**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

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**FORM 10-QSB**

 

**QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d)**

**OF**

**THESECURITIES EXCHANE ACT OF 1934**

 

| **For  the Quarter Ended March 31, 2002** |   | **Commission  File Number:  0-18393** |
|-------------------------------------------|--------|--------------------------------------------|

 

**WINLAND ELECTRONICS, INC.**

(Name of small business issuer in its charter)

 

| **Minnesota**                                                    |   | **41-0992135**                           |
|------------------------------------------------------------------|--------|------------------------------------------|
| (state or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  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 theExchange Act:

 

| **Title of Each Class**       |   | **Name of Exchange**    |
|-------------------------------|--------|-------------------------|
| Common Stock, $.01 par  value |   | American Stock Exchange |

 

Securities registered pursuant to Section 12(g) of theExchange Act:  None

 

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Check whether the Issuer(1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the Issuer was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.

Yes   ý    No   o

 

There were 2,959,842shares of Common Stock, $.01 par value, outstanding as of April 22, 2002.

 

 

Transitional SmallBusiness Disclosure Format (check one):  Yes  o    No  ý

 

#### ** **

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**PARTI-FINANCIAL INFORMATION**

** **

** **

**ITEM 1: FINANCIAL STATEMENTS**

** **

** **

**WINLAND ELECTRONICS, INC.**

**BALANCE SHEETS**

 
|                                        |   | **March 31,**   |          | **December 31,** |   |
|---------------------------------------------|--------|-----------------|---------------|------------------|--------|
| **ASSETS**                                  |   | **2002**        |          | **2001**         |   |
|                                        |   | **(UNAUDITED)** |          |             |   |
| Current Assets                              |   |            |          |             |   |
| Cash                                        |   | **$**           | **322,220**   |             | $      | 399,749 |   |
| Accounts and  notes receivable, net         |   | **1,952,211**   |          | 1,993,983        |   |
| Income tax  receivable                      |   | **127,837**     |          | 177,000          |   |
| Inventories                                 |   | **2,409,324**   |          | 2,439,727        |   |
| Prepaid expenses                            |   | **116,105**     |          | 100,191          |   |
| **Total  current assets**                   |   | **4,927,697**   |          | 5,110,650        |   |
|                                        |   |            |          |             |   |
| Other Assets                                |   |            |          |             |   |
| Patent and  trademarks, net of amortization |   | **918**         |          | 1,027            |   |
|                                        |   |            |          |             |   |
| Property and Equipment, at cost:            |   |            |          |             |   |
| Land and land  improvements                 |   | **272,901**     |          | 272,901          |   |
| Building                                    |   | **2,983,586**   |          | 2,983,586        |   |
| Machinery and equipment                     |   | **3,665,092**   |          | 3,675,897        |   |
| Data processing  equipment                  |   | **1,306,446**   |          | 1,301,598        |   |
| Office furniture  and equipment             |   | **352,834**     |          | 353,932          |   |
| **Total  property and equipment**           |   | **8,580,859**   |          | 8,587,914        |   |
| Less accumulated  depreciation              |   | **(4,065,483**  | )             | (3,884,440       | )      |
| **Net  property and equipment**             |   | **4,515,376**   |          | 4,703,474        |   |
| **Total  assets**                           |   | **$**           | **9,443,991** |             | $      | 9,815,151 |   |

 

See Notes to the Interim Financial Statements

 

