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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended August 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________________ to ______________________
Commission file No. 0-11003
WEGENER CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 81-0371341
(State of incorporation) (I.R.S. Employer
Identification No.)
11350 TECHNOLOGY CIRCLE, DULUTH, GEORGIA 30097-1502
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (770) 623-0096
REGISTRANT'S WEB SITE: HTTP://WWW.WEGENER .COM
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.01 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
As of November 5, 2002, 12,280,723 shares of registrant's Common Stock were
outstanding and the aggregate market value of the Common Stock held by
nonaffiliates was $8,347,778 based on the last sale price of the Common Stock as
quoted on the NASDAQ Small-Cap Market on such date. (The officers and directors
of the registrant, and owners of over 10% of the registrant's common stock, are
considered affiliates for purposes of this calculation.)
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
YES [ ] NO [X]
As of the last business day of the registrant's most recently completed
second fiscal quarter the aggregate market value of the Common Stock held by
non-affiliates was $9,182,555 based on the last sale price of the Common Stock
as quoted on the NASDAQ Small-Cap Market on such date.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement pertaining to the January 21,
2003 Annual Meeting of Stockholders, only to the extent expressly so stated
herein, are incorporated herein by reference into Part III.
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WEGENER CORPORATION
FORM 10-K
YEAR ENDED AUGUST 30, 2002
INDEX
PART I
Page
Item 1. Business.............................................................2
Item 2. Properties...........................................................8
Item 3. Legal Proceedings....................................................8
Item 4. Submission of Matters to a Vote of Security Holders..................8
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters..................................................8
Item 6. Selected Financial Data.............................................10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................10
Item 7a. Quantitative and Qualitative Disclosures About Market Risk..........19
Item 8. Financial Statements and Supplementary Data.........................19
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosures..............................39
PART III
Item 10. Directors and Executive Officers of the Registrant..................39
Item 11. Executive Compensation..............................................39
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters....................39
Item 13. Certain Relationships and Related Transactions......................39
Item 14. Controls and Procedures.............................................39
PART IV
Item 15. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K...............................................40
1
PART I
ITEM 1. BUSINESS
Wegener Corporation, the Registrant, together with its subsidiaries, is
referred to herein as the "Company" or "WGNR."
(a) General development of business.
Wegener Corporation was formed in 1977 and is a Delaware corporation. The
Company conducts its continuing business through Wegener Communications, Inc.
(WCI), its wholly-owned subsidiary, and Wegener Communications International,
Inc., a wholly-owned subsidiary of WCI.
WCI was formed in April 1978 and is a Georgia corporation. Its wholly-owned
subsidiary, Wegener Communications International, Inc., is a Small Foreign Sales
Corporation. WCI, a market leader in digital and analog compression technology,
designs and manufactures communications transmission and receiving equipment for
the business broadcast, data communications, internet, cable and broadcast radio
and television industries for worldwide markets.
(b) Financial information about segments.
Segment information contained in Note 10 to the consolidated financial
statements contained in this report is incorporated herein by reference in
response to this item.
(c) Narrative description of business.
SATELLITE COMMUNICATIONS ELECTRONICS. WCI is an international provider of
digital solutions for video, audio and broadcast data networks. Throughout
fiscal 2002 our customers continued to convert from analog to digital technology
for a variety of reasons. Applications include broadcast television, cable
television, radio networks, business television, distance education, business
music, satellite paging and financial information distribution. WCI services the
products that it sells. The Company warrants its products for a period of one
year. There were no significant warranty claims outstanding as of August 30,
2002.
Throughout fiscal 2002 and fiscal 2001, WCI continued to produce and
develop digital compression products to aid our customers in their digital
conversions. Wegener's digital products are in use worldwide in broadcast
television, distance learning, radio, cable television, and private business
networks. In terms of new orders, digital products are the fastest growing
product line for the Company. As expected, demand for the Company's analog
products has continued to decline following market demand for, and the Company's
emphasis on, digital technology.
DIGITAL COMMUNICATIONS. The demand for digital products is being driven by the
high cost of satellite capacity and consumer demand for more channels. Satellite
capacity is scarce due to pressures on both the supply and demand sides of the
market. On the supply side, satellites are extremely expensive to build, launch,
and maintain. The useful life of a satellite is limited by the amount of
positioning fuel that can be carried. Also, the placement of satellites is
regulated by the Federal Communications Commission (FCC) and therefore the
number of satellites within range of any given location is limited. On the
demand side, the cost of receive hardware is being steadily reduced through
advancing technology, and high volume manufacturing efficiency. This is
evidenced by the trend in both television and radio toward narrowcasting to well
defined market segments as opposed to broadcasting to the general population.
Digital compression technology allows a four to ten-fold, or more, increase in
the throughput of a satellite channel. For the network, this compression
represents an opportunity to reduce the cost of satellite use. For the satellite
operator it represents an opportunity to increase the revenues generated by an
expensive asset. Due to existing satellite transponder contracts and the cost of
replacing existing analog hardware, the digital conversion of
2
major networks is taking longer than anticipated. These network conversions are
expected to occur in the near future, but it is impossible to predict the
precise timing of customer internal decision processes. Management believes the
market as a whole has considerable built up demand for digital technology.
Significant WCI order and revenue activity during fiscal 2002 include:
BROADCAST TELEVISION MARKET
During the first quarter of fiscal 2002 the Company completed shipment of
UNITY5000 receivers to FOX Digital. These receivers enabled FOX Digital to
transmit the Super Bowl XXXVI game to all broadcast affiliates using the latest
technology available. The Company expects additional opportunities for its Unity
digital receivers in the broadcast television market during the next 24 months.
BROADCAST RADIO MARKET
Numerous small orders continue to provide revenue as Wegener
equipment-based radio networks add affiliates. The Company remains active in the
pursuit of new business opportunities in this market segment, but revenue
potential during the next 24 months is uncertain.
CABLE TELEVISION MARKET
The Company continues to agressively pursue business opportunities with
major cable programmers where the advantages of the COMPEL network control
system give us an edge over more established and larger competitors.
During fiscal 2002 the Company introduced a new line of products designed
to allow the economical addition of broadcast HDTV signals to cable television
systems. This product line, our DTV700 series, is expected to provide
significant revenues throughout fiscal 2003 and beyond. Initial shipments to
customers occurred during the first quarter of fiscal 2003.
Sales of legacy analog equipment to cable television companies continue to
decline as expected resulting from cable industry consolidation and conversions
from analog to digital satellite transmission technology.
BUSINESS BROADCAST MARKET
During fiscal 2002 the Company completed shipments of the previously
announced $7.4 million order to Roberts Communications Network. This complex
satellite transmission system is in daily use to provide targeted horseracing
broadcasts to Roberts subscribers throughout the USA. Additional revenue in this
market segment is expected to continue for the next 24 months and beyond.
During fiscal 2002 the Company continued to ship against the previously
announced $30 million order to a major international private network operator.
Both the Company and the customer continue to view the contract as critical to
their business plans. Shipments are expected to continue against this contract
as specified throughout fiscal 2003 and beyond.
During fiscal 2002, extensive development has been devoted to new products
for this market segment including the iPump Media Server. This product allows
for commercial satellite network operators to send television programs over a
satellite link for targeted playback in specific locations at specific times. In
simple terms, it is a highly specialized commercial version of a consumer
personal video recorder. Initial orders for this product are
3
expected in fiscal 2003 and the iPump product line is expected to provide
significant revenue to the Company during the next 24 months and beyond. In
addition, this product has wide ranging applications and revenue potential in
all of the market segments served by the Company, (broadcast television,
broadcast radio, cable television, and business broadcasting).
(iii) Manufacturing and suppliers.
During fiscal 2002 and fiscal 2001, the Company contracted with offshore
manufacturers for certain finished goods. Raw materials consist of passive
electronic components, electronic circuit boards and fabricated sheet metal. WCI
purchases approximately one-half of its raw materials directly from
manufacturers and the other half is purchased from distributors. Passive and
active components include parts such as resistors, integrated circuits and
diodes. WCI uses approximately ten distributors and three contract manufacturers
to supply its electronic components. WCI often uses a single contract
manufacturer or subcontractor to supply a total sub-assembly or turnkey solution
for higher volume products. Direct suppliers provide sheet metal, electronic
circuit boards and other materials built to specifications. WCI maintains
relationships with approximately 20 direct suppliers. Most of the Company's
materials are available from a number of different suppliers; however, certain
components used in existing and future products are currently available from a
single or limited sources. Although the Company believes that all single-source
components currently are available in adequate quantities, there can be no
assurance that shortages or unanticipated delivery interruptions will not
develop in the future. Any disruption or termination of supply of certain
single-source components could have an adverse effect on the Company's business
and results of operations.
(iv) Patents, trademarks, licenses, franchises and concessions held.
The Company holds certain patents with respect to some of its products and
markets its services and products under various trademarks and tradenames.
Additionally, the Company licenses certain analog audio processing technology to
several manufacturing companies which generated royalty revenues of
approximately $120,000, $230,000, and $257,000 in fiscal 2002, 2001, and 2000,
respectively. These royalty license agreements renew annually unless cancelled
by the licensee on the expiration date. Although the Company believes that the
patents and trademarks owned are of value, the Company believes that success in
its industry will be dependent upon new product introductions, frequent product
enhancements, and customer support and service. However, the Company intends to
protect its rights when, in its view, these rights are infringed upon.
(v) Seasonal variations in business.
There do not appear to be any seasonal variations in the Company's
business.
(vi) Working capital practices.
Information contained under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" (MD&A) in this report
is incorporated herein by reference in response to this item.
(vii) Dependence upon a limited number of customers.
The Company sells to a variety of domestic and international customers on
an open-unsecured account basis. These customers principally operate in the
cable television, broadcast business music, private network, and data
communications industries. Sales to Roberts Communications Network and Muzak and
affiliates accounted for approximately 27.9% and 27.5% of revenues in fiscal
2002, respectively. Sales to FOX Digital and FOX Sports Net accounted for
approximately 34.7% of revenues in fiscal 2001. At August 30, 2002, one customer
accounted for
4
more than 10% of the Company's accounts receivable. At August 31, 2001, two
customers accounted for more than 10% of the Company's accounts receivable.
Sales to a relatively small number of major customers have typically comprised a
majority of the Company's revenues. This trend is expected to continue in fiscal
2003. There can be no assurance that the loss of one or more of these customers
would not have a material adverse effect on the Company's operations.
(viii) Backlog of orders.
The Company's backlog is comprised of undelivered, firm customer orders,
which are scheduled to ship within 18 months. The Company's backlog was
approximately $10,700,000 at August 30, 2002, and $19,057,000 at August 31,
2001. One customer accounted for 85.5% of the backlog at August 30, 2002.
Reference is hereby made to the information contained in MD&A, which is
incorporated herein by reference in response to this item.
Approximately $8,700,000 of the August 30, 2002 backlog is expected to ship
during fiscal 2003. One customer accounted for 82.2% of the August 30, 2002
backlog scheduled to ship during fiscal 2003.
(ix) Government contracts.
Not applicable.
(x) Competitive Conditions.
WCI competes with companies that have substantially greater resources, as
well as with small specialized companies. Competitive forces are generally
predictable for each of the markets served by the Company. Through relationships
with component and integrated solution providers, the Company has positioned
itself to provide complete end-to-end digital video and audio systems to its
customers.
Broadcast Television
Competition in the market for the Company's broadcast television
electronics products, including digital video equipment, is driven by features,
timeliness, performance, and price. The Company's broadcast digital video
products in production are competitively priced, with unique, desirable
features. Due to the large number of potential end users, both small and large
competitors continue to emerge. The Company believes it has positioned itself to
capitalize on the market trends in this business through careful development of
its product and market strategies, which have proven successful in increasing
revenues from this sector. It must be emphasized that the overall market for
professional satellite broadcast products is very specialized and somewhat
limited. The Company's long term strategic relationships within the broadcast
industry help assure that it will generally be exposed to whatever purchasing
opportunities present themselves.
Cable Television
In the cable television market the Company believes that the competitive
position for many of its products is dominant. However, these products are
competing with those of significant and well-established firms. WCI believes
that it maintains a competitive advantage in the cable and broadcast video
markets for advertising-supported networks through its ability to provide
regionalized programming and control. The Company's success in this market will
depend to a great extent on how much emphasis is placed on a network's desire to
target advertising and other messages. Major networks remain to be converted
from analog to digital and the Company continues to pursue opportunities where
it perceives its products will provide value-added features over larger
competitors. Legacy products for analog audio and network digital cue signals
continue to provide revenue, but this revenue is projected to diminish
substantially over the next 24 months.
5
Broadcast Radio Networks
Competition for radio network products, including the Company's digital
audio products, is very aggressive and pricing is very competitive. The Company
believes that its continued success in all of its markets will depend on
aggressive marketing and product development. As in the case of broadcast
television, the market is limited and new conversions to digital technology are
not expected to bring significant revenue opportunities during the next 24
months.
Business Broadcasting
Competition in the business broadcasting market segment generally comes
from smaller companies with unique products tailored to the needs of the
customer. The Company feels that this market segment is one where it enjoys
competitive advantages. Business music networks, for example, continue to rely
on the Company's powerful network control and targeting capabilities to maximize
every advertising dollar. New products such as the iPump digital media server
will allow business broadcasting networks to benefit from satellite broadcasting
technologies without requiring large amounts of satellite cost. Competition in
this field remains limited and the Company expects to be among the industry key
players over the next 24 months.
(xi) Research and development activities.
The Company's research and development activities are designed to
strengthen and broaden its existing products and systems and to develop new
products and systems. A major portion of the fiscal 2002 research and
development expenses were spent in the digital video product area. WCI's
research and development expenses totaled $2,410,000 in fiscal 2002, $2,689,000
in fiscal 2001, and $3,048,000 in fiscal 2000. Additional information contained
on pages 2-4 and in MD&A in this report is incorporated herein by reference in
response to this item.
