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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 1, 2000
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
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.01 par value
(Title of class)
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 [ ]
As of November 16, 2000, 11,865,478 shares of registrant's Common Stock
were outstanding and the aggregate market value of the Common Stock held by
nonaffiliates was $11,334,427 based on the last sale price of the Common Stock
as quoted on the NASDAQ Small-Cap Market on such date. (The officers and
directors of the registrant, and owners of over 10% of the registrant's common
stock, are considered affiliates for purposes of this calculation.)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement pertaining to the January 23,
2001 Annual Meeting of Stockholders, only to the extent expressly so stated
herein, are incorporated herein by reference into Part III.
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WEGENER CORPORATION
FORM 10-K
YEAR ENDED SEPTEMBER 1, 2000
INDEX
PART I
Page
Item 1. Business ........................................................ 2
Item 2. Properties ...................................................... 10
Item 3. Legal Proceedings ............................................... 10
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters.......................................................... 10
Item 6. Selected Financial Data ......................................... 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 12
Item 7a. Quantitative and Qualitative Disclosures About Market Risk....... 20
Item 8. Financial Statements and Supplementary Data ..................... 20
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosures............................................ 38
PART III
Item 10. Directors and Executive Officers of the Registrant .............. 38
Item 11. Executive Compensation .......................................... 38
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................... 38
Item 13. Certain Relationships and Related Transactions .................. 38
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.............................................. 39
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PART I
ITEM 1. BUSINESS
Wegener Corporation, the Registrant, together with its subsidiaries, is
referred to herein as the "Company" or "WGNR."
(a) General development of business.
Wegener Corporation was formed in 1977 and is a Delaware corporation. The
Company conducts its continuing business through Wegener Communications, Inc.
(WCI), its wholly owned subsidiary, and Wegener Communications International,
Inc., a wholly owned subsidiary of WCI.
WCI was formed in April 1978 and is a Georgia corporation. Its wholly owned
subsidiary, Wegener Communications International, Inc., is a Small Foreign Sales
Corporation. WCI, a market leader in digital and analog compression technology,
designs and manufactures communications transmission and receiving equipment for
the business broadcast, data communications, internet, cable and broadcast radio
and television industries for worldwide markets.
(b) Financial information about segments.
Segment information contained in Note 11 to the consolidated financial
statements contained in this report is incorporated herein by reference in
response to this item.
(c) Narrative description of business.
(i) Principal products produced and services rendered, and
(ii) Status of a product or segment.
Satellite Communications Electronics.
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WCI is an international provider of digital solutions for video, audio and
broadcast data networks. Applications include broadcast television, cable
television, radio network, business television, distance education, business
music, satellite paging and financial information distribution. WCI services the
products that it sells. The Company warrants its products for a period of one
year. There were no significant warranty claims outstanding as of September 1,
2000.
Throughout fiscal 2000 and fiscal 1999, WCI continued to produce and develop
digital compression products. During fiscal 1997 WCI introduced COMPEL network
control software and the UNITY Digital Broadcast product family. WCI continues
to ship these products against purchase orders it receives. COMPEL provides
networks with unparalleled ability to regionalize programming and commercials
through total receiver control. COMPEL also allows network operators to remotely
control uplinks providing bandwidth on demand. COMPEL control capability is
integrated into the UNITY digital satellite receivers. Wegener's digital
products are in use worldwide in broadcast
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television, distance learning, radio, cable television, and private business
networks. In terms of new orders, digital technology products are the fastest
growing product line for the Company. As expected, demand for the Company's
analog products has continued to decline following market demand for, and the
Company's emphasis on, digital technology.
DIGITAL COMMUNICATIONS. The demand for digital products is being driven by the
high cost of satellite capacity and consumer demand for more channels. Satellite
capacity is scarce due to pressures on both the supply and demand side of the
market. On the supply side, satellites are extremely expensive to launch, build,
and maintain. The useful life of a satellite is limited by the amount of
positioning fuel that can be carried. Also, the placement of satellites is
regulated by the Federal Communications Commission (FCC) and therefore the
number of satellites within range of any given location is limited. On the
demand side, the cost of receive hardware is being steadily reduced through
advancing technology. The reduction in the cost of network hardware increases
the economic feasibility of a greater number of networks. This is evidenced by
the trend in both television and radio towards narrowcasting to well defined
market segments as opposed to broadcasting to the general population. Digital
compression technology allows a four to ten-fold, or more, increase in the
throughput of a satellite channel. For the network, this compression represents
an opportunity to reduce the cost of satellite use. For the satellite operator
it represents an opportunity to increase the revenues generated by an expensive
asset. Due to existing satellite transponder contracts and the cost of replacing
existing analog hardware, the digital conversion of major networks is taking
longer than anticipated. These network conversions are expected to occur in the
near future, but it is impossible to predict the precise timing of customer
internal decision processes. Management believes the market as a whole has
considerable built up demand for digital technology.
Major products introduced by WCI during fiscal 2000 include:
o UNITY500 receiver for private business network distribution. The UNITY500
provides DVB compliant MPEG-2 digital video operating in either SCPC or
MCPC modes from 2.5 to 50 Mb, as well as audio and data in one unit. In
addition, it supports DVB teletext and Line 21.
o UNITY 5000 PRO Broadcast Receiver is ideally suited for the discriminating
broadcast network or programming operator who desires to deliver the
highest quality video available. Including the latest in digital video
technology, the UNITY 5000 PRO delivers fully MPEG2/DVB compliant video and
advanced modulation formats for the highest bit rates possible. MPEG2 4:2:2
studio profile, 4:2:0 distribution profile and RS250C video amplitude
response allow the PRO receiver to fill any high-end application for video
delivery. Both NTSC and PAL video formats are supported with auto-detect,
which allows the UNITY 5000 PRO to be used in international transmission
applications without switching receivers.
o iPump Media Server is an integrated store and forward digital satellite
receiver and multi-media server. The iPump is designed for business,
broadcast and cable applications where the user wants to customize content
playout by specific locations, without the high cost of a server cluster.
Combined with Wegener's patented Compel Control, the network operator can
transmit digital video, audio or data to individual or groups of iPump
Media Servers in either real time or non-real time. iPump shipments are
expected to begin during fiscal year 2001.
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o Compel(TM) Bandwidth on Demand system lets you manage your satellite
network and available bandwidth for maximum efficiency. Compel(TM)
Bandwidth on Demand provides uplink contribution management for total
network control and provides a window into available and utilized
bandwidth. Its powerful, end-to-end command structure simplifies network
control functions while easily accomplishing equipment and bandwidth
objectives - network-wide, by equipment groups, even down to individual
IRDs.
BROADCAST AND PROGRAM DISTRIBUTION. With ongoing breakthroughs in digital
compression, digitized audio and video products have become increasingly
important. WCI manufactures MPEG-2 broadcast quality digital video products for
commercial program distribution. During fiscal 2000, WCI received additional
orders for cable products from FOX/SportsNet for its Unity 4000 MPEG2 digital
video satellite receivers.
Orders received during FY 2000 include:
Wegener received an order from Turner Broadcasting System, Inc. for ENVOY
encoders/modulators, UNITY4422 IRD, and DiviCom digital video encoders. This
equipment will be utilized by Turner Broadcasting System for CNN video links to
Atlanta from London, Moscow, and Jerusalem, plus digital satellite news
gathering activities.
An order in excess of $375,000 for digital video products was received from
ASCENT Network Services, a division of ASCENT Entertainment Group, Inc. NBC News
Channel will use this equipment to upgrade DSNG (Digital Satellite News
Gathering) vehicles and NBC affiliate stations. This is a continuation of NBC
News Channel's announced commitment to both Wegener digital video products and
ASCENT network support services.
A substantial order from CONUS Communications consisting of UNITY4422 IRDs
(Integrated Receiver Decoders) plus COMPEL Network Control with COMPEL-CA
encryption was also received. The UNITY4422 IRDs will be used with a SONY MPEG
encoding and multiplexing system to distribute high quality 4:2:2 profile video
feeds to CONUS member stations. CONUS will provide members with the equipment at
no cost to the stations as the new service transitions to a fully integrated
digital distribution system.
Wegener also announced it received an order in excess of $1 million for digital
video broadcast equipment from TV Azteca, located in Mexico. This order
consisted of Wegener UNITY4422 Digital IRD (Integrated Receiver Decoders), the
UNITYMUX 4010 Data Multiplexer, plus COMPEL Network Control with COMPEL-CA
encryption.
BUSINESS TELEVISION/DISTANCE LEARNING. The Company's analog and digital products
are used by businesses and educational institutions to transmit programming to
remote locations.
WCI announced it received an order from Sweden's national broadcast agency,
TERACOM AB, for Wegener's COMPEL Web Access software module.
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TERACOM AB also placed orders for 3,000 Wegener UNITY 500 Digital Television
Receivers.
CABLE TELEVISION PRODUCTS. During fiscal 2000, WCI continued rollout of the
UNITY 4000 digital video receivers to FX Networks and Fox's regional sports
networks.
Orders received during FY 2000 include:
Wegener received an order from Christian Communications of Chicagoland, Inc. for
digital video products, COMPEL Network Control and a DiviCom MCPC (Multiple
Channels Per Carrier) digital video system. This equipment will be used to
distribute programming for The Total Living Network (TLN).
A $1.4 million dollar order from MEGA HERTZ (MHz) was placed for analog
subcarrier demodulator cards and products that Wegener supplies to the cable
television industry.
RADIO AND TELEVISION BROADCASTING. Broadcasters use WCI equipment to distribute
digital audio, analog audio, video, and cue/network control signals. Television
networks such as FOX, NBC and Turner Broadcasting, use WCI products to
distribute high quality programming from remote locations and between
affiliates. Satellite based radio networks distribute programming and network
control signals to network affiliates.
During the first quarter of fiscal 2000, Wegener received an order from IMPSAT
Argentina, a division of IMPSAT Corporation, for DR Series digital audio
equipment. IMPSAT Argentina will use the Wegener DR96Q QPSK digital receivers
and their existing ANCS system customized with a Data Delivery Module to send
and trigger customized commercial spots using HARDATAis DiNeSat system.
OPTICAL FIBER AND TERRESTRIAL MICROWAVE. Most of WCI's products used on
satellite communications links are easily used on existing microwave or fiber
circuits. Typical applications are digital video links, plus voice and data
circuits that accompany a video signal.
DirecTV, Inc. selected Wegener to provide digital receivers to support its new
service of local broadcast programming to its direct broadcast-by-satellite
(DBS) subscribers.
BUSINESS MUSIC. This market consists of suppliers of business music to
restaurants, offices and various retail establishments. WCI manufactures the
equipment required to transmit audio and data from the business music supplier
to the end user via satellite. The equipment is controlled by the business music
supplier using WCI's network control technology. Potential users include any
business purchasing background music, foreground music and broadcast data.
In early fiscal 2000, MultiPoint Communications, a leading provider of system
integration services based in the United Kingdom, ordered 150 additional Wegener
digital audio receivers for the expansion of one of several existing digital
audio networks in the U.K.
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(iii) Sources and availability of raw materials.
Raw materials consist of passive electronic components, electronic circuit
boards and fabricated sheet metal. WCI purchases approximately one-half of its
raw materials from direct suppliers and the other half is purchased from
distributors. Passive and active components include parts such as resistors,
integrated circuits and diodes. WCI uses approximately ten distributors and
three subcontractors to supply its electronic components. WCI often uses a
single distributor or subcontractor to supply a total sub-assembly or turnkey
solution for higher volume products. Direct sources provide sheet metal,
electronic circuit boards and other materials built to specifications. WCI
maintains relationships with approximately twenty direct suppliers. Most of the
Company's materials are available from a number of different suppliers; however,
certain components used in existing and future products are currently available
from single or limited sources. Although the Company believes that all
single-source components currently are available in adequate quantities, there
can be no assurance that shortages or unanticipated delivery interruptions will
not develop in the future. Any disruption or termination of supply of certain
single-source components could have an adverse effect on the Company's business
and results of operations.
(iv) Patents, trademarks, licenses, franchises and concessions held.
The Company holds certain patents with respect to some of its products and
markets its services and products under various trademarks and tradenames.
Additionally, the Company licenses certain analog audio processing technology to
several manufacturing companies which generated royalty revenues of
approximately $257,000, $73,000 and $184,000 in fiscal 2000, 1999, and 1998,
respectively. Although the Company believes that the patents and trademarks
owned are of value, the Company believes that success in its industry will be
dependent upon new product introductions, frequent product enhancements, and
customer support and service. However, the Company intends to protect its rights
when, in its view, these rights are infringed upon.
(v) Seasonal variations in business.
There does not appear to be any seasonal variations in the Company's
business.
(vi) Working capital practices.
