Attached files
file | filename |
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EX-32 - WSI INDUSTRIES, INC. | ex32.htm |
EX-31.2 - WSI INDUSTRIES, INC. | ex31-2.htm |
EX-31.1 - WSI INDUSTRIES, INC. | ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended May 28, 2017
OR
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________
Commission file number 0-619
WSI Industries, Inc.
(Exact name of registrant as specified in its charter)
Minnesota | 41-0691607 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
213 Chelsea Road, Monticello, Minnesota | 55362 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (763) 295-9202
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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “larger accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] | Accelerated filer [ ] | |
Non-accelerated filer [ ] | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company [ ]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 2,959,775 shares of common stock were outstanding as of June 23, 2017.
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
2 |
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
May 28, 2017 | August 28, 2016 | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 5,587,822 | $ | 3,739,324 | ||||
Accounts receivable | 3,015,387 | 3,823,545 | ||||||
Inventories | 2,790,038 | 3,047,512 | ||||||
Prepaid and other current assets | 320,448 | 286,251 | ||||||
Total Current Assets | 11,713,695 | 10,896,632 | ||||||
Property, Plant and Equipment – Net | 10,737,511 | 11,460,818 | ||||||
Restricted cash | - | 1,250,000 | ||||||
Goodwill and other assets, net | 2,368,452 | 2,375,136 | ||||||
Total Assets | $ | 24,819,658 | $ | 25,982,586 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current Liabilities: | ||||||||
Trade accounts payable | $ | 2,246,941 | $ | 1,729,251 | ||||
Accrued compensation and employee withholdings | 797,656 | 394,657 | ||||||
Other accrued expenses and deferred revenue | 426,379 | 133,477 | ||||||
Current portion of long-term debt | 1,463,976 | 1,557,801 | ||||||
Total Current Liabilities | 4,934,952 | 3,815,186 | ||||||
Long-term debt, less current portion | 5,795,847 | 6,785,432 | ||||||
Deferred tax liabilities | 823,409 | 1,402,735 | ||||||
Stockholders’ Equity: | ||||||||
Common stock, par value $.10 a share; authorized 10,000,000 shares; issued and outstanding 2,959,775 and 2,919,500 shares, respectively | 295,977 | 291,950 | ||||||
Capital in excess of par value | 4,111,402 | 3,848,484 | ||||||
Deferred compensation | (76,500 | ) | - | |||||
Retained earnings | 8,934,571 | 9,838,799 | ||||||
Total Stockholders’ Equity | 13,265,450 | 13,979,233 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 24,819,658 | $ | 25,982,586 |
See notes to condensed consolidated financial statements.
3 |
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
13 weeks ended | 39 weeks ended | |||||||||||||||
May 28, 2017 | May 29, 2016 | May 28, 2017 | May 29, 2016 | |||||||||||||
Net sales | $ | 9,593,941 | $ | 8,886,005 | $ | 22,237,468 | $ | 27,105,725 | ||||||||
Cost of products sold | 8,563,262 | 7,934,304 | 20,692,334 | 24,619,492 | ||||||||||||
Gross margin | 1,030,679 | 951,701 | 1,545,134 | 2,486,233 | ||||||||||||
Selling and administrative expense | 1,202,533 | 788,040 | 2,684,676 | 2,208,560 | ||||||||||||
Equipment impairment loss | 147,502 | - | 147,502 | - | ||||||||||||
Interest and other income | (6,870 | ) | (16,252 | ) | (10,127 | ) | (20,189 | ) | ||||||||
Interest expense | 72,510 | 75,628 | 206,637 | 236,365 | ||||||||||||
Income (loss) before income taxes | (384,996 | ) | 104,285 | (1,483,554 | ) | 61,497 | ||||||||||
Income tax expense (benefit) | (165,323 | ) | 25,979 | (579,326 | ) | (154,884 | ) | |||||||||
Net income (loss) | $ | (219,673 | ) | $ | 78,306 | $ | (904,228 | ) | $ | 216,381 | ||||||
Basic earnings (loss) per share | $ | (.08 | ) | $ | .03 | $ | (.31 | ) | $ | .07 | ||||||
Diluted earnings (loss) per share | $ | (.08 | ) | $ | .03 | $ | (.31 | ) | $ | .07 | ||||||
Cash dividend per share | $ | - | $ | - | $ | - | $ | .08 | ||||||||
Weighted average number of common shares outstanding, basic | 2,923,483 | 2,919,500 | 2,920,828 | 2,919,500 | ||||||||||||
Weighted average number of common shares outstanding, diluted | 2,923,483 | 2,925,247 | 2,920,828 | 2,929,218 |
See notes to condensed consolidated financial statements.
