-----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, WvZJcI3+KY7I3XRdxxsc9VAMjjQtoBTJWa99I9tIKrbn+a+1eArJMo6477dMM7C1 krGfM6NsRpUAV37ZciUMfQ== 0001012709-01-500095.txt : 20010417 0001012709-01-500095.hdr.sgml : 20010417 ACCESSION NUMBER: 0001012709-01-500095 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010302 FILED AS OF DATE: 20010416 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEGENER CORP CENTRAL INDEX KEY: 0000715073 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [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: 1603336 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 x10q-401.txt WEGENER CORPORATION 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 March 2, 2001 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 11,900,005 Shares - ---------------------------- -------------------------- Class Outstanding March 29, 2001 WEGENER CORPORATION AND SUBSIDIARIES Form 10-Q For the Quarter Ended March 2, 2001 INDEX Page(s) ------- PART I. Financial Information Item 1. Consolidated Financial Statements Introduction ........................................................3 Consolidated Statements of Operations (Unaudited) - Three and Six Months Ended March 2, 2001 and March 3, 2000 .....................................4 Consolidated Balance Sheets - March 2, 2001 (Unaudited) and September 1, 2000 ..............................5 Consolidated Statements of Shareholders' Equity (Unaudited) - Six Months Ended March 2, 2001 and March 3, 2000 ..............................................6 Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended March 2, 2001 and March 3, 2000 ..............................................7 Notes to Consolidated Financial Statements (Unaudited) ...........................................8-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .............................12-15 Item 3. Quantitative and Qualitative Disclosures About Market Risk..........15 PART II. Other Information Item 1. None Item 2. None Item 3. None Item 4. Submission of Matters to a Vote of Security Holders ................16 Item 5. None Item 6. Exhibits and Reports on Form 8-K ...................................16 Signatures .........................................................17 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 March 2, 2001; the consolidated statements of shareholders' equity as of March 2, 2001, and March 3, 2000; the consolidated statements of operations for the three and six months ended March 2, 2001, and March 3, 2000; and the consolidated statements of cash flows for the six months ended March 2, 2001, and March 3, 2000, have been prepared without audit. The consolidated balance sheet as of September 1, 2000, 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 1, 2000, File No. 0-11003. In the opinion of the Company, the statements for the unaudited 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 Six months ended MARCH 2, March 3, MARCH 2, March 3, 2001 2000 2001 2000 - ----------------------------------------------------------------------------------------------------------- Revenues $ 3,766,210 $ 7,170,016 $ 8,763,791 $ 14,184,519 - ----------------------------------------------------------------------------------------------------------- Operating costs and expenses Cost of products sold 3,297,310 4,609,663 7,513,707 9,297,566 Selling, general, and administrative 1,567,148 4,177,854 2,574,367 6,033,681 Research and development 810,898 639,540 1,536,968 1,450,473 - ----------------------------------------------------------------------------------------------------------- Operating costs and expenses 5,675,356 9,427,057 11,625,042 16,781,720 - ----------------------------------------------------------------------------------------------------------- Operating loss (1,909,146) (2,257,041) (2,861,251) (2,597,201) Interest expense (10,620) (23,044) (23,862) (47,932) Interest income 10,525 93,701 55,615 197,940 - ----------------------------------------------------------------------------------------------------------- Loss before income taxes (1,909,241) (2,186,384) (2,829,498) (2,447,193) Income tax (benefit) (683,000) (785,000) (1,019,000) (879,000) - ----------------------------------------------------------------------------------------------------------- Net loss $ (1,226,241) $ (1,401,384) $ (1,810,498) $ (1,568,193) =========================================================================================================== Net loss per share: Basic $ (.10) $ (.12) $ (.15) $ (.13) Diluted $ (.10) $ (.12) $ (.15) $ (.13) =========================================================================================================== Shares used in per share calculation Basic 11,878,685 11,804,965 11,867,101 11,772,755 Diluted 11,878,685 11,804,965 11,867,101 11,772,755 ===========================================================================================================
