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 27, 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
REGISTRANT'S WEB SITE: HTTP://WWW.WEGENER.COM
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
YES [ X ] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of December 31, 1998.
Common Stock, $.01 par value 11,980,825 Shares
- ---------------------------- ----------------------------
Class Outstanding December 31,1998
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
Form 10-Q For the Quarter Ended November 27, 1998
INDEX
Page(s)
-------
PART I. Financial Information
Item 1. Consolidated Financial Statements
Introduction ........................................................3
Consolidated Statements of Operations
(Unaudited) - Three Months Ended
November 27, 1998 and November 28, 1997 .............................4
Consolidated Balance Sheets - November 27,
1998 (Unaudited) and August 28, 1998 ................................5
Consolidated Statements of Shareholders' Equity
(Unaudited) - Three Months Ended November 27,
1998 and November 28, 1997 ..........................................6
Consolidated Statements of Cash Flows
(Unaudited) - Three Months Ended November 27,
1998 and November 28, 1997 ..........................................7
Notes to Consolidated Financial
Statements (Unaudited) ...........................................8-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................11-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk..........14
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 ...................................15
Signatures .........................................................16
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 27, 1998; the consolidated
statements of shareholders' equity as of November 27, 1998 and November 28,
1997; the consolidated statements of operations for the three months ended
November 27, 1998 and November 28, 1997; and the consolidated statements of cash
flows for the three months ended November 27, 1998 and November 28, 1997 have
been prepared without audit. The consolidated balance sheet as of August 28,
1998 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 28, 1998, 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 27, November 28,
1998 1997
- --------------------------------------------------------------------------------
Revenues $ 6,466,251 $ 6,706,020
- --------------------------------------------------------------------------------
Operating costs and expenses
Cost of products sold 4,367,280 4,531,739
Selling, general, and administrative 1,125,739 1,050,310
Research and development 633,639 669,896
- --------------------------------------------------------------------------------
Operating costs and expenses 6,126,658 6,251,945
- --------------------------------------------------------------------------------
Operating income 339,593 454,075
Interest expense (43,496) (75,786)
Interest income 82,956 77,634
- --------------------------------------------------------------------------------
Earnings before income taxes 379,053 455,923
Income tax expense 148,000 173,000
- --------------------------------------------------------------------------------
Net earnings $ 231,053 $ 282,923
================================================================================
Net earnings per share:
Basic $ .02 $ .02
Diluted $ .02 $ .02
================================================================================
Shares used in per share calculation
Basic 11,971,877 11,345,504
Diluted 12,035,217 11,977,657
================================================================================
See accompanying notes to consolidated financial statements.
4
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 27, August 28,
1998 1998
- -----------------------------------------------------------------------------------------
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents $ 8,149,008 $ 6,492,760
Accounts receivable 4,541,569 5,314,938
Inventories 7,321,074 7,120,393
Deferred income taxes 1,030,000 1,011,000
Other 54,143 23,710
- -----------------------------------------------------------------------------------------
Total current assets 21,095,794 19,962,801
Property and equipment 4,494,578 4,523,297
Capitalized software costs 1,139,165 1,211,914
Other assets 197,794 207,002
- -----------------------------------------------------------------------------------------
$ 26,927,331 $ 25,905,014
=========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,483,430 $ 2,113,205
Accrued expenses 1,327,470 1,490,041
Customer deposits 1,449,486 784,621
Current maturities of long-term obligations 690,730 597,664
- -----------------------------------------------------------------------------------------
Total current liabilities 5,951,116 4,985,531
Long-term obligations, less current maturities 1,041,704 1,231,338
Deferred income taxes 580,000 608,000
- -----------------------------------------------------------------------------------------
Total liabilities 7,572,820 6,824,869
- -----------------------------------------------------------------------------------------
Commitments
Shareholders' equity
Common stock, $.01 par value, 20,000,000 shares
authorized; 12,314,575 shares issued 123,146 123,146
Additional paid-in capital 19,427,706 19,407,417
Retained earnings (deficit) 113,561 (117,492)
Less treasury stock, at cost (333,750 and 358,546
shares) (309,902) (332,926)
- -----------------------------------------------------------------------------------------