4 |
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
39 weeks ended | ||||||||
May 28, 2017 | May 29, 2016 | |||||||
Cash Flows From Operating Activities: | ||||||||
Net income (loss) | $ | (904,228 | ) | $ | 216,381 | |||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
Depreciation | 1,361,510 | 1,381,216 | ||||||
Amortization | 7,667 | 3,008 | ||||||
Deferred taxes | (579,326 | ) | 22,100 | |||||
Gain on sale of equipment | - | (15,000 | ) | |||||
Impairment of property, plant and equipment | 147,502 | - | ||||||
Stock option compensation expense | 220,204 | 133,317 | ||||||
Changes in assets and liabilities: | ||||||||
Decrease in accounts receivable | 808,158 | 1,263,979 | ||||||
Decrease in inventories | 257,474 | 2,154,936 | ||||||
Increase in prepaid and other current assets | (34,197 | ) | (150,139 | ) | ||||
Increase (decrease) in accounts payable and accrued expenses | 1,183,832 | (1,123,729 | ) | |||||
Net cash provided by operations | 2,468,596 | 3,886,069 | ||||||
Cash Flows From Investing Activities: | ||||||||
Proceeds from sale of equipment | - | 15,000 | ||||||
Purchase of property, plant and equipment | (785,705 | ) | (291,108 | ) | ||||
Net cash used in investing activities | (785,705 | ) | (276,108 | ) | ||||
Cash Flows From Financing Activities: | ||||||||
Proceeds from issuance of long-term debt | 3,700,000 | - | ||||||
Payments of long-term debt | (4,745,057 | ) | (1,147,147 | ) | ||||
Restricted cash requirement | 1,250,000 | - | ||||||
Deferred financing costs | (39,336 | ) | - | |||||
Dividends paid | - | (233,560 | ) | |||||
Net cash provided by (used in) by financing activities | 165,607 | (1,380,707 | ) | |||||
Net Increase In Cash And Cash Equivalents | 1,848,498 | 2,229,254 | ||||||
Cash And Cash Equivalents At Beginning Of Year | 3,739,324 | 4,149,645 | ||||||
Cash And Cash Equivalents At End Of Reporting Period | $ | 5,587,822 | $ | 6,378,899 | ||||
Supplemental cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 203,680 | $ | 237,189 | ||||
Income taxes | $ | 4,200 | $ | 757 | ||||
Payroll withholding taxes in cashless stock option exercise | $ | 29,759 | $ | - |
See notes to condensed consolidated financial statements.
5 |
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: |
The condensed consolidated balance sheet as of May 28, 2017, the condensed consolidated statements of income for the thirteen and thirty-nine weeks ended May 28, 2017 and May 29, 2016 and the condensed consolidated statements of cash flows for the thirty-nine weeks then ended, respectively, have been prepared by the Company without audit. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made.
The condensed consolidated balance sheet at August 28, 2016 is derived from the audited consolidated balance sheet as of that date. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. Therefore, these condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended August 28, 2016. The results of operations for interim periods are not necessarily indicative of the operating results for the full year.
