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 November 28, 1997
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 December 31, 1997.
Common Stock, $.01 par value 11,890,088 Shares
- ---------------------------- ----------------------------
Class Outstanding December 31,1997
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
Form 10-Q For the Quarter Ended November 28, 1997
INDEX
Page(s)
-------
PART I. Financial Information
Item 1. Consolidated Financial Statements
Introduction ....................................................3
Consolidated Statements of Operations
(Unaudited) - Three Months Ended
November 28, 1997 and November 29, 1996 ..........................4
Consolidated Balance Sheets - November 28,
1997 (Unaudited) and August 29, 1997 .............................5
Consolidated Statements of Shareholders' Equity
(Unaudited) - Three Months Ended November 28,
1997 and November 29, 1996 .......................................6
Consolidated Statements of Cash Flows
(Unaudited) - Three Months Ended November 28,
1997 and November 29, 1996 .......................................7
Notes to Consolidated Financial
Statements (Unaudited) .........................................8-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................10-12
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 November 28, 1997; the consolidated
statements of shareholders' equity as of November 28, 1997 and November 29,
1996; the consolidated statements of operations for the three months ended
November 28, 1997 and November 29, 1996; and the consolidated statements of cash
flows for the three months ended November 28, 1997 and November 29, 1996 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)
Three months ended
November 28, November 29,
1997 1996
- --------------------------------------------------------------------------------
Revenues $ 6,706,020 $6,642,663
- --------------------------------------------------------------------------------
Operating costs and expenses
Cost of products sold 4,531,739 4,419,722
Selling, general, and administrative 1,050,310 985,652
Research and development 669,896 566,830
- --------------------------------------------------------------------------------
Operating costs and expenses 6,251,945 5,972,204
- --------------------------------------------------------------------------------
Operating income 454,075 670,459
Interest expense (75,786) (181,682)
Interest income 77,634 1,429
- --------------------------------------------------------------------------------
Earnings before income taxes 455,923 490,206
Income tax expense 173,000 186,000
================================================================================
Net earnings $ 282,923 304,206
================================================================================
Net earnings per share:
Primary $ .02 $ .03
Fully diluted $ .02 $ .03
================================================================================
Shares used in per share calculation
Primary 11,572,475 9,135,008
Fully diluted 12,026,157 9,985,094
================================================================================
See accompanying notes to consolidated financial statements.
4
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 28, August 29,
1997 1997
- -------------------------------------------------------------------------------------------------
Assets (Unaudited)
Current assets
<S> <C> <C>
Cash and cash equivalents $10,610,165 $2,242,433
Accounts receivable 4,854,687 4,612,634
Inventories 9,667,627 9,992,672
Deferred income taxes 1,241,000 1,241,000
Other 16,865 21,376
- -------------------------------------------------------------------------------------------------
Total current assets 26,390,344 18,110,115
Property and equipment 4,900,594 4,979,856
Capitalized software costs 1,656,284 1,701,416
Deferred income taxes 380,000 553,000
Other assets 209,609 269,566
- -------------------------------------------------------------------------------------------------
$33,536,831 $25,613,953
=================================================================================================
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 1,837,113 $2,128,941
Accrued expenses 1,454,548 1,440,945
Customer deposits 11,522,427 3,458,401
Current maturities of long-term obligations 594,343 599,157
- -------------------------------------------------------------------------------------------------
Total current liabilities 15,408,431 7,627,444
Long-term obligations, less current maturities 1,652,274 1,782,460
Convertible debentures 321,004 1,285,195
- -------------------------------------------------------------------------------------------------
Total liabilities 17,381,709 10,695,099
- -------------------------------------------------------------------------------------------------
Commitments
Shareholders' equity
Common stock, $.01 par value, 20,000,000 shares
authorized; 12,022,940 and 11,363,917 shares issued 120,229 113,639
Additional paid-in capital 19,023,801 18,084,700
Deficit (2,594,752) (2,877,675)
Less treasury stock, at cost (424,487 and 432,730
shares) (394,156) (401,810)
- -------------------------------------------------------------------------------------------------
Total shareholders' equity 16,155,122 14,918,854
=================================================================================================
$33,536,831 $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 - - 20,478 - 7,777 7,221
Issuance of common stock for
convertible debentures 247,377 2,474 991,904 - - -
Net earnings for the
three months - - - 304,206 - -
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, at November 29, 1996 9,479,307 $94,793 $15,381,539 $ (764,269) (462,620) $(429,564)
=================================================================================================================================
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 - - 13,466 - 8,243 7,654
Issuance of common stock for
convertible debentures 659,023 6,590 925,635 - - -
Net earnings for the three months - - - 282,923 - -
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, at November 28, 1997 12,022,940 $120,229 $19,023,801 $(2,594,752) (424,487) $(394,156)
=================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
November 28, November 29,
1997 1996
- ----------------------------------------------------------------------------------------