Information contained under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" (MD&A) in this report
is incorporated herein by reference in response to this item.
(vii) Dependence upon a limited number of customers.
The Company sells to a variety of domestic and international customers on
an open-unsecured account basis. These customers principally operate in the
cable television, broadcast business music, private network, and data
communications industries. Sales to Autotote Communications Services and
MegaHertz accounted for approximately 16.2% and 11.1% of revenues in fiscal
2000, respectively.
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Sales to FOX/Liberty Networks, L.L.C. accounted for approximately 19.2% amd
34.2% of revenues in fiscal 1999 and 1998, respectively. At September 1, 2000
four customers accounted for more than 10% of the Company's accounts receivable.
At September 3, 1999, no customer accounted for more than 10% of the Company's
accounts receivable. Sales to a relatively small number of major customers have
typically comprised a majority of the Company's revenues. This trend is expected
to continue in fiscal 2001. There can be no assurance that the loss of one or
more of these customers would not have a material adverse effect on the
Company's operations.
(viii) Backlog of orders.
The Company's backlog is comprised of undelivered, firm customer orders,
which are scheduled to ship within eighteen months. The Company's backlog was
approximately $9,210,000 at September 1, 2000 and $15,691,000 at September 3,
1999. Reference is hereby made to MD&A, which is incorporated herein by
reference in response to this item.
Approximately $9,162,000 of the September 1, 2000 backlog is expected to
ship during fiscal 2001.
(ix) Government contracts.
Not applicable.
(x) Competitive Conditions.
The Company competes with companies that have substantially greater
resources, as well as with small specialized companies. Through relationships
with component and integrated solution providers, the Company has positioned
itself to provide end-to-end digital video and audio solutions to its customers.
Competition in the market for the Company's MPEG-2 broadcast television
electronics products, including digital video equipment, is driven by
timeliness, performance, and price. The Company's broadcast digital video
products are in production and are competitively priced, with unique, desirable
features. Due to the large number of potential end users, both small and large
competitors continue to emerge. The Company believes it has positioned itself to
capitalize on the market trends in this business through careful development of
its product and market strategies, which have proven successful in increasing
revenues from this sector. In the cable television market the Company believes
that the competitive position for many of its products is dominant. However, the
UNITY product family is competing with significant and established firms. WCI
believes that it maintains a competitive advantage in the cable and broadcast
video markets for advertising-supported networks through its ability to provide
regionalized programming and control. Other products for cable television
include proprietary cueing and network control devices. Competition for radio
network products, including the Company's digital audio products, is very
aggressive and pricing is very competitive. The Company believes that its
continued success in all of its markets will depend on aggressive marketing and
product development.
(xi) Research and development activities.
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The Company's research and development is designed to strengthen and
broaden its existing products and systems and to develop new products and
systems. A major portion of the fiscal 2000 research and development expenses
were spent in the digital video product area. WCI's research and development
expenses totaled $3,048,000 in fiscal 2000, and $2,924,000 in fiscal 1999.
Additional information contained on pages 3-4 and in MD&A in this report is
incorporated herein by reference in response to this item.
(xii) Environmental Regulation.
Federal, state and local pollution control requirements have no material
effect upon the capital expenditures, earnings or the competitive position of
the Company.
(xiii) Number of employees.
As of September 1, 2000, the Company had 130 employees employed by the WCI
manufacturing subsidiary and no employees employed by Wegener Corporation. No
employees are parties to a collective bargaining agreement and the Company
believes that employee relations are good.
(d) Financial information about geographic areas.
Information contained in Note 11 to the consolidated financial statements
contained in this report is incorporated herein by reference in response to this
item.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, for purposes of section 401(b) of
Regulation S-K, are as follows:
NAME AND BUSINESS EXPERIENCE AGE OFFICE HELD
ROBERT A. PLACEK 62 President,
President and Chief Executive Officer Chief Executive Officer
of the Company since August 1987 and and Chairman of the
Director of the Company since July 1987. Board of the Company
Chairman of the Board since 1995.
Chairman and Chief Executive Officer
and Director of WCI since 1979.
President of WCI from October 1979 to
June 1998.
KEITH N. SMITH 42 President of WCI
Director of the Company since March
1999. President of WCI since June 1998.
Vice President, Business Development of
WCI from March 1997 to June 1998. Co-
founder and Vice President/General
Manager of Microspace Communications
Corporation from April 1989 through May
1995. From June 1995 until February
1997, Mr. Smith and his wife pursued a
sailing sabbatical.
C. TROY WOODBURY, JR. 53 Treasurer and
Treasurer and Chief Financial Officer of Chief Financial Officer
the Company since June 1988 and of the Company and WCI
Director since 1989. Treasurer and Chief
Financial Officer of WCI since 1992.
Executive Vice President of WCI since
July 1995. Chief Operating Officer of
WCI from September 1992 to June 1998. Group
Controller for Scientific-Atlanta,
Inc. from March 1975 to June 1988.
JAMES T. TRAICOFF 50 Controller of the
Controller of the Company since Company and WCI
November 1991; Controller of WCI since
July 1988; Controller for BBL Industries,
Inc. from April 1985 to July 1988.
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ITEM 2. PROPERTIES
The executive offices of the Company are located at 11350 Technology
Circle, Duluth, Georgia 30097-1502. This 40,000 square foot facility, which is
located on a 4.7-acre site, was purchased by WCI in February 1987. During August
1989, WCI purchased an additional 4.4 acres of adjacent property. WCI also
leased approximately 11,300 square feet under a lease that expired during the
second quarter of fiscal 2000, at an annual rental of approximately $87,000.
During the third quarter of fiscal 2000, the Company moved its production
department, materials management and service departments into a new leased
facility located in Alpharetta, Georgia. This new 21,000 square foot facility is
covered by a lease expiring during the second quarter of fiscal 2005. The annual
rent is approximately $136,000 for the first three (3) years and $143,000 for
the fourth and fifth years. WCI's 40,000 square foot facility is subject to a
mortgage note securing the indebtedness. WCI's 4.4 acres of adjacent land is
pledged as collateral under the Company's line of credit facility.
ITEM 3. LEGAL PROCEEDINGS
No significant legal proceedings involving the Company or its subsidiaries
were pending as of September 1, 2000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the NASDAQ Small-Cap Market (NASDAQ
symbol WGNR). As of November 20, 2000 there were approximately 382* holders of
record of Common Stock. *(This number does not reflect beneficial ownership of
shares held in nominee names).
The quarterly ranges of high and low closing sale prices for fiscal 2000 and
1999 were as follows:
FISCAL 2000 FISCAL 1999
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HIGH LOW HIGH LOW
First Quarter $3 14/32 $1 5/8 $1 27/32 $1 3/8
Second Quarter 8 3/16 2 1/8 2 9/32 1 1/2
Third Quarter 8 2 2 1/2 1 15/32
Fourth Quarter 3 13/32 1 7/16 2 3/16 1 3/8
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The Company has not paid any cash dividends on its Common Stock. For the
foreseeable future, the Company's Board of Directors does not intend to pay cash
dividends, but rather plans to retain earnings to support the Company's
operations and growth. Furthermore, the Company is prohibited from paying
dividends in accordance with its financing agreement, as more fully described in
the MD&A section of this report.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED
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SEPTEMBER 1, SEPTEMBER 3, AUGUST 28, AUGUST 29,
2000 1999 1998 1997
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Revenue $ 22,894 $ 25,259 $ 34,255 $ 21,812
Net earnings (loss) (3,329) 213 2,760 (1,809)
Net earnings (loss)
per share
Basic $ (.28) $ .02 $ .24 $ (.19)
Diluted $ (.28) $ .02 $ .23 $ (.19)
Cash dividends paid
per share (1) -- -- -- --
--------------------------------------------------------------------------------
Total assets $ 24,147 $ 24,954 $ 25,905 $ 25,614
Long-term obligations inclusive
of current maturities 578 1,205 1,829 3,667
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(1) The Company has never paid cash dividends on its common stock and does not
intend to pay cash dividends in the foreseeable future.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
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 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 manufactures products
for transmission of audio, data, and video via satellite.
RESULTS OF OPERATIONS
Net loss for the year ended September 1, 2000 was $(3,329,000) or $(0.28)
per share diluted, compared to earnings of $213,000 or $0.02 per share diluted
for the year ended September 3, 1999 and earnings of $2,760,000 or $0.23 per
share diluted for the year ended August 28, 1998.
Revenues for fiscal 2000 decreased $2,365,000 or 9.4% to $22,894,000 from
$25,259,000 in fiscal 1999. Direct Broadcast Satellite (DBS) revenues in fiscal
2000 decreased $2,342,000 or 10.5% to $19,910,000 from $22,252,000 in fiscal
1999. Telecom and Custom Product revenues decreased $22,000 or less than 1% in
fiscal 2000 to $2,985,000 from $3,007,000 in fiscal 1999. Revenues were
$4,124,000 for the fourth fiscal quarter of 2000, compared to revenues of
$4,717,000 for the final three months of fiscal 1999. The decrease in DBS
revenues in the fourth quarter and fiscal 2000 was due to delayed product
introductions by the Company and delayed purchasing decisions in the digital
satellite transmission market. Industry-wide new product introductions, as well
as increased pricing competition, contributed to the expanded range of choices
available to buyers. The Telecom and Custom Product Group revenue decrease in
fiscal 2000 was primarily due to the continued lower level of shipments of cue
and control equipment to provide local commercial insertion capabilities to
cable television headend systems.
Fiscal 1999 revenues decreased $8,996,000 or 26.3% to $25,259.000 from
fiscal 1998 revenues of $34,255,000. DBS revenues in fiscal 1999 decreased
$7,725,000 or 25.8% to $22,252,000 from $29,977,000 in fiscal 1998. Telecom and
Custom Product revenues decreased $1,271,000 or 29.7% in fiscal 1999 to
$3,007,000 from $4,278,000 in fiscal 1998. The decrease in DBS revenues in
fiscal 1999 was due to a slowdown in the pace of digital video product orders
for both the cable and broadcast TV industries and also in products for the
radio network business. The Telecom and Custom Product Group revenue decrease in
fiscal 1999 was primarily due to a lower level of shipments in fiscal 1999 of
cue and
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control equipment to provide local commercial insertion capabilities to cable
television headend systems.
WCI's backlog of orders scheduled to ship within eighteen months decreased
$6,481,000 or 41.3% to $9,210,000 at September 1, 2000 from $15,691,000 at
September 3, 1999. The September 3, 1999 backlog increased $3,095,000 or 24.6%
to $15,691.000 from $12,596,000 at August 28, 1998. Approximately $9,162,000 of
the September 1, 2000 backlog is expected to ship during fiscal 2001. Although
no assurance may be given, the Company believes it will book sufficient new
orders in fiscal 2001 to improve operating results, although there can be
fluctuations in quarter to quarter operating results due to the timing of orders
received.
International sales are generated through a direct sales organization and
through foreign distributors. International sales were $4,150,000 or 18.1% of
revenues in fiscal 2000, compared to $3,494,000 or 13.8% of revenues in fiscal
1999, and $3,311,000 or 9.7% of revenues in fiscal 1998. Management believes
that international sales could increase as more business opportunities become
available for WCI products in the future. All international sales are
denominated in U.S. dollars. Additional financial information on geographic
areas is provided in Note 11 of the consolidated financial statements.
Gross profit decreased $3,385,000 or 41.3% in fiscal 2000 compared to
fiscal 1999. Gross profit as a percent of sales was 21% in fiscal 2000, compared
to 32.5% in fiscal 1999 and 34.5% in fiscal 1998. The decrease in margin dollars
and percentages in fiscal 2000 was mainly due to lower revenues during the
period which resulted in higher unit fixed overhead costs. Variable costs were
also higher in fiscal 2000. Profit margins in fiscal 2000 included: 1) inventory
reserve charges of $1,246,000 compared to $750,000 in fiscal 1999 and 2)
warranty provisions of $215,000 compared to $150,000 in fiscal 1999. Gross
profit margin percentages were favorably impacted in fiscal 1999 by a product
mix of lower variable cost components which was offset by higher unit fixed
costs due to the decrease in sales volumes. Profit margins in fiscal 1999
included: 1) inventory reserve charges of $750,000 compared to $1,150,000 in
fiscal 1998, 2) warranty provisions of $150,000 compared to no provisions in
fiscal 1998 and 3) no charges for write-offs of capitalized software compared to
$200,000 in fiscal 1998.