2. | INVENTORIES |
Inventories consist primarily of raw material, work-in-progress (WIP) and finished goods and are valued at the lower of cost or market:
May 28, 2017 | August 28, 2016 | |||||||
Raw material | $ | 1,165,954 | $ | 1,598,874 | ||||
WIP | 1,190,169 | 913,494 | ||||||
Finished goods | 433,915 | 535,144 | ||||||
$ | 2,790,038 | $ | 3,047,512 |
3. | OTHER ASSETS |
Goodwill and other assets consist of costs resulting from business acquisitions which total $2,368,452 at May 28, 2017 (net of accumulated amortization of $344,812 recorded prior to the adoption of ASC 350 Goodwill and Other Intangible Assets). At August 28, 2016, the Company also had deferred financing costs of $6,684 (net of accumulated amortization of $13,368) incurred in connection with a prior mortgage discussed in Note 4. These deferred financing costs were written off during the Company’s fiscal 2017 second quarter when the prior mortgage was paid off.
4. | DEBT AND LINE OF CREDIT: |
During the quarter ended February 26, 2017, the Company entered into a new mortgage agreement with a new bank. The new mortgage paid off the prior mortgage in its entirety and released all obligations in connection with that mortgage including the requirement to maintain a restricted cash balance of $1.25 million. The new mortgage was for $3.7 million and carries an interest rate of 3.99% fixed for five years after which the interest rate will reset at a fixed rate for the subsequent five years. The mortgage requires monthly payments of $22,511 based on a 20 year amortization schedule and matures in May 2027. The mortgage is secured by all assets of the Company.
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The Company also entered into a revolving credit agreement with the new bank. The revolving credit agreement provides for a maximum loan of $1,500,000 with interest at the thirty day LIBOR rate plus 2.0% with a base rate of 2.75%. The revolver has a maturity date of February 15, 2018.
Both agreements provide for certain restrictive covenants including a minimum tangible net worth and a minimum working capital. At May 28, 2017, the Company was in compliance with these covenants.
5. | INCOME TAXES: |
The Company’s effective tax rate for its fiscal third quarter ended May 28, 2017 was a negative (42.9)% as compared to 24.9% for the quarter ended May 29, 2016. The year-to-date effective tax rate was a negative (39.1)% in the current year as compared to a negative (251.9)% for the prior year. The Company has determined that certain of its activities the Company performs qualify for the Research & Development tax credit (R&D credit) as defined by Internal Revenue Code Section 41. During the fiscal 2016 first quarter the Company recognized tax benefits related to R&D tax credits which were generated in a prior year which lowered the overall effective tax rate. In addition, during the Company’s fiscal 2016 second quarter, the Federal R&D tax credit law was retroactively renewed for calendar year 2015 and also made permanent going forward. Since for calendar year 2015 the law was enacted retroactively, any effects are recognized as a component of income tax expense or benefit from continuing operations in the financial statements in the interim period that the law was enacted, which in this case was the Company’s fiscal 2016 second quarter.
6. | EQUIPMENT IMPAIRMENT: |
The Company evaluates long-term assets on a periodic basis in compliance with Accounting Standards Codification (“ASC”) 360, Accounting for the Impairment of Long-lived Assets when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amount. If the undiscounted cash flows are less than the carrying amount, the impairment recognized is measured by the amount the carrying value of the assets exceeds their fair value determined primarily through the present value of estimated future cash flows. During the quarter ended May 28, 2017, the Company determined that one of its pieces of equipment was impaired and recognized an expense of approximately $148,000.
7. | CLAIMS AND CONTINGENCIES: |
The Company is exposed to a number of asserted and unasserted claims encountered in the ordinary course of business. Although the outcome of any such claim cannot be predicted, management believes that there are no pending legal proceedings or claims against or involving the Company for which the outcome is likely to have a material adverse effect upon its financial position or results of operations.
