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 May 30, 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 12,371,251 Shares
- ---------------------------- -------------------------
Class Outstanding June 30, 2003
WEGENER CORPORATION
FORM 10-Q FOR THE QUARTER ENDED MAY 30, 2003
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Introduction ........................................................3
Consolidated Statements of Operations
(Unaudited) - Three and Nine Months Ended
May 30, 2003 and May 31, 2002 .......................................4
Consolidated Balance Sheets - May 30,
2003 (Unaudited) and August 30, 2002 ................................5
Consolidated Statements of Shareholders' Equity
(Unaudited) - Nine Months Ended May 30,
2003 and May 31, 2002 ...............................................6
Consolidated Statements of Cash Flows
(Unaudited) - Nine Months Ended May 30,
2003 and May 31, 2002 ...............................................7
Notes to Consolidated Financial
Statements (Unaudited) ...........................................8-15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................16-20
Item 3. Quantitative and Qualitative Disclosures About Market Risk..........20
Item 4. Controls and Procedures.............................................20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................21
Item 2. None
Item 3. None
Item 4. None
Item 5. Other Information...................................................22
Item 6. Exhibits and Reports on Form 8-K ...................................22
Signatures..........................................................23
Certifications .....................................................24
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 May 30, 2003; the consolidated statements
of shareholders' equity as of May 30, 2003, and May 31, 2002; the consolidated
statements of operations for the three and nine months ended May 30, 2003, and
May 31, 2002; and the consolidated statements of cash flows for the nine months
ended May 30, 2003, and May 31, 2002, have been prepared without audit. The
consolidated balance sheet as of August 30, 2002, has been examined by
independent certified public accountants. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures herein are adequate to make the information presented not
misleading. It is suggested that these consolidated financial statements be read
in conjunction with the financial statements and the notes thereto included in
the Company's Annual Report on Form 10-K for the fiscal year ended 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 Nine months ended
MAY 30, May 31, MAY 30, May 31,
2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------------------
Revenue $ 6,254,459 $ 6,290,810 $ 15,418,729 $ 18,184,128
- ----------------------------------------------------------------------------------------------------------
Operating costs and expenses
Cost of products sold 3,812,723 4,092,591 9,801,488 11,935,666
Selling, general and administrative 1,592,032 1,005,889 3,753,709 3,126,042
Research and development 654,545 582,003 2,064,205 1,872,496
- ----------------------------------------------------------------------------------------------------------
Operating costs and expenses 6,059,300 5,680,483 15,619,402 16,934,204
- ----------------------------------------------------------------------------------------------------------
Operating income (loss) 195,159 610,327 (200,673) 1,249,924
Interest expense (17,996) (19,425) (49,965) (49,389)
Interest income 14,805 14,596 47,717 20,074
- ----------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 191,968 605,498 (202,921) 1,220,609
Income tax expense (benefit) 69,000 226,000 (73,000) 453,000
- ----------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 122,968 $ 379,498 $ (129,921) $ 767,609
==========================================================================================================
Net earnings (loss) per share:
Basic $ .01 $ .03 $ (.01) $ .06
Diluted $ .01 $ .03 $ (.01) $ .06
==========================================================================================================
Shares used in per share calculation
Basic 12,351,158 12,185,519 12,313,314 12,138,011
Diluted 12,488,212 12,350,796 12,313,314 12,159,661
==========================================================================================================
See accompanying notes to consolidated financial statements.
4
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 30, August 30,
2003 2002
- ---------------------------------------------------------------------------------------
ASSETS (UNAUDITED)
Current assets
Cash and cash equivalents $ 5,096,944 $ 5,117,756
Accounts receivable 4,233,834 3,037,762
Inventories 2,660,501 3,920,673
Deferred income taxes 2,143,000 2,225,000
Other 192,824 90,066
- ---------------------------------------------------------------------------------------
Total current assets 14,327,103 14,391,257
Property and equipment, net 3,002,131 2,995,332
Capitalized software costs, net 892,015 641,710
Deferred income taxes 778,000 623,000
Other assets, net 632,726 48,556
- ---------------------------------------------------------------------------------------
$ 19,631,975 $ 18,699,855
=======================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,154,097 $ 1,424,101
Accrued expenses 1,938,121 1,409,369
Customer deposits 479,150 777,023
Current maturities of long-term obligations 5,876 6,120
- ---------------------------------------------------------------------------------------
Total current liabilities 4,577,244 3,616,613
Long-term obligations, less current maturities -- 4,294
- ---------------------------------------------------------------------------------------
Total liabilities 4,577,244 3,620,907
- ---------------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity
Common stock, $.01 par value; 20,000,000 shares
authorized; 12,371,251 shares issued 123,713 123,146
Additional paid-in capital 19,462,769 19,513,977
Deficit (4,531,751) (4,401,830)
Less treasury stock, at cost -- (156,345)
- ---------------------------------------------------------------------------------------
Total shareholders' equity 15,054,731 15,078,948
- ---------------------------------------------------------------------------------------
$ 19,631,975 $ 18,699,855
=======================================================================================
See accompanying notes to consolidated financial statements.