Selling, general and administrative expenses increased $2,094,000 or 40.7%
to $7,241,000 in fiscal 2000 from $5,147,000 in fiscal 1999. As a percentage of
revenues, selling, general and administrative expenses were 31.6% of revenues in
fiscal 2000 and 20.4% in fiscal 1999. These costs increased in fiscal 2000
primarily due to efforts to strengthen the marketing and sales capability of the
Company, increased awareness of the Company through advertising and the hiring
of a financial relations firm, non-cash stock compensation expenses, and costs
related to an improved management information system. The dollar increase of
expenses in fiscal 2000 compared to fiscal 1999 includes increases in 1)
advertising expense of $94,000, 2) repairs and maintenance expense of $73,000,
3) consulting expense of $72,000, 4) depreciation and amortization of $135,000,
5) taxes and licenses of $103,000, 6) professional fees of $366,000, 7) outside
sales agent commissions of $210,000, 8) travel expenses of $120,000, 9) salaries
and benefit costs of $356,000, and 10) non-cash stock option compensation
expenses of $489,000. Selling, general and administrative expenses increased
$217,000 or 4.4% to $5,147,000 in fiscal 1999 from $4,930,000 in fiscal 1998.
The dollar increase of expenses in fiscal 1999 compared to fiscal 1998 includes
increases in 1) advertising expense of $82,000, 2) repairs and maintenance
expense of $112,000, and 3) consulting expense of $102,000. These increases in
fiscal 1999 were partially offset by a decrease of approximately $143,000 in
sales incentive costs due to lower levels of revenues. General corporate
expenses included in selling, general and administrative expense were
approximately $805,000,
13
<PAGE>
$467,000, and $456,000 in 2000, 1999, and 1998, respectively. The corporate
expenses include $238,000 of professional fees, including a non-cash charge of
$175,000 related to the amortization of the fair value of stock options,
pursuant to the Company's agreement with RCG Capital Markets Group, Inc. to
provide a national financial relations program.
Research and development expenditures, including capitalized software
development costs, were $3,689,000 or 16.1% of revenues in fiscal 2000,
$3,331,000 or 13.2% of revenues in fiscal 1999, and $3,080,000 or 9.0% of
revenues in fiscal 1998. The increase in expenditures in fiscal 2000 compared to
fiscal 1999 was primarily due to increases in engineering labor and related
support costs and engineering consulting. Software development costs totaling
$641,000, $407,000, and $436,000 were capitalized during fiscal 2000, 1999 and
1998, respectively. The increase in expenditures in fiscal 1999 compared to
fiscal 1998 was primarily due to increases in engineering consulting and group
medical insurance expenses. Research and development expenses, excluding
capitalized software development costs, were $3,048,000 or 13.3% of revenues in
fiscal 2000, $2,924,000 or 11.6% of revenues in fiscal 1999, and $2,644,000 or
7.7% of revenues in fiscal 1998.
Interest expense decreased 41% in fiscal 2000 compared to fiscal 1999, and
decreased 39% in fiscal 1999 compared to fiscal 1998. The decrease during fiscal
2000 was due primarily to a decrease in total indebtedness. The decrease during
fiscal 1999 was primarily due to a decrease in total indebtedness and a decrease
in the interest rate on the mortgage debt. The Company believes that interest
expense in fiscal 2001 will increase as a result of an expected increase in the
line of credit.
Interest income was $334,000 in fiscal 2000 compared to $355,000 in fiscal
1999 and $465,000 in fiscal 1998. The decrease in fiscal 2000 was due to a
decrease in the average outstanding balance of cash and cash equivalents
primarily as a result of a decrease in customer deposits received during fiscal
2000 and an increase in the use of cash. Interest income is expected to decrease
in fiscal 2001 due to expected lower average outstanding balances of cash and
cash equivalents.
Fiscal 2000 income tax benefit was comprised of a current federal and state
income tax benefit of $262,000 and $123,000, respectively, and a deferred
federal and state income tax benefit of $1,409,000 and $101,000, respectively.
Net deferred tax assets increased $1,510,000 to $2,323,000 at September 1, 2000
from $813,000 at September 3, 1999. The increase was principally due to net
operating loss and tax credit carryforwards and increases in inventory reserves.
Realization of deferred tax assets is dependent on generating sufficient future
taxable income prior to the expiration of the loss and credit carryforwards.
Although realization is not assured, management believes it is more likely than
not that all of the deferred tax asset will be realized. The amount of the
deferred tax asset considered realizable, however, could be reduced in the near
term if estimates of further taxable income during the carryforward period are
reduced. Fiscal 1999 income tax expense was comprised of a current federal and
state income tax expense of $480,000 and $55,000, respectively, and a deferred
federal and state tax benefit of $366,000 and $44,000, respectively. Fiscal 1998
income tax expense was comprised of a current federal and state income tax
expense of $93,000 and $221,000, respectively, and a deferred federal and state
tax expense of $1,335,000 and $56,000, respectively. A reconciliation of the
Company's effective income tax rate as compared to the statutory U.S. income tax
rate is provided in Note 8 of the consolidated financial statements.
The Company operates on a 52-53 week fiscal year. The fiscal year ends on
the Friday nearest to August 31. Fiscal years 2000 and 1998 contained 52 weeks,
while fiscal 1999 contained 53 weeks.
14
<PAGE>
All references herein to 2000, 1999, and 1998 refer to the fiscal years ending
September 1, 2000, September 3, 1999, and August 28, 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operating activities in fiscal 2000 was $4,236,000. Cash
provided by operating activities was $4,787,000 in fiscal 1999, and $5,787,000
in fiscal 1998. Fiscal 2000 net loss adjusted for non-cash expenses used cash of
$609,000 while changes in accounts receivable and inventories used cash of
$6,401,000. Changes in accounts payable, accrued expenses, customer deposits and
other assets provided cash of $2,774,000.
Cash used by investment activities was $1,748,000 in fiscal 2000 compared
to $1,041,000 in 1999 and $959,000 in 1998. Cash used in 2000 includes property
and equipment expenditures of $1,107,000 and capitalized software additions of
$641,000.
Cash used by financing activities was $802,000 in fiscal 2000 and
$1,380,000 in fiscal 1999 and $578,000 in fiscal 1998. In fiscal 2000, financing
activities used cash of $627,000 for scheduled repayments of long-term
obligations, $398,000 for repurchase of common stock and $28,000 for debt
issuance costs. Proceeds from stock options exercised provided cash of $251,000.
On January 28, 1999, the Board of Directors approved a stock repurchase
program authorizing the repurchase of up to one million shares of its common
stock. As of September 1, 2000, the Company had repurchased 485,500 shares of
its common stock in open market transactions at an average price of $2.27.
Net accounts receivable increased $1,493,000 or 57.0% to $4,111,000 at
September 1, 2000, from $2,618,000 at September 3, 1999, compared to $5,315,000
at August 28, 1998. The increase in fiscal 2000 was primarily due to a higher
percentage of shipments occurring in the last month of the fourth quarter of
fiscal 2000 compared to the same period of fiscal 1999 and recoverable income
taxes of $659,000 at September 1, 2000 compared to none at September 3, 1999.
The allowance for doubtful accounts was $166,000 at September 1, 2000, $173,000
at September 3, 1999, and $257,000 at August 28, 1998. Write-offs, net of
recoveries, in fiscal 2000, 1999 and 1998 were $52,000, $124,000 and $180,000,
respectively. Increases to the allowance and charges to general and
administrative expense were $45,000 in fiscal 2000, $40,000 in fiscal 1999 and
$75,000 in fiscal 1998.
Inventory before reserves, increased $4,864,000 to $13,551,000 at September
1, 2000 from $8,687,000 at September 3, 1999. The increase was due to 1) a
planned production increase of certain digital video products to provide for
"off the shelf" availability, 2) increased inventory associated with a new
UNITY500 receiver and 3) lower than expected shipments. During fiscal 2000,
inventory reserves were increased by provisions charged to cost of sales of
$1,246,000. The increase in the provision was to provide additional reserves for
1) slower moving analog Telecom products, 2) excess digital audio inventories,
and 3) potentially slow-moving inventories of earlier generations of other
digital products. These products continue to sell but at reduced quantities.
During fiscal 1999, inventory reserves were increased by provisions charged to
cost of sales of $750,000. During fiscal 1998, inventory reserves were increased
by provisions charged to cost of sales of $1,150,000 and reduced by write-offs
of
15
<PAGE>
$1,577,000. In fiscal 2000 and fiscal 1999, increases in inventory used cash of
$4,864,000 and $118,000, respectively. During fiscal 1998, decreases in
inventories provided cash of $1,722,000.
On June 21, 2000, WCI's existing bank loan facility automatically renewed
for a one year period and maintained a maximum available credit limit of
$10,000,000 with sublimits as defined. The renewed loan facility matures on June
21, 2001 or upon demand and requires an annual facility fee of $27,500 plus an
additional .5% of $3,000,000 if borrowings, at any time, exceed $5,500,000. The
loan facility consists of 1) a term loan and a revolving line of credit with a
combined borrowing limit of $8,500,000, bearing interest at the bank's prime
rate (9.5% at September 1, 2000) and 2) a real estate advance facility with a
maximum borrowing limit of $1,500,000 bearing interest at a fixed rate of 250
basis points over the five year U.S. Treasury rate.
The term loan portion 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. The real estate advance portion of the loan facility provides for
advances of up to 70% of the appraised value of certain real property. Advances
for real property are payable in 35 equal principal payments with a balloon
payment due at maturity.
The Company is required to maintain a minimum tangible net worth with
annual increases at each fiscal year end commencing with fiscal year 1997,
retain certain key employees, limit expenditures of Wegener Corporation to
$600,000 per fiscal year, and is precluded from paying dividends. At September
1, 2000 the Company was in violation of the tangible net worth and Wegener
Corporation annual spending limit covenants with respect to which the bank has
granted a waiver. As a result of the convenant violations, the bank has the
right to amend any terms of the loan facility. The Company believes that it will
be necessary to borrow on the line of credit during fiscal year 2001 and that
the existing facility will be sufficient to support fiscal 2001 operations.
While no assurances may be given, the Company believes that it will continue to
be able to obtain waivers prior to requiring any future borrowings on the line
of credit. However, if the Company is unable to meet the minimum tangible net
worth covenant or obtain a waiver, it may be required to obtain other debt or
equity financing. The loan facility's outstanding balance under real property
advances was $505,000 at September 1, 2000 and $971,000 at September 3, 1999. At
September 1, 2000, $3,096,000 was available to borrow under the accounts
receivable and inventory advance formulas. At September 1, 2000 no balances were
outstanding under the accounts receivable and inventory advances. Additionally,
Wegener Corporation guarantees the loan facility.
The Company does not have any material scheduled commitments for capital
expenditures during fiscal 2001.
The Company has never paid cash dividends on its common stock and does not
intend to pay cash dividends in the foreseeable future.
On January 25, 2000, the Company entered into an agreement with RCG Capital
Markets Group, Inc., to provide a national financial relations program. The
agreement is for an eighteen (18) month period and provides for a monthly fee of
$6,000 and stock options for 200,000 shares of Wegener
16
<PAGE>
Corporation common stock exercisable for a period of five years from the date of
grant at $5.63 per share. Fifty percent of the options granted vested upon
execution of the agreement with the balance vesting upon completion of agreed
upon performance criteria. In accordance with EITF Issue No. 96-18 and SFAS No.
123, the fair value of the stock options has been calculated using the
Black-Scholes option pricing model and will result in an aggregate non-cash
charge to earnings of approximately $445,000 over the eighteen month term of the
agreement. For the year ended September 1, 2000, charges of $175,000 were
included in selling, general and administrative expenses. At September 1, 2000,
options for 100,000 shares were vested.
IMPACT OF INFLATION
The Company does not believe that inflation has had a material impact on
revenues or expenses during its last three fiscal years.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument, including certain derivative instruments imbedded in other
contracts, be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement also requires that changes in the
derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. SFAS No. 137 delayed the effective date of SFAS No.
133 to fiscal years beginning after June 15, 2000. SFAS No. 138 "Accounting For
Certain Derivative Instruments and Certain Hedging Activities, Amendment of SFAS
133", liberalized the application of SFAS No. 133 in a number of areas. The
Company expects that the adoption of SFAS No. 133 will not have a material
impact on its financial position or results of operations.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC and was effective the first
fiscal quarter of fiscal years beginning after December 15, 1999 and requires
companies to report any changes in revenue recognition as a cumulative change in
accounting principle at the time of implementation in accordance with Accounting
Principles Board Opinion 20, "Accounting Changes." Subsequently, SAB No. 101A
and 101B were issued to delay the implementation of SAB No. 101. It will be
effective no later than the fourth quarter of fiscal years beginning after
December 15, 1999. The Company is currently evaluating the impact, if any, SAB
No. 101 will have on its financial position or results of operations.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation," an interpretation of Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees." Interpretation No,. 44
clarifies the application of APB No. 25 for the definition of an employee for
purposes of applying APB No. 25, the criteria for determining whether a plan
qualifies as a noncompensatory plan, the accounting consequence of various
modifications to the terms of a previously fixed stock option or award and the
accounting for an exchange of stock compensation awards in a business
combination. The interpretation was adopted by the Company effective July 1,
2000, but certain conclusions cover
17
<PAGE>
specific events that occur after either December 15, 1998 or January 12, 2000.