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8. | EARNINGS PER SHARE: |
The following table sets forth the computation of basic and diluted earnings per share:
Thirteen weeks ended | Thirty-nine weeks ended | |||||||||||||||
May 28, 2017 | May 29, 2016 | May 28, 2017 | May 29, 2016 | |||||||||||||
Numerator for basic and diluted earnings per share: | ||||||||||||||||
Net income (loss) | $ | (219,673 | ) | $ | 78,306 | $ | (904,228 | ) | $ | 216,381 | ||||||
Denominator | ||||||||||||||||
Denominator for basic earnings per share – weighted average shares | 2,923,483 | 2,919,500 | 2,920,828 | 2,919,500 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Employee and non-employee options | - | 5,747 | - | 9,718 | ||||||||||||
Dilutive common shares | ||||||||||||||||
Denominator for diluted earnings per share | 2,923,483 | 2,925,247 | 2,920,828 | 2,929,218 | ||||||||||||
Basic earnings (loss) per share | $ | (.08 | ) | $ | .03 | $ | (.31 | ) | $ | .07 | ||||||
Diluted earnings (loss) per share | $ | (.08 | ) | $ | .03 | $ | (.31 | ) | $ | 07 |
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9. | RECENT ACCOUNTING PRONOUNCEMENTS: |
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. This guidance defines how companies report revenues from contracts with customers and also requires enhanced disclosures. In July 2015, the Financial Accounting Standards Board voted to defer the effective date by one year, with early adoption on the original effective date permitted. ASU 2014-09 was to be effective for annual reporting periods beginning after December 15, 2016, including interim periods within the annual reporting period. In August 2015, FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606), Deferral of the Effective Date (“ASU 2015-14”). The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. The Company is currently evaluating the potential effects of the adoption of this update on the consolidated financial statements.
In March 2016, FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize the assets and liabilities that arise from most leases. The main difference between previous U.S. GAAP and ASU 2016-02 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. For lessors, the guidance included in ASU 2016-02 modifies the classification criteria and the accounting for sales-type and direct financing leases. ASU 2016-02 provides specific guidance for determining whether a contractual arrangement contains a lease, lease classification by lessees and lessors, initial and subsequent measurement of leases by lessees and lessors, sale and leaseback transactions, transition, and financial statement disclosures. ASU 2016-02 requires entities to use a modified retrospective approach to apply its guidance, and includes a number of optional practical expedients that entities may elect to apply. For public entities, the amendments included in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the potential effects of the adoption of this guidance on the consolidated financial statements.
In April 2015, FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which changes the presentation of debt issuance costs in financial statements. Under the ASU, an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. We adopted this ASU in the second quarter of 2017. As a result of the adoption of this ASU, we recorded $39,336 in financing costs related to our new mortgage, as described in footnote 4, as a contra-liability reducing Long-term debt on the balance sheets. This ASU had no effect on our results of operations or liquidity.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND |
RESULTS OF OPERATIONS
Critical Accounting Policies and Estimates:
Management’s Discussion and Analysis of Financial Condition and Results of Operations discuss our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.
We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the result of which forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Results may differ from these estimates due to actual outcomes being different from those on which we based our assumptions. The estimates and judgments utilized are reviewed by management on an ongoing basis and by the audit committee of our board of directors at the end of each quarter prior to the public release of our financial results.
The critical accounting policies and estimates followed in the preparation of the financial information contained in this Quarterly Report on Form 10-Q are the same as those described in the Company’s Annual Report on Form 10-K for the year ended August 28, 2016. Refer to the Annual Report on Form 10-K for detailed information on accounting policies.