5
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
Common Stock Additional Retained Treasury Stock
------------ Paid-in Earnings --------------
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 -- -- (200,575) -- (158,415) 339,387
Net earnings for the nine months -- -- -- 767,609 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE at May 31, 2002 12,314,575 $ 123,146 $ 19,551,119 $ (4,441,801) 111,173 $ (238,175)
=================================================================================================================================
Balance at August 30, 2002 12,314,575 $ 123,146 $ 19,513,977 $ (4,401,830) 72,977 $ (156,345)
Issuance of shares through
stock options and 401(k) plan 56,676 567 (51,208) -- (72,977) 156,345
Net loss for the nine months -- -- -- (129,921) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 30, 2003 12,371,251 $ 123,713 $ 19,462,769 $ (4,531,751) -- $ --
=================================================================================================================================
See accompanying notes to consolidated financial statements.
6
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
MAY 30, May 31,
2003 2002
- -------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES
Net earnings (loss) $ (129,921) $ 767,609
Adjustments to reconcile net earnings (loss) to
cash provided by operating activities
Depreciation and amortization 1,201,085 1,287,577
Issuance of treasury stock for
compensation expenses 82,409 113,431
Provision for bad debt allowance 65,000 155,000
Provision for inventory reserves 100,000 300,000
Deferred income taxes (73,000) 564,000
Warranty reserves (20,000) --
Changes in assets and liabilities
Accounts receivable (1,261,072) (1,564,542)
Inventories 1,160,172 2,093,329
Other assets (102,758) 32,334
Accounts payable and accrued expenses 1,128,748 (422,271)
Customer deposits (297,873) (23,616)
- -------------------------------------------------------------------------------------------
1,852,790 3,302,851
- -------------------------------------------------------------------------------------------
CASH USED FOR INVESTMENT ACTIVITIES
Property and equipment expenditures (504,222) (123,644)
Capitalized software additions (861,467) (368,267)
License agreements, patents, and trademarks expenditures (526,670) --
- -------------------------------------------------------------------------------------------
(1,892,359) (491,911)
- -------------------------------------------------------------------------------------------
CASH USED FOR FINANCING ACTIVITIES
Repayment of long-term debt (4,538) (43,178)
Loan facility fees -- (5,536)
Proceeds from stock options exercised 23,295 25,381
- -------------------------------------------------------------------------------------------
18,757 (23,333)
- -------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (20,812) 2,787,607
Cash and cash equivalents, beginning of period 5,117,756 1,926,723
- -------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 5,096,944 $ 4,714,330
===========================================================================================
Supplemental disclosure of cash flow information:
Cash paid (received) during the nine months for:
Interest $ 49,965 $ 49,389
Income taxes -- $ (210,499)
===========================================================================================
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 May 30,
2003, revenues to one customer in the amount of $2,582,000 were recorded prior
to delivery as bill and hold transactions. At May 30, 2003, accounts receivable
for these revenues amounted to $1,483,000.
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 revenue, 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.
STOCK BASED COMPENSATION
The Company has adopted the disclosure only provisions of Statement of Financial
Accounting Standard (SFAS) No 123, "Accounting for Stock-Based Compensation," as
amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure," 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.
8
The following table includes disclosures required by SFAS No. 123, as amended by
SFAS No. 148 and illustrates the effect on net earnings (loss) and net earnings
(loss) per share as if the Company had applied the fair value recognition
provisions of SFAS No. 123:
Three months ended Nine months ended
------------------------------------------------------
MAY 30, May 31, MAY 30, May 31,
2003 2002 2003 2002
- -------------------------------------------------------------------------------------
Net earnings (loss)
As Reported $ 122,968 $ 379,498 $ (129,921) $ 767,609
Deduct:
Compensation cost
using the fair value
method, net of tax -- (20,654) (47,663) (102,330)
- -------------------------------------------------------------------------------------
Pro Forma $ 122,968 $ 358,844 $ (177,584) $ 665,279
=====================================================================================
Earnings (loss) per share
As Reported
Basic $ .01 $ .03 $ (.01) $ .06
Diluted .01 .03 (.01) .06
Pro Forma
Basic .01 .03 (.01) .05
Diluted .01 .03 (.01) .05
=====================================================================================
The fair value of each option was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:
Three months ended Nine months ended
------------------------------------------------
MAY 30, May 31, MAY 30, May 31,
2003 2002 2003 2002
- --------------------------------------------------------------------------------
Risk free interest rate -- 4.97% 4.84% 4.97%
Expected term -- 3 years 3 YEARS 3 years
Volatility -- 75% 75% 75%
Expected annual dividends -- none NONE none
The weighted average fair value of options granted during the nine months ended
May 30, 2003 was $ .52 and for the three and nine months ended May 31, 2002 was
$ .44 and $ .47, respectively. No options were granted during the three months
ended May 30, 2003.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could vary from these estimates.