See accompanying notes to consolidated financial statements. 4 WEGENER CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MARCH 2, September 1, 2001 2000 - ---------------------------------------------------------------------------------------- ASSETS (UNAUDITED) Current assets Cash and cash equivalents $ 1,027,474 $ 2,072,853 Accounts receivable 3,183,395 4,110,827 Inventories 10,358,608 10,106,776 Deferred income taxes 2,041,000 1,858,000 Other 128,315 62,573 - ---------------------------------------------------------------------------------------- Total current assets 16,738,792 18,211,029 Property and equipment, net 3,938,106 4,207,183 Capitalized software costs, net 1,047,220 1,209,139 Deferred income taxes 1,301,000 465,000 Other assets 66,184 54,311 - ---------------------------------------------------------------------------------------- $ 23,091,302 $ 24,146,662 ======================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 2,035,417 $ 2,781,470 Accrued expenses 3,168,547 2,533,262 Customer deposits 3,343,702 2,076,361 Current maturities of long-term obligations 284,399 539,628 - ---------------------------------------------------------------------------------------- Total current liabilities 8,832,065 7,930,721 Long-term obligations, less current maturities -- 38,843 - ---------------------------------------------------------------------------------------- Total liabilities 8,832,065 7,969,564 - ---------------------------------------------------------------------------------------- Commitments and contingencies 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 20,003,280 20,324,568 Deficit (5,043,607) (3,233,109) Less treasury stock, at cost (823,582) (1,037,507) - ---------------------------------------------------------------------------------------- Total shareholders' equity 14,259,237 16,177,098 - ---------------------------------------------------------------------------------------- $ 23,091,302 $ 24,146,662 ========================================================================================
See accompanying notes to consolidated financial statements. 5 WEGENER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Common Stock Additional Retained Treasury Stock ------------ Paid-in Earnings -------------- Shares Amount Capital (Deficit) Shares Amount - ----------------------------------------------------------------------------------------------------------------------------------- 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 -- -- 124,914 -- 169,995 157,848 Value of stock options granted for services -- -- 27,000 -- -- -- Value of stock option compensation -- -- 2,084,000 -- -- -- Net loss for the six months -- -- -- (1,568,193) -- -- - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE, AT MARCH 3, 2000 12,314,575 $ 123,146 $ 21,728,484 $ (1,472,412) (462,464) $ (773,880) =================================================================================================================================== BALANCE, at September 1, 2000 12,314,575 $ 123,146 $ 20,324,568 $ (3,233,109) 481,471 $ (1,037,507) Treasury stock reissued through stock options and 401(k) plan -- -- (124,476) -- (99,275) 213,925 Value of stock options granted for services -- -- 148,188 -- -- -- Value of stock option compensation -- -- (345,000) -- -- -- Net loss for the six months -- -- -- (1,810,498) -- -- - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE, AT MARCH 2, 2001 12,314,575 $ 123,146 $ 20,003,280 $ (5,043,607) 382,196 $ (823,582) ===================================================================================================================================
See accompanying notes to consolidated financial statements. 6 WEGENER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended MARCH 2, March 3, 2001 2000 - -------------------------------------------------------------------------------------------- CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES Net loss $ (1,810,498) $ (1,568,193) Adjustments to reconcile net loss to cash provided by (used for) operating activities 847,323 875,659 Depreciation and amortization Issuance of treasury stock for compensation expenses 89,449 88,825 Non-cash variable stock option compensation (484,000) 2,918,000 Other non-cash expenses 148,188 27,000 Bad debt allowance 75,000 20,000 Inventory reserves 425,000 100,000 Deferred income taxes (1,019,000) (220,000) Changes in assets and liabilities Accounts receivable 852,432 (3,387,009) Inventories (676,832) 36,584 Other assets (91,365) 173,534 Accounts payable and accrued expenses 28,232 99,883 Customer deposits 1,267,341 1,356,511 - -------------------------------------------------------------------------------------------- (348,730) 520,794 - -------------------------------------------------------------------------------------------- CASH USED BY INVESTMENT ACTIVITIES Property and equipment expenditures (227,505) (530,752) Capitalized software additions (175,072) (389,412) - -------------------------------------------------------------------------------------------- (402,577) (920,164) - -------------------------------------------------------------------------------------------- CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES Repayment of long-term debt and capitalized lease obligations (294,072) (305,665) Proceeds from stock options exercised -- 193,937 - -------------------------------------------------------------------------------------------- (294,072) (111,728) - -------------------------------------------------------------------------------------------- Decrease in cash and cash equivalents (1,045,379) (511,098) Cash and cash equivalents, beginning of period 2,072,853 8,858,591 - -------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 1,027,474 $ 8,347,493 ============================================================================================ Supplemental disclosure of cash flow information: Cash paid during the six months for: Interest $ 23,862 $ 47,932 Income taxes -- $ 38,500 ============================================================================================