Total shareholders' equity 19,354,511 19,080,145
- -----------------------------------------------------------------------------------------
$ 26,927,331 $ 25,905,014
=========================================================================================
</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 Retained Treasury Stock
------------ Paid-in Earnings --------------
Shares Amount Capital (Deficit) Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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)
====================================================================================================================================
BALANCE, at August 28, 1998 12,314,575 $ 123,146 $19,407,417 $ (117,492) (358,546) $ (332,926)
Treasury stock reissued through
stock options and 401(k) plan -- -- 20,289 -- 24,796 23,024
Net earnings for the three months -- -- -- 231,053 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, AT NOVEMBER 27, 1998 12,314,575 $ 123,146 $19,427,706 $ 113,561 (333,750) $ (309,902)
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
NOVEMBER 27, November 28,
1998 1997
- -------------------------------------------------------------------------------------
CASH PROVIDED (USED) BY OPERATING ACTIVITIES
<S> <C> <C>
Net earnings $ 231,053 $ 282,923
Adjustments to reconcile net earnings to
cash provided by operating activities
Depreciation and amortization 407,123 422,265
Issuance of treasury stock for
compensation expenses 42,954 21,120
Inventory reserves 50,000 50,000
Deferred income taxes (47,000) 173,000
Changes in assets and liabilities
Accounts receivable 773,369 (242,053)
Inventories (250,681) 275,045
Other assets (30,433) 4,511
Accounts payable and accrued expenses 207,654 (278,225)
Customer deposits 664,865 8,064,026
- -------------------------------------------------------------------------------------
2,048,904 8,772,612
- -------------------------------------------------------------------------------------
CASH PROVIDED (USED) BY INVESTMENT ACTIVITIES
Property and equipment expenditures (200,168) (148,008)
Capitalized software additions (84,647) (121,872)
- -------------------------------------------------------------------------------------
(284,815) (269,880)
- -------------------------------------------------------------------------------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES
Proceeds from long-term debt 1,359,508 --
Repayment of long-term debt and capitalized
lease obligations (1,456,076) (135,000)
Debt issuance cost (11,632) --
Proceeds from stock options exercised 359 --
- -------------------------------------------------------------------------------------
(107,841) (135,000)
- -------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 1,656,248 8,367,732
Cash and cash equivalents, beginning of period 6,492,760 2,242,433
- -------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 8,149,008 $ 10,610,165
=====================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the three
months for:
Interest $ 53,569 $ 80,134
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 28, 1998.
Earnings Per Share
In fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No, 128, "Earnings Per Share" (SFAS 128). SFAS 128 establishes
standards for computing and presenting earnings per share (EPS), and
supersedes APB Opinion No. 15. The Statement replaces primary EPS with
basic EPS and requires a dual presentation of basic and diluted EPS.
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.
Comprehensive Net Income
During the first quarter of fiscal 1999, the Company adopted Statement
of Financial Accounting Standards No.130, "Reporting Comprehensive
Income," (SFAS 130) which establishes standards for the reporting of
comprehensive income and its components in financial statements.
Comprehensive income consists of net income and other gains and losses
affecting shareholders' equity that, under generally accepted accounting
principles, are excluded from net income. For the three months ending
November 27, 1998 and November 28, 1997 the Company's net income and
total comprehensive income were the same.
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 1999 and 1998
contain fifty-three and fifty-two weeks, respectively.
8
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 2 Accounts Receivable
Accounts receivable are summarized as follows:
NOVEMBER 27, August 28,
1998 1998
----------- -----------
(UNAUDITED)
Accounts receivable - trade $ 4,532,000 $ 5,139,414
Recoverable income taxes 124,000 295,000
Other receivables 136,321 137,515
----------- -----------
4,792,321 5,571,929
Less allowance for
doubtful accounts (250,752) (256,991)
----------- -----------
$ 4,541,569 $ 5,314,938
=========== ===========
Note 3 Inventories
Inventories are summarized as follows:
NOVEMBER 27, August 28,
1998 1998
----------- -----------
(UNAUDITED)
Raw material $ 2,764,020 $ 2,692,937
Work-in-process 3,188,764 3,139,249
Finished goods 2,859,984 2,727,727
----------- -----------
8,812,768 8,559,913
Less inventory reserves (1,491,694) (1,439,520)
----------- -----------
$ 7,321,074 $ 7,120,393
=========== ===========
Note 4 Income Taxes
For the three months ended November 27, 1998, income tax expense of
$148,000 was comprised of a current federal and state income tax expense
of $171,000 and $24,000, respectively, and a deferred federal and state
tax benefit of $42,000 and $5,000, respectively. Net deferred tax assets
increased $47,000 in the first quarter.
