UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 27, 2007
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 small business issuer, as specified in its charter)
Minnesota 41-0691607
(State or other jurisdiction of (IRS Employer
incorporation of organization) Identification No.)
213 Chelsea Road
Monticello, Minnesota 55362
(Address of principal executive offices) (Zip Code)
(763) 295-9202
(Issuer's telephone number, including area code)
________________________________________________________________________________
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check whether the small business issuer (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 small
business issuer 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 small business issuer is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate by check mark if the small business issuer is not required to file
reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
2,722,046 shares of common stock were outstanding as of June 22, 2007.
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets May 27, 2007
(Unaudited) and August 27, 2006 3
Condensed Consolidated Statements of Operations
Thirteen and Thirty-nine weeks ended May 27, 2007 and
May 28, 2006 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
Thirty-nine weeks ended May 27, 2007 and
May 28, 2006 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements
(Unaudited) 6 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 13
Item 3. Controls and Procedures 13
PART II. OTHER INFORMATION:
Item 6. Exhibits 14
Signatures 14
2
Part I. Financial Information
Item 1. Financial Statements
WSI INDUSTRIES, INC
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
AUGUST 27,
MAY 27, 2007 2006
------------ -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,295,085 $ 1,282,717
Accounts receivable 2,918,850 2,347,494
Inventories 1,448,507 1,223,842
Prepaid and other current assets 97,685 115,239
Deferred tax assets 143,627 133,448
----------- -----------
Total Current Assets 5,903,754 5,102,740
----------- -----------
Property, Plant and Equipment - Net 4,133,852 3,602,583
----------- -----------
Deferred tax assets 1,003,581 1,320,940
----------- -----------
Intangible assets, net 2,381,126 2,386,085
----------- -----------
$13,422,313 $12,412,348
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 1,618,873 $ 1,129,190
Accrued compensation and employee withholdings 519,240 531,537
Miscellaneous accrued expenses 61,409 174,462
Current portion of long-term debt 473,346 376,116
----------- -----------
Total Current Liabilities 2,672,868 2,211,305
----------- -----------
Long term debt, net of current portion 3,055,899 2,709,768
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, par value $.10 a share; authorized
10,000,000 shares; issued and outstanding
2,722,046 and 2,680,630 shares, respectively 272,205 268,063
Capital in excess of par value 2,135,013 2,129,167
Prepaid stock compensation (26,025) --
Retained earnings 5,312,353 5,094,045
----------- -----------
Total Stockholders' Equity 7,693,546 7,491,275
----------- -----------
$13,422,313 $12,412,348
=========== ===========
See notes to condensed consolidated financial statements.
3
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
13 weeks ended 39 weeks ended
----------------------- -------------------------
May 27, May 28, May 27, May 28,
2007 2006 2007 2006
---------- ---------- ----------- -----------
Net sales $5,237,690 $4,215,323 $13,807,227 $11,959,139
Cost of products sold 4,248,881 3,446,944 11,336,389 9,936,477
---------- ---------- ----------- -----------
Gross margin 988,809 768,379 2,470,838 2,022,662
Selling and administrative expense 582,566 459,399 1,555,023 1,250,210
Interest and other income (14,494) (12,260) (64,072) (31,992)
Interest expense 51,493 43,809 139,777 127,275
---------- ---------- ----------- -----------
Earnings from operations
before income taxes 369,244 277,431 840,110 677,169
Income tax expense 140,313 105,423 319,242 257,324
---------- ---------- ----------- -----------
Net earnings $ 228,931 $ 172,008 $ 520,868 $ 419,845
========== ========== =========== ===========
Basic earnings per share $ .08 $ .06 $ .19 $ .16
========== ========== =========== ===========
Diluted earnings per share $ .08 $ .06 $ .19 $ .15
========== ========== =========== ===========
Cash dividend per share $ .0375 $ .0375 $ .1125 $ .1125
========== ========== =========== ===========
Weighted average number of
common shares 2,706,792 2,680,630 2,691,385 2,676,850
========== ========== =========== ===========
Weighted average number of
common and dilutive potential
common shares 2,768,480 2,722,050 2,733,635 2,722,409
========== ========== =========== ===========
See notes to condensed consolidated financial statements.