(xii) Environmental Regulation.
Federal, state and local pollution control requirements had no material
effect upon the capital expenditures, earnings or the competitive position of
the Company.
(xiii) Number of employees.
As of August 30, 2002, the Company had 83 full time employees employed by
the WCI manufacturing subsidiary and no employees employed by Wegener
Corporation or Wegener Communications International, Inc. No employees are
parties to a collective bargaining agreement and the Company believes that
employee relations are good.
(d) Financial information about geographic areas.
Information contained in Note 10 to the consolidated financial statements
contained in this report is incorporated herein by reference in response to this
item.
6
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, for purposes of section 401(b) of
Regulation S-K, are as follows:
NAME AND BUSINESS EXPERIENCE AGE OFFICE HELD
ROBERT A. PLACEK 64 Chairman of the Board,
President and Chief Executive Officer of President and Chief
the Company since August 1987 and Executive Officer of the
Director of the Company since July 1987. Company
Chairman of the Board since 1995.
Chairman and Chief Executive Officer and
Director of WCI since 1979. President of
WCI from October 1979 to June 1998 and
from March 2002 to present.
NED L. MOUNTAIN 54 Executive Vice President
Executive Vice President of WCI since of WCI
March 2002. Senior Vice President of
Business Development of WCI 1996-2002.
Vice President European Operations of
WCI 1994-1995. Numerous Sales and
Marketing positions 1981-1994. Corporate
Senior Engineer of UA-Columbia
Cablevision 1979-1981.
C. TROY WOODBURY, JR. 55 Treasurer and Chief
Treasurer and Chief Financial Officer of Financial Officer of the
the Company since June 1988 and Director Company and WCI
since 1989. Treasurer and Chief
Financial Officer of WCI since 1992.
Senior Vice President of Finance of WCI
since March 2002. Executive Vice
President of WCI from July 1995 to March
2002. Chief Operating Officer of WCI
from September 1992 to June 1998. Group
Controller for Scientific-Atlanta, Inc.
from March 1975 to June 1988.
JAMES T. TRAICOFF 52 Controller of the Company
Controller of the Company since November and WCI
1991; Controller of WCI since July 1988;
Controller for BBL Industries, Inc. from
April 1985 to July 1988.
7
ITEM 2. PROPERTIES
The executive offices of the Company are located at 11350 Technology
Circle, Duluth, Georgia 30097-1502. This 40,000 square foot facility, which is
located on a 4.7-acre site, was purchased by WCI in February 1987. During August
1989, WCI purchased an additional 4.4 acres of adjacent property. WCI also
leases a 21,000 square foot facility in Alpharetta, Georgia under a five-year
lease expiring during the second quarter of fiscal 2005. The annual rent is
approximately $136,000 for the first three (3) years and $143,000 for the fourth
and fifth years. WCI's 40,000 square foot facility and 4.4 acres of adjacent
land are pledged as collateral under the Company's line of credit facility.
ITEM 3. LEGAL PROCEEDINGS
On June 25, 2002, a complaint was filed in the U.S. District Court for the
District of Nevada by StarGuide Digital Networks, Inc., a Nevada corporation,
against Wegener Communications, Inc. (StarGuide Digital Network, Inc.,
Plaintiff, v. Wegener Communications, Inc., and John Scaggs, Defendants)
alleging that WCI had infringed two United States patents held by StarGuide. On
July 10, 2002, StarGuide filed its First Amended Complaint and added John
Scaggs, an employee of WCI, as a defendant. StarGuide filed its Second Amended
Complaint on July 17, 2002. Counts I and II of the Second Amended Complaint
allege claims of patent infringement against WCI relating to two U.S. Patents.
The remaining counts relate to the employment of John Scaggs by WCI, his brief
decision to become an employee of StarGuide, and alleged acts of
misappropriation of StarGuide's trade secrets by WCI and John Scaggs. The
plaintiff seeks preliminary and permanent injunctions enjoining WCI for further
patent infringement, compensatory damages, enhanced and punitive damages for any
willful infringement or interference with contract, and costs and attorney's
fees. WCI timely answered the Complaints and denied all liability in full. In
addition, WCI filed counterclaims against StarGuide seeking declaratory
judgements that WCI is not infringing the patents in suit and that the patents
in suit are invalid or otherwise unenforceable. Wegener is vigorously defending
this suit. Further proceedings in the case have been deferred by the court to
allow the parties to engage in settlement discussions. Management of the Company
does not believe that the outcome of this litigation will have a material
adverse effect on the Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the NASDAQ Small-Cap Market (NASDAQ
symbol: WGNR). As of November 6, 2002, there were approximately 386* holders of
record of Common Stock. *(This number does not reflect beneficial ownership of
shares held in nominee name).
8
The quarterly ranges of high and low closing sale prices for fiscal 2002 and
2001 were as follows:
FISCAL 2002 Fiscal 2001
HIGH LOW High Low
------------------ -------------------
First Quarter $1.24 $ .50 $2.44 $.78
Second Quarter 1.22 .82 1.56 .56
Third Quarter 1.63 .84 1.20 .68
Fourth Quarter 1.39 .90 1.20 .66
The Company has not paid any cash dividends on its Common Stock. For the
foreseeable future, the Company's Board of Directors does not intend to pay cash
dividends, but rather plans to retain earnings to support the Company's
operations and growth. Furthermore, the Company is prohibited from paying
dividends in accordance with its bank loan agreement, as more fully described in
MD&A and in Note 6 to the financial statements of this report.
The following table summarizes information as of August 30, 2002 regarding
the Company's common stock reserved for issuance under the Company's equity
compensation plans.
Number of Securities
Number of Weighted- Remaining Available
Securities Average for Future Issuance
to be Issued Exercise Price Under the Plans
Upon Exercise of of Outstanding (Excluding Securities
Outstanding Options Options Reflected in Column (a)
Plan Category (a) (b) (c)
- --------------------------------------------------- ---------------------------------------
Equity Compensation Plans 1,335,425 $ 1.37 1,019,075
Approved by Security
Holders
Equity Compensation Plans 100,000 $ 5.63 --
Not Approved by
Security Holders(1)
- --------------------------------------------------- ---------------------------------------
Total 1,435,425 $ 1.67 1,019,075
===========================================================================================
(1) Represents a compensation arrangement pursuant to an agreement with a third
party to provide a national financial relations program for the Company,
which agreement terminated in fiscal 2001.
9
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year ended
- -------------------------------------------------------------------------------------------------------
AUGUST 30, August 31, September 1, September 3, August 28,
2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------
Revenue $ 23,459 $ 20,333 $ 22,894 $ 25,259 $ 34,255
Net earnings (loss) 808 (1,976) (3,329) 213 2,760
Net earnings (loss) per share
Basic $ .07 $ (.17) $ (.28) $ .02 $ .24
Diluted $ .07 $ (.17) $ (.28) $ .02 $ .23
Cash dividends paid per share (1) -- -- -- -- --
- -------------------------------------------------------------------------------------------------------
Total assets $ 18,700 $ 18,660 $ 24,147 $ 24,954 $ 25,905
Long-term obligations inclusive
of current maturities 10 55 578 1,205 1,829
=======================================================================================================
(1) The Company has never paid cash dividends on its common stock and does not
intend to pay cash dividends in the foreseeable future
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 resources or capital structure, the effects of regulation
and competition, and are thus prospective. Such forward-looking statements are
subject to risks, uncertainties and other factors, which could cause actual
results to differ materially from future results expressed or implied by such
forward-looking statements. Potential risks and uncertainties include, but are
not limited to, economic conditions, customer plans and commitments, product
demand, government regulation, rapid technological developments and changes,
performance issues with key suppliers and subcontractors, delays in product
development and testing, material availability, new and existing
well-capitalized competitors, and other uncertainties detailed from time to time
in the Company's periodic Securities and Exchange Commission filings.
The Company manufactures satellite communications equipment through Wegener
Communications, Inc. (WCI), a wholly-owned subsidiary. WCI manufactures products
for transmission of audio, data, and video via satellite.
The Company operates on a 52-53 week fiscal year. The fiscal year ends on
the Friday nearest to August 31. Fiscal years 2002, 2001, and 2000 contained 52
weeks. All references herein to 2002, 2001, and 2000, refer to the fiscal years
ending August 30, 2002, August 31, 2001, and September 1, 2000, respectively.
10
RESULTS OF OPERATIONS
Net earnings for the year ended August 30, 2002, were $808,000 or $0 .07
per diluted share, compared to a net loss of $(1,976,000) or $(0.17) per diluted
share for the year ended August 31, 2001, and a net loss of $(3,329,000) or
$(0.28) per diluted share for the year ended September 1, 2000.
Revenues for fiscal 2002 increased $3,126,000 or 15.4% to $23,459,000 from
$20,333,000 in fiscal 2001. Direct Broadcast Satellite (DBS) revenues (including
service revenues) in fiscal 2002 increased $3,833,000 or 20.7% to $22,386,000
from $18,553,000 in fiscal 2001. Telecom and Custom Product revenues decreased
$707,000 or 39.7% in fiscal 2002 to $1,073,000 from $1,780,000 in fiscal 2001.
Revenues were $5,275,000 for the fourth quarter of fiscal 2002 compared to
revenues of $6,205,000 for the fourth quarter of fiscal 2001. The increase in
DBS revenues in fiscal 2002 was a result of a high backlog of orders at the
beginning of fiscal 2002 compared to the beginning of fiscal 2001. Shipments of
network equipment, which initially began in the first quarter of fiscal 2002,
were completed to Roberts Communications to provide television coverage of
horseracing to off-track betting venues throughout the United States. In
accordance with a multi-year contract to provide programming to network
subscribers, revenue was recognized on digital receivers beginning initially in
the fourth quarter of fiscal 2001 and continued throughout fiscal 2002.
Additionally, during fiscal 2002, shipments of digital receivers were completed
to FOX Digital and FOX Sports Net for their broadcast and cable television
networks. The Telecom and Custom Product Group revenue decrease in fiscal 2002
was primarily due to lower levels of shipments of cable television headend
products to distributors as a result of a continued slowdown in purchases by the
major cable television operators. They continue to be impacted by overcapacity
and tightened credit availability in the telecom industry.
Revenues for fiscal 2001 decreased $2,561,000 or 11.2% to $20,333,000 from
$22,894,000 in fiscal 2000. Direct Broadcast Satellite (DBS) revenues (including
service revenues) in fiscal 2001 decreased $1,357,000 or 6.8% to $18,553,000
from $19,910,000 in fiscal 2000. Telecom and Custom Product revenues decreased
$1,205,000 or 40.4% in fiscal 2001 to $1,780,000 from $2,985,000 in fiscal 2000.
Revenues were $6,205,000 for the fourth quarter of fiscal 2001 compared to
revenues of $4,124,000 for the fourth quarter of fiscal 2000. The decrease in
DBS revenues in fiscal 2001 was due to delayed product introductions by the
Company and delayed purchasing decisions in the digital satellite transmission
market. Industry-wide new product introductions, as well as increased pricing
competition, contributed to the expanded range of choices available to buyers.
The Telecom and Custom Product Group revenue decrease in fiscal 2001 was
primarily due to lower levels of shipments of cable television headend products
to distributors as a result of a slowdown in purchases by the major cable
television operators. Major cable television operators were adversely affected
by a tightening of credit availability to the telecom industry, a drop in market
capitalization for the sector and an overbuilding of capacity which resulted in
delayed capital spending decisions.
WCI's backlog of orders scheduled to ship within eighteen months decreased
$8,357,000 or 43.9% to $10,700,000 at August 30, 2002, from $19,057,000 at
August 31, 2001. The decline in the Company's backlog has been caused by a
slowdown in capital spending due to the slowdown in the economy, delays by
customers in expanding existing networks, and the timing of new product
introductions by the Company. The August 31, 2001 backlog increased $9,847,000
or 106.9% to $19,057,000 from $9,210,000 at September 1, 2000. Approximately
$8,700,000 of the August 30, 2002, backlog is expected to ship during fiscal
2003. One customer accounted for 85.5% of the Company's backlog at August 30,
2002 and for 82.2% of the backlog expected to ship during fiscal 2003. The
Company has limited revenue visibility for the first quarter of fiscal 2003. It
is anticipated that revenues for the first quarter of fiscal 2003 will decrease
compared to the fourth quarter of fiscal 2002 and will result in an operating
loss for the period. Although no assurances may be given, the Company believes
it will record sufficient new orders in fiscal 2003 to achieve fiscal year
profitability, although there can be fluctuations in quarter to quarter
operating results due to the timing of orders received.
International sales are generated through a direct sales organization and
through foreign distributors. International sales were $1,473,000 or 6.3% of
revenues in fiscal 2002, compared to $2,794,000 or 13.7% of revenues in fiscal
2001, and $4,150,000 or 18.1% of revenues in fiscal 2000. International
shipments are generally project specific and revenues, therefore, are subject to
variations from year to year. All international sales are denominated in U.S.
dollars. Additional financial information on geographic areas is provided in
Note 10 of the consolidated financial statements.
11
Gross profit as a percent of sales was 33.3% in fiscal 2002, compared to
21.3% in fiscal 2001 and 21.1% in fiscal 2000. Gross profit margin dollars
increased $3,488,000 or 80.5% to $7,822,000 in fiscal 2002 from $4,334,000 in
fiscal 2001. Fiscal 2000 gross profit margin dollars amounted to $4,819,000. The
increases in margin dollars and percentages in fiscal 2002 were mainly due to 1)
higher revenue during the period which resulted in lower unit fixed overhead
costs, 2) a reduction in manufacturing labor and overhead costs as a result of
the Company's cost reduction program initiated in fiscal 2001, and 3) lower
offshore contract manufacturing costs of certain DBS products. Profit margins in
fiscal 2002 included inventory reserve charges of $800,000 compared to
$1,325,000 in fiscal 2001. Gross profit margin was unfavorably impacted in
fiscal 2001 by higher unit fixed costs due to the decrease in sales volumes.
