-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I7bZxEz9oZi0EDJN8WpukkwNlWaJBPk8z+6iQk9hY0YKfBAtz73PdWQ4UytFba2L zNMcauhjPl/d1avGiYit6w== 0000912057-96-014464.txt : 19960715 0000912057-96-014464.hdr.sgml : 19960715 ACCESSION NUMBER: 0000912057-96-014464 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960531 FILED AS OF DATE: 19960712 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEGENER CORP CENTRAL INDEX KEY: 0000715073 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 810371341 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11003 FILM NUMBER: 96593922 BUSINESS ADDRESS: STREET 1: 11350 TECHNOLOGY CIRCLE CITY: DULUTH STATE: GA ZIP: 30136-1528 BUSINESS PHONE: 4046230096 MAIL ADDRESS: STREET 1: 11350 TECHNOLOGY CIRCLE CITY: DULUTH STATE: GA ZIP: 30136-1528 FORMER COMPANY: FORMER CONFORMED NAME: TELECRAFTER CORP DATE OF NAME CHANGE: 19890718 10-Q 1 10-Q 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 May 31, 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 the latest practicable date. Common Stock, $.01 par value 8,758,564 Shares - ---------------------------- ------------------------- Class Outstanding June 30, 1996 WEGENER CORPORATION AND SUBSIDIARIES Form 10-Q For the Quarter Ended May 31, 1996 INDEX Page(s) ------- PART I. Financial Information Item 1. Consolidated Financial Statements Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Consolidated Statements of Operations (Unaudited) - Three and Nine Months Ended May 31, 1996 and June 2, 1995 . . . . . . . . . . . . . . . . . . . 4 Consolidated Balance Sheets - May 31, 1996 (Unaudited) and September 1, 1995 . . . . . . . . . . . . . . . 5 Consolidated Statements of Shareholders' Equity (Unaudited) - Three and Nine Months Ended May 31, 1996 and June 2, 1995. . . . . . . . . . . . . . . . . . . . . . . . 6 Consolidated Statements of Cash Flows (Unaudited) - Three and Nine Months Ended May 31, 1996 and June 2, 1995. . . . . . . . . . . . . . . . . . . . . . . . 7 Notes to Consolidated Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . . .9-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . .12-14 PART II. Other Information Item 1. None Item 2. None Item 3. None Item 4. None . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Item 5. None Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . 15 Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2 PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS - ------------------------------ ----------------------------- INTRODUCTION - CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. The consolidated balance sheet as of May 31, 1996; The consolidated statements of shareholders' equity as of May 31, 1996 and June 2, 1995; the consolidated statements of operations for the nine months ended May 31, 1996 and June 2, 1995; and the consolidated statements of cash flows for the nine months ended May 31, 1996 and June 2, 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 WEGENER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, JUNE 2, MAY 31, JUNE 2, 1996 1995 1996 1996 - ----------------------------------------------------------------------------------------------------- Revenues $5,227,909 $5,492,665 $15,137,204 $12,803,061 - ----------------------------------------------------------------------------------------------------- Operating costs and expenses Cost of products sold 3,217,494 3,612,879 9,661,473 8,452,248 Selling, general, and administrative 915,668 1,082,293 2,679,725 2,524,746 Research and development 742,190 501,836 1,931,860 1,415,072 - ----------------------------------------------------------------------------------------------------- Operating costs and expenses 4,875,352 5,197,008 14,273,058 12,392,066 - ----------------------------------------------------------------------------------------------------- Operating income 352,557 295,657 864,146 410,995 Interest expense (177,077) (161,455) (487,875) (437,590) Interest income 5,054 2,057 55,692 2,057 Other (expense) income, net 299 (428) 561 (428) - ----------------------------------------------------------------------------------------------------- Earnings (loss) before income taxes 180,833 135,831 432,524 (24,966) Income tax expense (benefit) - - - - - ----------------------------------------------------------------------------------------------------- Net earnings (loss) $ 180,833 $ 135,831 $ 432,524 $ (24,966) - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- Net earnings (loss) per common share Primary $ .02 $ .02 $ .05 $ (.00) Fully Diluted $ .02 $ .02 $ .05 $ (.00) - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- Weighted average number of shares outstanding Primary 9,063,923 7,301,805 9,070,587 7,103,513 Fully Diluted 9,069,780 7,301,805 9,072,539 7,103,513 - ----------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 4 WEGENER CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MAY 31, SEPTEMBER 1, 1996 1995 - ---------------------------------------------------------------------------------- (Unaudited) ASSETS Current assets Cash and cash equivalents $ 4,229,397 $ 4,913,962 Accounts receivable 4,439,398 4,571,589 Inventories 12,547,937 7,232,521 Other 22,431 57,328 - ---------------------------------------------------------------------------------- Total current assets 21,239,163 16,775,400 Property and equipment, net 4,646,554 4,412,183 Capitalized software costs 948,056 626,739 Other assets, net 149,624 203,785 - ---------------------------------------------------------------------------------- $26,983,397 $22,018,107 - ---------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Note payable $ 2,923,845 $ 3,078,965 Accounts payable 2,681,143 3,762,219 Accrued expenses 1,079,462 643,757 Customer deposits 412,320 517,060 Current maturities of long-term obligations 915,009 831,838 - ---------------------------------------------------------------------------------- Total current liabilities 8,011,779 8,833,839 Long-term obligations, less current maturities 2,370,087 1,964,227 Convertible Debt 5,000,000 - - ---------------------------------------------------------------------------------- Total liabilities 15,381,866 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 14,040,782 14,131,187 Deficit (2,092,029) (2,524,553) Less treasury stock, at cost (473,366 and 515,354 shares) (439,542) (478,530) - ---------------------------------------------------------------------------------- Total shareholders' equity 11,601,531 11,220,041 - ---------------------------------------------------------------------------------- $26,983,397 $22,018,107 - ---------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 5 WEGENER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
COMMON STOCK ADDITIONAL TREASURY STOCK ----------------------- PAID-IN ----------------------- SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT - ------------------------------------------------------------------------------------------------------------------------ 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 -- -- (67,957) -- 42,510 123,476 Issuance of restricted common stock in private placements 325,000 3,250 903,000 -- -- -- Net loss for the nine months -- -- -- (24,966) -- -- - ------------------------------------------------------------------------------------------------------------------------ BALANCE, at June 2, 1995 7,818,680 $78,187 $ 7,333,401 $(2,934,389) (546,841) $(507,766) - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ BALANCE, at September 1, 1995 9,193,680 $91,937 $14,131,187 $(2,524,553) (515,354) $(478,530) Common stock issued 38,250 383 111,837 -- -- -- Treasury stock reissued through stock options and 401(k) plan -- -- 97,758 -- 41,988 38,988 Cost of raising capital -- -- (300,000) -- -- -- Net earnings for the nine months -- -- -- 432,524 -- -- - ------------------------------------------------------------------------------------------------------------------------ BALANCE, at May 31, 1996 9,231,930 $92,320 $14,040,782 $(2,092,029) (473,366) $(439,542) - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 6 WEGENER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
NINE MONTHS ENDED MAY 31, JUNE 2, 1996 1995 - ------------------------------------------------------------------------------- CASH PROVIDED (USED) BY OPERATING ACTIVITIES Net earnings (loss) $ 432,524 $ (24,966) Adjustments to reconcile net earnings (loss) to cash provided by operating activities Depreciation and amortization 744,640 495,928 Bad debt allowance 35,000 -- Warranty reserves -- 45,000 Issuance of treasury stock for compensation expenses 111,764 26,127 Changes in assets and liabilities Accounts receivable 97,191 (1,102,229) Inventories (5,315,416) (219,843) Other current and non-current assets 35,497 (61,255) Accounts payable (1,081,076) (267,432) Customer deposits and accrued expenses 330,965 451,198 - ------------------------------------------------------------------------------- (4,608,911) (657,472) - ------------------------------------------------------------------------------- CASH