FISCAL YEAR
The Company uses a fifty-two, fifty-three week year. The fiscal year ends on the
Friday closest to August 31. Fiscal years 2003 and 2002 each contain fifty-two
weeks.
9
NOTE 2 ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows:
MAY 30, August 30,
2003 2002
---------------------------------------------------------------------
(UNAUDITED)
Accounts receivable - trade $ 4,559,248 $ 3,314,046
Other receivables 75,205 75,308
---------------------------------------------------------------------
4,634,453 3,389,354
---------------------------------------------------------------------
Less allowance for
doubtful accounts (400,619) (351,592)
---------------------------------------------------------------------
$ 4,233,834 $ 3,037,762
=====================================================================
NOTE 3 INVENTORIES
Inventories are summarized as follows:
MAY 30, August 30,
2003 2002
---------------------------------------------------------------------
(UNAUDITED)
Raw material $ 2,269,767 $ 2,917,924
Work-in-process 1,227,997 1,639,620
Finished goods 2,678,100 3,143,736
---------------------------------------------------------------------
6,175,864 7,701,280
Less inventory reserves (3,515,363) (3,780,607)
---------------------------------------------------------------------
$ 2,660,501 $ 3,920,673
=====================================================================
During the first nine 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 May 30, 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.
10
NOTE 4 OTHER ASSETS
Other assets consisted of the following:
MAY 30, 2003
----------------------------------------------------------------------
COST ACCUMULATED NET
AMORTIZATION
----------------------------------------------------------------------
License agreements $ 570,000 $ (55,000) $ 515,000
Patents 81,341 -- 81,341
Trademarks 25,329 -- 25,329
Loan facility fees 50,000 (45,833) 4,167
Other 6,889 -- 6,889
----------------------------------------------------------------------
$ 733,559 $ (100,833) $ 632,726
======================================================================
August 30, 2002
----------------------------------------------------------------------
Cost Accumulated Net
Amortization
----------------------------------------------------------------------
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 nine months ended May 30,
2003, amounted to $40,000 and $92,500, respectively. Amortization expense of
other assets for the three and nine months ended May 31, 2002, amounted to
$12,000 and $39,000, respectively.
The Company conducts an on-going review of its intellectual property rights and
potential trademarks. During the nine months of fiscal 2003, the Company
incurred $81,000 and $25,000 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 nine months ended May 30, 2003, income tax benefit of $73,000 was
comprised of a deferred federal and state income tax benefit of $69,000 and
$4,000, respectively. Net deferred tax assets increased $73,000 to $2,921,000
principally due to an increase in net operating loss carryforwards in the first
nine 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 May 30, 2003, the Company had a federal net operating loss carryforward of
approximately $2,277,000, 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.
