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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 1, 1995
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
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
----- -----
As of December 1, 1995, 8,681,072 shares of registrant's Common Stock
were outstanding and the aggregate market value of the Common Stock held by
nonaffiliates was $65,222,620 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 16,
1996 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 SEPTEMBER 1, 1995
INDEX
PART I
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
Item 1. Business....................................................................................... 2
Item 2. Properties..................................................................................... 8
Item 3. Legal Proceedings.............................................................................. 8
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters........................... 8
Item 6. Selected Financial Data........................................................................ 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 10
Item 8. Financial Statements and Supplementary Data.................................................... 14
PART III
Item 10. Directors and Executive Officers of the Registrant............................................. 28
Item 11. Executive Compensation......................................................................... 28
Item 12. Security Ownership of Certain Beneficial Owners and Management................................. 28
Item 13. Certain Relationships and Related Transactions................................................. 28
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................... 29
</TABLE>
1
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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 Notes 10 and 11 to the consolidated
financial statements on page 26 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 manufactures 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 are no
significant warranty claims outstanding as of September 1, 1995.
WCI manufactures 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. See Note 10 to
the consolidated financial statements on page 26 of this document for a
discussion on this divestiture.
Throughout fiscal 1995, WCI continued to produce and develop digital
compression products. These products are in use world wide in distance
learning, radio, cable television, and private 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 very strong and 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 have begun to decline following market demand for, and the
Company's emphasis on, digital technology.
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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 which has finally arrived.
With ongoing breakthroughs in digital compression, digitized video and audio
products have become increasingly important. In 1995, WCI began delivering
its MPEG-1 digital video products under a multi-year, multi-million dollar
contract with Foundation Telecommunications, Inc. (FTI). FTI is using the WCI
products to deliver distance learning programming to universities. Also in
1995 Dow Jones Investor Network and NBC Desktop Video installed WCI MPEG-1
digital video products for use in subscription-based business information
networks which deliver compressed video to PCs.
WCI will manufacture MPEG-2 broadcast quality digital video products for
commercial program distribution. These products will be installed at video
programming origination points both at network studios and in satellite news
gathering trucks for on-location transmissions. The first orders have been
received for these products with deliveries scheduled for the second quarter
of fiscal 1996.
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. Orders for WCI's digital audio receiver products came
from new networks in Spain, France, Mexico, Colombia, Brazil, Finland,
Germany, Belgium, Switzerland, Singapore, and the United States. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of the volume of international sales.
The Company manufactures specialized data communications products used in
satellite broadcast data applications. Bookings for these products were very
strong in fiscal 1995. WCI manufactures satellite data receivers for Glenayre
Technologies which are used to expand Glenayre's paging network. Reuters also
chose 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 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 video 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.
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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. Satellite based radio networks use WCI products to provide program
audio and remote control of affiliate stations. Television networks use WCI
products to deliver video, stereo sound, and data, as well as network
management. Television stations use audio and data products for terrestrial
microwave and fiber optic studio-to-transmitter links.
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 or 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 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 $173,000, $170,000 and $223,000 in fiscal
1995, 1994, and 1993 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,
4
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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 business.
(vi) Working capital practices.
Information contained under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" (MDA) on pages
10-13 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 Glenayre Technologies, Inc. accounted for
approximately 15.0% of revenues in fiscal 1995. Sales to Muzak accounted for
approximately 18.6% and 13.3% of revenues in fiscal 1994 and 1993
respectively. Additionally in fiscal 1993, sales to Mega Hertz and Minnesota
Mining & Manufacturing Company accounted for approximately 10.1% and 11.3%
respectively of revenues. At September 1, 1995, one customer accounted for
18.7% of the Company's accounts receivable. At September 2, 1994, two
customers accounted for 22.8% and 10.4% respectively, 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 1996. 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 $27,402,000 at September 1, 1995 and
$10,502,000 at September 2, 1994. Reference is hereby made to page 10 of this
document which is incorporated herein by reference in response to this item.
Approximately $8,924,000 of the September 1, 1995 backlog is expected to
ship during fiscal 1996, $6,971,000 in fiscal 1997, and the remainder beyond
fiscal 1997.
(ix) Government contracts.
Not applicable.
(x) Competitive Conditions.
The Company competes with companies which have substantially greater
resources and a larger number of products, as well as with smaller
specialized companies. Competition in the emerging distance
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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 timelines, performance, and price. The Company's broadcast digital video
products are transitioning to production and are aggressively priced, with
unique, desirable features. These products are physically smaller and priced
below other equivalent products on the market today. The competitive
situation for 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 devises. 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 1995 research and development expenses
were spent in the digital video product area. WCI research and development
expenses totalled $1,985,000 in fiscal 1995, $2,025,000 in fiscal 1994, and
$1,772,000 in fiscal 1993. Additional information contained in MDA on pages
10-13 of this document is incorporated herein by reference.
(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.
(xiii) Number of employees.
As of September 1, 1995, the Company had 122 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 is good.
(d) Financial information about foreign and domestic operations and
export sales.
Information contained under the caption "Consolidation" on page 19 of
this document, and in Note 11 on page 26 of this document are incorporated
herein by reference in response to this item.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AND BUSINESS EXPERIENCE AGE OFFICE HELD
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<S> <C> <C>
ROBERT A. PLACEK 57 President, Chief Executive Officer and
President and Chief Executive Officer of the Company since Chairman of the Board
August 1987 and Director since July 1987. Chairman of the
Board since 1994. President and Director of WCI since 1979.
C. TROY WOODBURY, JR. 48 Treasurer and Chief Financial Officer
Treasurer and Chief Financial Officer of the Company since
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 45 Controller
Controller of the Company since November 1991; Controller
for WCI since July 1988; Controller for BBL Industries,
Inc. from April 1985 to July 1988.
</TABLE>
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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 1996, at an annual rental of approximately $74,000. 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 September 1, 1995.
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 21, 1995 there were approximately
2100 holders of record of Common Stock.
The quarterly range of high and low closing sale prices for fiscal 1995
and 1994 were as follows:
<TABLE>
<CAPTION>
FISCAL 95 FISCAL 94
----------------- -----------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
First Quarter..................................... $ 2 1/4 $ 1 1/2 $ 3 1/4 $ 7/8
Second Quarter.................................... 3 5/8 1 7/8 2 3/4 1 7/8
Third Quarter..................................... 6 3 1/4 2 3/8 1 5/8
Fourth Quarter.................................... 12 5 5/8 2 1/4 1 3/4
</TABLE>
The Company has not paid 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.
