-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KGaYz80cnGDKssW5p3i+wKh4eleyjjyBtg07LB9CCmqptJ4spDC/suF8dlC/b9VK 7BmwSjCVV229bZ+Qf6jOKw== /in/edgar/work/0001012709-00-000617/0001012709-00-000617.txt : 20000718 0001012709-00-000617.hdr.sgml : 20000718 ACCESSION NUMBER: 0001012709-00-000617 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000602 FILED AS OF DATE: 20000717 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEGENER CORP CENTRAL INDEX KEY: 0000715073 STANDARD INDUSTRIAL CLASSIFICATION: [3663 ] IRS NUMBER: 810371341 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11003 FILM NUMBER: 674133 BUSINESS ADDRESS: STREET 1: 11350 TECHNOLOGY CIRCLE CITY: DULUTH STATE: GA ZIP: 30136-1528 BUSINESS PHONE: 4046230096 MAIL ADDRESS: STREET 1: 11350 TECHNOLOGY CIRCLE CITY: DULUTH STATE: GA ZIP: 30136-1528 FORMER COMPANY: FORMER CONFORMED NAME: TELECRAFTER CORP DATE OF NAME CHANGE: 19890718 10-Q 1 0001.txt WEGENER CORPORATION - 3RD QUARTER 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 2, 2000 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 No. 0-11003 WEGENER CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 81-0371341 (State of incorporation) (I.R.S. Employer Identification No.) 11350 TECHNOLOGY CIRCLE, DULUTH, GEORGIA 30097-1502 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (770) 623-0096 REGISTRANT'S WEB SITE: HTTP://WWW.WEGENER.COM Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YES [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock: Common Stock, $.01 par value 11,818,283 Shares - ---------------------------- ------------------------- Class Outstanding June 26, 2000 WEGENER CORPORATION AND SUBSIDIARIES Form 10-Q For the Quarter Ended June 2, 2000 INDEX Page(s) ------- PART I. Financial Information Item 1. Consolidated Financial Statements Introduction .........................................................3 Consolidated Statements of Operations (Unaudited) - Three and Nine Months Ended June 2, 2000 and May 28, 1999 ........................................4 Consolidated Balance Sheets - June 2, 2000 (Unaudited) and September 3, 1999 ...............................5 Consolidated Statements of Shareholders' Equity (Unaudited) - Nine Months Ended June 2, 2000 and May 28, 1999 ................................................6 Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended June 2, 2000 and May 28, 1999 ................................................7 Notes to Consolidated Financial Statements (Unaudited) ............................................8-12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ..............................13-16 Item 3. Quantitative and Qualitative Disclosures About Market Risk...........16 PART II. Other Information Item 1. None Item 2. None Item 3. None Item 4. None Item 5. None Item 6. Exhibits and Reports on Form 8-K ....................................17 Signatures ..........................................................18 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements - ----------------------------- ---------------------------- INTRODUCTION - CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. The consolidated balance sheet as of June 2, 2000; the consolidated statements of shareholders' equity as of June 2, 2000 and May 28, 1999; the consolidated statements of operations for the three and nine months ended June 2, 2000 and May 28, 1999; and the consolidated statements of cash flows for the nine months ended June 2, 2000 and May 28, 1999; have been prepared without audit. The consolidated balance sheet as of September 3, 1999 has been examined by independent certified public accountants. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures herein are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report on Form 10-K, for the fiscal year ended September 3, 1999, File No. 0-11003. In the opinion of the Company, the unaudited statements for the interim periods presented include all adjustments, which were of a normal recurring nature, necessary to present a fair statement of the results of such interim periods. The results of operations for the interim periods presented are not necessarily indicative of the results of operations for the entire year. 3 WEGENER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Nine months ended JUNE 2, May 28, JUNE 2, May 28, 2000 1999 2000 1999 - -------------------------------------------------------------------------------------------------------------------- Revenues $ 4,585,371 $ 7,049,500 $ 18,769,890 $ 20,541,706 - -------------------------------------------------------------------------------------------------------------------- Operating costs and expenses Cost of products sold 4,380,015 4,472,989 13,677,581 13,317,249 Selling, general, and administrative 2,070,160 1,281,114 5,185,841 3,673,863 Research and development 844,330 789,162 2,294,803 2,147,282 - -------------------------------------------------------------------------------------------------------------------- Operating costs and expenses 7,294,505 6,543,265 21,158,225 19,138,394 - -------------------------------------------------------------------------------------------------------------------- Operating income (loss) (2,709,134) 506,235 (2,388,335) 1,403,312 Interest expense (21,357) (33,130) (69,289) (111,513) Interest income 108,159 72,300 306,099 248,217 - -------------------------------------------------------------------------------------------------------------------- Earnings (loss) before income taxes (2,622,332) 545,405 (2,151,525) 1,540,016 Income tax expense (benefit) (979,000) 202,000 (795,000) 570,000 - -------------------------------------------------------------------------------------------------------------------- Net earnings (loss) $ (1,643,332) $ 343,405 $ (1,356,525) $ 970,016 ==================================================================================================================== Net earnings (loss) per share Basic $ (.14) $ .03 $ (.12) $ .08 Diluted $ (.14) $ .03 $ (.12) $ .08 ==================================================================================================================== Shares used in per share calculation Basic 11,836,065 11,764,308 11,793,858 11,905,732 Diluted 11,836,065 11,933,309 11,793,858 12,058,425 ====================================================================================================================
See accompanying notes to consolidated financial statements. 4 WEGENER CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JUNE 2, September 3, 2000 1999 - -------------------------------------------------------------------------------------------------- ASSETS (UNAUDITED) Current assets Cash and cash equivalents $ 7,314,491 $ 8,858,591 Accounts receivable 4,233,278 2,618,296 Inventories 8,304,496 6,488,813 Deferred income taxes 1,537,000 1,325,000 Other 154,774 263,090 - -------------------------------------------------------------------------------------------------- Total current assets 21,544,039 19,553,790 Property and equipment 4,238,844 4,242,588 Capitalized software costs 1,259,139 1,100,747 Deferred income taxes 30,000 -- Other assets 33,686 56,690 - -------------------------------------------------------------------------------------------------- $ 27,105,708 $ 24,953,815 ================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 4,072,474 $ 2,018,149 Accrued expenses 2,174,796 1,554,572 Customer deposits 2,012,067 884,066 Current maturities of long-term obligations 742,086 1,119,835 - -------------------------------------------------------------------------------------------------- Total current liabilities 9,001,423 5,576,622 Long-term obligations, less current maturities -- 85,424 Deferred income taxes 573,000 512,000 - -------------------------------------------------------------------------------------------------- Total liabilities 9,574,423 6,174,046 - -------------------------------------------------------------------------------------------------- Commitments Shareholders' equity Common stock, $.01 par value; 20,000,000 shares authorized; 12,314,575 shares issued 123,146 123,146 Additional paid-in capital 19,787,218 19,492,570 Retained earnings (deficit) (1,260,744) 95,781 Less treasury stock, at cost (1,118,335) (931,728) - -------------------------------------------------------------------------------------------------- Total shareholders' equity 17,531,285 18,779,769 - -------------------------------------------------------------------------------------------------- $ 27,105,708 $ 24,953,815 ==================================================================================================
See accompanying notes to consolidated financial statements. 5 WEGENER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Common Stock Additional Treasury Stock ------------ Paid-in -------------- Shares Amount Capital Deficit Shares Amount - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE, at August 28, 1998 12,314,575 $ 123,146 $19,407,417 $ (117,492) (358,546) $ (332,926) Treasury stock reissued through stock options and 401(k) plan -- -- 63,172 -- 86,339 80,169 Treasury stock repurchased -- -- -- -- (316,500) (579,000) Net earnings for the nine months -- -- -- 970,016 -- -- - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE, at May 28, 1999 12,314,575 $ 123,146 $19,470,589 $ 852,524 (588,707) $ (831,757) ================================================================================================================================== BALANCE, at September 3, 1999 12,314,575 $ 123,146 $19,492,570 $ 95,781 (632,459) $ (931,728) Treasury stock reissued through stock options and 401(k) plan -- -- 193,554 -- 228,167 211,863 Treasury stock repurchased -- -- -- -- (99,000) (398,470) Value of stock options granted for services -- -- 101,094 -- -- -- Net (loss) for the nine months -- -- -- (1,356,525) -- -- - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE, AT JUNE 2, 2000 12,314,575 $ 123,146 $19,787,218 $(1,260,744) (503,292) $(1,118,335) ==================================================================================================================================
