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 March 3, 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 11,876,283 Shares
- ---------------------------- --------------------------
Class Outstanding April 10, 2000
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
Form 10-Q For the Quarter Ended March 3, 2000
INDEX
Page(s)
-------
PART I. Financial Information
Item 1. Consolidated Financial Statements
Introduction ........................................................3
Consolidated Statements of Operations
(Unaudited) - Three and Six Months Ended
March 3, 2000 and February 26, 1999 .................................4
Consolidated Balance Sheets - March 3,
2000 (Unaudited) and September 3, 1999 ..............................5
Consolidated Statements of Shareholders' Equity
(Unaudited) - Six Months Ended March 3,
2000 and February 26, 1999 ..........................................6
Consolidated Statements of Cash Flows
(Unaudited) - Six Months Ended March 3,
2000 and February 26, 1999 ..........................................7
Notes to Consolidated Financial
Statements (Unaudited) ...........................................8-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................12-16
Item 3. Quantitative and Qualitative Disclosures About Market Risk..........16
PART II. Other Information
Item 1. None
Item 2. Changes in Securities and Use of Proceeds ..........................17
Item 3. None
Item 4. Submission of Matters to a Vote of Security Holders ................17
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 March 3, 2000; the consolidated statements
of shareholders' equity as of March 3, 2000 and February 26, 1999; the
consolidated statements of operations for the three and six months ended March
3, 2000 and February 26, 1999; and the consolidated statements of cash flows for
the six months ended March 3, 2000 and February 26, 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 statements for the unaudited interim
periods presented include all adjustments, which were of a normal recurring
nature, necessary to present a fair statement of the results of such interim
periods. The results of operations for the interim periods presented are not
necessarily indicative of the results of operations for the entire year.
3
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
MARCH 3, February 26, MARCH 3, February 26,
2000 1999 2000 1999
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 7,170,016 $ 7,025,955 $ 14,184,519 $ 13,492,206
- -----------------------------------------------------------------------------------------------------------
Operating costs and expenses
Cost of products sold 4,609,663 4,476,980 9,297,566 8,844,260
Selling, general, and administrative 1,635,854 1,267,010 3,115,681 2,392,749
Research and development 639,540 724,481 1,450,473 1,358,120
- -----------------------------------------------------------------------------------------------------------
Operating costs and expenses 6,885,057 6,468,471 13,863,720 12,595,129
- -----------------------------------------------------------------------------------------------------------
Operating income 284,959 557,484 320,799 897,077
Interest expense (23,044) (34,887) (47,932) (78,383)
Interest income 93,701 92,961 197,940 175,917
- -----------------------------------------------------------------------------------------------------------
Earnings before income taxes 355,616 615,558 470,807 994,611
Income tax expense 141,000 220,000 184,000 368,000
- -----------------------------------------------------------------------------------------------------------
Net earnings $ 214,616 $ 395,558 $ 286,807 $ 626,611
===========================================================================================================
Net earnings per share:
Basic $ .02 $ .03 $ .02 $ .05
Diluted $ .02 $ .03 $ .02 $ .05
===========================================================================================================
Shares used in per share calculation
Basic 11,804,965 12,001,631 11,772,755 11,986,754
Diluted 12,539,450 12,206,553 12,423,183 12,131,871
===========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 3, September 3,
2000 1999
- --------------------------------------------------------------------------------------
ASSETS (UNAUDITED)
Current assets
<S> <C> <C>
Cash and cash equivalents $ 8,347,493 $ 8,858,591
Accounts receivable 5,326,305 2,618,296
Inventories 6,352,229 6,488,813
Deferred income taxes 1,324,000 1,325,000
Other 89,556 263,090
- --------------------------------------------------------------------------------------
Total current assets 21,439,583 19,553,790
Property and equipment 4,157,584 4,242,588
Capitalized software costs 1,259,139 1,100,747
Other assets 27,807 56,690
- --------------------------------------------------------------------------------------
$ 26,884,113 $ 24,953,815
- --------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,028,044 $ 2,018,149