4
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
39 weeks ended
-----------------------
May 27, May 28,
2007 2006
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 520,868 $ 419,845
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 365,380 456,702
Amortization 4,959 4,959
Gain on disposal of equipment (18,000) --
Deferred taxes 307,180 257,324
Stock option compensation expense 48,192 --
Changes in assets and liabilities:
Increase in accounts receivable (571,356) (215,762)
Increase in inventories (224,665) (196,128)
(Increase) decrease in prepaid expenses 17,554 (15,091)
Increase in accounts payable
and accrued expenses 285,699 172,902
---------- ----------
Net cash provided by operations 735,811 884,751
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of equipment 18,000 --
Purchase of property, plant and equipment (143,340) (72,817)
---------- ----------
Net cash used in investing activities (125,340) (72,817)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (309,948) (244,215)
Issuance of common stock 14,405 23,500
Dividends paid (302,560) (301,049)
---------- ----------
Net cash used in financing activities (598,103) (521,764)
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 12,368 290,170
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,282,717 937,575
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF REPORTING PERIOD $1,295,085 $1,227,745
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 139,867 $ 127,264
Income taxes $ 4,630 $ 3,152
Payroll taxes in cashless stock option exercise $ 78,634 $ --
Non-cash investing and financing activities:
Acquisition of machinery through capital lease $ 753,309 $ 182,879
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 27, 2007, the
condensed consolidated statements of operations for the thirteen and
thirty-nine weeks ended May 27, 2007 and May 28, 2006 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 27, 2006 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 generally accepted accounting
principles 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 2006
annual report to shareholders. 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. The following table breaks out the values in each
category net of the inventory valuation allowances of $168,773 and $168,782
at May 27, 2007 and August 27, 2006, respectively.
May 27, August 27,
2007 2006
---------- ----------
Raw material $ 555,337 $ 569,799
WIP 510,645 380,521
Finished goods 382,525 273,522
---------- ----------
$1,448,507 $1,223,842
========== ==========
The Company did not dispose of any significant obsolete inventory during
the quarter ended May 27, 2007 and therefore there was no material effect
on gross margin from any dispositions.
3. GOODWILL AND INTANGIBLE ASSETS:
Goodwill and other intangible assets consist of costs resulting from
business acquisitions which total $2,368,452 (net of accumulated
amortization of $344,812). The Company assesses the valuation or potential
impairment of its goodwill by utilizing a present value technique to
measure fair value by estimating future cash flows. The Company constructs
a discounted cash flow analysis based on various sales and cost assumptions
to estimate the fair value of the Company (which is the only reporting
unit). The result of the analysis performed in the fiscal 2006 fourth
quarter did not show an impairment of goodwill. The Company will analyze
goodwill more frequently should changes in events or circumstances,
including reductions in anticipated cash flows generated by our operations,
occur.
6
The Company recorded $33,063 of deferred financing costs incurred in
connection with mortgages entered into in order to purchase the Company's
facility in Monticello, Minnesota. The costs are being amortized over five
years on a straight-line basis with the Company incurring $1,653 of
amortization expense for the quarters ended May 27, 2007 and May 28, 2006,
respectively. Accumulated amortization on the deferred financing costs
amounted to $20,388 and $15,429 at May 27, 2007 and August 27, 2006,
respectively.
4. 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 27, May 28, May 27, May 28,
2007 2006 2007 2006
---------- ---------- ---------- ----------
Numerator for basic and diluted
earnings per share:
Net earnings $ 228,931 $ 172,008 $ 520,868 $ 419,845
========== ========== ========== ==========
Denominator
Denominator for basic earnings
per share - weighted average
shares 2,706,792 2,680,630 2,691,385 2,676,850
========== ========== ========== ==========
Effect of dilutive securities:
Employee and non-employee options 61,688 41,420 42,250 45,559
========== ========== ========== ==========
Dilutive common shares
Denominator for diluted earnings
Per share 2,768,480 2,722,050 2,733,635 2,722,409
========== ========== ========== ==========
Basic earnings per share $ .08 $ .06 $ .19 $ .16
========== ========== ========== ==========
Diluted earnings per share $ .08 $ .06 $ .19 $ .15
========== ========== ========== ==========
7
5. STOCK BASED COMPENSATION
Effective August 28, 2006, the Company adopted the provisions of SFAS No.
123(R), "Share-Based Payment," which establishes accounting for equity
instruments exchanged for employee services. Under the provisions of SFAS
123(R), stock-based compensation cost is measured at the grant date, based
on the calculated fair value of the award, and is recognized as an expense
over the employees' requisite service period (generally the vesting period
of the equity grant). Before August 28, 2006, the Company accounted for
stock-based compensation to employees in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and complied with the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation." The Company adopted SFAS 123(R)
using the modified prospective method, which requires the Company to record
compensation expense over the vesting period for all awards granted after
the date of adoption, and for the unvested portion of previously granted
awards that remain outstanding at the date of adoption. Accordingly,
financial statements for the periods prior to August 28, 2006 have not been
restated to reflect the fair value method of expensing share-based
compensation. For the thirteen and thirty-nine weeks ended May 27, 2007,
the Company recognized share based compensation cost of $13,681 and
$48,192, respectively. The compensation cost is included in selling and
administrative expense.