2

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**BALANCE SHEETS**

 
|                                            |   | **March 31,**   |          | **December 31,** |   |
|-------------------------------------------------|--------|-----------------|---------------|------------------|--------|
| **LIABILITIES  AND STOCKHOLDERS' EQUITY**       |   | **2002**        |          | **2001**         |   |
|                                            |   | **(UNAUDITED)** |          |             |   |
| Current Liabilities                             |   |            |          |             |   |
| Note payable to bank                            |   | **$**           | **1,261,501** |             | $      | 1,981,501 |   |
| Current maturities of  long-term debt           |   | **427,540**     |          | 472,325          |   |
| Accounts payable                                |   | **1,133,125**   |          | 931,385          |   |
| Accrued expenses:                               |   |            |          |             |   |
| Compensation                                    |   | **246,688**     |          | 289,749          |   |
| Other                                           |   | **135,710**     |          | 68,024           |   |
| **Total  current liabilities**                  |   | **3,204,564**   |          | 3,742,984        |   |
|                                            |   |            |          |             |   |
| Deferred Revenue                                |   | **185,063**     |          | 187,098          |   |
| Long-Term Debt, less  current maturities        |   | **2,342,131**   |          | 2,453,909        |   |
| **Total  long-term liabilities**                |   | **2,527,194**   |          | 2,641,007        |   |
|                                            |   |            |          |             |   |
| **Total  liabilities**                          |   | **5,731,758**   |          | 6,383,991        |   |
|                                            |   |            |          |             |   |
| Stockholders' Equity                            |   |            |          |             |   |
| Common stock                                    |   | **29,598**      |          | 29,598           |   |
| Additional paid-in capital                      |   | **2,249,702**   |          | 2,249,702        |   |
| Retained earnings                               |   | **1,432,933**   |          | 1,151,860        |   |
| **Total stockholders'  equity**                 |   | **3,712,233**   |          | 3,431,160        |   |
| **Total  liabilities and stockholders' equity** |   | **$**           | **9,443,991** |             | $      | 9,815,151 |   |

 

See Notes to the Interim Financial Statements

 

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**WINLAND ELECTRONICS, INC.**

**STATEMENTS OFINCOME**

**For theThree Months Ended March 31, 2002 and 2001**

**(UNAUDITED)**

 
|                                                   |   | **2002**      |          | **2001**  |   |
|--------------------------------------------------------|--------|---------------|---------------|-----------|--------|
| Net sales                                              |   | **$**         | **4,285,647** |      | $      | 4,531,107 |   |
| Cost of sales                                          |   | **3,200,079** |          | 3,832,059 |   |
| **Gross  profit**                                      |   | **1,085,568** |          | 699,048   |   |
|                                                   |   |          |          |      |   |
| Operating expenses:                                    |   |          |          |      |   |
| General and administrative                             |   | **303,242**   |          | 318,632   |   |
| Sales and marketing                                    |   | **236,037**   |          | 169,327   |   |
| Research and development                               |   | **148,781**   |          | 254,340   |   |
|                                                   |   | **688,060**   |          | 742,299   |   |
|                                                   |   |          |          |      |   |
| **Operating  income (loss)**                           |   | **397,508**   |          | (43,251   | )      |
|                                                   |   |          |          |      |   |
| Other income (expenses):                               |   |          |          |      |   |
| Interest expense                                       |   | **(78,768**   | )             | (155,941  | )      |
| Other income, net                                      |   | **11,333**    |          | 638       |   |
|                                                   |   | **(67,435**   | **)**         | (155,303  | )      |
|                                                   |   |          |          |      |   |
| **Income  (loss) before income taxes**                 |   | **330,073**   |          | (198,554  | )      |
|                                                   |   |          |          |      |   |
| Income tax (expense)  benefit                          |   | **(49,000**   | **)**         | 69,000    |   |
| **Net  income (loss)**                                 |   | **$**         | **281,073**   |      | $      | (129,554 | ) |
|                                                   |   |          |          |      |   |
| Earnings (loss) per share  data:                       |   |          |          |      |   |
| Basic                                                  |   | **$**         | **0.09**      |      | $      | (0.04 | ) |
| Diluted                                                |   | **0.09**      |          | (0.04     | )      |
|                                                   |   |          |          |      |   |
| Weighted-average number of  common shares outstanding: |   |          |          |      |   |
| Basic                                                  |   | **2,959,842** |          | 2,952,313 |   |
| Diluted                                                |   | **2,982,802** |          | 2,952,313 |   |

 

See Notes to the Interim Financial Statements

 

 

4

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**WINLAND ELECTRONICS, INC.**

