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: June 30, 1999
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 July 31, 1999, the
Registrant had 2,896,631 shares of Common Stock, $.01 par value, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No x
<PAGE>
PART I-FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
WINLAND ELECTRONICS, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 0 $ 20,656
Accounts Receivable, Net 1,865,550 2,482,507
0 47,454
Inventories 3,961,728 3,763,939
Prepaid Expenses 76,443 62,882
Deferred Taxes 145,400 124,000
------------ ------------
Total Current Assets 6,049,121 6,501,438
------------ ------------
OTHER ASSETS:
Patent and Trademarks, net of amortization 4,769 5,505
------------ ------------
Property and Equipment, at cost:
Land and Land Improvements 272,901 270,009
Building 2,957,694 2,497,067
Machinery and Equipment 3,171,812 3,001,256
Data Processing Equipment 1,127,257 842,352
Office Furniture and Equipment 343,220 267,472
------------ ------------
Total 7,872,884 6,878,156
Less Accumulated Depreciation (2,117,761) (1,754,500)
------------ ------------
Property and Equipment, Net of Depreciation 5,755,123 5,123,656
------------ ------------
TOTAL ASSETS $ 11,809,013 $ 11,630,599
============ ============
</TABLE>
<PAGE>
WINLAND ELECTRONICS, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY June 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Notes Payable $ 1,262,227 $ 1,629,227
Current Maturities of Long Term Debt 643,569 573,183
Outstanding Checks in Excess of Bank Balances 173,466 0
Accounts Payable 1,071,454 1,263,326
Accrued Expenses:
Compensation 403,151 310,136
Other 58,716 47,757
Income Taxes Payable 206,695 228,843
------------ ------------
Total Current Liabilities 3,819,278 4,052,472
------------ ------------
LONG TERM LIABILITIES:
Deferred Revenue 205,623 209,084
Long Term Debt, Less Current Maturities 3,262,469 3,429,975
Deferred Taxes 111,000 111,000
------------ ------------
TOTAL LONG TERM LIABILITIES 3,579,092 3,750,059
------------ ------------
SHAREHOLDERS' EQUITY:
Common Stock 28,966 28,867
Additional Paid-In Capital 2,160,591 2,142,008
Retained Earnings 2,221,086 1,657,193
------------ ------------
Total Shareholders' Equity 4,410,643 3,828,068
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $11,809,013 $11,630,599
============ ============
</TABLE>
<PAGE>
WINLAND ELECTRONICS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1999 1998
----------- -----------
<S> <C> <C>
NET SALES: $ 4,654,013 $ 4,290,114
Cost of Goods Sold 3,658,570 3,306,965
----------- -----------
Gross Profit 995,443 983,149
OPERATING EXPENSES:
General and Administrative 421,582 340,132
Marketing 99,993 70,627
Research and Development 200,863 183,768
----------- -----------
Total Operating Expenses 722,438 594,527
----------- -----------
OPERATING INCOME 273,005 388,622
----------- -----------
OTHER INCOME / (EXPENSE) 32,700 52,257
INTEREST EXPENSE (109,246) (140,039)
----------- -----------
(76,546) (87,782)
NET INCOME BEFORE INCOME TAXES 196,459 300,840
----------- -----------
PROVISION FOR INCOME TAXES 75,789 105,303
----------- -----------
NET INCOME $ 120,670 $ 195,537
BASIC EARNINGS PER SHARE $ 0.042 $ 0.069
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 2,894,734 2,834,878
DILUTED EARNINGS PER SHARE $ 0.040 $ 0.068
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING, INCLUDING POTENTIALLY
DILUTIVE SHARES 2,992,579 2,875,712
</TABLE>
<PAGE>
WINLAND ELECTRONICS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
------------ ------------
<S> <C> <C>
NET SALES: $ 11,269,061 $ 8,693,075
Cost of Goods Sold 8,751,509 6,816,446
------------ ------------
Gross Profit 2,517,552 1,876,629
OPERATING EXPENSES:
General and Administrative 891,693 643,090
Marketing 190,099 137,358
Research and Development 372,304 349,799
------------ ------------
Total Operating Expenses 1,454,096 1,130,247
------------ ------------
OPERATING INCOME 1,063,456 746,382
