FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 2, 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
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock:
Common Stock, $.01 par value 11,818,283 Shares
---------------------------- -------------------------
Class Outstanding June 26, 2000
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
Form 10-Q For the Quarter Ended June 2, 2000
INDEX
Page(s)
-------
PART I. Financial Information
Item 1. Consolidated Financial Statements
Introduction .........................................................3
Consolidated Statements of Operations
(Unaudited) - Three and Nine Months Ended
June 2, 2000 and May 28, 1999 ........................................4
Consolidated Balance Sheets - June 2,
2000 (Unaudited) and September 3, 1999 ...............................5
Consolidated Statements of Shareholders' Equity
(Unaudited) - Nine Months Ended June 2,
2000 and May 28, 1999 ................................................6
Consolidated Statements of Cash Flows
(Unaudited) - Nine Months Ended June 2,
2000 and May 28, 1999 ................................................7
Notes to Consolidated Financial
Statements (Unaudited) ............................................8-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..............................13-16
Item 3. Quantitative and Qualitative Disclosures About Market Risk...........16
PART II. Other Information
Item 1. None
Item 2. None
Item 3. None
Item 4. None
Item 5. None
Item 6. Exhibits and Reports on Form 8-K ....................................17
Signatures ..........................................................18
2
<PAGE>
PART I. FINANCIAL INFORMATION Item 1. Financial Statements
----------------------------- ----------------------------
INTRODUCTION - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
The consolidated balance sheet as of June 2, 2000; the consolidated statements
of shareholders' equity as of June 2, 2000 and May 28, 1999; the consolidated
statements of operations for the three and nine months ended June 2, 2000 and
May 28, 1999; and the consolidated statements of cash flows for the nine months
ended June 2, 2000 and May 28, 1999; have been prepared without audit. The
consolidated balance sheet as of September 3, 1999 has been examined by
independent certified public accountants. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures herein are adequate to make the information presented not
misleading. It is suggested that these consolidated financial statements be read
in conjunction with the financial statements and the notes thereto included in
the Company's Annual Report on Form 10-K, for the fiscal year ended September 3,
1999, File No. 0-11003.
In the opinion of the Company, the unaudited statements for the interim
periods presented include all adjustments, which were of a normal recurring
nature, necessary to present a fair statement of the results of such interim
periods. The results of operations for the interim periods presented are not
necessarily indicative of the results of operations for the entire year.
3
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
JUNE 2, May 28, JUNE 2, May 28,
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 4,585,371 $ 7,049,500 $ 18,769,890 $ 20,541,706
--------------------------------------------------------------------------------------------------------------------
Operating costs and expenses
Cost of products sold 4,380,015 4,472,989 13,677,581 13,317,249
Selling, general, and administrative 2,070,160 1,281,114 5,185,841 3,673,863
Research and development 844,330 789,162 2,294,803 2,147,282
--------------------------------------------------------------------------------------------------------------------
Operating costs and expenses 7,294,505 6,543,265 21,158,225 19,138,394
--------------------------------------------------------------------------------------------------------------------
Operating income (loss) (2,709,134) 506,235 (2,388,335) 1,403,312
Interest expense (21,357) (33,130) (69,289) (111,513)
Interest income 108,159 72,300 306,099 248,217
--------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (2,622,332) 545,405 (2,151,525) 1,540,016
Income tax expense (benefit) (979,000) 202,000 (795,000) 570,000
--------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ (1,643,332) $ 343,405 $ (1,356,525) $ 970,016
====================================================================================================================
Net earnings (loss) per share
Basic $ (.14) $ .03 $ (.12) $ .08
Diluted $ (.14) $ .03 $ (.12) $ .08
====================================================================================================================
Shares used in per share
calculation
Basic 11,836,065 11,764,308 11,793,858 11,905,732
Diluted 11,836,065 11,933,309 11,793,858 12,058,425
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 2, September 3,
2000 1999
--------------------------------------------------------------------------------------------------
ASSETS (UNAUDITED)
Current assets
<S> <C> <C>
Cash and cash equivalents $ 7,314,491 $ 8,858,591
Accounts receivable 4,233,278 2,618,296
Inventories 8,304,496 6,488,813
Deferred income taxes 1,537,000 1,325,000
Other 154,774 263,090
--------------------------------------------------------------------------------------------------
Total current assets 21,544,039 19,553,790
Property and equipment 4,238,844 4,242,588
Capitalized software costs 1,259,139 1,100,747