The following table illustrates the effect on net income and net income per
share if the Company had applied the fair value recognition provisions of
SFAS No. 123 to options granted and unvested under the Plan for the
thirteen and thirty-nine weeks ended May 28, 2006:
Thirteen Thirty-Nine
Weeks Weeks
--------- -----------
Net income $ 172,008 $419,845
Deduct: Total stock-based compensation
expense determined under fair value based
method for all awards, net of related tax
effects
(12,966) (38,898)
========= ========
Pro forma net income $ 159,042 $380,947
========= ========
Basic and diluted net income per share:
Proforma basic per share $ .06 $ .14
========= ========
Proforma diluted per share $ .06 $ .14
========= ========
SFAS No. 123 (R) also requires the benefit of tax deductions in excess of
recognized compensation cost to be reported as a financing cash flow,
rather than an operating cash flow under current accounting literature.
Since we do not have the benefit of tax deductions in excess of recognized
compensation cost because of our net operating loss position, the change
will have no immediate impact on our consolidated financial statements.
The Company granted shares of restricted stock to various employees during
the fiscal 2007 second quarter. The restricted stock vests over three
years, however the grantees of the restricted stock are entitled to receive
dividends in additional shares of restricted stock that also vest yearly
and to voting rights for the shares. The shares are accounted for under
SFAS No. 123(R) as expense over the period that they vest. The shares are
also reflected in stockholder's equity as prepaid stock compensation which
is calculated at the value of the shares at the date of the grant.
8
ITEM 2.
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 discusses the Company's 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.
The Company believes that the estimates, assumptions and judgments involved
in the accounting policies described below have the greatest potential impact on
our financial statements, so the Company considers these to be its critical
accounting policies. Because of the uncertainty inherent in these matters,
actual results could differ from the estimates the Company uses in applying the
critical accounting policies. Within the context of these critical accounting
policies, the Company is not currently aware of any reasonably likely event that
would result in materially different amounts being reported.
Allowance for Excess and Obsolete Inventory:
Inventories, which are composed of raw materials, work in process and
finished goods, are valued at the lower of cost or market by comparing the cost
of each item in inventory to its most recent sales price or sales order price.
Any excess of cost over the net realizable value of inventory components is
included in the allowance for obsolete inventory.
In addition, the Company determines the reserve for excess and obsolete
inventory by analyzing the sales history of its inventory, sales orders on hand
and indications from the Company's customers as to the future of various parts
or programs. If, in the Company's determination, the inventory value has become
impaired, the Company establishes an obsolescence reserve at the amount the
Company estimates as the ultimate net realizable value for that inventory. The
obsolescence reserve remains on the Company's books until the inventory is
disposed of or sold. Actual customer requirements in any future periods are
inherently uncertain and thus may differ from our estimates. If actual or
expected customer requirements were significantly lower than the established
reserves, the Company would record an increase to the obsolescence allowance in
the period in which the Company made such a determination. The Company performs
its lower of cost or market testing, as well as its excess or obsolete inventory
analyses, quarterly.
The Company's allowance for obsolete inventory consists of the following at
May 27, 2007 and August 27, 2006:
May 27, 2007 August 27, 2006
------------ ---------------
Obsolete finished goods $ 98,358 $ 87,917
Obsolete work-in-process 6,900 6,900
Cost exceeding market value 63,515 73,965
-------- --------
$168,773 $168,782
The Company has no specific timeline to dispose of its remaining obsolete
inventory and intends to sell this obsolete inventory from time to time, as
market conditions allow.
9
Goodwill Impairment:
The Company evaluates the valuation of its goodwill according to the
provisions of SFAS 142 to determine if the current value of goodwill has been
impaired. The Company believes that its stock price is not necessarily an
indicator of the Company's value given its limited trading volume and its wide
price fluctuations. The Company follows the guidance provided by SFAS 142 and
utilizes a present value technique to measure fair value by estimating future
cash flows. The major assumptions in this analysis include: (a) sales estimates
for the Company in part provided with guidance from the Company's customers; and
(b) material and labor costs of the Company's major programs. The Company
constructs a discounted cash flow analysis based on these assumptions to
estimate the fair value of the Company (which is the only reporting unit). The
result of the analysis performed in the fiscal 2006 fourth quarter did not show
an impairment of goodwill. If the Company has changes in events or
circumstances, including reductions in anticipated cash flows generated by our
operations, goodwill could become impaired which would result in a charge to
earnings.
