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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended August 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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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 30155-1528
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (770) 623-0096
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.01 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
YES X NO
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As of November 15, 1996, 9,014,937 shares of registrant's Common Stock were
outstanding and the aggregate market value of the Common Stock held by
nonaffiliates was $31,189,828 based on the last sale price of the Common Stock
as quoted on the NASDAQ Small-Cap Marketing System on such date. (The officers
and directors of the registrant, and owners of over 10% of the registrant's
common stock, are considered affiliates for purposes of this calculation.)
Indicate by check mark if disclosure of deliquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement pertaining to the January 21,
1997 Annual Meeting of Stockholders, only to the extent expressly so stated
herein, are incorporated herein by reference into Part III.
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WEGENER CORPORATION
FORM 10-K
YEAR ENDED AUGUST 30, 1996
INDEX
PART I
Page
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . .9
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . 11
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . 16
PART III
Item 10. Directors and Executive Officers of the Registrant. . . . . . . . 31
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . 31
Item 12. Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . . . . . . . . . 31
Item 13. Certain Relationships and Related Transactions . . . . . . . . . 31
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . 32
1
PART I
ITEM 1. BUSINESS
Wegener Corporation, the Registrant, together with its subsidiaries, is
referred to herein as the "Company".
(a) General development of business.
Wegener Corporation was formed in 1977 and is a Delaware corporation. The
Company conducts its continuing business through Wegener Communications, Inc.
(WCI), its wholly-owned subsidiary, and Wegener Communications International,
Inc., a wholly-owned subsidiary of WCI.
WCI was formed in April 1978 and is a Georgia corporation. Its wholly-
owned subsidiary, Wegener Communications International, Inc., is a Small Foreign
Sales Corporation. WCI, a market leader in digital and analog compression
technology, designs and manufactures communications transmission and receiving
equipment for the business broadcast, data communications, cable and broadcast
radio and television industries for worldwide markets.
(b) Financial information about industry segments.
Segment information contained in Note 11 to the consolidated financial
statements on page 28 of this document is incorporated herein by reference in
response to this item.
(c) Narrative description of business.
(i) Principal products produced and services rendered, and
(ii) Status of a product or segment.
SATELLITE COMMUNICATIONS ELECTRONICS.
WCI manufacturers electronics for the distance learning, broadcast television
and radio, cable television, business music, private network and data
communications industries. WCI services all of the products that it sells. The
Company warrants its products for a period of one year. There were no
significant warranty claims outstanding as of August 30, 1996.
WCI manufacturers primarily high volume standard products. During fiscal 1994,
the Company divested its low volume custom products operations and entered into
a distributor agreement for the sale of these products.
Throughout fiscal 1995 and fiscal 1996, WCI continued to produce and develop
digital compression products. These products are in use world wide in distance
learning, radio, cable television, and private
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business networks. In terms of new orders, compressed digital products are the
fastest growing product segment for the Company. Bookings for the Company's
digital video products are strong and management believes they will more than
compensate for other areas which are being impacted due to shifts in technology.
As expected, demand for the Company's analog products has begun to decline
following market demand for, and the Company's emphasis on, digital technology.
DIGITAL COMMUNICATIONS. The demand for digital products is being driven by the
high cost of satellite capacity. Satellite capacity is scarce due to pressures
on both the supply and demand side of the market. On the supply side,
satellites are extremely expensive to launch, build, and maintain. The useful
life of a satellite is limited by the amount of positioning fuel that can be
carried. Also, the placement of satellites is regulated by the FCC and
therefore the number of satellites within range of any given location is
limited. On the demand side, the cost of receive hardware is being steadily
reduced through advancing technology. The reduction in the cost of network
hardware increases the economic feasibility of a greater number of networks.
This is evidenced by the trend in both television and radio towards narrow-
casting to well-defined market segments as opposed to broadcasting to the
general population. Digital compression technology allows a four to ten-fold,
or more, increase in the throughput of a satellite channel. For the network it
represents an opportunity to reduce the cost of satellite use. For the
satellite operator it represents an opportunity to increase the revenue
generated by an expensive asset. The market as a whole has built up demand for
digital technology.
With ongoing breakthroughs in digital compression, digitized audio and video
products have become increasingly important. WCI manufactures MPEG-2 broadcast
quality digital video products for commercial program distribution. During the
fourth quarter of fiscal 1996 WCI received an order for its MPEG-2 products for
use by NBC in the MSNBC network. A significant portion of the order was
delivered during the fourth quarter with the remainder to be delivered during
the first quarter of fiscal 1997. The order comprised over 450 satellite
receivers and over 80 transmit systems. Similar WCI equipment is also in use by
Turner Broadcasting.
WCI's lower data rate products have been ordered by Eli Lilly and Company for
their global business network. Ongoing projects include shipments of digital
video products to Dow Jones Investor Network, NBC Desktop, and Reuters Financial
Television for use in terrestrial and satellite business information networks
which deliver compressed video to subscribers' desktops.
The Company's digital audio products employ MPEG digital audio compression
technology and are used to distribute radio and business music programming to
network affiliates. During fiscal 1996, ABC Radio Network, Jones Satellite
Networks, Moody Broadcasting and a variety of smaller networks throughout the
world chose WCI digital audio products to upgrade their networks.
The Company also manufacturers specialized data communications products used in
satellite broadcast data applications. Bookings for these products remained
strong in fiscal 1996. WCI manufactures satellite data receivers for Glenayre
Technologies which are being used to expand Glenayre's paging network. Reuters
also uses WCI data equipment to expand distribution for its international news
feed.
CABLE TELEVISION PRODUCTS. WCI's products are widely employed in the cable
industry to provide a variety of audio, data, and video services to cable
subscribers. These products deliver high quality
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video and stereo sound to cable headends via satellite. This includes
transmission of stereo sound associated with cable television programming,
discrete audio-only services provided to cable systems, automated program
delivery for regional sports networks, and pay-per-view movies.
A wide variety of data transmission products are used to deliver specialized
data services to cable headends and subscribers. These applications range from
data to feed news services, weather and program guide graphics, delivery to
personal computers, and control of cable subscribers' addressable converters.
Other cable products are cue and control equipment for cable television
networks. Cueing signals are used on advertising supported networks to permit
affiliated cable systems to insert local commercials at appropriate times.
Control equipment delivers switching commands from the network to provide
program routing and blackouts.
An additional product family of the cable television segment is graphic
generators. These products deliver custom data by satellite that is graphically
displayed on a subscriber's television. Products in this area were among the
first generated by WCI. WCI has continued to add new products to this family to
meet market demand.
RADIO AND TELEVISION BROADCASTING. Broadcasters use WCI equipment to distribute
digital audio, analog audio, video, and cue/network control signals. Television
networks, such as NBC and Turner Broadcasting, use WCI products to distribute
programming from remote locations and between affiliates. Satellite based radio
networks distribute programming and network control signals to network
affiliates.
OPTICAL FIBER AND TERRESTRIAL MICROWAVE. Most of WCI's products used on
satellite communications links are easily used on existing microwave or fiber
circuits. Typical applications are voice and data circuits that accompany a
television signal.
BUSINESS MUSIC. This market consists of suppliers of business music to retail
restaurants, offices and retail establishments. WCI manufactures the equipment
required to transmit audio and data from the business music supplier to the end
user via satellite circuits. The equipment is controlled by the business music
supplier using WCI's network control technology. Potential users of this WCI
equipment include any business purchasing background music, foreground music and
broadcast data.
(iii) Sources and availability of raw materials.
Raw materials consist of passive electronic components, electronic circuit
boards and fabricated sheet metal. WCI purchases approximately one-half of its
raw materials from direct dealers and the other half is purchased from
distributors. Passive and active components include parts such as resistors,
integrated circuits and diodes. WCI uses approximately ten distributors to
supply their electronic components. Direct sources provide sheet metal,
electronic circuit boards and other materials built to specifications. WCI
maintains relationships with almost twenty direct dealers. Most of the
Company's materials are available from a number of different suppliers, however,
certain components used in
4
existing and future products are currently available from single or limited
sources. Although the Company believes that all single-source components
currently are available in adequate quantities, there can be no assurance that
shortages or unanticipated delivery interruptions will not develop in the
future. Any disruption or termination of supply of certain single-source
components could have an adverse effect on the Company's business and results of
operations.
(iv) Patents, trademarks, licenses, franchises and concessions held.
The Company holds certain patents with respect to some of its products and
markets its services and products under various trademarks and tradenames.
Additionally, the Company licenses certain analog audio processing technology to
several manufacturing companies which generated royalty revenues of
approximately $112,000, $173,000 and $170,000 in fiscal 1996, 1995, and 1994,
respectively. Although the Company believes that the patents and trademarks
owned are of value, the Company believes that success in its industry will be
dependent upon new product introductions, frequent product enhancements, and
customer support and service. However, the Company intends to protect its
rights when, in its view, these rights are infringed upon.
(v) Seasonal variations in business.
There does not appear to be any seasonal variations in the Company's
business.
(vi) Working capital practices.
Information contained under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" (MD&A) on pages 11-16
of this document is incorporated herein by reference in response to this item.
(vii) Dependence upon a limited number of customers.
