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 December 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
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 11,900,005 Shares
---------------------------- ---------------------------
Class Outstanding January 5, 2001
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
Form 10-Q For the Quarter Ended December 1, 2000
INDEX
Page(s)
-------
PART I. Financial Information
Item 1. Consolidated Financial Statements
Introduction ................................................... 3
Consolidated Statements of Operations
(Unaudited) - Three Months Ended
December 1, 2000 and December 3, 1999 .......................... 4
Consolidated Balance Sheets - December 1,
2000 (Unaudited) and September 1, 2000 ......................... 5
Consolidated Statements of Shareholders' Equity
(Unaudited) - Three Months Ended December 1,
2000 and December 3, 1999 ...................................... 6
Consolidated Statements of Cash Flows
(Unaudited) - Three Months Ended December 1,
2000 and December 3, 1999 ...................................... 7
Notes to Consolidated Financial
Statements (Unaudited) ......................................... 8-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 12-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 15
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 ............................... 16
Signatures ..................................................... 17
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 December 1, 2000; the consolidated
statements of shareholders' equity as of December 1, 2000 and December 3, 1999;
the consolidated statements of operations for the three months ended December 1,
2000 and December 3, 1999; and the consolidated statements of cash flows for the
three months ended December 1, 2000 and December 3, 1999 have been prepared
without audit. The consolidated balance sheet as of September 1, 2000 has been
audited 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 1,
2000, 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
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WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
DECEMBER 1, December 3,
2000 1999
--------------------------------------------------------------------------------
Revenues $ 4,997,581 $ 7,014,503
--------------------------------------------------------------------------------
Operating costs and expenses
Cost of products sold 4,216,397 4,687,903
Selling, general, and administrative 1,007,219 1,855,827
Research and development 726,070 810,933
--------------------------------------------------------------------------------
Operating costs and expenses 5,949,686 7,354,663
--------------------------------------------------------------------------------
Operating loss (952,105) (340,160)
Interest expense (13,242) (24,888)
Interest income 45,090 104,239
--------------------------------------------------------------------------------
Loss before income taxes (920,257) (260,809)
Income tax (benefit) (336,000) (94,000)
--------------------------------------------------------------------------------
Net loss $ (584,257) $ (166,809)
================================================================================
Net loss per share:
Basic $ (.05) $ (.02)
Diluted $ (.05) $ (.02)
================================================================================
Shares used in per share calculation
Basic 11,855,517 11,740,545
Diluted 11,855,517 11,740,545
================================================================================
See accompanying notes to consolidated financial statements.
4
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WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 1, September 1,
2000 2000
------------------------------------------------------------------------------------
ASSETS (UNAUDITED)
Current assets
<S> <C> <C>
Cash and cash equivalents $ 1,100,019 $ 2,072,853
Accounts receivable 3,681,676 4,110,827
Inventories 10,012,173 10,106,776
Deferred income taxes 1,959,000 1,858,000
Other 99,292 62,573
------------------------------------------------------------------------------------
Total current assets 16,852,160 18,211,029
Property and equipment, net 4,040,901 4,207,183
Capitalized software costs, net 1,134,139 1,209,139
Deferred income taxes 700,000 465,000
Other assets 73,061 54,311
------------------------------------------------------------------------------------
$ 22,800,261 $ 24,146,662
====================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,987,061 $ 2,781,470
Accrued expenses 2,855,078 2,533,262
Customer deposits 2,148,637 2,076,361
Current maturities of long-term obligations 437,827 539,628
------------------------------------------------------------------------------------
Total current liabilities 7,428,603 7,930,721
Long-term obligations, less current maturities -- 38,843
------------------------------------------------------------------------------------
Total liabilities 7,428,603 7,969,564
------------------------------------------------------------------------------------
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 20,033,623 20,324,568
Deficit (3,817,366) (3,233,109)
Less treasury stock, at cost (967,745) (1,037,507)
------------------------------------------------------------------------------------
Total shareholders' equity 15,371,658 16,177,098
------------------------------------------------------------------------------------
$ 22,800,261 $ 24,146,662
====================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Retained Treasury Stock