**STATEMENTSOF CASH FLOWS**

**For theThree Months Ended March 31, 2002 and 2001**

**(UNAUDITED)**

 
|                                                                                      |   | **2002**     |        | **2001** |   |
|-------------------------------------------------------------------------------------------|--------|--------------|-------------|----------|--------|
| Cash Flows From Operating Activities                                                      |   |         |        |     |   |
| Net income (loss)                                                                         |   | **$**        | **281,073** |     | $      | (129,554 | ) |
| Adjustments to reconcile net income (loss) to net  cash provided by operating activities: |   |         |        |     |   |
| Depreciation and amortization                                                             |   | **197,523**  |        | 205,343  |   |
| Loss on disposal of equipment                                                             |   | **433**      |        | 4,854    |   |
| Changes in assets and liabilities:                                                        |   |         |        |     |   |
| Accounts and notes receivable                                                             |   | **41,772**   |        | 738,777  |   |
| Income taxes receivable                                                                   |   | **49,163**   |        | (69,000  | )      |
| Inventories                                                                               |   | **30,403**   |        | 220,716  |   |
| Prepaid expenses                                                                          |   | **(15,914**  | )           | (38,380  | )      |
| Accounts payable                                                                          |   | **201,740**  |        | (328,058 | )      |
| Accrued expenses, including deferred revenue                                              |   | **22,590**   |        | (46,027  | )      |
| **Net cash provided by operating  activities**                                            |   | **808,783**  |        | 558,671  |   |
|                                                                                      |   |         |        |     |   |
| Cash Flows From Investing Activities                                                      |   |         |        |     |   |
| Purchases of property and equipment                                                       |   | **(9,749**   | )           | (43,223  | )      |
| Proceeds from sale of equipment                                                           |   | **-**        |        | 14,000   |   |
| **Net cash used in investing  activities**                                                |   | **(9,749**   | )           | (29,223  | )      |
|                                                                                      |   |         |        |     |   |
|                                                                                      |   |         |        |     |   |
| Cash flows From Financing Activities                                                      |   |         |        |     |   |
| Net payments on revolving credit agreement                                                |   | **(720,000** | )           | (355,000 | )      |
| Payments on long-term borrowings, including capital  lease obligations                    |   | **(156,563** | )           | (193,256 | )      |
| **Net cash used in financing  activities**                                                |   | **(876,563** | )           | (548,256 | )      |
|                                                                                      |   |         |        |     |   |
| **Net decrease in cash**                                                                  |   | **(77,529**  | )           | (18,808  | )      |
|                                                                                      |   |         |        |     |   |
| Cash                                                                                      |   |         |        |     |   |
| Beginning                                                                                 |   | **399,749**  |        | 38,961   |   |
| End                                                                                       |   | **$**        | **322,220** |     | $      | 20,153 |   |
|                                                                                      |   |         |        |     |   |
| Supplemental Disclosures of Cash Flow Information                                         |   |         |        |     |   |
| Cash payments for:                                                                        |   |         |        |     |   |
| Interest                                                                                  |   | **$**        | **79,030**  |     | $      | 156,421 |   |
| Income taxes                                                                              |   | **1,250**    |        | -        |   |

 

See Notes to Interim Financial Statements

 

5

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**WINLAND ELECTRONICS, INC.**

**NOTES TO THE INTERIM FINANCIAL STATEMENTS**

**(UNAUDITED)**

 

 

**Note 1.                   Basis of Presentation**

 

The accompanying unaudited financial statements havebeen prepared by the Company in accordance with generally accepted accountingprinciples in the United States of America, pursuant to the rules andregulations of the Securities and Exchange Commission.  In management’s opinion all adjustmentsnecessary for a fair presentation of the results for the interim period havebeen reflected in the interim financial statements.  The results of operations for any interim period are notnecessarily indicative of the results for a full year.    All adjustments to the financialstatements are of a normal recurring nature. Certain information and footnote disclosures normally included infinancial statements have been condensed or omitted.  Such disclosures are those that would substantially duplicateinformation contained in the most recent audited financial statements of theCompany, such as significant accounting policies, lease and license commitmentsand stock options.  Management presumesthat users of the interim statements have read or have access to the auditedfinancial statements included in the company’s most recent annual report onForm 10-KSB.