Deferred Taxes:
The Company accounts for income taxes using the liability method. Deferred
income taxes are provided for temporary difference between the financial
reporting and tax bases of assets and liabilities. A valuation allowance would
be set up should the realization of any deferred taxes become less likely than
not to occur. The valuation allowance is analyzed periodically by the Company
and may result in income tax expense different than statutory rates. The Company
has not established a valuation allowance as it believes it is more likely than
not that it will fully realize the benefit of its tax assets. Currently, the
Company's deferred tax assets have two major components which relate to the
Company's NOL and the Company's AMT tax credit carryforwards. The Company's AMT
tax credit carryforward does not expire. The Company's NOL carryforward has
$112,000 expiring in fiscal year 2009, $415,000 in fiscal 2011 and $3.1 million
expiring in fiscal 2021 and after. The Company believes that its current rate of
growth will be sufficient to fully utilize its NOL carryforwards before they
expire. However, a significant loss of a customer or a change in the Company's
business could affect the realization of the deferred tax assets. If a major
program were discontinued, the Company would immediately assess the impact of
the loss of the program on the realization of the deferred tax assets.
Revenue Recognition:
The Company considers its revenue recognition policy to fall under the
guidance of FASB's conceptual framework for revenue recognition. The Company
recognizes revenue only after: (a) The Company has received a purchase order
identifying price and delivery terms or services to be rendered; (b) shipment
has occurred, or in the case of services, after the service has been completed;
(c) the Company's price is fixed as evidenced by the purchase order; and (d)
collectibility is reasonably assured. The Company continually monitors its
accounts receivable for any delinquent or slow paying accounts. The Company
believes that based upon its past history with minimal bad debt write-offs, that
all accounts are collectible upon shipment or delivery of services. Credit
losses customers have been minimal and within management's expectations. Based
on management's evaluation of uncollected accounts receivable, bad debts are
provided for on the allowance method. Accounts are considered delinquent if they
are 120 days past due. If an uncollectible account should arise during the year,
it would be written-off at the point it was determined to be uncollectible. The
Company mitigates its credit risk by performing periodic credit checks and
actively pursuing past due accounts. The Company refers to "net sales" in its
consolidated statements of operations as the Company's sales are sometimes
reduced by product returned by its customers.
10
Results of Operations:
Net sales were $5,238,000 for the quarter ending May 27, 2007 compared to
$4,215,000 in the same period of the prior year. Year-to-date sales in fiscal
2007 were $13,807,000 compared to $11,959,000 in the prior year. Third quarter
sales for fiscal 2007 were up 24% versus the prior year quarter due to the
Company experiencing an increase in sales in both its ATV and motorcycle
markets. The Company also recorded sales in its new energy market of $410,000.
Year-to-date sales are up 15% versus the prior year with higher sales in both
the Company's recreational vehicle, biosciences and energy markets.
Sales from the Company's recreational vehicle market amounted to $4,078,000
and $3,437,000 for the quarters ended May 27, 2007 and May 28, 2006,
respectively. Year-to-date sales for the Company's recreational vehicle market
were $10,948,000 and $9,836,000 for the thirty-nine weeks ended May 27, 2007 and
May 28, 2006, respectively. Sales for the quarter and year-to-date ended May 27,
2007 were higher due to sales increases from both the Company's ATV market and
motorcycle markets. However, in its upcoming fiscal 2007 fourth quarter, the
Company will incur a planned reduction in one of its product lines in its
recreational vehicle market.
Sales from the Company's aerospace and defense markets amounted to $511,000
and $472,000 for the quarter ended May 27, 2007 and May 28, 2006, respectively.
Year-to-date sales for the Company's aerospace and defense markets were
$1,582,000 and $1,504,000 for the thirty-nine weeks ended May 27, 2007 and May
28, 2006, respectively. The Company believes these increases are a result from a
general increase in the level of the Company's aerospace and defense business
with its current customers.
Sales from the Company's biosciences market totaled $207,000 and $163,000
for the quarter ended May 27, 2007 and May 28, 2006, respectively. Year-to-date
sales for the biosciences market were $797,000 and $352,000 for the nine months
ended May 27, 2007 and May 28, 2006, respectively. The year-to-date increase is
attributable to the further implementation of the partnering arrangement
announced in June 2005.
In March 2007, the Company announced that it had secured a new customer in
the energy industry. In the fiscal 2007 third quarter, the Company sales from
that customer were $410,000. Year-to-date sales in the energy industry are
$433,000.