Results of Operations:
Net sales were $9,594,000 for the quarter ended May 28, 2017 compared to $8,886,000 in the same period of the prior year, an increase of 8%. Year-to-date sales for the first three quarters of fiscal 2017 were $22,237,000 compared to $27,106,000 in the prior year, a decrease of 18%. Sales by product line for the quarter and year-to-date periods are as below:
Fiscal Third Quarter Thirteen Weeks Ended | Fiscal Third Quarter Year-to-Date Ended | |||||||||||||||||||||||||||||||||||||||
Percent | Percent | Dollar | Percent | Percent | Dollar | |||||||||||||||||||||||||||||||||||
May 28, | of Total | May 29, | of Total | Percent | May 28, | of Total | May 29, | of Total | Percent | |||||||||||||||||||||||||||||||
2017 | Sales | 2016 | Sales | Change | 2017 | Sales | 2016 | Sales | Change | |||||||||||||||||||||||||||||||
Recreational Vehicles | $ | 8,229,000 | 86 | % | $ | 8,215,000 | 92 | % | -% | $ | 19,153,000 | 86 | % | $ | 24,705,000 | 91 | % | -22 | % | |||||||||||||||||||||
Energy | 507,000 | 5 | % | 2,000 | -% | 253 | % | 841,000 | 4 | % | 351,000 | 1 | % | 140 | % | |||||||||||||||||||||||||
Aerospace Defense & Other | 858,000 | 9 | % | 669,000 | 8 | % | 28 | % | 2,243,000 | 10 | % | 2,050,000 | 8 | % | 9 | % | ||||||||||||||||||||||||
Total Sales | $ | 9,594,000 | 100 | % | $ | 8,886,000 | 100 | % | 8 | % | $ | 22,237,000 | 100 | % | $ | 27,106,000 | 100 | % | -18 | % |
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Sales from the Company’s ATV and Motorcycle markets for the fiscal 2017 third quarter were comparable to the prior year quarter. During the fiscal 2017 third quarter, the Company experienced a one-time sale of remaining product related to its primary customer’s wind down of one of their product lines. Otherwise, overall demand for the Company’s other product lines were similar to the prior year’s quarter. Year-to-date sales for the ATV and Motorcycle markets were down 22% as compared to the prior year. During the fiscal 2017 first quarter, the Company’s primary customer began retooling one of their production facilities, which resulted in no product being shipped for some of the Company’s product lines for part of the first quarter. The retooling of the production facility also negatively affected the Company’s fiscal second quarter sales as well.
Sales from the Company’s energy business for the fiscal 2017 third quarter increased by 253% over the prior year’s third quarter. Year-to-date sales as of May 28, 2017 were 140% higher than the same year-to-date period of the prior year. During the Company’s fiscal 2017 second quarter, it started shipping product in its shale fracturing business for programs that had been mostly dormant over the last few fiscal quarters.
Sales from the Company’s aerospace, defense and other markets were up 28% in the fiscal 2017 third quarter and the year-to-date period was up 9% as compared to the prior year. The increase in the fiscal 2017 third quarter and year-to-date aerospace and defense sales were derived mostly from new programs and customers.
Gross margin was 10.7% for both of the quarters ended May 28, 2017 and May 29, 2016. Year-to-date gross margins decreased to 6.9% versus 9.2% in the prior year-to-date period due in large measure to the ATV and Motorcycle volume decreases of the fiscal first and second quarters described previously.
Selling and administrative expense was $1,203,000 for the quarter ended May 28, 2017 versus $788,000 in the prior year quarter. Year-to-date selling and administrative expense of $2,685,000 was $476,000 higher than the comparable prior year period. The increase in the quarterly and year-to-date expense was due to increases in compensation costs and stock option expense related to the change in the Company’s executive leadership that occurred during the fiscal 2017 third quarter.
Interest expense in the third quarter of fiscal 2017 was $73,000 as compared to $76,000 in the prior year quarter. Year-to-date interest expense for fiscal 2017 was $207,000 versus $236,000 in the prior year. The lower interest costs are a result of a lower level of long-term debt.
