1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10 Q (Mark One) /XX/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ---- EXCHANGE ACT OF 1934 For the quarterly period ended December 29, 1996 / / 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: 0-19717 WPI GROUP, INC. --------------- (Exact name of registrant as specified in its charter) NEW HAMPSHIRE 02-0218767 - -------------------------------------------------------------- --------------------------------------- (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number) 1155 ELM STREET, MANCHESTER, NEW HAMPSHIRE 03101 ------------------------------------------ ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code: (603) 627-3500 -------------- --------------------------------------------------------------------------- (Former name, former address, and former fiscal year, if changed since last report) Check 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 past 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 --- --- Applicable only to issuers involved in bankruptcy proceedings during the preceding five years: Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 after the distribution of securities under a plan confirmed by the court. Yes No --- --- Applicable only to corporate issuers: State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: Class Outstanding as of January 23, 1997 ----- ---------------------------------- Common Stock, par value $.01 5,975,962 shares 2 WPI GROUP, INC. INDEX ----- PAGE NO. ------- PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets 3 - December 29,1996 and September 29,1996 Consolidated Statements of Income 4 - Three months ended December 29,1996 and December 31,1995 Consolidated Statements of Cash Flows 5 - Three months ended December 29,1996 and December 31,1995 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and 8 Results of Operations PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 9 SIGNATURES 10 -2- 3 WPI GROUP, INC. CONSOLIDATED BALANCE SHEETS September 29, December 29, 1996 1996 ------------- ----------- (unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 206,829 $ 95,090 Accounts receivable - net of allowance for doubtful accounts of $244,300 and $274,900 respectively 10,881,315 8,668,714 Accounts receivable - other 1,618,873 736,070 Inventories 7,068,496 7,205,510 Prepaid expenses and other current assets 230,509 476,457 Prepaid income taxes 1,103,840 1,103,840 Refundable income taxes 547,750 592,095 ----------- ----------- Total current assets 21,657,612 18,877,776 PROPERTY, PLANT AND EQUIPMENT at cost less accumulated depreciation 9,447,758 9,509,133 OTHER ASSETS 19,569,574 19,480,115 ----------- ----------- $50,674,944 $47,867,024 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 4,265,217 $ 3,355,870 Accrued expenses 3,464,164 1,719,787 Accrued income taxes 1,772,630 1,354,646 ----------- ----------- Total current liabilities 9,502,011 6,430,303 NOTE PAYABLE TO BANK 18,650,000 17,910,000 NON-COMPETE AGREEMENT 20,000 20,000 DEFERRED INCOME TAXES 1,954,287 1,952,012 COMMITMENTS STOCKHOLDERS' EQUITY: Common stock, $.01 par value; authorized 20,000,000 shares, issued 5,947,922 and 5,954,962 respectively 59,479 59,549 Additional paid-in capital 13,658,604 13,691,707 Retained earnings 6,815,801 7,592,052 Cumulative foreign currency translation adjustments 14,762 211,401 ----------- ----------- Total stockholders' equity 20,548,646 21,554,709 ----------- ----------- $50,674,944 $47,867,024 =========== =========== See notes to financial statements -3- 4 WPI GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three Months Ended December 31, December 29, 1995 1996 ------------ ------------ NET SALES $9,606,303 $14,108,819 COST OF GOODS SOLD 5,806,253 8,529,249 ---------- ----------- GROSS PROFIT 3,800,050 5,579,570 ---------- ----------- OPERATING EXPENSES: Research and new product development 667,147 929,758 Selling, general and administration 2,301,926 3,112,324 ---------- ----------- Total operating expenses 2,969,073 4,042,082 ---------- ----------- OPERATING INCOME 830,977 1,537,488 ---------- ----------- OTHER INCOME (EXPENSE) (48,597) (379,237) INCOME BEFORE PROVISION FOR INCOME TAXES 782,380 1,158,251 PROVISION FOR INCOME TAXES 266,000 382,000 ---------- ----------- NET INCOME $ 516,380 $ 776,251 ========== =========== NET INCOME PER WEIGHTED AVERAGE NUMBER OF COMMON SHARES $ 0.09 $ 0.13 ========== =========== Weighted Average Common Shares and Equivalents Outstanding 5,854,879 6,114,649 ========== =========== See notes to financial statements - 4 - 5 WPI GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended December 31, December 29, 1995 1996 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 516,380 $ 776,251 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 415,908 664,158 Changes in current assets and liabilities net of effects of acquisitions: Accounts receivable (211,186) 2,212,601 Accounts receivable - other 16,179 882,803 Inventories (343,044) (137,014) Prepaid expenses and other current assets 76,851 (290,293) Accounts payable (198,741) (909,347) Accrued expenses (202,151) (1,429,487) Accrued income taxes 267,000 (417,984) ----------- ----------- Total adjustments (179,184) 575,437 ----------- ----------- Net cash provided by operating activities 337,196 1,351,688 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (Decrease) in notes payable 3,442,423 (740,000) Decrease in long-term liabilities (3,145,000) (2,275) Proceeds from issuance of common stock 18,331 21,673 