<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 November 29, 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)
<TABLE>
<S> <C>
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)
</TABLE>
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 December 20, 1996.
<TABLE>
<S> <C>
Common Stock, $.01 Par Value 9,064,534 Shares
- ---------------------------- ----------------
Class Outstanding December 20,1996
</TABLE>
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
Form 10-Q For the Quarter Ended November 29, 1996
INDEX
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
PART I. Financial Information
Item 1. Consolidated Financial Statements
Introduction ................................................ 3
Consolidated Statements of Operations
(Unaudited) - Three Months Ended
November 29, 1996 and December 1, 1995 ...................... 4
Consolidated Balance Sheets - November 29,
1996 (Unaudited) and August 30, 1996 ........................ 5
Consolidated Statements of Shareholders' Equity
(Unaudited) - Three Months Ended November 29,
1996 and December 1, 1995 ................................... 6
Consolidated Statements of Cash Flows
(Unaudited) - Three Months Ended November 29,
1996 and December 1, 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. None
Item 5. None
Item 6. Exhibits and Reports on Form 8-K ............................ 13
Signatures .................................................. 14
</TABLE>
2
<PAGE>
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 November 29, 1996; the consolidated
statements of shareholders' equity as of November 29, 1996 and December 1, 1995;
the consolidated statements of operations for the three months ended November
29, 1996 and December 1, 1995; and the consolidated statements of cash flows for
the three months ended November 29, 1996 and December 1, 1995 have been
prepared without audit. The consolidated balance sheet as of August 30, 1996 has
been examined by independent certified public accountants. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures herein are adequate to make the information presented not
misleading. It is suggested that these consolidated financial statements be read
in conjunction with the financial statements and the notes thereto included in
the Company's Annual Report on Form 10-K, for the fiscal year ended August 30,
1996, 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
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
NOVEMBER 29, December 1,
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues $6,642,663 $4,368,805
- --------------------------------------------------------------------------------
Operating costs and expenses
Cost of products sold 4,419,722 2,770,898
Selling, general, and administrative 985,652 845,133
Research and development 566,830 569,290
- --------------------------------------------------------------------------------
Operating costs and expenses 5,972,204 4,185,321
- --------------------------------------------------------------------------------
Operating income 670,459 183,484
Interest expense (181,682) (157,193)
Interest income 1,429 38,229
Other (expense) income, net -- 112
- --------------------------------------------------------------------------------
Earnings before income taxes 490,206 64,632
Income tax expense 186,000 --
- --------------------------------------------------------------------------------
Net earnings 304,206 $ 64,632
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net earnings per share:
Primary $ .03 $ .01
Fully diluted $ .03 $ .01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Weighted average number of shares
Primary 9,135,008 9,058,863
Fully diluted 9,985,094 9,058,863
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 29, August 30,
1996 1996
- --------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash $ 55,601 $ 171,687
Accounts receivable 5,614,814 7,105,984
Inventories 12,316,654 12,694,823
Deferred income taxes 950,000 1,123,000
Other 66,440 54,996
- --------------------------------------------------------------------------------
Total current assets 19,003,509 21,150,490
Property and equipment, net 4,742,396 4,727,659
Capitalized software costs 1,291,837 1,267,836
Other assets, net 495,281 590,715
- --------------------------------------------------------------------------------
$25,533,023 $27,736,700
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable $ -- $ 1,530,332
Accounts payable 2,660,340 2,874,923
Accrued expenses 872,200 1,519,952
Customer deposits 602,446 645,235
Current maturities of long-term obligations 545,387 569,626
- --------------------------------------------------------------------------------
Total current liabilities 4,680,373 7,140,068