Accrued expenses 1,766,560 1,554,572
Customer deposits 2,240,577 884,066
Current maturities of long-term obligations 880,359 1,119,835
- --------------------------------------------------------------------------------------
Total current liabilities 6,915,540 5,576,622
Long-term obligations, less current maturities 19,235 85,424
Deferred income taxes 573,000 512,000
- --------------------------------------------------------------------------------------
Total liabilities 7,507,775 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 19,644,484 19,492,570
Retained earnings 382,588 95,781
Less treasury stock, at cost (773,880) (931,728)
- --------------------------------------------------------------------------------------
Total shareholders' equity 19,376,338 18,779,769
- --------------------------------------------------------------------------------------
$ 26,884,113 $ 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 -- -- 43,034 -- 53,060 49,268
Treasury stock repurchased -- -- -- -- (145,000) (288,797)
Net earnings for the six months -- -- -- 626,611 -- --
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, AT FEBRUARY 26, 1999 12,314,575 $ 123,146 $19,343,690 $(1,419,945) (410,405) $ (381,080)
================================================================================================================================
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 -- -- 124,914 -- 169,995 157,848
Value of stock options
granted for services -- -- 27,000 -- -- --
Net earnings for the six months -- -- -- 286,807 -- --
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, AT MARCH 3, 2000 12,314,575 $ 123,146 $19,644,484 $ 382,588 (462,464) $ (773,880)
================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
MARCH 3, February 26,
2000 1999
- ------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES
<S> <C> <C>
Net earnings $ 286,807 $ 626,611
Adjustments to reconcile net earnings to cash
provided by (used for) operating activities 875,659 817,496
Depreciation and amortization
Issuance of treasury stock for
compensation expenses 88,825 84,755
Non-cash expenses 27,000 --
Bad debt allowance 20,000 50,000
Inventory reserves 100,000 150,000
Deferred income taxes 62,000 (111,500)
Changes in assets and liabilities
Accounts receivable (2,728,009) 425,534
Inventories 36,584 209,846
Other assets 173,534 (137,583)
Accounts payable and accrued expenses 221,883 (331,948)
Customer deposits 1,356,511 188,098
- ------------------------------------------------------------------------------------
520,794 1,971,309
- ------------------------------------------------------------------------------------
CASH USED BY INVESTMENT ACTIVITIES
Property and equipment expenditures (530,752) (270,187)
Capitalized software additions (389,412) (182,712)
- ------------------------------------------------------------------------------------
(920,164) (452,899)
- ------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Proceeds from long-term debt -- 1,359,508
Purchase of treasury stock -- (288,797)
Repayment of long-term debt and
capitalized lease obligations (305,665) (1,646,832)
Proceeds from stock options exercised 193,937 7,547
- ------------------------------------------------------------------------------------
(111,728) (568,574)
- ------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (511,098) 949,836
Cash and cash equivalents, beginning of period 8,858,591 6,492,760
- ------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 8,347,493 $ 7,442,596
====================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the six months for:
Interest $ 47,932 $ 88,456
Income taxes $ 38,500 $ --
===================================================== =========== ===========
</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 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:
MARCH 3, September 3,
2000 1999
----------- -----------
(UNAUDITED)
Accounts receivable - trade $ 5,390,361 $ 2,675,022
Other receivables 135,235 115,859
----------- -----------
5,525,596 2,790,881
Less allowance for
doubtful accounts (199,291) (172,585)
----------- -----------
$ 5,326,305 $ 2,618,296
=========== ===========
Note 3 Inventories
Inventories are summarized as follows:
MARCH 3, September 3,
2000 1999
----------- -----------
(UNAUDITED)
Raw material $ 3,143,776 $ 2,845,784
Work-in-process 2,528,356 3,146,479
Finished goods 2,978,591 2,695,044
----------- -----------
8,650,723 8,687,307
Less inventory reserves (2,298,494) (2,198,494)
----------- -----------
$ 6,352,229 $ 6,488,813
=========== ===========
Note 4 Income Taxes
For the six months ended March 3, 2000, income tax expense of $184,000
was comprised of a current federal and state income tax expense of
$107,000 and $15,000, respectively, and a deferred federal and state
tax expense of $53,000 and $9,000, respectively. Net deferred tax
assets decreased $62,000 in the first six 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 per share computations.