------------ ------------
OTHER INCOME AND (EXPENSE) 61,858 92,018
INTEREST EXPENSE (225,327) (267,920)
------------ ------------
(163,469) (175,902)
------------ ------------
NET INCOME BEFORE INCOME TAXES 899,987 570,480
------------ ------------
PROVISION FOR INCOME TAXES 336,094 199,668
------------ ------------
NET INCOME $ 563,893 $ 370,812
BASIC EARNINGS PER SHARE $ 0.195 $ 0.131
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 2,891,594 2,833,958
DILUTED EARNINGS PER SHARE $ 0.189 $ 0.129
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING, INCLUDING POTENTIALLY
DILUTIVE SHARES 2,989,439 2,874,792
</TABLE>
<PAGE>
WINLAND ELECTRONICS, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30,1999 JUNE 30,1998
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 563,893 $ 370,812
Adjustments to reconcile net income to net cash provided by
(used in) operating activeties:
Depreciation and Amortization 363,997 304,942
Loss on Disposal of Equipment -- 3,633
Deferred Taxes (21,400) --
Changes in Assets and Liabilities
(Increase) Decrease in:
Accounts Receivable 616,957 (282,417)
Other Receivables 47,454 --
Inventories (197,789) (769,385)
Prepaid Expenses (13,561) (17,961)
Increase / (Decrease) in:
Accounts Payable (191,872) (346,330)
Accrued Expenses and Other 100,513 52,048
Income Taxes Payable (22,148) 192,382
----------- -----------
Net Cash Provided By (Used In) in Operating Activities 1,246,044 (492,276)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of Property and Equipment (994,728) (205,724)
Proceeds from sale of Equipment -- 484
----------- -----------
Net Cash Used in Investing Activities (994,728) (205,240)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Net Borrowings and Repayments on Revolving Credit Agreement (367,000) 944,000
Outstanding Checks in Excess of Cash Balances 173,467
Principal Payments on Long-term Borrowings, Including
Capital Lease Obligations (323,906) (270,539)
Proceeds From Long Term Debt 226,785
Proceeds From Issuance of Common Stock 18,682 13,222
----------- -----------
Net Provided by Financing Activities (271,972) 686,683
----------- -----------
Net Decrease in Cash (20,656) (10,833)
CASH
Beginning 20,656 23,542
----------- -----------
End $ -- $ 12,709
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Payments For:
Interest $ 116,082 $ 249,376
Income Taxes 265,241 7,286
----------- -----------
Supplemental Schedule of Noncash Investing and Financing Activities
Capital Lease Obligations Incurred for the Purchase of Equipment $ 226,785 $ 405,048
----------- -----------
</TABLE>
<PAGE>
WINLAND ELECTRONICS, INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
June 30, 1999
(UNAUDITED)
NOTE 1 - 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 2
below, all other 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 2 - 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
$154,520 at June 30, 1999 and $154,784 at December 31, 1998.
NOTE 3 - INVENTORY
Major components of inventory at June 30, 1999 and December 31, 1998 are as
follows:
June 30, December 31,
1999 1998
----------- ----------
Raw Materials $2,774,428 $2,676,738
Work In Process 408,038 565,229
Finished Goods 779,262 521,972
----------- ----------
Total $3,961,728 $3,763,939
NOTE 4 - FINANCING ARRANGEMENTS AND LONG -TERM DEBT
Financing Arrangement: The Company has a $3,500,000 revolving line-of -credit
agreement through June 1999 Interest on advances is at the bank's reference rate
(7.75 percent at June 30, 1999), and is due monthly. Advances are due on demand,
are secured by substantially all assets of the Company, and are subject to a
defined borrowing base equal to 80 percent of qualified accounts receivable and
60 percent of inventories. In addition, the agreement contains certain reporting
and operating covenants. Advances outstanding on the revolving line-of-credit
agreement at June 30, 1999 and December 31, 1998, were $1,262,227 and
$1,629,227, respectively.
