<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 1, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_______________________to_______________________
Commission file No. 0-11003
WEGENER CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 81-0371341
(State of incorporation) (I.R.S. Employer
Identification No.)
11350 TECHNOLOGY CIRCLE, DULUTH, GEORGIA 30155-1528
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (770) 623-0096
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
YES X NO ____
----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of April 1, 1996.
COMMON STOCK, $.01 PAR VALUE 8,741,788 SHARES
- ---------------------------- -------------------------
Class Outstanding April 1, 1996
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WEGENER CORPORATION AND SUBSIDIARIES
Form 10-Q For the Quarter Ended March 1, 1996
INDEX
Page(s)
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PART I. Financial Information
Item 1. Consolidated Financial Statements
Introduction....................................................3
Consolidated Statements of Operations
(Unaudited) - Six Months Ended
March 1, 1996 and March 3, 1995.................................4
Consolidated Balance Sheets - March 1,
1996 (Unaudited) and September 1, 1995..........................5
Consolidated Statements of Shareholders' Equity
(Unaudited) - Six Months Ended March 1,
1996 and March 3, 1995..........................................6
Consolidated Statements of Cash Flows
(Unaudited) - Six Months Ended March 1,
1996 and March 3, 1995..........................................7
Notes to Consolidated Financial
Statements (Unaudited)........................................8-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................10-12
PART II. Other Information
Item 1. None
Item 2. None
Item 3. None
Item 4. Submission of Matters to a Vote of Security Holders............13
Item 5. None
Item 6. Exhibits and Reports on Form 8-K...............................13
Signatures.......................................................14
2
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PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
INTRODUCTION - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
The consolidated balance sheet as of March 1, 1996; The consolidated statements
of shareholders' equity as of March 1, 1996 and March 3, 1995; the consolidated
statements of operations for the six months ended March 1, 1996 and March 3,
1995; and the consolidated statements of cash flows for the six months ended
March 1, 1996 and March 3, 1995 have been prepared without audit. The
consolidated balance sheet as of September 1, 1995 has been examined by
independent certified public accountants. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures herein are adequate to make the information presented not
misleading. It is suggested that these consolidated financial statements be read
in conjunction with the financial statements and the notes thereto included in
the Company's Annual Report on Form 10-K, for the fiscal year ended September 1,
1995, File No. 0-11003.
In the opinion of the Company, the statements for the unaudited interim
periods presented include all adjustments, which were of a normal recurring
nature, necessary to present a fair statement of the results of such interim
periods. The results of operations for the interim periods presented are not
necessarily indicative of the results of operations for the entire year.
3
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WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
March 1, March 3, March 1, March 3,
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $5,540,490 $3,476,784 $9,909,295 $7,310,396
- -------------------------------------------------------------------------------------------------------------------------
Operating costs and expenses
Cost of products sold 3,673,081 2,424,091 6,443,979 4,839,369
Selling, general, and administrative 918,924 715,089 1,764,057 1,442,453
Research and development 620,380 361,957 1,189,670 913,236
- -------------------------------------------------------------------------------------------------------------------------
Operating costs and expenses 5,212,385 3,501,137 9,397,706 7,195,058
- -------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 328,105 (24,353) 511,589 115,338
Interest expense (153,605) (149,349) (310,798) (276,135)
Interest income 12,409 - 50,638 -
Other (expense) income, net 150 - 262 -
- -------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 187,059 (173,702) 251,691 (160,797)
Income tax expense (benefit) - - - -
- -------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 187,059 $ (173,702) $ 251,691 $ (160,797)
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per common and
common equivalent share $ .02 $ (.02) $ .03 $ (.02)
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares
outstanding 9,076,083 7,028,229 9,073,250 7,010,829
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
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WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 1, September 1,
1996 1995
- -------------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,285,437 $ 4,913,962
Accounts receivable 4,244,834 4,571,589
Inventories 12,182,447 7,232,521
Other 52,970 57,328
- -------------------------------------------------------------------------------