<TABLE>
<CAPTION>
Three months ended
-------------------------------------------------------------------------------
MARCH 3, 2000 February 26, 1999
------------------------------------- -------------------------------------
PER Per
EARNINGS SHARES SHARE Earnings Shares share
(NUMERATOR) (DENOMINATOR) AMOUNT (Numerator) (Denominator) amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Net earnings $ 214,616 $ 395,558
========== ==========
Basic earnings per share:
Net earnings available
to common shareholders $ 214,616 11,804,965 $ 0.02 $ 395,558 12,001,631 $ 0.03
========== ==========
Effect of dilutive potential
common shares:
Stock options -- 734,485 -- 204,922
---------- ---------- ---------- ----------
Diluted earnings per share:
Net earnings available
to common shareholders
plus assumed conversions $ 214,616 12,539,450 $ 0.02 $ 395,558 12,206,553 $ 0.03
========== ========== ========== ========== ========== ==========
<CAPTION>
Six months ended
-------------------------------------------------------------------------------
MARCH 3, 2000 February 27, 1998
------------------------------------- -------------------------------------
PER Per
EARNINGS SHARES SHARE Earnings Shares share
(NUMERATOR) (DENOMINATOR) AMOUNT (Numerator) (Denominator) amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Net earnings $ 286,807 $ 626,611
========== ==========
Basic earnings per share:
Net earnings available
to common shareholders 286,807 11,772,755 $ 0.02 $ 626,611 11,986,754 $ 0.05
========== ==========
Effect of dilutive potential
common shares:
Stock options - 650,428 -- 145,117
---------- ---------- ---------- ----------
Diluted earnings per share:
Net earnings available
to common shareholders
plus assumed conversions $ 286,807 12,423,183 $ 0.02 $ 626,611 12,131,871 $ 0.05
========== ========== ========== ========== ========== ==========
</TABLE>
10
<PAGE>
Stock options excluded from the diluted net earnings per share calculation due
to their anti-dilutive effect are as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
-------------------------- --------------------------
MARCH 3, February 26, MARCH 3, February 27,
2000 1999 2000 1999
----------- ----------- ----------- -----------
Common stock options:
<S> <C> <C> <C> <C>
Number of shares 200,000 6,000 200,000 6,000
Exercise price $ 5.625 $ 1.78 $ 5.625 $ 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 Six months ended
-------------------------- --------------------------
MARCH 3, February 26, MARCH 3, February 26,
2000 1999 2000 1999
----------- ----------- ----------- -----------
Product Line
<S> <C> <C> <C> <C>
Direct Broadcast Satellite $ 6,452,106 $ 6,108,756 $12,662,354 $11,782,485
Telecom and Custom Products 646,867 717,538 1,322,415 1,313,111
Service 71,043 199,661 199,750 396,610
----------- ----------- ----------- -----------
$ 7,170,016 $ 7,025,955 $14,184,519 $13,492,206
=========== =========== =========== ===========
</TABLE>
Revenues by geographic areas are as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
-------------------------- --------------------------
MARCH 3, February 26, MARCH 3, February 26,
2000 1999 2000 1999
----------- ----------- ----------- -----------
Geographic Area
<S> <C> <C> <C> <C>
United States $ 5,625,399 $ 5,295,408 $11,503,369 $11,334,041
Latin America 1,241,718 84,971 2,143,583 226,800
Canada 14,703 1,516,071 21,032 1,555,358
Europe 285,456 84,660 352,526 275,482
Other 2,740 44,845 164,009 100,525
----------- ----------- ----------- -----------
$ 7,170,016 $ 7,025,955 $14,184,519 $13,492,206
=========== =========== =========== ===========
</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 period's revenues are as
follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------------------- -------------------------------
MARCH 3, February 26, MARCH 3, February 26,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Customer 1 18.5% (a) 22.8% (a)
Customer 2 (A) 41.3% (A) 21.5%
Customer 3 (A) 20.3% (A) 10.8%
Customer 4 (A) (a) (A) 13.8%
</TABLE>
(a) Revenues for the period were less than 10% of total revenues.