Long-term obligations, less current maturities 2,209,956 2,331,443
Convertible debentures 4,085,195 5,033,973
Deferred income taxes 275,000 275,000
- --------------------------------------------------------------------------------
Total liabilities 11,250,524 14,780,484
- --------------------------------------------------------------------------------
Commitments -- --
Shareholders' equity
Common stock, $.01 par value, 10,000,000 shares
authorized; 9,479,307 and 9,231,930 shares issued 94,793 92,319
Additional paid-in capital 15,381,539 14,369,157
Deficit (764,269) (1,068,475)
Less treasury stock, at cost (462,620 and 470,397
shares) (429,564) (436,785)
- --------------------------------------------------------------------------------
Total shareholders' equity 14,282,499 12,956,216
- --------------------------------------------------------------------------------
$25,533,023 $27,736,700
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
------------ Paid-in --------------
Share Amount Capital Deficit Shares Amount
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, at September 1, 1995 9,193,680 $91,937 $14,131,187 $(2,524,553) (515,354) $(478,530)
Treasury stock reissued through
stock options and 401(k) plan -- -- 12,622 -- 2,746 2,550
Net earnings for the three months -- -- -- 64,632 -- --
- --------------------------------------------------------------------------------------------------------
BALANCE, at December 1, 1995 9,193,680 $91,937 $14,143,809 $(2,459,921) (512,608) $(475,980)
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
BALANCE, at August 30, 1996 9,231,930 $92,319 $14,369,157 $(1,068,475) (470,397) $(436,785)
Treasury stock reissued through
stock options and 401(k) plan -- -- 20,478 -- 7,777 7,221
Issuance of common stock for
convertible debentures 247,377 2,474 991,904 -- -- --
Net earnings for the
three months -- -- -- 304,206 -- --
- --------------------------------------------------------------------------------------------------------
BALANCE, at November 29, 1996 9,479,307 $94,793 $15,381,539 $ (764,269) (462,620) $(429,564)
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
NOVEMBER 29, December 1,
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED (USED) BY OPERATING ACTIVITIES
Net earnings $ 304,206 $ 64,632
Adjustments to reconcile net earnings to
cash provided by operating activities
Depreciation and amortization 321,597 221,423
Issuance of treasury stock for
compensation expenses 23,199 12,922
Issuance of convertible debt for interest
expense 101,222 --
Deferred income taxes 173,000 --
Changes in assets and liabilities
Accounts receivable 1,491,170 854,220
Inventories 378,169 (5,170,381)
Other (30,854) (15,037)
Accounts payable (214,583) 1,942,848
Customer deposits and accrued expenses (690,541) (69,542)
- --------------------------------------------------------------------------------
1,856,585 (2,158,915)
- --------------------------------------------------------------------------------
CASH PROVIDED (USED) BY INVESTMENT ACTIVITIES
Property and equipment expenditures (190,246) (240,158)
Capitalized software additions (110,867) (173,040)
- --------------------------------------------------------------------------------
(301,113) (413,198)
- --------------------------------------------------------------------------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES
Net change in borrowings under
revolving line-of-credit (1,530,332) (563,621)
Repayment of long-term debt and capitalized
lease obligation (145,726) (123,502)
Proceeds from stock options exercised 4,500 2,250
- --------------------------------------------------------------------------------
(1,671,558) (684,873)
- --------------------------------------------------------------------------------
Increase (decrease) in cash (116,086) (3,256,986)
Cash and cash equivalents, beginning of period 171,687 4,913,962
- --------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 55,601 $ 1,656,976
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the three months for:
Interest $ 78,248 $ 158,430
Income taxes $ -- $ --
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</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 August 30, 1996.
Earnings Per Share
Primary earnings per share are calculated by dividing net earnings by
the weighted average number of common shares and dilutive common stock
equivalents using the treasury stock method. Fully diluted earnings per
share assumed conversion of the outstanding convertible debentures.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could vary from these
estimates.
Fiscal Year
The Company uses a fifty-two, fifty-three week year. The fiscal year
ends on the Friday closest to August 31. Fiscal years 1997 and 1996
contain fifty-two weeks.