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 1, 2000. EARNINGS PER SHARE Basic and diluted net earnings 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 2001 and 2000 each contain fifty-two weeks. 8 WEGENER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 2 ACCOUNTS RECEIVABLE Accounts receivable are summarized as follows: MARCH 2, September 1, 2001 2000 ----------------------------- (UNAUDITED) Accounts receivable - trade $ 2,621,306 $ 3,474,717 Recoverable income taxes 659,000 659,000 Other receivables 143,088 142,688 ----------------------------- 3,423,394 4,276,405 Less allowance for doubtful accounts (239,999) (165,578) ----------------------------- $ 3,183,395 $ 4,110,827 ============================= NOTE 3 INVENTORIES Inventories are summarized as follows: MARCH 2, September 1, 2001 2000 ----------------------------- (UNAUDITED) Raw material $ 3,385,645 $ 4,176,521 Work-in-process 7,615,286 5,539,578 Finished goods 2,614,171 3,835,171 ----------------------------- 13,615,102 13,551,270 Less inventory reserves (3,256,494) (3,444,494) ----------------------------- $ 10,358,608 $ 10,106,776 ============================= During the first half of fiscal 2001 inventory reserves were increased by charges to cost of sales of $425,000 and were reduced by inventory write-offs of $613,000. The Company's inventory reserve of approximately $3,256,000 at March 2, 2001, is to provide for items that are potentially slow moving, excess, or obsolete. Changes in market conditions, lower than expected customer demand, and rapidly changing technology could result in additional obsolete and slow-moving inventory that is unsaleable or saleable at reduced prices. No estimate can be made of a range of amounts of loss from obsolescence that are reasonably possible should the Company's sales efforts not be successful. NOTE 4 INCOME TAXES For the six months ended March 2, 2001, income tax benefit of $1,019,000 was comprised of a deferred federal and state income tax benefit of $962,000 and $57,000, respectively. Net deferred tax assets increased $1,019,000 principally due to an increase in net operating loss carryforwards and during the six-month period ended March 2, 2001. Realization of deferred tax assets is dependent on generating sufficient future taxable income prior to the expiration 9 of the loss and credit carryforwards. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized. The amount of the tax assets considered realizable, however, could be reduced in the near term if estimates of further taxable income during the carryforward period are reduced. NOTE 5 EARNINGS PER SHARE Due to the net loss for all periods, basic and diluted loss per share amounts are the same. The calculation of loss per share is subject to rounding differences. Stock options excluded from the diluted net earnings per share calculation due to their anti-dilutive effect are as follows:
Three months ended Six months ended ------------------------------------------------------------- MARCH 2, March 3, MARCH 2, March 3, 2001 2000 2001 2000 ------------------------------------------------------------- Common stock options: Number of shares 1,200,800 1,291,500 1,200,800 1,291,500 Exercise price $.63 TO $5.63 $.75 to $5.63 $.63 TO $5.63 $.75 to $5.63 =============================================================
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 Six months ended ------------------------------------------------------------ MARCH 2, March 3, MARCH 2, March 3, 2001 2000 2001 2000 ------------------------------------------------------------ Product Line Direct Broadcast Satellite $ 3,043,456 $ 6,452,106 $ 7,142,955 $ 12,662,354 Telecom and Custom Products 577,949 646,867 1,334,667 1,322,415 Service 144,805 71,043 286,169 ------------------------------------------------------------ $ 3,766,210 $ 7,170,016 $ 8,763,791 $ 14,184,519 ============================================================
Revenues by geographic areas are as follows:
Three months ended Six months ended ------------------------------------------------------------ MARCH 2, March 3, MARCH 2, March 3, 2001 2000 2001 2000 ------------------------------------------------------------ Geographic Area United States $ 3,373,048 $ 5,625,399 $ 6,541,079 $ 11,503,369 Latin America 98,891 1,241,718 1,199,320 2,143,583 Canada 35,732 14,703 52,841 21,032 Europe 156,152 285,456 842,234 352,526 Other 102,387 2,740 127,717 164,009 ------------------------------------------------------------ $ 3,766,210 $ 7,170,016 $ 8,763,191 $ 14,184,519 ============================================================