Deferred income taxes 30,000 --
Other assets 33,686 56,690
--------------------------------------------------------------------------------------------------
$ 27,105,708 $ 24,953,815
==================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 4,072,474 $ 2,018,149
Accrued expenses 2,174,796 1,554,572
Customer deposits 2,012,067 884,066
Current maturities of long-term obligations 742,086 1,119,835
--------------------------------------------------------------------------------------------------
Total current liabilities 9,001,423 5,576,622
Long-term obligations, less current maturities -- 85,424
Deferred income taxes 573,000 512,000
--------------------------------------------------------------------------------------------------
Total liabilities 9,574,423 6,174,046
--------------------------------------------------------------------------------------------------
Commitments
Shareholders' equity
Common stock, $.01 par value; 20,000,000 shares
authorized; 12,314,575 shares issued 123,146 123,146
Additional paid-in capital 19,787,218 19,492,570
Retained earnings (deficit) (1,260,744) 95,781
Less treasury stock, at cost (1,118,335) (931,728)
--------------------------------------------------------------------------------------------------
Total shareholders' equity 17,531,285 18,779,769
--------------------------------------------------------------------------------------------------
$ 27,105,708 $ 24,953,815
==================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
------------ Paid-in --------------
Shares Amount Capital Deficit Shares Amount
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, at August 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 -- -- 63,172 -- 86,339 80,169
Treasury stock repurchased -- -- -- -- (316,500) (579,000)
Net earnings for the nine months -- -- -- 970,016 -- --
----------------------------------------------------------------------------------------------------------------------------------
BALANCE, at May 28, 1999 12,314,575 $ 123,146 $19,470,589 $ 852,524 (588,707) $ (831,757)
==================================================================================================================================
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 -- -- 193,554 -- 228,167 211,863
Treasury stock repurchased -- -- -- -- (99,000) (398,470)
Value of stock options granted
for services -- -- 101,094 -- -- --
Net (loss) for the nine months -- -- -- (1,356,525) -- --
----------------------------------------------------------------------------------------------------------------------------------
BALANCE, AT JUNE 2, 2000 12,314,575 $ 123,146 $19,787,218 $(1,260,744) (503,292) $(1,118,335)
==================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
JUNE 2, May 28,
2000 1999
----------------------------------------------------------------------------------
CASH PROVIDED (USED) BY OPERATING ACTIVITIES
<S> <C> <C>
Net earnings (loss) $ (1,356,525) $ 970,016
Adjustments to reconcile net earnings to
cash provided by operating activities
Depreciation and amortization 1,287,370 1,205,191
Bad debt allowance 45,000 125,000
Warranty reserves 50,000 150,000
Inventory reserves 600,000 250,000
Non-cash expenses 101,094 --
Issuance of treasury stock for
compensation expenses 142,384 130,044
Deferred income taxes (181,000) (231,750)
Changes in assets and liabilities
Accounts receivable (1,659,982) 159,128
Inventories (2,415,683) 670,133
Other assets 102,437 (156,929)
Accounts payable and accrued expenses 2,624,549 (178,323)
Customer deposits 1,128,001 43,342
----------------------------------------------------------------------------------
467,645 3,135,852
----------------------------------------------------------------------------------
CASH (USED) BY INVESTMENT ACTIVITIES
Property and equipment expenditures (872,075) (533,828)
Capitalized software additions (541,060) (302,342)
----------------------------------------------------------------------------------
(1,413,135) (836,170)
----------------------------------------------------------------------------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES
Proceeds from long-term debt -- 1,359,508
Purchase of treasury stock (398,470) (579,000)
Repayment of long-term debt and capitalized
lease obligations (463,173) (1,818,249)
Proceeds from stock options exercised 263,033 13,297
----------------------------------------------------------------------------------
(598,610) (1,024,444)
----------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (1,544,100) 1,275,238
Cash and cash equivalents, beginning of period 8,858,591 6,492,760
----------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 7,314,491 $ 7,767,998
==================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the nine months for:
Interest $ 69,289 $ 121,586
Income taxes $ 38,500 $ 240,000
==================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 Significant Accounting Policies
The significant accounting policies followed by the Company are set
forth in Note 1 to the Company's audited consolidated financial
statements included in the annual report on Form 10-K for the year
ended September 3, 1999.
Earnings Per Share
Basic and diluted net earnings (loss) per share were computed in
accordance with Statement of Financial Accounting Standards 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.
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.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could
vary from these estimates.