Long-term Debt: The following is a June 30, December 31,
summary of long-term debt: 1999 1998
---------- ------------
6.941% note payable due in monthly installments
of $13,117, including interest, to January 1,
2000, when the remaining balance is payable,
secured by property and equipment. $1,492,029 $1,522,723
4% note payable due in monthly installments of
$3,030, including interest, to January 1,
2000, when the remaining balance is payable,
secured by property and equipment. 419,491 430,761
Note payable in monthly installments of $8,334,
plus interest at prime plus 0.75%, to October
2001, secured by accounts receivable. 233,312 283,316
8.75% note payable due in monthly installments
of $1,400, including interest, to July 2003,
secured by equipment. 166,800 167,660
Capitalized lease obligations, due in various
monthly installments, with interest ranging
from 8.95% to 9.5%, to October 2000, secured
by equipment. 77,533 130,584
<PAGE>
WINLAND ELECTRONICS, INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
June 30, 1999
(UNAUDITED)
NOTE 4 - FINANCING ARRANGEMENTS AND LONG -TERM DEBT(Continued)
June 30, December 31,
1999 1998
Capitalized lease obligations, due in various
monthly installments, with interest ranging
from 8.5% to 9.96%, to August 2001, secured
by equipment. 284,415 342,219
Capitalized lease obligations, due in various
monthly installments, with interest ranging
from 8.88% to 10.04%, to October 2002, secured
by equipment. 508,803 342,389
Capitalized lease obligations, due in various
monthly installments, with interest ranging
from 8.5% to 9.3%, to April 2003, secured
by equipment. 213,925 235,804
Capitalized lease obligations, due in monthly
installments of $9,399, with interest at 8.97%,
to November 2004, secured by equipment. 509,730 547,702
--------- ---------
3,906,038 4,003,158
Less current maturities 643,569 573,183
Total Long-term Debt $3,262,469 $3,429,975
NOTE 5 - STOCK OPTIONS AND WARRANTS
As of June 30, 1999, options to purchase an aggregate of 209,000 shares of the
Company's common stock were granted and outstanding under the Company's 1989
Stock Option Plan(the "1989 Plan"). As of June 30, 1999, options to purchase
154,800 shares granted under the 1989 Plan were exercisable. The exercise prices
of all outstanding options under the 1989 Plan range from $1.75 to $1.925 per
share. Options to purchase 184,000 shares were granted and outstanding under the
1997 Stock Option Plan (the "1997 Plan") as of June 30, 1999, of which 84,750
shares were exercisable. The exercise prices of options under the 1997 Plan
range from $1.75 to $2.938 per share.
As of June 30, 1999, 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 six months ended June 30, 1999 v.
Three and six months ended June 30, 1998
Net Sales:
The Company recorded net sales of $4,654,013 for the three months ended June 30,
1999, an increase of 8% from net sales of $4,290,114 for the same period in
1998. Net sales of $11,269,061 were recorded for the first six months of 1999,
compared to net sales of $8,693,075for the same period of 1998, representing a
30% increase. The increase in sales for the second quarter and first six months
of 1999 compared to 1998 is primarily attributable to increases in sales to OEM
customers, with sales to Peoplenet Communications, Inc. accounting for a
significant portion of the increase. Sales of the Company's security/industrial
products also increased for the three and six months ending June 30, 1999
compared to the same periods in 1998.
Major OEM customers have given the Company firm purchase commitments for
delivery in 1999, having an aggregate value of over $9.3 million. These purchase
commitments are at various stages of completion. The Company also has several
smaller agreements with various OEM customers to be fulfilled in 1999.
The Company has continued to position itself as a full service designer and
manufacturer of custom controls and assemblies for OEM customers. The loss of
any of the Company's large OEM customers could have an adverse effect on the
Company's short-term results. The Company's marketing research indicates that
there is a large potential market for electronic design and manufacturing
services and that this market is growing rapidly.