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ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 1, SEPTEMBER 2, AUGUST 27, AUGUST 28, AUGUST 30,
1995 1994 1993 1992 1991
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue........................................ $ 19,488 $ 16,521 $ 14,673 $ 15,722 $ 15,902
Earnings (loss) from continuing operations..... 385 (69) (428) (1,431) (456)
Earnings (loss) per share from continuing
operations.................................... $ .05 $ (.01) $ (.06) $ (.19) $ (.06)
Net earnings (loss) per share.................. $ .05 $ (.01) $ (.07) $ (.41) $ (.11)
Cash dividends paid per share (1).............. -- -- -- -- --
------------ ------------ ----------- ----------- -----------
Total assets................................... $ 22,018 $ 11,893 $ 10,827 $ 12,497 $ 16,375
Long-term obligations and current maturities... 2,796 2,979 3,556 4,923 4,147
------------ ------------ ----------- ----------- -----------
------------ ------------ ----------- ----------- -----------
</TABLE>
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(1) The Company has never paid cash dividends on its common stock and does
not intend to pay cash dividends in the foreseeable future.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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
Earnings from continuing operations were $385,000 or $.05 per share for
the year ended September 1, 1995, compared to a loss of $(69,000) or $(0.01)
per share for the year ended September 2, 1994 and a loss of $(428,000) or
$(0.06) per share for the year ended August 27, 1993. Net earnings were
$385,000 or $.05 per share in fiscal 1995, compared to a net loss of
$(69,000) or $(0.01) in fiscal 1994, and $(548,000) or $(0.07) per share for
the year ended August 27, 1993.
Revenues for fiscal 1995 were $19,488,000, up 18.0% from revenues of
$16,521,000 in fiscal 1994, compared to revenues of $14,673,000 in fiscal
1993. During fiscal 1995, the Company continued to focus on improved product
quality and the development of new products. Direct Broadcast Satellite (DBS)
revenues increased approximately $3,800,000 or 33.6% in fiscal 1995 compared
to fiscal 1994. Revenues for new digital video compression products
represented approximately $2,014,000 of the increase. Telecom and Custom
Product revenues decreased approximately $667,000 or 15.6% in fiscal 1995
compared to fiscal 1994. WCI's backlog was approximately $27,402,000 as of
September 1, 1995, compared to $10,502,000 as of September 2, 1994, and
$6,621,000 as of August 27, 1993. 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 $3,926,000 or 20.1% of
revenues in fiscal 1995, compared to $2,709,000 or 16.4% of revenues in
fiscal 1994, and $1,972,000 or 13.4% of revenues in fiscal 1993. 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 $943,000 or 16.5% in fiscal 1995 compared to
fiscal 1994 as a result of increased revenues for the year. Gross profit as a
percent of sales was 34.1% in fiscal 1995, compared to 34.5% in fiscal 1994
and 35.0% in fiscal 1993. DBS product margin percentages increased in fiscal
1995 due to higher DBS revenues resulting in manufacturing efficiencies and
improved product mix resulting from the introduction of new digital audio and
video compression products. Telecom and Custom Product margin percentages
decreased due to a decrease in Telecom revenues, resulting in higher overhead
as a percentage of sales and higher costs as a result of outsourcing the
manufacturing of custom products. The margin decrease as a percentage of
sales in fiscal 1994 compared to fiscal 1993 was due to lower margin DBS
products representing a larger percentage of total revenues (68.5% compared to
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61.9%) and a decrease in Custom Product margins as a result of the
outsourcing the manufacturing as discussed previously. The Company believes
margins will increase in fiscal 1996 as a result of a shift in product mix
comprising increased shipments of digital video products that are expected to
have higher margins than existing analog DBS products.
Selling, general and administrative expenses were $3,671,000 or 18.8% of
revenues in fiscal 1995, $3,309,000 or 20.0% of revenues in fiscal 1994, and
$3,366,000 or 22.9% in fiscal 1993. The percentage decrease in fiscal 1995 is
due to higher revenue levels offset by a 10.9% increase in expenses compared
to fiscal 1994. The increase in expenses is due primarily to increases in
selling and marketing expenses.
Research and development expenditures were $2,453,000 or 12.6% of
revenues in fiscal 1995, $2,212,000 or 13.4% of revenues in fiscal 1994, and
$1,889,000 or 12.9% of revenues in fiscal 1993. During fiscal 1995, $468,000
of software development costs were capitalized in accordance with FASB 86,
$187,000 and $117,000 of software development costs were capitalized in
fiscal 1994 and 1993, respectively. Research and development expenses were
$1,985,000 or 10.2% of revenues in fiscal 1995, $2,025,000 or 12.3% of
revenues in fiscal 1994, and $1,772,000 or 12.1% of revenues in fiscal 1993.
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 are expected to increase
compared to fiscal 1995 and decrease as a percent 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 42.0% in fiscal 1995 compared to fiscal 1994,
and increased 2.3% in fiscal 1994 compared to fiscal 1993. The increase
during fiscal 1995 was primarily due to increases in the prime rate and
higher facility fees related to the revolving line-of-credit. The Company
believes that interest expense will increase in fiscal 1996 but will decrease
as a percent of revenue.
The Company recognized no income tax benefit in fiscal 1995, fiscal 1994,
and fiscal 1993 due to fully-reserved deferred tax benefits related to
federal net operating loss carryforwards, deductible temporary differences,
and tax credit carryforwards.
The Company operates on a 52-53 week fiscal year. The fiscal year ends on
the Friday nearest to August 31. Fiscal 1995 and fiscal 1993 contain 52
weeks. Fiscal 1994 contains 53 weeks. The financial statement effect is not
significant.
LIQUIDITY AND CAPITAL RESOURCES
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 are being used for working capital purposes and
will enable the Company to sustain anticipated higher levels of shipments in
fiscal 1996. Depending on the level of revenues and profitability in fiscal
1996, 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 secondary public offering of additional shares of
common stock or through additional borrowing.
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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 continuing operations of $2,488,000 in fiscal
1995, while continuing operations provided cash of $280,000 in fiscal 1994,
and $1,169,000 in fiscal 1993. Discontinued operations contributed cash flow
of $566,000 in fiscal 1993.
