-----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, KgW/SSSCgx1tCva88fYcfGEZ7AVKfTaRhJQR2Hh7I8QSvllsCsgs9FYjMqwCie5m /TcjfCAuWwRHW3g/K4ONlw== 0001012709-98-000259.txt : 19980714 0001012709-98-000259.hdr.sgml : 19980714 ACCESSION NUMBER: 0001012709-98-000259 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980529 FILED AS OF DATE: 19980710 SROS: NASD 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: 98664678 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 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 May 29, 1998 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 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, as of June 30, 1998. Common Stock, $.01 par value 11,938,158 Shares - ---------------------------- ------------------------- Class Outstanding June 30, 1998 WEGENER CORPORATION AND SUBSIDIARIES Form 10-Q For the Quarter Ended May 29, 1998 INDEX Page(s) PART I. Financial Information Item 1. Consolidated Financial Statements Introduction ......................................................3 Consolidated Statements of Operations (Unaudited) - Three and Nine Months Ended May 29, 1998 and May 30, 1997,.....................................4 Consolidated Balance Sheets - May 29, 1998 (Unaudited) and August 29, 1997 ..............................5 Consolidated Statements of Shareholders' Equity (Unaudited) - Nine Months Ended May 29, 1998 and May 30, 1997,.............................................6 Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended May 29, 1998 and May 30, 1997,.............................................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 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 .................................13 Signatures .......................................................14 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 May 29, 1998; the consolidated statements of shareholders' equity as of May 29, 1998 and May 30, 1997; the consolidated statements of operations for the three and nine months ended May 29, 1998 and May 30, 1997; and the consolidated statements of cash flows for the nine months ended May 29, 1998 and May 30, 1997; have been prepared without audit. The consolidated balance sheet as of August 29, 1997 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 August 29, 1997, 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 Nine months ended MAY 29, May 30, MAY 29, May 30, 1998 1997 1998 1997 - --------------------------------------------------------------------------------------------------------- Revenues $ 9,856,824 $ 3,869,886 $ 26,728,108 $ 15,191,859 - --------------------------------------------------------------------------------------------------------- Operating costs and expenses Cost of products sold 6,372,206 3,417,356 17,376,137 11,165,205 Selling, general, and administrative 1,398,765 1,374,836 3,643,979 3,411,819 Research and development 628,856 514,232 1,997,142 1,517,099 - --------------------------------------------------------------------------------------------------------- Operating costs and expenses 8,399,827 5,306,424 23,017,258 16,094,123 - --------------------------------------------------------------------------------------------------------- Operating income (loss) 1,456,997 (1,436,538) 3,710,850 (902,264) Interest expense (56,873) (129,316) (195,552) (454,554) Interest income 144,793 523 380,349 1,965 - --------------------------------------------------------------------------------------------------------- Earnings (loss) before income taxes 1,544,917 (1,565,331) 3,895,647 (1,354,853) Income tax expense (benefit) 589,000 (568,000) 1,482,000 (488,000) - --------------------------------------------------------------------------------------------------------- Net earnings (loss) $ 955,917 $ (997,331) $ 2,413,647 $ (866,853) ========================================================================================================= Net earnings (loss) per share Basic $ .08 $ (.10) $ .21 $ (.09) Diluted $ .08 $ (.10) $ .20 $ (.09) ========================================================================================================= Shares used in per share calculation Basic 11,920,135 9,603,653 11,697,534 9,211,055 Diluted 12,278,345 9,603,653 12,074,941 9,211,055 =========================================================================================================
See accompanying notes to consolidated financial statements. 4 WEGENER CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MAY 29, August 29, 1998 1997 - --------------------------------------------------------------------------------------------- ASSETS (UNAUDITED) Current assets Cash and cash equivalents $ 8,126,016 $ 2,242,433 Accounts receivable 4,718,413 4,612,634 Inventories 7,843,101 9,992,672 Deferred income taxes 1,507,000 1,241,000 Other 7,952 21,376 - --------------------------------------------------------------------------------------------- Total current assets 22,202,482 18,110,115 Property and equipment 4,582,117 4,979,856 Capitalized software costs 1,389,189 1,701,416 Deferred income taxes -- 553,000 Other assets 73,276 269,566 - --------------------------------------------------------------------------------------------- $ 28,247,064 $ 