All of the Company's long-lived assets are located in the United States. 10 Customers representing 10% or more of the respective period's revenues are as follows: Three months ended Six months ended ---------------------------------------------------- MARCH 2, March 3, MARCH 2, March 3, 2001 2000 2001 2000 ---------------------------------------------------- Customer 1 (A) 18.5% (A) 22.8% Customer 2 18.7% (a) (A) (a) Customer 3 16.3% (a) (A) (a) Customer 4 15.4% (a) 14.1% (a) Customer 5 12.8% (a) (A) (a) Customer 6 (A) (a) 11.5% (a) (a) Revenues for the period were less than 10% of total revenues. NOTE 7 COMMITMENTS During the second quarter of fiscal 2001, the Company entered into a manufacturing and purchasing agreement for certain finished goods inventories. The agreement is a firm commitment by the Company to purchase amounts ranging from approximately $2,565,000 to $3,287,000, depending on products purchased, over a twelve month period beginning in the third quarter of fiscal 2001. 11 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 1, 2000 contained in the Company's 2000 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 1, 2000, 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 SIX MONTHS ENDED MARCH 2, 2001 COMPARED TO THREE AND SIX MONTHS ENDED MARCH 3, 2000 The operating results for the three and six month periods ended March 2, 2001 were a net loss of $(1,226,000) or $(.10) per share and a net loss of $(1,810,000) or $(.15) per share, respectively, compared to a net loss of $(1,401,000) or $(.12) per share and a net loss of $(1,568,000) or $(.13) per share, respectively, for the three and six month periods ended March 3, 2000. REVENUES - The Company's revenues for the three months ended March 2, 2001 were $3,766,000, down 47.5% from revenues of $7,170,000 for the three months ended March 3, 2000. Revenues were $8,764,000 for the six months ended March 2, 2001, down 38.2% from revenues of $14,185,000 for the six months ended March 3, 2000. Direct Broadcast Satellite (DBS) revenues decreased $3,409,000 or 52.8% in the second quarter of fiscal 2001 to $3,043,000 from $6,452,000 in the same period of fiscal 2000. The decrease reflected a decline in shippable order backlog for the three month period which was adversely impacted by delayed purchasing decisions in the digital satellite transmission market, increased pricing competition, industry-wide new product introductions which resulted in an expanded range of choices available to customers, and delayed product introductions by the Company. Telecom and Customer Products Group revenues decreased $69,000 or 10.6% in the second quarter of fiscal 2001 to $578,000 from $647,000 in the same period of fiscal 2000. The decrease was mainly due to lower levels of 12 shipments of cue and control equipment to provide local commercial insertion capabilities to cable television headend systems. For the three months ended March 2, 2001, four customers each accounted for 10% or more of revenues. For the three months ended March 3, 2000, one customer accounted for approximately 18.5% of revenues. For the six months ended March 2, 2001, DBS revenues decreased $5,519,000 or 43.6% to $7,143,000 from $12,662,000 for the six months ended March 3, 2000. The decrease reflected a decline in shippable order backlog for the six month period which was adversely impacted by delayed purchasing decisions in the digital satellite transmission market, increased pricing competition, industry-wide new product introductions which resulted in an expanded range of choices available to customers, and delayed product introductions by the Company. For the six months ended March 2, 2001, Telecom and Custom Product Group revenues increased $12,000 or 1.0% to $1,335,000 from $1,322,000 for the six months ended March 3, 2000. For the six months ended March 2, 2001, two customers accounted for 14.1% and 11.5% of revenue, respectively. For the six months ended March 3, 2000, one customer accounted for 22.8% of revenue. The Company's backlog is comprised of undelivered, firm customer orders, which are scheduled to ship within eighteen months. WCI's backlog was approximately $20,700,000 at March 2, 2001, compared to $9,210,000 at September 1, 2000, and $12,700,000 at March 3, 2000. Management anticipates that while challenges remain for the second half of fiscal 2001, the visibility of the revenue stream for fiscal year 2002, along with the increased short-term backlog, is improving. GROSS PROFIT MARGINS - The Company's gross profit margin percentages were 12.5% and 14.3% for the three and six month periods ended March 2, 2001, compared to 35.7% and 34.5% for the three and six month periods ended March 3, 2000. Gross profit margin dollars decreased $2,091,000 and $3,637,000 for the three and six month periods ended March 2, 2001, from the same periods ended March 3, 2000. The decreases in margin dollars and percentages for the three and six months ended March 2, 2001, were mainly due to lower revenues during the