Total indebtedness increased by $914,000 in fiscal 1995 compared to an
increase of $116,000 in fiscal 1994 and a reduction in debt of $1,294,000 in
fiscal 1993. Capital equipment expenditures were $490,000 in fiscal 1995,
compared to $234,000 in fiscal 1994 and $351,000 in fiscal 1993. Working
capital increased 683% to $7,941,000 at September 1, 1995 from $1,013,000 at
September 2, 1994, compared to $1,039,000 at August 27, 1993. The increase in
working capital is primarily a result of the aforementioned private
placement. The Company has no material commitments for future capital
expenditures.
Net accounts receivable increased 57.0% to $4,572,000 at September 1,
1995, from $2,911,000 at September 2, 1994, compared to $1,773,000 at August
27, 1993. This increase in fiscal 1995 was due primarily to increased
revenues in the fourth quarter of fiscal 1995 compared to fiscal 1994. The
allowance for doubtful accounts balance was $42,000 at September 1, 1995,
$112,000 at September 2, 1994, and $62,000 at August 27, 1993. The decrease
in the balance at September 1, 1995 was substantially due to a write-off
against the allowance of one customer's balance. Write-offs in fiscal 1994
and 1993 were $10,000 and $23,000, respectively. Increases to the allowance
and charges to general and administrative expense were $70,000 in fiscal
1995, $60,000 in fiscal 1994 and $8,000 in fiscal 1993.
Increases in raw material and finished goods inventories used cash in the
amount of $2,604,000 while increases in work-in-process inventories used cash
of $201,000. The Company's inventory reserve of $736,000 at September 1,
1995, 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. 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. 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.
WCI maintains a secured revolving line-of-credit and term loan facility
with a combined maximum credit limit of $4,500,000. The line-of-credit and
term loan bear interest at the prime rate (8.75% at September 1, 1995) plus
3% and expire during June, 1996. Additionally, the facility requires an
unused line fee payable monthly, at an annual rate of .5%, on the unused
portion of the maximum credit limit; a minimum loan fee payable annually
based on a minimum annual average loan balance of $3,000,000; and an annual
facility fee of 1% of the maximum credit limit. The total amount of facility
fees charged to
12
<PAGE>
interest expense during fiscal 1995 was approximately $85,000. The term loan
portion, in the original amount of $719,000, requires sixty equal principal
payments of $11,981 with a balloon payment due at maturity. The revolving
line-of-credit has a maximum limit of $4,500,000 less the balance outstanding
under the term loan (maximum limit of $4,017,000 at September 1, 1995) and
is subject to availability advance formulas of 80% against eligible accounts
receivable; 7% of eligible raw material inventories; generally 59% of
eligible finished goods inventories; and no advances against work-in-process
inventories. Advances against inventory are subject to a sublimit of the
lesser of $1,500,000 or 75% of accounts receivable availability. The
revolving lines of credit had an outstanding balance of $3,079,000 as of
September 1, 1995, compared to $1,982,000 at September 2, 1994, and
$1,289,000 at August 27, 1993. At September 1, 1995, $499,000 was available
to borrow under the advance formulas.
Long-term obligations decreased 6.2% to $2,796,000 at September 1, 1995
from $2,979,000 at September 2, 1994, compared to $3,556,000 at August 27,
1993. WCI's mortgage note on a manufacturing facility accounts for
approximately $2,119,000 of total long-term debt.
Shareholders' equity increased 270% to $11,220,000 at September 1, 1995
from $3,033,000 at September 2, 1994, and $3,560,000 at August 27, 1993. The
Company's debt to equity ratio has decreased 68% to 0.52 at September 1, 1995
from 1.64 at September 2, 1994, compared to 1.36 at August 27, 1993. The
increase in shareholders' equity and decrease in the debt to equity ratio in
fiscal 1995 compared to fiscal 1994 are primarily a result of the completion
of the private placement.
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 has a deficit of $2,525,000 at September 1, 1995. 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.
13
<PAGE>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting For
Post Retirement Benefits Other Than Pensions" and SFAS No. 112, "Employers'
Accounting For Post Employment Benefits." These statements did not have a
material impact on the Company as it does not offer the type of benefits
contemplated by the new pronouncements.
The FASB has also issued SFAS No. 115, "Accounting for Investments in
Certain Debt and Equity Instruments." This statement did not have a material
impact on the Company when it was adopted in fiscal 1995.
The FASB has also issued SFAS No. 119, "Disclosure About Derivative
Financial Instruments and Fair Value of Financial Instruments." This
statement did not impact the Company upon its adoption in fiscal 1995 as the
Company does not have any types of derivative financial instruments and does
not anticipate holding such securities in the near future.