PROVIDED (USED) BY INVESTMENT ACTIVITIES Property and equipment expenditures (430,322) (280,210) Capitalized software additions (500,562) (375,738) - ------------------------------------------------------------------------------- (930,884) (655,948) - ------------------------------------------------------------------------------- CASH PROVIDED (USED) BY FINANCING ACTIVITIES Net change in borrowings under revolving line-of-credit (155,120) 247,613 Repayment of long-term debt and capitalized lease obligations (376,852) (288,927) Proceeds from long-term and convertible debt 5,300,000 453,594 Proceeds from issuance of common stock 112,219 906,250 Debt issuance costs (50,000) (26,662) Proceeds from stock options exercised 24,983 29,392 - ------------------------------------------------------------------------------- 4,855,230 1,321,260 - ------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (684,565) 7,840 Cash and cash equivalents, beginning of period 4,913,962 2,515 - ------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 4,229,397 $ 10,355 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
7 WEGENER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited) - ------------------------------------------------------------------------------ Supplemental disclosure of cash flow information: Cash paid during the nine months for: Interest $485,270 $406,651 Income taxes $ -- $ -- - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Supplemental schedule of noncash transactions: Capital lease obligations incurred to acquire equipment $266,000 $ -- - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 8 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: MAY 31, SEPTEMBER 1, 1996 1995 ----------- ------------ (Unaudited) Accounts receivable - trade Other receivables $4,425,851 $4,501,509 96,718 111,682 ----------- ------------ 4,522,569 4,613,191 Less allowance for doubtful accounts (83,171) (41,602) ----------- ------------ $4,439,398 $4,571,589 ----------- ------------ ----------- ------------ 9 WEGENER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 3 INVENTORIES Inventories are summarized as follows: MAY 31, SEPTEMBER 1, 1996 1995 ----------- ------------ (Unaudited) Raw material $ 5,392,717 $3,929,885 Work-in-process 5,205,424 2,594,977 Finished goods 2,696,722 1,443,949 ----------- ------------ 13,294,863 7,968,811 Less inventory reserves (746,926) (736,290) ----------- ------------ $12,547,937 $7,232,521 ----------- ------------ ----------- ------------ NOTE 4 INCOME TAXES For the nine months ended May 31, 1996 no income tax expense was recorded due to a reduction in the deferred tax asset valuation allowance. The valuation allowance decreased approximately $147,000 in the first nine months of fiscal 1996. At May 31, 1996, net deferred tax assets of approximately $886,000 were fully reserved by a valuation allowance as a result of the Company's history of operating losses. At May 31, 1996, the Company had approximately $1,153,000 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. NOTE 5 CONVERTIBLE DEBENTURES On May 31, 1996, the Company issued $5,000,000 of 8% Convertible Debentures, due May 31,1999, in a private placement to various accredited investors for net proceeds to the Company of $4,700,000. Proceeds are to be used for working capital and reduction of the line-of-credit note payable. These debentures are convertible at the option of the holders at any time through May 31, 1999, into a number of shares of common stock at a price equal to the lesser of (i) $12.25 per share or (ii) a percentage, based on the holding period, ranging from 95% to 82.5% of the average of the lowest sale price on each of the five trading days immediately preceding the conversion date. Interest at the rate of 8% per annum is payable quarterly beginning July 1, 1996 in cash or at the option of the Company by adding the amount of such interest to the outstanding principal amount due under the Debenture. At May 31, 1996 no debentures had been converted. The Company intends to file a registration statement during the fourth quarter to register up to 1,000,000 shares of common stock underlying such debentures for resale following conversion. 