The Company sells to a variety of domestic and international customers on
an open-unsecured account basis. These customers principally operate in the
cable television, broadcast business music, private network, and data
communications industries. Sales to Ascent Network Services, Inc. accounted for
approximately 14.2% of revenues in fiscal 1996. Sales to Glenayre Technologies,
Inc. accounted for approximately 15.0% of revenues in fiscal 1995. Sales to
Muzak accounted for approximately 18.6% of revenues in fiscal 1994. At August
30, 1996, two customers accounted for 34.6% and 10.8% respectively, of the
Company's accounts receivable. At September 1, 1995, one customer accounted for
18.7% of the Company's accounts receivable. Sales to a relatively small number
of major customers have typically comprised a majority of the Company's
revenues. This trend is expected to continue in fiscal 1997. There can be no
assurance that the loss of one or more of these customers would not have an
adverse effect on the Company's operations.
(viii) Backlog of orders.
The Company's backlog is comprised of undelivered, firm customer orders.
The Company's backlog was approximately $28,045,000 at August 30, 1996 and
$27,402,000 at September 1, 1995. Reference is hereby made to page 11 of this
document which is incorporated herein by reference in response to this item.
5
Approximately $12,396,000 of the August 30, 1996 backlog is expected to
ship during fiscal 1997, $2,400,000 in fiscal 1998, and the remainder beyond
fiscal 1998.
(ix) Government contracts.
Not applicable.
(x) Competitive Conditions.
The Company competes with companies which have substantially greater
resources and a larger number of products than the Company, as well as with
small specialized companies. Competition in the emerging distance learning
industry is comprised of both established firms as well as relative newcomers.
Through relationships with satellite service providers, the Company has
positioned itself to provide end-to-end solutions to its customers. Competition
in the market for the Company's MPEG-2 broadcast television electronics
products, including digital video equipment, is driven by timeliness,
performance, and price. The Company's broadcast digital video products are in
production and are aggressively priced, with unique, desirable features.
Management believes these products are physically smaller and priced below other
equivalent products on the market today. The competitive situation of data
products is significantly different than that of the markets for other WCI
products. Due to the large number of potential end users, both small and large
competitors continue to emerge. The Company believes it has positioned itself
to capitalize on the market trends in this business through careful development
of its product and market strategies, which have proven successful in increasing
revenues from this sector. In the cable television market the Company believes
that the competitive position for its products is dominant. Products for cable
television include proprietary cueing and network control devices. Competition
for radio network products, including the Company's digital audio products, is
very aggressive and pricing is very competitive. The Company believes that its
continued success in all of its markets will depend on aggressive marketing and
product development.
(xi) Research and development activities.
The Company's research and development is designed to strengthen and
broaden its existing products and systems and to develop new products and
systems. A major portion of the fiscal 1996 research and development expenses
were spent in the digital video product area. WCI research and development
expenses totalled $2,286,000 in fiscal 1996, $1,985,000 in fiscal 1995, and
$2,025,000 in fiscal 1994. Additional information contained in MDA on pages 11-
16 of this document is incorporated herein by reference in response to this
item.
(xii) Environmental disclosures.
Federal, state and local pollution control requirements have no material
effect upon the capital expenditures, earnings or the competitive position of
the Company.
6
(xiii) Number of employees.
As of August 30, 1996, the Company had 131 employees employed by the WCI
manufacturing subsidiary. No employees are parties to a collective bargaining
agreement and the Company believes that its relationships with its employees are
good.
(d) Financial information about foreign and domestic operations and
export sales.
Information contained under the caption "Consolidation" on page 21 of this
document , and in Note 11 on page 28 of this document are incorporated herein by
reference in response to this item.
7
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
NAME AND BUSINESS EXPERIENCE AGE OFFICE HELD
ROBERT A. PLACEK 58 President,
President and Chief Executive Officer Chief Executive Officer
of the Company since August and Chairman of the
1987 and Director since July 1987. Board
Chairman of the Board since 1994.
President and Director of WCI since
1979.
C. TROY WOODBURY, JR.
Treasurer and Chief Financial 49 Treasurer and
Officer of the Company since Chief Financial Officer
June 1988 and Director since 1989.
Executive Vice President of WCI since
July 1995. Treasurer and Chief
Operating Officer of WCI since
September 1992. Group Controller
for Scientific-Atlanta, Inc. from
March 1975 to June 1988.
JAMES T. TRAICOFF
Controller of the Company since 46 Controller
November 1991; Controller for WCI
since July 1988; Controller for BBL
Industries, Inc. from April 1985 to
July 1988.
8
ITEM 2. PROPERTIES
The home offices of the Company are located at 11350 Technology Circle,
Duluth, Georgia 30155-1528. This 40,000 square foot facility, which is located
on a 4.7 acre site, was purchased in February 1987. During August 1989, WCI
purchased an additional 4.4 acres of adjacent property. WCI also leases
approximately 11,300 square feet under long-term leases expiring during fiscal
1999, at an annual rental of approximately $79,000. This space is for
additional warehouse and manufacturing capacity. WCI's manufacturing facility
is subject to a mortgage note securing the indebtedness. WCI's 4.4 acres of
adjacent land is pledged as collateral under the Company's line of credit
facility.
ITEM 3. LEGAL PROCEEDINGS
No significant legal proceedings were pending as of August 30, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded on the NASDAQ Small-Cap Market System
(NASDAQ symbol WGNR). As of November 15, 1996 there were approximately 3,453
holders of record of Common Stock.
The quarterly range of high and low closing sale prices for fiscal 1996 and 1995
were as follows:
Fiscal 96 Fiscal 95
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High Low High Low
First Quarter $12 $ 9 $ 2 1/4 $1 1/2
Second Quarter 13 3/4 8 1/2 3 5/8 1 7/8
Third Quarter 10 5/8 7 3/4 5 7/8 3 1/4
Fourth Quarter 12 1/4 5 5/8 11 1/2 5 13/16
The Company has not paid any cash dividends on its Common Stock. For the
foreseeable future, the Company's Board of Directors does not intend to pay cash
dividends, but rather plans to retain earnings to support the Company's
operations and growth.
9
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year Year Year Year Year
ended ended ended ended ended
August 30, September 1, September 2, August 27, August 28,
1996 1995 1994 1993 1992
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Revenue $23,195 $19,488 $16,521 $14,673 $15,722
Primary earnings (loss) from
continuing operations 1,456 (2) 385 (69) (428) (1,431)
Primary earnings (loss) per share
from continuing operations $ .16 (2) $ .05 $ (.01) $ (.06) $ (.19)
Primary earnings (loss) per share $ .16 (2) $ .05 $ (.01) $ (.07) $ (.41)
Cash dividends paid per share (1) - - - - -
Total assets $27,737 $22,018 $11,893 $10,827 $12,497
Long-term obligations and
current maturities 7,935 2,796 2,979 3,556 4,923
(1) The Company has never paid cash dividends on its common stock and does not
intend to pay cash dividends in the foreseeable future.
(2) Fully diluted earnings per share were anti-dilutive.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Certain statements contained in this filing are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, such as statements relating to financial results, plans for future
business development activities, capital spending or financing sources, capital
structure and 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, product demand, governmental and technological factors,
competition and other uncertainties detailed from time to time in the Company's
Securities and Exchange Commission filings.
The Company manufactures satellite communications equipment through Wegener
Communications, Inc. (WCI), a wholly-owned subsidiary. WCI manufactures
products for transmission of audio, data, and video via satellite.
RESULTS OF OPERATIONS
Net earnings were $1,456,000 or $0.16 per share for the year ended August
30, 1996, compared to $385,000 or $.05 per share for the year ended September 1,
1995 and a loss of $(69,000) or $(0.01) per share for the year ended September
2, 1994.
Revenues for fiscal 1996 were $23,195,000, up 19.0% from revenues of
$19,488,000 in fiscal 1995, compared to revenues of $16,521,000 in fiscal 1994.
During fiscal 1996, the Company continued to focus on improved product quality
and the development of new products. Direct Broadcast Satellite (DBS) revenues
increased approximately $2,948,000 or 19.5% in fiscal 1996 compared to fiscal
1995. Telecom and Custom Product revenues increased approximately $692,000 or
19.2% in fiscal 1996 compared to fiscal 1995. The increase in DBS revenues was
due to increased shipments of MPEG-2 digital video products which was partially
offset by a decrease in shipments of audio and data products. The Telecom and
Custom Product Group revenue increase was primarily due to increased shipments
of uplink equipment to radio networks for conversion of analog to digital
broadcasting. WCI's backlog was approximately $28,045,000 as of August 30,
1996, compared to $27,402,000 as of September 1, 1995, and $10,502,000 as of
September 2, 1994. Approximately $12,396,000 of the August 30, 1996 backlog is
expected to ship during fiscal 1997, $2,400,000 in fiscal 1998, and the
remainder beyond fiscal 1998. This backlog is the result of positive acceptance
of Wegener's new digital communications products. Management believes the
ability of digital compression technology to dramatically reduce the cost of
satellite communications will result in a significant increase in demand for
satellite communications products utilizing digital compression technology.
Although no assurances can be given, the Company expects to directly benefit
from this increase in demand. There may be fluctuations in the Company's
revenues and operating results from quarter to quarter due to several factors,
including the timing of significant orders from customers and the timing of new
product introductions by the Company.
International sales are generated through a direct sales organization and
through foreign distributors. International sales were $2,549,000 or 11.0% of
revenues in fiscal 1996, compared to $3,926,000 or 20.1% of revenues in fiscal
1995, and $2,709,000 or 16.4% of revenues in fiscal 1994.