This interpretation did not have a material impact on the Company's consolidated
financial statements.
OUTLOOK: ISSUES AND UNCERTAINTIES
The market for the Company's products is characterized by rapidly changing
technology, evolving industry standards and frequent product introductions.
Product introductions are generally characterized by increased functionality and
better quality, sometimes at reduced prices. The introduction of products
embodying new technology may render existing products obsolete and unmarketable
or marketable at substantially reduced prices. The Company's ability to
successfully develop and introduce on a timely basis new and enhanced products
that embody new technology, and achieve levels of functionality and price
acceptable to the market, will be a significant factor in the Company's ability
to grow and remain competitive. If the Company is unable, for technological or
other reasons, to develop competitive products in a timely manner in response to
changes in the industry, the Company's business and operating results will be
materially and adversely affected.
WCI competes with companies that have substantially greater resources and a
larger number of products, as well as with small specialized companies. Through
relationships with technology partners and original equipment manufacturer (OEM)
suppliers, the Company has positioned itself to provide end-to-end solutions to
its customers. Competition in the market for the Company's MPEG-2 broadcast
television electronics products, including digital video equipment, is driven by
timeliness, performance, and price. The Company's broadcast digital video
products in production are competitively priced, with unique, desirable
features. The COMPEL Network Control System meets customer needs by providing
regionalization of receiver control and spot advertisement. Due to the large
number of potential end users, both small and large competitors continue to
emerge. The Company believes it has positioned itself to capitalize on the
market trends in this business through careful development of its product and
market strategies, which have proven successful in increasing revenues from this
sector. In the cable television market the Company believes that the competitive
position for many of its products is strong. However, the UNITY product family
competes with significant and established firms. Other products for cable
television include proprietary cueing and network control devices. Competition
for radio network products, including the Company's digital audio products, is
very aggressive and pricing is very competitive. The Company believes that its
continued success in all of its markets will depend on aggressive marketing and
product development.
The demand for digital products is being driven by the high cost of
satellite capacity and increasing demand for video and multi-media content. The
digital conversion of major networks is expected to continue, but it remains
difficult to predict the precise timing and number of customers converting to
digital. Management believes the market as a whole has considerable built up
demand for digital technology. Although no assurances can be given, the Company
expects to directly benefit from this increase in demand. There may be
fluctuations in the Company's revenues and operating results from quarter to
quarter due to several factors, including the timing of significant orders from
customers and the timing of new product introductions by the Company.
The Company has invested a significant amount of financial resources to
acquire certain raw materials, to incur direct labor and to contract to have
specific outplant procedures performed on inventory in process. The Company
purchased this inventory based upon previously known backlog and anticipated
future sales given existing knowledge of the marketplace. The Company's
inventory reserve
18
<PAGE>
of $3,444,000 at September 1, 2000, is to provide for items that are potentially
slow moving, excess, or obsolete. Changes in market conditions, lower than
expected customer demand, and rapidly changing technology could result in
additional obsolete and slow-moving inventory that is unsaleable or saleable at
reduced prices. No estimate can be made of a range of amounts of loss from
obsolescence that might occur should the Company's sales efforts not be
successful.
The Company's gross margin percentage is subject to variations based on the
product mix sold in any period and on sales volumes. Start-up costs associated
with new product introductions could adversely impact costs and future margins.
Certain raw materials, video sub-components, and licensed video processing
technologies used in existing and future products are currently available from
single or limited sources. Although the Company believes that all single-source
components currently are available in adequate quantities, there can be no
assurance that shortages or unanticipated delivery interruptions will not
develop in the future. Any disruption or termination of supply of certain
single-source components or technologies could have a material adverse effect on
the Company's business and results of operations.
The Company has made significant investments in capitalized software
principally related to digital audio and video products. At September 1, 2000
capitalized software costs were $1,209,000. These costs are amortized based on
the larger of the amounts computed using (a) the ratio that current gross
revenues for each product bears to the total of current and anticipated future
gross revenues for that product or (b) the straight-line method over the
remaining estimated economic life of the product. Expected future revenues and
estimated economic lives are subject to revisions due to market conditions,
technology changes, and other factors resulting in shortfalls of expected
revenues or reduced economic lives.
The industry in which the Company operates is subject to rapid
technological advances and frequent product introductions. The Company expects
to remain committed to research and development expenditures as 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 Company had an accumulated deficit of $3,283,000 September 1, 2000. The
Company is very focused on controlling both direct and indirect manufacturing
costs and other operating expenses. These costs will be adjusted as necessary if
revenues do not increase as planned. Management believes that digital
compression technology may be profitably employed to create increased demand for
its satellite receiving equipment if those products are manufactured in a high
volume standardized production environment.
19
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market rate risk for changes in interest rates
relates primarily to its revolving line of credit and cash equivalents. The
interest rate on certain advances under the line of credit and term loan
facility fluctuates with the bank's prime rate. There were no borrowings
outstanding at September 1, 2000 subject to variable interest rate fluctuations.
At September 1, 2000, cash equivalents consisted of a $1,125,000 bank
certificate of deposit and variable rate municipals in the amount of $500,000.
The cash equivalents have maturities of less than three months and therefore are
subject to minimal market risk.
The Company does not enter into derivative financial instruments. All sales
and purchases are denominated in U.S. dollars.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Consolidated Statements of Operations
Years ended September 1, 2000, September 3, 1999, and August 28, 1998 .... 21
Consolidated Balance Sheets
As of September 1, 2000 and September 3, 1999 ............................ 22
Consolidated Statements of Shareholders' Equity
Years ended September 1, 2000, September 3, 1999, and August 28, 1998 .... 23
Consolidated Statements of Cash Flows
Years ended September 1, 2000, September 3, 1999, and August 28, 1998 .... 24
Notes to Consolidated Financial Statements ................................. 25
Report of Independent Certified Public Accountants ......................... 37
Consolidated Supporting Schedules Filed:
Schedule II-Valuations and Qualifying Accounts
Years ended September 1, 2000, September 3, 1999, and August 28, 1998 .... 41
20
<PAGE>
Wegener Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
----------------------------------------------
SEPTEMBER 1, September 3, August 28,
2000 1999 1998
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 22,894,314 $ 25,259,155 $ 34,254,673
-----------------------------------------------------------------------------------------------
Operating costs and expenses
Cost of products sold 18,075,326 17,055,600 22,435,716
Selling, general and administrative 7,240,636 5,147,117 4,929,999
Research and development 3,047,754 2,924,097 2,644,353
-----------------------------------------------------------------------------------------------
Operating costs and expenses 28,363,716 25,126,814 30,010,068
-----------------------------------------------------------------------------------------------
Operating income (loss) (5,469,402) 132,341 4,244,605
Interest expense (88,085) (149,288) (244,607)
Interest income 333,597 355,220 465,185
-----------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (5,223,890) 338,273 4,465,183
Income tax expense (benefit) (1,895,000) 125,000 1,705,000
-----------------------------------------------------------------------------------------------
Net earnings (loss) $ (3,328,890) $ 213,273 $ 2,760,183
===============================================================================================
Net earnings (loss) per share
Basic $ (.28) $ .02 $ .24
Diluted $ (.28) $ .02 $ .23
===============================================================================================
Shares used in per share calculation
Basic 11,798,458 11,849,383 11,727,447
Diluted 11,798,458 12,007,270 12,090,911
===============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
Wegener Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 1, September 3,
2000 1999
------------------------------------------------------------------------------------
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents $ 2,072,853 $ 8,858,591
Accounts receivable 4,110,827 2,618,296
Inventories 10,106,776 6,488,813
Deferred income taxes 1,858,000 1,325,000
Other 62,573 263,090
------------------------------------------------------------------------------------
Total current assets 18,211,029 19,553,790
Property and equipment, net 4,207,183 4,242,588
Capitalized software costs, net 1,209,139 1,100,747
Deferred income taxes 465,000 --
Other assets 54,311 56,690
------------------------------------------------------------------------------------
$ 24,146,662 $ 24,953,815
====================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,781,470 $ 2,018,149
Accrued expenses 2,533,262 1,554,572
Customer deposits 2,076,361 884,066
Current maturities of long-term obligations 539,628 1,119,835
------------------------------------------------------------------------------------
Total current liabilities 7,930,721 5,576,622
Long-term obligations, less current maturities 38,843 85,424
Deferred income taxes -- 512,000
------------------------------------------------------------------------------------
Total liabilities 7,969,564 6,174,046
------------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity
Common stock, $.01 par value; 20,000,000
shares authorized; 12,314,575 shares issued 123,146 123,146
Additional paid-in capital 20,324,568 19,492,570
Retained earnings (deficit) (3,233,109) 95,781
Less treasury stock, at cost (1,037,507) (931,728)
------------------------------------------------------------------------------------
Total shareholders' equity 16,177,098 18,779,769
------------------------------------------------------------------------------------
$ 24,146,662 $ 24,953,815
====================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
Wegener Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<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 -- -- 84,398 -- (74,184) 68,884
Issuance of common stock for
convertible debentures 950,658 9,507 1,238,319 -- -- --
Net earnings for the year -- -- -- 2,760,183 -- --
----------------------------------------------------------------------------------------------------------------------------------
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 -- -- 85,153 -- (112,587) 104,542
Treasury stock purchased -- -- -- -- 386,500 (703,344)
Net earnings for the year -- -- -- 213,273 -- --
----------------------------------------------------------------------------------------------------------------------------------
BALANCE, at September 3, 1999 12,314,575 123,146 19,492,570 95,781 632,459 (931,728)
Treasury stock reissued through
stock options and 401(k) plan -- -- 155,810 -- (249,988) 292,691
Treasury stock purchased -- -- -- -- 99,000 (398,470)
Value of stock options granted for
Services -- -- 175,188 -- -- --
Value of stock
option compensation -- -- 349,000 -- -- --
Tax benefit of stock
options exercised -- -- 152,000 -- -- --
Net loss for the year -- -- -- (3,328,890) -- --
----------------------------------------------------------------------------------------------------------------------------------
BALANCE, AT SEPTEMBER 1, 2000 12,314,575 $ 123,146 $20,324,568 $(3,233,109) 481,471 $(1,037,507)
==================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
Wegener Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED Year ended Year ended
SEPTEMBER 1, September 3, August 28,
2000 1999 1998
-----------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES
<S> <C> <C> <C>
Net earnings (loss) $ (3,328,890) $ 213,273 $ 2,760,183
Adjustments to reconcile net earnings (loss) to
cash provided by operating activities
Depreciation and amortization 1,710,389 1,649,546 1,784,787
Write-down of capitalized software -- -- 200,000
Issuance of treasury stock for
compensation expenses 197,808 176,398 124,079
Tax benefit of stock
options exercised 152,000 -- --
Non-cash stock option
compensation 489,000 -- --
Other non-cash expenses 175,188 -- --
Provision for bad debts 45,000 40,000 75,000
Provision for inventory reserves 1,246,000 750,000 1,150,000
Provision for deferred income taxes (1,510,000) (410,000) 1,391,000
Warranty provisions 215,000 150,000 --
Changes in assets and liabilities
Accounts receivable (1,537,531) 2,656,642 (777,304)
Inventories (4,863,963) (118,420) 1,722,279
Other assets 194,638 (239,380) (2,334)
Accounts payable and accrued expenses 1,387,011 (180,525) 33,360
Customer deposits 1,192,295 99,445 (2,673,780)
-----------------------------------------------------------------------------------------------------
(4,236,055) 4,786,979 5,787,270
-----------------------------------------------------------------------------------------------------
CASH USED FOR INVESTMENT ACTIVITIES
Property and equipment expenditures (1,106,558) (634,239) (522,066)
Capitalized software additions (641,060) (406,486) (436,465)
-----------------------------------------------------------------------------------------------------
(1,747,618) (1,040,725) (958,531)
-----------------------------------------------------------------------------------------------------
CASH USED FOR FINANCING ACTIVITIES
Repayment of long-term debt and capitalized
lease obligations (626,788) (1,983,251) (552,615)
Proceeds from long-term debt -- 1,359,508 --
Purchase of treasury stock (398,470) (703,344) --
Debt issuance costs (27,500) (66,633) (55,000)
Proceeds from stock options exercised 250,693 13,297 29,203
-----------------------------------------------------------------------------------------------------
(802,065) (1,380,423) (578,412)
-----------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (6,785,738) 2,365,831 4,250,327
Cash and cash equivalents, beginning of year 8,858,591 6,492,760 2,242,433
-----------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year 2,072,853 $ 8,858,591 $ 6,492,760
=====================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
Wegener Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION. The financial statements
include the accounts of Wegener Corporation (WGNR) (the "Company") and its
wholly owned subsidiaries. Wegener Communications, Inc. (WCI) designs,
manufactures and distributes satellite communications electronics equipment in
the U.S., and internationally through Wegener Communications International Inc.