See accompanying notes to consolidated financial statements. 6 WEGENER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine months ended JUNE 2, May 28, 2000 1999 - ---------------------------------------------------------------------------------- CASH PROVIDED (USED) BY OPERATING ACTIVITIES Net earnings (loss) $ (1,356,525) $ 970,016 Adjustments to reconcile net earnings to cash provided by operating activities Depreciation and amortization 1,287,370 1,205,191 Bad debt allowance 45,000 125,000 Warranty reserves 50,000 150,000 Inventory reserves 600,000 250,000 Non-cash expenses 101,094 -- Issuance of treasury stock for compensation expenses 142,384 130,044 Deferred income taxes (181,000) (231,750) Changes in assets and liabilities Accounts receivable (1,659,982) 159,128 Inventories (2,415,683) 670,133 Other assets 102,437 (156,929) Accounts payable and accrued expenses 2,624,549 (178,323) Customer deposits 1,128,001 43,342 - ---------------------------------------------------------------------------------- 467,645 3,135,852 - ---------------------------------------------------------------------------------- CASH (USED) BY INVESTMENT ACTIVITIES Property and equipment expenditures (872,075) (533,828) Capitalized software additions (541,060) (302,342) - ---------------------------------------------------------------------------------- (1,413,135) (836,170) - ---------------------------------------------------------------------------------- CASH PROVIDED (USED) BY FINANCING ACTIVITIES Proceeds from long-term debt -- 1,359,508 Purchase of treasury stock (398,470) (579,000) Repayment of long-term debt and capitalized lease obligations (463,173) (1,818,249) Proceeds from stock options exercised 263,033 13,297 - ---------------------------------------------------------------------------------- (598,610) (1,024,444) - ---------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (1,544,100) 1,275,238 Cash and cash equivalents, beginning of period 8,858,591 6,492,760 - ---------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 7,314,491 $ 7,767,998 ================================================================================== Supplemental disclosure of cash flow information: Cash paid during the nine months for: Interest $ 69,289 $ 121,586 Income taxes $ 38,500 $ 240,000 ==================================================================================
See accompanying notes to consolidated financial statements. 7 WEGENER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 Significant Accounting Policies The significant accounting policies followed by the Company are set forth in Note 1 to the Company's audited consolidated financial statements included in the annual report on Form 10-K for the year ended September 3, 1999. Earnings Per Share Basic and diluted net earnings (loss) per share were computed in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share". Basic net earnings per share is computed by dividing net earnings available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period and excludes the dilutive effect of stock options. Diluted net earnings per share gives effect to all dilutive potential common shares outstanding during a period. In computing diluted net earnings per share, the average stock price for the period is used in determining the number of shares assumed to be reacquired under the treasury stock method from the exercise of stock options. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could vary from these estimates. Fiscal Year The Company uses a fifty-two, fifty-three week year. The fiscal year ends on the Friday closest to August 31. Fiscal year 2000 contains fifty-two weeks while fiscal 1999 contained fifty-three weeks. 8 WEGENER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 2 Accounts Receivable Accounts receivable are summarized as follows: JUNE 2, September 3, 2000 1999 ----------- ----------- (UNAUDITED) Accounts receivable - trade $ 3,661,835 $ 2,675,022 Other receivables 181,734 115,859 Recoverable income taxes 614,000 -- ----------- ----------- 4,457,569 2,790,881 Less allowance for doubtful accounts (224,291) (172,585) ----------- ----------- $ 4,233,278 $ 2,618,296 =========== =========== Note 3 Inventories Inventories are summarized as follows: JUNE 2, September 3, 2000 1999 ----------- ----------- (UNAUDITED) Raw material $ 3,626,453 $ 2,845,784 Work-in-process 3,046,842 3,146,479 Finished goods 4,429,695 2,695,044 ------------ ------------ 11,102,990 8,687,307 Less inventory reserves (2,798,494) (2,198,494) ------------ ------------ $ 8,304,496 $ 6,488,813 ============ ============ Note 4 Income Taxes For the nine months ended, June 2, 2000, income tax benefit of $795,000 was comprised of a current federal and state income tax benefit of $558,000 and $56,000, respectively, and a deferred federal and state tax benefit of $173,000 and $8,000, respectively. Net deferred tax assets increased $181,000 in the first nine months of fiscal 2000. 9 NOTE 5 EARNINGS PER SHARE The following tables represent required disclosure of the reconciliation of the numerators and denominators of the basic and diluted net earnings (loss) per share computations.