Gross margin increased to 18.9% for the quarter ending May 27, 2007 versus
18.2% in the prior year quarter. The increase was related to higher sales
volume, but was offset by start-up expenses incurred the energy industry product
lines. Similarly, the year-to-date gross margin was 17.9% compared to 16.9% in
the prior year.
Selling and administrative expense was $583,000 for the quarter ending May
27, 2007, an increase of $123,000 over the prior year. Year-to-date selling and
administrative expense of $1,555,000 was $305,000 higher than the comparable
prior year period. Increases in both the current quarter and year-to-date
periods are due to increased compensation as well as professional service costs.
As referenced in Footnote 5, selling and administrative expense was also
increased due to the adoption of FAS 123 (R) in fiscal 2007 with the Company
recognizing $13,681 and $48,192 of stock option compensation expense in the
quarter and year-to-date periods ended May 27, 2007, respectively.
Interest expense in the third quarter of fiscal 2007 was $51,000 as
compared to $44,000 in the prior year. Year-to-date interest expense for fiscal
2007 was $140,000 versus $127,000 in the prior year. Interest expense is up due
to new capitalized leases entered into during the fiscal 2007 second and third
quarters.
The Company recorded income tax expense at an effective tax rate of 38% for
the quarter and year to date periods ended May 27, 2007 and May 28, 2006.
11
Liquidity and Capital Resources
On May 27, 2007, working capital was $3,231,000 compared to $2,891,000 at
August 27, 2006. The increase in working capital is attributable primarily to an
increase in the level of accounts receivable coming from the increased level of
business. The ratio of current assets to current liabilities at May 27, 2007 was
2.21 to 1.0 compared to 2.31 to 1.0 at August 27, 2006.
The Company renewed its $1,000,000 revolving credit facility with its bank
during the Company's second quarter of fiscal 2007. Interest on the new
agreement is at the bank's prime rate. At May 27, 2007, the Company did not have
a balance owing under this revolving line of credit agreement nor had it
borrowed any funds during fiscal 2007.
The Company paid quarterly dividends of $.0375 per share of its common
stock in each of the first three quarters of fiscal 2007 and 2006. The dividend
payments for the first nine months of fiscal 2007 and fiscal 2006 totaled
$303,000 and $301,000, respectively.
It is the Company's belief that its internally generated funds, as well as
its line of credit, will be sufficient to enable the Company to meet its working
capital requirements during 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. 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.
The following important factors, among others, in some cases have affected
and in the future could affect the Company's actual results and could cause the
Company's actual financial performance to differ materially from that expressed
in any forward-looking statement: (i) the Company's ability to obtain additional
manufacturing programs and retain current programs; (ii) the loss of significant
business from any one of its current customers could have a material adverse
effect on the Company; (iii) the Company was dependent upon one customer for 81%
of its revenues in fiscal year 2006 and expects that a significant portion of
its future revenue will be derived from this customer; (iv) a significant
downturn in the industries in which the Company participates could have an
adverse effect on the demand for Company services; (v) our sales are
concentrated in a limited number of highly competitive industries, each with a
limited number of customers; (vi) the prices of our products are subject to
downward pressure from customers and market pressure from competitors; (vii) the
Company's ability to curtail its costs and expenses for new manufacturing
programs, commensurate with expected revenues; (viii) the Company's ability to
comply with covenants of its credit facility; (ix) fluctuations in operating
results due to, among other things, changes in customer demand for our product,
in our manufacturing costs and efficiencies of our operations; and (x) a trend
among our customers toward outsourcing manufacturing to foreign operations.
The foregoing list should not be construed as exhaustive and 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.
12
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
The Company's Chief Executive Officer, Michael J. Pudil, and Chief
Financial Officer, Paul D. Sheely, have evaluated the Company's disclosure
controls and procedures as of the end of the period covered by this report.
Based upon this review, they have concluded that these controls and procedures
are effective.
(b) Changes in Internal Controls over Financial Reporting.
There have been no changes in internal control 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.
13
PART II. OTHER INFORMATION:
ITEM 6. EXHIBITS:
A. The following exhibits are included herein:
Exhibit 31.1 Certification of Chief Executive Officer pursuant to
Rules 13a-14(a) and 15d-14(a) of the Exchange Act.
Exhibit 31.2 Certification of Chief Financial Officer pursuant to
Rules 13a-14(a) and 15d-14(a) of the Exchange Act
Exhibit 32 Certification pursuant to 18 U.S.C. Section 1350.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
WSI INDUSTRIES, INC.
Date: June 21, 2007 /s/ Michael J. Pudil
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Michael J. Pudil, President & CEO
Date: June 21, 2007 /s/ Paul D. Sheely
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Paul D. Sheely, Vice President,
Finance & CFO
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