------------ Paid-in Earnings --------------
Shares Amount Capital (Deficit) Shares Amount
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, at 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 -- -- 65,797 -- (88,900) 82,548
Value of stock
option compensation -- -- 269,000 -- -- --
Net loss for the three months -- -- -- (166,809) -- --
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE, at December 3, 1999 12,314,575 $ 123,146 $ 19,827,367 $ (71,028) 543,559 $ (849,180)
===================================================================================================================================
Balance, at September 1, 2000 12,314,575 $ 123,146 $ 20,324,568 $ (3,233,109) 481,471 $ (1,037,507)
Treasury stock reissued through
stock options and 401(k) plan -- -- (20,039) -- (32,374) 69,762
Value of stock options granted for
services -- -- 74,094 -- -- --
Value of stock
option compensation -- -- (345,000) -- -- --
Net loss for the three months -- -- -- (584,257) -- --
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE, AT DECEMBER 1, 2000 12,314,575 $ 123,146 $ 20,033,623 $ (3,817,366) 449,097 $ (967,745)
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
DECEMBER 1, December 3,
2000 1999
--------------------------------------------------------------------------------
CASH USED FOR OPERATING ACTIVITIES
Net loss $ (584,257) $ (166,809)
Adjustments to reconcile net loss to
cash provided by operating activities
Depreciation and amortization 430,656 424,365
Issuance of treasury stock for
compensation expenses 49,723 43,478
Other non-cash expenses 74,094 --
Non-cash stock option compensation
benefit (484,000) 376,000
Bad debt allowance 25,000 20,000
Inventory reserves 250,000 25,000
Deferred income taxes (336,000) (12,000)
Changes in assets and liabilities
Accounts receivable 404,151 (1,587,190)
Inventories (155,397) (728,505)
Other assets (62,344) 235,445
Accounts payable and accrued expenses (333,593) 909,116
Customer deposits 72,276 127,384
--------------------------------------------------------------------------------
(649,691) (333,716)
--------------------------------------------------------------------------------
CASH USED FOR INVESTMENT ACTIVITIES
Property and equipment expenditures (82,499) (353,618)
Capitalized software additions (100,000) (104,846)
--------------------------------------------------------------------------------
(182,499) (458,464)
--------------------------------------------------------------------------------
CASH USED FOR FINANCING ACTIVITIES
Repayment of long-term debt and capitalized
lease obligation (140,644) (155,602)
Proceeds from stock options exercised -- 104,867
--------------------------------------------------------------------------------
(140,644) (50,735)
--------------------------------------------------------------------------------
Decrease in cash and cash equivalents (972,834) (842,915)
Cash and cash equivalents, beginning of period 2,072,853 8,858,591
--------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,100,019 $ 8,015,676
================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the three months for:
Interest $ 13,242 $ 24,888
Income taxes $ -- $ 38,500
================================================================================
See accompanying notes to consolidated financial statements.
7
<PAGE>
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 1, 2000.
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 years 2001 and 2000 each contain fifty-two
weeks.
8
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2 ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows:
DECEMBER 1, September 1,
2000 2000
-----------------------------
(UNAUDITED)
Accounts receivable - trade $ 3,070,187 $ 3,474,717
Recoverable income taxes 659,000 659,000
Other receivables 142,488 142,688
-----------------------------
3,871,675 4,276,405
Less allowance for
doubtful accounts (189,999) (165,578)
-----------------------------
$ 3,681,676 $ 4,110,827
=============================
NOTE 3 INVENTORIES
Inventories are summarized as follows:
DECEMBER 1, September 1,
2000 2000
-----------------------------
(UNAUDITED)
Raw material $ 4,738,113 $ 4,176,521
Work-in-process 5,826,456 5,539,578
Finished goods 2,529,098 3,835,171
-------------------------------
13,093,667 13,551,270
Less inventory reserves (3,081,494) (3,444,494)
------------------------------
$ 10,012,173 $ 10,106,776
===============================
During the first quarter of fiscal 2001 inventory reserves were increased by
charges to cost of sales of $250,000 and were reduced by inventory write-offs of
$613,000. The Company's inventory reserve of approximately $3,081,000 at
December 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.
NOTE 4 INCOME TAXES
For the three months ended December 1, 2000, income tax benefit of $336,000 was
comprised of a deferred federal and state income tax benefit of $313,000 and
$23,000, respectively. Net deferred tax assets increased $336,000 principally
due to increases in net operating loss carryforwards and increases to inventory
reserves in the first quarter. 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 assets 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.
9
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 5 EARNINGS PER SHARE
The following tables represent required disclosure of the reconciliation of the
numerators and denominators of the basic and diluted net earnings per share
computations. The calculation of earnings per share is subject to rounding
differences.