Cash provided (used) by operating activities
<S> <C> <C>
Net earnings $ 282,923 $ 304,206
Adjustments to reconcile net earnings to
cash provided by operating activities
Depreciation and amortization 422,265 321,597
Issuance of treasury stock for
compensation expenses 21,120 23,199
Issuance of convertible debt for interest
expense - 101,222
Inventory reserves 50,000 -
Deferred income taxes 173,000 173,000
Changes in assets and liabilities
Accounts receivable (242,053) 1,491,170
Inventories 275,045 378,169
Other assets 4,511 (30,854)
Accounts payable (291,828) (214,583)
Customer deposits and accrued expenses 8,077,629 (690,541)
- ----------------------------------------------------------------------------------------
8,772,612 1,856,585
- ----------------------------------------------------------------------------------------
Cash provided (used) by investment activities
Property and equipment expenditures (148,008) (190,246)
Capitalized software additions (121,872) (110,867)
- ----------------------------------------------------------------------------------------
(269,880) (301,113)
- ----------------------------------------------------------------------------------------
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 (135,000) (145,726)
Proceeds from stock options exercised - 4,500
- ----------------------------------------------------------------------------------------
(135,000) (1,671,558)
- ----------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 8,367,732 (116,086)
Cash and cash equivalents, beginning of period 2,242,433 171,687
========================================================================================
Cash and cash equivalents, end of period $10,610,165 $ 55,601
========================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the three months for:
Interest $ 80,134 $ 78,248
Income taxes $ - $ -
========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
8
<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
Primary earnings per share are calculated by dividing net earnings by
the weighted average number of common shares and dilutive common stock
equivalents using the treasury stock method. Fully diluted earnings
per share assumed conversion of the outstanding convertible
debentures.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings
per Share" superseding Accounting Principles Board (APB) Opinion No.
15, "Earnings per Share". The Company plans to adopt SFAS No. 128 in
the second quarter of fiscal 1998. Earnings per share computed under
the provisions of SFAS No. 128 were the same as those computed under
APB Opinion No. 15 for the first quarters of fiscal 1998 and 1997.
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.
Note 2 Accounts Receivable
Accounts receivable are summarized as follows:
November 28, August 29,
1997 1997
------------ ------------
(Unaudited)
Accounts receivable - trade $5,136,845 $4,881,565
Other receivables 79,851 92,812
------------ ------------
5,216,696 4,974,377
Less allowance for
doubtful accounts (362,009) (361,743)
------------ ------------
$4,854,687 $4,612,634
============ ============
9
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 3 Inventories
Inventories are summarized as follows:
November 28, August 29,
1997 1997
------------- -------------
(Unaudited)
Raw material $ 4,596,671 $ 4,550,550
Work-in-process 3,858,010 4,051,281
Finished goods 3,129,153 3,256,294
------------- -------------
11,583,834 11,858,125
Less inventory reserves (1,916,207) (1,865,453)
============= =============
$ 9,667,627 $ 9,992,672
============= =============
Note 4 Income Taxes
For the three months ended November 28, 1997, income tax expense of
$173,000 was comprised of a federal and state deferred income tax
expense of $155,000 and $18,000, respectively. There was no current
federal or state income tax expense due to utilization of tax net
operating loss carryforwards. Deferred tax assets decreased $173,000
in the first quarter. At November 28, 1997, the Company had
approximately $2,557,000 of federal net operating loss carryforwards
which expire in 2008 through 2012; and $137,000 of alternative minimum
tax credits and $159,000 of other federal tax credits expiring through
2004 available to offset future tax liabilities.
10
<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, plans for future business
development activities, capital spending or financing sources, capital structure
and 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, product
demand, governmental regulation and technological developments, competition 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 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 28, 1997 COMPARED TO THREE MONTHS ENDED NOVEMBER 29,
1996
Net earnings were $283,000 or $0.02 per share for the three month period ended
November 28, 1997, compared to $304,000 or $0.03 per share for the three month
period ended November 29, 1996.
Revenues - The Company's revenues for the first quarter of fiscal 1998 were
$6,706,000, compared to $6,643,000 for the same period in fiscal 1997.
Direct Broadcast Satellite (DBS) revenues decreased $377,000 in the first
quarter of fiscal 1998 to $5,355,000 from $5,732,000 for the same period in
fiscal 1997. The decrease is mainly due to the scheduled timing of shipments in
the order backlog. Fiscal 1997 revenues included completion of deliveries of
MPEG-2 products for use by the MSNBC network. International DBS revenues in the
first quarter of the current fiscal year increased $446,000 to $1,123,000 from
$677,000 in the same period of fiscal 1997. The increase was due to shipments of
digital video products for use in India. Telecom and Custom Products Group
revenues increased $386,000 to $1,129,000 in the first quarter of fiscal 1998
from $743,000 in the first quarter of fiscal 1997. The increase was mainly due
to higher levels of shipments of cue and control equipment to provide local
commercial insertion capabilities to cable television headend systems. The
Company's backlog is comprised of undelivered, firm customer orders, which are
scheduled to ship within eighteen months. WCI's backlog was approximately
$19,268,000 at November 28, 1997, compared to $19,501,000 at
11
<PAGE>
August 29, 1997 and $10,653,000 at November 29, 1996. Subsequent to November 28,
1997, additional orders booked amounted to approximately $4,972,000.