Fiscal Year
The Company uses a fifty-two, fifty-three week year. The fiscal year
ends on the Friday closest to August 31. Fiscal year 2000 contains
fifty-two weeks while fiscal 1999 contained fifty-three weeks.
8
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 2 Accounts Receivable
Accounts receivable are summarized as follows:
JUNE 2, September 3,
2000 1999
----------- -----------
(UNAUDITED)
Accounts receivable - trade $ 3,661,835 $ 2,675,022
Other receivables 181,734 115,859
Recoverable income taxes 614,000 --
----------- -----------
4,457,569 2,790,881
Less allowance for
doubtful accounts (224,291) (172,585)
----------- -----------
$ 4,233,278 $ 2,618,296
=========== ===========
Note 3 Inventories
Inventories are summarized as follows:
JUNE 2, September 3,
2000 1999
----------- -----------
(UNAUDITED)
Raw material $ 3,626,453 $ 2,845,784
Work-in-process 3,046,842 3,146,479
Finished goods 4,429,695 2,695,044
------------ ------------
11,102,990 8,687,307
Less inventory reserves (2,798,494) (2,198,494)
------------ ------------
$ 8,304,496 $ 6,488,813
============ ============
Note 4 Income Taxes
For the nine months ended, June 2, 2000, income tax benefit of
$795,000 was comprised of a current federal and state income tax
benefit of $558,000 and $56,000, respectively, and a deferred federal
and state tax benefit of $173,000 and $8,000, respectively. Net
deferred tax assets increased $181,000 in the first nine months of
fiscal 2000.
9
<PAGE>
NOTE 5 EARNINGS PER SHARE
The following tables represent required disclosure of the reconciliation of the
numerators and denominators of the basic and diluted net earnings (loss) per
share computations.
<TABLE>
<CAPTION>
Three months ended
--------------------------------------------------------------------------------
JUNE 2, 2000 May 28, 1999
---------------------------------------- -----------------------------------
PER Per
EARNINGS SHARES SHARE Earnings Shares share
(NUMERATOR) (DENOMINATOR) AMOUNT (Numerator) (Denominator) amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Net earnings (loss) $(1,643,332) $343,405
=========== ========
Basic:
Net earnings (loss) available
to common shareholders $(1,643,332) 11,836,065 $(0.14) $343,405 11,764,308 $ 0.03
====== ======
Effect of dilutive potential
common shares:
Stock options -- -- -- 169,001
----------- ---------- -------- ----------
Diluted:
Net earnings (loss) available
to common shareholders
plus assumed conversions $(1,643,332) 11,836,065 $(0.14) $343,405 11,933,309 $ 0.03
=========== ========== ====== ======== ========== ======
<CAPTION>
Nine months ended
--------------------------------------------------------------------------------
JUNE 2, 2000 May 28, 1999
---------------------------------------- -----------------------------------
PER Per
EARNINGS SHARES SHARE Earnings Shares share
(NUMERATOR) (DENOMINATOR) AMOUNT (Numerator) (Denominator) amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Net earnings (loss) $(1,356,525) $970,016
=========== ========
Basic:
Net earnings (loss) available
to common shareholders $(1,356,525) 11,793,858 $(0.12) $970,016 11,905,732 $ 0.08
====== ======
Effect of dilutive potential
common shares:
Stock options -- -- -- 152,693
----------- ---------- -------- ----------
Diluted:
Net earnings (loss) available
to common shareholders
plus assumed conversions $(1,356,525) 11,793,858 $(0.12) $970,016 12,058,425 $ 0.08
=========== ========== ====== ======== ========== ======
</TABLE>
10
<PAGE>
Stock options excluded from the diluted earnings (loss) per share calculation
due to their anti-dilutive effect are as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
---------------------------- ----------------------------
JUNE 2, May 28, JUNE 2, May 28,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Common stock options:
Number of shares 1,243,500 6,000 1,243,500 6,000
Range of exercise prices $.75 TO 5.63 $ 1.78 $.75 TO 5.63 $ 1.78
============ ============ ============ ============
</TABLE>
NOTE 6 SEGMENT INFORMATION AND SIGNIFICANT CUSTOMERS
In accordance with Statement of Financial Accounting Standards No. 131,
Disclosure about Segments of an Enterprise and Related Information, the Company
operates within a single reportable segment, the manufacture and sale of
satellite communications equipment.
In this single operating segment the Company has three distinct product lines.