<TABLE>
<CAPTION>
Three months ended
--------------------------------------------------------------------------------
DECEMBER 1, 2000 December 3, 1999
--------------------------------------------------------------------------------
PER Per
EARNINGS SHARES SHARE Earnings Shares share
(NUMERATOR) (DENOMINATOR) AMOUNT (Numerator) (Denominator) amount
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net loss $ (584,257) $ (166,809)
--------------------------------------------------------------------------------
Basic earnings (loss) per share:
Net loss available
to common shareholders $ (584,257) 11,855,517 $ (.05) $ (166,809) 11,740,545 $(0.02)
================================================================================
Effect of dilutive potential
common shares:
Stock options -- -- -- --
--------------------------------------------------------------------------------
Diluted earnings (loss) per share:
Net loss available
to common shareholders $ (584,257) 11,855,517 $ (.05) $ (166,809) 11,740,545 $(0.02)
================================================================================
</TABLE>
Stock options which were excluded from the diluted net loss per share
calculation due to their anti-dilutive effect are as follows:
Three months ended
---------------------------------
DECEMBER 1, December 3,
2000 1999
---------------------------------
Common stock options:
Number of shares 1,188,800 847,750
Range of exercise prices $. 75 TO 5.63 $ .75 to 1.63
=================================
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.
10
<PAGE>
In this single operating segment the Company has three product lines. Revenues
from customers in each of these product lines are as follows:
Three months ended
----------------------------
DECEMBER 1, December 3,
2000 1999
----------------------------------------------------------------------
Product Line
Direct Broadcast Satellite $ 4,099,500 $ 6,210,248
Telecom and Custom Products 756,718 675,548
Service 141,363 128,707
----------------------------------------------------------------------
$ 4,997,581 $ 7,014,503
======================================================================
For the three months ended December 1, 2000, revenues by geographical area were
approximately: United States - $3,168,000; Latin America - $1,087,000; Europe -
$686,000; all other - $57,000. For the three months ended December 3, 1999,
revenues by geographical area were approximately: United States - $5,878,000;
Mexico - $820,000; all other - $317,000. 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.
For the three months ended December 1, 2000, two customers accounted for 20.2%
and 13.1% of revenues, respectively. A third customer accounted for 12.0% of
revenues for the three months ended December 1, 2000 and 27.1% of revenues for
the three months ended December 3, 1999. Additionally, for the three months
ended December 3, 1999, a separate customer accounted for 11.7% of revenues.
11
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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 1, 2000 contained in the Company's 2000 Annual Report on
Form 10-K.
Certain statements contained in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, such
as statements relating to financial results, future business or product
development plans, research and development activities, capital spending,
financing sources or capital structure, the effects of regulation and
competition, and are thus prospective. Such forward-looking statements are
subject to risks, uncertainties and other factors which could cause actual
results to differ materially from future results expressed or implied by such
forward-looking statements. Potential risks and uncertainties include, but are
not limited to, economic conditions, customer plans and commitments, product
demand, government regulation, rapid technological developments and changes,
performance issues with key suppliers and subcontractors, delays in product
development and testing, material availability, new and existing
well-capitalized competitors, and other uncertainties detailed in the Company's
Form 10-K for the year ended September 1, 2000 and from time to time in the
Company's periodic Securities and Exchange Commission filings.
The Company manufactures satellite communications equipment through Wegener
Communications, Inc. (WCI), a wholly-owned subsidiary. WCI designs and
manufactures communications transmission and receiving equipment for the
business broadcast, data communications, cable and broadcast radio and
television industries.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 1, 2000 COMPARED TO THREE MONTHS ENDED DECEMBER 3,
1999
The operating results for the three month period ended December 1, 2000, were a
net loss of $(584,000) or $(0.05) per basic and diluted share compared to a net
loss of $(167,000) or $(0.02) per basic and diluted share for the three month
period ended December 3, 1999.
REVENUES - The Company's revenues for the first quarter of fiscal 2001 decreased
$2,017,000 or 28.8% to $4,998,000 from $7,015,000 for the same period in fiscal
2000.
Direct Broadcast Satellite (DBS) revenues decreased $2,111,000 or 34.0%, in the
first quarter of fiscal 2001 to $4,099,000 from $6,210,000 for the same period
in fiscal 2000. The decrease reflected the decline in order backlog which was
adversely impacted by delayed purchasing decisions in the digital satellite
transmission market, increased pricing competition, industry-wide new product
introductions which resulted in an expanded range of choices available to
customers, and delayed product introductions by the Company. Telecom and Custom
Products Group revenues increased $81,000 or 12.0% to $757,000 in the first
quarter of fiscal 2001 from $676,000 in the first quarter of fiscal 2000. The
increase was mainly due to higher level shipments of cue and control equipment
to provide local commercial insertion capabilities to cable television headend
systems. For the three months ended December 1, 2000, two customers accounted
for 20.2% and 13.1% of revenues, respectively. A third customer accounted for
12.0% of revenues for the three months ended December 1, 2000 and 27.1% of
12
<PAGE>
revenues for the three months ended December 3, 1999. Additionally, for the
three months ended December 3, 1999, a separate customer accounted for 11.7% 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 $16,100,000 at December 1, 2000, compared to $9,210,000 at
September 1, 2000 and $12,500,000 at December 3, 1999.