All significant intercompany balances and transactions have been eliminated in
consolidation.
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. Examples include provisions for bad debts, inventory obsolescence and
warranties. Actual results could vary from these estimates.
FISCAL YEAR. The Company operates on a 52-53 week fiscal year. The fiscal year
ends on the Friday nearest to August 31. Fiscal 2000 and fiscal 1998 contained
52 weeks, while fiscal 1999 contained 53 weeks. All references herein to 2000,
1999, and 1998 relate to the fiscal years ending September 1, 2000, September 3,
1999, and August 28, 1998, respectively.
CASH EQUIVALENTS. Cash equivalents consist of highly liquid investments with
original maturities of three months or less. At September 1, 2000, cash
equivalents consisted of a $1,125,000 bank certificate of deposit and variable
rate municipals in the amount of $500,000. At September 3, 1999 cash equivalents
consisted of a $7,000,000 repurchase agreement and $1,500,000 bank certificate
of deposit.
INVENTORIES. Inventories are stated at the lower of cost (standards, which
approximate actual cost on a first-in, first-out basis) or market. Inventories
include the cost of raw materials, labor and manufacturing overhead. The Company
makes provisions for obsolete or slow moving inventories as necessary to
properly reflect inventory value.
PROPERTY, EQUIPMENT AND DEPRECIATION. Property and equipment are stated at cost.
Certain assets are financed under lease contracts that have been capitalized.
Aggregate lease payments, discounted at appropriate rates, have been recorded as
long-term debt, the related leased assets have been capitalized, and the
amortization of such assets is included in depreciation expense. Depreciation is
computed over the estimated useful lives of the assets on the straight-line
method for financial reporting and accelerated methods for income tax purposes.
Substantial betterments to property and equipment are capitalized and repairs
and maintenance are expensed as incurred. Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the sum of the expected
future undiscounted cash flows is less than the carrying amount of the asset, a
loss is recognized for the difference between the fair value and carrying value
of the asset.
REVENUE RECOGNITION. Product sales and services are recorded when the product is
shipped or the service is rendered to the customer, all significant contractual
obligations have been satisfied and the collectibility of the resulting
receivable is reasonably assured.
RESEARCH AND DEVELOPMENT. The Company expenses research and development costs,
including expenditures related to development of the Company's software products
that do not qualify for capitalization. Software development costs are
capitalized subsequent to establishing the technological feasibility of a
product. Capitalized costs are amortized based on the larger of the amounts
computed using (a) the ratio that current gross revenues for each product bears
to the total of current and anticipated future gross revenues for that product
or (b) the straight-line method over the remaining estimated economic life of
the product. Expected future revenues and estimated economic lives are subject
to revisions due to market conditions, technology changes, and other factors
resulting in shortfalls of expected revenues or reduced economic lives. During
fiscal 1998, $200,000 of capitalized software costs were written off to cost of
sales due to a reduction of expected revenues on certain slow-moving products.
Software development costs capitalized during fiscal 2000, 1999, and 1998
totaled $641,000, $406,000, and $436,000, respectively. Amortization expense,
included in cost of goods sold was $533,000, $518,000, and $726,000 for the same
periods, respectively. Capitalized software costs, net of accumulated
amortization, were $1,209,000 at September 1, 2000 and $1,101,000 at September
3, 1999. Accumulated amortization amounted to $3,031,000 at September 1, 2000
and $2,498,000 at September 3, 1999.
STOCK BASED COMPENSATION. The Company has adopted the disclosure only provisions
of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," but applies Accounting Principles
25
<PAGE>
Wegener Corporation and Subsidiaries
Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees" and
related interpretations in accounting for its plans. Under APB No. 25, when the
exercise price of employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
INCOME TAXES. Income taxes are based on income (loss) for financial reporting
purposes and reflect a current tax liability (asset) for the estimated taxes
payable (recoverable) in the current-year tax return and changes in deferred
taxes. Deferred tax assets or liabilities are recognized for the estimated tax
effects of temporary differences between financial reporting and taxable income
(loss) and for tax credit and loss carryforwards based on enacted tax laws and
rates.
EARNINGS PER SHARE. Basic and diluted net earnings (loss) per share were
computed in accordance with SFAS No. 128, "Earnings per Share." Basic net
earnings per share is computed by dividing net earnings available to common
shareholders (numerator) by the weighted average number of common shares
outstanding (denominator) during the period and excludes the dilutive effect of
stock options 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.
The following tables represent required disclosure of the reconciliation of the
earnings and shares of the basic and diluted net earnings (loss) per share
computations.
<TABLE>
<CAPTION>
Year ended
---------------------------------------------
SEPTEMBER 1, September 3, August 28,
2000 1999 1998
------------ ------------ ------------
BASIC
<S> <C> <C> <C>
Net earnings (loss) $ (3,328,890) $ 213,273 $ 2,760,183
------------ ------------ ------------
Weighted average shares
outstanding 11,798,458 11,849,383 11,727,447
------------ ------------ ------------
Net earnings (loss) per share $ (.28) $ .02 $ .24
============ ============ ============
DILUTED
Net earnings (loss) $ (3,328,890) $ 213,273 $ 2,760,183
Convertible debenture interest
and amortization of bond
issue cost, net of income
taxes -- -- 11,658
------------ ------------ ------------
Total $ (3,328,890) $ 213,273 $ 2,771,841
------------ ------------ ------------
Weighted average shares
outstanding 11,798,458 11,849,383 11,727,447
Effect of dilutive potential common shares:
Stock options -- 157,887 250,467
Convertible debentures -- -- 112,997
------------ ------------ ------------
Total 11,798,458 12,007,270 12,090,911
------------ ------------ ------------
Net earnings (loss) per share $ (.28) $ .02 $ .23
============ ============ ============
</TABLE>
26
<PAGE>
Wegener Corporation and Subsidiaries
Options and convertible debentures excluded from the diluted earnings (loss) per
share calculation due to their anti-dilutive effect are as follows:
<TABLE>
<CAPTION>
Year ended
--------------------------------------------------------
SEPTEMBER 1, September 3, August 28,
2000 1999 1998
---------------- --------------- -------------------
Common stock options:
<S> <C> <C> <C>
Number of shares 1,188,800 6,000 48,500
Range of exercise prices $.75 TO 5.63 $1.78 $2.44 to 12.13
================ =============== ===================
</TABLE>
FINANCIAL INSTRUMENTS. The Company's financial instruments consist of cash and
cash equivalents, trade accounts receivable, accounts payable, accrued expenses
and long and short-term bank borrowings. The fair value of these instruments
approximates their recorded value. The Company does not have financial
instruments with off-balance sheet risk. The fair value estimates were based on
market information available to management as of September 1, 2000.
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and cash equivalents and trade accounts
receivable. The Company invests cash through a high-credit-quality financial
institution and performs periodic evaluations of the relative credit standing of
the financial institution. A concentration of credit risk may exist with respect
to trade receivables, as a substantial portion of the Company's customers are
affiliated with the cable television, business broadcast and telecommunications
industries. The Company performs ongoing credit evaluations of customers
worldwide and generally does not require collateral from its customers.
Historically, the Company has not experienced significant losses related to
receivables from individual customers or groups of customers in any particular
industry or geographic area.
FOREIGN CURRENCY. The U.S. dollar is the Company's functional currency for
financial reporting. International sales are made and remitted in U.S. dollars.
RECENTLY ISSUED ACCOUNTING STANDARDS. In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities". SFAS No. 133 establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments imbedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at its fair value. The statement also
requires that changes in the derivative's fair value be recognized in earnings
unless specific hedge accounting criteria are met. SFAS No. 137 delayed the
effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000.
SFAS No. 138 "Accounting For Certain Derivative Instruments and Certain Hedging
Activities, Amendment of SFAS No. 133", liberalized the application of SFAS No.
133 in a number of areas. The Company expects that the adoption of SFAS No. 133
will not have a material impact on its financial position or results of
operations.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC and was effective the first
fiscal quarter of fiscal years beginning after December 15, 1999 and requires
companies to report any changes in revenue recognition as a cumulative change in
accounting principle at the time of implementation in accordance with Accounting
Principles Board Opinion 20, "Accounting Changes." Subsequently, SAB No. 101A
and 101B were issued to delay the implementation of SAB No. 101. It will be
effective no later than the fourth quarter of fiscal years beginning after
December 15, 1999. The Company is currently evaluating the impact, if any, SAB
No. 101 will have on its financial position or results of operations.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation," an interpretation of Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees." Interpretation No,. 44
clarifies the application of APB No. 25 for the definition of an employee for
purposes of applying APB No. 25, the criteria for determining whether a plan
qualifies as a noncompensatory plan, the accounting consequence of various
modifications to the terms of a previously fixed stock option or award and the
accounting for an exchange of stock compensation awards in a business
combination. The interpretation was adopted by the Company effective July 1,
2000, but certain conclusions cover specific events that occur after either
December 15, 1998 or January 12, 2000. This interpretation did not have a
material impact on the Company's consolidated financial statements.
27
<PAGE>
Wegener Corporation and Subsidiaries
RECLASSIFICATIONS. Certain reclassifications have been made to the 1999 and 1998
financial statements to conform to the 2000 presentation.
2. ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows:
SEPTEMBER 1, September 3,
2000 1999
--------------------------------------------------------------------------------
Accounts receivable - trade $3,474,717 $2,675,022
Recoverable income taxes 659,000 --
Other receivables 142,688 115,859
--------------------------------------------------------------------------------
4,276,405 2,790,881
Less allowance for doubtful accounts (165,578) (172,585)
--------------------------------------------------------------------------------
$4,110,827 $2,618,296
================================================================================
3. INVENTORIES
Inventories are summarized as follows:
SEPTEMBER 1, September 3,
2000 1999
--------------------------------------------------------------------------------
Raw materials $4,176,521 $2,845,784
Work-in-process 5,539,578 3,146,479
Finished goods 3,835,171 2,695,044
--------------------------------------------------------------------------------
13,551,270 8,687,307
Less inventory reserves (3,444,494) (2,198,494)
--------------------------------------------------------------------------------
$10,106,776 $6,488,813
================================================================================
The Company has invested a significant amount of financial resources to acquire
certain raw materials, to incur direct labor and to contract to have specific
outplant procedures performed on inventory in process. The Company purchased
this inventory based upon prior backlog and anticipated future sales based upon
existing knowledge of the marketplace. The Company's inventory reserve of
approximately $3,444,000 at September 1, 2000 is to provide for items that are
potentially slow moving, excess, or obsolete. Changes in market conditions,
lower than expected customer demand, and rapidly changing technology could
result in additional obsolete and slow-moving inventory that is unsaleable or
saleable at reduced prices. No estimate can be made of a range of amounts of
loss from obsolescence that are reasonably possible should the Company's sales
efforts not be successful.
4. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
Estimated
Useful Lives SEPTEMBER 1, September 3,
(Years) 2000 1999
--------------------------------------------------------------------------------
Land - $ 707,210 $ 707,210
Buildings and improvements 3-30 3,752,521 3,689,643
Machinery and equipment 3-5 7,786,454 7,191,332
Furniture and fixtures 5 689,845 592,782
Application software 3-5 1,034,675 777,568
--------------------------------------------------------------------------------
13,970,705 12,958,535
Less accumulated depreciation
and amortization (9,763,522) (8,715,947)
--------------------------------------------------------------------------------
$4,207,183 $4,242,588
================================================================================
28
<PAGE>
Wegener Corporation and Subsidiaries
Depreciation expense for fiscal 2000, 1999 and 1998 totaled approximately
$1,120,000, $888,000, and $777,000, respectively. Assets recorded under a
capital lease included in property and equipment at September 1, 2000 and
September 3, 1999 are machinery and equipment of approximately $613,000 and
accumulated amortization of approximately $578,000 and $474,000, respectively.