11
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
--------------------------------------------------------------------------------
MAY 30, 2003 May 31, 2002
-------------------------------------- --------------------------------------
PER Per
EARNINGS SHARES SHARE Earnings Shares share
(NUMERATOR) (DENOMINATOR) AMOUNT (Numerator) (Denominator) amount
---------- ---------- ---------- ---------- ---------- ----------
Net earnings $ 122,968 $ 379,498
========== ==========
BASIC EARNINGS PER SHARE:
Net earnings available
to common shareholders $ 122,968 12,351,158 $ .01 $ 379,498 12,185,519 $ .03
Effect of dilutive
potential common shares:
Stock options -- 137,054 -- 165,277
------------------------ ------------------------
DILUTED EARNINGS PER SHARE:
Net earnings available
to common shareholders $ 122,968 12,488,212 $ .01 $ 379,498 12,350,796 $ .03
======================== ========== ======================== ==========
Nine months ended
--------------------------------------------------------------------------------
MAY 30, 2003 May 31, 2002
-------------------------------------- --------------------------------------
PER Per
EARNINGS SHARES SHARE Earnings Shares share
(NUMERATOR) (DENOMINATOR) AMOUNT (Numerator) (Denominator) amount
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) $ (129,921) $ 767,609
========== ==========
BASIC EARNINGS(LOSS) PER SHARE:
Net earnings (loss) available
to common shareholders $ (129,921) 12,313,314 $ (.01) $ 767,609 12,138,011 $ .06
Effect of dilutive potential
common shares:
Stock options -- -- -- 21,650
------------------------ ------------------------
DILUTED EARNINGS (LOSS) PER SHARE:
Net earnings (loss) available
to common shareholders $ (129,921) 12,313,314 $ (.01) $ 767,609 12,159,661 $ .06
======================== ========== ======================== ==========
12
Stock options excluded from the diluted net earnings (loss) per share
calculation due to their anti-dilutive effect are as follows:
Three months ended Nine months ended
--------------------------------------------------------------------
MAY 30, May 31, MAY 30, May 31,
2003 2002 2003 2002
--------------------------------------------------------------------
Common stock options:
Number of shares 761,050 907,550 1,303,425 1,016,409
Exercise price $1.41 TO $5.63 $1.41 to $5.63 $ .84 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 Nine months ended
------------------------------------------------------------
MAY 30, May 31, MAY 30, May 31,
2003 2002 2003 2002
------------------------------------------------------------
Product Line
Direct Broadcast Satellite $ 5,826,093 $ 5,680,666 $ 14,000,804 $ 16,923,982
Telecom and Custom Products 282,334 519,194 1,012,994 900,918
Service 146,032 90,950 404,931 359,228
------------------------------------------------------------
$ 6,254,459 $ 6,290,810 $ 15,418,729 $ 18,184,128
============================================================
Revenues by geographic area are as follows:
Three months ended Nine months ended
------------------------------------------------------------
MAY 30, May 31, MAY 30, May 31,
2003 2002 2003 2002
------------------------------------------------------------
Geographic Area
United States $ 6,028,665 $ 5,896,795 $ 14,789,642 $ 17,126,167
Latin America 44,807 150,693 196,566 526,266
Canada 88,120 77,789 207,835 164,680
Europe 21,893 34,364 127,943 171,521
Other 70,974 131,169 96,743 195,494
------------------------------------------------------------
$ 6,254,459 $ 6,290,810 $ 15,418,729 $ 18,184,128
============================================================
13
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 Nine months ended
-------------------------------------------------------
MAY 30, May 31, MAY 30, May 31,
2003 2002 2003 2002
-------------------------------------------------------
Customer 1 31.6% 36.2% 39.1% 24.4%
Customer 2 26.8% 13.3% 20.4% 31.9%
Customer 3 12.2% (a) (A) (a)
Customer 4 (A) 10.8% (A) 11.6%
(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 two
manufacturing and purchasing agreements for certain finished goods inventories.
The agreements committed the Company to purchase $2,116,000 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 $1,561,000 at May 30, 2003. Pursuant to the above agreements, at
May 30, 2003, the Company had outstanding letters of credit in the amount of
$2,681,000.
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 amounted to $76,000 at May 30, 2003. For the three and nine
month periods ended May 30, 2003, the accrual was reduced by $20,000.
Letters of Credit
Wegener Communications Inc., the Company's wholly owned subsidiary (WCI),
provides standby letters of credit in the ordinary course of business to certain
suppliers pursuant to manufacturing and purchasing agreements. At May 30, 2003,
outstanding letters of credit amounted to $2,681,000.
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 May 30, 2003, no balances
were outstanding on the loan facility.
NOTE 10 STOCK OPTIONS
During the first nine 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 nine months of fiscal 2003, options for 121,500 shares
of common stock at a weighted average exercise price of $1.47 were forfeited. At
May 30, 2003, options for 1,303,425 shares of common stock were outstanding with
a weighted average exercise price of $1.69 and with exercise prices ranging from
$.63 to $5.63. At May 30, 2003, options for 1,000,075 shares of common stock
were available for issuance under the 1998 Incentive Plan. Additionally, during
the first nine months of fiscal 2003 options for 13,000 and 16,500 shares with
exercise prices of $ .84 and $ .75, respectively, were exercised.
14
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. The
Company adopted the disclosure portion of this statement for the fiscal quarter
ending May 30, 2003. The adoption did not have any impact on the Company's
consolidated financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. The Statement
establishes standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances) because that financial instrument embodies an obligation of the
issuer. Many of such instruments were previously classified as equity. The
statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatory redeemable financial
instruments of nonpublic entities. The Statement is to be implemented by
reporting the cumulative effect of a change in accounting principle for
financial instruments created before the issuance of the date of the Statement
and still existing at the beginning of the interim period of adoption.
