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
<PAGE>
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
<PAGE>
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
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
MAY 29, May 30, MAY 29, May 30,
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
=========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 29, August 29,
1998 1997
- ---------------------------------------------------------------------------------------------
ASSETS (UNAUDITED)
Current assets
<S> <C> <C>
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
=============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
-------------------- Paid-in ---------------------
Shares Amount Capital Deficit Shares Amount
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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)
======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
MAY 29, May 30,
1998 1997
- ------------------------------------------------------------------------------------
CASH PROVIDED (USED) BY OPERATING ACTIVITIES
<S> <C> <C>
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 $ -- $ --
====================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
Three months ended
------------------------------------------------------------------------
MAY 29, 1998 May 30, 1997
---------------------------------- ------------------------------------
PER Earnings Per
EARNINGS SHARES SHARE (loss) Shares share
(NUMERATOR) (DENOMINATOR) AMOUNT (Numerator) (Denominator) amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
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)
======== ========== ====== ========= ========= ======
<CAPTION>
Nine months ended
------------------------------------------------------------------------
MAY 29, 1998 May 30, 1997
---------------------------------- ------------------------------------
PER Earnings Per
EARNINGS SHARES SHARE (loss) Shares share
(NUMERATOR) (DENOMINATOR) AMOUNT (Numerator) (Denominator) amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
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)
========== ========== ====== ========= ========= ======
</TABLE>
10
<PAGE>
Options and convertible debentures excluded from the diluted earnings (loss) per
share calculation due to their anti-dilutive effect are as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
MAY 29, May 30, MAY 29, May 30,
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
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
============== ============== ============== ==============
</TABLE>
11
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Aug-28-1998
<PERIOD-START> Aug-30-1997
<PERIOD-END> May-29-1998
<CASH> 8,126,016
<SECURITIES> 0
<RECEIVABLES> 5,129,666
<ALLOWANCES> (411,253)
<INVENTORY> 7,843,101
<CURRENT-ASSETS> 22,202,482
<PP&E> 12,085,523
<DEPRECIATION> (7,503,405)
<TOTAL-ASSETS> 28,247,064
<CURRENT-LIABILITIES> 7,456,978
<BONDS> 1,399,009
0
0
<COMMON> 123,146
<OTHER-SE> 18,560,931
<TOTAL-LIABILITY-AND-EQUITY> 27,026,683
<SALES> 26,728,108
<TOTAL-REVENUES> 26,728,108
<CGS> 17,376,137
<TOTAL-COSTS> 22,967,258
<OTHER-EXPENSES> (380,349)
<LOSS-PROVISION> 50,000
<INTEREST-EXPENSE> 195,552
<INCOME-PRETAX> 3,895,647
<INCOME-TAX> 1,482,000
<INCOME-CONTINUING> 2,413,647
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,413,647
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.20
</TABLE>