Three months ended -------------------------------------------------------------------------------- JUNE 2, 2000 May 28, 1999 ---------------------------------------- ----------------------------------- PER Per EARNINGS SHARES SHARE Earnings Shares share (NUMERATOR) (DENOMINATOR) AMOUNT (Numerator) (Denominator) amount ----------- ------------- ------ ----------- ------------- ------ Net earnings (loss) $(1,643,332) $343,405 =========== ======== Basic: Net earnings (loss) available to common shareholders $(1,643,332) 11,836,065 $(0.14) $343,405 11,764,308 $ 0.03 ====== ====== Effect of dilutive potential common shares: Stock options -- -- -- 169,001 ----------- ---------- -------- ---------- Diluted: Net earnings (loss) available to common shareholders plus assumed conversions $(1,643,332) 11,836,065 $(0.14) $343,405 11,933,309 $ 0.03 =========== ========== ====== ======== ========== ====== Nine months ended -------------------------------------------------------------------------------- JUNE 2, 2000 May 28, 1999 ---------------------------------------- ----------------------------------- PER Per EARNINGS SHARES SHARE Earnings Shares share (NUMERATOR) (DENOMINATOR) AMOUNT (Numerator) (Denominator) amount ----------- ------------- ------ ----------- ------------- ------ Net earnings (loss) $(1,356,525) $970,016 =========== ======== Basic: Net earnings (loss) available to common shareholders $(1,356,525) 11,793,858 $(0.12) $970,016 11,905,732 $ 0.08 ====== ====== Effect of dilutive potential common shares: Stock options -- -- -- 152,693 ----------- ---------- -------- ---------- Diluted: Net earnings (loss) available to common shareholders plus assumed conversions $(1,356,525) 11,793,858 $(0.12) $970,016 12,058,425 $ 0.08 =========== ========== ====== ======== ========== ======
10 Stock options excluded from the diluted earnings (loss) per share calculation due to their anti-dilutive effect are as follows:
Three months ended Nine months ended ---------------------------- ---------------------------- JUNE 2, May 28, JUNE 2, May 28, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Common stock options: Number of shares 1,243,500 6,000 1,243,500 6,000 Range of exercise prices $.75 TO 5.63 $ 1.78 $.75 TO 5.63 $ 1.78 ============ ============ ============ ============
NOTE 6 SEGMENT INFORMATION AND SIGNIFICANT CUSTOMERS In accordance with Statement of Financial Accounting Standards No. 131, Disclosure about Segments of an Enterprise and Related Information, the Company operates within a single reportable segment, the manufacture and sale of satellite communications equipment. In this single operating segment the Company has three distinct product lines. Revenues from customers in each of these product lines are as follows:
Three months ended Nine months ended ---------------------------- ---------------------------- JUNE 2, May 28, JUNE 2, May 28, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Product Line Direct Broadcast Satellite $ 3,619,556 $ 5,823,791 $ 16,281,911 $ 17,606,276 Telecom and Custom Products 846,086 1,041,586 2,168,501 2,354,697 Service 119,729 184,123 319,478 580,733 ------------ ------------ ------------ ------------ $ 4,585,371 $ 7,049,500 $ 18,769,890 $ 20,541,706 ============ ============ ============ ============
Revenues by geographic areas are as follows:
Three months ended Nine months ended ---------------------------- ---------------------------- JUNE 2, May 28, JUNE 2, May 28, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Geographic Area United States $ 4,383,880 $ 6,594,060 $ 15,887,249 $ 17,928,101 Latin America 27,318 102,697 1,956,406 329,497 Canada 7,844 20,225 28,876 1,575,583 Europe 151,839 264,393 504,365 539,875 Other 14,490 68,125 392,994 168,650 ------------ ------------ ------------ ------------ $ 4,585,371 $ 7,049,500 $ 18,769,890 $ 20,541,706 ============ ============ ============ ============