GROSS PROFIT MARGINS - The Company's gross profit margin percentages were 15.6%
for the three month period ended December 1, 2000 compared to 33.2% for the
three month period ended December 3, 1999. Gross profit margin dollars decreased
$1,545,000 for the three month period ended December 1, 2000 from the same
period ended December 3, 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 first quarter of fiscal 2001
included inventory reserve charges of $250,000 compared to $25,000 for the same
period of fiscal 2000 .
SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and administrative (SG&A)
expenses decreased $849,000 or 45.7% to $1,007,000 in the first quarter of
fiscal 2001 from $1,856,000 in the first quarter of fiscal 2000. The decrease
was primarily due to variable stock option accounting. The first quarter of
fiscal 2001 included a variable stock option compensation benefit of $484,000
compared to an expense of $376,000 in the same period of fiscal 2000. Excluding
this benefit and expense, SG&A increased $11,000, or less 1%, in the first three
months of fiscal 2001 compared to the same period of fiscal 2000. Increases in
SG&A expenses included increases in corporate professional fees principally
associated with a national financial relations program, in-house sales
commissions associated with an increase in bookings during the first quarter of
fiscal 2001, and an increase in depreciation expense. Decreases in SG&A included
lower outside sales commissions, consulting fees principally associated with a
new management information system, and repair and maintenance expenses. As a
percentage of revenues, selling, general and administrative expenses were 20.2%
for the three month period ended December 1, 2000 compared to 26.5% for the same
period ended December 3,1999.
RESEARCH AND DEVELOPMENT - Research and development expenditures, including
capitalized software development costs, were $826,000 or 16.5% of revenues in
the first quarter of fiscal 2001 compared to $916,000 or 13.1% of revenues for
the same period of fiscal 2000. Capitalized software development costs amounted
to $100,000 in the first quarter of fiscal 2001 compared to $105,000 in the
first quarter of fiscal 2000. Research and development expenses, excluding
capitalized software development costs, were $726,000 or 14.5% of revenues in
the first quarter of fiscal 2001, and $811,000 or 11.6% of revenues in the same
period of fiscal 2000. The decrease in expenses was primarily due to a decrease
in engineering consulting expenses.
INTEREST EXPENSE - Interest expense decreased $12,000 to $13,000 in the first
quarter of fiscal 2001 from $25,000 in the same period in fiscal 2000. The
decrease was primarily due to a decrease in average outstanding debt balances.
INTEREST INCOME - Interest income was $45,000 for the three months ended
December 1, 2000 compared to $104,000 for the same period ended December 3,
1999. The decrease was due to lower average cash equivalent balances for the
period.
INCOME TAX EXPENSE - For the three months ended December 1, 2000, income tax
benefit of $336,000 was comprised of a deferred federal and state income tax
benefit of $313,000 and $23,000, respectively.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
THREE MONTHS ENDED DECEMBER 1, 2000
During the first quarter of fiscal 2001, operating activities used $650,000 of
cash. Net loss adjusted for non-cash expenses used $575,000 of cash, while
changes in accounts receivable and customer deposit balances provided $476,000
of cash. Changes in accounts payable and accrued expenses, inventories, and
other assets used $551,000 of cash. Cash used by investing activities for
property and equipment expenditures and capitalized software additions was
$182,000. Financing activities used cash of $141,000 for scheduled repayments of
long-term obligations.
Subsequent to the first quarter, WCI's existing bank loan facility was amended
and renewed for a three year period. The loan facility provides a maximum
available credit limit of $10,000,000 with sublimits as defined and matures on
June 21, 2003 or upon demand. Annual facility fees are $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 (9.50% at December 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 225
basis points over the five year U.S. Treasury rate.
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 December 1, 2000, previous outstanding balances on
real property advances aggregated $388,000, and no balances were outstanding on
the revolving line of credit or equipment term loan portions of the loan
facility. Additionally, at December 1, 2000, approximately $3,926,000 was
available to borrow under the advance formulas.
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, and no assurance can be given that the Company would in such event be
able to secure new financing.
14
<PAGE>
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
December 1, 2000 subject to variable interest rate fluctuations.
The Company's cash equivalents consist of 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.
15
<PAGE>
PART II. OTHER INFORMATION
--------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits: None
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter ended December 1, 2000.
16
<PAGE>
SIGNATURES
------------
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on it behalf by the
undersigned thereunto duly authorized.
WEGENER CORPORATION
------------------------
(Registrant)
Date: January 16, 2001 By: /s/ Robert A. Placek
-------------------------
Robert A. Placek
President
(Principal Executive Officer)
Date: January 16, 2001 By: /s/ C. Troy Woodbury, Jr.
-------------------------
C. Troy Woodbury, Jr.
Treasurer and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