9
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 per share
computations.
<TABLE>
<CAPTION>
Three months ended
----------------------------------------------------------------------------------------
NOVEMBER 27, 1998 November 28, 1997
----------------------------------------- ----------------------------------------
PER Per
EARNINGS SHARES SHARE Earnings Shares share
(NUMERATOR) (DENOMINATOR) AMOUNT (Numerator) (Denominator) amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Net earnings $231,053 $282,923
======== ========
Basic earnings per share:
Net earnings available
to common shareholders $231,053 11,971,877 $0.02 $282,923 11,345,504 $0.02
===== =====
Effect of dilutive potential common shares:
Stock options -- 63,340 -- 178,470
Convertible debentures -- -- 9,848 453,683
-------- ---------- -------- ----------
Diluted earnings per share:
Net earnings available
to common shareholders
plus assumed conversions $231,053 12,035,217 $0.02 $292,771 11,977,657 $0.02
======== ========== ===== ======== ========== =====
</TABLE>
Stock options which were excluded from the diluted net earnings per share
calculation due to their anti-dilutive effect are as follows:
Three months ended
----------------------------------
NOVEMBER 27, November 28,
1998 1997
============== ==============
Common stock options:
Number of shares 173,500 48,500
Range of exercise prices $2.00 TO 12.13 $2.44 to 12.13
============== ==============
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 28, 1998 contained in the Company's 1998 Annual Report on Form
10-K.
Certain statements contained in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, such
as statements relating to financial results, future business or product
development plans, research and development activities, capital spending,
financing sources or capital structure, the effects of regulation and
competition, and are thus prospective. Such forward-looking statements are
subject to risks, uncertainties and other factors which could cause actual
results to differ materially from future results expressed or implied by such
forward-looking statements. Potential risks and uncertainties include, but are
not limited to, economic conditions, customer plans and commitments, product
demand, government regulation, rapid technological developments and changes,
performance issues with key suppliers and subcontractors, delays in product
development and testing, material availability, new and existing
well-capitalized competitors, and other uncertainties detailed in the Company's
Form 10-K for the year ended August 28, 1998 and from time to time in the
Company's periodic Securities and Exchange Commission filings.
The Company manufactures satellite communications equipment through Wegener
Communications, Inc. (WCI), a wholly-owned subsidiary. WCI designs and
manufactures communications transmission and receiving equipment for the
business broadcast, data communications, cable and broadcast radio and
television industries.
RESULTS OF OPERATIONS
THREE MONTHS ENDED NOVEMBER 27, 1998 COMPARED TO THREE MONTHS
ENDED NOVEMBER 28, 1997
Net earnings were $231,000 or $0.02 per share for the three month period ended
November 27, 1998, compared to $283,000 or $0.02 per share for the three month
period ended November 28, 1997.
REVENUES - The Company's revenues for the first quarter of fiscal 1999 were
$6,466,000, compared to $6,706,000 for the same period in fiscal 1998.
Direct Broadcast Satellite (DBS) revenues increased $319,000 or 5.9%, in the
first quarter of fiscal 1999 to $5,674,000 from $5,355,000 for the same period
in fiscal 1998. The increase was mainly due to an increase in shipments of
digital video and audio products. Telecom and Custom Products Group revenues
decreased $534,000 or 47.3% to $595,000 in the first quarter of fiscal 1999 from
$1,129,000 in the first quarter of fiscal 1998. 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. The
Company's backlog is comprised of undelivered, firm customer orders, which are
scheduled to ship within eighteen months. WCI's backlog was approximately
$11,600,000 at November 27, 1998, compared to $12,596,000 at August 28, 1998 and
$19,268,000 at November 28, 1997.