Gross Profits:
Gross profit was $995,443 or 21.4% of net sales for the three months ended June
30, 1999, compared to $983,149 or 22.9% of net sales for the same period in
1998. For the first six months of 1999, the gross profit was $2,517,552 or 22.3%
of net sales compared to $1,876,629 or 21.6% of net sales for the same period in
1998. Gross profits declined slightly as a percentage of net sales for the
second quarter of 1999, compared to 1998 and the Company experienced a slight
increase in gross profit as a percentage of net sales for the first six months
of 1999. The slight decline in gross profit margin for the quarter and the
slight increase in gross profit margin for the first six months of 1999 is
primarily attributable to the sales levels during the periods as they relate to
the fixed manufacturing costs. Some of the increased fixed costs relate to
indirect costs incurred for Y2K readiness, additional staffing in the
manufacturing area needed to support increased production levels, as well as
additional costs associated with the purchase of capital manufacturing test
equipment to increase speed and reliability of in-process and final product
testing ; as well as direct and indirect costs associated with ISO 9001
registration, which is expected during the third quarter of 1999
Operating Expense:
General and administrative expense was $421,582 or 9.1% of net sales for the
three months ended June 30, 1999, compared to $340,132 or 7.9% of net sales for
the same period in 1998. General and Administrative expense was $891,693 or 7.9%
of net sales for the first six months ended June 30, 1998 compared to $643,090
or 7.4% of net sales for the same period in 1998. General and administrative
expense, as a percentage of sales, increased for both the second quarter and
first six months of 1999. The increases are attributed to several factors
including indirect costs related to Y2K readiness, additional expenses
associated with completion of a 5,000 square foot addition to the current
facility, increased professional fees, and increases for additional staffing
needed to support the growth of the organization, and to aid with the
preparation for ISO 9001 registration.
Marketing and customer relations expense was $99,993 or 2.1% of net sales for
the three months ended June 30, 1999, compared to $70,627 or 1.6% of net sales
for the same period in 1998. For the first six months of 1999, marketing and
customer relations expense was $190,099 or 1.7% of net sales, compared to
$137,358 or 1.6% of net sales for the same period in 1998. The increase in
marketing expenses for both the second quarter and first six months is primarily
due to the addition of marketing and customer relations personnel necessary to
provide appropriate levels of service to OEM and security/industrial customers
and assist in securing new, long-term OEM relationships.
<PAGE>
Research and development expense was $200,863 or 4.3% of net sales compared to
$183,768 or 4.3% of net sales for the same period in 1998. For the first six
months of 1999, research and development expense was $372,304 or 3.3% of net
sales, compared to $349,799 or 4.0% of net sales for the same period in 1998. As
a percentage of net sales, research and development expense remained the same
for the three months ended June 30, 1999 and declined for the first six months
of 1999 compared to 1998. The actual expense increased $17,095 and $22,505 for
the three and six months ending June 30, 1999 compared to 1998. Research and
development staff continue to concentrate efforts on design and support services
for the Company's OEM customers, as well as researching possible new proprietary
product designs.
Interest Expense:
Interest expense, including interest on the revolving line of credit, other
long-term borrowing, and interest on capital leases was $109,246 or 2.3% of net
sales for the three months ended June 30, 1999, compared to $140,039 or 3.3% of
net sales for the same period in 1998. Interest expense was $225,327 or 2.0% of
net sales for the first six months of 1999, compared to $267,920 or 3.1% of net
sales for the same period in 1998. The decline in interest expense both in
actual dollars and as a percentage of sales is primarily attributed to a
reduction of the interest rate and lower outstanding balances on the revolving
line of credit. The interest rate on the revolving credit agreement was reduced
from 1/2 of a percent over the prime rate for the first six months of 1998 to
the prime rate for the first six months of 1999.
Net Earnings:
The Company reported net income of $120,670 or $0.040 per diluted share for the
three months ended June 30, 1999, compared to $195,537 or $0.068 per diluted
share for the same period in 1998. The Company experienced a 62% decline in net
income for the three months ended June 30, 1999 compared to 1998. Net income
rose 52.1% to $563,893 or $0.189 per diluted share for the first six months of
1999, compared to $370,812 or $0.129 per diluted share for the same period in
1998.