10 WEGENER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 6 LONG-TERM DEBT, FINANCING AGREEMENTS AND SUBSEQUENT EVENT NOTE PAYABLE On April 8, 1996, Wegener Communications, Inc. (WCI), a wholly owned subsidiary of the Company, entered into a $600,000 promissory note with interest at the rate of 9.6% per annum with principal and interest payable in 60 consecutive monthly installments of $12,597 beginning May 1, 1996. The note is secured by certain machinery and equipment. Proceeds of the note were used for working capital. Wegener Corporation guarantees the note. REVOLVING LINE-OF-CREDIT AND TERM LOAN FACILITY On June 5, 1996 (subsequent to the end of the third quarter) WCI obtained from a bank a new secured revolving line of credit and term loan facility with a combined maximum available credit limit of $8,500,000 expiring May 4, 1999 or upon demand. The term loan portion provides for a maximum of $1,000,000 for advances of up to 80% of the cost of equipment acquisitions. Interest on the term loan is payable monthly at the bank's prime rate plus 1 1/2%. Principal advances are payable monthly over sixty months with a balloon payment due at maturity. Interest on the revolving line of credit portion is payable monthly at the bank's prime rate plus 1/2%. Additionally, the facility requires an annual facility fee of 1% of the maximum credit limit. The revolving line of credit is subject to availability advance formulas of 80% against eligible accounts receivable; 20% of eligible raw material inventories; 20% of eligible work-in-process kit inventories; and 40% and 50% of eligible finished goods inventories. Advances against inventory are subject to a sublimit of $2,000,000. The loans are secured by a first lien on substantially all of WCI's assets except assets secured under the existing mortgage note and equipment note on which the bank has a second lien. The Company is required to maintain a minimum tangible net worth with minimum annual increases at each fiscal year-end commencing with fiscal year 1997. Initial advances under the revolving line of credit will be used to pay off the balances outstanding under the existing revolving line of credit and term loan facility with a credit finance company which expired on June 21, 1996. Wegener Corporation guarantees the revolving line of credit and term loan. 11 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 NINE MONTHS ENDED MAY 31, 1996 COMPARED TO THREE AND NINE MONTHS ENDED JUNE 2, 1995 For the three and nine month periods ended May 31, 1996, the Company had net earnings of $181,000 or $0.02 per share and $433,000 or $0.05 per share respectively compared to net earnings of $136,000 or $0.02 per share and a net loss of $(25,000) or less than $(0.01) per share for the three and nine month periods ended June 2, 1995. REVENUES - The Company's revenues for the three months ended May 31, 1996 were $5,228,000, down 4.8% from revenues of $5,493,000 for the three months ended June 2, 1995. Revenues were $15,137,000 for the nine months ended May 31, 1996, an increase of 18.2% from revenues of $12,803,000 for the nine months ended June 2, 1995. In the third quarter of fiscal 1996, Direct Broadcast Satellite (DBS) revenues decreased $467,000 or 10.6% while Telecom and Custom Product Group revenues increased $222,000 or 25.5% compared to the same period of fiscal 1995. For the nine months ended May 31, 1996, DBS revenues increased $1,560,000 or 16.2% while Telecom and Custom Product Group revenues increased $728,000 or 28.2% compared to the same period of fiscal 1995. The decrease in DBS revenues in the third quarter of fiscal 1996 compared to the same period of fiscal 1995 was primarily due to a decrease in shipments of audio products to the business music and private network industries. Although DBS revenues in the third quarter reflected an increase from the second quarter in shipments of MPEG-2 satellite news gathering digital video products, DBS revenues were adversely affected by late deliveries of scheduled third quarter shipments of the digital video product line. For the nine months ended May 31, 1996, the increase in DBS revenues was due to increased shipments in the first and second quarters of fiscal 1996 of digital audio and video products to the business music and private network industries. Telecom and Custom Product Group revenue increases for the three and nine months ended May 31, 1996 were primarily due to increased shipments of uplink equipment to radio networks for conversion from analog to digital broadcasting. WCI's backlog was approximately $27,202,000 as May 31, 1996, compared to $27,402,000 as of September 1, 1995, and $31,356,000 as of June 2, 1995. GROSS PROFIT MARGINS - The Company's