Selling, general, and administrative (SG&A) expenses decreased $644,000 or
13.6% to $4,101,000 in fiscal 2002 from $4,745,000 in fiscal 2001. As a
percentage of revenues, selling, general, and administrative expenses were 17.5%
of revenues in fiscal 2002 and 23.3% in fiscal 2001. During the fourth quarter
of fiscal 2001 tax reimbursement features were removed from common stock
options. As a result, SG&A expenses in fiscal 2002 were not subject to variable
stock option compensation adjustments compared to a benefit of $488,000 in
fiscal 2001. Excluding this benefit, SG&A decreased $1,132,000 or 21.6% in
fiscal 2002 compared to fiscal 2001. SG&A reductions in fiscal 2002 were mainly
due to personnel reductions, lower sales incentive commissions as a result of a
decrease in fiscal 2002 orders, and cost reduction efforts in discretionary
spending items. The dollar decrease of expenses in fiscal 2002 compared to
fiscal 2001 includes decreases in 1) compensation expense of $710,000, 2) travel
expenses of $171,000, and 3) trade show and advertising expenses of $138,000.
The Company expects to continue to monitor SG&A costs in relation to revenue
levels and make adjustments as necessary if revenues do not increase as planned.
Selling, general, and administrative expenses decreased $2,496,000 or 34.5%
to $4,745,000 in fiscal 2001 from $7,241,000 in fiscal 2000. These costs
decreased in fiscal 2001 primarily due to cost reduction efforts which resulted
in lower personnel, travel, marketing, software implementation, and facility
expenses; termination of an agreement with a financial relations firm; and a
decrease in variable stock option compensation expenses. The dollar decrease of
expenses in fiscal 2001 compared to fiscal 2000 includes decreases in 1)
advertising expense of $116,000, 2) repairs and maintenance expense of $201,000,
3) consulting expense of $287,000 principally associated with the completion of
installation of a new manufacturing and financial information system, 4)
professional fees of $131,000, 5) outside sales agent commissions of $408,000
due to lower international revenues and completion of certain domestic orders
subject to agent commissions, 6) travel expenses of $131,000, 7) salaries and
benefits costs of $457,000, and 8) non-cash stock variable option compensation
expense of $977,000 due to the decline in market price of the Company's common
stock.
General corporate expenses included in selling, general, and administrative
expense were approximately $510,000, $658,000, and $805,000 in fiscal 2002,
2001, and 2000, respectively. The decrease in fiscal 2002 corporate expenses was
due to termination, in fiscal 2001, of an agreement with a financial relations
firm.
Research and development expenditures, including capitalized software
development costs, were $2,983,000 or 12.7% of revenues in fiscal 2002,
$3,073,000 or 15.1% of revenues in fiscal 2001, and $3,689,000 or 16.1% of
revenues in fiscal 2000. The decrease in expenditures in fiscal 2002 compared to
fiscal 2001 was primarily due to decreases in labor and overhead costs which
were offset by higher engineering consulting costs. The decrease in expenditures
in fiscal 2001 compared to fiscal 2000 was primarily due to decreases in
overhead and engineering consulting costs due to the completion of contracted
engineering development projects related to DBS products. Software development
costs totaling $573,000, $384,000, and $641,000 were capitalized during fiscal
2002, 2001, and 2000, respectively. The increases in capitalized software costs
during fiscal 2002 compared to 2001 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
development costs, were $2,410,000 or 10.3% of revenues in fiscal 2002,
$2,689,000 or 13.2% of revenues in fiscal 2001, and $3,048,000 or 13.3% of
revenues in fiscal 2000. The Company expects fiscal 2003 research and
development expenditures to approximate fiscal 2002 levels as it continues to
develop and enhance DBS products.
Interest expense was $64,000 in fiscal 2002 compared to $60,000 in fiscal
2001 and $88,000 in fiscal 2000. Interest expense in fiscal 2002 was principally
associated with letters of credit commitments and bank float charges
12
on lockbox collections. The increase during fiscal 2002 was due primarily to an
increase in the average outstanding letter of credit commitment balances. The
decrease in fiscal 2001 was due primarily to a decrease in total indebtedness.
The Company believes that interest expense in fiscal 2003 will approximate
fiscal 2002 expense.
Interest income was $33,000 in fiscal 2002 compared to $71,000 in fiscal
2001 and $334,000 in fiscal 2000. The decrease in fiscal 2002 was mainly due to
lower investment yields. Interest income is expected to decrease in fiscal 2003
due to expected lower average outstanding balances of cash and cash equivalents.
Fiscal 2002 income tax expense of $473,000 was comprised of a current
federal income tax benefit of $114,000 from receipt of alternative minimum tax
refunds as a result of federal income tax law changes and deferred federal and
state income tax expenses of $549,000 and $38,000, respectively. Net deferred
tax assets decreased $587,000 to $2,848,000 at August 30, 2002 from $3,435,000
at August 31, 2001. The decrease was principally due to current period
utilization of net operating loss carryforwards and refunds of alternative
minimum tax credits. 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 based on the Company's backlog, financial projections and operating
history. The amount considered realizable could be reduced if estimates of
future taxable income during the carryforward period are reduced. Fiscal 2001
income tax benefit was comprised of a deferred federal and state tax benefit of
$1,049,000 and $63,000, respectively. Fiscal 2000 income tax benefit was
comprised of a current federal and state income tax benefit of $262,000 and
$123,000, respectively, and a deferred federal and state tax benefit of
$1,409,000 and $101,000, respectively. A reconciliation of the Company's
effective income tax rate as compared to the statutory U.S. income tax rate is
provided in Note 7 of the consolidated financial statements.
13
CRITICAL ACCOUNTING POLICIES
Certain accounting policies are very important to the portrayal of the Company's
financial condition and results of operations and require management's most
subjective or difficult judgements. These policies are as follows:
REVENUE RECOGNITION - The Company's revenue recognition policies are in
compliance with Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements," as published by the staff of the Securities and Exchange
Commission. Revenue is recognized when persuasive evidence of an agreement with
the customer exists, products are shipped or title passes pursuant to the terms
of the agreement with the customer, the amount due from the customer is fixed or
determinable, collectibility is reasonably assured, and when there are no
significant future performance obligations. Service revenues are recognized at
the time of performance. The Company recognizes revenue in certain circumstances
before delivery has occurred (commonly referred to as "bill and hold"
transactions). In such circumstances, amongst other things, risk of ownership
has passed to the buyer, the buyer has made a written fixed commitment to
purchase the finished goods, the buyer has requested the finished goods be held
for future delivery as scheduled and designated by them, and no additional
performance obligations exist by the Company. For these transactions, the
finished goods are segregated from inventory and normal billing and credit terms
are granted. For the period ending August 30, 2002, revenues to one customer in
the amount of $1,554,000 were recorded prior to delivery as bill and hold
transactions. At August 30, 2002, accounts receivable for these revenues
amounted to $794,000 and were paid in full subsequent to August 30, 2002.
These policies require management, at the time of the transaction, to assess
whether the amounts due are fixed or determinable, collection is reasonably
assured, and if future performance obligations exist. These assessments are
based on the terms of the agreement with the customer, past history, and credit
worthiness of the customer. If management determines that collection is not
reasonably assured or future performance obligations exist, revenue recognition
is deferred until these conditions are satisfied.
INVENTORY RESERVES - Inventories are valued at the lower of cost (at standard,
which approximates actual cost on a first-in, first-out basis) or market.
Inventories include the cost of raw materials, labor and manufacturing overhead.
The Company makes inventory reserve provisions for obsolete or slow moving
inventories as necessary to properly reflect inventory value. These reserves are
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 which could require
additional inventory reserve provisions. At August 30, 2002, inventories, net of
reserve provisions, amounted to $3,921,000.
CAPITALIZED SOFTWARE COSTS - Software development costs are capitalized
subsequent to establishing technological feasibility. Capitalized costs are
amortized based on the larger of the amounts computed using (a) the ratio that
current gross revenues for each product bears to the total of current and
anticipated future gross revenues for that product or (b) the straight-line
method over the remaining estimated economic life of the product. Expected
future revenues and estimated economic lives are subject to revisions due to
market conditions, technology changes, and other factors resulting in shortfalls
of expected revenues or reduced economic lives which could result in additional
amortization expense or write-offs. At August 30, 2002, capitalized software
costs, net of accumulated amortization, amounted to $642,000.
DEFERRED TAX ASSET VALUATION ALLOWANCE - Deferred tax assets are recognized for
deductible temporary differences, net operating loss carryforwards, and credit
carryforwards if it is more likely than not that the tax benefits will be
realized. Realization of the Company's 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 based on the Company's backlog, financial projections and operating
history. The amount of the deferred tax assets considered realizable, however,
could be reduced if estimates of further taxable income during the carryforward
period are reduced. Any reduction in the realizable value of deferred tax assets
would result in a charge to income tax expense in the period such determination
was made. At August 30, 2002, deferred tax assets amount to
14
$2,848,000 of which $561,000 relates to net operating loss carryforwards which
expire in fiscal 2020 and 2021 and $98,000 of general business and foreign tax
credits expiring fiscal 2004.
ACCOUNTS RECEIVABLE VALUATION - The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of our customers to
make required payments. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. At August 30, 2002, accounts receivable
net of allowances for doubtful accounts amounted to $3,038,000.
LIQUIDITY AND CAPITAL RESOURCES
At August 30, 2002, the Company's primary sources of liquidity were cash
and cash equivalents of $5,118,000 and a $5,000,000 bank loan facility. Cash and
cash equivalents increased $3,191,000 in fiscal 2002.
Cash provided by operating activities in fiscal 2002 was $3,986,000
compared to $1,265,000 in fiscal 2001. Cash used by operating activities in
fiscal 2000 was $4,236,000. Fiscal 2002 net earnings adjusted for non-cash
expenses provided cash of $4,200,000 while changes in inventories and other
assets provided cash of $2,809,000. Changes in accounts receivable, accounts
payable, accrued expenses, and customer deposits used cash of $3,023,000.
Cash used by investing activities was $720,000 in fiscal 2002 compared to
$860,000 in fiscal 2001 and $1,748,000 in fiscal 2000. Cash used in fiscal 2002
includes property and equipment expenditures of $147,000, and capitalized
software additions of $573,000. Property and equipment expenditures were for
planned additions of principally manufacturing and engineering test equipment.
Fiscal 2003 expenditures for investing activities are expected to approximate
fiscal 2002 levels.
Cash used by financing activities was $75,000 in fiscal 2002, $551,000 in
fiscal 2001, and $802,000 in fiscal 2000. In fiscal 2002, financing activities
used cash of $45,000 for scheduled repayments of long-term obligations, $56,000
for debt issuance costs, and provided $25,000 of cash from the exercise of stock
options. At August 30, 2002, scheduled fiscal 2003 debt repayments are
approximately $6,000.
Net accounts receivable increased $1,962,000 to $3,038,000 at August 30,
2002, from $1,076,000 at August 31, 2001, compared to $4,111,000 at September 1,
2000. The increase in fiscal 2002 was primarily due to a higher percentage of
shipments occurring in the last month of the fourth quarter of fiscal 2002
compared to the same period of fiscal 2001, and early collection on account from
a major customer in the fourth quarter of fiscal 2001. The allowance for
doubtful accounts was $352,000 at August 30, 2002, $305,000 at August 31, 2001,
and $166,000 at September 1, 2000. Write-offs, net of recoveries in fiscal 2002
were $108,000. Net recoveries were $19,000 in fiscal 2001. Write-offs, net of
recoveries in fiscal 2000 were $52,000. Increases to the allowance and charges
to general and administrative expense were $155,000 in fiscal 2002, $120,000 in
fiscal 2001, and $45,000 in fiscal 2000.
Inventory before reserves decreased $3,941,000 to $7,701,000 at August 30,
2002, from $11,642,000 at August 31, 2001. The decrease was primarily due to
increased sales and management efforts to decrease inventory levels. During
fiscal 2002, inventory reserves were increased by provisions charged to cost of
sales of $800,000. The increase in the provision was to provide additional
reserves for 1) slower moving analog Telecom products, 2) excess digital audio
inventories, and 3) potentially slow-moving inventories of earlier generations
of other digital products. These products continue to sell but at reduced
quantities. During fiscal 2001, inventory reserves were increased by provisions
charged to cost of sales of $1,325,000 and $1,246,000 in fiscal 2000. Inventory
reserves were decreased by write-offs of $1,176,000 in fiscal 2002 and $613,000
in fiscal 2001. During fiscal 2002 and 2001 decreases in inventories provided
cash of $2,765,000 and $1,296,000, respectively. In fiscal 2000, increases in
inventory used cash of $4,864,000.
15
During the third quarter of fiscal 2002, WCI's bank loan facility was
amended to provide a maximum available credit limit of $5,000,000 with sublimits
as defined. The amended loan facility matures on June 30, 2003, or upon demand
and requires an annual facility fee of 1% of the maximum credit limit. The loan
facility consists of a term loan and a revolving line of credit with a combined
borrowing limit of $5,000,000, bearing interest at the bank's prime rate (4.75%
at August 30, 2002).
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. At August 30, 2002, no balances were outstanding on the revolving
line of credit or the equipment term loan portions of the loan facility.
Additionally, at August 30, 2002, approximately $3,243,000 net of outstanding
letters of credit in the amount of $1,319,000 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 2003,
retain certain key employees, limit expenditures of Wegener Corporation to
$600,000 per fiscal year, maintain certain financial ratios, and is precluded
from paying dividends. At August 30, 2002, the Company was in compliance with
all loan facility covenants. The Company believes that the amended loan facility
along with cash and cash equivalent balances will be sufficient to support
operations through fiscal 2003.