11
<PAGE>
GROSS PROFIT MARGINS - Gross profit decreased $75,000 or 3.5% in the three month
period ended November 27, 1998, compared to the three month period ended
November 28, 1997, as a result of a decrease in revenues for the period. Gross
profit as a percent of revenues was 32.5% in the first quarter of fiscal 1999
compared to 32.4% in the first quarter of fiscal 1998.
SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and administrative
expenses increased $76,000 or 7.2% to $1,126,000 in the first quarter of fiscal
1999 from $1,050,000 in the first quarter of fiscal 1998. The increase was
primarily due to higher levels of selling and marketing, compensation, and
maintenance expenses. As a percentage of revenues, selling, general and
administrative expenses were 17.4% for the three month period ended November 27,
1998 compared to 15.7% for the same period ended November 28, 1997.
RESEARCH AND DEVELOPMENT - Research and development expenditures, including
capitalized software development costs, were $718,000 or 11.1% of revenues in
the first quarter of fiscal 1999 compared to $777,000 or 11.6% of revenues for
the same period of fiscal 1998. Capitalized software development costs amounted
to $85,000 in the first quarter of fiscal 1999 compared to $107,000 in the first
quarter of fiscal 1998. Research and development expenses, excluding capitalized
software development costs, were $634,000 or 9.8% of revenues in the first
quarter of fiscal 1999, and $670,000 or 10.0% of revenues in the same period of
fiscal 1998. The decrease in expenses was primarily due to lower proto-type
material expenses.
INTEREST EXPENSE - Interest expense decreased $33,000 to $43,000 in the first
quarter of fiscal 1999 from $76,000 in the same period in fiscal 1998. The
decrease was primarily due to a decrease in the average outstanding balance of
the convertible debentures and a decrease in the interest rate on the mortgage
debt.
INTEREST INCOME - Interest income was $83,000 for the three months ended
November 27, 1998 compared to $78,000 for the same period ended November 28,
1997.
INCOME TAX EXPENSE - For the three months ended November 27, 1998, income tax
expense of $148,000 was comprised of a current federal and state income tax
expense of $171,000 and $24,000, respectively, and a deferred federal and state
tax benefit of $42,000 and $5,000, respectively.
LIQUIDITY AND CAPITAL RESOURCES
THREE MONTHS ENDED NOVEMBER 27, 1998
During the first quarter of fiscal 1999, operating activities provided cash of
$2,049,000. Net earnings adjusted for non-cash expenses provided $684,000 of
cash, while changes in accounts receivable and customer deposit balances
provided $1,438,000 of cash. Changes in inventories, accounts payable, and other
assets used $73,000 of cash. Cash used by investing activities for property and
equipment expenditures and capitalized software additions was $285,000.
Financing activities used cash of $108,000 for scheduled repayments of long-term
obligations.
On August 4, 1998, WCI amended its secured revolving line of credit and term
loan facility (loan facility) with a bank to provide a maximum available credit
limit of $10,000,000 (previously $8,500,000). The credit limit increase provides
for advances of up to 70% of the appraised value of certain real property
subject to a sublimit of $1,500,000. The loan facility was also amended to
extend the term through June 21, 2000 or upon demand, to reduce the interest
rate to the bank's prime rate (7.75% at November 27, 1998) (previously prime
plus 1/2% on the revolving line and
12
<PAGE>
prime plus 1 1/2% on the term line) and to amend the annual facility fee to
$55,000 plus an additional .75% of $3,000,000, if borrowings exceed $5,500,000
(previously $85,000). Advances for real property are payable over 35 months and
bear interest at a fixed annual rate of 250 basis points over the five year U.S.
Treasury rate in effect at the time of disbursement. During the first quarter of
fiscal 1999, $1,360,000 was advanced to pay off the existing mortgage note
balance. At the time of disbursement the annual interest rate was set at 6.519%.
The term loan facility provides for a maximum of $1,000,000 for advances of up
to 80% of the cost of equipment acquisitions. Principal advances are payable
monthly over sixty months with a balloon payment due at maturity. The revolving
line of credit is subject to availability advance formulas of 80% against
eligible accounts receivable; 20% of eligible raw 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. Revolving line of credit advances plus equipment term loan advances
are subject to a sublimit of $8,500,000. At November 27, 1998, outstanding
balances on real property advances were $1,321,000. No balances were outstanding
on the revolving line of credit or equipment term loan portions of the loan
facility. Additionally, at November 27, 1998, approximately $3,790,000 was
available to borrow under the advance formulas.