Restatement is not permitted. Management believes that the adoption of this
Statement will not have a significant impact on the financial position, results
of operations or cash flows of the Company.
15
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 NINE MONTHS ENDED MAY 30, 2003 COMPARED TO THREE AND NINE MONTHS ENDED
MAY 31, 2002
The operating results for the three and nine month periods ended May 30, 2003
were net earnings of $123,000 or $ .01 per share and a net loss of $(130,000) or
$ ( .01) per share, respectively, compared to net earnings of $379,000 or $ .03
per share and $768,000 or $ .06 per share, respectively, for the three and nine
month periods ended May 31, 2002.
REVENUES - The Company's revenues for the three months ended May 30, 2003 were
$6,254,000, down less than 1% from revenues of $6,291,000 for the three months
ended May 31, 2002. Revenues for the nine months ended May 30, 2003 were
$15,419,000, down 15.2% from revenues of $18,184,000 for the nine months ended
May 31, 2002. Direct Broadcast Satellite (DBS) revenues (including service
revenues) increased $200,000 or 3.5% in the third quarter of fiscal 2003 to
$5,972,000 from $5,772,000 in the same period of fiscal 2002. For the nine
months ended May 30, 2003, DBS revenues decreased $2,877,000 or 16.6% to
$14,406,000 from $17,283,000 for the nine months ended May 31, 2002. The
decrease in revenues for the nine months 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 first nine months of fiscal 2002 included shipments of network
equipment to Roberts Communications to provide television coverage of horse
racing to off-track betting venues throughout the United States. Additionally,
the first nine 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 decreased $237,000 or 45.6% in the
third quarter of fiscal 2003 to $282,000 from $519,000 in the same period of
fiscal 2002. For the nine months ended May 30, 2003, Telecom and Custom Products
Group revenues increased $112,000 or 12.4% to $1,013,000 from $901,000 for the
nine months ended May 31, 2002. The decrease in revenues for the three months
ended May 30, 2003, was due to completion of shipments of orders for commercial
insertion equipment. The increase in revenues for the nine month period was
primarily due to an increase in orders from a distributor to provide commercial
insertion equipment to a cable television operator.
16
For the three months ended May 30, 2003, three customers accounted for 31.6%,
26.8%, and 12.2% of revenues, respectively. For the three months ended May 31,
2002, three customers accounted for 36.2%, 13.3%, and 10.8% of revenues,
respectively. For the nine months ended May 30, 2003, two customers accounted
for 39.1% and 20.4% of revenues, respectively. For the nine months ended May 31,
2002, three customers accounted for 31.9%, 24.4% and 11.6% 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, the Company expects future revenue levels to fluctuate
from quarter to quarter. The Company's backlog is comprised of undelivered, firm
customer orders, which are scheduled to ship within eighteen months. WCI's
backlog was approximately $12,300,000 at May 30, 2003, compared to $10,700,000
at August 30, 2002, and $13,000,000 at May 31, 2002. The total multi-year
backlog at May 30, 2003, was approximately $26,000,000.
GROSS PROFIT MARGINS - The Company's gross profit margin percentages were 39.0%
and 36.4% for the three and nine month periods ended May 30, 2003, compared to
34.9% and 34.4% for the three and nine month periods ended May 31, 2002. Gross
profit margin dollars increased $244,000 and decreased $631,000 for the three
and nine month periods ended May 30, 2003, respectively, from the same periods
ended May 31, 2002. Gross profit margin percentages for the three and nine
months ended May 30, 2003 were favorably impacted by a product mix with lower
variable cost components and lower inventory reserve provisions. The increase in
margin dollars for the third quarter of fiscal 2003 was due to the improved
margin percentages and lower inventory reserve provisions. The decreases in
margin dollars for the nine months ended May 30, 2003 were mainly due to lower
revenues during the period. Profit margins in the three and nine month periods
of fiscal 2003 included no inventory reserve charges and charges of $100,000,
respectively, compared to $200,000 and $400,000 for the same periods of fiscal
2002.
SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and administrative (SG&A)
expenses increased $586,000 or 58.3% to $1,592,000 for the three months ended
May 30, 2003, from $1,006,000 for the three months ended May 31, 2002. SG&A
expenses in the third quarter of fiscal 2003 included $809,000 in corporate
legal and professional fees related to defending the Company against an
unsolicited, hostile takeover attempt by Radyne ComStream, Inc. SG&A expenses in
the third quarter of fiscal 2003 were partially offset by a separate insurance
reimbursement of $265,000 for a portion of legal costs expensed in the first
quarter of fiscal 2003 related to a lawsuit against WCI alleging patent
infringement. (See Part II, Item I. Legal Proceedings). For the nine months
ended May 30, 2003, SG&A expenses increased $628,000 or 20.1% to $3,754,000 from
$3,126,000 for the same period ended May 31, 2002. SG&A expenses in the first
nine months of fiscal 2003 included the $809,000 in legal and professional fees
related to defending the Company against an unsolicited hostile takeover attempt
by Radyne ComStream, Inc. These expenses were offset by decreases of $181,000
primarily due to lower depreciation, bad debt provisions, and outside sales
agent commissions which were offset by higher legal fees of WCI, net of
insurance reimbursements. As a percentage of revenues, SG&A expenses were 25.5%
and 24.3% for the three and nine month periods ended May 30, 2003, respectively
compared to 16.0% and 17.2% for the same periods of fiscal 2002.
RESEARCH AND DEVELOPMENT - Research and development expenditures, including
capitalized software development costs, were $1,097,000 or 17.5% of revenues,
and $2,926,000 or 19.0% of revenues, for the three and nine month periods ended
May 30, 2003, compared to $722,000 or 11.5% of revenues, and $2,241,000 or 12.3%
of revenues for the same periods of fiscal 2002. Capitalized software
development costs amounted to $442,000 and $861,000 for the third quarter and
first nine months of fiscal 2003 compared to $140,000 and $368,000 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 $655,000 or 10.5% of revenues, and $2,064,000 or
13.4% of revenues for the three and nine months ended May 30, 2003, compared to
$582,000 or 9.3% of revenues, and $1,872,000 or 10.3% of revenues for the same
periods of fiscal 2002. The increases in expenses for the three and nine months
ended May 30, 2003, are mainly due to higher personnel expenses and engineering
consulting costs. The expenditures for research and development for the fourth
quarter of fiscal 2003 are expected to be comparable to those of the third
quarter.
INTEREST EXPENSE - Interest expense decreased $1,000 to $18,000 for the three
months ended May 30, 2003 as compared to fiscal 2002. For the nine months ended
May 30, 2003, interest expense increased $1,000 to $50,000 as compared to fiscal
2002.
INTEREST INCOME - Interest income was $15,000 and $48,000 for the three and nine
month periods ended May 31, 2002, compared to $15,000 and $20,000 for the same
periods ended May 31, 2002. The increase for the nine months ended May 30, 2003
was due to higher average cash equivalent balances.
17
INCOME TAX EXPENSES - For the nine months ended May 30, 2003, income tax benefit
of $73,000 was comprised of a deferred federal and state tax benefit of $69,000
and $4,000, respectively. Net deferred tax assets increased $73,000 in the first
nine months of fiscal 2003 to $2,921,000, 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 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 future taxable income
during the carryforward period are reduced.
CRITICAL ACCOUNTING POLICIES
The Company's consolidated financial statements are prepared in accordance with
accounting principles 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 from 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 May 30, 2003, revenues to one customer in the amount of
$2,582,000 were recorded prior to delivery as bill and hold transactions. At May
30, 2003, accounts receivable for these revenues amounted to $1,483,000.
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 May 30, 2003, inventories, net of
reserve provisions, amounted to $2,660,501.
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 May 30, 2003, capitalized software costs,
net of accumulated amortization, amounted to $892,000.
18
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 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 May 30, 2003, deferred tax assets amounted to $2,921,000, of which
approximately $797,000 relates to net operating loss carryforwards which expire
in fiscal 2020 and 2021, $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 May 30, 2003, accounts
receivable net of allowances for doubtful accounts amounted to $4,234,000.
LIQUIDITY AND CAPITAL RESOURCES
NINE MONTHS ENDED MAY 30, 2003
At May 30, 2003, the Company's primary sources of liquidity were cash and cash
equivalents of $5,100,000 and a $5,000,000 bank loan facility. Cash and cash
equivalents decreased $21,000 during the first nine months of fiscal 2003.
During the first nine months of fiscal 2003, operating activities provided
$1,853,000 of cash. Net loss adjusted for non-cash expenses provided $1,226,000
of cash, while changes in accounts receivable and customer deposit balances used
$1,559,000 of cash. Changes in accounts payable and accrued expenses,
inventories and other assets provided $2,186,000 of cash. Cash used by investing
activities for property and equipment expenditures and capitalized software
additions was $1,366,000. Other investing activities used $527,000 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 $4,500 for scheduled repayments of long-term debt. Proceeds from stock
options exercised provided $23,000 of cash.