 

 

**Note 2.                   Inventories**

 

Major components of inventory at March 31, 2002 andDecember 31, 2001 are as follows:

 
|                 |   | **March 31,** |      | **December 31,** |   |
|----------------------|--------|---------------|-----------|------------------|--------|
|                 |   | **2002**      |      | **2001**         |   |
| Raw Materials        |   | $             | 1,699,954 |             | $      | 2,006,461 |   |
| Work In Process      |   | 193,659       |      | 138,859          |   |
| Finished Goods       |   | 539,900       |      | 429,407          |   |
| Obsolescence reserve |   | (24,189       | )         | (135,000         | )      |
| Total                |   | $             | 2,409,324 |             | $      | 2,439,727 |   |

 

**Note 3.                   FinancingArrangement**

 

The Company has a $3,500,000 revolving line-of-creditagreement through September 15, 2002. Interest on advances is at two percentage points over the bank’sreference rate (6.75 percent at March 31, 2002) and is due monthly.  Advances outstanding on the revolvingline-of-credit agreement at March 31, 2002 and December 31, 2001, were$1,261,501 and $1,981,501, respectively.

 

Advances are due on demand, are secured by substantially all assets ofthe Company, and are subject to a defined borrowing base equal to 75 percent ofqualified accounts receivable and 60 percent of eligible inventories.  In addition, the agreement contains certainreporting and operating covenants.

 

6

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The Company is currently discussing various options to meet and securethe future financial needs of the Company.

 

** **

** **

** **

** **

** **

**Note 4.                   StockOptions**

 

As of March 31, 2002, options to purchase 354,000shares of common stock were outstanding under the Company’s 1989 and 1997 StockOption Plans, of which 216,000 shares were exercisable.  At March 31, 2002, the exercise prices ofall outstanding options range from $.53 to $2.938 per share.

 

 

**Note 5.                   Major Customers andEnterprisewide Disclosures**

 

**MajorCustomers: **The Company has customers that accountedfor more than 10 percent of net sales and accounts receivable for the threemonths ended March 31, 2002 and 2001, as follows:

 
|              |   | **Three Months Ended** |   | **Three Months Ended** |   |
|-------------------|--------|------------------------|--------|------------------------|--------|
|              |   | **March 31, 2002**     |   | **March 31, 2001**     |   |
| Sales percentage: |   |                   |   |                   |   |
| Customer A        |   | 51                     | %      | 22                     | %      |
| Customer B        |   | 16                     | %      | 19                     | %      |
| Customer C        |   | 1                      | %      | 35                     | %      |

 

 
| Accounts receivable  percentage: |   |   |   |   |   |
|----------------------------------|--------|--------|--------|--------|--------|
| Customer A                       |   | 50     | %      | 38     | %      |
| Customer B                       |   | 16     | %      | 17     | %      |
| Customer C                       |   | 1      | %      | 18     | %      |

 

 

**EnterprisewideDisclosures: **The following table presents three-monthrevenues from external customers for each of the Company’s groups of productsand services:

 
|                                                                        |   | **Three Months Ended** |      | **Three Months Ended** |   |
|-----------------------------------------------------------------------------|--------|------------------------|-----------|------------------------|--------|
|                                                                        |   | **March 31, 2002**     |      | **March 31, 2001**     |   |
| Proprietary  microprocessors and mechanically controlled sensors and alarms |   | $                      | 681,083   |                   | $      | 608,553 |   |
| Electronic controls and  assemblies for OEM customers                       |   | 3,604,564              |      | 3,922,554              |   |
|                                                                        |   | $                      | 4,285,647 |                   | $      | 4,531,107 |   |

 

7

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**ITEM 2:  MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**

 

**RESULTS OF OPERATIONS**

**Three months ended March 31 2002 v.**

**Three months ended March 31, 2001**

 

Net Sales:  The Companyrecorded net sales of $4,285,647 for the three months ended March 31, 2002, adecline of $245,460 from $4,531,107 for the same period in 2001.  The reduction in sales for the three monthsended March 31, 2002 is primarily attributed to a reduction to a previouslysignificant OEM customer, offset almost entirely by increases in sales to theCompany’s other OEM customers, particularly Select Comfort Corporation, as wellas an increase in sales of the Company’s proprietary products.

