-----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, TOeL87t+0u43f+6F5wjlzc+yrknnZYuZPOSs/Mok7hH4Q6F9O/dQWM9QCr3EsoZ4 /ufk4oBg7pMcSkS8UZpRyA== 0001012709-02-000030.txt : 20020413 0001012709-02-000030.hdr.sgml : 20020413 ACCESSION NUMBER: 0001012709-02-000030 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011130 FILED AS OF DATE: 20020114 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: 1934 Act SEC FILE NUMBER: 000-11003 FILM NUMBER: 2508478 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-102.txt WEGENER CORPORATION - FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 30, 2001 OR [x] 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 12,157,563 Shares - ---------------------------- ----------------------------- Class Outstanding December 31, 2001 WEGENER CORPORATION AND SUBSIDIARIES FORM 10-Q FOR THE QUARTER ENDED NOVEMBER 30, 2001 INDEX PAGE(S) ------- PART I. Financial Information Item 1. Consolidated Financial Statements Introduction .................................................... 3 Consolidated Statements of Operations (Unaudited) - Three Months Ended November 30, 2001 and December 1, 2000 .......................... 4 Consolidated Balance Sheets - November 30, 2001 (Unaudited) and August 31, 2001 ............................ 5 Consolidated Statements of Shareholders' Equity (Unaudited) - Three Months Ended November 30, 2001 and December 1, 2000 ....................................... 6 Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended November 30, 2001 and December 1, 2000 ....................................... 7 Notes to Consolidated Financial Statements (Unaudited) ....................................... 8-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................... 12-14 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. None 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 November 30, 2001; the consolidated statements of shareholders' equity as of November 30, 2001 and December 1, 2000; the consolidated statements of operations for the three months ended November 30, 2001 and December 1, 2000; and the consolidated statements of cash flows for the three months ended November 30, 2001 and December 1, 2000 have been prepared without audit. The consolidated balance sheet as of August 31, 2001 has been audited 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 August 31, 2001, 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 NOVEMBER 30, December 1, 2001 2000 - -------------------------------------------------------------------------------- Revenue $ 6,032,616 $ 4,997,581 - -------------------------------------------------------------------------------- Operating costs and expenses Cost of products sold 4,066,722 4,216,397 Selling, general, and administrative 1,077,065 1,007,219 Research and development 663,845 726,070 - -------------------------------------------------------------------------------- Operating costs and expenses 5,807,632 5,949,686 - -------------------------------------------------------------------------------- Operating income (loss) 224,984 (952,105) Interest expense (18,086) (13,242) Interest income 2,267 45,090 - -------------------------------------------------------------------------------- Earnings (loss) before income taxes 209,165 (920,257) Income tax expense (benefit) 77,000 (336,000) - -------------------------------------------------------------------------------- Net earnings (loss) $ 132,165 $ (584,257) ================================================================================ Net earnings (loss) per share: Basic $ .01 $ (.05) Diluted $ .01 $ (.05) ================================================================================ Shares used in per share calculation Basic 12,085,008 11,855,517 Diluted 12,100,664 11.855,517 ================================================================================ See accompanying notes to consolidated financial statements. 4 WEGENER CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS NOVEMBER 30, August 31, 2001 2001 - -------------------------------------------------------------------------------- ASSETS (UNAUDITED) Current assets Cash and cash equivalents $ 1,571,235 $ 1,926,723 Accounts receivable 1,775,767 1,076,420 Inventories 7,556,102 7,485,883 Deferred income taxes 2,209,000 2,207,000 Other 78,589 134,095 - -------------------------------------------------------------------------------- Total current assets 13,190,693 12,830,121 Property and equipment, net 3,494,555 3,664,292 Capitalized software costs, net 818,924 895,442 Deferred income taxes 1,149,000 1,228,000 Other assets 29,337 42,617 - -------------------------------------------------------------------------------- $ 18,682,509 $ 18,660,472 ================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 1,633,150 $ 1,694,923 Accrued expenses 1,976,993 2,009,482 Customer deposits 794,033 813,125 Current maturities of long-term obligations 4,427 44,695 - -------------------------------------------------------------------------------- Total current liabilities 4,408,603 4,562,225 Long-term obligations, less current maturities 10,379 10,379 - -------------------------------------------------------------------------------- Total