During the second quarter of fiscal 2001, the Company entered into a
manufacturing and purchasing agreement for certain finished goods inventories.
The agreement is a firm commitment by the Company to purchase, over a
twelve-month period, amounts ranging from approximately $2,565,000 to $3,287,000
depending on actual products purchased. Pursuant to the agreement, at August 30,
2002, remaining and outstanding purchase commitments amounted to $241,000. In
addition, during fiscal 2001, the Company entered into a cancelable
manufacturing and purchasing agreement for finished goods inventories for which
the Company has firm customer order commitments. The Company had outstanding
purchase commitments under this agreement of $1,319,000 at August 30, 2002.
Subsequent to August 30, 2002, the Company committed to an additional $913,000
of inventory purchases. Pursuant to the above agreements, at August 30, 2002,
the Company had outstanding letters of credit in the amount of $1,319,000.
The Company has never paid cash dividends on its common stock and does not
intend to pay cash dividends in the foreseeable future.
A summary of the Company's long-term contractual obligations as of August
30, 2002 consisted of:
OPERATING PURCHASE
DEBT LEASES COMMITMENTS
-------- -------- ----------
Fiscal 2003 $ 6,000 $227,000 $1,560,000
Fiscal 2004 4,000 224,000 --
Fiscal 2005 -- 114,000 --
Fiscal 2006 -- 2,000 --
-------- -------- ----------
Total $ 10,000 $567,000 $1,560,000
======== ======== ==========
16
IMPACT OF INFLATION
The Company does not believe that inflation has had a material impact on
revenues or expenses during its last three fiscal years.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the FASB issued Statements of Financial Accounting Standards
No. 141, "Business Combinations" (SFAS 141), Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142), and
Statement No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143).
SFAS 141 requires all business combinations to be accounted for using the
purchase method of accounting and is effective for all business combinations
initiated after June 30, 2001. SFAS 142 requires goodwill to be tested for
impairment under certain circumstances, and written off when impaired, rather
than being amortized as previous standards required. SFAS 142 is effective for
fiscal years beginning after December 15, 2001. Implementation of these
pronouncements had no significant impact on the Company's financial statements.
SFAS 143 requires entities to record the fair value of a liability for an
asset retirement obligation in the period in which it is incurred and a
corresponding increase in the carrying amount of the related long-lived asset.
Statement No. 143 is effective for fiscal years beginning after June 15, 2002.
The Company does not expect SFAS 143 to have a material impact on its financial
condition and results of operations.
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 supersedes
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" and the accounting and reporting provisions
of Accounting Principals Board Opinion No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions" for
the disposal of a segment of a business. Under Statement No. 144, goodwill is
excluded from its scope. Additionally, Statement No. 144 utilizes a
probability-weighted cash flow estimation approach and establishes a
"primary-asset" approach to determine the cash flow estimation period for a
group of assets. Statement No. 144 is effective for fiscal years beginning after
December 15, 2001. The Company does not expect SFAS 144 to have a material
impact on its financial condition and results of operations.
In July 2002, the FASB issued statement no. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," (SFAS 146) which is effective
January 1, 2003. SFAS 146 provides that an exit cost liability should not always
be recorded at the date of an entity's commitment to an exit plan, but instead
should be recorded when the obligation is incurred. An entity's commitment to a
plan, by itself, does not create an obligation that meets the definition of a
liability. The Company does not expect SFAS 146 to have a material impact on its
financial condition and results of operation.
OUTLOOK: ISSUES AND UNCERTAINTIES
The market for the Company's products is characterized by rapidly changing
technology, evolving industry standards and frequent product introductions.
Product introductions are generally characterized by increased functionality and
better quality, sometimes at reduced prices. The introduction of products
embodying new technology may render existing products obsolete and unmarketable
or marketable at substantially reduced prices. The Company's ability to
successfully develop and introduce on a timely basis new and enhanced products
that embody new technology, and achieve levels of functionality and price
acceptable to the market, will be a significant factor in the Company's ability
to grow and remain competitive. If the Company is unable, for technological or
other reasons, to develop competitive products in a timely manner in response to
changes in the industry, the Company's business and operating results will be
materially and adversely affected.
WCI competes with companies that have substantially greater resources and a
larger number of products, as well as with small specialized companies. Through
relationships with technology partners and original equipment manufacturer (OEM)
suppliers, the Company has positioned itself to provide end-to-end solutions to
its customers.
17
Competition in the market for the Company's MPEG-2 broadcast television
electronics products, including digital video equipment, is driven by
timeliness, performance, and price. The Company's broadcast digital video
products in production are competitively priced, with unique, desirable
features. The COMPEL Network Control System meets customer needs by providing
regionalization of receiver control and spot advertisement. Due to the large
number of potential end users, both small and large competitors continue to
emerge. The Company believes it has positioned itself to capitalize on the
market trends in this business through careful development of its product and
market strategies, which have proven successful in increasing revenues from this
sector. In the cable television market the Company believes that the competitive
position for many of its products is strong. However, the UNITY product family
competes with significant and established firms. Other products for cable
television include proprietary cueing and network control devices. Competition
for radio network products, including the Company's digital audio products, is
very aggressive and pricing is very competitive. The Company believes that its
continued success in all of its markets will depend on aggressive marketing and
product development.
The demand for digital products is being driven by the high cost of
satellite capacity and increasing demand for video and multi-media content. The
digital conversion of major networks is expected to continue, but it remains
difficult to predict the precise timing and number of customers converting to
digital. Management believes the market as a whole has considerable built up
demand for digital technology. Although no assurances can be given, the Company
expects to directly benefit from this increase in demand. There may be
fluctuations in the Company's revenues and operating results from quarter to
quarter due to several factors, including the timing of significant orders from
customers and the timing of new product introductions by the Company.
The Company has invested a significant amount of financial resources to
acquire certain raw materials, to incur direct labor and to contract to have
specific outplant procedures performed on inventory in process. The Company
purchased this inventory based upon previously known backlog and anticipated
future sales given existing knowledge of the marketplace. The Company's
inventory reserve of $3,781,000 at August 30, 2002, is to provide for items that
are potentially slow moving, excess, or obsolete. Changes in market conditions,
lower than expected customer demand, and rapidly changing technology could
result in additional obsolete and slow-moving inventory that is unsaleable or
saleable at reduced prices. No estimate can be made of a range of amounts of
loss from obsolescence that might occur should the Company's sales efforts not
be successful.
Sales to a relatively small number of major customers have typically
comprised a majority of the Company's revenues and that trend is expected to
continue throughout fiscal 2003 and beyond. Future revenues are subject to the
timing of significant orders from customers and are difficult to forecast. As a
result, future revenue levels may fluctuate from quarter to quarter. One
customer accounted for 85.5% of the backlog at August 30, 2002 and for 82.2% of
the backlog scheduled to ship during fiscal 2003.
The Company's gross margin percentage is subject to variations based on the
product mix sold in any period and on sales volumes. Start-up costs associated
with new product introductions could adversely impact costs and future margins.
The Company is very focused on controlling both direct and indirect
manufacturing costs and other operating expenses. These costs will be adjusted
as necessary if revenues do not increase as planned. Management believes that
digital compression technology may be profitably employed to create increased
demand for its satellite receiving equipment if those products are manufactured
in a high volume standardized production environment.
Certain raw materials, video sub-components, and licensed video processing
technologies used in existing and future products are currently available from
single or limited sources. Although the Company believes that all single-source
components are currently available in adequate quantities, there can be no
assurance that shortages or unanticipated delivery interruptions will not
develop in the future. Any disruption or termination of supply of certain
single-source components or technologies could have a material adverse effect on
the Company's business and results of operations.
The Company has made significant investments in capitalized software
principally related to digital audio and video products. At August 30, 2002,
capitalized software costs were $642,000. These costs are amortized based on the
larger of the amounts computed using (a) the ratio that current gross revenues
for each product bears to
18
the total of current and anticipated future gross revenues for that product or
(b) the straight-line method over the remaining estimated economic life of the
product. Expected future revenues and estimated economic lives are subject to
revisions due to market conditions, technology changes, and other factors
resulting in shortfalls of expected revenues or reduced economic lives.
The industry in which the Company operates is subject to rapid
technological advances and frequent product introductions. The Company expects
to remain committed to research and development expenditures as required to
effectively compete and maintain pace with the rapid technological changes in
the communications industry and to support innovative engineering and design in
its future products.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market rate risk for changes in interest rates
relates primarily to its revolving line of credit and cash equivalents. The
interest rate on certain advances under the line of credit and term loan
facility fluctuates with the bank's prime rate. There were no borrowings
outstanding at August 30, 2002, subject to variable interest rate fluctuations.
At August 30, 2002, cash equivalents consisted of bank commercial paper in
the amount of $2,900,000 and variable rate municipals in the amount of
$2,000,000. The cash equivalents have maturities of less than three months and
therefore are subject to minimal market risk.
The Company does not enter into derivative financial instruments. All sales
and purchases are denominated in U.S. dollars.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Independent Certified Public Accountants............................20
Consolidated Statements of Operations
Years ended August 30, 2002, August 31, 2001, and September 1, 2000........21
Consolidated Balance Sheets
As of August 30, 2002 and August 31, 2001..................................22
Consolidated Statements of Shareholders' Equity
Years ended August 30, 2002, August 31, 2001, and September 1, 2000........23
Consolidated Statements of Cash Flows
Years ended August 30, 2002, August 31, 2001, and September 1, 2000........24
Notes to Consolidated Financial Statements....................................25
Consolidated Supporting Schedules Filed:
Schedule II-Valuation and Qualifying Accounts
Years ended August 30, 2002, August 31, 2001, and September 1, 2000........42
19
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Wegener Corporation is responsible for the accuracy and
consistency of all the information contained in the annual report, including the
accompanying consolidated financial statements. These statements have been
prepared to conform with generally accepted accounting principles appropriate to
the circumstances of the Company. The statements include amounts based on
estimates and judgments as required.
Wegener Corporation maintains internal accounting controls designed to
provide reasonable assurance that the financial records are accurate, that the
assets of the Company are safeguarded, and that the financial statements present
fairly the consolidated financial position, results of operations and cash flows
of the Company.
The Audit Committee of the Board of Directors reviews the scope of the
audits and the findings of the independent certified public accountants. The
auditors meet regularly with the Audit Committee to discuss audit and financial
reporting issues, with and without management present.
BDO Seidman, LLP the Company's independent certified public accountants,
has audited the financial statements prepared by management. Their opinion on
the statements is presented below.
/s/ Robert A. Placek
Robert A. Placek,
President, Chief Executive Officer
and Chairman of the Board
/s/ C. Troy Woodbury, Jr.
C. Troy Woodbury, Jr.
Treasurer and Chief Financial Officer
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders of Wegener Corporation
Duluth, Georgia
We have audited the accompanying consolidated balance sheets of Wegener
Corporation and subsidiaries as of August 30, 2002, and August 31, 2001, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of three years in the period ended August 30, 2002. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Wegener
Corporation and subsidiaries as of August 30, 2002, and August 31, 2001, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended August 30, 2002 in conformity with accounting
principles generally accepted in the United States of America.
/s/ BDO Seidman, LLP
Atlanta, Georgia BDO Seidman, LLP
November 5, 2002
20
Wegener Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended
--------------------------------------------
AUGUST 30, August 31, September 1,
2002 2001 2000
- -------------------------------------------------------------------------------------------------------
Revenue $ 23,458,923 $ 20,332,899 $ 22,894,314
- -------------------------------------------------------------------------------------------------------
Operating costs and expenses
Cost of products sold 15,636,657 15,998,989 18,075,326
(including non-cash equity related charges
of $31,256, $37,294, and $47,520, respectively)
Selling, general and administrative 4,101,062 4,744,913 7,240,636
(including non-cash equity related charges
(benefits) of $58,807, $(365,641), and
$729,632, respectively)
Research and development 2,409,949 2,688,844 3,047,754
(including non-cash equity related charges of
$68,006, $75,688, and $84,844, respectively)
- -------------------------------------------------------------------------------------------------------
Operating costs and expenses 22,147,668 23,432,746 28,363,716
- -------------------------------------------------------------------------------------------------------
Operating income (loss) 1,311,255 (3,099,847) (5,469,402)
Interest expense (64,061) (59,929) (88,085)
Interest income 33,386 71,475 333,597
- -------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 1,280,580 (3,088,301) (5,223,890)
Income tax expense (benefit) 473,000 (1,112,000) (1,895,000)
- -------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 807,580 $ (1,976,301) $ (3,328,890)
=======================================================================================================
Net earnings (loss) per share
Basic $ .07 $ (.17) $ (.28)
Diluted $ .07 $ (.17) $ (.28)
=======================================================================================================
Shares used in per share calculation
Basic 12,160,865 11,943,048 11,798,458
Diluted 12,229,240 11,943,048 11,798,458
=======================================================================================================
See accompanying notes to consolidated financial statements.
21
Wegener Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
AUGUST 30, August 31,
2002 2001
- --------------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents $ 5,117,756 $ 1,926,723
Accounts receivable 3,037,762 1,076,420
Inventories 3,920,673 7,485,883
Deferred income taxes 2,225,000 2,207,000
Other 90,066 134,095
- --------------------------------------------------------------------------------
Total current 14,391,257 12,830,121
Property and equipment, net 2,995,332 3,664,292
Capitalized software costs, net 641,710 895,442
Deferred income taxes 623,000 1,228,000
Other assets 48,556 42,617
- --------------------------------------------------------------------------------
$ 18,699,855 $ 18,660,472
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,424,101 $ 1,694,923
Accrued expenses 1,409,369 2,009,482
Customer deposits 777,023 813,125
Current maturities of long-term obligations 6,120 44,695
- --------------------------------------------------------------------------------
Total current liabilities 3,616,613 4,562,225
Long-term obligations, less current maturities 4,294 10,379
- --------------------------------------------------------------------------------
Total liabilities 3,620,907 4,572,604
- --------------------------------------------------------------------------------
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 19,513,977 19,751,694
Deficit (4,401,830) (5,209,410)
Less treasury stock, at cost (156,345) (577,562)
- --------------------------------------------------------------------------------
Total shareholders' equity 15,078,948 14,087,868
- --------------------------------------------------------------------------------
$ 18,699,855 $ 18,660,472
================================================================================
See accompanying notes to consolidated financial statements.
