Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
Commission file No. 0-11003
WEGENER CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 81-0371341
(State of incorporation) (I.R.S. Employer
Identification No.)
11350 TECHNOLOGY CIRCLE, DULUTH, GEORGIA 30097-1502
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (770) 623-0096
REGISTRANT'S WEB SITE: HTTP://WWW.WEGENER.COM
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
YES X NO
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the ExchangeAct).
YES NO X
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $.01 par value 12,341,751 Shares
- ---------------------------- ----------------------------
Class Outstanding March 17, 2003
WEGENER CORPORATION
FORM 10-Q FOR THE QUARTER ENDED FEBRUARY 28, 2003
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Introduction .................................................. 3
Consolidated Statements of Operations
(Unaudited) - Three and Six Months Ended
February 28, 2003 and March 1, 2002 ........................... 4
Consolidated Balance Sheets - February 28,
2003 (Unaudited) and August 30, 2002 .......................... 5
Consolidated Statements of Shareholders' Equity
(Unaudited) - Six Months Ended February 28,
2003 and March 1, 2002 ........................................ 6
Consolidated Statements of Cash Flows
(Unaudited) - Six Months Ended February 28,
2003 and March 1, 2002 ........................................ 7
Notes to Consolidated Financial
Statements (Unaudited) ........................................ 8-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................... 15-19
Item 3. Quantitative and Qualitative Disclosures About Market Risk .... 19
Item 4. Controls and Procedures ....................................... 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................. 20
Item 2. None
Item 3. None
Item 4. Submission of Matters to a Vote of Security Holders ........... 20
Item 5. Other Information ............................................. 21
Item 6. Exhibits and Reports on Form 8-K .............................. 21
Signatures .................................................... 22
Certifications ................................................ 23
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTRODUCTION - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
The consolidated balance sheet as of February 28, 2003; the consolidated
statements of shareholders' equity as of February 28, 2003, and March 1, 2002;
the consolidated statements of operations for the three and six months ended
February 28, 2003, and March 1, 2002; and the consolidated statements of cash
flows for the six months ended February 28, 2003, and March 1, 2002, have been
prepared without audit. The consolidated balance sheet as of August 30, 2002,
has been audited by independent certified public accountants. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures herein are adequate to make the
information presented not misleading. It is suggested that these consolidated
financial statements be read in conjunction with the financial statements and
the notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended August 30, 2002, File No. 0-11003.
In the opinion of the Company, the statements for the unaudited interim periods
presented include all adjustments, which were of a normal recurring nature,
necessary to present a fair statement of the results of such interim periods.
The results of operations for the interim periods presented are not necessarily
indicative of the results of operations for the entire year.
3
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Six months ended
FEBRUARY 28, March 1, FEBRUARY 28, March 1,
2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------------------
Revenue $ 5,219,152 $ 5,860,702 $ 9,164,270 $ 11,893,318
- ----------------------------------------------------------------------------------------------------------
Operating costs and expenses
Cost of products sold 3,344,855 3,776,353 5,988,765 7,843,075
Selling, general and administrative 932,396 1,043,088 2,161,677 2,120,153
Research and development 754,146 626,648 1,409,660 1,290,493
- ----------------------------------------------------------------------------------------------------------
Operating costs and expenses 5,031,397 5,446,089 9,560,102 11,253,721
- ----------------------------------------------------------------------------------------------------------
Operating income (loss) 187,755 414,613 (395,832) 639,597
Interest expense (17,302) (11,878) (31,969) (29,964)
Interest income 13,204 3,211 32,912 5,478
- ----------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 183,657 405,946 (394,889) 615,111
Income tax expense (benefit) 67,000 150,000 (142,000) 227,000
- ----------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 116,657 $ 255,946 $ (252,889) $ 388,111
- ----------------------------------------------------------------------------------------------------------
Net earnings (loss) per share:
Basic $ .01 $ .02 $ (.02) $ .03
Diluted $ .01 $ .02 $ (.02) $ .03
- ----------------------------------------------------------------------------------------------------------
Shares used in per share calculation
Basic 12,320,961 12,143,507 12,294,393 12,114,258
Diluted 12,355,692 12,167,259 12,294,393 12,136,695
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
4
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, August 30,
2003 2002
- --------------------------------------------------------------------------------------------------
ASSETS (UNAUDITED)
Current assets
Cash and cash equivalents $ 4,785,697 $ 5,117,756
Accounts receivable 3,088,191 3,037,762
Inventories 3,472,711 3,920,673
Deferred income taxes 2,142,000 2,225,000
Other 119,450 90,066
- --------------------------------------------------------------------------------------------------
Total current assets 13,608,049 14,391,257
Property and equipment, net 3,030,197 2,995,332
Capitalized software costs, net 677,674 641,710
Deferred income taxes 848,000 623,000
Other assets, net 642,062 48,556
- --------------------------------------------------------------------------------------------------
$ 18,805,982 $ 18,699,855