Total current assets 17,765,688 16,775,400
Property and equipment, net 4,602,223 4,412,183
Capitalized software costs 903,500 626,739
Other assets, net 134,145 203,785
- -------------------------------------------------------------------------------
$23,405,556 $22,018,107
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable $ 3,212,795 $ 3,078,965
Accounts payable 4,686,184 3,762,219
Accrued expenses 611,540 643,757
Customer deposits 553,942 517,060
Current maturities of long-term obligations 802,452 831,838
- -------------------------------------------------------------------------------
Total current liabilities 9,866,913 8,833,839
Long-term obligations, less current maturities 1,905,070 1,964,227
- -------------------------------------------------------------------------------
Total liabilities 11,771,983 10,798,066
- -------------------------------------------------------------------------------
Commitments
Shareholders' equity
Common stock, $.01 par value, 10,000,000
shares authorized; 9,231,930 and 9,193,680
shares issued 92,320 91,937
Additional paid-in capital 14,269,234 14,131,187
Deficit (2,272,862) (2,524,553)
Less treasury stock, at cost (490,142 and
515,354 shares) (455,119) (478,530)
- -------------------------------------------------------------------------------
Total shareholders' equity 11,633,573 11,220,041
- -------------------------------------------------------------------------------
$23,405,556 $22,018,107
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
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WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
------------------- Paid-in ---------------------
Shares Amount Capital Deficit Shares Amount
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, at September 2, 1994 7,493,580 $74,937 $6,489,358 $(2,909,423) (589,351) $(631,242)
Treasury stock reissued through
stock options and 401(k) plan - - (72,321) - 21,302 95,859
Net loss for the
six months - - - (160,797) - -
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, at March 3, 1995 7,493,680 $74,937 $6,426,037 $(3,070,220) (568,049) $(535,383)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, at September 1, 1995 9,193,680 $91,937 $14,131,187 $(2,524,553) (515,354) $(478,530)
Common stock issued 38,250 383 111,873 - - -
Treasury stock reissued through
stock options and 401(k) plan - - 26,210 - 25,212 23,411
Net earnings for the
six months - - - 251,691 - -
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, at March 1, 1996 9,231,930 $92,320 $14,269,234 $(2,272,862) (490,142) $(455,119)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
6
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WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
March 1, March 3,
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED (USED) BY OPERATING ACTIVITIES
Net earnings (loss) $ 251,691 $(160,797)
Adjustments to reconcile net earnings (loss) to
cash provided by operating activities
Depreciation and amortization 477,154 327,506
Bad debt allowance 15,000 -
Issuance of treasury stock for
compensation expenses 28,201 17,663
Changes in assets and liabilities
Accounts receivable 311,755 575,618
Inventories (4,949,926) 576,317
Other current and non-current assets 4,957 (89,545)
Accounts payable 923,965 (849,145)
Customer deposits and accrued expenses 4,665 (119,160)
- -------------------------------------------------------------------------------
(2,932,538) 278,457
- -------------------------------------------------------------------------------
CASH PROVIDED (USED) BY INVESTMENT ACTIVITIES
Property and equipment expenditures (326,199) (100,314)
Capitalized software additions (388,832) (219,372)
- -------------------------------------------------------------------------------
(715,031) (319,686)
- -------------------------------------------------------------------------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES
Net change in borrowings under
revolving line-of-credit 133,830 (235,029)
Repayment of long-term debt and capitalized
lease obligation (248,426) (179,770)
Proceeds from long-term debt - 453,594
Proceeds from issuance of common stock 112,219 -
Proceeds from stock options exercised 21,421 5,875
- -------------------------------------------------------------------------------
19,044 44,670
- -------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (3,628,525) 3,441
Cash and cash equivalents, beginning of period 4,913,962 2,515
- -------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,285,437 $ 5,956
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the six months for:
Interest $ 308,356 $ 268,843
Income taxes $ - $ -
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Supplemental schedule of noncash transactions:
Capital lease obligations incurred
to acquire equipment $ 159,883 $ -
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Significant Accounting Policies
The significant accounting policies followed by the Company are set
forth in Note 1 to the Company's audited consolidated financial
statements included in the annual report on Form 10-K for the year
ended September 1, 1995.
Fiscal Year
The Company uses a fifty-two, fifty-three week year. The fiscal year
ends on the Friday closest to August 31. Fiscal years 1996 and
1995 contain fifty-two weeks.
Financial Presentation
Certain prior period amounts have been reclassified to conform with
current period presentation.