22
Wegener Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Additional Retained Treasury Stock
------------ Paid-in Earnings --------------
Shares Amount Capital (Deficit) Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE at September 3, 1999 12,314,575 $ 123,146 $ 19,492,570 $ 95,781 632,459 $ (931,728)
Treasury stock reissued through
stock options and 401(k) plan -- -- 155,810 -- (249,988) 292,691
Treasury stock purchased -- -- -- -- 99,000 (398,470)
Value of stock options granted for
services -- -- 175,188 -- -- --
Value of stock --
option compensation -- -- 349,000 -- -- --
Tax benefit of stock
options exercised -- -- 152,000 -- -- --
Net loss for the year -- -- -- (3,328,890) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE at September 1, 2000 12,314,575 $ 123,146 $ 20,324,568 $ (3,233,109) 481,471 $ (1,037,507)
Treasury stock reissued through
401(k) plan -- -- (271,567) -- (211,883) 459,945
Value of stock options granted for
services -- -- 47,093 -- -- --
Value of stock
option compensation -- -- (348,400) -- -- --
Net loss for the year -- -- -- (1,976,301) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE at August 31, 2001 12,314,575 $ 123,146 $ 19,751,694 $ (5,209,410) 269,588 $ (577,562)
Treasury stock reissued through
stock options and 401(k) plan -- -- (237,717) -- (196,611) 421,217
Net earnings for the year -- -- -- 807,580 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT AUGUST 30, 2002 12,314,575 $ 123,146 $ 19,513,977 $ (4,401,830) 72,977 $ (156,345)
====================================================================================================================================
See accompanying notes to consolidated financial statements.
23
Wegener Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended
--------------------------------------------
AUGUST 30, August 31, September 1,
2002 2001 2000
- -----------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES
Net earnings (loss) $ 807,580 $ (1,976,301) $ (3,328,890)
Adjustments to reconcile net earnings (loss) to
cash provided by operating activities
Depreciation and amortization 1,692,485 1,769,984 1,710,389
Issuance of treasury stock for
benefit plan 158,119 188,378 197,808
Tax benefit of stock
options exercised -- -- 152,000
Non-cash stock option
compensation -- (488,130) 489,000
Other non-cash expenses -- 47,093 175,188
Provision for bad debts 155,000 120,000 45,000
Provision for inventory reserves 800,000 1,325,000 1,246,000
Provision (benefit) for deferred income taxes 587,000 (1,112,000) (1,510,000)
Warranty provisions -- -- 215,000
Changes in assets and liabilities
Accounts receivable (2,116,342) 2,914,407 (1,537,531)
Inventories 2,765,210 1,295,893 (4,863,963)
Other assets 44,029 (85,480) 194,638
Accounts payable and accrued expenses (870,935) (1,470,597) 1,387,011
Customer deposits (36,102) (1,263,236) 1,192,295
- -----------------------------------------------------------------------------------------------------
3,986,044 1,265,011 (4,236,055)
- -----------------------------------------------------------------------------------------------------
CASH USED FOR INVESTMENT ACTIVITIES
Property and equipment expenditures (147,478) (476,176) (1,106,558)
Capitalized software additions (572,718) (384,068) (641,060)
- -----------------------------------------------------------------------------------------------------
(720,196) (860,244) (1,747,618)
- -----------------------------------------------------------------------------------------------------
CASH USED FOR FINANCING ACTIVITIES
Repayment of long-term debt and capitalized
lease obligations (44,660) (541,511) (626,788)
Proceeds from long-term debt -- 18,114 --
Purchase of treasury stock -- -- (398,470)
Loan facility fees (55,536) (27,500) (27,500)
Proceeds from stock options exercised 25,381 -- 250,693
- -----------------------------------------------------------------------------------------------------
(74,815) (550,897) (802,065)
- -----------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 3,191,033 (146,130) (6,785,738)
Cash and cash equivalents, beginning of year 1,926,723 2,072,853 8,858,591
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 5,117,756 $ 1,926,723 $ 2,072,853
=====================================================================================================
See accompanying notes to consolidated financial statements.
24
Wegener Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION. The financial statements
include the accounts of Wegener Corporation (WGNR) (the "Company") and its
wholly-owned subsidiaries. Wegener Communications, Inc. (WCI) designs,
manufactures and distributes satellite communications electronics equipment in
the U.S., and internationally through Wegener Communications International, Inc.
All significant intercompany balances and transactions have been eliminated in
consolidation.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Examples include provisions for bad debts, inventory obsolescence and
warranties. Actual results could vary from these estimates.
FISCAL YEAR. The Company operates on a 52-53 week fiscal year. The fiscal year
ends on the Friday nearest to August 31. Fiscal 2002, 2001, and 2000 each
contained 52 weeks. All references herein to 2002, 2001, and 2000 relate to the
fiscal years ended August 30, 2002, August 31, 2001, and September 1, 2000,
respectively.
CASH EQUIVALENTS. Cash equivalents consist of highly liquid investments with
original maturities of three months or less. At August 30, 2002, cash
equivalents consisted of bank commercial paper in the amount of $2,900,000, and
variable rate municipals in the amount of $2,000,000. At August 31, 2001, cash
equivalents consisted of bank commercial paper in the amount of $1,815,000.
INVENTORIES. Inventories are stated at the lower of cost (at standard, which
approximates actual cost on a first-in, first-out basis) or market. Inventories
include the cost of raw materials, labor and manufacturing overhead. The Company
makes provisions for obsolete or slow moving inventories as necessary to
properly reflect inventory value.
PROPERTY, EQUIPMENT AND DEPRECIATION. Property and equipment are stated at cost.
Certain assets financed under lease contracts have been capitalized.
Depreciation is computed over the estimated useful lives of the assets on the
straight-line method for financial reporting and accelerated methods for income
tax purposes. Substantial betterments to property and equipment are capitalized
and repairs and maintenance are expensed as incurred.
REVENUE RECOGNITION. The Company's revenue recognition policies are in
compliance with Staff Accounting Bulletin No 101, "Revenue Recognition in
Financial Statements," as published by the staff of the Securities and Exchange
Commission. Revenue is recognized when persuasive evidence of an agreement with
the customer exists, products are shipped or title passes pursuant to the terms
of the agreement with the customer, the amount due from the customer is fixed or
determinable, collectibility is reasonably assured, and when there are no
significant future performance obligations. Service revenues are recognized at
the time of performance. The Company has recognized revenue in certain
circumstances before delivery has occurred (commonly referred to as "bill and
hold" transactions). In such circumstances, amongst other things, risk of
ownership has passed to the buyer, the buyer has made a written fixed commitment
to purchase the finished goods, the buyer has requested the finished goods to be
held for future delivery as scheduled and designated by them, and no additional
performance obligations exist by the Company. For these transactions, the
finished goods are segregated from inventory and normal billing and credit terms
are granted. For the period ending August 30, 2002, revenues to one customer in
the amount of $1,554,000 were recorded prior to delivery as bill and hold
transactions. At August 30, 2002, accounts receivable for these revenues
amounted to $794,000 and were paid in full subsequent to August 30, 2002.
The policies require management, at the time of the transaction, to assess
whether the amounts due are fixed or determinable, collection is reasonably
assured, and if future performance obligations exist. These assessments are
based on the terms of the agreement with the customer, past history, and credit
worthiness of the customer. If management determines that collection is not
reasonably assured or future performance obligations exist, revenue recognition
is deferred until these conditions are satisfied.
In accordance with EITF Issue 00-10, "Accounting for Shipping and Handling Fees
and Costs," the Company included all shipping and handling billings to customer
in revenues, and freight costs incurred for product shipments have been included
in cost of products sold.
25
Wegener Corporation and Subsidiaries
RESEARCH AND DEVELOPMENT/CAPITALIZED SOFTWARE COSTS. The Company expenses
research and development costs, including expenditures related to development of
the Company's software products that do not qualify for capitalization. Software
development costs are capitalized subsequent to establishing technological
feasibility. Capitalized costs are amortized based on the larger of the amounts
computed using (a) the ratio that current gross revenues for each product bears
to the total of current and anticipated future gross revenues for that product
or (b) the straight-line method over the remaining estimated economic life of
the product. Expected future revenues and estimated economic lives are subject
to revisions due to market conditions, technology changes, and other factors
resulting in shortfalls of expected revenues or reduced economic lives. Software
development costs capitalized during fiscal 2002, 2001, and 2000, totaled
$573,000, $384,000, and $641,000, respectively. Amortization expense, included
in cost of goods sold, was $826,000, $698,000, and $533,000 for the same
periods, respectively. Capitalized software costs, net of accumulated
amortization, were $642,000 at August 30, 2002, and $895,000 at August 31, 2001.
Accumulated amortization amounted to $4,555,000 at August 30, 2002, and
$3,729,000 at August 31, 2001.
LONG-LIVED ASSETS. Long-lived assets are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. If the sum of the expected future undiscounted cash flows is
less than the carrying amount of the asset, a loss is recognized for the
difference between the fair value and carrying value of the asset.
STOCK BASED COMPENSATION. The Company has adopted the disclosure only provisions
of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," but applies Accounting Principles Board Opinion (APB)
No. 25, "Accounting for Stock Issued to Employees" and related interpretations
in accounting for its plans. Under APB No. 25, when the exercise price of
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
INCOME TAXES. Income taxes are based on income (loss) for financial reporting
purposes and reflect a current tax liability (asset) for the estimated taxes
payable (recoverable) in the current year tax return and changes in deferred
taxes. Deferred tax assets or liabilities are recognized for the estimated tax
effects of temporary differences between financial reporting and taxable income
(loss) and for tax credit and loss carryforwards based on enacted tax laws and
rates. Valuation allowances are established when necessary to reduce deferred
tax assets to amounts that the Company expects are more likely than not
realizable.
EARNINGS PER SHARE. Basic and diluted net earnings (loss) per share were
computed in accordance with SFAS No. 128, "Earnings per Share." Basic net
earnings per share are computed by dividing net earnings available to common
shareholders (numerator) by the weighted average number of common shares
outstanding (denominator) during the period and exclude 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 hypothetical exercise of stock options.
26
Wegener Corporation and Subsidiaries
The following tables represent required disclosure of the reconciliation of the
earnings and shares of the basic and diluted net earnings (loss) per share
computations:
Year ended
--------------------------------------------
AUGUST 30, August 31, September 1,
2002 2001 2000
--------------------------------------------
BASIC
Net earnings (loss) $ 807,580 $ (1,976,301) $ (3,328,890)
--------------------------------------------
Weighted average shares
outstanding 12,160,865 11,943,048 11,798,458
--------------------------------------------
Net earnings (loss) per share $ .07 $ (.17) $ (.28)
============================================
DILUTED
Net earnings (loss) $ 807,580 $ (1,976,301) $ (3,328,890)
--------------------------------------------
Weighted average shares
outstanding 12,160,865 11,943,048 11,798,458
Effect of dilutive potential
common shares:
Stock options 68,375 -- --
--------------------------------------------
Total 12,229,240 11,943,048 11,798,458
--------------------------------------------
Net earnings (loss) per share $ .07 $ (.17) $ (.28)
============================================
Stock options excluded from the diluted earnings (loss) per share calculation
due to their anti-dilutive effect are as follows:
Year ended
--------------------------------------------
AUGUST 30, August 31, September 1,
2002 2001 2000
--------------------------------------------
Common stock options:
Number of shares 882,550 1,034,050 1,188,800
Range of exercise prices $1.41 TO $5.63 $.63 to $5.63 $.75 to $5.63
============================================
FINANCIAL INSTRUMENTS. The Company's financial instruments consist of cash and
cash equivalents, trade accounts receivable, accounts payable, accrued expenses
and long and short-term borrowings. The fair value of these instruments
approximates their recorded value. The Company does not have financial
instruments with off-balance sheet risk. The fair value estimates were based on
market information available to management as of August 30, 2002.
Financial instruments that potentially subject the Company to concentrations of
market/credit risk consist principally of cash and cash equivalents and trade
accounts receivable. The Company invests cash through a high credit-quality
financial institution. A concentration of credit risk may exist with respect to
trade receivables, as a substantial portion of the Company's customers are
affiliated with the cable television, business broadcast, and telecommunications
industries. The Company performs ongoing credit evaluations of customers
worldwide and generally does not require collateral from its customers.
Historically, the Company has not experienced significant losses related to
receivables from individual customers or groups of customers in any particular
industry or geographic area.
FOREIGN CURRENCY. The U.S. dollar is the Company's functional currency for
financial reporting. International sales are made and remitted in U.S. dollars.
27
Wegener Corporation and Subsidiaries
RECENTLY ISSUED ACCOUNTING STANDARDS. In July 2001, the FASB issued Statements
of Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141),
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142), and Statement No. 143, "Accounting for Asset
Retirement Obligations" (SFAS 143). SFAS 141 requires all business combinations
to be accounted for using the purchase method of accounting and is effective for
all business combinations initiated after June 30, 2001. SFAS 142 requires
goodwill to be tested for impairment under certain circumstances, and written
off when impaired, rather than being amortized as previous standards required.
SFAS 142 is effective for fiscal years beginning after December 15, 2001.
Implementation of these pronouncements had no significant impact on the
Company's financial statements.
SFAS 143 requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred and a corresponding
increase in the carrying amount of the related long-lived asset. Statement No.
143 is effective for fiscal years beginning after June 15, 2002. The Company
does not expect SFAS 143 to have a material impact on its financial condition or
results of operations.