- --------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,805,655 $ 1,424,101
Accrued expenses 1,448,393 1,409,369
Customer deposits 636,040 777,023
Current maturities of long-term obligations 6,120 6,120
- --------------------------------------------------------------------------------------------------
Total current liabilities 3,896,208 3,616,613
Long-term obligations, less current maturities 1,306 4,294
- --------------------------------------------------------------------------------------------------
Total liabilities 3,897,514 3,620,907
- --------------------------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity
Common stock, $.01 par value; 20,000,000 shares
authorized; 12,341,751 shares issued 123,418 123,146
Additional paid-in capital 19,439,769 19,513,977
Deficit (4,654,719) (4,401,830)
Less treasury stock, at cost -- (156,345)
- --------------------------------------------------------------------------------------------------
Total shareholders' equity 14,908,468 15,078,948
- --------------------------------------------------------------------------------------------------
$ 18,805,982 $ 18,699,855
- --------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
5
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
Additional Retained
Common Stock Paid-in Earnings Treasury Stock
------------ --------------
Shares Amount Capital (Deficit) Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
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 -- -- (153,597) -- (112,576) 241,182
Net earnings for the six months -- -- -- 388,111 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE at March 1, 2002 12,314,575 $ 123,146 $19,598,097 $(4,821,299) 157,012 $ (336,380)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at August 30, 2002 12,314,575 $ 123,146 $19,513,977 $(4,401,830) 72,977 $ (156,345)
Treasury stock reissued through
stock options and 401(k) plan 27,176 272 (74,208) -- (72,977) 156,345
Net loss for the six months -- -- -- (252,889) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT FEBRUARY 28, 2003 12,341,751 $ 123,418 $19,439,769 $(4,654,719) -- $ --
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
6
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
FEBRUARY 28, March 1,
2003 2002
- ----------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES
Net earnings (loss) $ (252,889) $ 388,111
Adjustments to reconcile net earnings (loss) to
cash provided by operating activities
Depreciation and amortization 769,927 871,713
Issuance of treasury stock for
compensation expenses 82,409 74,185
Provision for bad debt allowance 35,000 80,000
Provision for inventory reserves 100,000 200,000
Deferred income taxes (142,000) 227,000
Changes in assets and liabilities
Accounts receivable (85,429) (310,485)
Inventories 347,962 1,157,764
Other assets (29,384) 12,187
Accounts payable and accrued expenses 270,578 (630,356)
Customer deposits (140,983) 38,483
- ----------------------------------------------------------------------------------------------
955,191 2,108,602
- ----------------------------------------------------------------------------------------------
CASH USED FOR INVESTMENT ACTIVITIES
Property and equipment expenditures (368,987) (105,425)
Capitalized software additions (419,269) (228,428)
License agreements, patents, and trademarks expenditures (496,006) --
- ----------------------------------------------------------------------------------------------
(1,284,262) (333,853)
- ----------------------------------------------------------------------------------------------
CASH USED FOR FINANCING ACTIVITIES
Repayment of long-term debt (2,988) (41,715)
Proceeds from stock options exercised -- 13,400
- ----------------------------------------------------------------------------------------------
(2,988) (28,315)
- ----------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (332,059) 1,746,434
Cash and cash equivalents, beginning of period 5,117,756 1,926,723
- ----------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 4,785,697 $ 3,673,157
- ----------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid (received) during
the six months for:
Interest $ 31,969 $ 29,964
Income taxes $ -- $ (99,440)
- ----------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
7
WEGENER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
Certain significant accounting policies followed by the Company are described
below. A more complete discussion of these policies is included in Note 1 to the
Company's audited consolidated financial statements included in the annual
report on Form 10-K for the year ended August 30, 2002.
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, among 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. As of February
28, 2003, revenues to one customer in the amount of $2,182,000 were recorded
prior to delivery as bill and hold transactions. At February 28, 2003, accounts
receivable for these revenues amounted to $1,774,000.
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.
In accordance with EITF Issue 00-10, "Accounting for Shipping and Handling Fees
and Costs," the Company included all shipping and handling billings to customers
in revenues, and freight costs incurred for product shipments have been included
in cost of products sold.
EARNINGS PER SHARE
Basic and diluted net earnings per share were computed in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share." Basic
net earnings per share is computed by dividing net earnings available to common
shareholders (numerator) by the weighted average number of common shares
outstanding (denominator) during the period and excludes the dilutive effect of
stock options. Diluted net earnings per share gives effect to all dilutive
potential common shares outstanding during a period. In computing diluted net
earnings per share, the average stock price for the period is used in
determining the number of shares assumed to be reacquired under the treasury
stock method from the exercise of stock options.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could vary from these estimates.
8
FISCAL YEAR
The Company uses a fifty-two, fifty-three week year. The fiscal year ends on the
Friday closest to August 31. Fiscal years 2003 and 2002 each contain fifty-two
weeks.