liabilities 4,418,982 4,572,604 - -------------------------------------------------------------------------------- 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 19,653,203 19,751,694 Deficit (5,077,245) (5,209,410) Less treasury stock, at cost (435,577) (577,562) - -------------------------------------------------------------------------------- Total shareholders' equity 14,263,527 14,087,868 - -------------------------------------------------------------------------------- $ 18,682,509 $ 18,660,472 ================================================================================ 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 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 -- -- (20,039) -- (32,374) 69,762 Value of stock options granted for services -- -- 74,094 -- -- -- Value of stock option compensation -- -- (345,000) -- -- -- Net loss for the three months -- -- -- (584,257) -- -- - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE at December 1, 2000 12,314,575 $ 123,146 $ 20,033,623 $ (3,817,366) 449,097 $ (967,745) ================================================================================================================================== Balance at August 31, 2001 12,314,575 $ 123,146 $ 19,751,694 $ (5,209,410) 269,588 $ (577,562) Treasury stock reissued through stock options and 401(k) plan -- -- (98,491) -- (66,274) 141,985 Net earnings for the three months -- -- -- 132,165 -- -- - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE AT NOVEMBER 30, 2001 12,314,575 $ 123,146 $ 19,653,203 $ (5,077,245) 203,314 $ (435,577) ==================================================================================================================================
See accompanying notes to consolidated financial statements. 6 WEGENER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three months ended NOVEMBER 30, December 1, 2001 2000 - -------------------------------------------------------------------------------- CASH USED FOR OPERATING ACTIVITIES Net earnings (loss) $ 132,165 $ (584,257) Adjustments to reconcile net earnings (loss) to cash used for operating activities Depreciation and amortization 434,813 430,656 Issuance of treasury stock for compensation expenses 36,794 49,723 Other non-cash expenses -- 74,094 Non-cash stock option compensation -- (484,000) Provision for bad debts 30,000 25,000 Provision for inventory reserves 100,000 250,000 Provision for deferred income taxes 77,000 (336,000) Changes in assets and liabilities Accounts receivable (729,347) 404,151 Inventories (170,219) (155,397) Other assets 55,506 (62,344) Accounts payable and accrued expenses (94,262) (333,593) Customer deposits (19,092) 72,276 - -------------------------------------------------------------------------------- (146,642) (649,691) - -------------------------------------------------------------------------------- CASH USED FOR INVESTMENT ACTIVITIES Property and equipment expenditures (55,256) (82,499) Capitalized software additions (120,022) (100,000) - -------------------------------------------------------------------------------- (175,278) (182,499) - -------------------------------------------------------------------------------- CASH USED FOR FINANCING ACTIVITIES Repayment of long-term debt and capitalized lease obligation (40,268) (140,644) Proceeds from stock options exercised 6,700 -- - -------------------------------------------------------------------------------- (33,568) (140,644) - -------------------------------------------------------------------------------- Decrease in cash and cash equivalents (355,488) (972,834) Cash and cash equivalents, beginning of period 1,926,723 2,072,853 - -------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 1,571,235 $ 1,100,019 ================================================================================ Supplemental disclosure of cash flow information: Cash paid (received) during the three months for: Interest $ 18,086 $ 13,242 Income taxes $ (99,440) $ -- ================================================================================ See accompanying notes to consolidated financial statements. 7 WEGENER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 August 31, 2001. 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 years 2002 and 2001 each contain fifty-two weeks. NOTE 2 ACCOUNTS RECEIVABLE Accounts receivable are summarized as follows: NOVEMBER 30, August 31, 2001 2001 - -------------------------------------------------------------------------------- (UNAUDITED) Accounts receivable - trade $ 1,990,295 $ 1,237,403 Recoverable income taxes -- -- Other receivables 119,338 144,038 - -------------------------------------------------------------------------------- 2,109,633 1,381,441 Less allowance for doubtful accounts (333,866) (305,021) - -------------------------------------------------------------------------------- $ 1,775,767 $ 1,076,420 ================================================================================ 8 NOTE 3 INVENTORIES Inventories are summarized as follows: NOVEMBER 30, August 31, 2001 2001 - -------------------------------------------------------------------------------- (UNAUDITED) Raw material $ 2,756,284 $ 3,097,056 Work-in-process 5,017,177 