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, 2000
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 May 10, 2000, the
Registrant had 2,943,787 shares of Common Stock, $.01 par value, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No x
<PAGE>
PART I-FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
WINLAND ELECTRONICS, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 12,934 $ 40,017
Accounts Receivable, Net 2,469,980 2,531,872
Income Tax Receivable 13,442 19,000
Inventories 3,709,384 3,453,778
Prepaid Expenses 79,972 58,591
Deferred Taxes 112,800 112,800
------------ ------------
Total Current Assets 6,398,512 6,216,058
------------ ------------
OTHER ASSETS:
Patent and Trademarks, net of amortization 3,603 3,971
------------ ------------
Property and Equipment, at cost:
Land and Land Improvements 272,901 272,901
Building 2,980,268 2,980,268
Machinery and Equipment 3,315,676 3,234,166
Data Processing Equipment 1,336,781 1,305,425
Office Furniture and Equipment 366,063 367,898
------------ ------------
Total 8,271,689 8,160,658
Less Accumulated Depreciation (2,730,159) (2,522,088)
------------ ------------
Property and Equipment, Net of Depreciation 5,541,530 5,638,570
------------ ------------
TOTAL ASSETS $ 11,943,645 $ 11,858,599
------------ ------------
</TABLE>
<PAGE>
WINLAND ELECTRONICS, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY March 31, December 31,
2000 1999
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Note Payable, Bank $ 1,818,501 $ 1,518,501
Current Maturities of Long Term Debt 671,644 656,671
Accounts Payable 1,104,725 1,091,964
Accrued Expenses:
Compensation 155,924 337,846
Other 168,445 109,583
----------- -----------
Total Current Liabilities 3,919,239 3,714,565
----------- -----------
LONG TERM LIABILITIES:
Deferred Revenue 200,430 202,161
Long Term Debt, Less Current Maturities 3,042,729 3,238,995
Deferred Taxes 166,000 166,000
----------- -----------
Total Long Term Liabilities 3,409,159 3,607,156
----------- -----------
SHAREHOLDERS' EQUITY:
Common Stock 29,298 29,016
Additional Paid-In Capital 2,231,534 2,169,750
Retained Earnings 2,354,415 2,338,112
----------- -----------
Total Shareholders' Equity 4,615,247 4,536,878
----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $11,943,645 $11,858,599
----------- -----------
</TABLE>
<PAGE>
WINLAND ELECTRONICS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
---- ----
<S> <C> <C>
NET SALES $ 4,217,690 $ 6,615,048
COST OF GOODS SOLD 3,397,381 5,092,939
----------- -----------
Gross Profit 820,309 1,522,109
----------- -----------
OPERATING EXPENSES:
General and Administrative 338,551 470,111
Marketing 144,823 90,106
Research and Development 241,012 171,441
----------- -----------
Total Operating Expenses 724,386 731,658
----------- -----------
OPERATING INCOME 95,923 790,451
----------- -----------
INTEREST EXPENSE (98,254) (116,082)
OTHER INCOME (EXPENSE), NET 28,233 29,159
----------- -----------
(70,021) (86,923)
----------- -----------
NET INCOME BEFORE INCOME TAXES 25,902 703,528
----------- -----------
PROVISION FOR INCOME TAXES (9,600) (260,305)
----------- -----------
NET INCOME $ 16,302 $ 443,223
BASIC EARNINGS PER SHARE 0.01 0.15
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 2,911,851 2,888,453
DILUTED EARNINGS PER SHARE 0.01 0.15
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING, INCLUDING POTENTIALLY
DILUTIVE SHARES 3,044,415 2,952,561
</TABLE>
<PAGE>
WINLAND ELECTRONICS, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 16,302 $ 443,223
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and Amortization 208,790 177,089
Loss on Disposal of Equipment 350 --
Deferred Taxes -- (21,400)
Changes in Assets and Liabilities
Accounts Receivable 61,892 (626,549)
Income Taxes Recievable 5,558
Inventories (255,606) 37,254
Prepaid Expenses (21,381) 16,543
Accounts Payable 12,761 261,042
Accrued Expenses and Deferred Revenue (124,791) 90,431
Income Taxes Payable -- 16,464
--------- ---------
Net Cash Provided By (Used In) in Operating Activities (96,125) 394,097
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Equipment (111,731) (335,382)
--------- ---------
Net Cash Used in Investing Activities (111,731) (335,382)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Net Borrowings on Revolving Credit Agreement 300,000 228,000
Payments on Long Term Borrowings, Including
Capital Lease Obligations (181,293) (144,401)
Proceeds From Issuance of Common Stock 62,066 9,062
--------- ---------
Net Cash Provided by Financing Activities 180,773 92,661
--------- ---------
Net Increase (Decrease) in Cash (27,083) 151,376