11
Management believes that international sales could increase as more business
opportunities become available for WCI products in the future. All
international sales are denominated in U.S. dollars.
Gross profit increased $827,000 or 12.4% in fiscal 1996 compared to fiscal
1995 as a result of increased revenues for the year. Gross profit as a percent
of sales was 32.2% in fiscal 1996, compared to 34.1% in fiscal 1995 and 34.5% in
fiscal 1994. The gross profit in fiscal 1996 was reduced by $775,000 or 3.3% as
a result of a charge to inventory reserves for slow-moving and obsolete
inventory. The charge resulted primarily from the continued maturing of analog
products. This compares to a charge of $77,000 in fiscal 1995 and none in fiscal
1994. Additionally, profit margins in fiscal 1996 were adversely impacted by
start-up costs associated with the introduction of new digital video products
and higher than expected material component costs of certain products. The
Company believes margins could increase in fiscal 1997 if the Company is
successful in improving manufacturing efficiencies, reducing start-up costs on
new products, and achieving cost reductions with planned redesign of certain
products. However, there can be no assurance that increased margins will in
fact be realized.
Selling, general and administrative expenses were $3,951,000 or 17.0% of
revenues in fiscal 1996, $3,671,000 or 18.8% of revenues in fiscal 1995, and
$3,309,000 or 20.0% in fiscal 1994. The percentage decrease in fiscal 1996
is due to higher revenue levels partially offset by a 7.6% increase in
expenses compared to fiscal 1995. The increase in expenses is due primarily
to increases in compensation and selling and marketing expenses.
Research and development expenditures, including capitalized software
development costs, were $3,180,000 or 13.7% of revenues in fiscal 1996,
$2,453,000 or 12.6% of revenues in fiscal 1995, and $2,212,000 or 13.4% of
revenues in fiscal 1994. During fiscal 1996, $894,000 of software development
costs were capitalized in accordance with FASB 86, and $468,000 and $187,000 of
software development costs were capitalized in fiscal 1995 and 1994,
respectively. Research and development expenses were $2,286,000 or 9.9% of
revenues in fiscal 1996, $1,985,000 or 10.2% of revenues in fiscal 1995, and
$2,025,000 or 12.3% of revenues in fiscal 1994. The Company remains committed to
such research and development expenditures as are required to effectively
compete and maintain pace with the rapid technological changes in the
communications industry and to support innovative engineering and design in its
future products. The amount of future research and development expenditures is
expected to increase compared to fiscal 1996 and decrease as a percentage of
revenues. The Company's ability to continue the development of new digital
products is directly tied to its ability to obtain additional funding, if
required.
Interest expense increased 10.6% in fiscal 1996 compared to fiscal 1995,
and increased 42.0% in fiscal 1995 compared to fiscal 1994. The increase during
fiscal 1996 was primarily due to increases in the average outstanding
borrowings. The Company believes that interest expense in fiscal 1997 will
approximate fiscal 1996 expense.
The Company recognized an income tax benefit in fiscal 1996 of $848,000 due
to the reversal of the valuation allowance on the deferred tax assets. The
reversal of the valuation allowance was based on management's assessment that
existing tax benefits will "more likely than not" be realized in future tax
returns. No income tax benefit was recognized in fiscal 1995 and fiscal 1994
due to fully-reserved deferred tax benefits related to federal net operating
loss carryforwards, deductible temporary differences,
12
and tax credit carryforwards. During fiscal 1997 the Company will again
recognize income tax expense on earnings.
The Company operates on a 52-53 week fiscal year. The fiscal year ends on
the Friday nearest to August 31. Fiscal 1996 and 1995 contained 52 weeks.
Fiscal 1994 contained 53 weeks. The financial statement effect was not
significant.
LIQUIDITY AND CAPITAL RESOURCES
On May 31, 1996, the Company issued $5,000,000 of 8% Convertible
Debentures, due May 31, 1999, in a private placement to various accredited
investors for net proceeds to the Company of $4,700,000. Proceeds were used for
working capital and reduction of the line-of-credit note payable. These
debentures are convertible at the option of the holders at any time through May
31, 1999, into a number of shares of common stock at a price equal to the lesser
of (i) $12.25 per share or (ii) a percentage, based on the holding period,
ranging from 95% to 82.5% (82.5% at August 30, 1996) of the average of the
lowest sale price on each of the five trading days immediately preceding the
conversion date. Interest at the rate of 8% per annum is payable quarterly
beginning July 1, 1996 in cash or, at the option of the Company, by adding the
amount of such interest to the outstanding principal amount due under the
Debenture. At July 1, 1996, convertible debentures in the amount of $33,972
were issued for payment of interest. At August 30, 1996 no debentures had been
converted. The Company filed Form S-3 during the fourth quarter to register
1,150,000 shares of common stock underlying such debentures for resale following
conversion. Subsequent to August 30, 1996, $1,050,000 of debentures had been
converted into 247,377 shares of common stock. On April 8, 1996, WCI entered
into a $600,000 promissory note with interest at the rate of 9.6% per annum with
principal and interest payable in 60 consecutive monthly installments of $12,597
beginning May 1, 1996. The note is secured by certain machinery and equipment.
Proceeds of the note were used for working capital. During fiscal 1995, the
Company received proceeds, net of issuance costs, of approximately $7,662,000 in
a private placement of 1,700,000 shares of common stock. These funds were used
for working capital purposes and enabled the Company to sustain higher levels of
shipments in fiscal 1996. Depending on the level of revenues and profitability
in fiscal 1997, additional funds for working capital may be required. The
Company believes that additional funds will be available, if required, through a
private placement or a public offering of additional shares of common stock or
through additional borrowing.
If additional financing is required and is not available, management of
the Company is committed to cutting the necessary costs throughout the
organization and limiting certain planned programs in order to keep cash
requirements within the current line-of-credit availability. This action would
very likely result in lower revenues. This would ultimately impact the level of
expenditures available for research and development expenses. However,
management believes that suitable financing will be successfully obtained if
required.
The Company used cash in operations of $6,041,000 in fiscal 1996 and
$2,488,000 in fiscal 1995, while continuing operations provided cash of $280,000
in fiscal 1994.
Total indebtedness increased by $3,590,000 in fiscal 1996 compared to
increases of $914,000 in fiscal 1995 and $116,000 in fiscal 1994. Capital
equipment expenditures were $579,000 in fiscal 1996, compared to $490,000 in
fiscal 1995 and $234,000 in fiscal 1994. Working capital increased 76.4% to
13
$14,010,000 at August 30, 1996 from $7,941,000 at September 1, 1995, compared to
$1,013,000 at September 2, 1994. The increase in total indebtedness and in
working capital are primarily results of the aforementioned private placement.
The Company has no material commitments for future capital expenditures.
Net accounts receivable increased 55.4% to $7,106,000 at August 30, 1996,
from $4,572,000 at September 1, 1995, compared to $2,911,000 at September 2,
1994. This increase in fiscal 1996 was due primarily to increased revenues in
the fourth quarter. The allowance for doubtful accounts was $58,000 at August
30, 1996, $42,000 at September 1, 1995, and $112,000 at September 2, 1994.
Write-offs in fiscal 1996, 1995 and 1994 were $70,000, $149,000 and $10,000,
respectively. Increases to the allowance and charges to general and
administrative expense were $60,000 in fiscal 1996, $70,000 in fiscal 1995 and
$60,000 in fiscal 1994.
During fiscal 1996, increases in inventories used cash in the amount of
$6,237,000. The Company has invested a significant amount of financial
resources to acquire certain raw materials, incur direct labor and contract to
have specific outplant procedures performed on inventory in process. As of
August 30, 1996, approximately $8,500,000 of inventory was related to MPEG-1
and MPEG-2 digital components. The Company purchased this inventory based
upon current backlog and anticipated future sales based upon existing
knowledge of the marketplace. Competition in the market for digital products
is driven by timeliness, performance and price. The Company's digital
products are in production and are aggressively priced, with unique,
desirable features. The Company believes it has positioned itself to
capitalize on the market trends in this business and believes that its
continued success will depend on aggressive marketing and product
development. 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. The Company's inventory reserve of $1,522,000 at August
30, 1996, is to provide for items that are potentially slow-moving, excess,
or obsolete resulting from rapid technological change, frequent product
introductions, changes in customer needs, and evolving industry standards
which require that the Company continue to add engineering refinements to its
existing products and develop and introduce new products which achieve market
acceptance. During fiscal 1996 inventory reserves were increased by
provisions charged to cost of sales of $775,000. During fiscal 1995
inventory reserves were reduced by write-offs of $196,000 and increased by
provisions charged to cost of sales of $77,000. Inventory reserves were
reduced by $794,000 during fiscal 1994 due to: (i) write-offs of $561,000
and (ii) reductions of $233,000 associated with the recorded cost of
inventory included in the divestiture of the Custom Products Division.