25,613,953 ============================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 1,992,417 $ 2,128,941 Accrued expenses 2,069,249 1,440,945 Customer deposits 2,835,654 3,458,401 Current maturities of long-term obligations 559,658 599,157 - --------------------------------------------------------------------------------------------- Total current liabilities 7,456,978 7,627,444 Long-term obligations, less current maturities 1,399,009 1,782,460 Convertible debentures -- 1,285,195 Deferred income taxes 707,000 -- - --------------------------------------------------------------------------------------------- Total liabilities 9,562,987 10,695,099 - --------------------------------------------------------------------------------------------- Commitments Shareholders' equity Common stock, $.01 par value, 20,000,000 shares authorized; 12,314,575 and 11,363,917 shares issued 123,146 113,639 Additional paid-in capital 19,375,640 18,084,700 Deficit (464,028) (2,877,675) Less treasury stock, at cost (377,667 and 432,730 shares) (350,681) (401,810) - --------------------------------------------------------------------------------------------- Total shareholders' equity 18,684,077 14,918,854 - --------------------------------------------------------------------------------------------- $ 27,026,683 $ 25,613,953 =============================================================================================
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 30, 1996 9,231,930 $ 92,319 $14,369,157 $(1,068,475) (470,397) $(436,785) Treasury stock reissued through stock options and 401(k) plan -- -- 48,982 -- 26,007 24,149 Issuance of common stock for convertible debentures 2,131,987 21,320 3,654,068 -- -- -- Net (loss) for the nine months -- -- -- (866,853) -- -- - ---------------------------------------------------------------------------------------------------------------------- BALANCE, at May 30, 1997 11,363,917 $113,639 $18,072,207 $(1,935,328) (444,390) $(412,636) ====================================================================================================================== BALANCE, at August 29, 1997 11,363,917 $113,639 $18,084,700 $(2,877,675) (432,730) $(401,810) Treasury stock reissued through stock options and 401(k) plan -- -- 52,620 -- 55,063 51,129 Issuance of common stock for convertible debentures 950,658 9,507 1,238,320 -- -- -- Net earnings for the nine months -- -- -- 2,413,647 -- -- - ---------------------------------------------------------------------------------------------------------------------- BALANCE, AT MAY 29, 1998 12,314,575 $123,146 $19,375,640 $ (464,028) (377,667) $(350,681) ======================================================================================================================
See accompanying notes to consolidated financial statements. 6 WEGENER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine months ended MAY 29, May 30, 1998 1997 - ------------------------------------------------------------------------------------ CASH PROVIDED (USED) BY OPERATING ACTIVITIES Net earnings (loss) $ 2,413,647 $ (866,853) Adjustments to reconcile net earnings (loss) to cash provided by operating activities Depreciation and amortization 1,544,012 1,059,217 Bad debt allowance 50,000 91,000 Warranty reserves -- 76,000 Inventory reserves 650,000 -- Issuance of treasury stock for compensation expenses 79,756 66,944 Issuance of convertible debt for interest expense -- 33,918 Deferred income taxes 994,000 (488,000) Changes in assets and liabilities Accounts receivable (155,779) 3,459,563 Inventories 1,499,571 1,185,991 Other assets 13,424 25,793 Accounts payable and accrued expenses 491,780 (2,356,024) Customer deposits (622,747) 2,378,745 - ------------------------------------------------------------------------------------ 6,957,564 4,666,294 - ------------------------------------------------------------------------------------ CASH (USED) BY INVESTMENT ACTIVITIES Property and equipment expenditures (351,971) (874,193) Capitalized software additions (323,154) (763,691) - ------------------------------------------------------------------------------------ (675,125) (1,637,884) - ------------------------------------------------------------------------------------ CASH PROVIDED (USED) BY FINANCING ACTIVITIES Net change in borrowings under revolving line-of-credit -- (1,530,332) Repayment of long-term debt and capitalized lease obligations (422,950) (417,402) Proceeds from stock options exercised 24,094 6,187 - ------------------------------------------------------------------------------------ (398,856) (1,941,547) - ------------------------------------------------------------------------------------ Increase (decrease) in cash and cash equivalents 5,883,583 1,086,863 Cash and cash equivalents, beginning of period 2,242,433 171,687 - ------------------------------------------------------------------------------------ Cash and cash equivalents, end of period $ 8,126,016 $ 1,258,550 ==================================================================================== Supplemental disclosure of cash flow information: Cash paid during the nine months for: Interest $ 193,995 $ 380,396 Income taxes $ -- $ -- ====================================================================================