 

The Company currently has orders and forecasts fromits major OEM customers for delivery during the remainder of 2002 and 1stquarter of 2003 having an aggregate value of $10.7 million.  These are at various stages ofcompletion.  The Company expects toreceive additional orders from current OEM customers for 2002 and 2003production, including four new customers obtained in the third quarter of 2001.

 

The Company has continued to position itself as a fullservice designer and manufacturer of custom controls and assemblies for OEMcustomers.  The Company has begun toexplore additional geographic regions to market its OEM services, primarilythrough networking with referral sources in the Chicago area. The loss of anysignificant OEM customer would likely have an adverse effect on the Company’sshort-term, and potentially long-term, results.

 

Gross Profits:  Gross profitincreased 55.3 percent to  $1,085,568 or25.3% of net sales for the three months ended March 31, 2002, compared to$699,048 or 15.4% of net sales for the same period in 2001.  As a percentage of sales, gross margin increasedby 9.9 percentage points over the first quarter last year.  The increase in gross profits for thequarter ended March 31, 2002 is primarily attributed to a more profitable salesmix and the Company’s ability to maintain lower direct and variable indirectexpenses as sales increased from the latter part of 2001 into the first quarterof 2002.  Reductions in manufacturingcosts were due to reduced salaries and employee related expenses, as well aslower information technology and facility expenses, offset in part by increasedinsurance premiums and obsolescence and warranty reserves.  The increases in reserves will more closelymatch expenses with activities for the period.

 

Operating Expenses:  General andadministrative expense was $303,242 or 7.1% of net sales for the three monthsended March 31, 2002, compared to $318,632 or 7.0% of net sales for the sameperiod in 2001. The decrease in general and administrative expenses for thethree months ended March 31, 2002 is attributed primarily to reductions insalaries and employee related expenses, leased vehicle expense and professionalfees, offset in part by increased investor relations, board fees, and directorsand officers insurance premium expenses.

 

Sales and marketing expense (including project management)was $236,037 or 5.5% of net sales for the three months ended March 31, 2002,compared to $169,327 or 3.7% of net sales for the same period in 2001.  The increase in sales and marketing expenseis primarily attributable to increased salaries and employee related costs dueto reassignment of certain personnel and the addition of a Vice President ofSales.  In addition, the Companyincurred increased trade show and travel expense, offset in part by decreasedleased vehicle expense and promotional expenses.

 

Winland’s sales andmarketing efforts continued to favor building direct personal contact withhigh-potential OEM customer prospects and developing an extensive referralnetwork.  Management believes thatrelationships built on networking, referrals and face-to-face contact willprovide Winland an opportunity to build market share in the EMS (ElectronicManufacturing Services) market.

 

Research and development expense (including thedevelopment of new company products as well as design services and support tothe OEM customer base) was $148,781 or 3.5% of net sales for the three monthsended March 31, 2002, compared to $254,340 or 5.6% of net sales for the sameperiod in 2001.  

 

8

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The decline in research and development expense forthe three months ended March 31, 2002 compared to 2001 is primarilyattributable to employee attrition and reassignment without replacement.  Accordingly, total salaries and related expensesdecreased, as well as decreased facility, information technology and leasedvehicle expenses.

 

Interest Expense:  Interestexpense was $78,768 or 1.8% of net sales for the three months ended March 31,2002, compared to $155,941 or 3.4% of net sales for the same period in2001.  The decrease in interest expensefor the first quarter of 2002 was due to a reduction in short-term andlong-term debt as well as lower interest rates on short-term debt.  During the first quarter of 2002, theCompany paid down $720,000 (36%) on its line-of-credit and paid down $156,563of long-term debt.  All of the cash usedto reduce debt was generated from the Company’s operating activities.

 

Net Earnings:  The Companyreported net income of  $281,073 or$0.09 per basic and diluted share and for the three months ended March 31,2002, compared to a net loss of $129,554 or ($0.04) per basic and diluted share for the same period in2001.   The net income for the firstquarter of 2002 is primarily due to higher gross profit margins based on a moreprofitable sales mix and the Company’s ability to maintain lower direct andvariable indirect expenses as sales increased from the latter part of 2001 intothe first quarter of 2002.  Bottom lineperformance also benefited from overall reductions in operating expenses andinterest expense.