NOTE 2 ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows:
FEBRUARY 28, August 30,
2003 2002
-------------------------------------------------------------------------
(UNAUDITED)
Accounts receivable - trade $3,394,469 $3,314,046
Other receivables 75,308 75,308
-------------------------------------------------------------------------
3,469,777 3,389,354
Less allowance for
doubtful accounts (381,586) (351,592)
-------------------------------------------------------------------------
$3,088,191 $3,037,762
-------------------------------------------------------------------------
NOTE 3 INVENTORIES
Inventories are summarized as follows:
FEBRUARY 28, August 30,
2003 2002
-------------------------------------------------------------------------
(UNAUDITED)
Raw material $2,675,598 $2,917,924
Work-in-process 1,407,323 1,639,620
Finished goods 2,905,153 3,143,736
-------------------------------------------------------------------------
6,988,074 7,701,280
Less inventory reserves (3,515,363) (3,780,607)
-------------------------------------------------------------------------
$3,472,711 $3,920,673
-------------------------------------------------------------------------
During the first six months of fiscal 2003 inventory reserves were increased by
provisions charged to cost of sales of $100,000 and reduced by inventory
write-offs of $365,000. The Company's inventory reserve of approximately
$3,515,000 at February 28, 2003 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.
9
NOTE 4 OTHER ASSETS
Other assets consisted of the following:
FEBRUARY 28, 2003
-------------------------------------------------------------------------
ACCUMULATED
COST AMORTIZATION NET
-------------------------------------------------------------------------
License agreements $ 550,000 $ (27,500) $ 522,500
Patents 74,026 -- 74,026
Trademarks 21,980 -- 21,980
Loan facility fees 50,000 (33,333) 16,667
Other 6,889 -- 6,889
-------------------------------------------------------------------------
$ 702,895 $ (60,833) $ 642,062
-------------------------------------------------------------------------
August 30, 2002
-------------------------------------------------------------------------
Accumulated
Cost Amortization Net
-------------------------------------------------------------------------
Loan facility fees $ 50,000 $ (8,333) $ 41,667
Other 6,889 -- 6,889
-------------------------------------------------------------------------
$ 56,889 $ (8,333) $ 48,556
-------------------------------------------------------------------------
Amortization expense of other assets for the three and six months ended February
28, 2003, amounted to $40,000 and $52,500 respectively. Amortization expense of
other assets for the three and six months ended March 1, 2002, amounted to
$13,000 and $26,000 respectively.
The Company conducts an on-going review of its intellectual property rights and
potential trademarks. During the second quarter of fiscal 2003, the Company
incurred $74,000 and $22,000 of legal expenses related to filing of applications
for various patents and trademarks, respectively. Upon issuance, these costs
will be amortized over their estimated useful lives. License agreements are
amortized over their estimated useful life of five years. Loan facility fees are
amortized over twelve months.
NOTE 5 INCOME TAXES
For the six months ended February 28, 2003, income tax benefit of $142,000 was
comprised of a deferred federal and state income tax benefit of $134,000 and
$8,000, respectively. Net deferred tax assets increased $142,000 to $2,990,000
principally due to an increase in net operating loss carryforwards in the first
six months. 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 future taxable income during the
carryforward period are reduced.
At February 28, 2003, the Company had a federal net operating loss carryforward
of approximately $2,265,000, which expires in fiscal 2020 and fiscal 2021.
Additionally, the Company had general business and foreign tax credit
carryforwards of $98,000 expiring in fiscal 2004 and an alternative minimum tax
credit of $138,000.
10
NOTE 6 EARNINGS PER SHARE (UNAUDITED)
The following tables represent required disclosure of the reconciliation of the
numerators and denominators of the basic and diluted net earnings per share
computations.
Three months ended
----------------------------------------------------------------------------
FEBRUARY 28, 2003 March 1, 2002
------------------------------------ ------------------------------------
PER Per
EARNINGS SHARES SHARE Earnings Shares share
(NUMERATOR) (DENOMINATOR) AMOUNT (Numerator) (Denominator) amount
----------- ------------- ------ ----------- ------------- ------
Net earnings $ 116,657 $ 255,946
---------- ----------
BASIC EARNINGS PER SHARE:
Net earnings available
to common shareholders $ 116,657 12,320,961 $ .01 $ 255,946 12,143,507 $ .02
Effect of dilutive potential common shares:
Stock options -- 34,731 -- 23,752
------------------------ ------------------------
DILUTED EARNINGS PER SHARE:
Net earnings available
to common shareholders $ 116,657 12,355,692 $ .01 $ 255,946 12,167,259 $ .02
------------------------ -------- ------------------------ --------
Six months ended
----------------------------------------------------------------------------
FEBRUARY 28, 2003 March 1, 2002
------------------------------------ ------------------------------------
PER Per
EARNINGS SHARES SHARE Earnings Shares share
(NUMERATOR) (DENOMINATOR) AMOUNT (Numerator) (Denominator) amount
----------- ------------- ------ ----------- ------------- ------
Net earnings (loss) $ (252,889) $ 388,111
---------- ----------
BASIC EARNINGS(LOSS) PER SHARE:
Net earnings (loss) available
to common shareholders $ (252,889) 12,294,393 $ (.02) $ 388,111 12,114,258 $ .03
Effect of dilutive potential
common shares:
Stock options -- -- -- 22,437
------------------------ ------------------------
DILUTED EARNINGS (LOSS) PER SHARE:
Net earnings (loss) available
to common shareholders $ (252,889) 12,294,393 $ (.02) $ 388,111 12,136,695 $ .03
------------------------ -------- ------------------------ --------
11
Stock options excluded from the diluted net earnings (loss) per share
calculation due to their anti-dilutive effect are as follows:
Three months ended Six months ended
---------------------------------------------------------------------
FEBRUARY 28, March 1, FEBRUARY 28, March 1,
2003 2002 2003 2002
---------------------------------------------------------------------
Common stock options:
Number of shares 975,365 1,011,550 1,006,903 1,059,650
Exercise price $.91 TO $5.63 $1.41 to $5.63 $.91 TO $5.63 $1.00 to $5.63
---------------------------------------------------------------------
NOTE 7 SEGMENT INFORMATION AND SIGNIFICANT CUSTOMERS (UNAUDITED)
In accordance with Statement of Financial Accounting Standards No. 131,
"Disclosure about Segments of an Enterprise and Related Information", the
Company operates within a single reportable segment, the manufacture and sale of
satellite communications equipment.