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 29, 1997. Earnings Per Share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share". The Statement simplifies the standards for computing earnings per share and improves their comparability to international standards. The Company adopted this Standard during the second quarter of fiscal 1998 as required and has restated earnings per share for all prior periods presented to conform to this standard. 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 and convertible debentures. 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 and the if-converted method to compute the dilutive effect of convertible debentures. A reconciliation of the numerator and denominator of the basic and diluted net earnings per share is presented below (Note 5). 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 1998 and 1997 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: MAY 29, August 29, 1998 1997 ----------- ----------- (UNAUDITED) Accounts receivable - trade $ 4,977,315 $ 4,881,565 Other receivables 152,351 92,812 ----------- ----------- 5,129,666 4,974,377 Less allowance for doubtful accounts (411,253) (361,743) ----------- ----------- $ 4,718,413 $ 4,612,634 =========== =========== NOTE 3 INVENTORIES Inventories are summarized as follows: MAY 29, August 29, 1998 1997 ------------ ------------ (UNAUDITED) Raw material $ 3,972,246 $ 4,550,550 Work-in-process 3,710,198 4,051,281 Finished goods 2,676,940 3,256,294 ------------ ------------ 10,359,384 11,858,125 Less inventory reserves (2,516,283) (1,865,453) ------------ ------------ $ 7,843,101 $ 9,992,672 ============ ============ NOTE 4 INCOME TAXES For the nine months ended May 29, 1998, income tax expense of $1,482,000 was comprised of a federal and state current income tax expense of $388,000 and $100,000, respectively, and a federal and state deferred income tax expense of $937,000 and $57,000, respectively. Net deferred tax assets decreased $994,000 in the first nine months of fiscal 1998. 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 ------------------------------------------------------------------------ MAY 29, 1998 May 30, 1997 ---------------------------------- ------------------------------------ PER Earnings Per EARNINGS SHARES SHARE (loss) Shares share (NUMERATOR) (DENOMINATOR) AMOUNT (Numerator) (Denominator) amount ----------- ------------- ------ ----------- ------------- ------ Net earnings (loss) $955,917 $(997,331) ======== ========= Basic earnings (loss) per share: Net earnings (loss) available to common shareholders $955,917 11,920,135 $ 0.08 $(997,331) 9,603,653 $(0.10) ====== ====== Effect of dilutive potential common shares: Stock options -- 358,210 -- -- Convertible debentures -- -- -- -- -------- ---------- --------- --------- Diluted earnings (loss) per share: Net earnings (loss) available to common shareholders plus assumed conversions $955,917 12,278,345 $ 0.08 $(997,331) 9,603,653 $(0.10) ======== ========== ====== ========= ========= ====== Nine months ended ------------------------------------------------------------------------ MAY 29, 1998 May 30, 1997 ---------------------------------- ------------------------------------ PER Earnings Per EARNINGS SHARES SHARE (loss) Shares share (NUMERATOR) (DENOMINATOR) AMOUNT (Numerator) (Denominator) amount ----------- ------------- ------ ----------- ------------- ------ Net earnings (loss) $2,413,647 $(866,853) ========== ========= Basic earnings (loss) per share: Net earnings (loss) available to common shareholders $2,413,647 11,697,534 $ 0.21 $(866,863) 9,211,055 $(0.09) ====== ====== Effect of dilutive potential common shares: Stock options -- 226,744 -- -- Convertible debentures 9,156 150,663 -- -- -------- ---------- --------- --------- Diluted earnings (loss) per share: Net earnings (loss) available to common shareholders plus assumed conversions $2,422,803 12,074,941 $ 0.20 $(866,853) 9,211,055 $(0.09) ========== ========== ====== ========= ========= ======
10 Options and convertible debentures excluded from the diluted earnings (loss) per share calculation due to their anti-dilutive effect are as follows:
Three months ended Nine months ended MAY 29, May 30, MAY 29, May 30, 1998 1997 1998 1997 -------------- -------------- -------------- -------------- Common stock options: Number of shares 26,000 529,220 48,500 496,204 Range of exercise prices $3.25 TO 12.13 $.75 to 12.13 $2.44 TO 12.13 $.75 to 12.13 Convertible debentures: Common shares calculated under the if-converted method -- 1,334,394 -- 781,850 ============== ============== ============== ==============