5,332,635 Finished goods 3,744,255 3,212,686 - -------------------------------------------------------------------------------- 11,517,716 11,642,377 Less inventory reserves (3,961,614) (4,156,494) - -------------------------------------------------------------------------------- $ 7,556,102 $ 7,485,883 ================================================================================ During the first quarter of fiscal 2002 inventory reserves were increased by charges to cost of sales of $100,000 and were reduced by inventory write-offs of $295,000. The Company's inventory reserve of approximately $3,962,000 at November 30, 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 three months ended November 30, 2001, income tax expense of $77,000 was comprised of a deferred federal and state income tax expense of $71,000 and $6,000, respectively. Net deferred tax assets decreased $77,000 to $3,358,000 principally due to decreases in net operating loss carryforwards in the first quarter. 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 based on the Company's backlog, financial projections and operating history. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of further taxable income during the carryforward period are reduced. At November 30, 2001, the Company had a federal net operating loss carryforward of approximately $3,046,000, which expires in fiscal 2020 and fiscal 2021. Additionally, the Company had general business and foreign tax credit carryforwards of $106,000 expiring fiscal 2004 and an alternative minimum tax credit of $249,000. 9 WEGENER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5 EARNINGS PER SHARE (UNAUDITED) 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. The calculation of earnings per share is subject to rounding differences.
------------------------------------------------------------------------------ NOVEMBER 30, 2001 DECEMBER 1, 2000 ------------------------------------------------------------------------------ PER Per EARNINGS SHARES SHARE Earnings Shares share (NUMERATOR) (DENOMINATOR) AMOUNT (Numerator) (Denominator) amount ------------------------------------------------------------------------------ Net earnings (loss) $ 132,165 $ (584,257) ------------------------------------------------------------------------------ Basic earnings (loss) per share: Net earnings (loss) available to common shareholders $ 132,165 12,085,008 $ .01 $ (584,257) 11,855,517 $(0.05) ============================================================================== Effect of dilutive potential common shares: Stock options -- 15,656 -- -- ------------------------------------------------------------------------------ Diluted earnings (loss) per share: Net earnings (loss) available to common shareholders $ 132,165 12,100,664 $ .01 $ (584,257) 11,855,517 $(0.05) ==============================================================================
Stock options which were excluded from the diluted net earnings (loss) per share calculation due to their anti-dilutive effect are as follows: Three months ended ------------------------------------- NOVEMBER 30, December 1, 2001 2000 ------------------------------------- Common stock options: Number of shares 1,011,550 1,188,800 Range of exercise prices $. 75 to $5.63 $ .75 to $5.63 ==================================== NOTE 6 SEGMENT INFORMATION AND SIGNIFICANT CUSTOMERS (UNAUDITED) 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. 10 In this single operating segment the Company has three sources of revenues as follows: Three months ended ------------------------------------- NOVEMBER 30, December 1, 2001 2000 ------------------------------------- Product Line Direct Broadcast Satellite $ 5,603,053 $ 4,099,500 Telecom and Custom Products 273,576 756,718 Service 155,987 141,363 ------------------------------------- $ 6,032,616 $ 4,997,581 ===================================== Revenues by geographic areas are as follows: Three months ended ------------------------------------- NOVEMBER 30, December 1, 2001 2000 ------------------------------------- Geographic Area United States $ 5,596,129 $ 3,166,781 Latin America 286,443 1,087,370 Europe 35,985 686,083 Other 114,059 57,347 ------------------------------------- $ 6,032,616 $ 4,997,581 ===================================== All of the Company's long-lived assets are located in the United States. Customers representing 10% or more of the respective periods' revenues are as follows: Three months ended ------------------------------------- NOVEMBER 30, December 1, 2001 2000 ------------------------------------- Customer 1 30.6% (a) Customer 2 17.4% (a) Customer 3 17.2% (a) Customer 4 (a) 20.1% Customer 5 (a) 13.0% Customer 6 (a) 11.9% (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 committed the Company to purchase, over a twelve-month period, amounts ranging from approximately $2,565,000 to $3,287,000 depending on actual products purchased. Pursuant to the agreement, at November 30, 2001, the amount of remaining purchase commitments ranged from $1,029,000 to $1,320,000. In addition, the Company entered into a cancelable manufacturing and purchasing agreement of finished goods inventories for which the Company has firm customer order commitments. The Company had outstanding purchase commitments under this agreement of $1,297,000 at November 30, 2001. Pursuant to the above agreements, at November 30, 2001, the Company had outstanding letters of credit in the amount of $1,297,000. 