5. ACCRUED EXPENSES
Accrued expenses consist of the following: SEPTEMBER 1, September 3,
2000 1999
--------------------------------------------------------------------------------
Compensation $ 631,940 $ 464,833
Royalties 443,490 364,676
Warranty 347,423 232,423
Taxes and insurance 397,252 255,625
Commissions 225,724 210,153
Other 487,433 26,862
--------------------------------------------------------------------------------
$ 2,533,262 $ 1,554,572
================================================================================
6. FINANCING AGREEMENTS
REVOLVING LINE-OF-CREDIT AND TERM LOAN FACILITY
On June 21, 2000, WCI's existing bank loan facility automatically renewed for a
one year period and maintains a maximum available credit limit of $10,000,000
with sublimits as defined. The renewed loan facility matures on June 21, 2001 or
upon demand and requires an annual facility fee of $27,500 plus an additional
.50% of $3,000,000 if borrowings, at any time, exceed $5,500,000. The loan
facility consists of 1) a term loan and a revolving line of credit with a
combined borrowing limit of $8,500,000, bearing interest at the bank's prime
rate (9.5% at September 1, 2000) and 2) a real estate advance facility with a
maximum borrowing limit of $1,500,000 bearing interest at a fixed rate of 250
basis points over the five year U.S. Treasury rate.
The term loan portion provides for a maximum of $1,000,000 for advances of up to
80% of the cost of equipment acquisitions. Principal advances are payable
monthly over sixty months with a balloon payment due at maturity. The revolving
line of credit is subject to availability advance formulas of 80% against
eligible accounts receivable; 20% of eligible raw materials inventories; 20% of
eligible work-in-process kit inventories; and 40% to 50% of eligible finished
goods inventories. Advances against inventory are subject to a sublimit of
$2,000,000. The real estate advance portion of the loan facility provides for
advances of up to 70% of the appraised value of certain real property. Advances
for real property are payable in 35 equal principal payments with a balloon
payment due at maturity.
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%. At September 1, 2000, the loans were secured by a first
lien on substantially all of WCI's assets except assets secured under an
existing equipment note on which the bank had a second lien. The Company is
required to maintain a minimum tangible net worth with annual increases at each
fiscal year end commencing with fiscal year 1997, retain certain key employees,
limit expenditures of Wegener Corporation to $600,000 per fiscal year, and is
precluded from paying dividends. At September 1, 2000, the Company was in
violation of the tangible net worth and Wegener Corporation annual spending
limit covenants as to which the bank has granted a waiver. As a result of the
convenant violations, the bank has the right to amend any terms of the loan
facility. While no assurances may be given, the Company believes that it will
continue to be able to obtain waivers prior to requiring future borrowings on
the line of credit. However, if the Company is unable to meet the minimum
tangible net worth covenant or obtain a waiver, it may be required to obtain
other debt or equity financing. The loan facility's outstanding balance under
real property advances was $505,000 at September 1, 2000 and $971,000 at
September 3, 1999. At September 1, 2000, $3,096,000 was available to borrow
under the accounts receivable and inventory advance formulas. No balances were
outstanding under the accounts receivable and inventory advances at September 1,
2000. Additionally, Wegener Corporation guarantees the loan facility.
29
<PAGE>
Wegener Corporation and Subsidiaries
LONG-TERM OBLIGATIONS
Long-term obligations consist of:
SEPTEMBER 1, September 3,
2000 1999
--------------------------------------------------------------------------------
Mortgage note, monthly principal $38,843 plus
interest at 6.519%
collateralized by real estate and cross
collateralized under the loan facility $ 504,960 $ 971,077
Other long-term obligations, collateralized
by equipment 73,511 234,182
--------------------------------------------------------------------------------
578,471 1,205,259
Less current maturities (539,628) (1,119,835)
--------------------------------------------------------------------------------
$ 38,843 $ 85,424
================================================================================
At September 1, 2000, other long-term obligations include a promissory note,
bearing interest at 9.6% per annum, with monthly principal and interest payments
of $12,597 through April 2001.
A summary of future maturities of long-term debt obligations follows:
Debt
Fiscal Year Maturities
------------------------------------
2001 $539,628
2002 38,843
------------------------------------
Total $578,471
====================================
The Company leases certain office and manufacturing facilities, vehicles and
equipment under long-term non-cancelable operating leases that expire through
fiscal 2005. Future minimum lease commitments are approximately as follows:
2001-$233,000; 2002-$225,000; 2003-$223,000; 2004-$226,000; and 2005-$118,000.
Rent expense under all leases was approximately $314,000, $225,000 and $209,000
for fiscal years 2000, 1999, and 1998, respectively.
7. CONVERTIBLE DEBENTURES
On May 31, 1996, the Company issued $5,000,000 of 8% Convertible debentures, due
May 31, 1999, in a private placement to various accredited investors for net
proceeds to the Company of $4,700,000. The proceeds were used for working
capital and reduction of the line-of-credit note payable. These debentures
converted at the option of the holders at any time through maturity, into a
number of shares of common stock at a price equal to the lesser of (i) $12.25
per share or (ii) a percentage, based on the holding period, ranging from 95% to
82.5% (82.5% at August 30, 1996 and thereafter) of the average of the lowest
sale price on each of the five trading days immediately preceding the conversion
date. Interest at the rate of 8% per annum was paid quarterly beginning July 1,
1996 in cash or, at the option of the Company, by adding the amount of such
interest to the outstanding principal amount due under the debenture. During
fiscal 1998, $1,285,000 principal amount of debentures were converted into
950,658 shares of common stock. No convertible debentures remained outstanding
at September 3, 1999.
30
<PAGE>
Wegener Corporation and Subsidiaries
8. INCOME TAXES
The provision for income tax expense (benefit) consists of the following:
Year ended
-------------------------------------------
SEPTEMBER 1, September 3, August 28,
2000 1999 1998
----------------------------------------------------------------------
Current
Federal $ (262,000) $ 480,000 $ 93,000
State (123,000) 55,000 221,000
----------------------------------------------------------------------
(385,000) 535,000 314,000
----------------------------------------------------------------------
Deferred
Federal (1,409,000) (366,000) 1,335,000
State (101,000) (44,000) 56,000
----------------------------------------------------------------------
(1,510,000) (410,000) 1,391,000
----------------------------------------------------------------------
Total $(1,895,000) $ 125,000 $ 1,705,000
======================================================================
The effective income tax rate differs from the U.S. federal statutory rate as
follows:
<TABLE>
<CAPTION>
Year ended
------------------------------------------------
SEPTEMBER 1, September 3, August 28,
2000 1999 1998
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory U.S. income tax rate (34.0)% 34.0% 34.0%
State taxes, net of federal
benefits (3.0) 2.0 4.8
Foreign sales corporation benefit -- (5.0) (.7)
Non-deductible expenses .2 4.3 .3
Expired tax credits, net 1.5 -- --
Other, net (1.0) 1.7 (.2)
------------------------------------------------------------------------------------------------
Effective income tax rate (36.3)% 37.0% 38.2%
================================================================================================
</TABLE>
Deferred tax assets and liabilities that arise as a result of temporary
differences are as follows:
SEPTEMBER 1, September 3,
2000 1999
--------------------------------------------------------------------------------
Deferred tax assets (liabilities):
Accounts receivable and inventory reserves $ 1,520,000 $ 1,098,000
Accrued expenses 338,000 227,000
Net operating loss carryforwards 404,000 --
General business credit carryforwards 106,000 --
AMT credit carryovers 249,000 --
Depreciation 64,000 (28,000)
Capitalized software costs (463,000) (418,000)
Other 105,000 (66,000)
--------------------------------------------------------------------------------
Net deferred tax asset $ 2,323,000 $ 813,000
================================================================================
Consolidated balance sheet classifications:
Current deferred tax asset $ 1,858,000 $ 1,325,000
Noncurrent deferred tax asset (liability) 465,000 (512,000)
--------------------------------------------------------------------------------
Net deferred tax asset $ 2,323,000 $ 813,000
================================================================================
Net deferred tax assets increased $1,510,000 to $2,323,000 at September 1, 2000
from $813,000 at September 3, 1999. The increase was principally due to net
operating loss and tax credit carryforwards and increases in inventory reserves.
Net deferred tax assets increased $410,000 to $813,000 at September 3, 1999 from
$403,000 at August 28, 1998. The increase was principally due to increases in
inventory reserves and warranty provisions in fiscal 1999. Realization
31
<PAGE>
Wegener Corporation and Subsidiaries
of deferred tax assets is dependent on generating sufficient future taxable
income prior to the expiration of the loss and credit carryforwards. Although
realization is not assured, management believes it is more likely than not that
all of the deferred tax asset will be realized. The amount of the deferred tax
asset considered realizable, however, could be reduced in the near term if
estimates of further taxable income during the carryforward period are reduced.
The Company's recoverable income taxes have been increased by the benefits
associated with dispositions of employee stock options. The Company receives an
income tax benefit equal to the tax effect of the difference between the fair
market value of the stock issued at the time of exercise and the option price.
These benefits amounted to $152,000 in fiscal 2000 and were credited directly to
shareholders' equity.
At September 1, 2000 the Company had a federal net operating loss carryforward
of $1,106,000 which expires in fiscal 2020. Additionally, the Company had
general business and foreign tax credit carryforwards of $106,000 expiring
fiscal 2001 thru fiscal 2005 and an alternative minimum tax credit of $249,000.
No provision for deferred tax liability had been made on the undistributed
earnings of the Foreign Sales Corporation as the earnings will not be remitted
in the foreseeable future and are considered permanently invested. The amount of
the unrecognized deferred tax liability for the undistributed earnings of
approximately $627,000 was approximately $213,000.
9. COMMON STOCK AND STOCK OPTIONS.
1998 INCENTIVE PLAN. On February 26, 1998, the stockholders approved the 1998
Incentive Plan (the "1998 Plan"). The Plan provides for awards of up to an
aggregate of 1,000,000 shares of common stock which may be represented by (i)
incentive or non-qualified stock options, (ii) stock appreciation rights (tandem
and free-standing), (iii) restricted stock, (iv) deferred stock, or (v)
performance units entitling the holder, upon satisfaction of certain performance
criteria, to awards of common stock or cash. In addition, the 1998 Plan provides
for loans and supplemental cash payments to persons participating in the Plan in
connection with awards granted. Eligible participants include officers and other
key employees, non-employee directors, consultants and advisors of the Company.
The exercise price per share in the case of incentive stock options and any
tandem stock appreciation rights may be not less than 100% of the fair market
value on the date of grant or, in the case of an option granted to a 10% or
greater stockholder, not less than 110% of the fair market value on the date of
grant. The exercise price for any other option and stock appreciation rights
shall be at least 75% of the fair market value on the date of grant. The
exercise period for non-qualified stock options may not exceed ten years and one
day from the date of the grant, and the expiration period for an incentive stock
option or stock appreciation rights shall not exceed ten years from the date of
the grant (five years for a 10% or greater stockholder). The 1998 plan contains
an automatic option grant program to non-employee members of the Board of
Directors. Such members will each be granted an option to purchase 2,000 shares
of common stock on the last day of each December on which regular trading occurs
on the NASDAQ Stock Market, at an exercise price equal to the fair market value
of such stock on the date of grant. Such options will be exercisable during the
period of ten years and one day from the date of grant of the option. In
addition, upon the exercise of an option by a director, the Plan provides for a
mandatory, for a non-employee director, and a discretionary, for an employee
director, supplemental cash amount equal to the greater of the Company's minimum
federal and state tax withholding obligation with respect to the exercise of the
option and such supplemental payment, or an amount sufficient to defray the
federal and state tax consequences to the director attributable to the exercise
of the option and such supplemental payment. At September 1, 2000 options issued
under the 1998 Incentive Plan for 66,000 shares of common stock at an exercise
price of $2.31 were eligible for a supplemental tax reimbursement cash payment.
The effective date of the 1998 plan is January 1, 1998 and the plan has a
ten-year term. During fiscal 2000 options for 483,550 shares of common stock
were granted with exercise prices of $2.31 and $5.63. During fiscal 1999 options
for 212,000 shares of common stock were granted with exercise prices ranging
from $1.41 to $1.78.
1989 DIRECTORS' INCENTIVE PLAN. On January 9, 1990, the stockholders approved
the Wegener Corporation 1989 Directors' Incentive Plan permitting certain
participating directors of the Company to be eligible to receive incentive
awards consisting of common stock of the Company, performance units or stock
appreciation rights payable in stock or cash, or non-qualified stock options to
purchase such stock, or any combination of the foregoing, together with
supplemental cash payments. During the second quarter of fiscal 1995, the
Company amended the 1989 Directors' Stock Option Plan to increase the aggregate
number of shares of common stock that may be awarded from 100,000 to 300,000
shares; to remove the ineligibility provision for certain directors; and to
grant annually to each non-employee director, options to purchase 2,000 shares
of common stock at an exercise price equal to the fair market value of such
stock on the date of grant. The exercise price per share for non-qualified stock
options or stock appreciation rights shall not be less than 85% of fair market
value on the date the award is made or not more than nine trading days
immediately preceding such date. The expiration period for a non-qualified stock
option shall be ten years and one day from the date of the grant. The expiration
period for stock appreciation rights, including any extension, shall not exceed
ten years from the date of grant. In addition, upon the exercise of an option by
a director, the Plan provides for a mandatory, for a non-employee director, and
a discretionary, for an employee director, supplemental cash amount equal to the
greater of the Company's minimum federal
32
<PAGE>
Wegener Corporation and Subsidiaries
and state tax withholding obligation with respect to the exercise of the option
and such supplemental payment, or an amount sufficient to defray the federal and
state tax consequences to the director attributable to the exercise of the
option and such supplemental payment. At September 1, 2000 options issued under
the 1989 Director Incentive Plan for 330,500 shares of common stock at a
weighted average exercise price of $1.41 were eligible for a supplemental tax
reimbursement cash payment. During fiscal 1999, options for 2,000 shares of
common stock were granted at an exercise price of $1.78. Additionally, during
fiscal 1999 options for 50,000 shares of common stock with exercise prices
ranging from $1.53 to $12.13 were cancelled and reissued at an exercise price of
$1.41. During fiscal 1998 options were granted for 48,000 shares of common stock
at exercise prices ranging from $1.44 to $2.00. At September 1, 2000, no common
stock shares remained available for awards under the plan. This plan terminated
and expired effective December 1, 1999.