Note 2 Accounts Receivable
Accounts receivable are summarized as follows:
<TABLE>
<CAPTION>
March 1, September 1,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
Accounts receivable - trade $4,218,558 $4,501,509
Other receivables 89,655 111,682
----------- ------------
4,308,213 4,613,191
Less allowance for
doubtful accounts (63,379) (41,602)
----------- ------------
$4,244,834 $4,571,589
----------- ------------
----------- ------------
</TABLE>
8
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WEGENER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 3 Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
March 1, September 1,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
Raw material $ 6,046,020 $3,929,885
Work-in-process 4,035,386 2,594,977
Finished goods 2,847,967 1,443,949
----------- ------------
12,929,373 7,968,811
Less inventory reserves (746,926) (736,290)
----------- ------------
$12,182,447 $7,232,521
----------- ------------
----------- ------------
</TABLE>
Note 4 Income Taxes
For the six months ended March 1, 1996 no income tax expense was
recorded due to a reduction in the deferred tax asset valuation
allowance. The valuation allowance decreased approximately $86,000 in
the first six months of fiscal 1996. At March 1, 1996, net deferred
tax assets of approximately $947,000 were fully reserved by a
valuation allowance as a result of the Company's history of operating
losses. At March 1, 1996, the Company had approximately $1,334,000 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.
9
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WEGENER CORPORATION AND SUBSIDIARIES
ITEM 2. 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
THREE AND SIX MONTHS ENDED MARCH 1, 1996 COMPARED TO THREE AND SIX
MONTHS ENDED MARCH 3, 1995
The operating results for the three and six month periods ended March 1, 1996
were net earnings of $187,000 or $0.02 per share and $252,000 or $0.03 per share
compared to net losses of $(174,000) or $(0.02) per share and $(161,000) or
$(0.02) per share for the three and six month periods ended March 3, 1995.
REVENUES - The Company's revenues for the three months ended March 1, 1996 were
$5,540,000, up 59.4% from revenues of $3,477,000 for the three months ended
March 3, 1995. Revenues were $9,909,000 for the six months ended March 1, 1996,
up 35.6% from revenues of $7,310,000 for the six months ended March 3, 1995.
The increase in revenues in the second quarter and first six months of fiscal
1996 reflect 61.5% and 39.8% increases in the Direct Broadcast Satellite (DBS)
revenues compared to fiscal 1995, primarily due to increased shipments of
digital audio and video products to the business music and private network
industries. Second quarter revenues reflected initial shipments of MPEG-2
satellite news gathering digital video products. Telecom and Custom Products
Group revenues increased 66.9% and 26.4% in the second quarter and first six
months of fiscal 1996 compared to fiscal 1995, principally due to increased
shipments of uplink equipment to radio networks for conversion from analog to
digital broadcasting. WCI's backlog was approximately $28,763,000 as of March
1, 1996, compared to $27,402,000 as of September 1, 1995, and $29,215,000 as of
March 3, 1995.
GROSS PROFIT MARGINS - The Company's gross profit margins were 33.7% and 35.0%
for the three and six month periods ended March 1, 1996 compared to 30.3% and
33.8% for the three and six month periods ended March 3, 1995. The improvements
in profit margin percentages for the periods were mainly due to an improved DBS
product mix which included new digital audio and video compression products
which have higher margins than analog DBS products. Profit margins for the
three and six month periods were adversely impacted by manufacturing overhead
expenses which were increased to support increased manufacturing capacity.
Additionally, fiscal 1996 second quarter margins were adversely impacted by
start-up costs associated with initial shipments of new digital products.
SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and administrative (SG&A)
expenses were $919,000 and $1,764,000 for the three and six month periods ended
March 1, 1996 compared to $715,000 and $1,442,000 for the same periods of fiscal
1995. The increases in expenses for the three and six month periods are due to
higher levels of compensation, selling, and marketing expenses compared to the
same periods of fiscal 1995. As a percentage of revenues, SG&A expenses were
16.6% and 17.8% for the three and six month periods ended March 1, 1996 compared
to 20.6% and 19.7% for the same periods of fiscal 1995.