CASH
Beginning 40,017 20,656
--------- ---------
End $ 12,934 $ 172,032
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Payments For:
Interest $ 99,250 $ 116,082
Income Taxes 4,043 265,241
--------- ---------
</TABLE>
<PAGE>
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 for 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. All adjustments to the
financial statements 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, 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 - INVENTORY
Major components of inventory at March 31, 2000 and December 31, 1999 are as
follows:
March 31, December 31,
2000 1999
----------- -----------
Raw Materials $ 2,754,502 $ 2,713,671
Work In Process 339,324 358,956
Finished Goods 658,039 421,289
Obsolescence reserve (42,481) (40,138)
----------- -----------
Total $ 3,709,384 $ 3,453,778
----------- -----------
NOTE 3 - FINANCING ARRANGEMENT
The Company has a $3,500,000 revolving line-of-credit agreement through August
31, 2000. Interest on advances accrues at the bank's reference rate (9 percent
at March 31, 2000) 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 March 31, 2000 and December 31, 1999, were $1,818,501 and
$1,518,501, respectively.
NOTE 4 - STOCK OPTIONS AND WARRANTS
As of March 31, 2000, the Company's 1989 and 1997 Stock Option Plans in
aggregate had options to purchase 479,000 shares of common stock, of which
308,950 shares were exercisable. At March 31, 2000, the exercise prices of all
options range from $1.75 to $2.938 per share.
NOTE 5 - MAJOR CUSTOMERS AND ENTERPRISEWIDE DISCLOSURES Major Customers: The
Company has customers that accounted for more than 10 percent of net sales for
the quarter ended March 31, 2000 and 1999, as follows:
March 31, March 31,
2000 1999
--------- ---------
Sales percentage:
Customer A 36% 30%
Customer B 26% 17%
Customer C 9% 32%
Enterprisewide Disclosures: The following table presents revenue from external
customers for each of the Company's groups of products and services:
March 31, March 31,
2000 1999
---------- ---------
Proprietary microprocessors and mechanically $ 524,600 $ 623,300
controlled sensors and alarms
Electronic controls and assemblies for OEM
customers 3,693,100 5,991,700
---------- ---------
$ 4,217,700 $6,615,000
---------- ---------
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
Three months ended March 31, 2000 v.
Three months ended March 31, 1999
Net Sales: The Company recorded net sales of $4,217,690 for the first three
months of 2000, compared to $6,615,048 for the same period in 1999. Net sales
declined 36% for the three months ended March 31, 2000, compared to 1999. The
decline in net sales is primarily attributed to declines in sales to OEM
customers. The OEM customer with the most significant reduction decided to defer
its first quarter production to enable a more orderly transition to a new
product model later in the year. Net sales of security/industrial products also
declined during the first quarter of 2000, compared to 1999.
Major OEM customers have given the Company firm purchase commitments for
delivery during the remainder of 2000, having an aggregate value of $10.5
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 2000.
The Company has continued to promote itself as a full service designer and
manufacturer of custom controls and assemblies for OEM customers. The loss of
any major OEM customer would likely have an adverse effect on the Company's
short-term, and potentially long-term, results.
Gross Profits: Gross profit was $820,309 or 19.5% of net sales for the three
months ended March 31, 2000, compared to $1,522,109 or 23.0% of net sales for
the same period in 1999. The decline in gross profits is primarily attributed to
lower sales levels and increased fixed manufacturing costs during the first
quarter of 2000, compared to the same period in 1999. The decline in gross
profits is also attributed to decreased profit margins on the
security/industrial products line during the first quarter of 2000, compared to
1999.
Operating Expenses: General and administrative expense was $338,551 or 8.0% of
net sales for the three months ended March 31, 2000, compared to $470,111 or
7.1% of net sales for the same period in 1999. Although as a percentage of net
sales the general and administrative expense increased for the first quarter of
2000, compared to the first quarter of 1999, the actual expense declined
$131,560. The decrease in general and administrative expense for the first
quarter of 2000 was primarily attributed to reduced bonus allowances resulting
from lower profits for the period.