The FASB has also issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets To Be Disposed Of" and SFAS No. 123,
"Accounting For Stock-Based Compensation." These statements, which will be
adopted in fiscal 1996, are not expected to have a material impact on the
Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
14
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 1, SEPTEMBER 2, AUGUST 27,
1995 1994 1993
------------- -------------- --------------
<S> <C> <C> <C>
Revenues.......................................................... $ 19,488,113 $ 16,521,192 $ 14,673,338
------------- -------------- --------------
Operating costs and expenses
Cost of products sold........................................... 12,841,412 10,817,457 9,536,936
Selling, general and administrative............................. 3,671,203 3,309,315 3,365,637
Research and development........................................ 1,984,661 2,024,676 1,771,993
------------- -------------- --------------
Operating costs and expenses...................................... 18,497,276 16,151,448 14,674,566
------------- -------------- --------------
Operating income (loss)........................................... 990,837 369,744 (1,228)
Interest expense................................................ (629,772) (443,548) (433,700)
Interest income................................................. 24,232 -- --
Other (expense) income, net..................................... (427) 4,447 7,084
------------- -------------- --------------
Earnings (loss) from continuing operations........................ 384,870 (69,357) (427,844)
Discontinued operations:
Estimated loss on disposal of discontinued
operations..................................................... -- -- (119,907)
------------- -------------- --------------
Net earnings (loss)............................................... $ 384,870 $ (69,357) $ (547,751)
------------- -------------- --------------
------------- -------------- --------------
Earnings (loss) per share:
Earnings (loss) from continuing operations...................... $ .05 $ (.01) $ (.06)
Loss from discontinued operations............................... -- -- (.01)
------------- -------------- --------------
Net earnings (loss) per share..................................... $ .05 $ (.01) $ (.07)
------------- -------------- --------------
------------- -------------- --------------
Weighted average number of shares outstanding..................... 7,447,627 7,352,621 7,409,891
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
15
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 1, SEPTEMBER 2,
1995 1994
------------- --------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents....................................................... $ 4,913,962 $ 2,515
Accounts receivable............................................................. 4,571,589 2,911,479
Inventories..................................................................... 7,232,521 4,308,104
Other........................................................................... 57,328 42,448
------------- --------------
Total current assets.......................................................... 16,775,400 7,264,546
Property and equipment, net....................................................... 4,412,183 4,198,348
Capitalized software costs........................................................ 626,739 245,926
Other assets, net................................................................. 203,785 184,434
------------- --------------
$ 22,018,107 $ 11,893,254
------------- --------------
------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
NOTE PAYABLE.................................................................... $ 3,078,965 $ 1,981,766
Accounts payable................................................................ 3,762,219 3,068,258
Accrued expenses................................................................ 643,757 559,657
Customer deposits............................................................... 517,060 271,499
Current maturities of long-term obligations..................................... 831,838 369,872
------------- --------------
Total current liabilities..................................................... 8,833,839 6,251,052
Long-term obligations, less current maturities.................................... 1,964,227 2,609,572
------------- --------------
Total liabilities............................................................. 10,798,066 8,860,624
------------- --------------
Commitments....................................................................... -- --
Shareholders' equity
Common stock, $.01 par value; 10,000,000 shares authorized; 9,193,680 and
7,493,680 shares issued........................................................ 91,937 74,937
Additional paid-in capital...................................................... 14,131,187 6,498,358
Deficit......................................................................... (2,524,553) (2,909,423)
Less treasury stock, at cost (515,354 and 589,351 shares)....................... (478,530) (631,242)
------------- --------------
Total shareholders' equity.................................................... 11,220,041 3,032,630
------------- --------------
$ 22,018,107 $ 11,893,254
------------- --------------
------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
16
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
---------------------- PAID-IN ------------------------
SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT
----------- --------- -------------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, at August 28, 1992........... 7,493,680 $ 74,937 $ 7,229,975 $ (2,292,315) (217,207) $ (977,432)
Treasury stock reissued through
stock options and 401(k) plan...... -- -- (534,527) -- 128,081 606,680
Net loss for the year............... -- -- -- (547,751) -- --
----------- --------- -------------- -------------- ---------- ------------
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)
----------- --------- -------------- -------------- ---------- ------------
----------- --------- -------------- -------------- ---------- ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
17
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 1, SEPTEMBER 2, AUGUST 27,
1995 1994 1993
------------- -------------- --------------
<S> <C> <C> <C>
CASH PROVIDED (USED) BY OPERATING ACTIVITIES
Net earnings (loss).............................................. $ 384,870 $ (69,357) $ (547,751)
Adjustments to reconcile net earnings (loss) to cash provided
(used) by operating activities
Depreciation and amortization.................................. 679,654 748,583 871,299
Issuance of treasury stock for compensation expenses........... 98,198 44,320 49,183
Loss on disposal of discontinued operations.................... -- -- 119,907
Bad debt allowance............................................. 70,000 60,000 8,000
Inventory reserves............................................. 77,000 -- 164,000
Warranty provisions............................................ 70,000 50,000 --
Loss on disposal of property and equipment..................... -- -- 7,971
Changes in assets and liabilities
Accounts receivable.......................................... (1,730,110) (1,344,917) 809,139
Inventories.................................................. (3,001,417) (593,204) (323,997)
Other current and non-current assets......................... (89,880) (109,866) (88,341)
Accounts payable............................................. 693,961 1,415,060 494,290
Customer deposits and accrued expenses....................... 259,661 79,211 (394,317)
------------- -------------- --------------
(2,488,063) 279,830 1,169,383
------------- -------------- --------------
CASH PROVIDED BY DISCONTINUED BUSINESS............................. -- -- 566,092
------------- -------------- --------------
CASH PROVIDED (USED) BY INVESTMENT ACTIVITIES
Property and equipment expenditures.............................. (489,873) (233,734) (350,751)
Capitalized software additions................................... (468,415) (187,184) (117,000)
Proceeds from note receivable related to the sale of discontinued
business........................................................ -- 145,000 --
------------- -------------- --------------
(958,288) (275,918) (467,751)
------------- -------------- --------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES
Net change in borrowings under revolving line-of-credit.......... 1,097,199 692,455 72,429
Repayment of long-term debt and capitalized lease obligation..... (850,044) (1,295,783) (1,366,754)
Proceeds from long-term debt..................................... 453,594 718,888 --
Proceeds from issuance of common stock........................... 7,661,638 -- --
Debt issuance costs.............................................. (47,294) (133,413) --
Proceeds from stock options exercised............................ 42,705 15,300 22,970
------------- -------------- --------------
8,357,798 (2,553) (1,271,355)
------------- -------------- --------------
Increase (decrease) in cash and cash equivalents................... 4,911,447 1,359 (3,631)
Cash and cash equivalents, beginning of year....................... 2,515 1,156 4,787
------------- -------------- --------------
Cash and cash equivalents, end of year............................. $ 4,913,962 $ 2,515 $ 1,156
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
18
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
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) manufactures and distributes satellite
communications electronics equipment in the U.S., and internationally through
Wegener Communications International Inc. Telecrafter Services Corporation
(TSC) provided marketing, installation and auditing services to the cable and
pay television industries. During 1993, the Company sold the net operating
assets of TSC. 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 1995 and fiscal 1993
contain 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. 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.
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.
LICENSE RIGHTS, PATENTS AND TRADEMARKS. License rights, patents and
trademarks are being amortized over their estimated useful lives on a
straight-line basis. The remaining estimated useful lives are approximately
three years. All direct costs relative to obtaining patents are deferred
until the patent is granted. Costs of license rights are deferred until
commencement of product shipments.
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 1995, 1994, and 1993 totaled $468,000,
$187,000 and $117,000, respectively. Amortization expense, included in cost
of goods sold was $88,000, $48,000, and $10,000 for the same periods.
Accumulated amortization amounted to $146,000 at September 1, 1995 and
$58,000 at September 2, 1994.
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.