The Company’s effective tax rate for its fiscal third quarter ended May 28, 2017 was a negative (42.9)% as compared to 24.9% for the quarter ended May 29, 2016. The year-to-date effective tax rate was a negative (39.1)% in the current year as compared to a negative (251.9)% for the prior year. The Company has determined that certain of its activities the Company performs qualify for the Research & Development tax credit (R&D credit) as defined by Internal Revenue Code Section 41. During the fiscal 2016 first quarter the Company recognized tax benefits related to R&D tax credits which were generated in a prior year which lowered the overall effective tax rate. In addition, during the Company’s fiscal 2016 second quarter, the Federal R&D tax credit law was retroactively renewed for calendar year 2015 and also made permanent going forward. Since for calendar year 2015 the law was enacted retroactively, any effects are recognized as a component of income tax expense or benefit from continuing operations in the financial statements in the interim period that the law was enacted, which in this case was the Company’s fiscal 2016 second quarter.
11 |
Liquidity and Capital Resources:
On May 28, 2017 working capital was $6,779,000 as compared to $7,081,000 at August 28, 2016. The ratio of current assets to current liabilities at May 28, 2017 was 2.37 to 1.0 compared to 2.86 to 1.0 at August 28, 2016. The decrease in these two ratios relates to progress payments made on new equipment that the Company has made from cash for new equipment to be installed in fiscal 2018.
During the quarter ended February 26, 2017, the Company entered into a new mortgage agreement with a new bank. The mortgage paid off the prior mortgage in its entirety and released all obligations in connection with that mortgage including the requirement to maintain a restricted cash balance of $1.25 million. The new mortgage was for $3.7 million and carries an interest rate of 3.99% fixed for five years after which the interest rate will reset at a fixed rate for the subsequent five years. The mortgage requires monthly payments of $22,511 based on a 20 year amortization schedule and matures in February 2027. The mortgage is secured by all assets of the Company.
The Company also entered into a revolving credit agreement with the new bank. The revolving credit agreement provides for a maximum loan of $1,500,000 with interest at the thirty day LIBOR rate plus 2.0% with a base rate of 2.75%. The revolver has a maturity date of February 15, 2018.
Both agreements provide for certain restrictive covenants including a minimum tangible net worth and a minimum working capital. At May 28, 2017, the Company was in compliance with these covenants.
It is the Company’s belief that its current cash balance, plus future internally generated funds and its line of credit, will be sufficient to enable the Company to meet its working capital requirements through the next 12 months.
Cautionary Statement:
Statements included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, in future filings by the Company with the Securities and Exchange Commission, in the Company’s press releases and in oral statements made with the approval of an authorized executive officer that are not historical or current facts are “forward-looking statements.” These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. These risks and uncertainties are described in the Company’s Annual Report on Form 10-K for the year ended August 28, 2016, as well as other filings the Company makes with the Securities and Exchange Commission. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made and are not predictions of actual future results. The Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
ITEM 4. CONTROLS AND PROCEDURES
(a) | Evaluation of Disclosure Controls and Procedures. |
As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on that evaluation, the CEO and CFO have concluded that as of May 28, 2017, our disclosure controls and procedures were effective.
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(b) Changes in Internal Controls over Financial Reporting.
There have been no changes in internal control over financial reporting that occurred during the fiscal period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Not Applicable.
A. | The following exhibits are included herein: |
Exhibit 31.1 | Certification of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 of the Exchange Act. |
Exhibit 31.2 | Certification of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 of the Exchange Act. |
Exhibit 32 | Certificate pursuant to 18 U.S.C. §1350. |
101.INS** | XBRL Instance |
101.SCH** | XBRL Taxonomy Extension Schema |
101.CAL** | XBRL Taxonomy Extension Calculation |
101.DEF** | XBRL Taxonomy Extension Definition |
101.LAB** | XBRL Taxonomy Extension Labels |
101.PRE** | XBRL Taxonomy Extension Presentation |
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Pursuant to the requirements 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.
WSI INDUSTRIES, INC. | |
Date: June 28, 2017 | /s/ Michael J. Pudil |
Michael J. Pudil, President & CEO | |
Date: June 28, 2017 | /s/ Paul D. Sheely |
Paul D. Sheely, Vice President, Finance & CFO |
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