Marketing and customer relations expense was $144,823 or 3.4% of net sales for
the three months ended March 31, 2000, compared to $90,106 or 1.4% of net sales
for the same period in 1999. Marketing and customer relations expense increased
as a percentage of net sales, the actual expenses increased $54,717 for the
first quarter of 2000, compared to 1999. The increased marketing and customer
relations expense is attributed to additional customer service staffing,
increased costs associated with increased trade show attendance and increased
advertising expense. The Company continues to direct marketing efforts to secure
new OEM customer business, as well as to promote the new DC motor controller
product line and the StatSource GPS antenna product line.
Research and development expense was $241,012 or 5.7% of net sales for the three
months ended March 31, 2000, compared to $171,441 or 2.6% of net sales for the
same period in 1999. Actual research and development expense increased $69,571.
The increased research and development expenses are primarily due to the
addition of technical staff in the areas of design engineering, drafting and
printed circuit board layout, as well as the increase in depreciation expense
related to the purchase of additional test and development equipment. These
investments will serve to expand the Company's engineering capabilities in order
to meet the needs of existing and new OEM customers, and will aid with the
development of new proprietary products.
<PAGE>
Interest Expense: Interest expense was $98,254 or 2.3% of net sales for three
months ended March 31, 2000, compared to $116,082 or 1.8% of net sales for the
same period in 1999. The reduction in interest expense is primarily attributed
to reduced levels of debt outstanding on the working capital line of credit
during the first quarter of 2000, compared to the same period in 1999. The
levels of debt related to capital lease obligations, and long term debt have
also been reduced and have had an impact on the interest expense for the first
quarter of 2000, compared to 1999.
Net Income: The Company reported net income of $16,302 or $0.01 per diluted
share for the three months ended March 31, 2000, compared to net income of
$443,223 or $0.15 per diluted share for the same period in 1999. The reduction
in net income is primarily attributed to reduced gross profits, which resulted
from reduced sales, increased fixed manufacturing costs and a decline in profit
margins associated with the security/industrial products line for the period
when compared to 1999.
Liquidity and Capital Resources: Cash used in operating activities was $96,125
for the first three months of 2000, compared to cash provided by operating
activities of $394,097 for the same period in 1999. Cash used in operating
activities, the purchase of capital equipment, and for the reduction of long
term debt was funded primarily by additional short term borrowings on the
revolving line of credit and from the proceeds from the issuance of common
stock.
The current ratio on March 31, 2000 was 1.6 to 1, compared to 1.7 to 1 on
December 31, 1999. Working capital amounted to $2,479,273 on March 31, 2000,
compared to $2,501,493 on December 31, 1999. The decrease in working capital is
attributed to increased short term borrowing on the revolving line of credit,
which is offset by increased inventory levels.
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 prime rate. At March 31, 2000, an outstanding balance of
$1,818,501 existed under the line of credit. The agreement expires in August of
2000, at which time the Company anticipates that it will renew its working
capital line of credit on terms similar to its existing line. The Company's
management believes that the capital available through the current credit
agreement, together with cash flows from operations, will be sufficient to meet
the Company's capital needs at least through 2000.
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 small 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 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.
<PAGE>
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 than the
Company. 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
obtain 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.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON 8-K
(a) The exhibit to this report is:
27.1 Financial Data Schedule (included in electronic versions only).
(b) No reports on Form 8-K were filed during the quarter ended March 31,
2000.
<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: May 11, 2000 /s/ W. Kirk Hankins
W. Kirk Hankins, Chairman, Chief Executive Officer
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 12,934
<SECURITIES> 0
<RECEIVABLES> 2,469,980
<ALLOWANCES> 0
<INVENTORY> 3,709,384
<CURRENT-ASSETS> 6,398,512
<PP&E> 8,271,689
<DEPRECIATION> 2,730,159
<TOTAL-ASSETS> 11,943,645
<CURRENT-LIABILITIES> 3,919,239
<BONDS> 0
29,298
0
<COMMON> 0
<OTHER-SE> 4,585,949
<TOTAL-LIABILITY-AND-EQUITY> 11,943,645
<SALES> 4,217,690
<TOTAL-REVENUES> 4,245,923
<CGS> 3,397,381
<TOTAL-COSTS> 4,121,767
<OTHER-EXPENSES> 98,254
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 98,254
<INCOME-PRETAX> 25,902
<INCOME-TAX> 9,600
<INCOME-CONTINUING> 16,302
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,302
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