19
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
EARNINGS PER SHARE. Earnings per share are computed on the basis of the
weighted average number of shares outstanding during each year. All dilutive
stock options, warrants and awards are assumed to be exercised at the
beginning of each year with the proceeds being used to purchase shares of the
Company's common stock at the average quoted market price.
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 1995, 1994 and 1993.
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 $37,000 in
fiscal 1995, $44,000 in fiscal 1994 and $49,000 in fiscal 1993.
FINANCIAL INSTRUMENTS. The Company's financial instruments consist of cash
and cash equivalents, trade accounts receivable, accounts payable, accrued
expenses and long and short-term borrowings. The fair value of these
instruments approximates their recorded value. The Company does not have
financial instruments with off-balance sheet risk. The fair value estimates
were based on market information available to management as of September 1,
1995.
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.
RECLASSIFICATIONS. Certain reclassifications have been made to the 1994 and
1993 financial statements to conform with the fiscal 1995 presentation.
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:
<TABLE>
<CAPTION>
SEPTEMBER 1, SEPTEMBER 2,
1995 1994
------------ -------------
<S> <C> <C>
Accounts receivable -- trade..................................... $4,501,509 $ 2,923,279
Other receivables................................................ 111,682 100,240
------------ -------------
4,613,191 3,023,519
Less allowance for doubtful accounts............................. (41,602) (112,040)
------------ -------------
$4,571,589 $ 2,911,479
------------ -------------
------------ -------------
</TABLE>
20
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
3. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 1, SEPTEMBER 2,
1995 1994
------------ -------------
<S> <C> <C>
Raw materials.................................................... $3,929,885 $ 1,989,929
Work-in-process.................................................. 2,594,977 2,393,651
Finished goods................................................... 1,443,949 779,617
------------ -------------
7,968,811 5,163,197
Less inventory reserves.......................................... (736,290) (855,093)
------------ -------------
$7,232,521 $ 4,308,104
------------ -------------
------------ -------------
</TABLE>
4. PROPERTY AND EQUIPMENT
Major classes of property and equipment consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED
SEPTEMBER 1, SEPTEMBER 2, USEFUL LIVES
1995 1994 (YEARS)
------------ ------------- ---------------
<S> <C> <C> <C>
Land............................................... $ 707,210 $ 707,210 --
Buildings and improvements......................... 3,639,844 3,637,896 3-30
Machinery and equipment............................ 5,771,897 5,102,490 3-5
Furniture and fixtures............................. 589,803 589,939 5
Application software............................... 596,150 569,291 5
------------ -------------
11,304,904 10,606,826
Less accumulated depreciation and amortization..... (6,892,721) (6,408,478)
------------ -------------
$4,412,183 $ 4,198,348
------------ -------------
------------ -------------
</TABLE>
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:
1996-$70,000; 1997-$43,000; 1998-$36,000; 1999-$20,000; and 2000-$18,000.
Rent expense under all leases was approximately $260,000, $210,000 and
$162,000 for the fiscal years ended 1995, 1994, and 1993, respectively.
5. FINANCING AGREEMENTS
REVOLVING LINE OF-CREDIT AND TERM LOAN FACILITY
On June 20, 1994, WCI obtained a new secured revolving line-of-credit and
term loan facility with a combined maximum credit limit of $4,500,000. The
line-of-credit and term loan bear interest at the prime rate (8.75% at
September 1, 1995) plus 3% and expire on June 19, 1996. Additionally, the
facility requires an unused line fee payable monthly, at an annual rate of
.5%, on the unused portion of the maximum credit limit; a minimum loan fee
payable annually based on a minimum annual average balance of $3,000,000; and
an annual facility fee of 1% of the maximum credit limit. The total amount of
facility fees charged to interest expense during fiscal 1995 was
approximately $85,000. The term loan portion, in the original amount of
$719,000, requires sixty equal principal payments of $11,981 beginning August
1, 1994 with a balloon payment due at maturity. The revolving line-of-credit
has a maximum limit of $4,500,000 less the balance outstanding under the term
loan (maximum limit of $4,017,000 at September 1, 1995) and is subject to
availability advance formulas of 80% against eligible accounts receivable; 7%
of eligible raw material inventories; generally 59% of eligible finished
goods inventories; and no advances against work-in-process inventories.
Advances against inventory are subject to a sublimit of the lesser of
$1,500,000
21
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
or 75% of accounts receivable availability. The loans are secured by
substantially all of WCI's assets (including machinery and equipment with a
book value of $721,000) except assets secured under the existing mortgage note
payable and capital lease. At September 1, 1995, $499,000 was available to
borrow under the advance formulas. WGNR guarantees the note payable and
long-term debt of WCI. Additionally an officer and principal shareholder of
WGNR guarantees the new revolving line-of-credit and term loan up to
$400,000. The loans contain provisions that restrict the Company's ability to
sell equipment, merge or make investments in unrelated companies or pay
dividends.
The revolving line-of-credit had an outstanding balance of $3,078,965 as of
September 1, 1995 compared to $1,981,766 at September 2, 1994. The
outstanding balance of approximately $1,982,000 as of September 2, 1994
represents the maximum amount available at that time. Information relative to
the revolving line-of credit is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
SEPTEMBER 1, SEPTEMBER 2,
1995 1994
------------ -------------
<S> <C> <C>
Maximum amount outstanding at any month-end...................... $3,078,965 $ 1,981,766
Average amount outstanding during the period..................... $1,953,071 $ 1,721,917
Weighted average interest rate during the period................. 16.0% 9.9%
</TABLE>
LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
SEPTEMBER 1, SEPTEMBER 2,
1995 1994
------------ -------------
<S> <C> <C>
Long-term obligations consist of:
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%. Additionally, the mortgage
contains a call provision effective February 1997............. $2,118,732 $ 2,352,171
Prime plus 3% note, payable $11,981 monthly plus interest,
expiring June 1996, collateralized by equipment............... 483,116 627,273
Capital lease obligation, payable $10,030 monthly, a total of
$23,715 was paid during fiscal 1995........................... 194,217 --
------------ -------------
2,796,065 2,979,444
Less current maturities........................................ (831,838) (369,872)
------------ -------------
$1,964,227 $ 2,609,572
------------ -------------
------------ -------------
</TABLE>
22
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
A summary of future maturities of long-term debt and minimum capital lease
obligation follows:
<TABLE>
<CAPTION>
CAPITAL
DEBT LEASE
FISCAL YEAR MATURITIES OBLIGATION TOTAL
- - ----------------------------------------- ---------- --------- ----------
<S> <C> <C> <C>
1996................................... $ 729,264 $ 120,360 $ 849,624
1997................................... 269,967 96,645 366,612
1998................................... 295,989 -- 295,989
1999................................... 325,193 -- 325,193
2000................................... 356,184 -- 356,184
Thereafter............................. 625,251 -- 625,251
---------- --------- ----------
2,601,848 217,005 2,818,853
Less interest.......................... -- (22,788) (22,788)
---------- --------- ----------
$2,601,848 $ 194,217 $2,796,065
---------- --------- ----------
---------- --------- ----------
</TABLE>
Assets recorded under a capital lease included in property and equipment at
September 1, 1995 are machinery and equipment of approximately $213,000 and
accumulated amortization of approximately $9,000 (none at September 2, 1994).