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 August 31, 2001 contained in the Company's 2001 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, government regulation, rapid technological developments and changes, performance issues with key suppliers and subcontractors, delays in product development and testing, material availability, new and existing well-capitalized competitors, and other uncertainties detailed in the Company's Form 10-K for the year ended August 31, 2001 and from time to time in the Company's periodic Securities and Exchange Commission filings. The Company manufactures satellite communications equipment through Wegener Communications, Inc. (WCI), a wholly-owned subsidiary. WCI 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 MONTHS ENDED NOVEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED DECEMBER 1, 2000 The operating results for the three month period ended November 30, 2001, were net earnings of $132,000 or $0.01 per share compared to a net loss of $(584,000) or $(0.05) per share for the three month period ended December 1, 2000. REVENUES - The Company's revenues for the first quarter of fiscal 2002 increased $1,035,000 or 20.7% to $6,033,000 from $4,998,000 for the same period in fiscal 2001. Direct Broadcast Satellite (DBS) revenues (including service revenues) increased $1,518,000 or 35.8%, in the first quarter of fiscal 2002 to $5,759,000 from $4,241,000 for the same period in fiscal 2001. The increase in revenues was a result of a high backlog of orders at the beginning of fiscal 2002 compared to the beginning of fiscal 2001. Initial shipments of network equipment began in the first quarter of fiscal 2002 to Roberts Communications to provide television coverage of horseracing to off-track betting venues throughout the United States. Shipments of digital receivers, which initially began in the fourth quarter of fiscal 2001 on a multi-year contract to provide programming to network subscribers, continued throughout the first quarter of fiscal 2002. Shipments of digital receivers were completed to FOX Digital and FOX Sports Net for their broadcast and cable television networks. Telecom and Custom Products Group revenues decreased $483,000 or 63.8% to $274,000 in the first quarter of fiscal 2002 from $757,000 in the first quarter of fiscal 2001. The decrease was mainly due to lower levels of shipments of cable television headend products to distributors as a result of a slowdown in purchases by the major cable television operators. Major cable television operators were adversely affected by a tightening of credit availability to the telecommunications industry, a drop in market capitalization for the sector, and an over building of capacity which resulted in delaying capital spending decisions. For the three months ended November 30, 2001, three customers accounted for 30.6%, 17.4% and 17.2% of revenues, respectively. For the three months ended December 1, 2000, three other customers accounted for 20.2%, 13.1% and 12.0% of revenues, respectively. The Company's backlog is comprised of undelivered, firm customer orders, which are scheduled to ship within eighteen months. WCI's backlog was approximately $17.2 million at November 30, 2001, compared to $19.0 million at August 31, 2001, and $16.1 million at December 1, 2000. GROSS PROFIT MARGINS - The Company's gross profit margin percentages were 32.6% for the three month period ended November 30, 2001, compared to 15.6% for the three month period ended December 1, 2000. Gross profit margin dollars increased $1,185,000 for the three month period ended November 30, 2001 from the same period ended December 1, 2000. The increases in margin dollars and percentages were mainly due to: 1) higher revenue during the period which resulted in 12 lower unit fixed overhead costs, 2) a reduction in manufacturing labor and overhead costs as a result of the Company's cost reduction and restructuring programs initiated in fiscal 2001, and 3) lower offshore contract manufacturing costs of certain DBS products. Profit margins in the first quarter of fiscal 2002 included inventory reserve charges of $100,000 compared to $250,000 for the same period of fiscal 2001. SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and administrative (SG&A) expenses increased $70,000 or 6.9% to $1,077,000 in the first quarter of fiscal 2002 from $1,007,000 in the first quarter of fiscal 2001. During the fourth quarter of fiscal 2001 tax reimbursement features were removed from common stock options. As a result, SG&A expenses in the first quarter of fiscal 2002 were not subject to variable stock option compensation adjustments compared to a benefit of $484,000 in the first quarter of fiscal 2001. Excluding this benefit, SG&A decreased $414,000, or 27.8%, in the first three months of fiscal 2002 compared to the same period of fiscal 2001. Decreases in SG&A expenses included decreases in corporate professional fees principally associated with a national