Gross Profit Margins - Gross profit decreased $49,000 or 2.2% in the three month
period ended November 28, 1997, compared to the three month period ended
November 29, 1996, as a result of a decrease in revenues for the period. Gross
profit as a percent of revenues was 32.4% in the first quarter of fiscal 1998
compared to 33.5% in the first quarter of fiscal 1997. The decrease in the
percentage was mainly due to the mix of products sold.
Selling, General and Administrative - Selling, general and administrative
expenses increased $65,000 or 6.6% to $1,050,000 in the first quarter of fiscal
1998 from $986,000 in the first quarter of fiscal 1997. The increase is
primarily due to higher levels of selling and marketing expenses, and ISO 9000
certification costs. As a percentage of revenues, selling, general and
administrative expenses were 15.7% for the three month period ended November 28,
1997 compared to 14.8% for the same period ended November 29, 1996. As a
percentage of revenues, selling, general and administrative expenses are
expected to decrease in fiscal 1998 compared to fiscal 1997 due to an expected
increase in fiscal 1998 revenues.
Research and Development - Research and development expenditures, including
capitalized software development costs, were $777,000 or 11.6% of revenues in
the first quarter of fiscal 1998 compared to $678,000 or 10.2% of revenues for
the same period of fiscal 1997. Capitalized software development costs amounted
to $107,000 in the first quarter of fiscal 1998 compared to $111,000 in the
first quarter of fiscal 1997. Research and development expenses, excluding
capitalized software development costs, were $670,000 or 10.0% of revenues in
the first quarter of fiscal 1998, and $567,000 or 8.5% of revenues in the same
period of fiscal 1997. The increase in expenses is primarily due to an increase
in engineering personnel and higher depreciation and proto-type material
expenses.
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 percent of revenues due to an expected increase
in fiscal 1998 revenues.
Interest Expense - Interest expense decreased $106,000 to $76,000 in the first
quarter of fiscal 1998 from $182,000 in the same period in fiscal 1997. The
decrease is primarily due to a decrease in the average outstanding balance of
the convertible debentures.
Interest Income - Interest income was $77,600 for the three months ended
November 28, 1997 compared to $1,400 for the same period ended November 26,
1996. The increase is due to the increase in cash equivalent balances at
November 28, 1997, primarily as a result of an increase in customer deposits.
Income Tax Expense - For the three months ended November 28, 1997, income tax
expense of $173,000 was comprised of a federal and state deferred income tax
expense of $155,000 and $18,000, respectively. There was no current federal or
state income tax expense due to utilization of tax net operating loss
carryforwards.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
THREE MONTHS ENDED NOVEMBER 28, 1997
During the first quarter of fiscal 1998, operating activities provided cash of
$8,773,000. Increases in customer deposits and net earnings adjusted for
non-cash expenses provided cash of $8,064,000 and $949,000, respectively.
Changes in accounts receivable, inventories and accounts payable balances used
cash of $254,000. Cash used by investing activities for property and equipment
expenditures and capitalized software additions was $270,000. Financing
activities used cash of $135,000 for scheduled repayments of long-term
obligations.
At November 28, 1997, 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. Approximately, $3,342,000 was available to borrow at November 29,
1997 under the advance formulas. In addition, at November 29, 1997, the Company
was in compliance with the line-of-credit covenants.
During the first quarter of fiscal 1998, $964,000 of convertible debentures were
converted into 659,023 shares of common stock. Subsequent to November 28, 1997,
the remaining outstanding convertible debentures of $321,000 were converted into
291,635 shares of common stock.
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.
13
<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 November 28, 1997.
14
<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 it behalf by the
undersigned thereunto duly authorized.
WEGENER CORPORATION
------------------------
(Registrant)
Date: January 12, 1998 By: /s/ Robert A. Placek
--------------------------
Robert A. Placek
President
(Principal Executive Officer)
Date: January 12, 1998 By: /s/ C. Troy Woodbury, Jr.
------------------------------
C. Troy Woodbury, Jr.
Treasurer and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-28-1998
<PERIOD-START> AUG-30-1997
<PERIOD-END> NOV-28-1997
<CASH> 10,610,165
<SECURITIES> 0
<RECEIVABLES> 5,216,696
<ALLOWANCES> (362,009)
<INVENTORY> 9,667,627
<CURRENT-ASSETS> 26,390,344
<PP&E> 13,267,098
<DEPRECIATION> (8,366,504)
<TOTAL-ASSETS> 33,536,831
<CURRENT-LIABILITIES> 15,408,431
<BONDS> 1,973,278
0
0
<COMMON> 120,229
<OTHER-SE> 16,034,893
<TOTAL-LIABILITY-AND-EQUITY> 33,536,831
<SALES> 6,706,020
<TOTAL-REVENUES> 6,706,020
<CGS> 4,531,739
<TOTAL-COSTS> 6,251,945
<OTHER-EXPENSES> (77,634)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75,786
<INCOME-PRETAX> 455,923
<INCOME-TAX> 173,000
<INCOME-CONTINUING> 282,923
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 282,923
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