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
from proceeds of the issuance of common stock in a private placement (Note 8).
6. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 1, SEPTEMBER 2,
1995 1994
------------ ------------
<S> <C> <C>
Compensation...................................................... $ 399,814 $ 268,960
Other............................................................. 243,943 290,697
------------ ------------
$ 643,757 $ 559,657
------------ ------------
------------ ------------
</TABLE>
7. INCOME TAXES
At September 1, 1995, the Company had approximately $1,586,000 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
a valuation allowance which fully reserved the deferred tax assets. In fiscal
1995, income tax expense of $109,000 was fully offset by reductions in the
deferred tax asset valuation allowance.
23
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
Deferred tax assets and liabilities that arise as a result of temporary
differences are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 1, SEPTEMBER 2,
1995 1994
------------- --------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable and inventory reserves................... $ 447,000 $ 450,000
Non-deductible expenses...................................... 77,000 135,000
Net operating loss carryforwards............................. 539,000 450,000
General business credit carryforwards........................ 137,000 137,000
AMT and foreign credit carryovers............................ 159,000 159,000
------------- --------------
Total gross deferred tax assets............................ 1,359,000 1,331,000
Deferred tax asset valuation allowance......................... (1,033,000) (1,142,000)
------------- --------------
Total deferred tax asset................................... 326,000 189,000
Deferred tax liabilities:
Depreciation................................................. (11,000) (23,000)
Capitalized software costs................................... (236,000) (84,000)
Other........................................................ (79,000) (82,000)
------------- --------------
Total deferred tax liabilities............................. (326,000) (189,000)
------------- --------------
Net deferred tax asset......................................... $ -- $ --
------------- --------------
------------- --------------
</TABLE>
The valuation allowance relates to uncertainty surrounding the realization of
the deferred tax assets as a result of the Company's history of operating
losses. The valuation allowance decreased $109,000 during fiscal 1995, and
$39,000 during fiscal 1994 and increased $339,000 during fiscal 1993.
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.
8. 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
unregistered common stock for net 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 has filed Form S-3 to
register 1,772,000 shares of common stock, however, the registration is not
effective as of Form 10-K filing date.
9. 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 such 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 and to remove the
24
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
ineligibility provision for certain directors. 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, 110% 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.
A summary of stock option transactions for the above plans follows:
<TABLE>
<CAPTION>
NUMBER PER
OF SHARES SHARE
----------- --------------
<S> <C> <C>
Outstanding
August 28, 1992................................................ 123,700 $ .44
Granted...................................................... 72,000 .75
Exercised.................................................... (70,000) .44
Terminated................................................... -- --
----------- --------------
Outstanding
August 27, 1993................................................ 125,700 .44 - .75
Granted...................................................... 10,000 1.63
Exercised.................................................... (34,900) .44 - .75
Terminated................................................... (5,300) .44
----------- --------------
Outstanding
September 2, 1994.............................................. 95,500 .44 - 1.63
Granted...................................................... 403,785 1.50 - 7.00
Exercised.................................................... (39,141) .44 - 1.93
Terminated................................................... (1,500) .75
----------- --------------
Outstanding
September 1, 1995.............................................. 458,644 $ .44 - 7.00
----------- --------------
----------- --------------
Exercisable
September 1, 1995.............................................. 193,144 $ .44 - 3.25
----------- --------------
----------- --------------
</TABLE>
At September 2, 1994, options for 28,625 shares were exercisable at prices
ranging from $.44 to $.75.
OTHER OPTIONS, AWARDS AND WARRANTS. At September 1, 1995, options for 27,000
common stock shares, fully exercisable at a price of $2.44 per share,
expiring five years from date of grant, were outstanding. In conjunction with
a private placement of common stock (Note 8) 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. In addition, stock awards issued under the 1988 Incentive
Plan of 12,500 shares remained outstanding at September 1, 1995.
25
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
10. DIVESTITURE OF CUSTOM PRODUCTS DIVISION
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 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. The recorded cost of assets transferred to Mr.
Wegener included inventory of $429,000, and equipment and other assets of
$88,000. The Company also entered into a License Agreement and a
Distributorship and Supply Agreement with CTI. The License Agreement, the
consideration for which was included in the sale of assets to Mr. Wegener,
allows CTI to manufacture, use and sell the products formerly produced by the
Custom Products Division of WCI. Pursuant to the Distributorship and Supply
Agreement, WCI will purchase custom product analog products from CTI to
supply WCI's customer base. The Company believes that the terms and
provisions of these agreements are no less favorable in any material respect
as the Company could obtain from another independent third party, and will
allow WCI to continue to supply its customer base with a full line of
products. Mr. Wegener continues to be a stockholder of the Company, and had
been a director and officer of the Company since 1987. In connection with the
consummation of this transaction, Mr. Wegener resigned from the Board of
Directors and resigned as an officer of the Company effective May 28, 1994.
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.
Under the terms of the distribution agreement between WCI and CTI, purchases
from CTI amounted to $1,023,000 and sales to CTI amounted to $126,000 for the
year ended September 1, 1995. For the period May 28, 1994 through September
2, 1994, sales and purchases amounted to $239,000 and $10,000, respectively.
At September 1, 1995 and September 2, 1994 accounts payable balances included
amounts due to CTI of approximately $133,000 and $110,000 respectively.