In this single operating segment the Company has three sources of revenue as
follows:
Three months ended Six months ended
---------------------------------------------------------------------
FEBRUARY 28, March 1, FEBRUARY 28, March 1,
2003 2002 2003 2002
---------------------------------------------------------------------
Product Line
Direct Broadcast Satellite $ 4,692,143 $ 5,640,263 $ 8,174,711 $ 11,243,316
Telecom and Custom Products 379,284 108,148 730,659 381,724
Service 147,725 112,291 258,900 268,278
---------------------------------------------------------------------
$ 5,219,152 $ 5,860,702 $ 9,164,270 $ 11,893,318
---------------------------------------------------------------------
Revenues by geographic area are as follows:
Three months ended Six months ended
---------------------------------------------------------------------
FEBRUARY 28, March 1, FEBRUARY 28, March 1,
2003 2002 2003 2002
---------------------------------------------------------------------
Geographic Area
United States $ 5,005,811 $ 5,633,243 $ 8,760,977 $ 11,229,372
Latin America 95,359 89,131 151,759 375,574
Canada 52,985 35,754 119,715 86,892
Europe 53,777 101,171 106,051 137,156
Other 11,220 1,403 25,768 64,324
---------------------------------------------------------------------
$ 5,219,152 $ 5,860,702 $ 9,164,270 $ 11,893,318
---------------------------------------------------------------------
12
All of the Company's long-lived assets are located in the United States.
Customers representing 10% or more of the respective period's revenues are as
follows:
Three months ended Six months ended
---------------------------------------------------------------------
FEBRUARY 28, March 1, FEBRUARY 28, March 1,
2003 2002 2003 2002
---------------------------------------------------------------------
Customer 1 39.5% 19.2% 44.2% 18.2%
Customer 2 21.5% 53.1% 16.0% 41.7%
Customer 3 (a) (a) (a) 12.0%
(a) Revenues for the period were less than 10% of total revenues.
NOTE 8 COMMITMENTS
During the second quarter of fiscal 2003, the Company entered into a
manufacturing and purchasing agreement for certain finished goods inventories.
The agreement committed the Company to purchase $2,062,000, over an eighteen
month period, beginning in the third quarter of fiscal 2003. In addition, the
Company maintains a cancelable manufacturing and purchasing agreement of
finished goods inventories for which the Company has firm customer order
commitments. The Company had outstanding purchase commitments under this
agreement of $1,545,000 at February 28, 2003. Pursuant to the above agreements,
at February 28, 2003, the Company had outstanding letters of credit in the
amount of $1,545,000.
NOTE 9 GUARANTEES
Warranty
The Company warrants its products for a twelve month period beginning at the
date of shipment. The warranty provides for repair or replacement of defective
products returned during the warranty period at no cost to the customer. The
Company expenses costs for routine warranty repairs as incurred. Additional
provisions are made for non-routine warranty repairs based on estimated costs to
repair at the point in time in which the warranty claim is identified. Accrued
warranty provisions amount to $96,000 at February 28, 2003. There were no
changes to the warranty accrual for the three and six month periods ended
February 28,2003.
Letters of Credit
Wegener Communications Inc., the Company's wholly owned subsidiary, (WCI)
provides in the ordinary course of business, standby letters of credit to
certain suppliers pursuant to manufacturing and purchasing agreements. At
February 28, 2003, outstanding letters of credit amounted to $1,545,000.
Financing Agreements
The Company guarantees the bank loan facility of WCI. The bank facility provides
a maximum available credit limit of $5,000,000. At February 28, 2003, no
balances were outstanding on the loan facility.