 

The Company believes inflation has not significantlyaffected its results of operations.

 

The Company uses a 37% blended federal and stateincome tax rate, offset in part, by a tax benefit from the use of creditsgenerated in previous years.

 

 

**LIQUIDITYAND CAPITAL RESOURCES**

** **

Cash provided byoperating activities was $808,783 for the three months ended March 31, 2002,compared to $558,671 for the same period in 2001, an improvement of$250,112.  Cash provided by operationswas used to pay down $720,000 of the Company’s revolving line-of-credit (areduction of over 36%), reduce long-term debt and to a lesser degree, for thepurchase of equipment.   The Company hasfunded its current operations with working capital provided by operations.

 

The current ratio at March 31, 2002 and December 31,2001 was 1.5 to 1 and 1.4 to 1, respectively. Working capital equaled $1,723,133 on March 31, 2002, compared to$1,367,666 on December 31, 2001.  Theincrease in working capital is attributed to reductions in short-term andlong-term debt, offset in part by increased accounts payable and accruedexpenses, as well as, decreased cash, inventory, accounts receivable and incometax receivable.

 

The Company has a $3,500,000 revolving line-of-creditagreement with Wells Fargo Bank, through September 15, 2002.  Interest on advances is at two percentagepoints over the bank’s reference rate (6.75 percent at March 31, 2002) and isdue monthly. Advances outstanding on the revolving line-of-credit at March 31,2002 and December 31, 2001 were $1,261,501 and $1,981,501, respectively.  Advances are due on demand, are secured bysubstantially all assets of the Company, and are subject to a defined borrowingbase equal to 75 percent of qualified accounts receivable and 60 percent ofeligible inventory.  In addition, theline-of-credit agreement contains certain reporting and operating covenants.

 

In order to continue operations in the ordinarycourse, the Company will seek to renew or refinance its line of creditagreement, which currently expires September 15, 2002.

 

9

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A summary of our contractual cash obligations at March31, 2002 is as follows:

 
|                                            |   | **Payments  due by period** |      |
|-------------------------------------------------|--------|-----------------------------|-----------|
| **Contractual  Obligations**                    |   | **Total**                   |      | **2002** |   | **2003** |   | **2004** |   | **2005** |   | **2006 and  thereafter** |   |
| Long-term debt,  including interest             |   | $                           | 3,250,500 |   | $ | 474,500 |   | $ | 551,800 |   | $ | 964,300 |   | $ | 1,097,300 |   | $ | 162,600 |   |
| Operating leases                                |   | 22,700                      |      | 12,700 |   | 10,000 |   | 0 |   | 0 |   | 0 |   |
| Purchase  agreement for manufacturing equipment |   | 0                           |      | 0 |   | 0 |   | 0 |   | 0 |   | 0 |   |
| Total  contractual cash obligations             |   | $                           | 3,273,200 |   | $ | 487,200 |   | $ | 561,800 |   | $ | 964,300 |   | $ | 1,097,300 |   | $ | 162,600 |   |

 

We also have a commercial commitment as described below:

 
| **Other Commercial  Commitment** |   | **Total  Amount  Committed** |      | **Outstanding  at 3/31/02** |   | **Date of  Expiration** |   |
|----------------------------------|--------|------------------------------|-----------|-----------------------------|--------|-------------------------|--------|
| Line of credit                   |   | $                            | 3,500,000 |                        | $      | 1,261,501               |   | September 15, 2002 |   |
|                                  |        |                              |           |                             |        |                         |        |  |  |

 

The Company continues to explore other financingsources, including asset-based lending, to provide financing beyond September15, 2002.  There is no assurance thatthe Company will be successful in obtaining financing arrangements on termsacceptable to the Company.  The Companymay find it necessary to accept financing arrangements, which limit theCompany’s ability to achieve growth.