On June 5, 1996, WCI obtained from a bank a new secured revolving line of
credit and term loan facility with a combined maximum available credit limit of
$8,500,000 expiring May 4, 1999 or upon demand. The term loan portion provides
for a maximum of $1,000,000 for advances of up to 80% of the cost of equipment
acquisitions. Interest on the term loan is payable monthly at the bank's prime
rate (8.25% at August 30, 1996) plus 1 1/2%. Principal advances are payable
monthly over sixty months with a balloon payment due at maturity. Interest on
the revolving line of credit portion is payable monthly at the bank's prime rate
plus 1/2%. Additionally, the facility requires an annual facility fee of 1% of
the maximum credit limit. The revolving line of credit is subject to
availability advance formulas of 80% against eligible accounts receivable; 20%
of eligible raw material inventories; 20% of eligible work-in-process kit
inventories; and 40% to 50% of eligible finished goods inventories. Advances
against inventory are subject to a sublimit of $2,000,000. The loans are
secured by a first lien on substantially all of WCI's assets except assets
secured under the existing mortgage note and equipment note on which the bank
has a second lien. The Company is required to maintain a minimum tangible net
worth with
14
minimum annual increases at each fiscal year-end commencing with fiscal year
1997. Initial advances under the revolving line of credit were used to pay off
the balances outstanding under the existing revolving line of credit and term
loan facility with a credit finance company which expired on June 21, 1996. The
revolving lines of credit had an outstanding balance of $1,530,000 as of August
30, 1996, compared to $3,079,000 at September 1, 1995, and $1,982,000 at
September 2, 1994. At August 30, 1996, $4,277,000 was available to borrow under
the advance formulas. WGNR guarantees the revolving line of credit and term
loan.
Long-term obligations, including the convertible debentures, increased 184%
to $7,935,000 at August 30, 1996 from $2,796,000 at September 1, 1995, compared
to $2,979,000 at September 2, 1994. WCI's mortgage note on a manufacturing
facility accounts for approximately $1,887,000 of total long-term debt.
The Company has never paid cash dividends on its common stock and does not
intend to pay cash dividends in the foreseeable future.
The Company had an accumulated deficit of $1,068,000 at August 30, 1996.
The sale of the Company's Custom Product Division in fiscal year 1994 has
allowed management to focus on the design and manufacturing of high volume
digital products. The Company is very focused on controlling both direct and
indirect manufacturing costs and other operating expenses. These costs will be
adjusted as necessary if the revenues of the Company do not increase as planned.
Management believes that digital compression technology may be profitably
employed to create increased demand for its satellite receiving equipment if
those products are manufactured in a high volume standardized production
environment. Management believes that implementation of the current business
plan will allow the Company to continue to operate profitably which will
ultimately remedy this deficiency. The Company's ability to continue the rapid
development of these new digital products is dependent on its ability to obtain
additional financing, if required.
IMPACT OF INFLATION
The Company does not believe that inflation has had a material impact on
revenues or expenses during its last three fiscal years.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the
Impairment of Long-Lived Assets to be Disposed of. SFAS No. 121 addresses
issues surrounding the measurement and recognition of losses when the value of
certain assets has been deemed to be permanently impaired. This Statement will
be effective for the Company's 1997 fiscal year. The Company does not expect
SFAS No. 121 to have a material impact on the Company's financial position or
results of operations.
In October 1995, The FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 establishes a method of accounting for stock
compensation plans based on fair value, but also permits companies to continue
to account for stock option under the intrinsic value method
15
established by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees. The Company plans to continue to account for stock-based
compensation following the intrinsic value method. Beginning in fiscal 1997,
SFAS No. 123 requires disclosure in the notes to financial statements of pro
forma net income and earnings per share as if the alternative method established
in SFAS No. 123 had been used to measure compensation cost.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
16
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED Year ended Year ended
AUGUST 30, September 1, September 2,
1996 1995 1994
- -------------------------------------------------------------------------------------------
Revenue $23,195,052 $19,488,113 $16,521,192
- -------------------------------------------------------------------------------------------
Operating costs and expenses
Cost of products sold 15,721,320 12,841,412 10,817,457
Selling, general and administrative 3,951,086 3,671,203 3,309,315
Research and development 2,286,378 1,984,661 2,024,676
- -------------------------------------------------------------------------------------------
Operating costs and expenses 21,958,784 18,497,276 16,151,448
- -------------------------------------------------------------------------------------------
Operating income 1,236,268 990,837 369,744
Interest expense (696,513) (629,772) (443,548)
Interest income 67,606 24,232 -
Other (expense) income, net 717 (427) 4,447
- -------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 608,078 384,870 (69,357)
Income tax benefit 848,000 - -
- -------------------------------------------------------------------------------------------
Net earnings (loss) $ 1,456,078 $ 384,870 $ (69,357)
- -------------------------------------------------------------------------------------------
Primary earnings (loss) per share $ .16 $ .05 $ (.01)
- -------------------------------------------------------------------------------------------
Weighted average number of shares 9,055,351 7,447,627 7,352,621
- -------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
17
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 30, September 1,
1996 1995
- -------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 171,687 $ 4,913,962
Accounts receivable 7,105,984 4,571,589
Inventories 12,694,823 7,232,521
Deferred income taxes 1,123,000 -
Other 54,996 57,328
- -------------------------------------------------------------------------------------------
Total current assets 21,150,490 16,775,400
Property and equipment, net 4,727,659 4,412,183
Capitalized software costs 1,267,836 626,739
Other assets, net 590,715 203,785
- -------------------------------------------------------------------------------------------
$27,736,700 $22,018,107
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable $ 1,530,332 $ 3,078,965
Accounts payable 2,874,923 3,762,219
Accrued expenses 1,519,952 643,757
Customer deposits 645,235 517,060
Current maturities of long-term obligations 569,626 831,838
- -------------------------------------------------------------------------------------------
Total current liabilities 7,140,068 8,833,839
Long-term obligations, less current maturities 2,331,443 1,964,227
Convertible debentures 5,033,973 -
Deferred income taxes 275,000 -
- -------------------------------------------------------------------------------------------
Total liabilities 14,780,484 10,798,066
- -------------------------------------------------------------------------------------------
Commitments - -
Shareholders' equity
Common stock, $.01 par value; 10,000,000 shares
authorized; 9,231,930 and 9,193,680 shares issued 92,319 91,937
Additional paid-in capital 14,369,157 14,131,187
Deficit (1,068,475) (2,524,553)
Less treasury stock, at cost (470,397 and 515,354 shares) (436,785) (478,530)
- -------------------------------------------------------------------------------------------
Total shareholders' equity 12,956,216 11,220,041
- -------------------------------------------------------------------------------------------
$27,736,700 $22,018,107
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
18
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Additional Treasury Stock
------------ Paid-in --------------
Shares Amount Capital Deficit Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, at August 27, 1993 7,493,680 $74,937 $6,695,448 $(2,840,066) (89,126) $(370,752)
Treasury stock reissued through
stock options and 401(k) plan - - (197,090) - 56,775 256,710
Treasury stock acquired through
divestiture of custom products
group - - - - (557,000) (517,200)
Net loss for the year - - - (69,357) - -
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, at September 2, 1994 7,493,680 74,937 6,498,358 (2,909,423) (589,351) (631,242)
Treasury stock reissued through
stock options and 401(k) plan - - (11,809) - 73,997 152,712
Issuance of restricted common
stock in private placement 1,700,000 17,000 7,644,638 - - -
Net earnings for the year - - - 384,870 - -
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, at September 1, 1995 9,193,680 91,937 14,131,187 (2,524,553) (515,354) (478,530)
Treasury stock reissued through
stock options, commissions - - 126,134 - 44,957 41,745
and 401(k) plan
Issuance of common stock for
exercise of warrants and
options 38,250 382 111,836 - - -
Net earnings for the year - - - 1,456,078 - -
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, AT AUGUST 30, 1996 9,231,930 $92,319 $14,369,157 $(1,068,475) (470,397) $(436,785)
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
19
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED Year ended Year ended
AUGUST 30, September 1, September 2,
1996 1995 1994
- -----------------------------------------------------------------------------------------------------
CASH PROVIDED (USED) BY OPERATING ACTIVITIES
Net earnings (loss) $1,456,078 $ 384,870 $ (69,357)
Adjustments to reconcile net earnings (loss) to
cash provided (used) by operating activities
Depreciation and amortization 1,050,964 679,654 748,583
Issuance of treasury stock for
compensation expenses 142,333 98,198 44,320
Issuance of convertible debt for interest
expense 33,973 - -
Bad debt allowance 60,000 70,000 60,000
Inventory reserves 775,000 77,000 -
Deferred income taxes (848,000) - -
Warranty provisions - 70,000 50,000
Changes in assets and liabilities
Accounts receivable (2,594,395) (1,730,110) (1,344,917)
Inventories (6,237,302) (3,001,417) (593,204)
Other assets 2,932 (89,880) (109,866)
Accounts payable (887,296) 693,961 1,415,060
Customer deposits and accrued expenses 1,004,370 259,661 79,211
- -----------------------------------------------------------------------------------------------------
(6,041,343) (2,488,063) 279,830
- -----------------------------------------------------------------------------------------------------
CASH PROVIDED (USED) BY INVESTMENT ACTIVITIES
Property and equipment expenditures (578,801) (489,873) (233,734)
Capitalized software additions (893,532) (468,415) (187,184)
Proceeds from note receivable related to the
sale of discontinued business - - 145,000
- -----------------------------------------------------------------------------------------------------
(1,472,333) (958,288) (275,918)
- -----------------------------------------------------------------------------------------------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES
Net change in borrowings under
revolving line-of-credit (1,548,633) 1,097,199 692,455
Repayment of long-term debt and capitalized
lease obligations (891,996) (850,044) (1,295,783)
Proceeds from long-term debt 5,617,037 453,594 718,888
Proceeds from issuance of common stock 112,219 7,661,638 -
Debt issuance costs (542,771) (47,294) (133,413)
Proceeds from stock options exercised 25,545 42,705 15,300
- -----------------------------------------------------------------------------------------------------
2,771,401 8,357,798 (2,553)
- -----------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (4,742,275) 4,911,447 1,359
Cash and cash equivalents, beginning of year 4,913,962 2,515 1,156
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 171,687 $4,913,962 $ 2,515
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION. The financial statements include the accounts of Wegener
Corporation (WGNR) (the "Company") and its wholly-owned subsidiaries. Wegener
Communications, Inc. (WCI) designs, manufactures and distributes satellite
communications electronics equipment in the U.S., and internationally through
Wegener Communications International Inc. All significant intercompany balances
and transactions have been eliminated in consolidation.