1988 INCENTIVE PLAN. On January 10, 1989, the stockholders approved the 1988
Incentive Plan providing to key employees other than directors of the Company,
incentive awards consisting of common stock, performance units or stock
appreciation rights payable in stock or cash, incentive or non-qualified stock
options to purchase stock, or any combination of the above, together with
supplemental cash payments. The aggregate number of shares issuable under the
1988 plan is 750,000 common shares. The exercise price per share in the case of
incentive stock options and any tandem stock appreciation rights will be equal
to 100% of the fair market value or, in the case of an option granted to a 10%
or greater stockholder, l10% of the fair market value. The exercise price for
any other option and stock appreciation rights shall be at least 85% of the fair
market value on the date the option is granted. The exercise period for
non-qualified stock options shall be ten years and one day from the date of the
grant, and the expiration period for an incentive stock option or stock
appreciation rights shall not exceed ten years from the date of the grant.
During fiscal 1999, options for 105,000 shares of common stock with an exercise
price of $2.00 were cancelled and reissued at an exercise price of $1.41. During
fiscal 1998 options were granted for 150,000 shares of common stock at exercise
prices of $1.44 and $2.00. This plan terminated and expired December 1, 1998.
A summary of stock option transactions for the above plans follows:
<TABLE>
<CAPTION>
Weighted
Number. Range of Average
of Shares Exercise Prices Exercise Price
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at
August 29, 1997 579,000 $.75 -12.13 $ 1.55
Granted 194,000 1.44 - 2.00 1.80
Exercised (26,250) .75 - 1.44 1.12
Forfeited or cancelled (10,750) .75 - 1.44 1.36
---------------------------------------------------------------------------------------------------------
Outstanding at
August 28, 1998 736,000 $.75 -12.13 $ 1.63
Granted or reissued 369,000 1.41 - 1.78 1.45
Exercised (9,000) 1.44 1.44
Forfeited or cancelled (175,250) 1.44 -12.13 2.33
---------------------------------------------------------------------------------------------------------
Outstanding at
September 3, 1999 920,750 $.75 - 1.78 $ l.43
Granted 483,550 2.31 - 5.63 3.68
Exercised (174,500) 1.41 - 1.47 1.44
Forfeited or cancelled (41,000) 1.44 1.44
---------------------------------------------------------------------------------------------------------
OUTSTANDING AT
SEPTEMBER 1, 2000 1,188,800 $.75 - 5.63 $ 2.35
=========================================================================================================
Options exercisable at
SEPTEMBER 1, 2000 697,050 $.75 - 5.63 $ 2.04
September 3, 1999 494,250 .75 - 1.78 1.41
=========================================================================================================
Weighted average fair value of options Per Share Aggregate Total
granted during the year ended Option Value
---------------------------------------------------------------------------------------------------------
SEPTEMBER 1, 2000 $1.33 $370,009
September 3, 1999 .68 140,535
August 28, 1998 .91 175,493
=========================================================================================================
</TABLE>
The weighted average remaining contractual life of options outstanding at
September 1, 2000 was 4.6 years.
The Company applies APB Opinion No. 25 in accounting for its stock incentive
plan and, accordingly, no compensation cost has been recognized for its employee
stock options in the financial statements, except as noted below. If the Company
had elected to recognize compensation cost based on the fair value at grant
dates for options issued under the plans described above,
33
<PAGE>
Wegener Corporation and Subsidiaries
consistent with the method prescribed by SFAS No. 123, net earnings (loss) and
earnings (loss) per share would have changed to the pro forma amounts indicated
below:
Year ended
-------------------------------------------
SEPTEMBER 1, September 3, August 28,
2000 1999 1998
--------------------------------------------------------------------------------
Net earnings (loss)
As Reported $(3,328,890) $213,273 $2,760,183
Pro Forma (3,690,941) 46,662 2,676,143
--------------------------------------------------------------------------------
Earnings (loss) per share
As Reported
Basic $ ( .28) $ .02 $ .24
Diluted ( .28) .02 .23
Pro Forma
Basic ( .31) .00 .23
Diluted ( .31) .00 .22
================================================================================
The fair value of stock options used to compute pro forma net earnings (loss)
and earnings (loss) per share disclosures is the estimated present value at
grant date using the Black-Scholes option pricing model with the following
weighted average assumptions for 2000, 1999, and 1998: no dividend yield for all
years; expected volatility of 75% in 2000, 50% in 1999 and 60% in 1998; a risk
free interest rate of 6.3% in 2000, 5.0% in 1999, and 5.6% in 1998; and an
expected option life of 3.9 years in 2000, 3.3 years in 1999, and 3.9 years in
1998.
At September 1, 2000, options for 396,500 shares of common stock at a weighted
average exercise price of $1.56, are deemed to be variable stock options. These
options require the recognition of compensation expense based on the difference
between the exercise price and the fair market value of the stock at the end of
a reporting period. For the year ended September 1, 2000, a non-cash
compensation expense of $489,000 was included in selling, general and
administrative expenses.
On January 25, 2000, the Company entered into an agreement with RCG Capital
Markets Group, Inc. to provide a national financial relations program. The
agreement is for an eighteen month period and provides for a monthly fee of
$6,000 and stock options for 200,000 shares of Wegener Corporation common stock
exercisable for a period of five years from the date of grant at $5.625 per
share. Fifty percent of the options granted vested upon execution of the
agreement with the balance vesting upon completion of agreed upon performance
criteria. Pursuant to the agreement, the Company has granted certain
registration rights to RCG covering the shares underlying the options. In
accordance with EITF Issue No. 96-18 and SFAS No. 123, the fair value of the
stock options has been calculated using the Black-Scholes option pricing model
and will result in an aggregate non-cash charge to earnings of approximately
$445,000 over the eighteen month term of the agreement. For the year ended
September 1, 2000, charges of $175,000 were included in selling, general and
administrative expenses. At September 1, 2000, options for 100,000 shares were
vested.
OTHER OPTIONS, AWARDS AND WARRANTS. During fiscal 1999, options for 22,500
common shares, with an exercise price of $2.44 per share expired. In addition,
stock awards issued under the 1988 Incentive Plan of 12,500 shares remained
outstanding at September 1, 2000.
STOCK REPURCHASE PROGRAM. On January 28, 1999, the Board of Directors approved a
stock repurchase program authorizing the repurchase of up to one million shares
of its common stock. As of September 1, 2000, the Company had repurchased
485,500 shares of its common stock in open market transactions at an average
price of $2.27.
10. EMPLOYEE BENEFIT PLANS
WCI has a profit-sharing plan covering substantially all employees. Amounts to
be contributed to the plan each year are determined at the discretion of the
Board of Directors subject to legal limitations. No contributions were declared
for fiscal years 2000, 1999 and 1998.
Eligible WCI employees are permitted to make contributions, up to certain
regulatory limits, to the plan on a tax deferred basis under Section 401(k) of
the Internal Revenue Code. The plan provides for a minimum company matching
contribution on a quarterly basis at the rate of 25% of employee contributions
with a quarterly discretionary match subject to WCI's profitability. During
fiscal 2000 and fiscal 1999, an additional discretionary matching contribution
of 25% of employee contributions was made for all quarters. During fiscal 1998,
an additional 25% matching contribution was made
34
<PAGE>
Wegener Corporation and Subsidiaries
for the third and fourth quarters. All matching contributions are in the form of
Company stock or cash at the discretion of the Company's Board of Directors.
Matching Company contributions in the form of common stock were approximately
$198,000 in fiscal 2000, $176,000 in fiscal 1999, and $124,000 in fiscal 1998.
11. SEGMENT INFORMATION AND SIGNIFICANT CUSTOMERS
During 1999, the Company adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" which establishes standards for the way that
public business enterprises report information about operating segments in their
financial statements. The standard defines operating segments as components of
an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Based on these standards the
Company has determined that it operates in a single operating segment: the
manufacture and sale of satellite communications equipment.
In this single operating segment the Company has three product lines. Revenues
from customers in each of these product lines are as follows:
Year ended
--------------------------------------------
SEPTEMBER 1, September 3, August 28,
2000 1999 1998
--------------------------------------------------------------------------------
Product Line
Direct Broadcast Satellite $ 19,478,042 $ 21,500,769 $ 29,220,638
Telecom and Custom Products 2,984,593 3,007,288 4,277,727
Service 431,679 751,098 756,308
--------------------------------------------------------------------------------
$ 22,894,314 $ 25,259,155 $ 34,254,673
================================================================================
Revenues by geographic areas are as follows:
Year ended
--------------------------------------------
SEPTEMBER 1, September 3, August 28,
2000 1999 1998
--------------------------------------------------------------------------------
Geographic Area
United States $ 18,744,547 $ 21,765,145 $ 30,943,573
Canada 41,747 1,585,004 57,090
Europe 1,619,724 1,136,041 881,595
Asia 63,242 66,420 1,852,677
Latin America and Mexico 2,059,456 617,146 488,517
Other 365,598 89,399 31,221
--------------------------------------------------------------------------------
$ 22,894,314 $ 25,259,155 $ 34,254,673
================================================================================
Revenues attributed to geographic areas are based on the location of the
customer. All of the Company's long-lived assets are located in the United
States.
The Company sells to a variety of domestic and international customers on an
open-unsecured account basis. These customers principally operate in the cable
television, broadcast business music, private network, and data communications
industries. In fiscal 2000, two customers accounted for 16.2% and 11.1% of
revenues, respectively. Single customers accounted for 19.2%, and 34.2% of
revenues in fiscal years 1999 and 1998, respectively. These customers represent
revenues principally within the Direct Broadcast Satellite product line. At
September 1, 2000, four customers accounted for more than 10% of the Company's
accounts receivable. At September 3, 1999, no customers accounted for more than
10% of the Company's accounts receivable. When deemed appropriate, the Company
uses letters-of-credit and credit insurance to mitigate the credit risk
associated with foreign sales.
12. STATEMENT OF CASH FLOWS
Interest payments were approximately $88,000, $159,000, and $247,000 for fiscal
years 2000, 1999, and 1998, respectively. Income taxes paid in 1999 and 1998
were $253,000 and $488,000, respectively. No income taxes were paid in 2000.
Non-cash financing activities in fiscal 2000 included: 1) 75,488 shares of
treasury stock reissued for 401(k)
35
<PAGE>
Wegener Corporation and Subsidiaries
matching Company contributions valued at approximately $198,000, 2) non-cash
stock option compensation of $489,000 and 3) stock options for 200,000 shares of
common stock granted in exchange for financial relations services to be provided
over an eighteen month period. The options were valued at $445,000 and are being
expensed over the eighteen month period. During fiscal 2000, $175,000 related to
the option value was charged to selling, general and administrative expenses.
Non-cash financing activities in fiscal 1999 included: 1) 103,337 shares of
treasury stock reissued for 401(k) matching Company contributions valued at
approximately $176,000. Non-cash investing and financing activities in fiscal
1998 included: 1) 48,184 shares of treasury stock reissued for 401(k) matching
Company contributions valued at approximately $124,000, and 2) 950,658 shares of
common stock issued upon conversion of $1,285,000 principal amount of
convertible debentures.
13. FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of the year ended September 1, 2000, the Company
recorded as a charge to cost of sales 1) a $646,000 increase in the inventory
obsolescence reserve, and 2) a $165,000 increase in the warranty provision. In
addition, the Company recorded non-cash adjustments in previous quarters to
account for certain variable stock options. The Company will file an amended
Form 10Q for each of the quarters ended December 3, 1999, March 3, 2000 and June
2, 2000. The impact of the accounting for variable stock options on all other
previous periods is not significant. The following unaudited schedule summarizes
the effect of the changes on net earnings (loss) and diluted earnings (loss) per
share:
Earnings (loss) Per Share
Additional -------------------------
(Expense) Previously
Income Reported Restated
-------------------------------------- -------------------------
Fiscal 2000
First Quarter (239,000) .00 (.02)
Second Quarter (1,616,000) .02 (.11)
Third Quarter 1,452,000 (.14) (.02)
-------------------------------------- -------------------------
During the fourth quarter of the year ended September 3, 1999, the Company
recorded as a charge to cost of sales a $500,000 increase in the inventory
obsolescence reserve.