 

**CAUTIONARYSTATEMENTS**

 

Certain statements contained in this Quarterly Reporton Form 10-QSB and other written and oral statements made from time to time bythe Company do not relate strictly to historical or current facts.  As such, they are considered“forward-looking statements” which provide current expectations or forecasts offuture events.  Such statements can beidentified by the use of terminology such as “anticipate,” “believe,”“estimate,” “expect,” “intend,” “may,” “could,” “possible,” “plan,” “project,”“should,” “will,” “forecast” and similar words or expressions.  The Company’s forward-looking statementsgenerally relate to the Company’s growth strategies, financial results, productdevelopment and sales efforts.  One mustcarefully consider forward-looking statements and understand that suchstatements involve a variety of risks and uncertainties, known and unknown, andmay be affected by inaccurate assumptions, including, among others, thosediscussed below.  Consequently, no forward-lookingstatement can be guaranteed and actual results may vary materially.  As provided for under the Private SecuritiesLitigation Reform Act of 1995, the Company wishes to caution investors that thefollowing important factors, among others, in some cases have affected and inthe future could affect the Company’s actual results of operations and causesuch results to differ materially from those anticipated in forward-lookingstatements made in this document and elsewhere by or on behalf of the Company.

 

The Company derives a significant portion of itsrevenues from a small number of major OEM customers that are not subject to anylong-term contracts with the Company. If any major customer should for any reason decrease the volume of theirbusiness or stop doing business with the Company, the Company’s business wouldbe adversely affected.   Some of theCompany’s customers are not large, well-established companies, and the businessof each customer is subject to various risks such as market acceptance of newproducts and continuing availability of financing.  To the extent that the Company’s customers encounterdifficulties, or the Company is unable to meet the demands of its OEMcustomers, the Company could be adversely affected.

 

The Company’s ability to increase revenues and profitsis dependent upon its ability to retain valued existing customers and obtainnew customers that fit its customer profile. The Company competes for new customers with numerous independentcontract design and manufacturing firms in the United States and abroad, manyof whom have greater financial resources and more established reputations.  

 

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The Company’s ability to compete successfully in thisindustry depends, in part, upon the price at which the Company is willing tomanufacture a proposed product and the quality of the Company’s design andmanufacturing services.  There is noassurance that the Company will be able to continue to obtain contracts fromexisting and new customers on financially advantageous terms, and the failureto do so could prevent the Company from achieving the growth it anticipates.

 

The Company’s ability to execute its initiatives toincrease sales and expand market share depends upon its ability to developadditional proprietary products and on the availability of sufficientfinancing, both equity and debt, to meet fixed and variable costs associatedwith such growth.  In the currenteconomic environment, banks and other sources of financing are becomingincreasingly conservative in their lending and investment policies.  There is no assurance that the Company willbe able to obtain the financing necessary to achieve its goals.

 

The Company’s success in providing an improved mix ofhigher margin proprietary products depends on the effectiveness of its newproduct development efforts as well as the timing of such and the availabilityand costs of any competing products on the market.

 

###### ** **

###### **PART II — OTHER INFORMATION**

 

# **ITEM6.                  EXHIBITSAND REPORTS ON FORM 8-K**

 

**(a)           Exhibits**. None.

 

**(b)****                              ****Reports on Form 8-K.**  No reports onForm 8-K were filed during the quarter ended March 31, 2002.

 

 

**SIGNATURES**

 

Pursuant to the requirements of Section 13 of the Securities ExchangeAct of 1934, the Company has caused this Report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 

 
|                        |   | WINLAND  ELECTRONICS, INC.                                                                   |
|-----------------------------|--------|----------------------------------------------------------------------------------------------|
|                        |   | (“Company”)                                                                        |
|                        |   |                                                                                         |
|                        |   |                                                                                         |
|                        |   |                                                                                         |
| Dated:  April 22, 2002 |   | /s/  Lorin E. Krueger                                                                        |
|                        |   | Lorin E.  Krueger, President and Chief Executive Officer (Principal Executive Officer)       |
|                        |   |                                                                                         |
|                        |   |                                                                                         |
|                        |   |                                                                                         |
|                        |   | /s/  Jennifer A. Thompson                                                                    |
|                        |   | Jennifer  A. Thompson, Chief Financial Officer (Principal Financial and Accounting  Officer) |

 

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