Revenues from customers in each of these product lines are as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
---------------------------- ----------------------------
JUNE 2, May 28, JUNE 2, May 28,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Product Line
<S> <C> <C> <C> <C>
Direct Broadcast Satellite $ 3,619,556 $ 5,823,791 $ 16,281,911 $ 17,606,276
Telecom and Custom Products 846,086 1,041,586 2,168,501 2,354,697
Service 119,729 184,123 319,478 580,733
------------ ------------ ------------ ------------
$ 4,585,371 $ 7,049,500 $ 18,769,890 $ 20,541,706
============ ============ ============ ============
</TABLE>
Revenues by geographic areas are as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
---------------------------- ----------------------------
JUNE 2, May 28, JUNE 2, May 28,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Geographic Area
<S> <C> <C> <C> <C>
United States $ 4,383,880 $ 6,594,060 $ 15,887,249 $ 17,928,101
Latin America 27,318 102,697 1,956,406 329,497
Canada 7,844 20,225 28,876 1,575,583
Europe 151,839 264,393 504,365 539,875
Other 14,490 68,125 392,994 168,650
------------ ------------ ------------ ------------
$ 4,585,371 $ 7,049,500 $ 18,769,890 $ 20,541,706
============ ============ ============ ============
</TABLE>
All of the Company's long-lived assets are located in the United States.
11
<PAGE>
Customers representing 10% or more of the respective periods' revenues are as
follows:
Three months ended Nine months ended
--------------------------- ---------------------------
JUNE 2, May 28, JUNE 2, May 28,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Customer 1 (A) 27.3% (A) 23.5%
Customer 2 (A) (a) 19.4% (a)
Customer 3 14.4% 15.2% (A) 10.1%
Customer 4 (A) (a) (A) 10.0%
Customer 5 15.3% (a) (A) (a)
(a) Revenues for the period were less than 10% of total revenues.
NOTE 7 STOCK OPTIONS
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 vest 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 three and nine
month periods ended June 2, 2000, charges of $74,000 and $101,000, respectively,
were included in selling, general and administrative expenses. At June 2, 2000,
options for 100,000 shares were vested.
12
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This information should be read in conjunction with the consolidated financial
statements and the notes thereto included in Item 1 of this Quarterly Report and
the audited consolidated financial statements and notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations for the
year ended September 3, 1999 contained in the Company's 1999 Annual Report on
Form 10-K.
Certain statements contained in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, such
as statements relating to financial results, future business or product
development plans, research and development activities, capital spending,
financing sources or capital structure, the effects of regulation and
competition, and are thus prospective. Such forward-looking statements are
subject to risks, uncertainties and other factors which could cause actual
results to differ materially from future results expressed or implied by such
forward-looking statements. Potential risks and uncertainties include, but are
not limited to, economic conditions, customer plans and commitments, product
demand, governmental regulation, rapid technological developments and changes,
performance issues with key suppliers and subcontractors, delays in product
development and testing, availability of materials, new and existing
well-capitalized competitors, and other uncertainties detailed in the Company's
Form 10-K for the year ended September 3, 1999 and from time to time in the
Company's periodic Securities and Exchange Commission filings.
The Company, through Wegener Communications, Inc. (WCI), a wholly-owned
subsidiary, designs and manufactures communications transmission and receiving
equipment for the business broadcast, data communications, cable and broadcast
radio and television industries.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED JUNE 2, 2000 COMPARED TO THREE AND NINE MONTHS ENDED
MAY 28, 1999
The operating results for the three and nine month periods ended June 2, 2000
were a net loss of $(1,643,000) or $(0.14) per share and a net loss of
$(1,357,000) or ($0.12) per share, respectively, compared to $343,000 or $0.03
per share and $970,000 or $0.08 per share, respectively, for the three and nine
month periods ended May 28, 1999.
REVENUES - The Company's revenues for the three months ended June 2, 2000 were
$4,585,000, down 35.0% from revenues of $7,050,000 for the three months ended
May 28, 1999. Revenues were $18,770,000 for the nine months ended June 2, 2000,
down 8.6% from revenues of $20,542,000 for the nine months ended May 28, 1999.
Direct Broadcast Satellite (DBS) revenues decreased $2,204,000 or 37.8% in the
third quarter of fiscal 2000 to $3,620,000 from $5,824,000 in the same period of
fiscal 1999. The decrease was due to delayed purchasing decisions in the digital
satellite transmission market segment. Industry-wide new product introductions
as well as increased pricing competition contributed to the expanded range of
choices available to buyers. Telecom and Customer Products Group revenues
decreased $196,000 or 18.8% in the third quarter of fiscal 2000 to $846,000 from
$1,042,000 in the same period of fiscal 1999. The decrease was mainly due to
lower levels of shipments of cue and control equipment to provide local
commercial insertion capabilities to cable television headend systems. For the
three months ended June 2, 2000, two customers accounted for approximately 15.3%
and 14.4% of total revenues.