FISCAL YEAR. The Company operates on a 52-53 week fiscal year. The fiscal year
ends on the Friday nearest to August 31. Fiscal 1996 and 1995 contained 52
weeks. Fiscal 1994 contained 53 weeks. The financial statement effect is not
significant.
CASH EQUIVALENTS. Cash equivalents consist of highly liquid investments with
original maturities of three months or less. There were no cash equivalents at
August 30, 1996. At September 1, 1995 cash equivalents of $4,908,000 consisted
of bank commercial paper.
INVENTORIES. Inventories are stated at the lower of cost (standards, which
approximate actual cost on a first-in, first-out basis) or market. The Company
has invested a significant amount of financial resources to acquire certain raw
materials, incur direct labor and contract to have specific outplant procedures
performed on inventory in process. As of August 30, 1996, approximately
$8,500,000 of inventory was related to MPEG-1 and MPEG-2 digital components. The
Company purchased this inventory based upon current backlog and anticipated
future sales based upon existing knowledge of the marketplace. Competition in
the market for digital products is driven by timeliness, performance and price.
The Company's digital products are in production and are aggressively priced,
with unique, desirable features. The Company believes it has positioned itself
to capitalize on the market trends in this business and believes that its
continued success will depend on aggressive marketing and product development.
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.
PROPERTY, EQUIPMENT AND DEPRECIATION. Property and equipment are stated at
cost. Certain assets are financed under lease contracts which have been
capitalized. Aggregate lease payments, discounted at appropriate rates, have
been recorded as long-term debt, the related leased assets have been
capitalized, and the amortization of such assets is included in depreciation
expense. Depreciation is computed over the estimated useful lives of the assets
on the straight-line method for financial reporting and accelerated methods for
income tax purposes. Substantial betterments to property and equipment are
capitalized and repairs and maintenance are expensed as incurred.
SOFTWARE COSTS. Software development costs are capitalized subsequent to
establishing the technological feasibility of a product. Capitalized costs
related to analog products are amortized over the lesser of three years or the
products estimated market life. Capitalized costs related to digital products
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.
Capitalized software costs for fiscal 1996, 1995, and 1994 totaled $894,000,
$468,000 and $187,000, respectively. Amortization expense, included in cost of
goods sold was $252,000, $88,000, and $48,000 for the same periods. Accumulated
amortization amounted to $398,000 at August 30, 1996 and $146,000 at September
1, 1995.
REVENUE RECOGNITION. Product sales and services are recorded when the product
is shipped or the service is rendered to the customer.
RESEARCH AND DEVELOPMENT. The Company expenses research and development costs,
including expenditures related to development of the Company's software products
that do not qualify for capitalization.
INCOME TAXES. Income taxes are based on income (loss) for financial reporting
purposes and reflect a current tax liability (asset) for the estimated taxes
payable (recoverable) in the current-year tax return and changes in deferred
taxes. Deferred tax assets or liabilities are recognized for the estimated tax
effects of temporary differences between financial reporting and taxable income
(loss) and for tax credit and loss carryforwards based on enacted tax laws and
rates. A valuation allowance is used to reduce deferred tax assets to the amount
that is more likely than not to be realized.
21
EARNINGS PER SHARE. Earnings (loss) per share are computed based on the
weighted average number of common and dilutive common equivalent shares
outstanding during each year. Common equivalent shares are calculated using the
treasury stock method and include dilutive stock options, warrants and awards.
The Convertible debentures are not considered to be common stock equivalents.
For fiscal 1996, fully diluted earnings per share were anti-dilutive.
EMPLOYEE BENEFIT PLANS. WCI has a profit-sharing plan covering substantially
all employees. Amounts to be contributed to the plan each year are determined at
the discretion of the Board of Directors subject to legal limitations. No
contributions were declared for fiscal years 1996, 1995 and 1994.
Eligible WCI employees are permitted to make contributions, up to certain
regulatory limits, to the plan on a tax deferred basis under Section 401(k) of
the Internal Revenue Code. The plan provides for a minimum company matching
contribution on a quarterly basis at the rate of 25% of employee contributions
with an annual discretionary match subject to WCI's profitability. All matching
contributions are in the form of Company stock or cash at the discretion of the
Company's Board of Directors. Matching Company contributions in the form of
common stock were approximately $65,000 in fiscal 1996, $37,000 in fiscal 1995
and $44,000 in fiscal 1994.
STOCK OPTIONS. The Company accounts for employee stock options under the
intrinsic value based method whereby compensation expense is recognized on the
difference between the quoted market price of the Company stock and the option
price at the date of grant.
FINANCIAL INSTRUMENTS. The Company's financial instruments consist of cash and
cash equivalents, trade accounts receivable, accounts payable, accrued expenses
and long and short-term bank borrowings and the recently issued convertible
debentures. The fair value of these instruments approximates their recorded
value. The Company does not have financial instruments with off-balance sheet
risk. The fair value estimates were based on market information available to
management as of August 30, 1996.
Financial instruments that potentially subject the Company to concentrations of
credit risk, consist principally of cash and cash equivalents and trade accounts
receivable. The Company invests cash through a high-credit-quality financial
institution and performs periodic evaluations of the relative credit standing of
the financial institution. A concentration of credit risk may exist with
respect to trade receivables, as a substantial portion of the Company's
customers are affiliated with the cable television, business broadcast and
telecommunications industries. The Company performs ongoing credit evaluations
of customers world-wide and generally does not require collateral from its
customers. Historically, the Company has not experienced significant losses
related to receivables from individual customers or groups of customers in any
particular industry or geographic area.
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.
FOREIGN CURRENCY. The U.S. dollar is the Company's functional currency for
financial reporting. International sales are made and remitted in U.S. dollars.
2. ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows: AUGUST 30, September 1,
1996 1995
- --------------------------------------------------------------------------------
Accounts receivable - trade $7,066,462 $4,501,509
Other receivables 97,434 111,682
- --------------------------------------------------------------------------------
7,163,896 4,613,191
Less allowance for doubtful accounts (57,912) (41,602)
- --------------------------------------------------------------------------------
$7,105,984 $4,571,589
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
22
3. INVENTORIES
Inventories are summarized as follows:
AUGUST 30, September 1,
1996 1995
- --------------------------------------------------------------------------------
Raw materials $ 5,675,954 $3,929,885
Work-in-process 5,627,543 2,594,977
Finished goods 2,913,252 1,443,949
- --------------------------------------------------------------------------------
14,216,749 7,968,811
Less inventory reserves (1,521,926) (736,290)
- --------------------------------------------------------------------------------
$12,694,823 $7,232,521
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. PROPERTY AND EQUIPMENT
Major classes of property and equipment consisted of the following:
Estimated
AUGUST 30, September 1, Useful Lives
1996 1995 (Years)
- --------------------------------------------------------------------------------
Land $ 707,210 $ 707,210 -
Buildings and improvements 3,670,499 3,639,844 3-30
Machinery and equipment 6,538,216 5,771,897 3-5
Furniture and fixtures 609,603 589,803 5
Application software 734,590 596,150 5
- --------------------------------------------------------------------------------
12,260,118 11,304,904
Less accumulated depreciation
and amortization (7,532,459) (6,892,721)
- --------------------------------------------------------------------------------
$ 4,727,659 $ 4,412,183
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Depreciation expense for fiscal 1996, 1995 and 1994 totaled approximately
$562,000, $480,000, and $639,000, respectively. Assets recorded under a capital
lease included in property and equipment at August 30, 1996 are machinery and
equipment of approximately $593,000 and accumulated amortization of
approximately $90,000, compared to machinery and equipment of approximately
$213,000 and accumulated amortization of approximately $9,000 at September 1,
1995.