financial relations program that was discontinued during the fourth quarter of fiscal 2001, lower sales and marketing compensation expenses, lower administrative compensation expense, lower travel and entertainment expense, and lower professional fees. As a percentage of revenues, selling, general and administrative expenses were 17.9% for the three month period ended November 30, 2001 compared to 20.2% for the same period ended December 1, 2000. RESEARCH AND DEVELOPMENT - Research and development expenditures, including capitalized software development costs, were $784,000 or 13.0% of revenues in the first quarter of fiscal 2002 compared to $826,000 or 16.5% of revenues for the same period of fiscal 2001. Capitalized software development costs amounted to $120,000 in the first quarter of fiscal 2002 compared to $100,000 in the first quarter of fiscal 2001. Research and development expenses, excluding capitalized software development costs, were $664,000 or 11.0% of revenues in the first quarter of fiscal 2002, and $726,000 or 14.5% of revenues in the same period of fiscal 2001. The decrease in expenses was primarily due to decreases in personnel, overhead and prototype expenses which were offset by higher engineering consulting costs. INTEREST EXPENSE - Interest expense increased $5,000 to $18,000 in the first quarter of fiscal 2002 from $13,000 in the same period in fiscal 2001. The increase was primarily due to an increase in average outstanding letter of credit commitment balances. INTEREST INCOME - Interest income was $2,000 for the three months ended November 30, 2001 compared to $45,000 for the same period ended December 1, 2000. The decrease was due to lower average cash equivalent balances and a decrease in short-term investment yields during the period. INCOME TAX EXPENSE - For the three months ended November 30, 2001, income tax expense of $77,000 was comprised of a deferred federal and state income tax expense of $71,000 and $6,000, respectively. LIQUIDITY AND CAPITAL RESOURCES THREE MONTHS ENDED NOVEMBER 30, 2001 During the first quarter of fiscal 2002, operating activities used $147,000 of cash. Net earnings adjusted for non-cash expenses provided $811,000 of cash, while changes in accounts receivable and customer deposit balances used $748,000 of cash. Changes in accounts payable and accrued expenses, inventories, and other assets used $209,000 of cash. Cash used by investing activities for property and equipment expenditures and capitalized software additions was $175,000. Financing activities used cash of $40,000 for scheduled repayments of long-term obligations and stock option exercises provided $6,700 of cash. WCI's bank loan facility provides for a maximum available credit limit of $10,000,000 with sublimits as defined. The loan facility matures on June 21, 2003, or upon demand and requires an annual facility fee of $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 (5% at November 30, 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 bank's cost of funds at the date of disbursement. 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 13 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 November 30, 2001, no balances were outstanding on the revolving line of credit, equipment term loan, or real estate advance portions of the loan facility. Additionally, at November 30, 2001, approximately $2,723,000 net of outstanding letters of credit in the amount of $1,297,000 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 August 31, 2001, the Company was in violation of the tangible net worth and Wegener Corporation annual spending limit covenants with respect to which the bank has granted a waiver. As a result of the convenant violations, the bank has the right to amend any terms of the loan facility. It is possible that the maximum available line of credit could be reduced, the annual facility fee could increase, and the interest rate on the term loan and the revolving line of credit could increase. The Company believes that it will be necessary to borrow on the line of credit during fiscal 2002 and that the existing facility will be sufficient to support fiscal 2002 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 borrowings 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. 14 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 November 30, 2001 subject to variable interest rate fluctuations. At November 30, 2001, the Company's cash equivalents consisted of bank commercial paper in the amount of $1,375,000. 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 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: None (b) Reports on Form 8-K - No reports on Form 8-K were filed during the quarter ended November 30, 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 it behalf by the undersigned thereunto duly authorized. WEGENER CORPORATION (Registrant) Date: January 14, 2002 By: /s/ Robert A. Placek --------------------------------------- Robert A. Placek President (Principal Executive Officer) Date: January 14, 2002 By: /s/ C. Troy Woodbury, Jr. --------------------------------------- C. Troy Woodbury, Jr. Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) 17 -----END PRIVACY-ENHANCED MESSAGE-----