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
$368,000, $196,000, and $271,000 in 1995, 1994 and 1993 respectively. Net
equipment sales to foreign customers were $3,926,000 for the year ended
September 1, 1995, $2,709,000 for the year ended September 2, 1994, and
$1,972,000 for the year ended August 27, 1993. All foreign sales are
denominated in U.S. dollars. Sales to foreign customers in 1995, 1994 and
1993 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 15.0% of revenues in
fiscal 1995. A second unrelated customer accounted for 18.6% of revenues in
1994 and 13.3% in 1993. Two additional unrelated customers accounted for
11.3% and 10.1% of revenues in 1993. At September 1, 1995 one customer
accounted for 18.7% of the Company's accounts receivable. At September 2,
1994, two customers accounted for 22.8% and 10.4% 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.
12. STATEMENT OF CASH FLOWS
Interest payments were approximately $647,000, $459,000, and $441,000 for
fiscal years 1995, 1994 and 1993, respectively. Income taxes recovered were
approximately $244,000 during fiscal year 1993. 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 10); and (2) 20,890 shares of treasury stock
reissued for 401(k) matching Company contributions valued at approximately
$44,000. Non-cash financing activities in fiscal 1993 were: (1) 44,744 shares
of treasury stock reissued for 401(k) matching Company contributions valued
at approximately $49,000; and 2) the disposal of the net operating assets of
TSC in exchange for a $145,000 promissory note.
26
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
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 September 1, 1995 and September 2, 1994,
and the related consolidated statements of operations, shareholders' equity
and cash flows for each of three years in the period ended September 1, 1995.
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 September 1, 1995 and September 2,
1994 and the consolidated results of their operations and their cash flows
for each of the three years in the period ended September 1, 1995 in
conformity with generally accepted accounting principles.
BDO Seidman, LLP
Atlanta, Georgia
November 20, 1995
27
<PAGE>
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 16, 1996 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.
28
<PAGE>
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 September 1, 1995 and September 2, 1994
Consolidated Statements of Operations Years ended September 1, 1995,
September 2, 1994, and August 27, 1993
Consolidated Statements of Shareholders' Equity Years ended September 1,
1995, September 2, 1994, and August 27, 1993
Consolidated Statements of Cash Flows Years ended September 1, 1995,
September 2, 1994, and August 27, 1993
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 schedules 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
VIII Valuation and Qualifying Accounts Years ended September 1, 1995,
September 2, 1994, and August 27, 1993
X Supplementary Earnings Statement Information Years ended September
1, 1995, September 2, 1994, and August 27, 1993
29
<PAGE>
Schedules I, II, III, IV, V, VI, VII, IX, XI, XII and XIII are omitted as
they are not applicable or information required to be presented in these
schedules is included in the Notes to Consolidated Financial Statements.
(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
September 1, 1995.
(c) See Part IV, Item 14(a)(3).
(d) Not applicable.
30
<PAGE>
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 20, 1995, 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 schedules listed in the accompanying index.
These financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits.
In our opinion such financial statement schedules present fairly, in all
material respects, the information set forth therein.
BDO Seidman, LLP
Atlanta, Georgia
November 20, 1995
31
<PAGE>
SCHEDULE VIII
WEGENER CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
PERIOD EXPENSES WRITE-OFFS RECOVERIES END OF PERIOD
------------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts receivable:
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
Year ended August 27, 1993................ $ 52,377 $ 8,000 $ (23,047) $ 24,908 $ 62,238
Inventory Reserves:
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
Year ended August 27, 1993................ $ 1,664,997 $ 164,000 $ (180,343) $ -- $ 1,648,654
</TABLE>
32
<PAGE>
SCHEDULE X
WEGENER CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
CHARGED TO COSTS AND EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 1, SEPTEMBER 2, AUGUST 27,
ITEM 1995 1994 1993
- - ------------------------------------------------------------------------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
1. Maintenance and repairs............................................. $ * $ 214,089 $ 228,686
2. Amortization of intangible assets, preoperating costs and similar
deferral........................................................... 199,680 * *
3. Taxes, other than payroll and income taxes
a. Sales and use taxes............................................. * * *
b. Property tax.................................................... * * *
4. Royalties........................................................... * * *
5. Advertising costs................................................... $ 196,189 $ * $ 249,881
</TABLE>
* Total costs and expenses in these categories did not exceed 1% of total
sales and revenues.
33
<PAGE>
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
*2.1 Stock Transfer and Redemption Agreement dated May
28, 1994 by and between Wegener Corporation and
Heinz Wegener (1994 10-K, filed December 15, 1994,
Exhibit 2.1).
*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 Secured Promissory
Note dated June 21, 1994 by and between Wegener
Communications, Inc. and The CIT Group/Credit
Finance, Inc. respecting $4,500,000 combined
revolving credit note and term note (1994 10-K,
filed December 15, 1994, Exhibit 4.1).
*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). 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).
34
<PAGE>
*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.
*21. Subsidiaries of the Registrant (1990 10-K, filed
November 29, 1990, Exhibit 22).
23. Consent of BDO Seidman, LLP
27. Financial Data Schedule
35
<PAGE>
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: December 13, 1995 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 13th day of December, 1995.
SIGNATURE TITLE
- - --------- -----
President, Chief Executive
/s/ ROBERT A. PLACEK Officer and Chairman of the
-------------------------------------------- Board (Principal Executive
Robert A. Placek Officer)
/s/ C. TROY WOODBURY, JR. Treasurer and Chief Financial
-------------------------------------------- Officer, Director (Principal
C. Troy Woodbury, Jr. Accounting Officer)
/s/ JAMES T. TRAICOFF
-------------------------------------------- Controller
James T. Traicoff
/s/ JAMES H. MORGAN, JR.
-------------------------------------------- Director
James H. Morgan, Jr.
/s/ JOE K. PARKS
-------------------------------------------- Director
Joe K. Parks
36
<PAGE>
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 16, 1996 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
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
- - ------------------------------------
Fiscal Year Ending September 1, 1995
First Quarter $ 2 1/4 $ 1 1/2
Second Quarter 3 5/8 1 7/8
Third Quarter 6 3 1/4
Fourth Quarter 12 5 5/8
- - ----------------------------
Fiscal Year Ending September 2, 1994
First Quarter $ 3 1/4 $ 7/8
Second Quarter 2 3/4 1 7/8
Third Quarter 2 3/8 1 5/8
Fourth Quarter 2 1/4 1 3/4
- - ----------------------------
</TABLE>
The Company had approximately 2100 shareholders of record at November 21,
1995. The Company has never paid cash dividends on its common stock and does
not intend to pay cash dividends in the foreseeable future.