5. FINANCING AGREEMENTS
REVOLVING LINE-OF-CREDIT AND TERM LOAN FACILITY
On June 5, 1996, WCI obtained from a bank a new secured revolving line of credit
and term loan facility with a combined maximum available credit limit of
$8,500,000 expiring May 4, 1999 or upon demand. The term loan portion provides
for a maximum of $1,000,000 for advances of up to 80% of the cost of equipment
acquisitions. Interest on the term loan is payable monthly at the bank's prime
rate (8.25% at August 30, 1996) plus 1 1/2%. Principal advances are payable
monthly over sixty months with a balloon payment due at maturity. Interest on
the revolving line of credit portion is payable monthly at the bank's prime rate
plus 1/2%. Additionally, the facility requires an annual facility fee of 1% of
the maximum credit limit. The revolving line of credit is subject to
availability advance formulas of 80% against eligible accounts receivable; 20%
of eligible raw material inventories; 20% of eligible work-in-process kit
inventories; and 40% to 50% of eligible finished goods inventories. Advances
against inventory are subject to a sublimit of $2,000,000. At August 30, 1996,
$4,277,000 was available to borrow under the advance formulas. The loans are
secured by a first lien on substantially all of WCI's assets except assets
secured under the existing mortgage note and equipment note on which the bank
has a second lien. The Company is required to maintain certain financial
ratios, retain certain key employees, limit expenditures of WGNR to $600,000 per
fiscal year, and is precluded from paying dividends. Additionally, Wegener
Corporation guarantees the revolving line of credit and term loan.
23
The revolving line-of-credit had an outstanding balance of $1,530,000 as of
August 30, 1996 compared to $3,079,000 at September 1, 1995. Information
relative to the revolving line-of credit is as follows:
Year ended
AUGUST 30, September 1,
1996 1995
- --------------------------------------------------------------------------------
Maximum amount outstanding at any month-end $3,684,934 $3,078,965
Average amount outstanding during the period 2,388,500 $1,953,071
Weighted average interest rate during the period 12.6% 16.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LONG-TERM OBLIGATIONS
AUGUST 30, September 1,
Long-term obligations consist of: 1996 1995
- ----------------------------------------------------------------------------------------------------
Mortgage note, payable $37,211 monthly, including interest
through February 2002, collateralized by real estate and
cross collateralized under the loan facility, interest is
charged at the bank's prime rate plus 1%. $1,887,466 $2,118,732
Capital lease obligations, bearing interest ranging from 11.1% to
12.0%, principal and interest payable monthly, currently
$22,020, final payments due from May 1997 through February
2000 431,070 194,217
Other long-term obligations, collateralized by equipment 582,533 483,116
- ---------------------------------------------------------------------------------------------------
2,901,069 2,796,065
Less current maturities (569,626) (831,838)
- ---------------------------------------------------------------------------------------------------
2,331,443 $1,964,227
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
On April 8, 1996, Wegener Communications, Inc. (WCI), a wholly owned subsidiary
of the Company, entered into a $600,000 promissory note with interest at the
rate of 9.6% per annum with principal and interest payable in 60 consecutive
monthly installments of $12,597 beginning May 1, 1996. The note is secured by
certain machinery and equipment. Proceeds of the note were used for working
capital. Wegener Corporation guarantees the note.
During the second quarter of fiscal 1995, WGNR Chairman, Robert A. Placek, sold
150,000 shares of Wegener Corporation common stock in an open market transaction
and loaned the proceeds to the Company in the form of two unsecured promissory
notes. The promissory notes dated February 2 and February 9, 1995 in the
amounts of $404,844 and $48,750 respectively bear interest at 7.43% per annum.
The notes were repaid during the fourth quarter of fiscal 1995 from proceeds of
the issuance of common stock in a private placement (Note 9).
24
A summary of future maturities of long-term debt and minimum capital lease
obligations follows:
Capital
Debt Lease
Fiscal Year Maturities Obligations Total
- --------------------------------------------------------------------------------
1997 $ 379,341 $234,154 $ 613,495
1998 414,747 143,884 558,631
1999 447,630 110,238 557,868
2000 490,905 19,905 510,810
2001 487,441 - 487,441
Thereafter 249,935 - 249,935
- --------------------------------------------------------------------------------
2,469,999 508,181 2,978,180
Less interest - (77,111) (77,111)
- --------------------------------------------------------------------------------
$2,469,999 $431,070 $2,901,069
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Company leases office and manufacturing facilities, vehicles and equipment
under long-term noncancelable operating leases which expire through fiscal 2000.
Future minimum lease commitments are approximately as follows: 1997-$155,000;
1998-$154,000; 1999-$92,000; 2000-$63,000; and 2001-$63,000. Rent expense under
all leases was approximately $299,000, $260,000 and $210,000 for fiscal years
1996, 1995, and 1994, respectively.
6. CONVERTIBLE DEBENTURES
On May 31, 1996, the Company issued $5,000,000 of 8% Convertible Debentures, due
May 31,1999, in a private placement to various accredited investors for net
proceeds to the Company of $4,700,000. The proceeds were used for working
capital and reduction of the line-of-credit note payable. These debentures are
convertible at the option of the holders at any time through May 31, 1999, into
a number of shares of common stock at a price equal to the lesser of (i) $12.25
per share or (ii) a percentage, based on the holding period, ranging from 95% to
82.5% (82.5% at August 30, 1996) of the average of the lowest sale price on each
of the five trading days immediately preceding the conversion date. Interest at
the rate of 8% per annum is payable quarterly beginning July 1, 1996 in cash or,
at the option of the Company, by adding the amount of such interest to the
outstanding principal amount due under the Debenture. At July 1, 1996
convertible debentures in the amount of $33,972 were issued for payment of
interest. At August 30, 1996, no debentures had been converted. The Company
filed a Registration Statement during the fourth quarter to register up to
1,150,000 shares of common stock underlying such debentures for resale following
conversion. Subsequent to August 30, 1996, $1,050,000 of debentures were
converted into 234,377 shares of common stock.
7. ACCRUED EXPENSES
Accrued expenses consisted of the following:
AUGUST 30, September 1,
1996 1995
- --------------------------------------------------------------------------------
Compensation $ 588,512 $399,814
Royalties 464,149 -
Other 467,291 243,943
- --------------------------------------------------------------------------------
$1,519,952 $643,757
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
25
8. INCOME TAXES
Fiscal 1996 income tax benefit was comprised of a deferred income tax benefit of
$848,000, which resulted from a reduction in the fourth quarter of the deferred
tax asset valuation allowance from $848,000 to zero. The reduction of the
valuation allowance was based on management's assessment that existing tax
benefits will "more likely than not" be realized in future tax returns. Net
deferred tax assets decreased $241,000 during fiscal 1996. There was no current
federal or state income tax expense in fiscal 1996 due to utilization of net
federal and state operating loss carryforwards. In fiscal 1995 deferred income
tax expense of $109,000 was fully offset by reductions in the deferred tax asset
valuation allowance. In fiscal 1994, deferred tax assets increased by $40,000
which were fully reserved by an increase in the valuation allowance.
Deferred tax assets and liabilities that arise as a result of temporary
differences are as follows:
- --------------------------------------------------------------------------------
AUGUST 30, September 1,
1996 1995
Deferred tax assets:
Accounts receivable and inventory reserves $ 634,000 $ 500,000
Accrued expenses 114,000 84,000
Net operating loss carryforwards 448,000 564,000
General business credit carryforwards 137,000 137,000
AMT credit carryovers 159,000 159,000
- --------------------------------------------------------------------------------
Total gross deferred tax assets 1,492,000 1,444,000
Deferred tax asset valuation allowance - (1,089,000)
- --------------------------------------------------------------------------------
Total deferred tax assets 1,492,000 355,000
Deferred tax liabilities:
Depreciation (74,000) (12,000)
Capitalized software costs (497,000) (264,000)
Other (73,000) (79,000)
- --------------------------------------------------------------------------------
Total deferred tax liabilities (644,000) (355,000)
- --------------------------------------------------------------------------------
Net deferred tax asset $ 848,000 $ -
- --------------------------------------------------------------------------------
Consolidated balance sheet classifications:
Current deferred tax asset $1,123,000 -
Noncurrent deferred tax liability 275,000 -
- --------------------------------------------------------------------------------
Net deferred tax asset $ 848,000 -
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
At August 30, 1996, the Company had approximately $1,298,000 of federal net
operating loss carryforwards which expire in 2009 and 2010; and $137,000 of
alternative minimum tax credits and $159,000 of other federal tax credits
expiring through 2004 available to offset future tax liabilities.
Differences between the effective income tax rate and the statutory federal
income rate in each of the three years presented were primarily the result of
changes in the valuation allowance.
Additionally, no provision for deferred tax liability has been made on the
undistributed earnings of a Foreign Sales Corporation as the earnings will not
be remitted in the foreseeable future and are considered permanently invested.
The amount of the unrecognized deferred tax liability for the undistributed
earnings of approximately $405,000 was approximately $138,000.
26
9. COMMON STOCK.
During the third and fourth quarters of fiscal 1995, the Company, in a private
placement to various accredited investors issued 1,700,000 shares of common
stock for net cash proceeds of approximately $7,662,000. In conjunction with
the private placement, the Company issued warrants for 45,000 common stock
shares at an exercise price of $3.00 per share expiring two years from the date
of issuance. The Company filed a Registration Statement to register 1,722,000
shares of common stock.
Effective May 28, 1994, the Company transferred the assets of its Custom
Products Division to Cross Technologies, Inc. ("CTI") a company owned by and
controlled by Heinz W. Wegener (former Chairman of the Board of WGNR) in
exchange for the surrender by Mr. Wegener and redemption by the Company of
557,000 shares of the common stock of the Company owned by Mr. Wegener. In
addition, Mr. Wegener, the Company and a Voting Trustee entered into a Voting
Trust Agreement pursuant to which Mr. Wegener transferred his remaining shares
of Wegener common stock (the "shares") to the Voting Trustee for the purpose of
vesting in the Voting Trustee the sole right to vote the shares. Under the
Voting Trust Agreement, the Voting Trustee will vote the shares proportionately
to the manner in which votes are cast by all other shareholders of the Company
who vote on any issue, and Mr. Wegener has no direct control over the voting of
such shares.