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 1999.
YEAR 2000
State of Readiness
- ------------------
Management of the Company has reviewed the Company's current information systems
and has found them, with a few minor exceptions, to be Year 2000 compliant.
However, the Company is currently in the process of replacing its older
information systems with new systems that offer easier access to more data and
are certified to be able to handle the Year 2000 transition.
Management of the Company has reviewed and tested the Company's phone, voice
mail, e-mail, and security systems and all are believed to be Year 2000
compliant. Utility companies have been contacted and have reported to the
Company that only minor problems have been noted in regards to their billing
software as a result of their Year 2000 testing completed to date.
The Company has requested Year 2000 compliance statements from all major
vendors. There have been no indications that major vendors will not be Year 2000
compliant. However, there can be no absolute assurances in this regard and their
failure to be compliant remains a possibility. If vendors are not Year 2000
compliant, there can be no assurance that the Company will be able to find
suitable alternate suppliers and contract with them on reasonable terms, or at
all, and such inability could have a material and adverse impact on the
Company's business and results of operations.
All test equipment used in engineering, service, and manufacturing departments
has been reviewed and all are Year 2000 compliant.
All of the Company's products have been reviewed for Year 2000 compliance. All
are compliant with the exception of certain minor problems in the schedule and
repetitive scheduler programs of an older version of uplink software. All
customers affected by this are being offered a migration path to newer software
which is Year 2000 compliant.
13
<PAGE>
Costs to Address the Year 2000 Issues
- -------------------------------------
Management of the Company believes that although the evaluation of internal
systems is still in process, the impact of the Year 2000 transition on the
Company's internal systems will not result in material costs to the Company or
have a material adverse impact on future results.
Risks of the Year 2000 Issues
- -----------------------------
The main risk to the Company with respect to Year 2000 is the failure of major
vendors and service providers to be Year 2000 compliant. Failure on their part
could result in delays in obtaining parts, increased cost of parts, and overall
inability to manufacture product in the event of a shutdown of major utility
providers. Major vendors and service providers have reported to the Company that
they will be Year 2000 compliant. The Company cannot estimate the financial
impact of any failure to be Year 2000 compliant by such third party vendors and
service providers.
Contingency Plans
- -----------------
The Company does not have a contingency plan for Year 2000 compliance because it
does not anticipate that it will fail to be Year 2000 compliant, particularly in
relation to those systems, software programs, and hardware that are under its
control. However, there can be no assurances that all measures being taken to
avoid Year 2000 problems will be effective and as such, unforeseen issues could
arise that could lead to a material adverse effect upon the Company's business,
operating results and financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No response to this item is required.
14
<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 27, 1998.
15
<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 11, 1999 By: /s/ Robert A. Placek
-------------------------------------
Robert A. Placek
President
(Principal Executive Officer)
Date: January 11, 1999 By: /s/ C. Troy Woodbury, Jr.
-------------------------------------
C. Troy Woodbury, Jr.
Treasurer and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-03-1999
<PERIOD-START> AUG-29-1998
<PERIOD-END> NOV-27-1998
<CASH> 8,149,008
<SECURITIES> 0
<RECEIVABLES> 4,792,321
<ALLOWANCES> (250,752)
<INVENTORY> 7,321,074
<CURRENT-ASSETS> 21,095,794
<PP&E> 12,441,854
<DEPRECIATION> (7,947,276)
<TOTAL-ASSETS> 26,927,331
<CURRENT-LIABILITIES> 5,951,116
<BONDS> 1,041,704
0
0
<COMMON> 123,146
<OTHER-SE> 19,231,365
<TOTAL-LIABILITY-AND-EQUITY> 26,927,331
<SALES> 6,466,251
<TOTAL-REVENUES> 6,466,251
<CGS> 4,367,280
<TOTAL-COSTS> 6,126,658
<OTHER-EXPENSES> (82,956)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,496
<INCOME-PRETAX> 379,053
<INCOME-TAX> 148,000
<INCOME-CONTINUING> 231,053
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 231,053
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