NOTE 10 STOCK OPTIONS
During the first six months of fiscal 2003 options for 19,000 shares of common
stock were granted to outside directors at a weighted average exercise price of
$1.00. During the first six months of fiscal 2003, options for 114,000 shares of
common stock at a weighted average exercise price of $1.42 were forfeited. At
February 28, 2003, options for 1,340,425 shares of common stock were outstanding
with a weighted average exercise price of $1.68 and with exercise prices ranging
from $.63 to $5.63. At February 28, 2003, options for 1,000,075 shares of common
stock were available for issuance under the 1998 Incentive Plan.
13
NOTE 11 RECENT ACCOUNTING PRONOUNCEMENTS
In November 2002, the FASB issued FASB Interpretation No. 45, (FIN 45)
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 requires certain
guarantees to be recorded at fair value regardless of the probability of the
loss. The adoption did not have a material impact on the Company's consolidated
financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46, (FIN 46)
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51."
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective immediately for all new variable interest entities created or acquired
after January 31, 2003. For variable interest entities created or acquired prior
to February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after June 15, 2003. The Company believes
that the adoption of this standard will have no material impact on its financial
position and results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value method of
accounting for stock-based employee compensation as originally provided by SFAS
No. 123 "Accounting for Stock-Based Compensation." Additionally, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 in both annual and interim
financial statements. The disclosure requirements shall be effective for
financial reports for interim periods beginning after December 15, 2002. We will
adopt the disclosure portion of this statement for the fiscal quarter ending May
30, 2003. The adoption will not have any impact on the Company's consolidated
financial position or results of operations.
14
WEGENER CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This information should be read in conjunction with the consolidated financial
statements and the notes thereto included in Item 1 of this Quarterly Report and
the audited consolidated financial statements and notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations for the
year ended August 30, 2002, contained in the Company's 2002 Annual Report on
Form 10-K.
Certain statements contained in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, such
as statements relating to financial results, future business or product
development plans, research and development activities, capital spending,
financing sources or capital structure, the effects of regulation and
competition, and are thus prospective. Such forward-looking statements are
subject to risks, uncertainties and other factors, which could cause actual
results to differ materially from future results expressed or implied by such
forward-looking statements. Potential risks and uncertainties include, but are
not limited to, economic conditions, customer plans and commitments, product
demand, governmental regulation, rapid technological developments and changes,
performance issues with key suppliers and subcontractors, delays in product
development and testing, availability of materials, new and existing
well-capitalized competitors, and other uncertainties detailed in the Company's
Form 10-K for the year ended August 30, 2002, and from time to time in the
Company's periodic Securities and Exchange Commission filings.
The Company, through Wegener Communications, Inc. (WCI), a wholly-owned
subsidiary, designs and manufactures communications transmission and receiving
equipment for the business broadcast, data communications, cable and broadcast
radio and television industries.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED FEBRUARY 28, 2003 COMPARED TO THREE AND SIX MONTHS
ENDED MARCH 1, 2002
The operating results for the three and six month periods ended February 28,
2003 were net earnings of $117,000 or $ .01 per share and a net loss of
$(253,000) or $(.02) per share, respectively, compared to net earnings of
$256,000 or $ .02 per share and net earnings of $388,000 or $ .03 per share,
respectively, for the three and six month periods ended March 1, 2002.
REVENUES - The Company's revenues for the three months ended February 28, 2003
decreased $642,000 or 10.9% to $5,219,000 from $5,861,000. Revenues for the six
months ended February 28, 2003 decreased $2,729,000 or 22.9% to $9,164,000 from
$11,893,000.
Direct Broadcast Satellite (DBS) revenues (including service revenues) decreased
$913,000 or 15.9% in the second quarter of fiscal 2003 to $4,840,000 from
$5,753,000 in the same period of fiscal 2002. For the six months ended February
28, 2003, DBS revenues decreased $3,078,000 or 26.7% to $8,434,000 from
$11,512,000 for the six months ended March 1, 2002. The decrease in revenues was
a result of a lower backlog of orders at the beginning of fiscal 2003 compared
to the beginning of fiscal 2002. Revenues and order backlog are subject to the
timing of significant orders from customers, and as a result, revenue levels may
fluctuate from quarter to quarter. DBS revenues were adversely impacted by
delayed purchasing decisions in the digital satellite transmission market and
delayed product introductions by the Company. The second quarter and first six
months of fiscal 2002 included shipments of network equipment to Roberts
Communications to provide television coverage of horseracing to off-track
betting venues throughout the United States. Additionally, the first six months
of fiscal 2002 included shipments of digital receivers to FOX Digital and FOX
Sports Net for their broadcast and cable television networks.
Telecom and Custom Products Group revenues increased $271,000 or 250.7% in the
second quarter of fiscal 2003 to $379,000 from $108,000 in the same period of
fiscal 2002. For the six months ended February 28, 2003, Telecom and Custom
Products Group revenues increased $349,000 or 91.4% to $731,000 from $382,000
for the six months ended March 1, 2002. The increase in revenues for the three
and six month periods was mainly due to increased shipments of cue and control
equipment to provide local commercial insertion capabilities to cable television
operators.