Note 2 Accounts Receivable
Accounts receivable are summarized as follows:
<TABLE>
<CAPTION>
NOVEMBER 29, August 30,
1996 1996
------------ ----------
(UNAUDITED)
<S> <C> <C>
Accounts receivable - trade $5,578,914 $7,066,462
Other receivables 93,812 97,434
---------- ----------
5,672,726 7,163,896
Less allowance for
doubtful accounts (57,912) (57,912)
---------- ----------
$5,614,814 $7,105,984
---------- ----------
---------- ----------
</TABLE>
8
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 3 Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
NOVEMBER 29, August 30,
1996 1996
------------ ----------
(UNAUDITED)
<S> <C> <C>
Raw material $ 5,155,160 $ 5,675,954
Work-in-process 4,360,877 5,627,543
Finished goods 3,833,520 2,913,252
----------- -----------
13,349,557 14,216,749
Less inventory reserves (1,032,903) (1,521,926)
----------- -----------
$12,316,654 $12,694,823
----------- -----------
----------- -----------
</TABLE>
Note 4 Income Taxes
For the three months ended November 29, 1996, income tax expense of
$186,000 was comprised of a current state income tax expense of $13,000
and a federal and state deferred income tax expense of $173,000. There
was no current federal income tax expense due to utilization of federal
net operating loss carryforwards. Deferred tax assets decreased
$173,000 in the first quarter. At November 29, 1996, the Company had
approximately $808,000 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.
9
<PAGE>
WEGENER CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This information should be read in conjunction with the consolidated financial
statements and the notes thereto included in Item 1 of this Quarterly Report and
the audited consolidated financial statements and notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations for the
year ended August 30, 1996 contained in the Company's 1996 Annual Report on Form
10-K.
Certain statements contained in this filing are "forward-looking statements"
within the meaning of Private Securities Litigation Reform Act of 1995, such as
statements relating to financial results, plans for future business development
activities, capital spending or financing sources, capital structure and the
effects of regulation and competition, and are thus prospective. Such forward-
looking statements are subject to risks, uncertainties and other factors which
could cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. Potential risks and uncertainties
include, but are not limited to, economic conditions, product demand,
governmental and technological factors, competition and other uncertainties
detailed in the Company's Form 10-K for the year ended August 30, 1996 and from
time to time in other Securities and Exchange Commission filings.
The Company manufactures satellite communications equipment through Wegener
Communications, Inc. (WCI), a wholly-owned subsidiary. WCI designs and
manufactures communications transmission and receiving equipment for the
business broadcast, data communications, cable and broadcast radio and
television industries.
RESULTS OF OPERATIONS
THREE MONTHS ENDED NOVEMBER 29, 1996 COMPARED TO THREE MONTHS
ENDED DECEMBER 1, 1995
Net earnings were $304,000 or $0.03 per share for the three month period ended
November 29, 1996, compared to $65,000 or $0.01 per share for the three month
period ended December 1, 1995.
REVENUES - The Company's revenues for the first quarter of fiscal 1997 were
$6,643,000, up 52.0% from revenues of $4,369,000 for the same period in fiscal
1996.
Direct Broadcast Satellite (DBS) revenues increased 77.3% mainly due to
increased shipments of MPEG digital video products to the broadcast and private
network industries. Telecom and Custom Products Group revenues decreased 20.2%
which reflect a maturing product line and reduced shipments to the cable
television and radio network industries. WCI's backlog was approximately
$27,000,000 as of November 29, 1996, compared to $28,045,000 at August 30, 1996
and $30,996,000 at December 1, 1995.
GROSS PROFIT MARGINS - Gross profit increased $625,000 or 39.1% in the three
month period ended November 29, 1996, compared to the three month period ended
December 1, 1995, as a result of increased revenues for the period. Gross
profit as a percent of revenues was 33.5% in the first quarter of fiscal 1997
compared to 36.6% in the first quarter of fiscal 1996. Profit margins in the
first quarter of fiscal 1997 were adversely impacted by start-up costs
associated with the introduction of new digital video products and higher than
expected material component costs of certain products.
10
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and administrative
expenses were $986,000 or 14.8% of revenues for the three months ended November
29, 1996 compared to $845,000 or 19.3% of revenues for the same period in fiscal
1996. The increase in expenses is due to higher levels of compensation,
selling, and marketing expenses in the first quarter of fiscal 1997 compared to
the first quarter of fiscal 1996. The percentage decrease in fiscal 1997 is due
to higher revenue levels.