The Company believes inflation has not significantly affected its results of
operations.
Liquidity and Capital Resources
The current ratio on June 30, 1999 was 1.61 to 1, compared to 1.60 to 1 on
December 31, 1998. Working capital on June 30, 1999 was $2,229,843 compared to
$2,448,966 on December 31, 1998. The decrease in working capital is primarily
attributed to decreases in accounts receivable and cash decreases as well as a
reduction in short-term borrowing.
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 per
annum on the revolving credit agreement is equal to the reference rate (7.75% on
June 30, 1999). On June 30, 1999, advances outstanding on the revolving line of
credit were $1,262,227. 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.
In late 1998, the Company made a decision to expand its facility by 5,000 square
feet and completed construction of the additional space in May of 1999. The
expansion, including additional equipment and furniture is estimated to cost
between $600,000 and $700,000. The Company plans to finance the expansion
primarily through a mortgage loan from Norwest Bank, with a portion of the
financing to come from the Minnesota Investments Fund through a loan with the
City of Mankato, as well as through the use of retained earnings. The equipment
and additional furniture will be financed through capital equipment leases.
<PAGE>
Year 2000:
Year 2000 Background
The Company's overall goal is to be Year 2000 compliant. To accomplish this
goal, the Company is addressing the issue with respect to both its information
technology (IT) and non-IT systems, as well as its business relationships with
key third parties. To be ready, the Company needs to evaluate the Year 2000
issues and fix any problems it can so that all of its systems and relationships
will be suitable for continued use into and beyond the Year 2000.
The Company began addressing the Year 2000 issue in 1996 using a multi-step
approach, including inventory and assessment, remediation and testing, and
contingency planning. The Company began by assessing its internal computer
systems, including their components and machinery, that were susceptible to
system failure or processing errors as a result of the Year 2000 issue. This
phase is substantially complete.
The Company's Year 2000 efforts have also included assessment of "embedded"
systems (such as automated systems and telephone systems). In 1998, the Company
hired an outside consultant to assist in the assessment and remediation phases
of handling the Year 2000 issue.
As part of the assessment phase, the Company has substantially completed the
initial communications with certain key third parties, including suppliers,
distributors, and customers in order to determine the extent to which the
Company is vulnerable to those third parties' failure to remediate their own
Year 2000 issues. The Company believes this part of the assessment phase will
continue throughout 1999 and cannot predict the outcome of other companies'
remediation efforts.
Year 2000 Costs
The Company continues to work on its Year 2000 compliance efforts and will
continue throughout 1999. To date, the Company has spent only a minimal amount
on direct expenses relating to Y2K readiness during the assessment phase.
Because the Company is still conducting the assessment phase of its Year 2000
analysis, it cannot yet predict the total remaining cost of its assessment,
remediation and testing phases. As the Company continues its analysis, it will
monitor such costs. The cost will depend on the availability of certain
resources, third parties' Year 2000 readiness and other unpredictable factors.
Risk Assessment
At this time, the Company believes that its most reasonably likely worst case
scenario is that the Company and/or its key customers could experience minor
disruptions. In the event that such disruptions do occur, the Company does not
expect that they would have a material adverse effect on the Company's financial
condition and results of operations. Due to the complex issues surrounding Year
2000 and other significant business issues, however, it is difficult to predict
outcomes and resulting consequences that could have a material adverse impact on
the company's results of operations, financial condition and cash flows.
Contingency Plans
During 1999, the Company plans to prepare contingency plans if it determines
that certain Year 2000 issues cannot be resolved by December 1999. Such plans
will be designed so that the Company's critical business processes can be
expected to continue to function on January 1, 2000 and beyond. The Company's
contingency plans will be structured to address both remediation of systems and
their components and overall business operating risks. These plans are intended
to mitigate both internal risks as well as potential risks in the supply chain
of the Company's suppliers and customers.