13
<PAGE>
For the nine months ended June 2, 2000, DBS revenues decreased $1,324,000 or
7.5% to $16,282,000 from $17,606,000 for the nine months ended May 28, 1999. The
decrease was due to delayed purchasing decisions in the digital satellite
transmission market segment. Industry-wide new product introductions as well as
increased pricing competition contributed to the expanded range of choices
available to buyers. For the nine months ended June 2, 2000, Telecom and Custom
Product Group revenues decreased $186,000 or 7.9% to $2,169,000 from $2,355,000
for the nine months ended May 28, 1999. The decrease was mainly due to lower
levels of shipments of cue and control equipment. For the nine months ended June
2, 2000, one customer accounted for approximately 19.4% of total revenues. The
Company's backlog is comprised of undelivered, firm customer orders, which are
scheduled to ship within eighteen months. WCI's total backlog was approximately
$11.4 million at June 2, 2000, compared to $15.7 million at September 3, 2000
and $5.3 million at May 28, 1999. The Company expects the fourth quarter of
fiscal 2000 to result in a smaller loss than the third quarter. The first half
of fiscal 2001 is expected to show improvements in operating results. Future
quarterly operating results may fluctuate due to the timing of receipt of
orders.
GROSS PROFIT MARGINS - The Company's gross profit margin percentages were 4.5%
and 27.1% for the three and nine month periods ended June 2, 2000 compared to
36.5% and 35.2% for the three and nine month periods ended May 28, 1999. Gross
profit margin dollars decreased $2,371,000 and $2,132,000 for the three and nine
month periods ended June 2, 2000 from the same periods ended May 28, 1999. The
decreases in margin dollars and percentages were mainly due to lower revenues
during the periods which resulted in higher unit fixed overhead costs. Profit
margins in the three and nine month periods of fiscal 2000 included: 1)
inventory reserve charges of $500,000 and $600,000 compared to $100,000 and
$250,000 for the same periods of fiscal 1999 and 2) warranty provisions of
$50,000 and $50,000 compared to $150,000 and $150,000 for the same periods of
fiscal 1999.
SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and administrative (SG&A)
expenses increased $789,000 or 61.6% to $2,070,000 for the three months ended
June 2, 2000 from $1,281,000 for the three months ended May 28, 1999. For the
nine months ended June 2, 2000 SG&A expenses increased $1,512,000 or 41.2% to
$5,186,000 from $3,674,000 for the same period ended May 28, 1999. The three and
nine month increases were primarily due to higher levels of selling and
marketing expenses, outside sales agent commissions, software implementation
costs, maintenance, professional and investor relations fees and depreciation
expenses. The Company expects aggregate SG&A expenses to decrease in subsequent
quarters from third quarter fiscal 2000 levels. As a percentage of revenues,
SG&A expenses were 45.1% and 27.6% for the three and nine month periods ended
June 2, 2000 compared to 18.2% and 17.9% for the same periods of fiscal 1999.
The increases in percentages for the three and nine months ended June 2, 2000
compared to the three and nine months ended May 28, 1999 were primarily due to
lower revenues.
RESEARCH AND DEVELOPMENT - Research and development expenditures, including
capitalized software development costs, were $996,000 and $2,836,000 for the
three and nine month periods ended June 2, 2000, compared to $909,000 and
$2,449,000 for the same periods of fiscal 1999. Capitalized software development
costs amounted to $152,000 and $541,000 for the third quarter and first nine
months of fiscal 2000 compared to $120,000 and $302,000 for the same periods of
fiscal 1999. The increases in expenditures for the three and nine months ended
June 2, 2000 are primarily due to increases in engineering consulting and
personnel costs. The increases in capitalized software costs are due to
increased expenditures on COMPEL network control software and software
associated with new digital video products. Research and development expenses,
excluding capitalized software expenditures, were $844,000 or 18.4% of revenues
and $2,295,000 or 12.2% of revenues for the three and nine months ended June 2,
2000 compared to $789,000 or 11.2% of revenues and $2,147,000 or 10.5% of
revenues for the same periods of fiscal 1999.