10
<PAGE>
RESEARCH AND DEVELOPMENT - Research and development expenditures, including
capitalized software development costs, were $836,000 and $1,579,000 for the
three and six month periods ended March 1, 1996, up 46.9% and 34.3%, compared to
$569,000 and $1,176,000 for the same periods of fiscal 1995. Capitalized
software development costs amounted to $216,000 and $389,000 for the second
quarter and first six months of fiscal 1996 compared to $207,000 and $262,000
for the same periods of fiscal 1995 The increases in these expenditures are
for the continued development of digital products.
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
rapid development of new digital products is directly tied to its ability to
obtain additional funding, if required.
INTEREST EXPENSE - Interest expense increased 2.8% in the three month period
ended March 1, 1996 compared to the same period of fiscal 1995 primarily due to
increases in the average outstanding borrowings which were partially offset by
decreases in the prime rate. For the six month period ended March 1, 1996
interest expense increased 12.6% compared to the same period of fiscal 1995
primarily due to increases in the average outstanding borrowings.
LIQUIDITY AND CAPITAL RESOURCES
SIX MONTHS ENDED MARCH 1, 1996
Depending on the level of revenues and profitability in fiscal 1996 additional
funds for working capital may be required. Management of the Company believes
that additional funds will be available, if required, through a private
placement or a public offering of additional shares of common stock or through
additional borrowings or issuance of additional debt.
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.
During the first six months of fiscal 1996 cash and cash equivalents decreased
$3,629,000. Operating activities used $2,933,000 of cash. Inventory increases
used cash of $4,950,000 which was partially offset by increases in accounts
payable of $924,000 and decreases in accounts receivable of $311,000. The
Company's revolving line of credit limits inventory advances to a maximum of the
lesser of $1,500,000 or 75% of accounts receivable availability. The inventory
advances are currently at the maximum availability. As a result, the Company is
paying its trade payable creditors under informal extended payment arrangements.
No assurances can be given that extended payment arrangements will continue to
be granted by vendors and suppliers. Any suspension or delay in the delivery of
materials would have an adverse effect on results of operations.
Inventory levels and accounts payable balances were adversely impacted by delays
in the introduction of new products which were expected to begin shipping in the
first quarter. Initial shipments of certain new products were made at the end
of the second quarter. The Company believes shipments of new products will
increase during the third quarter resulting in decreases in inventory levels and
decreases in past due accounts payable balances.
11
<PAGE>
Cash used by investment activities for property and equipment expenditures and
capitalized software additions was $715,000. Cash provided by financing
activities was $19,000. Non-cash investing and financing transactions included
capital lease obligations of $160,000 to acquire equipment.
The outstanding balance on the line-of-credit was $3,213,000 at March 1, 1996,
compared to $3,079,000 at September 1, 1995. At March 1, 1996, approximately
$960,000 was available to borrow under the accounts receivable portion of the
advance formula. Long-term debt and current maturities were $2,708,000 at the
end of the second quarter compared to $2,796,000 at September 1, 1995.
12
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 16, 1996, the Annual Meeting of Shareholders was held and
the following matters were voted upon:
(1) The shareholders approved the election of the following nominees
to the Board of Directors:
C. Troy Woodbury, Jr. and Joe K. Parks
5,433,265 votes for
25,210 votes withheld
1,840 votes abstaining
(2) Certain amendments to the 1989 Director's Incentive Plan,
including, among other things, amendments to increase the number
of shares available under the Plan from 100,000 shares to 300,000
shares and to provide for automatic annual grants of options to
non-employee directors, were approved with 4,924,688 votes for,
90,337 votes against, and 420,189 votes abstaining.
(3) The appointment of BDO Seidman, LLP as auditors for the Company
for the fiscal year 1996 was approved with 5,423,992, votes for,
26,934 votes against, and 9,888 votes abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter ended March 1, 1996.
13
<PAGE>
SIGNATURES
-----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on it behalf by the
undersigned thereunto duly authorized.
WEGENER CORPORATION
-------------------
(Registrant)
Date: April 4, 1996 By: /s/ Robert A. Placek
------------------------------
Robert A. Placek
President
Date: April 4, 1996 By: /s/ C. Troy Woodbury, Jr.
-------------------------------
C. Troy Woodbury, Jr.
Treasurer and Chief
Financial Officer
14