RESEARCH AND DEVELOPMENT - Research and development expenditures, including
capitalized software development costs, were $678,000 or 10.2% of revenues in
the first quarter of fiscal 1997 compared to $742,000 or 17.0% of revenues for
the same period of fiscal 1996. Capitalized software development costs amounted
to $111,000 in the first quarter of fiscal 1997 compared to $173,000 in the
first quarter of fiscal 1996. The decrease in expenditures is primarily due to
higher consulting costs in fiscal 1996 incurred for the development of digital
video 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 dollar amount of future
research and development expenditures is expected to increase compared to fiscal
1996 and to 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 15.6% for the three months ended
November 29, 1996, compared to the same period in fiscal 1996 primarily due to
increases in average outstanding borrowings.
INCOME TAX EXPENSE - For the three months ended November 29, 1996, income tax
expense was $186,000 compared to none for the same period of fiscal 1996.
Fiscal 1997 income tax expense was comprised of a current state income tax
expense of $13,000 and a federal and state deferred income tax expense of
$173,000. There was no income tax expense in fiscal 1996 due to a decrease in
the deferred tax asset valuation allowance which fully offset the increase in
deferred tax liabilities.
LIQUIDITY AND CAPITAL RESOURCES
THREE MONTHS ENDED NOVEMBER 29, 1996
During the first quarter of fiscal 1997, operating activities provided cash of
$1,857,000. Accounts receivable and inventory decreases provided cash of
$1,491,000 and $378,000, respectively. Decreases in accounts payable, customer
deposits and accrued expenses used cash of $905,000. Cash used by investing
activities for property and equipment expenditures and capitalized software
additions was $301,000. Financing activities used cash of $1,530,000 for a
reduction of the line-of-credit to a zero balance and $146,000 for scheduled
repayments of long-term obligations.
At November 29, 1996, approximately $5,167,000 was available to borrow under the
line-of-credit advance formulas. At November 29, 1996, the line-of-credit had
no balance outstanding compared to a balance of $1,530,000 at August 30, 1996.
During the first quarter of fiscal 1997, $1,050,000 of convertible debentures
were converted into 247,377 shares of common stock. Subsequent to November 29,
1996, $250,000 of debentures were converted into 81,281 shares of common stock
and debentures in the amount of $101,222 were issued for payment of interest.
11
<PAGE>
Depending on the level of revenues and profitablility in fiscal 1997 additional
funds for working capital may be required. The Company believes that additional
funds will be available, if required, through a private placement or a public
offering of additional shares of common stock or through additional borrowing.
If additional financing is required and is not available, management of the
Company is committed to cutting the necessary costs throughout the organization
and limiting certain planned programs in order to keep cash requirements within
the current line-of-credit availability. This action would very likely result
in lower revenues. This would ultimately impact the level of expenditures
available for research and development expenses. However, management believes
that suitable financing will be successfully obtained if required.
12
<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) None
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter ended November 29, 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: January 9, 1997 By: /s/ Robert A. Placek
------------------------------------
Robert A. Placek
President
Date: January 9, 1997 By: /s/ C. Troy Woodbury, Jr.
------------------------------------
C. Troy Woodbury, Jr.
Treasurer and Chief
Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-29-1997
<PERIOD-END> NOV-29-1996
<CASH> 55,601
<SECURITIES> 0
<RECEIVABLES> 5,672,726
<ALLOWANCES> (57,912)
<INVENTORY> 12,316,654
<CURRENT-ASSETS> 19,003,509
<PP&E> 12,275,977
<DEPRECIATION> (7,533,581)
<TOTAL-ASSETS> 25,533,023
<CURRENT-LIABILITIES> 4,680,373
<BONDS> 6,295,151
0
0
<COMMON> 94,793
<OTHER-SE> 14,187,706
<TOTAL-LIABILITY-AND-EQUITY> 25,533,023
<SALES> 6,642,663
<TOTAL-REVENUES> 6,642,663
<CGS> 4,419,722
<TOTAL-COSTS> 5,972,204
<OTHER-EXPENSES> (1,429)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 181,682
<INCOME-PRETAX> 490,206
<INCOME-TAX> 186,000
<INCOME-CONTINUING> 304,206
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 304,206
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