NOTE 7 STOCK OPTIONS
During the second quarter of fiscal 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.
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 SIX MONTHS ENDED MARCH 3, 2000 COMPARED TO THREE AND SIX MONTHS ENDED
FEBRUARY 26, 1999
The operating results for the three and six month periods ended March 3, 2000
were net earnings of $215,000 or $0.02 per share and net earnings of $287,000 or
$0.02 per share, respectively, compared to $396,000 or $0.03 per share and
$627,000 or $0.05 per share, respectively, for the three and six month periods
ended February 26, 1999.
REVENUES - The Company's revenues for the three months ended March 3, 2000 were
$7,170,000, up 2.0% from revenues of $7,026,000 for the three months ended
February 26, 1999. Revenues were $14,185,000 for the six months ended March 3,
2000, up 5.1% from revenues of $13,492,000 for the six months ended February 26,
1999.
Direct Broadcast Satellite (DBS) revenues increased $343,000 or 5.6% in the
second quarter of fiscal 2000 to $6,452,000 from $6,109,000 in the same period
of fiscal 1999. The increase was mainly due to an increase in shipments of
digital video uplink and receiving equipment to a greater number of network
providers. Telecom and Customer Products Group revenues decreased $71,000 or
9.9% in the second quarter of fiscal 2000 to $647,000 from $718,000 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 March 3, 2000,
one
13
<PAGE>
customer accounted for approximately 18.5% of revenues. For the three months
ended February 26, 1999, two additional customers accounted for approximately
41.3% and 20.3%, respectively, of revenues.
For the six months ended March 3, 2000, DBS revenues increased $880,000 or 7.5%
to $12,662,000 from $11,782,000 for the six months ended February 26, 1999. The
increase was due to increased shipments of digital video uplink and receiving
equipment to a greater number of network providers. For the six months ended
March 3, 2000, Telecom and Custom Product Group revenues increased $9,000 or
less than 1.0% to $1,322,000 from $1,313,000 for the six months ended February
26, 1999. For the six months ended March 3, 2000 one customer accounted for
22.8% of revenues. For the six months ended February 26, 1999 three additional
customers accounted for 21.5%, 10.8% and 13.8%, respectively of revenues. The
Company's backlog is comprised of undelivered, firm customer orders, which are
scheduled to ship within eighteen months. WCI's backlog was approximately
$12,700,000 at March 3, 2000, compared to $15,691,000 at September 3, 1999 and
$6,900,000 at February 26, 1999.
GROSS PROFIT MARGINS - The Company's gross profit margin percentages were 35.7%
and 34.5% for the three and six month periods ended March 3, 2000 compared to
36.3% and 34.4% for the three and six month periods ended February 26, 1999. The
profit margin percentage decrease for the three months ended March 3, 2000,
compared to the same period in fiscal 1999, was due to a product mix of higher
variable cost components which was offset by lower unit fixed costs due to the
increase in revenues. Gross profit margin dollars increased $11,000 and $239,000
for the three and six month periods ended March 3, 2000 from the same periods
ended February 26, 1999. The increase in margin dollars for the six months ended
March 3, 2000 was mainly due to higher revenues during the period. Profit
margins in the three and six month periods of fiscal 2000 included inventory
reserve charges of $75,000 and $100,000 compared to $100,000 and $150,000 for
the same periods of fiscal 1999.
SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and administrative (SG&A)
expenses increased $369,000 or 29.1% to $1,636,000 for the three months ended
March 3, 2000 from $1,267,000 for the three months ended February 26, 1999. For
the six months ended March 3, 2000, SG&A expenses increased $723,000 or 30.2% to
$3,116,000 from $2,393,000 for the same period ended February 26, 1999. The
three and six month increases were primarily due to higher levels of selling and
marketing expenses, outside sales agent commissions, software implementation
costs, maintenance and depreciation expenses. As a percentage of revenues, SG&A
expenses were 22.8% and 22.0% for the three and six month periods ended March 3,
2000 compared to 18.0% and 17.7% for the same periods of fiscal 1999.
RESEARCH AND DEVELOPMENT - Research and development expenditures, including
capitalized software development costs, were $924,000, or 12.9% of revenues and
$1,840,000 or 13.0% of revenues for the three and six month periods ended March
3, 2000, compared to $822,000 or 11.7% of revenues and $1,541,000 or 11.4% of
revenues for the same periods of fiscal 1999. Capitalized software development
costs amounted to $285,000 and $389,000 for the second quarter and first six
months of fiscal 2000 compared to $98,000 and $183,000 for the same periods of
fiscal 1999. The increases in capitalized software costs are due to increased
expenditures on COMPEL network control software and software associated with new
digital video products. The increase in expenditures for the three and six
months ended March 3, 2000 was primarily due to an increase in engineering
consulting expenses and personnel costs. Research and development expenses,
excluding capitalized software expenditures, were $640,000 or 8.9% of revenues
and $1,450,000 or 10.2% of revenues for the three and six months ended March 3,
2000 compared to $724,000 or 10.3% of revenues and $1,358,000 or 10.1% of
revenues for the same periods of fiscal 1999.
14
<PAGE>
INTEREST EXPENSE - Interest expense decreased $12,000 to $23,000 for the three
months ended March 3, 2000 from $35,000 for the three months ended February 26,
1999. For the six months ended March 3, 2000, interest expense decreased $30,000
to $48,000 from $78,000 for the same period ended February 26, 1999. The
decreases for the three and six month periods in fiscal 2000 were primarily due
to a decrease in the average outstanding balance of indebtedness.
INTEREST INCOME - Interest income was $94,000 and $198,000 for the three and six
month periods ended March 3, 2000, compared to $93,000 and $176,000 for the same
periods ended February 26, 1999. The increase for the six months ended March 3,
2000 was mainly due to higher average cash equivalent balances for the period.
INCOME TAX EXPENSES - For the six months ended March 3, 2000, income tax expense
of $184,000 was comprised of a current federal and state income tax expense of
$107,000 and $15,000, respectively, and a deferred federal and state tax expense
of $53,000 and $9,000, respectively. Net deferred tax assets decreased $62,000
in the first six months of fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
SIX MONTHS ENDED MARCH 3, 2000
During the first six months of fiscal 2000, operating activities provided
$521,000 of cash. Net earnings adjusted for non-cash expenses provided
$1,460,000 of cash, while changes in customer deposits, accounts payable and
accrued expenses provided $1,578,000 of cash. Changes in accounts receivable,
inventories and other assets, used $2,518,000 of cash. Cash used by investing
activities for property and equipment expenditures and capitalized software
additions was $920,000. Financing activities used cash of $306,000 for scheduled
repayments of long-term obligations. Proceeds from exercised stock options
provided $194,000 of cash.
WCI maintains a loan facility with a bank which provides a maximum available
credit limit of $10,000,000 with sublimits as defined. The loan facility matures
on June 21, 2000 or upon demand and requires an annual facility fee of $55,000
plus an additional .75% 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 (8.75% at March 3, 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 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 March 3, 2000, outstanding balances on real property
advances aggregated $738,000, and no balances were outstanding on the revolving
line of credit or equipment term loan portions of the loan facility.