periods which resulted in higher unit fixed overhead costs. Profit margins in the three and six month periods of fiscal 2001 included inventory reserve charges of $175,000 and $425,000 compared to $75,000 and $100,000 for the same periods of fiscal 2000. Management anticipates that gross profit margins will improve during the second half of fiscal 2001 due to product mix and an expected increase in revenue. SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and administrative (SG&A) expenses decreased $2,611,000 or 62.5% to $1,567,000 for the three months ended March 2, 2001, from $4,178,000 for the three months ended March 3, 2000. For the six months ended March 2, 2001, SG&A expenses decreased $3,459,000 or 57.3% to $2,574,000 from $6,034,000 for the same period ended March 3, 2000. The three and six month decreases were primarily due to variable stock option accounting. For the three months ended March 2, 2001, no variable stock option compensation expense was incurred compared to an expense of $2,542,000 for the three months ended March 3, 2000. For the six months ended March 2, 2001, SG&A included a variable stock option benefit of $484,000 compared to an expense of $2,918,000 for the six months ended March 3, 2000. Excluding the effect of variable stock option compensation, SG&A decreased $69,000 or 4.2% and $57,000 or 1.8% in the three and six month periods ended March 2, 2001, compared to the same periods ending March 3, 2000. Decreases in SG&A expenses for the three and six month periods were mainly due to lower outside sales commissions which were offset by an increase in corporate professional fees principally associated with a national financial relations program. As a percentage of revenues, SG&A expenses were 41.6% and 29.4% for the three and six month periods ended March 2, 2001, compared to 58.3% and 42.5% for the same periods of fiscal 2000. RESEARCH AND DEVELOPMENT - Research and development expenditures, including capitalized software development costs, were $886,000 or 23.5% of revenues and $1,712,000 or 19.5% of revenues for the 13 three and six month periods ended March 2, 2001, compared to $924,000 or 12.9% of revenues and $1,840,000 or 13.0% of revenues for the same periods of fiscal 2000. Capitalized software development costs amounted to $75,000 and $175,000 for the second quarter and first six months of fiscal 2001 compared to $285,000 and $389,000 for the same periods of fiscal 2000. The decreases in capitalized software costs are due to decreased expenditures on COMPEL network control software and software associated with new digital video products. The decrease in expenditures for the three and six months ended March 2, 2001, was primarily due to a decrease in engineering consulting expenses. Research and development expenses, excluding capitalized software expenditures, were $811,000 or 21.5% of revenues and $1,537,000 or 17.5% of revenues for the three and six months ended March 2, 2001, compared to $640,000 or 8.9% of revenues and $1,450,000 or 10.2% of revenues for the same periods of fiscal 2000. The expenditures for research and development for the second half of fiscal 2001 are expected to continue at a rate similar to that of the first half of fiscal 2001. INTEREST EXPENSE - Interest expense decreased $12,000 to $11,000 for the three months ended March 2, 2001, from $23,000 for the three months ended March 3, 2000. For the six months ended March 2, 2001, interest expense decreased $24,000 to $24,000 from $48,000 for the same period ended March 3, 2000. The decreases for the three and six month periods in fiscal 2001 were primarily due to a decrease in the average outstanding balance of indebtedness. INTEREST INCOME - Interest income was $11,000 and $56,000 for the three and six month periods ended March 2, 2001, compared to $94,000 and $198,000 for the same periods ended March 3, 2000. The decrease for the three and six months ended March 2, 2001, was mainly due to lower average cash equivalent balances for the periods. INCOME TAX EXPENSES - For the six months ended March 2, 2001, income tax benefit of $1,019,000 was comprised of a deferred federal and state tax benefit of $962,000 and $57,000, respectively. Net deferred tax assets increased $1,019,000 in the first six months of fiscal 2001. Realization of deferred tax assets is dependent on generating sufficient future taxable income prior to the expiration of the loss and credit carryforwards. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized. The amount of the tax assets considered realizable, however, could be reduced in the near term if estimates of further taxable income during the carryforward period are reduced. LIQUIDITY AND CAPITAL RESOURCES SIX MONTHS ENDED MARCH 2, 2001 During the first six months of fiscal 2001, operating activities used $349,000 of cash. Net loss adjusted for non-cash expenses used $1,729,000 of cash, while changes in accounts receivable, customer deposits, accounts payable and accrued expenses provided $2,148,000 of cash. Changes in inventories and other assets used $768,000 of cash. Cash used by investing activities for property and equipment expenditures and capitalized software additions was $403,000. Financing activities used cash of $294,000 for scheduled repayments of long-term obligations. During the second quarter, WCI's existing bank loan facility was amended and renewed for a three-year period. The loan facility provides a maximum available credit limit of $10,000,000 with sublimits as defined and matures on June 21, 2003, or upon demand. Annual facility fees are $27,500 plus an additional .50% 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 (8.5% at March 2, 2001) and 2) a real estate advance facility with a maximum borrowing limit of $1,500,000 bearing interest at a fixed rate of 225 basis points over the five year U.S. Treasury rate. 