For the three months ended February 28, 2003, two customers accounted for 39.5%
and 21.5% of revenues, respectively. For the three months ended March 1, 2002,
two customers each accounted for 53.1% and 19.2% of revenues, respectively. For
the
15
six months ended February 28, 2003, two customers accounted for 44.2% and 16.0%
of revenues, respectively. For the six months ended March 1, 2002, three
customers accounted for 41.7%, 18.2%, and 12.0% of revenues, respectively. 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 significantly from quarter to quarter. The
Company's backlog is comprised of undelivered, firm customer orders, which are
scheduled to ship within eighteen months. The backlog was approximately
$13,200,000 at February 28, 2003, compared to $10,700,000 at August 30, 2002,
and $14,810,000 at March 1, 2002. One customer accounted for 74.8% of the
backlog at February 28, 2003. The total multi-year backlog at February 28, 2003,
was approximately $29,700,000.
GROSS PROFIT MARGINS - The Company's gross profit margin percentages were 35.9%
and 34.7% for the three and six month periods ended February 28, 2003, compared
to 35.6% and 34.1% for the three and six month periods ended March 1, 2002.
Gross profit margin dollars decreased $210,000 and $875,000 for the three and
six month periods ended February 28, 2003, compared to the same periods ended
March 1, 2002. The decreases in margin dollars for the three and six months
ended February 28, 2003, were mainly due to lower revenues during the periods.
For the six months ended February 28, 2003, gross margin percentages were
favorably impacted by a product mix with lower variable cost components which
was offset by higher unit fixed costs due to lower revenues. Profit margins in
the three and six month periods of fiscal 2003 included inventory reserve
charges of $100,000 and $100,000 compared to $100,000 and $200,000 for the same
periods of fiscal 2002.
SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and administrative (SG&A)
expenses decreased $111,000 or 10.6% to $932,000 for the three months ended
February 28, 2003, from $1,043,000 for the three months ended March 1, 2002. For
the six months ended February 28, 2003, SG&A expenses increased $42,000 or 2.0%
to $2,162,000 from $2,120,000 for the same period ended March 1, 2002. The
decrease in SG&A expenses in the second quarter of fiscal 2003 was mainly due to
lower bad debt provisions, depreciation, and marketing expenses. In the first
six months of fiscal 2003, SG&A professional fees increased $299,000 mainly due
to an increase in legal expenses related to a complaint filed by StarGuide
Digital Networks, Inc. against WCI primarily alleging patent infringement. (See
Part II, Item 1. Legal Proceedings.) The increase in professional fees was
offset by reductions in administrative and corporate overhead expenses, outside
sales agents commissions, marketing expenses, depreciation, and bad debt
provisions. As a percentage of revenues, SG&A expenses were 17.9% and 23.6% for
the three and six month periods ended February 28, 2003, compared to 17.8% and
17.8% for the same periods of fiscal 2002.
RESEARCH AND DEVELOPMENT - Research and development expenditures, including
capitalized software development costs, were $979,000, or 18.8% of revenues, and
$1,829,000, or 20.0% of revenues, for the three and six month periods ended
February 28, 2003, compared to $735,000, or 12.5% of revenues, and $1,519,000,
or 12.8% of revenues, for the same periods of fiscal 2002. Capitalized software
development costs amounted to $225,000 and $419,000 for the second quarter and
first six months of fiscal 2003 compared to $108,000 and $228,000 for the same
periods of fiscal 2002. The increases in capitalized software costs are due to
increased expenditures on COMPEL network control software and software
associated principally with the iPump Media Server and Unity 200 digital audio
receiver products. Research and development expenses, excluding capitalized
software expenditures, were $754,000, or 14.4% of revenues, and $1,410,000, or
15.4% of revenues, for the three and six months ended February 28, 2003,
compared to $627,000, or 10.7% of revenues, and $1,290,000, or 10.9% of
revenues, for the same periods of fiscal 2002. The increase in expenses for the
three and six months ended February 28, 2003 included higher personnel expenses
and engineering consulting costs. The expenditures for research and development
for the second half of fiscal 2003 are expected to continue at a rate similar to
that of the first half of fiscal 2003.
INTEREST EXPENSE - Interest expense increased $5,000 to $17,000 for the three
months ended February 28, 2003, from $12,000 for the three months ended March 1,
2002. For the six months ended February 28, 2003, interest expense increased
$2,000 to $32,000 from $30,000 for the same period ended March 1, 2002. The
increases for the three and six month periods in fiscal 2003 were primarily due
to an increase in the average outstanding letter of credit commitment balances.
INTEREST INCOME - Interest income was $13,000 and $33,000 for the three and six
month periods ended February 28, 2003, compared to $3,000 and $5,000 for the
same periods ended March 1, 2002. The increases for the three and six months
ended February 28, 2003 were mainly due to higher average cash equivalent
balances.