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INTEREST EXPENSE - Interest expense decreased $12,000 to $21,000 for the three
months ended June 2, 2000 from $33,000 for the three months ended May 28, 1999.
For the nine months ended June 2, 2000, interest expense decreased $42,000 to
$69,000 from $112,000 for the same period ended May 28, 1999. The decreases for
the three and nine month fiscal 2000 periods were primarily due to a decrease in
the average outstanding balance of indebtedness.
INTEREST INCOME - Interest income was $108,000 and $306,000 for the three and
nine months ended June 2, 2000, respectively compared to $72,000 and $248,000
for the same periods ended May 28, 1999. The increases were due to higher
average cash equivalent balances during the periods and an increase in
investment yields.
INCOME TAX EXPENSES - For the nine months ended June 2, 2000, income tax benefit
of $795,000 was comprised of a federal and state current income tax benefit of
$558,000 and $56,000, respectively, and a federal and state deferred income tax
benefit of $173,000 and $8,000, respectively. Net deferred tax assets increased
$181,000 in the first nine months of fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
NINE MONTHS ENDED JUNE 2, 2000
During the first nine months of fiscal 2000, operating activities provided
$468,000 of cash. Net losses adjusted for non-cash expenses provided $688,000 of
cash, while changes in customer deposits, accounts payable and accrued expenses
provided $3,753,000 of cash. Changes in accounts receivable, inventories and
other assets, used $3,973,000 of cash. Cash used by investing activities for
property and equipment expenditures and capitalized software additions was
$1,413,000. Financing activities used cash of $463,000 for scheduled repayments
of long-term obligations and $370,000 for repurchase of common stock. Proceeds
from exercised stock options provided $263,000 of cash.
Net accounts receivable increased $1,615,000 to $4,233,000 at June 2, 2000 from
$2,618,000 at September 3, 1999. The increase was due to 1) a higher percentage
of shipments occurring in the last month of the third quarter of fiscal 2000
compared to the same period of fiscal 1999, 2) a delay in payments from two
customers, and 3) a recoverable income tax provision of $614,000 at June 2, 2000
compared to none at September 3, 1999.
Inventory before reserves, increased $2,416,000 to $11,103,000 at June 2, 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 scheduled for fourth quarter production and shipment, and 3) lower than
expected shipments.
WCI maintains a loan facility with a bank which provides a maximum available
credit limit of $10,000,000 with sublimits as defined. Subsequent to June 2,
2000, WCI renewed the loan facility which matured on June 21, 2000. The renewed
loan facility matures on June 21, 2003 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 June 2, 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
interest rate on outstanding real estate advances is 6.519%
The term loan facility provides for a maximum of $1,000,000 for advances of up
to 80% of the cost of equipment acquisitions. Principal advances are payable
monthly over sixty months with a balloon payment due at maturity. The revolving
line of credit is subject to availability advance formulas of 80% against
eligible accounts receivable; 20% of eligible raw materials inventories; 20% of
eligible work-in-process kit inventories; and 40% to 50% of eligible finished
goods inventories. Advances against
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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. At June 2,
2000, outstanding balances on real property advances aggregated $621,000, and no
balances were outstanding on the revolving line of credit or equipment term loan
portions of the loan facility. Additionally, at June 2, 2000, approximately
$3,257,000 was available to borrow under the advance formulas.
The Company expects that its current cash and cash equivalents combined with
expected cash flows from operating activities and an available line of credit
will be sufficient to support the Company's operations during the remainder of
fiscal 2000 and 2001.
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 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 vest 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 three and nine
month periods ending June 2, 2000, charges of $74,000 and $101,000,
respectively, were included in selling, general and administrative expenses. At
June 2, 2000, options for 100,000 shares were vested.
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.
During the third quarter of fiscal 2000, 99,000 shares were purchased at an
average price of $4.00 bringing the cumulative repurchase shares to 485,500 at
an average price of $2.27.
ITEM 3. 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
June 2, 2000 subject to variable interest rate fluctuations.
The Company's cash equivalents consist of a repurchase agreement and a bank
certificate of deposit. 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.
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PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a.) Exhibits: 27-Financial Data Schedule
(b.) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter ended June 2, 2000.
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SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WEGENER CORPORATION
------------------------
(Registrant)
Date: July 17, 2000 By: /s/ Robert A. Placek
----------------------
Robert A. Placek
President
(Principal Executive Officer)
Date: July 17, 2000 By: /s/ C. Troy Woodbury, Jr.
---------------------------
C. Troy Woodbury, Jr.
Treasurer and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