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 29, 1997 contained in the Company's 1997 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, material availability, new and existing well-capitalized competitors, and other uncertainties detailed in the Company's Form 10-K for the year ended August 29, 1997 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 MAY 29, 1998 COMPARED TO THREE AND NINE MONTHS ENDED MAY 30, 1997 The operating results for the three and nine month periods ended May 29, 1998 were net earnings of $956,000 or $0.08 per share and net earnings of $2,414,000 or $0.20 per share, respectively, compared to a net loss of $(997,000) or $(0.10) per share and a net loss of $(867,000) or $(0.09) per share, respectively, for the three and nine month periods ended May 30, 1997. REVENUES - The Company's revenues for the three months ended May 29, 1998 were $9.9 million, up 154% from revenues of $3.9 million for the three months ended May 30, 1997. Revenues were $26.7 million for the nine months ended May 29, 1998, up 76.0% from revenues of $15.2 million for the nine months ended May 30, 1997. Direct Broadcast Satellite (DBS) revenues increased $6,604,000 or 274% in the third quarter of fiscal 1998 to $9,010,000 from $2,406,000 in the same period of fiscal 1997. The increase was due to increased shipments of digital video products, principally to one customer for conversion of their cable television broadcast network from analog to digital compression technology. Telecom and Customer Products Group revenues decreased $555,000 or 45% in the third quarter of fiscal 1998 to $687,000 12 from $1,242,000 in the same period of fiscal 1997. 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 May 29, 1998, one customer accounted for approximately 53.8% of total revenues. For the nine months ended May 29, 1998, DBS revenues increased $10,637,000 or 88.5% to $22,662,000 from $12,025,000 for the nine months ended May 30, 1997. The increase was due to increased shipments of digital video products principally to one cable television broadcast network customer. For the nine months ended May 29, 1998, Telecom and Custom Product Group revenues increased $845,000 or 32% to $3,482,000 from $2,637,000 for the nine months ended May 30, 1997. The increase was mainly due to higher levels of shipments of cue and control equipment. For the nine months ended May 29, 1998, one customer accounted for approximately 39.1% 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 $11.5 million at May 29, 1998, compared to $19.5 million at August 29, 1997 and $19.3 million at May 30, 1997. The backlog as of May 30, 1997 included an initial order from FOX Cable Networks for $11.8 million, the majority of which shipped during the first nine months of fiscal 1998. At May 29, 1998, one customer accounted for approximately 36.4% of the backlog. GROSS PROFIT MARGINS - The Company's gross profit margin percentages were 35.4% and 35.0% for the three and nine month periods ended May 29, 1998 compared to 11.7% and 26.5% for the three and nine month periods ended May 30, 1997. Gross profit margin dollars increased $3,032,000 and $5,325,000 for the three and nine month periods ended May 29, 1998 from the same periods ended May 30, 1997. The increases in margin percentages and dollars were due to the increase in revenues and a mix of higher margin products in the three and nine month periods ended May 29, 1998 compared to the same periods of fiscal 1997. Profit margins were adversely impacted in the three and nine month periods ended May 29, 1998 by inventory reserve charges of $300,000 and $650,000, respectively, for potentially slow-moving inventories of early generations of digital video products and charges of $100,000 and $200,000, respectively, for write-offs of capitalized software costs associated with these products. SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and administrative (SG&A) expenses increased $24,000 or 1.7% to $1,399,000 for the three months ended May 29, 1998 from $1,375,000 for the three months ended May 30, 1997. For the nine months ended May 29, 1998 SG&A expenses increased $232,000 or 6.8% to $3,644,000 from $3,412,000 for the same period ended May 30, 1997. The increases for the three and nine month periods were mainly due to higher levels of selling and marketing expenses, incentive compensation, and professional fees. As a percentage of revenues, SG&A expenses were 14.2% and 13.6% for the three and nine month periods ended May 29, 1998 compared to 35.5% and 22.5% for the same periods of fiscal 1997. The decreases in percentages for the three and nine months ended May 29, 1998 compared to the three and nine months ended May 30, 1997 were primarily due to higher revenues. RESEARCH AND DEVELOPMENT - Research and development expenditures, including capitalized software development costs, were $755,000 and $2,320,000 for the three and nine month periods ended May 29, 1998, compared to $808,000 and $2,281,000 for the same periods of fiscal 1997. Capitalized software development costs amounted to $126,000 and $323,000 for the third quarter and first nine months of fiscal 1998 compared to $294,000 and $764,000 for the same periods of fiscal 1997. The decrease in expenditures for the three months ended May 29, 1998 was primarily due to lower engineering consulting expenses which were partially offset by an increase in engineering personnel. 