $204,153 or 11.6% of net sales for
the same period in 1996. The additional general and administrative expenses were
necessary to support the increased level of sales during the quarter. As a
percentage of sales, general and administrative expenses declined for the first
quarter of 1997, compared to the same period in 1996 because general and
administrative expenses increased at a slower rate than the increase in sales.
Marketing expense was $66,806 or 2.4% of net sales for the quarter ended March
31, 1997, compared to $52,461 or 3.0% for the same period in 1996. The increase
in marketing expense is attributed in part to the addition of a customer service
representative needed to support the continued growth in the contract design and
manufacturing activities. The Company has continued its emphasis on the
marketing of its security/industrial products, in addition to actively pursuing
new contract design and manufacturing relationships.
Research and development expense was $100,173 or 3.5% of net sales for the first
three months of 1997, compared to $60,330 or 3.4% of net sales for the same
period in 1996.
8
<PAGE>
The increased research and development expense is primarily attributed to the
addition of technical staff and equipment needed to better serve our customers'
growing requirements for design and support services.
Interest Expense:
Interest expense on the revolving line of credit was $1.7% of net sales or
$49,485 for the first quarter of 1997, compared to 1.9% of net sales or $33,782
for the same period in 1996. The increase in interest expense reflected
additional short term borrowing needed to support increased sales, accounts
receivable and inventories.
Net Earnings:
The Company recorded net income of $128,337 or $0.046 per share for the first
quarter of 1997, compared to a net income of $71,571 or $0.028 per share for the
same period in 1996. The results of the first quarter of 1997 were unfavorably
affected by a $43,000 increase in the allowance for doubtful accounts. The
allowance was increased after the Company was notified that a customer had filed
for chapter eleven bankruptcy. Furthermore, the Company has set up a provision
for income taxes in anticipation that any remaining loss carry forwards
available to the Company will be used up in the current fiscal year.
The Company believes inflation has not significantly affected its results of
operations.
Liquidity and Capital Resources
The current ratio on March 31, 1997 was 1.49 to 1, compared to 1.56 to 1 on
December 31, 1996. Working capital on March 31, 1997 was $1,602,252 compared to
$1,567,234 on December 31, 1996. The increase in working capital during the
first quarter reflects increases in inventory ($311,138), accounts receivable
($71,160), and prepaid items ($28,250) that are offset by additional short term
borrowing ($355,000) needed to support the increased sales during the first
quarter of 1997.
The Company has a revolving credit agreement with the Norwest Bank Minnesota
South N.A.("Norwest"), 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. At March 31, 1997, there was
$1,935,227 outstanding under the line of credit. The Company's management
believes that capital available through the current credit agreement, together
with cash flows from operations will be sufficient to meet the Company's capital
needs in the near future.
9
<PAGE>
PART II-OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
(a) See Exhibit Index following the signature page.
(b) There are no reports on Form 8-K for the quarter
ended March 31, 1997.
10
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WINLAND ELECTRONICS, INC.
Dated: May 5, 1997 By: /s/ William K. Hankins
William K. Hankins, President,
Chief Executive Officer and
Chief Financial Officer
(Principal Executive Officer
and Principal Financial and
Accounting Officer)
11
<PAGE>
WINLAND ELECTRONICS, INC.
EXHIBIT INDEX TO FORM 10-QSB
For The Quarter Ended
March 31, 1997
Exhibit
Number Item
11 Statement Re: Computation of per share earnings.
27 Financial Data Schedule (filed only with electronic version).
12
EXHIBIT 11
WINLAND ELECTRONICS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
Three Months Ended
March 31,
1997 1996
Earning:
Net Income(Loss): $ 128,337 $ 71,571
- -------------------------------------------------------------------------------
Primary Earnings(Loss)Per Share $ 0.046 $ 0.028
- -------------------------------------------------------------------------------
Shares:
Weighted average number of
common shares outstanding 2,776,384 2,583,311
Assuming exercise of options
and warrants reduced by the number
of shares which could have been purchased
with the proceeds from exercise of
options and warrants(treasury stock
method) using average market price,
except if anti-dilutive. 60,300 283,934
Weighted average number of
common and common equivalent
shares outstanding 2,836,684 2,867,245
- -------------------------------------------------------------------------------
Fully Diluted Earnings(Loss)
Per Share $ 0.045 $ 0.025
- -------------------------------------------------------------------------------
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 110,549
<SECURITIES> 0
<RECEIVABLES> 1,446,083
<ALLOWANCES> 47,537
<INVENTORY> 3,280,815
<CURRENT-ASSETS> 4,882,063
<PP&E> 5,016,430
<DEPRECIATION> 893,007
<TOTAL-ASSETS> 9,066,203
<CURRENT-LIABILITIES> 3,279,811
<BONDS> 2,065,442
27,950
0
<COMMON> 0
<OTHER-SE> 2,413,495
<TOTAL-LIABILITY-AND-EQUITY> 9,066,203
<SALES> 2,822,095
<TOTAL-REVENUES> 2,830,958
<CGS> 2,156,152
<TOTAL-COSTS> 2,587,136
<OTHER-EXPENSES> 92,485
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,485
<INCOME-PRETAX> 151,337
<INCOME-TAX> 23,000
<INCOME-CONTINUING> 128,337
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 128,337
<EPS-PRIMARY> 0.046
<EPS-DILUTED> 0.045
</TABLE>