36
<PAGE>
Wegener Corporation and Subsidiaries
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Wegener Corporation is responsible for the accuracy and
consistency of all the information contained in the annual report, including the
accompanying consolidated financial statements. These statements have been
prepared to conform with generally accepted accounting principles appropriate to
the circumstances of the Company. The statements include amounts based on
estimates and judgments as required.
Wegener Corporation maintains internal accounting controls designed to provide
reasonable assurance that the financial records are accurate, that the assets of
the Company are safeguarded, and that the financial statements present fairly
the consolidated financial position, results of operations and cash flows of the
Company.
The Audit Committee of the Board of Directors reviews the scope of the audits
and the findings of the independent certified public accountants. The auditors
meet regularly with the Audit Committee to discuss audit and financial reporting
issues, with and without management present.
BDO Seidman, LLP the Company's independent certified public accountants, has
audited the financial statements prepared by management. Their opinion on the
statements is presented below.
/s/ Robert A. Placek
Robert A. Placek,
President, Chief Executive Officer
and Chairman of the Board
/s/ C. Troy Woodbury, Jr.
C. Troy Woodbury, Jr.
Treasurer and Chief Financial Officer
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
of Wegener Corporation
Duluth, Georgia
We have audited the accompanying consolidated balance sheets of Wegener
Corporation and subsidiaries as of September 1, 2000 and September 3, 1999, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of three years in the period ended September 1, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Wegener
Corporation and subsidiaries as of September 1, 2000 and September 3, 1999 and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended September 1, 2000 in conformity with
generally accepted accounting principles.
/s/ BDO Seidman, LLP
Atlanta, Georgia BDO Seidman, LLP
November 20, 2000
37
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information contained under the caption "ELECTION OF DIRECTORS" in the
Proxy Statement pertaining to the January 23, 2001 Annual Meeting of
Stockholders ("Proxy Statement") is incorporated herein by reference in partial
response to this item. See also Item 1. "Business - Executive Officers of the
Registrant" on page 8 of this Report.
ITEM 11. EXECUTIVE COMPENSATION
Information contained under the caption "EXECUTIVE COMPENSATION" contained
in the Proxy Statement is incorporated herein by reference in response to this
item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information contained under the captions "ELECTION OF DIRECTORS" and
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" contained in
the Proxy Statement is incorporated herein by reference in response to this
item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information contained under the caption "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS" contained in the Proxy Statement is incorporated herein by
reference in response to this item.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following consolidated financial statements of Wegener
Corporation and subsidiaries and the related Report of Independent Certified
Public Accountants thereon are filed as part of this report:
Consolidated Balance Sheets September 1, 2000 and September 3, 1999
Consolidated Statements of Operations Years ended September 1, 2000, September
3, 1999, and August 28, 1998
Consolidated Statements of Shareholders' Equity Years ended September 1, 2000,
September 3, 1999, and August 28, 1998
Consolidated Statements of Cash Flows Years ended September 1, 2000, September
3, 1999, and August 28, 1998
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
Separate financial statements of the Registrant have been omitted because
the Registrant is primarily a holding company and all subsidiaries included in
the consolidated financial statements are wholly owned.
(a)(2) The following consolidated financial statements schedule for Wegener
Corporation and subsidiaries, and the related Report of Independent Certified
Public Accountants are included herein, beginning on page 40:
Schedule II - Valuation and Qualifying Accounts Years ended September 1,
2000, September 3, 1999, and August 28, 1998
(a) (3) The exhibits filed in response to Item 601 of Regulation S-K are
listed in the Exhibit Index on pages 41 and 42.
(b) There were no reports on Form 8-K filed for the Quarter ended September
1, 2000.
(c) See Part IV, Item 14(a)(3).
(d) Not applicable.
39
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
of Wegener Corporation
Duluth, Georgia
The audits referred to in our report dated November 20, 2000, relating to
the consolidated financial statements of Wegener Corporation and subsidiaries,
which is contained in Item 8 of this Form 10-K included the audit of the
financial statement schedule listed in the accompanying index. The financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statement schedule
based on our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
/s/ BDO Seidman, LLP
Atlanta, Georgia BDO Seidman, LLP
November 20, 2000
40
<PAGE>
SCHEDULE II
WEGENER CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Write-offs Recoveries Period
------------ ------------ ------------ ------------ ------------
Allowance for doubtful
accounts receivable:
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 1, 2000 $ 172,585 $ 45,000 $ (58,748) $ 6,741 $ 165,578
------------ ------------ ------------ ------------ ------------
Year ended September 3, 1999 $ 256,991 $ 40,000 $ (124,406) $ -- $ 172,585
Year ended August 28, 1998 $ 361,743 $ 75,000 $ (180,018) $ 266 $ 256,991
Inventory Reserves:
YEAR ENDED SEPTEMBER 1, 2000 $ 2,198,494 $ 1,246,000 $ -- $ -- $ 3,444,494
Year ended September 3, 1999 $ 1,439,520 $ 750,000 $ -- $ 8,974 $ 2,198,494
Year ended August 28, 1998 $ 1,865,453 $ 1,150,000 $ (1,576,764) $ 831 $ 1,439,520
</TABLE>
41
<PAGE>
EXHIBIT INDEX
The following documents are filed as exhibits to this report. An asterisk
identifies those exhibits previously filed and incorporated herein by reference
below. For each such asterisked exhibit there is shown below the description of
the previous filing. Exhibits, which are not required for this report, are
omitted.
Exhibit Number Description of Document
-------------- -----------------------
*3.1 By-Laws (Reg. No. 2-81795, Exhibits 3(a) and 3(b)).
*3.2 Certificate of Incorporation as amended through May 4, 1989
(1989 10-K, filed November 30, 1989, Exhibit 3.2).
*3.3 Amendment to Certificate of Incorporation (1997 10-Q, filed
June 27, 1997, Exhibit 3.1).
*4.0 See By-Laws and Certificate of Incorporation, Exhibits 3.1
and 3.2. See Articles II and VIII of the By-Laws and Article
IV of the Certificate.
*4.1 Loan and Security Agreement and Demand Note dated June 5,
1996 by and between Wegener Communications, Inc. and LaSalle
National Bank respecting $8,500,000 combined revolving
credit note and term note (1996 10-K, filed November 27,
1996, Exhibit 4.1).
*4.2 Loan Agreement, Promissory Note and Deed to Secure Debt, and
Security Agreement dated February 27, 1987 between Bank
South, N.A. and Wegener Communications, Inc. respecting
$3,500,000 promissory note (1990 10-K, filed November 29,
1990, Exhibit 4.4).
*4.3 Promissory Note dated April 8, 1996 in favor of Lyon Credit
Corporation and Wegener Communications, Inc. in the
principal amount of $600,000 (1996 10Q, filed July 11, 1996,
Exhibit 4.1).
*4.5 Loan and Security Agreement - First Amendment dated August
4, 1998 by and between Wegener Communications, Inc. and
LaSalle National Bank respecting $10,000,000 combined
revolving credit note and term note.
No other long-term debt instrument of the Registrant or its
subsidiaries authorizes indebtedness exceeding 10% of the
total assets of the Registrant and its subsidiaries on a
consolidated basis and the Registrant hereby undertakes to
provide the Commission upon request with any long-term debt
instrument not filed herewith.
42
<PAGE>
Exhibit Number Description of Document
-------------- -----------------------
*10.1 1988 Incentive Plan (1989 10-K, filed November 30, 1989,
Exhibit 10.2).
*10.2 License Agreement, Distributorship and Supply Agreement, and
Purchase Pooling and Warehouse Agreement dated May 28, 1994
by and between Wegener Communications, Inc. and Cross
Technologies, Inc. (1995 10-K, filed December 15, 1994,
Exhibit 10.4).
*10.3 Wegener Communications, Inc. Profit Sharing Plan and Trust
dated January 1, 1982, amended and restated as of January 1,
1984. (1987 10-K, dated and filed November 25, 1987, Exhibit
10.14).
*10.4 1989 Directors' Incentive Plan (1990 10-K, filed November
29, 1990, Exhibit 10.9).
*10.4.1 Amendment to 1989 Directors' Incentive Plan effective
February 1, 1995 (1995 10-K, filed December 13, 1996).
*10.5 1998 Incentive Plan (1998 Form S-8, Registration No.
333-51205, filed April 28, 1998, Exhibit 10.1).
*21. Subsidiaries of the Registrant (1990 10-K, filed November
29, 1990, Exhibit 22).
23. Consent of BDO Seidman, LLP.
27. Financial Data Schedule.
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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
Date: November 30, 2000 By /s/ ROBERT A. PLACEK
---------------------------
Robert A. Placek
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on this 30th day of November, 2000.
Signature Title
--------- -----
/s/ Robert A. Placek President, Chief Executive Officer and
----------------------------- Chairman of the Board
Robert A. Placek (Principal Executive Officer)
/s/ C. Troy Woodbury, Jr. Treasurer and Chief Financial Officer,
----------------------------- Director (Principal Financial and
C. Troy Woodbury, Jr. Accounting Officer)
/s/ James T. Traicoff Controller
-----------------------------
James T. Traicoff
/s/ James H. Morgan, Jr. Director
-----------------------------
James H. Morgan, Jr.
/s/ Joe K. Parks Director
-----------------------------
Joe K. Parks
/s/ Thomas G. Elliot Director
-----------------------------
Thomas G. Elliot
44
<PAGE>
DIRECTORS
Robert A. Placek
Chairman of the Board,
President and Chief
Executive Officer
Wegener Corporation
James H. Morgan, Jr., Esq.
Partner
Smith, Gambrell & Russell, LLP
C. Troy Woodbury, Jr.
Treasurer and Chief
Financial Officer
Wegener Corporation
Keith N. Smith
President, Wegener
Communications, Inc.
Joe K. Parks
Retired, Served as
Laboratory Director
Systems Development Laboratory
Georgia Tech Research Institute
Georgia Institute of Technology
Thomas G. Elliot
Senior Vice President of
Technical Projects
CableLabs
OFFICERS
Robert A. Placek
Chairman of the Board,
President and Chief
Executive Officer
Keith N. Smith
President, Wegener
Communications, Inc.
C. Troy Woodbury, Jr.
Treasurer and Chief
Financial Officer
James T. Traicoff
Controller
INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
BDO Seidman, LLP
285 Peachtree Center Avenue
Suite 800
Atlanta, Georgia 30303-1230
TRANSFER AGENT
Securities Transfer Corporation
2591 Dallas Parkway
Suite 102
Frisco, Texas 75034
CORPORATE
HEADQUARTERS
11350 Technology Circle
Duluth/Atlanta, Georgia 30097-1502
ANNUAL MEETING
The annual meeting of stockholders will be held on January 23, 2001 at 7:00 p.m.
at the Corporate Headquarters.
COMMON STOCK NASDAQ
NASDAQ Small-Cap Market Symbol: WGNR
FORM 10-K REPORT
Wegener Corporation's Annual Report on Form 10-K, filed with the Securities and
Exchange Commission, is available free of charge by written request to:
Elaine Miller, Secretary
Investor Relations
Wegener Corporation
11350 Technology Circle
Duluth, Georgia 30097-1502
WEB SITE
HTTP://WWW.WEGENER.CO
QUARTERLY COMMON
STOCK PRICES
The Company's common stock is traded on the NASDAQ Small-Cap Market. The
quarterly ranges of high and low closing sale prices for fiscal 2000 and 1999
were as follows:
High Low
----------------------------------------------------
FISCAL YEAR ENDING SEPTEMBER 1, 2000
First Quarter $3 14/32 $1 5/8
Second Quarter 8 3/16 2 1/8
Third Quarter 8 2
Fourth Quarter 3 13/32 1 7/16
----------------------------------------------------
FISCAL YEAR ENDING SEPTEMBER 3, 1999
First Quarter $1 27/32 $1 3/8
Second Quarter 2 9/32 1 1/2
Third Quarter 2 1/2 1 15/32
Fourth Quarter 2 3/16 1 3/8
----------------------------------------------------
The Company had approximately 382* shareholders of record at November 20, 2000.
The Company has never paid cash dividends on its common stock and does not
intend to pay cash dividends in the foreseeable future.
*(This number does not reflect beneficial ownership of shares held in nominee
names).
45