37
<PAGE>
EXHIBIT 10.4.1
AMENDMENT NO. ONE
TO
1989 DIRECTORS' INCENTIVE PLAN
OF
WEGENER CORPORATION
The 1989 Directors' Incentive Plan (the "Directors' Plan"), shall be amended
as follows:
(1) The last sentence of Section 1 relating to the ineligibility of HEINZ W.
WEGENER and ROBERT A. PLACEK in the Directors Plan shall be deleted in
full.
(2) The Directors' Plan is further amended by deleting from Section 2 the
definition of "Fair Market Value" in its entirety and by substituting in
lieu thereof the following:
" 'Fair Market Value' means, as of any date, the closing
price of the common stock of the Company as reported by any
national stock exchange on which such stock is traded or as
reported by the NASDAQ national market system; PROVIDED,
HOWEVER, in the event there are no actual sales transactions
reported for any such date, Fair Market Value shall mean the
mean between the high "bid" and low "ask" prices as of the
close of business for such date for shares of common stock of
the Company in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated
Quotation System or other quotation service."
(3) The Directors' Plan is further amended by deleting from Section 2 the
definition of "Participating Director" in its entirety and by
substituting in lieu thereof the following:
" 'Participating Director' means any member of the Board of
Directors of the Company who is not a Non-Employee Director."
(4) The Directors' Plan is further amended by adding a new definition to
Section 2 which shall read as follows:
" 'Non-Employee Director' shall mean each person who is a
member of the Board of Directors of the Company but who is
not a full-time employee of the Company."
(5) The Directors' Plan is further amended by deleting the first sentence of
SECTION 3 and by substituting in lieu thereof the following sentence:
"The aggregate number of shares of stock which may be awarded under the
Directors' Plan or subject to purchase by exercising an Option shall not
exceed 300,000 shares."
(6) The Directors' Plan is further amended by deleting the first sentence of
paragraph (a) of SECTION 12 and by substituting in lieu thereof the
following sentence: "The Directors' Plan shall be administered by a
Committee composed of two or more persons, as appointed by the Board and
serving at the Board's pleasure.
<PAGE>
(7) The Directors' Plan is further amended by adding at the end thereof a
new section to be known as "Section 18" which shall read as follows:
"18. Options to Non-Employee Directors
Notwithstanding anything in the Directors' Plan to the
contrary, the participation and eligibility of a Non-Employee
Director of the Company in the Directors' Plan shall be limited
exclusively to the following:
(a) On the last day of each December (after the effective
date of this Section 18) on which regular trading occurs on the
NASDAQ stock market during which the Directors' Plan is in force
and effect, each Non-Employee Director who shall have served as
a Director of the Company, without resignation, leave, removal
or other interruption, since the last annual shareholders
meeting, shall be granted, without the necessity of action by
the Committee or the Board, an Option hereunder to purchase
2,000 shares of Stock at an exercise price equal to the Fair
Market Value of the Stock on such grant date. The provisions of
this subsection (a) shall not be amended more than once during
any six month period other than to comply with changes mandated
by law, including the Employee Retirement Income Security Act
of 1974 and the Code and any applicable regulations thereunder.
(b) For services rendered prior to January 1, 1995,
each Non-Employee Director who is serving as a Director on such
date, shall also be granted, without the necessity of action by
the Committee or the Board, an Option hereunder to purchase
2,000 shares of Stock for each full or partial calendar year
during which such Non-Employee Director served, without
resignation, leave, removal or other interruption, since the
effective date of the Directors' Plan, at an exercise price
equal to the Fair Market Value of the Stock on the effective
date of this Section 18.
(c) Such Options granted under this Section 18 shall be
exercisable commencing on the later of the date of grant or
shareholder approval of this amendment to the Directors' Plan,
and thereafter until the date which is ten years and one day
from the later of the date of grant or such shareholder
approval, whichever is applicable.
(d) In all other respects, options granted to Non-Employee
Directors hereunder shall conform to the terms of this Plan and
no Non-Employee Director shall be eligible to receive Options
hereunder except as provided in this Section 18.
(e) Upon the exercise of all or a portion of any of the
options provided for in this Section 18, the Company shall pay a
supplemental cash amount equal to the greater of (a) the
Company's minimum federal and state tax withholding obligation
with respect to such exercise by the Non-Employee Director and
such supplemental payment, or (b) an amount sufficient to
defray the federal and state tax
<PAGE>
consequences to the Non-Employee Director attributable to such
exercise by the Non-Employee Director and such supplemental
payment, as determined by the Committee on each date of such
exercise, and based upon such information and calculations as
the Committee in its sole discretion shall deem appropriate.
(f) The effective date of this Section 18 shall be
February 1, 1995."
<PAGE>
EXHIBIT 23.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Wegener Corporation
Duluth, Georgia
We hereby consent to the incorporation by reference in the Registration
Statements (File No. 33-45390 and No. 33-42007) of our reports dated November
20, 1995 relating to the consolidated financial statements and schedules of
Wegener Corporation and Subsidiaries appearing in the Company's Annual Report
on Form 10-K for the year ended September 1, 1995.
BDO Seidman, LLP
Atlanta, Georgia
December 13, 1995
38
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-K SEPTEMBER 1, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-01-1995
<PERIOD-END> SEP-01-1995
<CASH> 4,913,962
<SECURITIES> 0
<RECEIVABLES> 4,613,191
<ALLOWANCES> (41,602)
<INVENTORY> 7,232,521
<CURRENT-ASSETS> 16,775,400
<PP&E> 11,304,904
<DEPRECIATION> (6,892,721)
<TOTAL-ASSETS> 22,018,107
<CURRENT-LIABILITIES> 8,833,839
<BONDS> 1,964,227
<COMMON> 91,937
0
0
<OTHER-SE> 11,128,104
<TOTAL-LIABILITY-AND-EQUITY> 22,018,107
<SALES> 19,488,113
<TOTAL-REVENUES> 19,488,113
<CGS> 12,841,412
<TOTAL-COSTS> 18,497,276
<OTHER-EXPENSES> (23,805)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 629,772
<INCOME-PRETAX> 384,870
<INCOME-TAX> 0
<INCOME-CONTINUING> 384,870
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 384,870
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
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