All of the Company's long-lived assets are located in the United States. 11 Customers representing 10% or more of the respective periods' revenues are as follows: Three months ended Nine months ended --------------------------- --------------------------- JUNE 2, May 28, JUNE 2, May 28, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Customer 1 (A) 27.3% (A) 23.5% Customer 2 (A) (a) 19.4% (a) Customer 3 14.4% 15.2% (A) 10.1% Customer 4 (A) (a) (A) 10.0% Customer 5 15.3% (a) (A) (a) (a) Revenues for the period were less than 10% of total revenues. NOTE 7 STOCK OPTIONS On January 25, 2000 the Company entered into an agreement with RCG Capital Markets Group, Inc. to provide a national financial relations program. The agreement is for an eighteen month period and provides for a monthly fee of $6,000 and stock options for 200,000 shares of Wegener Corporation common stock exercisable for a period of five years from the date of grant at $5.625 per share. Fifty percent of the options granted vest upon execution of the agreement with the balance vesting upon completion of agreed upon performance criteria. In accordance with EITF Issue No. 96-18 and SFAS No. 123, the fair value of the stock options has been calculated using the Black-Scholes option-pricing model and will result in an aggregate non-cash charge to earnings of approximately $445,000 over the eighteen month term of the agreement. For the three and nine month periods ended June 2, 2000, charges of $74,000 and $101,000, respectively, were included in selling, general and administrative expenses. At June 2, 2000, options for 100,000 shares were vested. 12 WEGENER CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This information should be read in conjunction with the consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report and the audited consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations for the year ended September 3, 1999 contained in the Company's 1999 Annual Report on Form 10-K. Certain statements contained in this filing are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements relating to financial results, future business or product development plans, research and development activities, capital spending, financing sources or capital structure, the effects of regulation and competition, and are thus prospective. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, economic conditions, customer plans and commitments, product demand, governmental regulation, rapid technological developments and changes, performance issues with key suppliers and subcontractors, delays in product development and testing, availability of materials, new and existing well-capitalized competitors, and other uncertainties detailed in the Company's Form 10-K for the year ended September 3, 1999 and from time to time in the Company's periodic Securities and Exchange Commission filings. The Company, through Wegener Communications, Inc. (WCI), a wholly-owned subsidiary, designs and manufactures communications transmission and receiving equipment for the business broadcast, data communications, cable and broadcast radio and television industries. RESULTS OF OPERATIONS THREE AND NINE MONTHS ENDED JUNE 2, 2000 COMPARED TO THREE AND NINE MONTHS ENDED MAY 28, 1999 The operating results for the three and nine month periods ended June 2, 2000 were a net loss of $(1,643,000) or $(0.14) per share and a net loss of $(1,357,000) or ($0.12) per share, respectively, compared to $343,000 or $0.03 per share and $970,000 or $0.08 per share, respectively, for the three and nine month periods ended May 28, 1999. REVENUES - The Company's revenues for the three months ended June 2, 2000 were $4,585,000, down 35.0% from revenues of $7,050,000 for the three months ended May 28, 1999. Revenues were $18,770,000 for the nine months ended June 2, 2000, down 8.6% from revenues of $20,542,000 for the nine months ended May 28, 1999. Direct Broadcast Satellite (DBS) revenues decreased $2,204,000 or 37.8% in the third quarter of fiscal 2000 to $3,620,000 from $5,824,000 in the same period of fiscal 1999. The decrease was due to delayed purchasing decisions in the digital satellite transmission market segment. Industry-wide new product introductions as well as increased pricing competition contributed to the expanded range of choices available to buyers. Telecom and Customer Products Group revenues decreased $196,000 or 18.8% in the third quarter of fiscal 2000 to $846,000 from $1,042,000 in the same period of fiscal 1999. The decrease was mainly due to lower levels of shipments of cue and control equipment to provide local commercial insertion capabilities to cable television headend systems. For the three months ended June 2, 2000, two customers accounted for approximately 15.3% and 14.4% of total revenues. 