10. COMMON STOCK OPTIONS AND WARRANTS.
DIRECTORS' STOCK OPTION PLAN. On January 9, 1990, the stockholders approved the
Wegener Corporation 1989 Directors' Incentive Plan permitting certain
participating directors of the Company to be eligible to receive incentive
awards consisting of common stock of the Company, performance units or stock
appreciation rights payable in stock or cash, or non-qualified stock options to
purchase such stock, or any combination of the foregoing, together with
supplemental cash payments. During the second quarter of fiscal 1995, the
Company amended the 1989 Directors' Incentive Plan to increase the aggregate
number of shares of common stock that may be awarded from 100,000 to 300,000
shares; to remove the ineligibility provision for certain directors; and to
grant annually to each non-employee director, options to purchase 2,000 shares
of common stock at an exercise price equal to the fair market value of such
stock on the date of grant. The exercise price per share for non-qualified
stock options or stock appreciation rights shall not be less than 85% of fair
market value on the date the award is made or not more than nine trading days
immediately preceding such date. The expiration period for a non-qualified
stock option shall be ten years and one day from the date of the grant. The
expiration period for stock appreciation rights, including any extension, shall
not exceed ten years from the date of grant.
1988 INCENTIVE PLAN. On January 10, 1989 the stockholders approved the 1988
Incentive Plan providing to key employees other than directors of the Company,
incentive awards consisting of common stock, performance units or stock
appreciation rights payable in stock or cash; or incentive or non-qualified
stock options to purchase stock; or any combination of the above, together with
supplemental cash payments. The aggregate number of shares issuable under the
1988 plan is 500,000 common shares. The exercise price per share in the case of
incentive stock options and any tandem stock appreciation rights will be the
fair market value or, in the case of an option granted to a 10% or greater
stockholder, l10% of the fair market value. The exercise price for any other
option and stock appreciation rights shall be at least 85% of the fair market
value on the date the option is granted. The exercise period for non-qualified
stock options shall be ten years and one day from the date of the grant, and the
expiration period for an incentive stock option or stock appreciation rights
shall not exceed ten years from the date of the grant.
27
A summary of stock option transactions for the above plans follows:
Number Per
of Share Share
-------------------------------------------------------------
Outstanding
August 27, 1993 125,700 $ .75
Granted 10,000 1.63
Exercised (34,900) .75
Terminated (5,300) .44
-------------------------------------------------------------
Outstanding
September 2, 1994 95,500 1.63
Granted 403,785 1.50-7.00
Exercised (39,141) 1.93
Terminated (1,500) .75
-------------------------------------------------------------
Outstanding
September 1, 1995 458,644 7.00
Granted 4,000 12.13
Exercised (28,144) .75
Terminated - -
-------------------------------------------------------------
Outstanding
August 30, 1996 434,500 $ .75-12.13
-------------------------------------------------------------
Exercisable
August 30, 1996 248,500 $ .75-12.13
-------------------------------------------------------------
-------------------------------------------------------------
At September 1, 1995, options for 193,144 shares were exercisable at prices
ranging from $.44 to $3.25.
OTHER OPTIONS, AWARDS AND WARRANTS. At August 30, 1996, options for 22,500
common shares, fully exercisable at a price of $2.44 per share, expiring five
years from date of grant, were outstanding. During fiscal 1996 options for
4,500 common shares were exercised. In conjunction with a private placement of
common stock (Note 9) the Company issued warrants for 45,000 shares at an
exercise price of $3.00 per share expiring two years from the date of issue.
During fiscal 1996, warrants for 33,750 common shares were exercised. At August
30, 1996, warrants for 11,250 common shares were fully exercisable. In
addition, stock awards issued under the 1988 Incentive Plan of 12,500 shares
remained outstanding at August 30, 1996.
11. SEGMENT INFORMATION AND SIGNIFICANT CUSTOMERS
WCI operates in a single industry segment of manufacture and sale of satellite
communications electronics equipment. General corporate expenses included in
selling, general and administrative expense were approximately $412,000,
$368,000, and $196,000 in 1996, 1995 and 1994 respectively. Net equipment sales
to foreign customers were $2,549,000 for the year ended August 30, 1996,
$3,926,000 for the year ended September 1, 1995, and $2,709,000 for the year
ended September 2, 1994. All foreign sales are denominated in U.S. dollars.
Sales to foreign customers in 1996, 1995 and 1994 were primarily to customers
located in Latin America, Canada and Europe. Profit margins on foreign sales are
approximately the same as on domestic sales.
The Company sells to a variety of domestic and international customers on an
open-unsecured account basis. These customers principally operate in the cable
television, broadcast business music, private network, and data communications
industries. One customer accounted for 14.2% of revenues in fiscal 1996. A
second unrelated customer accounted for 15.0% of revenues in fiscal 1994. One
additional unrelated customer accounted for 18.6% of revenues in fiscal 1994.
At August 30, 1996 two customers accounted for 34.6% and 10.8 respectively, of
the Company's accounts receivable. At September 1, 1995, one customer accounted
for 18.7% respectively, of the Company's accounts receivable. When deemed
appropriate, the Company uses letters-of-credit and credit insurance to mitigate
the credit risk associated with foreign sales.
28
12. STATEMENT OF CASH FLOWS
Interest payments were approximately $592,000, $647,000, and $459,000 for fiscal
years 1996, 1995 and 1994, respectively. Non-cash investing and financing
activities in fiscal 1996 were: (1) Equipment acquired under capital leases of
approximately $380,000; (2) 6,517 shares of treasury stock reissued for 401(k)
matching Company contributions valued at approximately $65,000, (3) 10,296
shares of treasury stock reissued for compensation valued at approximately
$77,000, and (4) convertible debentures issued for interest expense of
approximately $34,000. Non-cash investing and financing activities in fiscal
1995 were: (1) Equipment acquired under capital leases of approximately
$213,000; (2) 12,910 shares of treasury stock reissued for 401(k) matching
Company contributions valued at approximately $37,000; and (3) 18,946 shares of
treasury stock reissued for compensation valued at approximately $62,000.
Non-cash financing activities in fiscal 1994 were: (1) Acquisition of 557,000
shares of treasury stock in exchange for inventory of approximately $429,000,
and equipment and other assets of approximately $88,000 (See Note 9);and (2)
20,890 shares of treasury stock reissued for 401(k) matching Company
contributions valued at approximately $44,000.
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED AUGUST 30, 1996
Net sales $4,368,805 $5,540,490 $5,227,909 $8,057,848
Gross profit 1,597,907 1,867,409 2,010,415 1,998,001
Net income 64,632 187,059 180,833 1,023,554
Primary earnings (loss) per share* $ 0.01 $ 0.02 $ 0.02 $ 0.11
- ---------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED SEPTEMBER 1, 1995
Net sales $3,833,612 $3,476,784 $5,492,665 $6,685,052
Gross profit 1,418,334 1,052,693 1,879,786 2,295,888
Net income (loss) 12,905 (173,702) 135,831 409,836
Primary earnings (loss) per share $ - $ (0.02) $ 0.02 $ 0.05
- ---------------------------------------------------------------------------------------------------------
* For the fourth quarter ended August 30, 1996, earnings per share on a fully
diluted basis were anti-dilutive.
During the fourth quarter of the year ended August 30, 1996, the Company
increased the inventory obsolescence reserve by $775,000 for slow-moving
inventory, and also released the valuation allowance for the deferred tax asset
in the amount of $848,000.
29
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Wegener Corporation is responsible for the accuracy and
consistency of all the information contained in the annual report, including the
accompanying consolidated financial statements. These statements have been
prepared to conform with generally accepted accounting principles appropriate to
the circumstances of the Company. The statements include amounts based on
estimates and judgments as required.
Wegener Corporation maintains internal accounting controls designed to provide
reasonable assurance that the financial records are accurate, that the assets of
the Company are safeguarded, and that the financial statements present fairly
the consolidated financial position, results of operations and cash flows of the
Company.
The Audit Committee of the Board of Directors reviews the scope of the audits
and the findings of the independent certified public accountants. The auditors
meet regularly with the Audit Committee to discuss audit and financial reporting
issues, with and without management present.
BDO Seidman, LLP the Company's independent certified public accountants, has
audited the financial statements prepared by management. Their opinion on the
statements is presented below.
Robert A. Placek,
President, Chief Executive Officer
and Chairman of the Board
C. Troy Woodbury, Jr.
Treasurer and Chief Financial Officer
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
of Wegener Corporation
Duluth, Georgia
We have audited the accompanying consolidated balance sheets of Wegener
Corporation and subsidiaries as of August 30, 1996 and September 1, 1995, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of three years in the period ended August 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principals used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Wegener
Corporation and subsidiaries as of August 30, 1996 and September 1, 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended August 30, 1996 in conformity with generally
accepted accounting principles.
Atlanta, Georgia BDO Seidman, LLP
November 19, 1996
30
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information contained under the caption "ELECTION OF DIRECTORS" in the
Proxy Statement pertaining to the January 21, 1997 Annual Meeting of
Stockholders ("Proxy Statement") is incorporated herein by reference in response
to this item.