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," (SFAS 144). SFAS 144 supersedes
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" and the accounting and reporting provisions
of Accounting Principals Board Opinion No. 30, "Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions" for
the disposal of a segment of a business. Under Statement No. 144, goodwill is
excluded from its scope. Additionally, Statement No. 144 utilizes a
probability-weighted cash flow estimation approach and establishes a
"primary-asset" approach to determine the cash flow estimation period for a
group of assets. Statement No. 144 is effective for fiscal years beginning after
December 15, 2001. The Company does not expect SFAS 144 to have a material
impact on its financial condition or results of operations.
In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," (SFAS 146) which is effective
January 1, 2003. SFAS 146 provides that an exit cost liability should not always
be recorded at the date of an entity's commitment to an exit plan, but instead
should be recorded when the obligation is incurred. An entity's commitment to a
plan, by itself, does not create an obligation that meets the definition of a
liability. The Company does not expect SFAS 146 to have a material impact on its
financial condition or results of operations.
RECLASSIFICATIONS. Certain reclassifications have been made to the 2001 and 2000
financial statements to conform to the 2002 presentation.
28
Wegener Corporation and Subsidiaries
2. ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows:
AUGUST 30, August 31,
2002 2001
- --------------------------------------------------------------------------------
Accounts receivable - trade $ 3,314,046 $ 1,237,403
Other receivables 75,308 144,038
- --------------------------------------------------------------------------------
3,389,354 1,381,441
Less allowance for doubtful accounts (351,592) (305,021)
- --------------------------------------------------------------------------------
$ 3,037,762 $ 1,076,420
================================================================================
3. INVENTORIES
Inventories are summarized as follows:
AUGUST 30, August 31,
2002 2001
- --------------------------------------------------------------------------------
Raw materials $ 2,917,924 $ 3,097,056
Work-in-process 1,639,620 5,332,635
Finished goods 3,143,736 3,212,686
- --------------------------------------------------------------------------------
7,701,280 11,642,377
Less inventory reserves (3,780,607) (4,156,494)
- --------------------------------------------------------------------------------
$ 3,920,673 $ 7,485,883
================================================================================
The Company has invested a significant amount of financial resources to acquire
certain raw materials, to incur direct labor and to contract to have specific
outplant procedures performed on certain inventory in process. The Company
purchased this inventory based upon prior backlog and anticipated future sales
based upon existing knowledge of the marketplace. The Company's inventory
reserve of approximately $3,781,000 at August 30, 2002, is to provide for items
that are potentially slow-moving, excess, or obsolete. Changes in market
conditions, lower than expected customer demand, and rapidly changing technology
could result in additional obsolete and slow-moving inventory that is unsaleable
or saleable at reduced prices. No estimate can be made of a range of amounts of
loss from obsolescence that are reasonably possible should the Company's sales
efforts not be successful.
4. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
Estimated
Useful Lives AUGUST 30, August 31,
(Years) 2002 2001
- --------------------------------------------------------------------------------------
Land - $ 707,210 $ 707,210
Buildings and improvements 3-30 3,742,790 3,752,521
Machinery and equipment 3-5 8,398,260 7,962,624
Furniture and fixtures 5 513,316 500,216
Application software 3-5 734,590 1,055,590
- --------------------------------------------------------------------------------------
14,096,166 13,978,161
Less accumulated depreciation
and amortization (11,100,834) (10,313,869)
- --------------------------------------------------------------------------------------
$ 2,995,332 $ 3,664,292
======================================================================================
29
Wegener Corporation and Subsidiaries
Depreciation expense for fiscal 2002, 2001, and 2000, totaled approximately
$816,000, $1,000,000, and $1,120,000, respectively. Assets recorded under a
capital lease included in property and equipment at August 30, 2002 and August
31, 2001, are machinery and equipment of approximately $613,000 and accumulated
amortization of approximately $613,000 and $609,000, respectively.
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
AUGUST 30, August 31,
2002 2001
- -----------------------------------------------------------------------
Compensation $ 527,688 $ 653,886
Royalties 235,444 312,658
Warranty 96,136 222,457
Taxes and insurance 194,074 237,230
Commissions 139,399 94,674
Professional fees 127,176 200,045
Other 89,452 288,532
- -----------------------------------------------------------------------
$1,409,369 $2,009,482
=======================================================================
6. FINANCING AGREEMENTS
REVOLVING LINE-OF-CREDIT AND TERM LOAN FACILITY
During the third quarter of fiscal 2002, WCI's bank loan facility was amended to
provide a maximum available credit limit of $5,000,000 with sublimits as
defined. The amended loan facility matures on June 30, 2003, or upon demand and
requires an annual facility fee of 1% of the maximum credit limit. The loan
facility consists of a term loan and a revolving line of credit with a combined
borrowing limit of $5,000,000, bearing interest at the bank's prime rate (4.75%
at August 30, 2002).
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 60 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 loan is secured by a first lien on substantially all of WCI's
assets and guaranteed by Wegener Corporation. At August 30, 2002, no balances
were outstanding on the revolving line of credit or the equipment term loan
portions of the loan facility. Additionally, at August 30, 2002, approximately
$3,243,000 net of outstanding letters of credit in the amount of $1,319,000 was
available to borrow in accordance with the revolving line of credit 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 2003, retain
certain key employees, limit expenditures of Wegener Corporation to $600,000 per
fiscal year, maintain certain financial ratios, and is precluded from paying
dividends. At August 31, 2002, the Company was in compliance with all loan
facility covenants. The Company believes that the amended loan facility along
with cash and cash equivalent balances will be sufficient to support operations
through fiscal 2003.
30
Wegener Corporation and Subsidiaries
LONG-TERM OBLIGATIONS
Long-term obligations consist of:
AUGUST 30, August 31,
2002 2001
- -----------------------------------------------------------------------------------------------
Mortgage note, collateralized by real estate and cross
collateralized under the loan facility $ -- $38,843
Other long-term obligations, collateralized by equipment 10,414 16,231
- -----------------------------------------------------------------------------------------------
10,414 55,074
Less current maturities (6,120) (44,695)
- -----------------------------------------------------------------------------------------------
$ 4,294 $10,379
===============================================================================================
At August 30, 2002, other long-term obligations consisted of a promissory note,
bearing interest at 4.9% per annum, with monthly principal and interest payments
of $543 through May 2004.
A summary of future maturities of long-term debt obligations follows:
Debt
Fiscal Year Maturities
-----------------------------------------------
2003 $ 6,120
2004 4,294
-----------------------------------------------
Total $ 10,414
===============================================
7. INCOME TAXES
The provision for income tax expense (benefit) consists of the following:
Year ended
- --------------------------------------------------------------------------------
AUGUST 30, August 31, September 1,
2002 2001 2000
- --------------------------------------------------------------------------------
Current
Federal $ (114,000) $ -- $ (262,000)
State -- -- (123,000)
- --------------------------------------------------------------------------------
(114,000) -- (385,000)
- --------------------------------------------------------------------------------
Deferred
Federal 549,000 (1,049,000) (1,409,000)
State 38,000 (63,000) (101,000)
- --------------------------------------------------------------------------------
587,000 (1,112,000) (1,510,000)
- --------------------------------------------------------------------------------
Total $ 473,000 $ (1,112,000) $ (1,895,000)
================================================================================
31
Wegener Corporation and Subsidiaries
The effective income tax rate differs from the U.S. federal statutory rate as
follows:
Year ended
--------------------------------------------
AUGUST 30, August 31, September 1,
2002 2001 2000
--------------------------------------------
Statutory U.S. income tax rate 34.0% (34.0)% (34.0)%
State taxes, net of federal
benefits 1.9 (1.3) (3.0)
Non-deductible expenses .7 .3 .2
Expired tax credits, net -- -- 1.5
Other, net .3 (1.0) (1.0)
- --------------------------------------------------------------------------------
Effective income tax rate 36.9 (36.0)% (36.3)%
================================================================================
Deferred tax assets and liabilities that arise as a result of temporary
differences are as follows:
AUGUST 30, August 31,
2002 2001
- --------------------------------------------------------------------------------
Deferred tax assets (liabilities):
Accounts receivable and inventory reserves $ 2,057,000 $ 1,860,000
Accrued expenses 208,000 347,000
Net operating loss carryforwards 561,000 1,183,000
General business credit carryforwards 98,000 106,000
AMT credit carryovers 138,000 249,000
Depreciation 143,000 114,000
Capitalized software costs (244,000) (340,000)
Other (113,000) (84,000)
- --------------------------------------------------------------------------------
Net deferred tax asset $ 2,848,000 $ 3,435,000
================================================================================
Consolidated balance sheet classifications:
Current deferred tax asset $ 2,225,000 $ 2,207,000
Noncurrent deferred tax asset 623,000 1,228,000
- --------------------------------------------------------------------------------
Net deferred tax asset $ 2,848,000 $ 3,435,000
================================================================================
Net deferred tax assets decreased $587,000 to $2,848,000 at August 30, 2002. The
decrease was principally due to decreases in net operating loss carryforwards
and receipt of tax refunds of $114,000 as a result of federal income tax law
changes. Net deferred tax assets increased $1,112,000 to $3,435,000 at August
31, 2001 from $2,323,000 at September 1, 2000. The increase was principally due
to net operating loss carryforwards and increases in inventory reserves.
Realization of deferred tax assets is dependent on generating sufficient future
taxable income prior to the expiration of the loss and credit carryforwards.
Although realization is not assured, management believes it is more likely than
not that all of the deferred tax assets will be realized based on the Company's
backlog, financial projections and operating history. The amount of the deferred
tax assets considered realizable, however, could be reduced in the near term if
estimates of further taxable income during the carryforward period are reduced.
At August 30, 2002, the Company had a federal net operating loss carryforward of
$1,604,000, which expires in fiscal 2020 and fiscal 2021. Additionally, the
Company had general business and foreign tax credit carryforwards of $98,000
expiring fiscal 2004 and an alternative minimum tax credit of $138,000.
No provision for deferred tax liability had been made on the undistributed
earnings of the Foreign Sales Corporation as the earnings will not be remitted
in the foreseeable future and are considered permanently invested. The amount of
the unrecognized deferred tax liability for the undistributed earnings of
$627,000 was approximately $213,000.
32
Wegener Corporation and Subsidiaries
8. COMMON STOCK AND STOCK OPTIONS.
1998 INCENTIVE PLAN. On February 26, 1998, the stockholders approved the 1998
Incentive Plan (the "1998 Plan"). The Plan provides for awards of up to an
aggregate of 2,000,000 shares of common stock which may be represented by (i)
incentive or non-qualified stock options, (ii) stock appreciation rights (tandem
and free-standing), (iii) restricted stock, (iv) deferred stock, or (v)
performance units entitling the holder, upon satisfaction of certain performance
criteria, to awards of common stock or cash. In addition, the 1998 Plan provides
for loans and supplemental cash payments to persons participating in the Plan in
connection with awards granted. Eligible participants include officers and other
key employees, non-employee directors, consultants and advisors of the Company.
The exercise price per share in the case of incentive stock options and any
tandem stock appreciation rights may be not less than 100% of the fair market
value on the date of grant or, in the case of an option granted to a 10% or
greater stockholder, not less than 110% of the fair market value on the date of
grant. The exercise price for any other option and stock appreciation rights
shall be at least 75% of the fair market value on the date of grant. The
exercise period for non-qualified stock options may not exceed ten years and one
day from the date of the grant, and the expiration period for an incentive stock
option or stock appreciation rights shall not exceed ten years from the date of
the grant (five years for a 10% or greater stockholder). The 1998 plan contains
an automatic option grant program to non-employee members of the Board of
Directors. Such members will each be granted an option to purchase 2,000 shares
of common stock on the last day of each December on which regular trading occurs
on the NASDAQ Stock Market, at an exercise price equal to the fair market value
of such stock on the date of grant. Such options will be exercisable during the
period of ten years and one day from the date of grant of the option. The
automatic grant in fiscal 2002 was suspended; however, on January 22, 2002,
non-employee directors were granted options to purchase 40,900 shares at an
exercise price of $1.00. The effective date of the 1998 plan is January 1, 1998
and the plan has a ten-year term. During fiscal 2002 options for 552,375 shares
of common stock were granted at exercises prices ranging from $ .60 to $1.03.
Additionally, options for 25,000 shares were forfeited and options for 22,000
shares were exercised at prices ranging from $ .60 to $ .67. During fiscal 2001
options for 6,000 shares of common stock were granted at an exercise price of
$.63 and options for 148,000 shares were forfeited. During fiscal 2000 options
for 283,550 and 200,000 shares of common stock were granted with exercise prices
of $2.31 and $5.63, respectively. At August 30, 2002, options for 1,019,075
shares of common stock were available for future issuance.
1989 DIRECTORS' INCENTIVE PLAN. On January 9, 1990, the stockholders approved
the Wegener Corporation 1989 Directors' Incentive Plan permitting certain
participating directors of the Company to be eligible to receive incentive
awards consisting of common stock of the Company, performance units or stock
appreciation rights payable in stock or cash, or non-qualified stock options to
purchase such stock, or any combination of the foregoing, together with
supplemental cash payments. During the second quarter of fiscal 1995, the
Company amended the 1989 Directors' Stock Option Plan to increase the aggregate
number of shares of common stock that may be awarded from 100,000 to 300,000
shares; to remove the ineligibility provision for certain directors; and to
grant annually to each non-employee director, options to purchase 2,000 shares
of common stock at an exercise price equal to the fair market value of such
stock on the date of grant. The exercise price per share for non-qualified stock
options or stock appreciation rights shall not be less than 85% of fair market
value on the date the award is made or not more than nine trading days
immediately preceding such date. The expiration period for a non-qualified stock
option shall be ten years and one day from the date of the grant. The expiration
period for stock appreciation rights, including any extension, shall not exceed
ten years from the date of grant. This plan terminated and expired effective
December 1, 1999. However, at August 30, 2002, options for 281,500 shares of
common stock remained outstanding under the 1989 Directors' Incentive Plan.