Proceeds from exercise of stock options -- 11,500 ----------- ----------- Net cash provided by (used in) financing activities 315,754 (709,102) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (245,705) (396,870) Payments of accrued acquisition costs (20,847) (314,890) (Increase) Decrease in other assets 27,595 (239,204) Acquisition of Micro Processor Systems, Inc. net of cash paid 106,901 -- ----------- ----------- Net cash used for investing activities (132,056) (950,964) EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH -- 196,639 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 520,894 (111,739) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 29,664 206,829 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 550,558 $ 95,090 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION: Income taxes paid -- 362,000 Interest paid 52,824 340,690 See notes to financial statements - 5 - 6 WPI GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES: Three Months Ended December 31, December 29, 1995 1996 ------------ ------------ On November 10, 1995 the Company acquired the common stock of Micro Processor Systems, Inc. (MPSI) and subsidiary for $1 in cash plus the assumption of agreed upon liabilities: Fair value of assets acquired $7,398,285 $ -- Cash paid and expenses incurred of $510,001 (510,001) -- ---------- -------- Liabilities assumed $6,888,284 $ -- ========== ======== See notes to financial statements - 6 - 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The financial statements for the three months ended December 29, 1996 and December 31, 1995 are unaudited and include all adjustments which, in the opinion of management, are necessary to present fairly the results of operations for the periods then ended. All such adjustments are of a normal recurring nature. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-KSB filed with the Securities and Exchange Commission (File No. 0-19717), which included financial statements for the years ended September 29, 1996 and September 24, 1995. The results of the Company's operations for any interim period are not necessarily indicative of the results of the Company's operations for any other interim period or for a full fiscal year. 2. INVENTORIES Inventory consists of: September December 29,1996 29,1996 Raw Materials $4,360,602 $4,339,348 Work in Process 1,986,821 2,032,284 Furnished Goods 721,073 833,878 ---------- ---------- Total $7,068,496 $7,205,510 ========== ========== - 7 - 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis by management is provided to identify certain significant factors that affected the Company's financial position and operating results during the periods included in the accompanying financial statements. RESULTS OF OPERATIONS Net sales increased approximately $4,503,000 or 47% during the three months ended December 29, 1996 compared to the corresponding period in the prior year. The increase for the three month period was due primarily to improved sales in our targeted markets and the acquisitions of Micro Processor Systems, Inc. (MPSI) and Oyster Terminals, Ltd. Gross profit increased approximately $1,780,000 or 47% during the three months ended December 29, 1996 compared to the same period a year ago. As a percentage of net sales, gross profit remained constant compared to the same period last year at 39%. Total gross profit increased due to the higher revenues discussed above. Research and new product development expenses increased to approximately $930,000 or 39% for the three months ended December 29, 1996 compared to $667,000 a year ago. The increase was attributed to additions in engineering staff and the acquisitions discussed above. Research and new product development expenses were 7% of net sales for the quarters ended December 1996 and December 1995. Selling, general and administration expenses increased to approximately $3,112,000 or 35% for the three month period ended December 29, 1996 compared to $2,302,000 in the first three months of fiscal 1995. This is primarily due to higher sales commissions and the acquisitions discussed above. As a percentage of net sales, selling, general and administration expenses were 22% and 24% for the first quarters of fiscal 1997 and 1996, respectively. Income before provision for income taxes increased to approximately $1,158,000 or 48% in the three months ended December 29, 1996 compared to $782,000 for the same period last year. This increase is primarily due to improved sales. The Company's combined federal and state income tax rates, as a percentage of pre-tax income, were 33% and 34% for the three months ended December 1996 and 1995, respectively. LIQUIDITY AND CAPITAL RESOURCES The Company had working capital of approximately $12,447,000 at December 29, 1996 compared to $12,156,000 at September 29, 1996. The Company's management believes it has sufficient working capital to meet its liquidity needs. As of December 29, 1996, the Company had no material commitments for capital expenditures. - 8 - 9 WPI GROUP, INC. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A . Exhibits None B. Reports on Form 8-K None - 9 - 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf by the undersigned thereunto duly authorized. WPI GROUP, INC. (Registrant) Date: February 10, 1997 By: /s/Dennis M. Deegan ---------------------------- Dennis M. Deegan President and Chief Operating Officer Date: February 10, 1997 By: /s/Dennis M. Deegan ---------------------------- Dennis M. Deegan Principal Financial Officer -10 -