13 For the nine months ended June 2, 2000, DBS revenues decreased $1,324,000 or 7.5% to $16,282,000 from $17,606,000 for the nine months ended May 28, 1999. The decrease was due to delayed purchasing decisions in the digital satellite transmission market segment. Industry-wide new product introductions as well as increased pricing competition contributed to the expanded range of choices available to buyers. For the nine months ended June 2, 2000, Telecom and Custom Product Group revenues decreased $186,000 or 7.9% to $2,169,000 from $2,355,000 for the nine months ended May 28, 1999. The decrease was mainly due to lower levels of shipments of cue and control equipment. For the nine months ended June 2, 2000, one customer accounted for approximately 19.4% of total revenues. The Company's backlog is comprised of undelivered, firm customer orders, which are scheduled to ship within eighteen months. WCI's total backlog was approximately $11.4 million at June 2, 2000, compared to $15.7 million at September 3, 2000 and $5.3 million at May 28, 1999. The Company expects the fourth quarter of fiscal 2000 to result in a smaller loss than the third quarter. The first half of fiscal 2001 is expected to show improvements in operating results. Future quarterly operating results may fluctuate due to the timing of receipt of orders. GROSS PROFIT MARGINS - The Company's gross profit margin percentages were 4.5% and 27.1% for the three and nine month periods ended June 2, 2000 compared to 36.5% and 35.2% for the three and nine month periods ended May 28, 1999. Gross profit margin dollars decreased $2,371,000 and $2,132,000 for the three and nine month periods ended June 2, 2000 from the same periods ended May 28, 1999. The decreases in margin dollars and percentages were mainly due to lower revenues during the periods which resulted in higher unit fixed overhead costs. Profit margins in the three and nine month periods of fiscal 2000 included: 1) inventory reserve charges of $500,000 and $600,000 compared to $100,000 and $250,000 for the same periods of fiscal 1999 and 2) warranty provisions of $50,000 and $50,000 compared to $150,000 and $150,000 for the same periods of fiscal 1999. SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and administrative (SG&A) expenses increased $789,000 or 61.6% to $2,070,000 for the three months ended June 2, 2000 from $1,281,000 for the three months ended May 28, 1999. For the nine months ended June 2, 2000 SG&A expenses increased $1,512,000 or 41.2% to $5,186,000 from $3,674,000 for the same period ended May 28, 1999. The three and nine month increases were primarily due to higher levels of selling and marketing expenses, outside sales agent commissions, software implementation costs, maintenance, professional and investor relations fees and depreciation expenses. The Company expects aggregate SG&A expenses to decrease in subsequent quarters from third quarter fiscal 2000 levels. As a percentage of revenues, SG&A expenses were 45.1% and 27.6% for the three and nine month periods ended June 2, 2000 compared to 18.2% and 17.9% for the same periods of fiscal 1999. The increases in percentages for the three and nine months ended June 2, 2000 compared to the three and nine months ended May 28, 1999 were primarily due to lower revenues. RESEARCH AND DEVELOPMENT - Research and development expenditures, including capitalized software development costs, were $996,000 and $2,836,000 for the three and nine month periods ended June 2, 2000, compared to $909,000 and $2,449,000 for the same periods of fiscal 1999. Capitalized software development costs amounted to $152,000 and $541,000 for the third quarter and first nine months of fiscal 2000 compared to $120,000 and $302,000 for the same periods of fiscal 1999. The increases in expenditures for the three and nine months ended June 2, 2000 are primarily due to increases in engineering consulting and personnel costs. The increases in capitalized software costs are due to increased expenditures on COMPEL network control software and software associated with new digital video products. Research and development expenses, excluding capitalized software expenditures, were $844,000 or 18.4% of revenues and $2,295,000 or 12.2% of revenues for the three and nine months ended June 2, 2000 compared to $789,000 or 11.2% of revenues and $2,147,000 or 10.5% of revenues for the same periods of fiscal 1999. 