1988 INCENTIVE PLAN. On January 10, 1989, the stockholders approved the 1988
Incentive Plan providing to key employees other than directors of the Company,
incentive awards consisting of common stock, performance units or stock
appreciation rights payable in stock or cash, incentive or non-qualified stock
options to purchase stock, or any combination of the above, together with
supplemental cash payments. The aggregate number of shares issuable under the
1988 plan is 750,000 common shares. The exercise price per share in the case of
incentive stock options and any tandem stock appreciation rights will be equal
to 100% of the fair market value or, in the case of an option granted to a 10%
or greater stockholder, l10% of the fair market value. The exercise price for
any other option and stock appreciation rights shall be at least 85% of the fair
market value on the date the option is granted. The exercise period for
non-qualified stock options shall be ten years and one day from the date of the
grant, and the expiration period for an incentive stock option or stock
appreciation rights shall not exceed ten years from the date of the grant.
During fiscal 2002 options for 7,500 shares of common stock were exercised at
$1.44 and options for 96,500 shares were forfeited. During fiscal 2001 options
for 12,750 shares of common stock were forfeited. This plan terminated and
expired December 1, 1998. However, at August 30, 2002, options for 114,000
shares of common stock remained outstanding under the 1988 Incentive Plan.
33
Wegener Corporation and Subsidiaries
A summary of stock option transactions for the above plans follows:
Weighted
Number Range of Average
of Shares Exercise Prices Exercise Price
- -------------------------------------------------------------------------------------------
Outstanding at
September 3, 1999 920,750 $.75 - 1.78 $l.43
Granted 483,550 2.31 - 5.63 3.68
Exercised (174,500) 1.41 - 1.47 1.44
Forfeited or cancelled (41,000) 1.44 1.44
- -------------------------------------------------------------------------------------------
Outstanding at
September 1, 2000 1,188,800 $ .75 - 5.63 $2.35
Granted 6,000 .63 .63
Exercised -- -- --
Forfeited or cancelled (160,750) 1.41 - 5.63 4.25
- -------------------------------------------------------------------------------------------
Outstanding at
August 31, 2001 1,034,050 $ .75 - 5.63 $2.04
Granted 552,375 .60 - 1.03 .90
Exercised (29,500) .60 - 1.44 .86
Forfeited or cancelled (121,500) 1.44 - 2.31 1.56
- -------------------------------------------------------------------------------------------
OUTSTANDING AT
AUGUST 30, 2002 1,435,425 $ .63 - 5.63 $1.67
AVAILABLE FOR ISSUE AT
AUGUST 30, 2002 1,019,075 -- --
- -------------------------------------------------------------------------------------------
Options exercisable at
AUGUST 30, 2002 1,135,425 $ .75 - 5.63 $1.89
August 31, 2001 995,800 $ .75 - 5.63 $2.06
- -------------------------------------------------------------------------------------------
Weighted average fair value of options Per Share Aggregate
granted during the year ended Option Value Total
- --------------------------------------------------------------------------------
AUGUST 30, 2002 $ .47 $ 256,706
August 31, 2001 $ .34 $ 2,040
September 1, 2000 $1.33 $ 370,009
- --------------------------------------------------------------------------------
The weighted average remaining contractual life of options outstanding at August
30, 2002, was 4.4 years.
The Company applies APB Opinion No. 25 in accounting for its stock incentive
plan and, accordingly, no compensation cost has been recognized for its employee
stock options in the financial statements, except as noted below. If the Company
had elected to recognize compensation cost based on the fair value at grant
dates for options issued under the plans described above, consistent with the
method prescribed by SFAS No. 123, net earnings (loss) and earnings (loss) per
share would have approximated the pro forma amounts indicated below:
Year ended
-----------------------------------------------
AUGUST 30, August 31, September 1,
2002 2001 2000
- --------------------------------------------------------------------------------
Net earnings (loss)
As Reported $ 807,580 $ (1,976,301) $ (3,328,890)
Pro Forma 684,596 (2,154,540) (3,690,941)
- --------------------------------------------------------------------------------
Earnings (loss) per share
As Reported
Basic $ .07 $ (.17) $ (.28)
Diluted .07 (.17) (.28)
Pro Forma
Basic .06 (.18) (.31)
Diluted .06 (.18) (.31)
================================================================================
34
Wegener Corporation and Subsidiaries
The fair value of stock options used to compute pro forma net earnings (loss)
and earnings (loss) per share disclosures is the estimated present value at
grant date using the Black-Scholes option pricing model with the following
weighted average assumptions for 2002, 2001, and 2000: no dividend yield for all
years; expected volatility of 75% in 2002, 80% in 2001, and 75% in 2000, a risk
free interest rate of 5.0% in 2002 and 2001, 6.3% in 2000, and an expected
option life of 3.0 years in 2002 and 2001, and 3.9 years in 2000.
During fiscal 2001, options for 402,500 shares of common stock at a weighted
average exercise price of $1.54, were deemed to be variable stock options. These
options required the recognition of compensation expense based on the difference
between the exercise price and the fair market value of the stock at the end of
a reporting period. For the year ended August 31, 2001, a non-cash compensation
benefit of $488,000 was included in selling, general and administrative
expenses. For the year ended September 1, 2000, a non-cash compensation expense
of $489,000 was included in selling, general and administrative expenses. During
the fourth quarter of fiscal 2001 tax reimbursement features were removed from
common stock options. As a result, fiscal 2002 SG&A expenses were not subject to
variable stock option compensation adjustments.
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 was for an eighteen month period and provided 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. Options for 100,000 shares vested upon execution of the agreement with
the remaining options for 100,000 shares vesting upon completion of agreed upon
performance criteria. In accordance with EITF Issue No. 96-18 and SFAS No. 123,
these options were measured on January 25, 2000, for fair value using the
Black-Scholes option pricing model. The fair value of the options amounted to
$445,000 and was amortized to expense over the eighteen-month term of the
agreement. The options for 100,000 shares of common stock related to performance
criteria were forfeited July 25, 2001, upon expiration of the agreement. Since
the stated performance criteria were not met, none of the underlying options
were deemed vested and earned. As such, the fair value of the forfeited options
amounting to $222,000 was credited to selling, general and administrative
expenses at the date of forfeiture. For the year ended August 31, 2001, a net
charge of $47,000 was included in selling, general, and administrative expenses.
For the year ended September 1, 2000, charges of $175,000 were included in
selling, general and administrative expenses. At August 30, 2002, options for
100,000 shares were vested and outstanding. Pursuant to the agreement, the
Company has granted certain registration rights to RCG covering the shares
underlying the options.
STOCK REPURCHASE PROGRAM. On January 28, 1999, the Board of Directors approved a
stock repurchase program authorizing the repurchase of up to one million shares
of its common stock. As of August 31, 2001, the Company had repurchased an
aggregate of 485,500 shares of its common stock in open market transactions at
an average price of $2.27. The stock repurchase program was not renewed by the
Board of Directors on January 23, 2001.
35
Wegener Corporation and Subsidiaries
9. EMPLOYEE BENEFIT PLANS
WCI has a profit-sharing plan covering substantially all employees. Amounts to
be contributed to the plan each year are determined at the discretion of the
Board of Directors subject to legal limitations. No contributions were declared
for fiscal years 2002, 2001, and 2000.
Eligible WCI employees are permitted to make contributions, up to certain
regulatory limits, to the plan on a tax deferred basis under Section 401(k) of
the Internal Revenue Code. The plan provides for a minimum company matching
contribution on a quarterly basis at the rate of 25% of employee contributions
with a quarterly discretionary match. During fiscal years 2002, 2001, and 2000,
an additional discretionary matching contribution of 25% of employee
contributions was made for all quarters. All matching contributions are in the
form of Company stock or cash at the discretion of the Company's Board of
Directors. Matching Company contributions in the form of common stock were
approximately $158,000 in fiscal 2002, $188,000 in fiscal 2001, and $198,000 in
fiscal 2000.
10. SEGMENT INFORMATION AND SIGNIFICANT CUSTOMERS
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information'' established standards for the way that public business enterprises
report information about operating segments in their financial statements. The
standard defines operating segments as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. Based on these standards the Company has determined that
it operates in a single operating segment: the manufacture and sale of satellite
communications equipment.
In this single operating segment the Company has three sources of revenues as
follows:
Year ended
--------------------------------------------
AUGUST 30, August 31, September 1,
2002 2001 2000
- --------------------------------------------------------------------------------
Direct Broadcast Satellite $ 21,932,974 $ 18,038,738 $ 19,478,042
Telecom and Custom Products 1,073,345 1,779,988 2,984,593
Service 452,604 514,173 431,679
- --------------------------------------------------------------------------------
$ 23,458,923 $ 20,332,899 $ 22,894,314
================================================================================
Revenues by geographic areas are as follows:
Year ended
--------------------------------------------
AUGUST 30, August 31, September 1,
2002 2001 2000
- --------------------------------------------------------------------------------
Geographic Area
United States $ 21,986,074 $ 17,539,328 $ 18,744,547
Canada 576,733 111,096 41,747
Europe 387,524 1,074,642 1,619,724
Asia 219,778 122,762 63,242
Latin America and Mexico 69,522 1,366,070 2,059,456
Other 219,292 119,001 365,598
- --------------------------------------------------------------------------------
$ 23,458,923 $ 20,332,899 $ 22,894,314
================================================================================
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.
36
Wegener Corporation and Subsidiaries
The Company sells to a variety of domestic and international customers on an
open-unsecured account basis. These customers principally operate in the cable
television, broadcast business music, private network, and data communications
industries. Customers representing 10% or more of the year's revenues are as
follows:
Year ended
-----------------------------------------------------------------------
AUGUST 30, August 31, September 1,
2002 2001 2000
-----------------------------------------------------------------------
Customer 1 27.9% (a)% (a)%
Customer 2 27.5 (a) 11.1
Customer 3 11.1 34.7 (a)
Customer 4 (A) (a) 16.2
(a) Revenues for the year were less than 10% of total revenue.
Sales to a relatively small number of major customers have typically comprised a
majority of the Company's revenues and that trend is expected to continue
throughout fiscal 2003 and beyond. Future revenues are subject to the timing of
significant orders from customers and are difficult to forecast. As a result,
future revenue levels may fluctuate from quarter to quarter.
At August 30, 2002, one customer accounted for more than 10% of the Company's
accounts receivable. At August 31, 2001, two customers accounted for more than
10% of the Company's accounts receivable. When deemed appropriate, the Company
uses letters-of-credit and credit insurance to mitigate the credit risk
associated with foreign sales.
11. STATEMENTS OF CASH FLOWS
Interest payments were approximately $64,000, $70,000, and $88,000, for fiscal
years 2002, 2001, and 2000, respectively. Income tax refunds received in fiscal
2002 and 2001 were $208,000 and $532,000, respectively. No income taxes were
paid in 2000. Non-cash financing activities in fiscal 2002 included: 1) 167,111
shares of treasury stock reissued for 401(k) matching Company contributions
valued at approximately $158,000. Non-cash financing activities in fiscal 2001
included: 1) 211,883 shares of treasury stock reissued for 401(k) matching
Company contributions valued at approximately $188,000, 2) non-cash stock option
compensation benefit of $488,000, and 3) fair value of stock options granted for
services valued at $47,000. Non-cash financing activities in fiscal 2000
included: 1) 75,488 shares of treasury stock reissued for 401(k) matching
Company contributions valued at approximately $198,000, 2) non-cash stock option
compensation expense of $489,000, and 3) stock options for 200,000 shares of
common stock granted in exchange for financial relations services to be provided
over an eighteen month period. The options were valued at $445,000 and were
expensed over the eighteen month period. During fiscal 2000, $175,000 related to
the option value was charged to selling, general, and administrative expenses.
12. COMMITMENTS AND CONTINGENCIES
During the second quarter of fiscal 2001, the Company entered into a
manufacturing and purchasing agreement for certain finished goods inventories.
The agreement is a firm commitment by the Company to purchase, over a
twelve-month period, amounts ranging from approximately $2,565,000 to $3,287,000
depending on actual products purchased. Pursuant to the agreement, at August 30,
2002, remaining purchase commitments amounted to $241,000. In addition, during
fiscal 2001, the Company entered into a cancelable manufacturing and purchasing
agreement for finished goods inventories for which the Company has firm customer
order commitments. The Company had outstanding purchase commitments under this
agreement of $1,051,000 at August 30, 2002. Subsequent to August 30, 2002, the
Company committed to an additional $913,000 of inventory purchases. Pursuant to
the above agreements, at August 30, 2002, the Company had outstanding letters of
credit in the amount of $1,319,000.
The Company leases certain office and manufacturing facilities, vehicles and
equipment under long-term non-cancelable operating leases that expire through
fiscal 2006. Future minimum lease commitments are approximately as follows:
2003-$227,000, 2004-$224,000, 2005-$114,000, 2006-$2,000. Rent expense under all
leases was approximately $243,000, $273,000, and $314,000 for fiscal years 2002,
2001, and 2000, respectively.
37
From time to time in the ordinary course of business, the Company has become a
defendant in various types of legal proceedings. In June 2002, a complaint was
filed against WCI in federal district court in Nevada by StarGuide Digital
Networks, Inc. (StarGuide Digital Network, Inc., Plaintiff, v. Wegener
Communications, Inc., and John Scaggs, Defendants) alleging patent infringement
by WCI and seeking injunctions, unspecified compensatory and punitive damages
and costs and attorneys' fees. WCI answered the complaint denying all liability
and filed counterclaims against StarGuide. The parties are currently in
settlement discussions. Management of the Company does not believe that the
outcome of this litigation will have a material adverse effect on the Company's
financial condition or results of operations.