INCOME TAX EXPENSES - For the six months ended February 28, 2003, income tax
benefit of $142,000 was comprised of a deferred federal and state tax expense of
$134,000 and $8,000, respectively. Net deferred tax assets decreased $142,000 in
the first six months of fiscal 2003 to $2,290,000, principally due to increases
in net operating loss carryforwards during the period. 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
16
deferred tax assets will be realized. The amount of the tax assets considered
realizable, however, could be reduced in the near term if estimates of further
taxable income during the carryforward period are reduced.
CRITICAL ACCOUNTING POLICIES
The Company's consolidated financial statements are prepared in accordance with
accounting principals generally accepted in the United States of America which
require management to make estimates and judgements that affect the reported
amounts of assets, liabilities, revenues, and expenses, as well as disclosures
of contingent assets and liabilities at the date of the financial statements.
These estimates are reviewed on an ongoing basis and are based on historical
experience and various other assumptions and factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgements about the carrying value of assets and liabilities that are
not readily apparent form other sources. Actual results may differ from these
estimates under different assumptions or future conditions.
We believe the following critical accounting policies affect our more
significant judgements and estimates used in the preparation of our consolidated
financial statements.
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, among 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. As of February 28, 2003, revenues to one customer in the amount of
$2,182,000 were recorded prior to delivery as bill and hold transactions. At
February 28, 2003, accounts receivable for these revenues amounted to
$1,774,000.
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 February 28, 2003, inventories, net
of reserve provisions, amounted to $3,473,000.
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 February 28, 2003, capitalized software
costs, net of accumulated amortization, amounted to $678,000.
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
17
history. The amount of the deferred tax assets considered realizable, however,
could be reduced if estimates of future 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 February 28, 2003, deferred tax assets amount to $2,990,000 of
which approximately $792,000 relates to net operating loss carryforwards which
expire in fiscal 2020 and 2021 and $98,000 of general business and foreign tax
credits expiring in fiscal 2004 and an alternative minimum tax credit of
$138,000.
ACCOUNTS RECEIVABLE VALUATION - The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of its customers to
make required payments. If the financial condition of the Company's customers
were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances would be required. At February 28, 2003,
accounts receivable net of allowances for doubtful accounts amounted to
$3,088,000.
LIQUIDITY AND CAPITAL RESOURCES
SIX MONTHS ENDED FEBRUARY 28, 2003
At February 28, 2003, the Company's primary sources of liquidity were cash and
cash equivalents of $4,786,000 and a $5,000,000 bank loan facility. Cash and
cash equivalents decreased $332,000 during the first six months of fiscal 2003.
During the first six months of fiscal 2003, operating activities provided
$955,000 of cash. Net loss adjusted for non-cash expenses provided $592,000 of
cash, while changes in accounts receivable and customer deposit balances used
$226,000 of cash. Changes in accounts payable and accrued expenses, inventories,
and other assets provided $589,000 of cash. Cash used by investing activities
for property and equipment expenditures and capitalized software additions was
$788,000. Other investing activities used $496,000 of cash for license agreement
expenditures and legal expenses related to the filing of applications for
various patents and trademarks. Financing activities used cash of $3,000 for
scheduled repayments of long-term debt.
WCI's bank loan facility provides a maximum available credit limit of $5,000,000
with sublimits as defined. The 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 (4.25% at February 28, 2003). While no assurances maybe given, the Company
believes it will be able to renew the loan facility with the existing bank prior
to maturity.
The term loan facility provides for a maximum of $1,000,000 of indebtedness 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 February 28, 2003, no balances were outstanding on the
revolving line of credit or the equipment term loan portions of the loan
facility. Additionally, at February 28, 2003, approximately $2,003,000 net of
outstanding letters of credit in the amount of $2,153,000 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 the Company to $600,000 per fiscal
year, and maintain certain financial ratios, and is precluded from paying
dividends. At February 28, 2003, 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 2003, the Company entered into a
manufacturing and purchasing agreement for certain finished goods inventories.
The agreement committed the Company to purchase $2,062,000, over an eighteen
month period, beginning in the third quarter of fiscal 2003. In addition, the
Company maintains a cancelable manufacturing and purchasing agreement of
finished goods inventories for which the Company has firm customer order
commitments. The Company had outstanding purchase commitments under this
agreement of $1,545,000 at February 28, 2003. Pursuant to the above agreements,
at February 28, 2003, the Company had outstanding letters of credit in the
amount of $1,545,000.
The Company has never paid cash dividends on its common stock and does not
intend to pay cash dividends in the foreseeable future.
18
A summary of the Company's long-term contractual obligations as of February 28,
2003 consisted of:
OPERATING PURCHASE
DEBT LEASES COMMITMENTS
------ --------- -----------
Fiscal 2003 $3,100 $115,000 $2,534,000
Fiscal 2004 4,300 224,000 1,073,000
Fiscal 2005 -- 114,000 --
Fiscal 2006 -- 2,000 --
------ --------- -----------
Total $7,400 $455,000 $3,607,000
------ --------- -----------
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market rate risk for changes in interest rates relates
primarily to its revolving line of credit and cash equivalents. The interest
rate on certain advances under the line of credit and term loan facility
fluctuates with the bank's prime rate. There were no borrowings outstanding at
February 28, 2003 subject to variable interest rate fluctuations.