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, 2004, 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 May 30, 2003).
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 May 30, 2003, no balances were outstanding on the revolving
line of credit or the equipment term loan portions of the loan facility.
Additionally, at May 30, 2003, approximately $2,598,000 net of outstanding
letters of credit in the amount of $2,681,000 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 $1,400,000 in fiscal
2003 and $600,000 in each fiscal year thereafter, maintain certain financial
ratios, and is precluded from paying dividends. At May 31, 2003, the Company was
in compliance with all loan facility covenants. The Company believes that the
loan facility along with cash and cash equivalent balances will be sufficient to
support operations over the next twelve months.
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 $2,116,000 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 $1,561,000 at May 30, 2003. Pursuant to the above agreements, at
May 30, 2003, the Company had outstanding letters of credit in the amount of
$2,681,000.
19
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 May 30, 2003
consisted of:
OPERATING PURCHASE
DEBT LEASES COMMITMENTS
---------- ---------- ----------
Fiscal 2003 $ 1,600 $ 58,000 $2,099,000
Fiscal 2004 4,300 224,000 1,578,000
Fiscal 2005 -- 114,000 --
Fiscal 2006 -- 4,000 --
Fiscal 2007 -- 2,000 --
Thereafter -- 3,600 --
---------- ---------- ----------
Total $ 5,900 $ 405,600 $3,677,000
========== ========== ==========
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
May 30, 2003 subject to variable interest rate fluctuations.
At May 30, 2003, the Company's cash equivalents consisted of bank commercial
paper in the amount of $2,875,000 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.
20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Radyne ComStream Inc. and WC Acquisition Corporation, Plaintiffs, v.
Wegener Corporation, Defendant, Civil Action No. 03-421-KAJ
On April 23, 2003, WC Acquisition Corporation, a wholly owned
subsidiary of Radyne ComStream, Inc., commenced an all-cash,
all-shares tender offer for all outstanding shares of Wegener
Corporation (Wegener) common stock not already owned by WC Acquisition
Corporation. Wegener's Board of Directors appointed an Independent
Committee to investigate the offer, and after reviewing the
Independent Committee's recommendation, Wegener's Board issued a press
release which reflected their findings that the offer was priced too
low and therefore tendering shares was not in the best interest of
Wegener's shareholders. On April 24, 2003, Radyne ComStream, Inc. and
WC Acquisition Corporation filed a complaint in the U.S. District
Count for the District of Delaware against Wegener arising out of this
tender offer. The Plaintiffs assert they are entitled to relief under
the Declaratory Judgment Act ss. 2201, and have requested that the
Court enter a declaratory judgment that the public disclosures and
documents filed with the Securities and Exchange Commission by the
Plaintiffs, in connection with the tender offer, fully comply with all
applicable laws. The Plaintiffs also seek an injunction against
Wegener, as well as against its agents and employees, from making any
false or misleading statements with respect to the tender offer. The
Complaint also seeks an award of Plaintiffs' costs in bringing the
action as well as applicable attorneys' fees. Wegener filed an answer
to this Complaint on May 15, 2003, and denied all of the substantive
allegations of the Complaint. In its answer, Wegener also asserted
counterclaims, alleging that the tender offer was illegal, and done in
violation of ss. 14 of the Williams Act. Following the termination of
Radyne's tender offer, this action was voluntarily dismissed.
Radyne ComStream, Inc. and WC Acquisition Corporation Plaintiffs, v.
Wegener Corporation, Robert A. Placek, Thomas G. Elliot, James H.
Morgan, Jr., C. Troy Woodbury, Jr., Wendell Bailey and Joe K. Parks,
Defendants, Civil Action No. 20279-NC
On April 24, 2003, WC Acquisition Corporation and Radyne ComStream,
Inc. commenced an action against Wegener, Robert A. Placek, Thomas G.
Elliot, James H. Morgan, Jr., C. Troy Woodbury, Jr., Wendell Bailey
and Joe K. Parks in the Court of Chancery for the State of Delaware in
and for New Castle County. Each of the individuals named in the
Complaint as Defendants are (or were) officers and/or directors of
Wegener. Plaintiffs assert that they are entitled to relief against
the individual defendants for breaches of their fiduciary duties.