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter
------------------------------------------------------------ ------------
First Second Third Fourth Year
------------------------------------------------------------ ------------
FISCAL 2002
REVENUE $ 6,032,616 $ 5,860,702 $ 6,290,810 $ 5,274,795 $ 23,458,923
GROSS PROFIT 1,965,894 2,084,349 2,198,219 1,573,804 7,822,266
OPERATING INCOME 224,984 414,613 610,327 61,331 1,311,255
NET EARNINGS 132,165 255,946 379,498 39,971 807,580
NET EARNINGS PER SHARE
BASIC 0.01 0.02 0.03 (A) 0.07
DILUTED 0.01 0.02 0.03 (A) 0.07
(A) LESS THAN $ .01 PER SHARE
Fiscal 2001
Revenue $ 4,997,581 $ 3,766,210 $ 5,364,599 $ 6,204,509 $ 20,332,899
Gross profit 781,184 468,900 1,380,886 1,702,940 4,333,910
Operating income (loss) (1) (952,105) (1,909,146) (665,388) 426,792 (3,099,847)
Net earnings (loss) (584,257) (1,226,241) (435,837) 270,034 (1,976,301)
Net earnings (loss) per share
Basic (0.05) (0.10) (0.04) 0.02 (0.17)
Diluted (0.05) (0.10) (0.04) 0.02 (0.17)
(1) The first quarter of fiscal 2001 includes a variable stock option
compensation benefit of $484,000.
38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information contained under the caption "ELECTION OF DIRECTORS" in the
Proxy Statement pertaining to the January 21, 2003 Annual Meeting of
Stockholders ("Proxy Statement") is incorporated herein by reference in partial
response to this item. See also Item 1. "Business - Executive Officers of the
Registrant" on page 8 of this Report.
ITEM 11. EXECUTIVE COMPENSATION
Information contained under the caption "EXECUTIVE COMPENSATION" contained
in the Proxy Statement is incorporated herein by reference in response to this
item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information contained under the captions "ELECTION OF DIRECTORS," "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" and "Equity Compensation
Plan Information" contained in the Proxy Statement is incorporated herein by
reference in response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information contained under the caption "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS" contained in the Proxy Statement is incorporated herein by
reference in response to this item.
ITEM 14. CONTROLS AND PROCEDURES
Within 90 days prior to the filing date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Chief Executive Officer (CEO) and the Chief
Financial Officer (CFO) of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on that evaluation, the
Company's CEO and CFO have concluded that the Company's disclosure controls and
procedures (as defined in Rule 13a-14 of the Securities Exchange Act of 1934, as
amended) are effective. There have been no significant changes in the Company's
internal controls or in other factors that could significantly affect these
internal controls subsequent to the completion of their evaluation.
39
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following consolidated financial statements of Wegener
Corporation and subsidiaries and the related Report of Independent Certified
Public Accountants thereon are filed as part of this report:
Report of Independent Certified Public Accountants.
Consolidated Balance Sheets - August 30, 2002, and August 31, 2001.
Consolidated Statements of Operations - Years ended August 30, 2002, August 31,
2001, and September 1, 2000.
Consolidated Statements of Shareholders' Equity - Years ended August 30, 2002,
August 31, 2001, and September 1, 2000.
Consolidated Statements of Cash Flows Years - ended August 30, 2002, August 31,
2001, and September 1, 2000.
Notes to Consolidated Financial Statements.
Separate financial statements of the Registrant have been omitted because
the Registrant is primarily a holding company and all subsidiaries included in
the consolidated financial statements are wholly-owned.
(a) (2) The following consolidated financial statements schedule for
Wegener Corporation and subsidiaries, and the related Report of
Independent Certified Public Accountants are included herein,
beginning on page 42:
Schedule II-Valuation and Qualifying Accounts Years ended August
30, 2002, August 31, 2001, and September 1, 2000.
(a) (3) The exhibits filed in response to Item 601 of Regulation S-K are
listed in the Exhibit Index on pages 43 and 44.
(b) There were no reports on Form 8-K filed for the Quarter ended
August 30, 2002.
(c) See Part IV, Item 14(a) (3).
(d) Not applicable.
40
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders of Wegener Corporation
Duluth, Georgia
The audits referred to in our report dated November 5, 2002, relating to
the consolidated financial statements of Wegener Corporation and subsidiaries,
which is contained in Item 8 of this Form 10-K included the audit of the
financial statement schedule listed in the accompanying index. The financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statement schedule
based on our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
/s/ BDO Seidman, LLP
Atlanta, Georgia BDO Seidman, LLP
November 5, 2002
41
SCHEDULE II
WEGENER CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Write-offs Recoveries Period
--------- -------- ---------- ---------- ------
Allowance for doubtful
account receivable:
YEAR ENDED AUGUST 30, 2002 $ 305,021 $ 155,000 $ (108,429) $ -- $ 351,592
Year ended August 31, 2001 $ 165,578 $ 120,000 $ (45,136) $ 64,579 $ 305,021
Year ended September 1, 2000 $ 172,585 $ 45,000 $ (58,748) $ 6,741 $ 165,578
Inventory Reserves:
YEAR ENDED AUGUST 30, 2002 $ 4,156,494 $ 800,000 $ (1,175,887) $ -- $ 3,780,607
Year ended August 31, 2001 $ 3,444,494 $ 1,325,000 $ (613,000) $ -- $ 4,156,494
Year ended September 1, 2000 $ 2,198,494 $ 1,246,000 $ -- $ -- $ 3,444,494
42
EXHIBIT INDEX
The following documents are filed as exhibits to this report. An asterisk
identifies those exhibits previously filed and incorporated herein by reference
below. For each such asterisked exhibit there is shown below the description of
the previous filing. Exhibits, which are not required for this report, are
omitted.
Exhibit Number Description of Document
- -------------- -----------------------
*3.1 By-Laws (Reg. No. 2-81795, Exhibits 3(a) and 3(b)).
*3.2 Certificate of Incorporation as amended through May 4, 1989,
(1989 10-K, filed November 30, 1989, Exhibit 3.2).
*3.3 Amendment to Certificate of Incorporation (1997 10-Q, filed
June 27, 1997, Exhibit 3.1).
*4.0 See By-Laws and Certificate of Incorporation, Exhibits 3.1
and 3.2. See Articles II and VIII of the By-Laws and Article
IV of the Certificate.
*4.1 Loan and Security Agreement and Demand Note dated June 5,
1996, by and between Wegener Communications, Inc. and
LaSalle National Bank respecting $8,500,000 combined
revolving credit note and term note (1996 10-K, filed
November 27, 1996, Exhibit 4.1).
*4.3 Promissory Note dated April 8, 1996, in favor of Lyon Credit
Corporation and Wegener Communications, Inc. in the
principal amount of $600,000 (1996 10Q, filed July 11, 1996,
Exhibit 4.1).
*4.5 Loan and Security Agreement - First Amendment dated August
4, 1998, by and between Wegener Communications, Inc. and
LaSalle National Bank respecting $10,000,000 combined
revolving credit note and term note.
*4.6 Loan and Security Agreement - Third Amendment dated December
11, 2000, by and between Wegener Communications, Inc., and
LaSalle National Bank respecting $10,000,000 combined
revolving credit note and term note. (2001 10-Q filed April
16, 2001, Exhibit 4.1.)
*4.7 Loan and Security Agreement - Fourth Amendment dated March
28, 2002, by and between Wegener Communications, Inc., and
LaSalle National Bank respecting $5,000,000 combined
revolving credit note and term note (2002 10-Q filed June
28, 2002, Exhibit 4.1.)
No other long-term debt instrument of the Registrant or its
subsidiaries authorizes indebtedness exceeding 10% of the
total assets of the Registrant and its subsidiaries on a
consolidated basis and the Registrant hereby undertakes to
provide the Commission upon request with any long-term debt
instrument not filed herewith.
43
Exhibit Number Description of Document
- -------------- -----------------------
*10.1 1988 Incentive Plan (1989 10-K, filed November 30, 1989,
Exhibit 10.2).
*10.2 License Agreement, Distributorship and Supply Agreement, and
Purchase Pooling and Warehouse Agreement dated May 28, 1994,
by and between Wegener Communications, Inc. and Cross
Technologies, Inc. (1995 10-K, filed December 15, 1994,
Exhibit 10.4).
*10.3 Wegener Communications, Inc. Profit Sharing Plan and Trust
dated January 1, 1982, amended and restated as of January 1,
1984. (1987 10-K, dated and filed November 25, 1987, Exhibit
10.14).
*10.4 1989 Directors' Incentive Plan (1990 10-K, filed November
29, 1990, Exhibit 10.9).
*10.4.1 Amendment to 1989 Directors' Incentive Plan effective
February 1, 1995, (1995 10-K, filed December 13, 1996).
*10.5 1998 Incentive Plan (1998 Form S-8, Registration No.
333-51205, filed April 28, 1998, Exhibit 10.1).
*21 Subsidiaries of the Registrant (1990 10-K, filed November
29, 1990, Exhibit 22).
23 Consent of BDO Seidman, LLP.
99.1 Certification of Chief Executive Officer Regarding Periodic
Report Containing Financial Statements Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer Regarding Periodic
Report Containing Financial Statements Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WEGENER CORPORATION
Date: November 26, 2002 By /s/ Robert A. Placek
-----------------------------------
Robert A. Placek
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on this 26th day of November 2002.
Signature Title
- --------- -----
/s/ Robert A. Placek President, Chief Executive Officer
- ----------------------------- and Chairman of the Board
Robert A. Placek (Principal Executive Officer)
/s/ C. Troy Woodbury, Jr. Treasurer and Chief Financial Officer,
- ----------------------------- Director (Principal Financial and
C. Troy Woodbury, Jr. Accounting Officer)
/s/ James T. Traicoff Controller
- -----------------------------
James T. Traicoff
/s/ James H. Morgan, Jr. Director
- -----------------------------
James H. Morgan, Jr.
/s/ Joe K. Parks Director
- -----------------------------
Joe K. Parks
/s/ Thomas G. Elliot Director
- -----------------------------
Thomas G. Elliot
45
CERTIFICATION OF CHIEF EXECUTIVE OFFICER REGARDING PERIODIC REPORT CONTAINING
FINANCIAL STATEMENTS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert A. Placek, the Chief Executive Officer of Wegener Corporation, certify
that:
(1) I have reviewed this annual report on Form 10-K for the period ended August
30, 2002 of Wegener Corporation;
(2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of our disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
(6) The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 26, 2002
/s/Robert A. Placek
NAME: ROBERT A. PLACEK
TITLE: CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
46
CERTIFICATION OF CHIEF FINANCIAL OFFICER REGARDING PERIODIC REPORT CONTAINING
FINANCIAL STATEMENTS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, C. Troy Woodbury, Jr., the Chief Financial Officer of Wegener Corporation,
certify that:
(1) I have reviewed this annual report on Form 10-K for the period ended August
30, 2002 of Wegener Corporation;
(2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of our disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
(6) The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 26, 2002
/s/ C. Troy Woodbury, Jr.
NAME: C. TROY WOODBURY, JR.
TITLE: TREASURER AND CHIEF FINANCIAL OFFICER
47
DIRECTORS
Robert A. Placek
Chairman of the Board,
President and Chief
Executive Officer
Wegener Corporation
James H. Morgan, Jr., Esq.
Partner
Smith, Gambrell & Russell, LLP
C. Troy Woodbury, Jr.
Treasurer and Chief
Financial Officer
Wegener Corporation
Joe K. Parks
Retired, Previously
Laboratory Director,
Systems Development Laboratory
Georgia Tech Research Institute
Georgia Institute of Technology
Thomas G. Elliot
Senior Vice President of
Technical Projects
CableLabs
OFFICERS
Robert A. Placek
Chairman of the Board,
President and Chief
Executive Officer
Ned L. Mountain
Executive Vice President
Wegener Communications, Inc.
C. Troy Woodbury, Jr.
Treasurer and Chief
Financial Officer
James T. Traicoff
Controller
INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
BDO Seidman, LLP
285 Peachtree Center Avenue
Suite 800
Atlanta, Georgia 30303-1230
TRANSFER AGENT
Securities Transfer Corporation
2591 Dallas Parkway
Suite 102
Frisco, Texas 75034
CORPORATE
HEADQUARTERS
11350 Technology Circle
Duluth/Atlanta, Georgia 30097-1502
ANNUAL MEETING
The annual meeting of stockholders will be held on January 21, 2003 at 7:00 p.m.
at the Corporate Headquarters.
COMMON STOCK NASDAQ
NASDAQ Small-Cap Market Symbol:
WGNR
FORM 10-K REPORT
Wegener Corporation's Annual Report on Form 10-K, filed with the Securities and
Exchange Commission, is available free of charge by written request to:
Elaine Miller, Secretary
Investor Relations
Wegener Corporation
11350 Technology Circle
Duluth, Georgia 30097-1502
WEB SITE
HTTP://WWW.WEGENER.COM
QUARTERLY COMMON
STOCK PRICES
The Company's common stock is traded on the NASDAQ Small-Cap Market. The
quarterly ranges of high and low closing sale prices for fiscal 2002 and 2001
were as follows:
High Low
- --------------------------------------------------------------
FISCAL YEAR ENDING AUGUST 30, 2002
First Quarter $1.24 $ .50
Second Quarter 1.22 .82
Third Quarter 1.63 .84
Fourth Quarter 1.39 .90
- --------------------------------------------------------------
FISCAL YEAR ENDING AUGUST 31, 2001
First Quarter $2.44 $ .78
Second Quarter 1.56 .56
Third Quarter 1.20 .68
Fourth Quarter 1.20 .66
- --------------------------------------------------------------
The Company had approximately 386* shareholders of record at November 6, 2002.
The Company has never paid cash dividends on its common stock and does not
intend to pay cash dividends in the foreseeable future.
*(This number does not reflect beneficial ownership of shares held in nominee
names).
48