At February 28, 2003, the Company's cash equivalents consisted of bank
commercial paper in the amount of $2,575,000 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 4. 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 this evaluation.
19
PART II. OTHER INFORMATION
ITEM 1. 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 WCI. (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 alleged claims of patent infringement against
WCI relating to two U.S. patents. The remaining counts related 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 sought
preliminary and permanent injunctions enjoining WCI from 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 was not
infringing the patents in suit and that the patents in suit are
invalid or otherwise unenforceable. During the second quarter of
fiscal 2003, WCI and John Scaggs reached an agreement with StarGuide
settling all disputes between the parties. The terms of the settlement
are confidential but included StarGuide's grant of limited licenses to
WCI under a number of StarGuide patents. WCI has agreed to pay
StarGuide a running royalty on certain products. Management of the
Company believes that the settlement will not 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
On January 21, 2003, the Annual Meeting of Shareholders was held and the shares
present voted on the following matters:
(1.) The shareholders approved the election of the following nominee
to the Board of Directors:
Robert A. Placek (Class II Director)
10,870,855 votes FOR
423,320 votes WITHHELD
The terms of office of Thomas G. Elliott and James H. Morgan, Jr.
as Class III directors, and Joe K. Parks and C. Troy Woodbury,
Jr. as Class II directors, continued subsequent to the Annual
Meeting.
(2.) The appointment of BDO Seidman, LLP as auditors for the Company
for the fiscal year 2003 was approved with 11,030,987 votes FOR,
201,078 votes AGAINST, and 62,110 votes ABSTAINING.
20
ITEM 5. OTHER INFORMATION
Following the Company's 2003 Annual Meeting of Stockholders which was held on
January 21, 2003, the Company was contacted by the Nasdaq Stock Market and was
informed by Nasdaq representatives that Nasdaq believes that James H. Morgan,
Jr. does not meet the definition of "independent director" for purposes of
serving on the audit committee of the board of directors. Mr. Morgan is a
partner in the law firm which serves as outside legal counsel to the Company.
Nasdaq representatives informed the Company that in Nasdaq's view, all fees paid
to the law firm of which Mr. Morgan is a partner should be deemed to be direct
compensation to Mr. Morgan individually (which must not exceed $60,000 in any
fiscal year under the Nasdaq independent director definition). The Company
disagreed with Nasdaq's interpretation and engaged in several substantive
discussions with Nasdaq regarding the issue, but Nasdaq's position continues to
be that Mr. Morgan is not independent under its rules. However, as permitted by
the Nasdaq rules, the board of directors of the Company has made the
determination that, although Nasdaq does not deem Mr. Morgan to be an
independent director, Mr. Morgan's continued service on the audit committee is
in the best interests of the Company and its stockholders because of Mr.
Morgan's knowledge of and experience in financial and tax matters. Therefore,
Mr. Morgan will continue to serve as a member of the Company's audit committee.
In addition, on February 19, 2003, the Company announced that it had expanded
its board of directors and elected Wendell H. Bailey as a director. Mr. Bailey
does meet the definition of "independent director" under Nasdaq regulations, and
has been elected to serve as a member of the audit committee of the board of
directors. Therefore, the Company's audit committee is currently comprised of
Thomas G. Elliot, Joe K. Parks, Wendell H. Bailey and James H. Morgan, Jr.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
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.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter ended February 28, 2003.
21
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WEGENER CORPORATION
-------------------
(Registrant)
Date: April 10, 2003 By: /s/ Robert A. Placek
------------------------------------
Robert A. Placek
President
(Principal Executive Officer)
Date: April 10, 2003 By: /s/ C. Troy Woodbury, Jr.
------------------------------------
C. Troy Woodbury, Jr.
Treasurer and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
22
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 quarterly report on Form 10-Q for the quarter ended
February 28, 2003 of Wegener Corporation;
(2) Based on my knowledge, this quarterly 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 quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly report;
(4) The registrant's other certifying officer 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 quarterly
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 quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly 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 officer 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 function):
(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 officer and I have indicated in this
quarterly 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: April 10, 2003
/s/ Robert A. Placek
NAME: ROBERT A. PLACEK
TITLE: CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
23
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 quarterly report on Form 10-Q for the period ended
February 28, 2003 of Wegener Corporation;
(2) Based on my knowledge, this quarterly 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 quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly report;
(4) The registrant's other certifying officer 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 quarterly
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 quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly 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 officer 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 function):
(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 officer and I have indicated in this
quarterly 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: April 10, 2003
/s/ C. Troy Woodbury, Jr.
NAME: C. TROY WOODBURY, JR.
TITLE: TREASURER AND CHIEF
FINANCIAL OFFICER
24