13 The increase in expenditures for the nine months ended May 29, 1998 is primarily due to an increase in engineering personnel and higher depreciation and proto-type material expenses which were partially offset by lower engineering consulting expenses. The decreases in capitalized software development costs for the three and nine month periods ended May 29, 1998 were principally due to a decrease in expenditures associated with digital video products and Compel network control software. Research and development expenses, excluding capitalized software expenditures, were $629,000 or 6.4% of revenues and $1,997,000 or 7.5% of revenues for the three and nine months ended May 29, 1998 compared to $514,000 or 13.3% of revenues and $1,517,000 or 10.0% of revenues for the same periods of fiscal 1997. The Company remains committed to such research and development expenditures as are required to effectively compete and maintain pace with the rapid technological changes in the communications industry and to support innovative engineering and design in its future products. The dollar amount of research and development expenditures in fiscal 1998 is expected to increase compared to fiscal 1997 and to decrease as a percentage of revenues due to an expected increase in fiscal 1998 revenues. INTEREST EXPENSE - Interest expense decreased $72,000 to $57,000 for the three months ended May 29, 1998 from $129,000 for the three months ended May 30, 1997. For the nine months ended May 29, 1998, interest expense decreased $259,000 to $196,000 from $455,000 for the same period ended May 30, 1997. The decreases for the three and nine month periods were primarily due to a decrease in the average outstanding balance of the convertible debentures. INTEREST INCOME - Interest income was $145,000 and $380,000 for the three and nine months, respectively, ended May 29, 1998, compared to less than $1,000 and $2,000 for the same periods ended May 30, 1997. The increases are due to the increase in cash equivalent balances at May 29, 1998, primarily as a result of customer deposits received during the fiscal year and cash provided from operations. INCOME TAX EXPENSES - For the nine months ended May 29, 1998, income tax expense of $1,482,000 was comprised of a federal and state current income tax expense of $388,000 and $100,000, respectively, and a federal and state deferred income tax expense of $937,000 and $57,000, respectively. LIQUIDITY AND CAPITAL RESOURCES NINE MONTHS ENDED MAY 29,1998 During the first nine months of fiscal 1998, operating activities provided cash of $6,958,000. Net earnings adjusted for non-cash expenses and a decrease in inventories provided cash of $5,652,000 and $1,500,000, respectively. An increase in accounts payable and accrued expenses provided cash of $491,000 while combined changes in accounts receivable and customer deposit balances used cash of $779,000. Cash used by investing activities for property and equipment expenditures and capitalized software additions was $675,000. Financing activities used cash of $423,000 for scheduled repayments of long-term obligations and provided cash of $24,000 from the exercise of stock options. At May 29,1998, no balances were outstanding under the revolving line-of-credit, which expires May 4, 1999, or upon demand. Borrowings under the revolving line of credit are subject to availability advance formulas of 80% against eligible accounts receivable; 20% of eligible raw material 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. 14 Approximately, $3,710,000 was available to borrow at May 29,1998 under the advance formulas. In addition, at May 29,1998, the Company was in compliance with the line-of-credit covenants. During the first nine months of fiscal 1998, $1,285,000 of convertible debentures were converted into 950,658 shares of common stock. No convertible debentures remained outstanding at May 29,1998. The Company expects that its current cash and cash equivalents combined with expected cash flows from operating activities and the Company's available line-of-credit will be sufficient to support the Company's operations during fiscal 1998 and fiscal 1999. YEAR 2000 The Company has performed a review of its computer systems and products to identify modifications required to become year 2000 compliant. The Company does not believe there is a material cost associated with these modifications, and currently expects such modifications to be completed by December 31, 1998. The Company is in the process of reviewing the implications of Year 2000 compliance issues associated with its suppliers, customers, distributors, banking institutions, service providers and others. Any Year 2000 compliance problems by these parties could result in a material adverse effect on the Company's business, financial condition and results of operations. 15 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 May 29, 1998. 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: July 10, 1998 By: /s/ Robert A. Placek ------------------------------- Robert A. Placek President (Principal Executive Officer) Date: July 10, 1998 By: /s/ C. Troy Woodbury, Jr. ------------------------------- C. Troy Woodbury, Jr. Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) 17 EX-27 2 WEGENER CORP - FINANCIAL DATA SCHEDULE
5 9-MOS Aug-28-1998 Aug-30-1997 May-29-1998 8,126,016 0 5,129,666 (411,253) 7,843,101 22,202,482 12,085,523 (7,503,405) 28,247,064 7,456,978 1,399,009 0 0 123,146 18,560,931 27,026,683 26,728,108 26,728,108 17,376,137 22,967,258 (380,349) 50,000 195,552 3,895,647 1,482,000 2,413,647 0 0 0 2,413,647 0.21 0.20
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