<PAGE>
Cautionary Statements:
As provided for under the Private Securities Litigation Reform Act of 1995, the
Company wishes to caution investors that the following important factors, among
others, in some cases have affected and in the future could affect the Company's
actual results of operations and cause such results to differ materially from
those anticipated in forward-looking statements made in this document and
elsewhere by or on behalf of the Company.
The Company derives a significant portion of its revenues from a limited number
of major OEM customers which are not subject to any long-term contracts with the
Company. If any major customer should for any reason stop doing business with
the Company, the Company's business would be significantly adversely affected.
Some of the Company's key customers are not large well-established companies,
and the business of each customer is subject to various risks such as market
acceptance of new products and continuing availability of financing. To the
extent that the Company's customers encounter difficulties, or the Company is
unable to meet the demands of its OEM customers, the Company could be adversely
affected.
The Company's ability to sustain continued increases in revenues and profits is
dependent upon its ability to retain existing customers and obtain new
customers.
The Company competes for new customers with numerous independent contract design
and manufacturing firms in the United States and abroad, many of whom have
greater financial resources and a more established reputation. The Company's
ability to compete successfully in this industry depends, in part, upon the
price at which the Company is willing to manufacture a proposed product and the
quality of the Company's design and manufacturing services. There is no
assurance that the Company will be able to continue to win contracts from
existing and new customers on financially advantageous terms, and the failure to
do so could prevent the Company from achieving the growth it anticipates.
The operations and success of the Company depend, in part, upon the experience
and knowledge of W. Kirk Hankins, the Company's Chief Executive Officer and
Chief Financial Officer, and Lorin E. Krueger, the Company's President and Chief
Operating Officer. The loss of either Mr. Hankins or Mr. Krueger would have a
material adverse effect on the Company.
The impact of Year 2000 issues on the Company's business depends on the
accuracy, reliability and effectiveness of the Company's and its suppliers' and
customers' assessment and remediation of Year 2000 issues. There can be no
assurance that the Company's efforts will result in complete resolution of Year
2000 issues in order to prevent a material effect on its critical business
systems.
<PAGE>
PART II-OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The Company is one of five defendants in a products liability case venued in the
Colorado State District Court for the County of Boulder. The case was commenced
by two product consumers, Lee Turner and Elizabeth Turner, in February of 1999.
The Turners allege that the basement of their home was flooded by a
malfunctioning water system and have sued a variety of manufacturers, designers
and installers claiming that the water damage resulted from some alleged but
unspecified failures in the water system design, construction, alarm system or
component parts. The plaintiffs contend that flooding occurred in the lower
level of their home while they were absent, thereby allegedly damaging floors,
carpeting, walls and personal property. The amount of monetary damages sought
has not been identified by the plaintiffs at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its Annual Meeting on May 13, 1999.
(b) Proxies for the Annual Meeting were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934.
There was no solicitation in opposition to management's
nominees as listed in the proxy statement, and all of such
nominees were elected.
The shareholders set the number of directors at seven (7) by a
vote of 2,593,626 shares in favor, with 29,938 shares voted
against and 10,800 shares abstaining. The following persons
were elected to serve as directors of the Company until the
next annual meeting of shareholders with the following votes:
Number of Number of
Nominee Votes For Votes Withheld
W. Kirk Hankins 2,593,426 40,938
Lorin E. Krueger 2,593,526 40,838
Kirk P. Hankins 2,593,626 40,738
S. Robert Dessalet 2,591,626 42,738
Thomas J. de Petra 2,593,526 40,838
David L. Ewert 2,593,426 40,938
Peter D. Jones 2,593,346 41,018
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibit to this report is:
27.1 Financial Data Schedule (included in electronic version
only)
(b) No reports on Form 8-K were filed during the quarter ended June
30, 1999.
<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: August 12, 1999 By: /s/ William K. Hankins
William K. Hankins,
Chief Executive Officer and
Chief Financial Officer
(Principal Executive Officer
and Principal Financial and
Accounting Officer)
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