ITEM 11. EXECUTIVE COMPENSATION
Information contained under the captions "EXECUTIVE COMPENSATION" and
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS," respectively, of the Proxy
Statement is incorporated herein by reference in response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information contained under the captions "ELECTION OF DIRECTORS" and
"BENEFICIAL OWNERSHIP OF SHARES" in the Proxy Statement is incorporated herein
by reference in response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information contained under the caption "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS" in the Proxy Statement is incorporated herein by reference in
response to this item.
31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following consolidated financial statements of Wegener
Corporation and subsidiaries and the related Report of Independent Certified
Public Accountants thereon are filed as part of this report:
Consolidated Balance Sheets August 30, 1996 and September 1, 1995
Consolidated Statements of Operations Years ended August 30, 1996, September 1,
1995, and September 2, 1994
Consolidated Statements of Shareholders' Equity Years ended August 30, 1996,
September 1, 1995, and September 2, 1994
Consolidated Statements of Cash Flows Years ended August 30, 1996, September 1,
1995, and September 2, 1994
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
Separate financial statements of the Registrant have been omitted because
the Registrant is primarily a holding company and all subsidiaries included in
the consolidated financial statements are deemed to be totally held.
(a) (2) The following consolidated financial statements schedule for
Wegener Corporation and subsidiaries, and the related Report of Independent
Certified Public Accountants are included herein, beginning on page 15:
Report of Independent Certified Public Accountants
II Valuation and Qualifying Accounts Years ended August 30, 1996,
September 1, 1995, and September 2, 1994
32
(a) (3) The exhibits filed in response to Item 601 of Regulation S K are
listed in the Exhibit Index on pages 37 and 38.
(b) There were no reports on Form 8-K filed for the Quarter ended
August 30, 1996.
(c) See Part IV, Item 14(a)(3).
(d) Not applicable.
33
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
of Wegener Corporation
Duluth, Georgia
The audit referred to in our report dated November 19, 1996, relating to
the consolidated financial statements of Wegener Corporation and subsidiaries,
which is contained in Item 8 of this Form 10-K included the audit of the
financial statement schedule listed in the accompanying index. The financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statement schedule
based on our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
Atlanta, Georgia BDO Seidman, LLP
November 19, 1996
34
SCHEDULE II
WEGENER CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Write-offs Recoveries Period
---------- ---------- ---------- ---------- -----------
Allowance for doubtful
accounts receivable:
Year ended August 30, 1996 $ 41,602 $ 60,000 $ (70,190) $ 26,500 $ 57,912
Year ended September 1, 1995 $ 112,040 $ 70,000 $ (148,714) $ 8,276 $ 41,602
Year ended September 2, 1994 $ 62,238 $ 60,000 $ (10,198) $ - $ 112,040
Inventory Reserves:
Year ended August 30, 1996 $ 736,290 $775,000 $ - $10,636 $1,521,926
Year ended September 1, 1995 $ 855,093 $ 77,000 $(195,803) $ - $ 736,290
Year ended September 2, 1994 $1,648,654 $ - $(793,561) $ - $ 855,093
35
EXHIBIT INDEX
The following documents are filed as exhibits to this report. Those
exhibits previously filed and incorporated herein by reference are identified
below by an asterisk. For each such asterisked exhibit there is shown below the
description of the previous filing. Exhibits which are not required for this
report are omitted.
Exhibit Number Description of Document
*3.1 By-Laws (Reg. No. 2-81795, Exhibits 3(a) and 3(b)).
*3.2 Certificate of Incorporation as amended through May 4, 1989
(1989 10-K, filed November 30, 1989, Exhibit 3.2).
*4.0 See By-Laws and Certificate of Incorporation, Exhibits 3.1
and 3.2. See Articles II and VIII of the By-Laws and
Article IV of the Certificate.
4.1 Loan and Security Agreement and Demand Note dated June 5,
1996 by and between Wegener Communications, Inc. and LaSalle
National Bank respecting $8,500,000 combined revolving
credit note and term note.
*4.2 Loan Agreement, Promissory Note and Deed to Secure Debt, and
Security Agreement dated February 27, 1987 between Bank
South, N.A. and Wegener Communications, Inc. respecting
$3,500,000 promissory note (1990 10-K, filed November 29,
1990, Exhibit 4.4).
*4.3 Promissory Note dated April 8, 1996 in favor of Lyon Credit
Corporation and Wegener Communications, Inc. in the
principal amount of $600,000 (1996 10Q, filed July 11, 1996,
Exhibit 4.1).
*4.4 8% Convertible Debentures dated May 31, 1996, aggregating
$5,000,000, due May 31, 1999 (1996 S-3, Registration No.
333-08017, filed July 11, 1996, Exhibit 4.1).
No other long-term debt instrument of the Registrant or its
subsidiaries authorizes indebtedness exceeding 10% of the
total assets of the Registrant and its subsidiaries on a
consolidated basis and the Registrant hereby undertakes to
provide the Commission upon request with any long-term debt
instrument not filed herewith.
*10.1 1988 Incentive Plan (1989 10-K, filed November 30, 1989,
Exhibit 10.2).
*10.2 License Agreement, Distributorship and Supply Agreement, and
Purchase Pooling and Warehouse Agreement dated May 28, 1994
by and between Wegener Communications, Inc. and Cross
Technologies, Inc (1994 10-K, filed December 15, 1994,
Exhibit 10.4).
*10.3 Wegener Communications, Inc. Profit Sharing Plan and Trust
dated January 1, 1982, amended and restated as of January 1,
1984. (1987 10K, dated and filed November 25, 1987, Exhibit
10.14).
36
Exhibit Number Description of Document
- -------------- -----------------------
*10.4 1989 Directors' Incentive Plan (1990 10-K, filed November
29, 1990, Exhibit 10.9).
*10.4.1 Amendment to 1989 Directors' Incentive Plan effective
February 1, 1995 (1995 10-K, filed December 13, 1996).
*21. Subsidiaries of the Registrant (1990 10-K, filed November
29, 1990, Exhibit 22).
23. Consent of BDO Seidman, LLP.
27. Financial Data Schedule.
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WEGENER CORPORATION
Date: November 27, 1996 By /s/ Robert A. Placek
--------------------
Robert A. Placek
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on this 27th day of November, 1996.
Signature Title
- --------- -----
/s/ Robert A. Placek President, Chief Executive Officer and Chairman of
- -------------------------- the Board (Principal Executive Officer)
Robert A. Placek
/s/ C. Troy Woodbury, Jr. Treasurer and Chief Financial Officer, Director
- -------------------------- (Principal Accounting Officer)
C. Troy Woodbury, Jr.
/s/ James T. Traicoff Controller
- --------------------------
James T. Traicoff
/s/ James H. Morgan, Jr. Director
- --------------------------
James H. Morgan, Jr.
/s/ Joe K. Parks Director
- --------------------------
Joe K. Parks
38
DIRECTORS
Robert A. Placek
Chairman of the Board,
President and Chief
Executive Officer
Wegener Corporation
James H. Morgan, Jr., Esq.
Partner
Smith, Gambrell & Russell
C. Troy Woodbury, Jr.
Treasurer and Chief
Financial Officer
Wegener Corporation
Joe K. Parks
Laboratory Director
Systems Development Laboratory
Georgia Tech Research Institute
Georgia Institute of Technology
OFFICERS
Robert A. Placek
Chairman of the Board,
President and Chief
Executive Officer
C. Troy Woodbury, Jr.
Treasurer and Chief
Financial Officer
James T. Traicoff
Controller
INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
BDO Seidman, LLP
285 Peachtree Center Avenue
Suite 800
Atlanta, Georgia 30303-1230
TRANSFER AGENT
Securities Transfer Corporation
16910 Dallas Parkway
Suite 100
Dallas, Texas 75248
CORPORATE
HEADQUARTERS
11350 Technology Circle
Duluth/Atlanta, Georgia 30155-1528
ANNUAL MEETING
The annual meeting of stockholders will be held on January 21, 1997 at 7 p.m. at
the Corporate Headquarters.
COMMON STOCK NASDAQ
NASDAQ Small-Cap Marketing System Symbol: WGNR
FORM 10-K REPORT
Wegener Corporation's Annual Report on
Form 10-K, filed with the Securities and Exchange
Commission, is available free of charge by
written request to :
Elaine Miller, Secretary
Investor Relations
Wegener Corporation
11350 Technology Circle
Duluth, Georgia 30155-1528
QUARTERLY COMMON
STOCK PRICES
The Company's common stock is traded on the NASDAQ Small-Cap Marketing System.
The quarterly range of high and low closing sale prices for fiscal 1996 and 1995
were as follows:
High Low
- -----------------------------------------------------
Fiscal Year Ending August 30, 1996
First Quarter $12 $9
Second Quarter 13 3/4 8 1/2
Third Quarter 10 5/8 7 3/4
Fourth Quarter 12 1/4 5 5/8
- -----------------------------------------------------
Fiscal Year Ending September 1, 1995
First Quarter $2 1/4 $1 1/2
Second Quarter 3 5/8 1 7/8
Third Quarter 5 7/8 3 1/4
Fourth Quarter 11 1/2 5 13/16
- -----------------------------------------------------
The Company had approximately 3453 shareholders of record at November 18, 1996.
The Company has never paid cash dividends on its common stock and does not
intend to pay cash dividends in the foreseeable future.
39