14 INTEREST EXPENSE - Interest expense decreased $12,000 to $21,000 for the three months ended June 2, 2000 from $33,000 for the three months ended May 28, 1999. For the nine months ended June 2, 2000, interest expense decreased $42,000 to $69,000 from $112,000 for the same period ended May 28, 1999. The decreases for the three and nine month fiscal 2000 periods were primarily due to a decrease in the average outstanding balance of indebtedness. INTEREST INCOME - Interest income was $108,000 and $306,000 for the three and nine months ended June 2, 2000, respectively compared to $72,000 and $248,000 for the same periods ended May 28, 1999. The increases were due to higher average cash equivalent balances during the periods and an increase in investment yields. INCOME TAX EXPENSES - For the nine months ended June 2, 2000, income tax benefit of $795,000 was comprised of a federal and state current income tax benefit of $558,000 and $56,000, respectively, and a federal and state deferred income tax benefit of $173,000 and $8,000, respectively. Net deferred tax assets increased $181,000 in the first nine months of fiscal 2000. LIQUIDITY AND CAPITAL RESOURCES NINE MONTHS ENDED JUNE 2, 2000 During the first nine months of fiscal 2000, operating activities provided $468,000 of cash. Net losses adjusted for non-cash expenses provided $688,000 of cash, while changes in customer deposits, accounts payable and accrued expenses provided $3,753,000 of cash. Changes in accounts receivable, inventories and other assets, used $3,973,000 of cash. Cash used by investing activities for property and equipment expenditures and capitalized software additions was $1,413,000. Financing activities used cash of $463,000 for scheduled repayments of long-term obligations and $370,000 for repurchase of common stock. Proceeds from exercised stock options provided $263,000 of cash. Net accounts receivable increased $1,615,000 to $4,233,000 at June 2, 2000 from $2,618,000 at September 3, 1999. The increase was due to 1) a higher percentage of shipments occurring in the last month of the third quarter of fiscal 2000 compared to the same period of fiscal 1999, 2) a delay in payments from two customers, and 3) a recoverable income tax provision of $614,000 at June 2, 2000 compared to none at September 3, 1999. Inventory before reserves, increased $2,416,000 to $11,103,000 at June 2, 2000 from $8,687,000 at September 3, 1999. The increase was due to 1) a planned production increase of certain digital video products to provide for "off the shelf" availability, 2) increased inventory associated with a new UNITY500 receiver scheduled for fourth quarter production and shipment, and 3) lower than expected shipments. WCI maintains a loan facility with a bank which provides a maximum available credit limit of $10,000,000 with sublimits as defined. Subsequent to June 2, 2000, WCI renewed the loan facility which matured on June 21, 2000. The renewed loan facility matures on June 21, 2003 or upon demand and requires an annual facility fee of $27,500 plus an additional .5% of $3,000,000 if borrowings, at any time, exceed $5,500,000. The loan facility consists of 1) a term loan and a revolving line of credit with a combined borrowing limit of $8,500,000, bearing interest at the bank's prime rate (9.5% at June 2, 2000) and 2) a real estate advance facility with a maximum borrowing limit of $1,500,000 bearing interest at a fixed rate of 250 basis points over the five year U.S. Treasury rate. The interest rate on outstanding real estate advances is 6.519% The term loan facility provides for a maximum of $1,000,000 for advances of up to 80% of the cost of equipment acquisitions. Principal advances are payable monthly over sixty months with a balloon payment due at maturity. The revolving line of credit is subject to availability advance formulas