Additionally, at March 3, 2000, approximately $5,065,000 was available to borrow
under the advance formulas.
The Company's loan facility matures on June 21, 2000 along with a balloon
payment due on the mortgage note. The Company believes that the existing line of
credit and term loan facility will be renewed in June 2000 or that a suitable
replacement line will be available from other financing
15
<PAGE>
sources. 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 fiscal
2000.
During the second quarter of fiscal 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 $444,562 over the
eighteen month term of the agreement.
YEAR 2000
Prior to December 31, 1999, management of the Company completed its review of
internal information systems, manufacturing and engineering equipment, and
facilities, as well as surveys of key vendors and service providers for Year
2000 risks. As of the date of this filing, the Company has experienced no
disruptions or other significant problems related to Year 2000 issues.
Additionally, to date, there have been no Year 2000 related failures in the
respect of supplies or services from vendors and service providers. To date,
there have been no Year 2000 related problems reported from customers regarding
the Company's hardware or software products.
However, if Year 2000 issues develop subsequent to the date of this filing which
impact the ability of vendors or service providers to adequately supply the
Company, there could be a material adverse impact on the Company's operations.
Additionally, if the Company's products were to incur Year 2000 performance
problems, there could be an adverse impact on results of operations and
financial condition due to increased warranty costs, litigation expenses and
other material liabilities, or a loss of customers.
The Company did not incur significant costs related to Year 2000 issues and does
not expect to incur material Year 2000 transition costs in the future.
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
March 3, 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.
16
<PAGE>
PART II. OTHER INFORMATION
- -------- -----------------
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
On January 25, 2000, the Company entered into an agreement with RCG
Capital Markets Group, Inc. ("RCG"), pursuant to which RCG will
provide a national financial relations program for the Company (see
Note 7 to the financial statements included herein). In connection
with the agreement, the Company granted stock options to RCG to
purchase 200,000 shares of common stock at an exercise price of $5.625
per share. Of this amount, 50% of the options granted vested upon
execution of the agreement with the balance vesting upon the
completion of certain agreed upon performance criteria. The options
are exercisable for a period of five years from the date of grant. The
options were issued in reliance upon the exemption provided by Section
4(2) under the Securities Act of 1933, as amended, and were issued to
RCG in reliance upon representations from RCG with respect to RCG's
investment intent and representation that the securities were not
being acquired with a future intent to distribute. RCG was granted
certain piggyback and demand registration rights in connection with
this stock option grant.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On January 25, 2000, the Annual Meeting of Shareholders was held and
the following matters were voted upon:
(1.) The shareholders approved the election of the following nominees
to the Board of Directors:
(A.) Class II Directors
Robert A. Placek
10,839,891 votes FOR
680,130 votes WITHHELD
Keith N. Smith
10,860,511 votes FOR
659,510 votes WITHHELD
The terms of office of James H. Morgan, Jr., C. Troy
Woodbury, Jr., Joe K. Parks and Thomas G. Elliot continued
subsequent to the Annual Meeting.
(2.) The appointment of BDO Seidman, LLP as auditors for the Company
for the fiscal year 2000 was approved with 11,174,843 votes FOR,
296,662 votes AGAINST, and 48,516 votes ABSTAINING.
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 March 3, 2000.
17
<PAGE>
SIGNATURES
------------
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WEGENER CORPORATION
-------------------
(Registrant)
Date: April 17, 2000 By: /s/ Robert A. Placek
-------------------------------
Robert A. Placek
President
(Principal Executive Officer)
Date: April 17, 2000 By: /s/ C. Troy Woodbury, Jr.
-------------------------------
C. Troy Woodbury, Jr.
Treasurer and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
18
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<PERIOD-START> SEP-04-1999
<PERIOD-END> MAR-03-2000
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0
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