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 14 raw materials inventories; 20% of eligible work-in-process kit inventories; and 40% to 50% of eligible finished goods inventories. Advances against 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 March 2, 2001, previous outstanding balances on real property advances aggregated $272,000, and no balances were outstanding on the revolving line of credit or equipment term loan portions of the loan facility. Additionally, at March 2, 2001, approximately $2,126,000 was available to borrow under the advance formulas. The Company is required to maintain a minimum tangible net worth with annual increases at each fiscal year end commencing with fiscal year 1997, retain certain key employees, limit expenditures of Wegener Corporation to $600,000 per fiscal year, and is precluded from paying dividends. At September 1, 2000, the Company was in violation of the tangible net worth and Wegener Corporation annual spending limit covenants with respect to which the bank granted a waiver. As a result of the covenant violations, the bank has the right to amend any terms of the loan facility. The Company believes that it will be necessary to borrow on the line of credit during fiscal year 2001 and that the existing facility will be sufficient to support fiscal 2001 operations. While no assurances may be given, The Company believes that it will continue to be able to obtain waivers prior to requiring any future borrowing on the line of credit. However, if the Company is unable to meet the minimum tangible net worth covenant or obtain a waiver, it may be required to obtain other debt or equity financing, and no assurance can be given that the Company would in such event be able to secure new financing. During the second quarter of fiscal 2001, the Company entered into a manufacturing and purchasing agreement for certain finished goods inventories. The agreement is a firm commitment by the Company to purchase amounts ranging from approximately $2,565,000 to $3,287,000, depending on products purchased, over a twelve month period beginning in the third quarter of fiscal 2001. 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 March 2, 2001, 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. 15 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- On January 23, 2001, the Annual Meeting of Shareholders was held and the following matters were voted upon: (1.) The shareholders approved the election of the following nominees to the Board of Directors: (A.) Class II Directors Thomas G. Elliot 11,022,292 votes FOR 328,724 votes WITHHELD James H. Morgan, Jr. 11,021,657 votes FOR 329,359 votes WITHHELD The terms of office of Robert A. Placek, C. Troy Woodbury, Jr., Joe K. Parks, and Keith N. Smith continued subsequent to the Annual Meeting. (2.) The appointment of BDO Seidman, LLP as auditors for the Company for the fiscal year 2001 was approved with 11,133,943 votes FOR, 175,178 votes AGAINST, and 41,895 votes ABSTAINING. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a.) Exhibits: 4.1 Loan and Security Agreement - Third Amendment dated December 11, 2000, by and between Wegener Communications, Inc, and LaSalle National Bank respecting $10,000,000 combined revolving credit note and term note. (b.) Reports on Form 8-K - No reports on Form 8-K were filed during the quarter ended March 2, 2001. 16 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: April 16, 2001 By: /s/ Robert A. Placek ------------------------------------ Robert A. Placek President (Principal Executive Officer) Date: April 16, 2001 By: /s/ C. Troy Woodbury, Jr. ------------------------------------ C. Troy Woodbury, Jr. Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) EX-4.1 2 ex41-401.txt THIRD AMENDMENT EXHIBIT 4.1 January 18, 2001 Wegener Communications, Inc. 11350 Technology Circle Duluth, Georgia 30097-1502 RE: THIRD AMENDMENT Gentlemen: WEGENER COMMUNICATIONS, INC., a Georgia corporation ("Borrower") and LaSalle Bank National Association formerly known as LaSalle National Bank, a national banking association ("Bank") have entered into that certain Loan and Security Agreement dated June 5, 1996 (the "Security Agreement"). From time to time thereafter, Borrower and Bank may have executed various amendments (each an "Amendment" and collectively the "Amendments") to the Security Agreement (the Security Agreement and the Amendments hereinafter are referred to, collectively, as