of 80% against eligible accounts receivable; 20% of eligible raw materials inventories; 20% of eligible work-in-process kit inventories; and 40% to 50% of eligible finished goods inventories. Advances against 15 inventory are subject to a sublimit of $2,000,000. The real estate advance portion of the loan facility provides for advances of up to 70% of the appraised value of certain real property. Advances for real property are payable in 35 equal principal payments with a balloon payment due at maturity. At June 2, 2000, outstanding balances on real property advances aggregated $621,000, and no balances were outstanding on the revolving line of credit or equipment term loan portions of the loan facility. Additionally, at June 2, 2000, approximately $3,257,000 was available to borrow under the advance formulas. The Company expects that its current cash and cash equivalents combined with expected cash flows from operating activities and an available line of credit will be sufficient to support the Company's operations during the remainder of fiscal 2000 and 2001. On January 25, 2000, the Company entered into an agreement with RCG Capital Markets Group, Inc. to provide a national financial relations program. The agreement is for an eighteen (18) month period and provides for a monthly fee of $6,000 and stock options for 200,000 shares of Wegener Corporation common stock exercisable for a period of five years from the date of grant at $5.625 per share. Fifty percent of the options granted vest upon execution of the agreement with the balance vesting upon completion of agreed upon performance criteria. In accordance with EITF Issue No. 96-18 and SFAS No. 123, the fair value of the stock options has been calculated using the Black-Scholes option-pricing model and will result in an aggregate non-cash charge to earnings of approximately $445,000 over the eighteen month term of the agreement. For the three and nine month periods ending June 2, 2000, charges of $74,000 and $101,000, respectively, were included in selling, general and administrative expenses. At June 2, 2000, options for 100,000 shares were vested. On January 28, 1999 the Board of Directors approved a stock repurchase program authorizing the repurchase of up to one million shares of its common stock. During the third quarter of fiscal 2000, 99,000 shares were purchased at an average price of $4.00 bringing the cumulative repurchase shares to 485,500 at an average price of $2.27. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's exposure to market rate risk for changes in interest rates relates primarily to its revolving line of credit and cash equivalents. The interest rate on certain advances under the line of credit and term loan facility fluctuates with the bank's prime rate. There were no borrowings outstanding at June 2, 2000 subject to variable interest rate fluctuations. The Company's cash equivalents consist of a repurchase agreement and a bank certificate of deposit. The cash equivalents have maturities of less than three months and therefore are subject to minimal market risk. The Company does not enter into derivative financial instruments. All sales and purchases are denominated in U.S. dollars. 16 PART II. OTHER INFORMATION - -------- ----------------- Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a.) Exhibits: 27-Financial Data Schedule (b.) Reports on Form 8-K - No reports on Form 8-K were filed during the quarter ended June 2, 2000. 17 SIGNATURES ---------- Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. WEGENER CORPORATION ------------------------ (Registrant) Date: July 17, 2000 By: /s/ Robert A. Placek ---------------------- Robert A. Placek President (Principal Executive Officer) Date: July 17, 2000 By: /s/ C. Troy Woodbury, Jr. --------------------------- C. Troy Woodbury, Jr. Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 9-MOS SEP-01-2000 SEP-04-1999 JUN-02-2000 7,314,491 0 4,457,569 (224,291) 8,304,496 21,544,039 13,747,796 (9,508,952) 27,105,708 9,001,423 0 0 0 123,146 17,408,139 27,105,708 18,769,890 18,769,890 13,677,581 21,158,225 (306,099) 45,000 69,289 (2,151,525) (795,000) (1,356,525) 0 0 0 (1,356,525) (0.12) (0.12)
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