Plaintiffs assert that these individuals violated their duties by
failing to approve the tender offer and proposed merger, and by
failing to exempt the tender offer from Section 203 of the General
Corporation Law of the State of Delaware. Plaintiffs further assert
that these individuals violated their duties by failing to render
inapplicable Article Eighth of Wegener's Certificate of Incorporation,
and by adopting anti-takeover devices. The Plaintiffs seek a
declaration that the individual defendants have breached their
fiduciary duties. Plaintiffs also seek to have the Court compel the
Defendants to approve the proposed acquisition, as well as enjoin the
Defendants from applying Section 203 of the General Corporation Law of
the State of Delaware and Article Eighth of Wegener's Certificate of
Incorporation. The Plaintiffs further seek an injunction against
Wegener, its agents and its employees, from adopting any other measure
which could impede the acquisition or other attempts by the Plaintiffs
to acquire Wegener, including bringing any action to enforce Section
203 or Article Eighth or adopting any additional anti-takeover
devices. The Complaint also seeks an award of Plaintiffs' costs in
bringing the action, as well as applicable attorneys' fees. Wegener
filed an answer to this Complaint on May 19, 2003, and denied all of
the substantive allegations of the Complaint. Following the
termination of Radyne's tender offer, a stipulation of dismissal was
filed, and an order of dismissal is expected to be entered in the near
future.
21
Jerry Leuch, Plaintiff, v. Robert A. Placek, Thomas G. Elliot, Joe K.
Parks, C. Troy Woodbury, Jr., Wendell Bailey, Ned Mountain and Wegener
Corporation, Civil Action No.20361-NC
On June 20, 2003, Jerry Leuch commenced an action styled as a direct
class action against Robert A. Placek, Thomas G. Elliot, Joe K. Parks,
C. Troy Woodbury, Jr., Wendell Bailey, Ned Mountain and Wegener
Corporation in the Court of Chancery of the State of Delaware, In and
For New Castle County. The Plaintiff alleges that the individual
defendants have violated their fiduciary duties due to him and other
shareholders, the members of an alleged class of shareholders of
Wegener Corporation. The relief Plaintiff seeks is as follows: an
order that this action is properly styled as a class action; a
declaration that the Defendants have breached their fiduciary duties;
an injunction against the Defendants continuing their allegedly
unlawful conduct; and a direction to the Defendants to account for the
damages they have allegedly caused. The Complaint also seeks an award
of Plaintiff's costs in bringing the action, as well as applicable
attorneys' and experts' fees. The Defendants have not yet answered
this complaint as the time to do so has not yet run, but will
vigorously oppose this litigation. This complaint is substantively
similar to a complaint which was commenced in Fulton County, Georgia
and was subsequently voluntarily dismissed by the Plaintiff in that
action.
ITEM 5. OTHER INFORMATION
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 meets 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.
The Company's audit committee is currently comprised of Thomas G. Elliot, Joe K.
Parks, and Wendell H. Bailey.
On April 28, 2003, James H. Morgan, Jr. resigned as a member of the Company's
Board of Directors.
On May 16, 2003, Ned L. Mountain was elected to the Board of Directors as a
Class III director, to fill the vacancy created by the resignation of Mr.
Morgan. Mr. Mountain's term will expire in 2004. Mr. Mountain is Executive Vice
President of WCI.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
4.1 Loan and Security Agreement - Fifth Amendment dated June 27,
2003, by and between Wegener Communications, Inc. and LaSalle
National Bank respecting $5,000,000 combined revolving credit
note and term note.
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:
Current Report on Form 8-K dated as of May 1, 2003, and filed May 6,
2003, disclosing Amended and Restated By-laws of Wegener Corporation
(Exhibit 3.1) and Stockholder Rights Agreement dated as of May 1,
2003, between Wegener Corporation and Securities Transfer Corporation,
as Rights Agent (Exhibit 4.1).
Current Report on Form 8-K dated June 17, 2003, furnishing its press
release regarding its results for the third fiscal quarter ended May
30, 2003.
22
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WEGENER CORPORATION
________________________
(Registrant)
Date: July 9, 2003 By: /s/ Robert A. Placek
---------------------------------
Robert A. Placek
President
(Principal Executive Officer)
Date: July 9, 2003 By: /s/ C. Troy Woodbury, Jr.
---------------------------------
C. Troy Woodbury, Jr.
Treasurer and Chief
Financial Officer
(Principal Financial and Accounting Officer)
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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
May 30, 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: July 9, 2003
/s/ Robert A. Placek
NAME: ROBERT A. PLACEK
TITLE: CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
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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 May
30, 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: July 9, 2003
/s/ C. Troy Woodbury, Jr.
NAME: C. TROY WOODBURY, JR.
TITLE: TREASURER AND CHIEF FINANCIAL
OFFICER
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