the "Agreement"). Borrower and Bank now desire to further amend the Agreement as provided herein, subject to the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing recitals, the mutual covenants and agreements set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. The Agreement hereby is amended as follows: (a) The first grammatical sentence of Paragraph 9 of the Agreement is deleted in its entirety and the following is substituted in its place: 9. TERMINATION: This Agreement shall be in effect from the date hereof until June 21, 2003 (the "Original Term") and shall automatically renew itself from year to year thereafter (each such one-year renewal being referred to herein as a "Renewal Term") unless (a) Bank makes demand for repayment prior to the end of the Original Term or the then current Renewal Term; (b) the due date of the Liabilities is accelerated pursuant to paragraph 13 hereof; or (c) Borrower prepays all of the Liabilities prior to the end of the Original Term or the then current Renewal Term and by paying all of the Liabilities in full on the last day of such term. WEGENER COMMUNICATIONS, INC. DECEMBER 20, 2000 PAGE 2 (b) Paragraph (1) of Exhibit A of the Agreement is deleted in its entirety and the following is substituted in its place: (1) LOAN LIMITS: Bank may, in its sole discretion, advance an amount up to the sum of the following sublimits (the "Loan Limit"): (a) Subject to subparagraph (4)(a) of this Exhibit A, up to eighty percent (80%) of the face amount (less maximum discounts, credits and allowances which may be taken by or granted to Account Debtors in connection therewith) of Borrower's Eligible Accounts; plus (b) Subject to subparagraph (4)(b) of this Exhibit A, up to eighty percent (80%) of the face amount (less maximum discounts, credits and allowances which may be taken by or granted to Account Debtors in connection therewith) of Borrower's Eligible Accounts or Five Hundred Thousand and No/100 Dollars ($500,000.00), whichever is less; plus (c) Subject to subparagraph (5)(a) of this Exhibit A, up to twenty percent (20%) of the lower of the cost or market value of Borrower's Eligible Inventory; plus ---- (d) Subject to subparagraph (5)(b) of this Exhibit A, up to twenty percent (20%) of the lower of the cost or market value of Borrower's Eligible Inventory; plus ---- (e) Subject to subparagraph (5)(c) of this Exhibit A, up to forty percent (40%) of the lower of the cost or market value of Borrower's Eligible Inventory; plus ---- (f) Subject to subparagraph (5)(d) of this Exhibit A, up to fifty percent (50%) of the lower of the cost or market value of Borrower's Eligible Inventory; plus ---- (g) Subject to subparagraph (2)(a) of this Exhibit A, up to eighty percent (80%) of the purchase price of the Equipment purchased with such advances (exclusive of sales taxes, delivery charges and other "soft" costs related to such purchases), to be used by Borrower from time to time to purchase new Equipment, or One Million and No/100 Dollars ($1,000,000.00), whichever is less; provided, that prior to any advance under this WEGENER COMMUNICATIONS, INC. DECEMBER 20, 2000 PAGE 3 subparagraph, Borrower shall furnish to Bank an invoice and acceptance letter for the Equipment being purchased and shall have executed such documents and taken such other actions as Bank shall require to assure that Bank has a first perfected security interest in such Equipment; and further provided, that each advance under this subparagraph shall equal or exceed One Hundred Thousand and No/100 Dollars ($100,000.00) and may be made not more frequently than quarterly; plus (h) Subject to subparagraphs (2)(b) and (13).(1) of this Exhibit A, up to seventy percent (70%) of the fair market value (as determined by an appraiser acceptable to Bank) of that certain real property described in subparagraph (14)(a) of this Exhibit A or Three Hundred Eighty-Eight Thousand Four Hundred Thirty and 92/100 Dollars ($388,430.92), whichever is less; minus (i) Such reserve as Bank elects, in its sole discretion, to establish from time to time; provided, that the aggregate amount of Loans made pursuant to subparagraphs (1)(c), (1)(d), (1)(e) and (1)(f) of this Exhibit A shall in no event exceed Two Million and No/100 Dollars ($2,000,000.00); further provided, that the aggregate amount of Loans made pursuant to subparagraphs (1)(a), (1)(b), (1)(c), (1)(d), (1)(e), (1)(f) and (1)(g) of this Exhibit A shall in no event exceed Eight Million Five Hundred Thousand and No/100 Dollars ($8,500,000.00); and further provided, that the aggregate Loan Limit shall in no event exceed TEN MILLION AND NO/100 DOLLARS ($10,000,000.00), except as such amount may be increased or decreased by Bank, in its sole discretion, from time to time. (c) Paragraph (2)(a) of Exhibit A of the Agreement is deleted in its entirety and the following is substituted in its place: WEGENER COMMUNICATIONS, INC. DECEMBER 20, 2000 PAGE 4 (a) Borrower shall repay to Bank monthly an amount sufficient (assuming a like payment each month) to repay the entire principal amount of each advance made pursuant to subparagraph (1)(g) of this Exhibit A within sixty (60) months following the date of such advance. Such payments shall be made on the thirtieth (30th) day following the date of each such advance, and on the corresponding day of each month thereafter until the earliest to occur of (i) the date upon which each such advance is repaid in full, (ii) the date upon which demand for repayment of the Loans is made by Bank and (iii) the date upon which this Agreement terminates pursuant to the provisions of Paragraph 9 of the Agreement. (d) Paragraph (7)(a) of Exhibit A of the Agreement is deleted in its entirety and the following is substituted in its place: (a) FACILITIES FEES: With respect to the first Five Million Five Hundred Thousand and No/100 Dollars ($5,500,000.00) of loans and advances made pursuant to subparagraphs (1)(a), (1)(b), (1)(c), (1)(d), (1)(e), (1)(f), and (1)(g) of this Exhibit A, Borrower shall pay to Bank an annual facilities fee equal to one-half of one percent (1/2 of 1%) of Five Million Five Hundred Thousand and No/100 Dollars ($5,500,000.00), payable by Borrower and earned by Bank as of June 6, 2001 and on the same date of each year thereafter during the Original Term and any Renewal Term. At such time as the loans and advances made pursuant to subparagraphs (1)(a), (1)(b), (1)(c), (1)(d), (1)(e), (1)(f), and (1)(g) of Exhibit A exceed Five Million Five Hundred Thousand and No/100 Dollars ($5,500,000.00), Borrower shall pay to Bank and Bank shall fully earn at the time of such payment, an annual facilities fee equal to one-half of one percent (1/2 of 1%) of Three Million and No/100 Dollars ($3,000,000.00), or a pro-rata amount thereof if paid after June 6th of any year but before June 6th of the following year. Thereafter, Borrower shall pay to Bank, and Bank shall fully earn a fee equal to one-half of one percent (1/2 of 1%) of Three Million and No/100 Dollars ($3,000,000.00) on June 6th of each year during the Original Term and any Renewal Term. For purposes of determining whether Borrower has received any advances against the availability set forth in subparagraph (1)(h) of this Exhibit A, advances to Borrower shall first be deemed to be advanced against the availability set forth in subparagraphs (1)(h) of this Exhibit A (subject to any sublimits contained in Paragraph (1) of this Exhibit A) until the amount so advanced equals the availability under that paragraph, and then to the availability under subparagraphs WEGENER COMMUNICATIONS, INC. DECEMBER 20, 2000 PAGE 5 (1)(a), (1)(b), (1)(c), (1)(d), (1)(e), (1)(f) and (1)(g) of this Exhibit A (subject to any sublimits contained in Paragraph (1) of this Exhibit A). (e) Paragraph (13) of Exhibit A of the Agreement is amended to add the following provision: (13).(1) REAL PROPERTY LOAN: Upon repayment in full of the real property Loan described in subparagraph (1)(h) of this Exhibit A, Bank may, in its sole discretion, reset the real property Loan to an amount equal to up to seventy percent (70%) of the fair market value (as determined by an appraiser and survey acceptable to Bank) of that certain real property commonly known as 11350 Technology Circle, Duluth, Georgia or One Million Five Hundred Thousand and No/100 Dollars ($1,500,000.00), whichever is less, which would curtail by an amount based upon an amortization schedule of thirty- five (35) equal monthly payments with a balloon payment on June 30, 2003. The Loan described herein would bear interest at the fixed rate of 225 basis points in excess Bank's cost of funds in effect at the time of disbursement of such Loan hereunder. Borrower would pay Bank a transaction fee of one-half of one percent (1/2 of 1%) at the time of disbursement of such Loan. (f) Paragraph (7).(1) of Exhibit A of the Agreement is deleted in its entirety and the phrase "Intentionally Omitted" is substituted in its place: 2. Bank and Borrower agree that Bank shall have the right to restructure the Agreement, including but not limited to resetting and changing the covenants, financial and otherwise. This Amendment shall not become effective until fully executed by all parties hereto. 3. Except as expressly amended hereby and by any other supplemental documents or instruments executed by either party hereto in order to effectuate the transactions contemplated hereby, the Agreement and Exhibit A thereto hereby are ratified and confirmed by the parties hereto and remain in full force and effect in accordance with the terms thereof. LASALLE BANK NATIONAL ASSOCIATION FORMERLY KNOWN AS LASALLE NATIONAL BANK, A NATIONAL BANKING ASSOCIATION By:_________________________________ Title:______________________________ WEGENER COMMUNICATIONS, INC. DECEMBER 20, 2000 PAGE 6 Accepted and agreed to this 14th day of December, 2000. WEGENER COMMUNICATIONS, INC. By: _________________________ Troy Woodbury, Jr. Title: Treasurer and CFO Consented and agreed to by the following guarantor of the obligations of WEGENER COMMUNICATIONS, INC. to LaSalle Bank National Association formerly know as LaSalle National Bank. WEGENER CORPORATION By: _____________________________ Robert A. Placek Title: President and CEO Date: January 18, 2001 -----END PRIVACY-ENHANCED MESSAGE-----