gross profit margins were 38.5% and 36.2% for the three and nine month periods ended May 31, 1996 compared to 34.2% and 34.0% for the three and nine month periods ended June 2, 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 nine month periods were adversely impacted by manufacturing overhead expenses which were increased to support increased manufacturing capacity and by start-up costs associated with initial shipments of new digital products. SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and administrative (SG&A) expenses were $916,000 and $2,680,000 for the three and nine month periods ended May 31, 1996 compared to $1,082,000 and $2,525,000 for the same periods of fiscal 1995. The decrease in expenses for the three 12 month period is primarily due to decreases in sales incentive compensation and reductions of administrative overhead expenses compared to the same period of fiscal 1995. For the nine month period the increase in expenses are primarily due to higher levels of selling and marketing expenses compared to the same periods of fiscal 1995. As a percentage of revenues, SG&A expenses were 17.5% and 17.7% for the three and nine month periods ended May 31, 1996 compared to 19.7% and 19.7% for the same periods of fiscal 1995. RESEARCH AND DEVELOPMENT - Research and development expenditures, including capitalized software development costs, were $854,000 and $2,432,000 for the three and nine month periods ended May 31, 1996, up 32.6% and 33.6%, compared to $644,000 and $1,820,000 for the same periods of fiscal 1995. Capitalized software development costs amounted to $112,000 and $501,000 for the third quarter and first nine months of fiscal 1996 compared to $156,000 and $375,000 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 making 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. INTEREST EXPENSE - Interest expense increased 9.7% in the three month period ended May 31, 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 nine month period ended May 31, 1996 interest expense increased 11.5% compared to the same period of fiscal 1995 primarily due to increases in the average outstanding borrowings. LIQUIDITY AND CAPITAL RESOURCES NINE MONTHS ENDED MAY 31, 1996 On May 31, 1996, the Company issued $5,000,000 of 8% Convertible Debentures, due May 31,1999, in a private placement to various accredited investors for net proceeds to the Company of $4,700,000. Proceeds are to be used for working capital and reduction of the line-of-credit note payable. These debentures are convertible at the option of the holders at any time through May 31, 1999, into a number of shares of common stock at a price equal to the lesser of (i) $12.25 per share or (ii) a percentage, based on the holding period, ranging from 95% to 82.5% of the average of the lowest sale price on each of the five trading days immediately preceding the conversion date. Interest at the rate of 8% per annum is payable quarterly beginning July 1, 1996 in cash or at the option of the Company by adding the amount of such interest to the outstanding principal amount due under the Debenture. At May 31, 1996 no debentures had been converted. The Company intends to file a registration statement during the fourth quarter to register up to 1,000,000 shares of common stock underlying such debentures for resale following conversion. On April 8, 1996, WCI entered into a $600,000 promissory note with interest at the rate of 9.6% per annum with principal and interest payable in 60 consecutive monthly installments of $12,597 beginning May 1, 1996. The note is secured by certain machinery and equipment. Proceeds of the note were used for working capital. During the first nine months of fiscal 1996 cash and cash equivalents decreased $685,000. Operating activities used $4,609,000 of cash. Inventory increases used cash of $5,315,000 and decreases in accounts payable used cash of $1,081,000. 13 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 in the second and third quarters. The Company believes shipments of new products will increase during the fourth quarter resulting in decreases in inventory levels. Cash used by investment activities for property and equipment expenditures and capitalized software additions was $931,000. Cash provided by financing activities was $4,855,000. Non-cash investing and financing transactions included capital lease obligations of $266,000 to acquire equipment. The outstanding balance on the line-of-credit was $2,924,000 at May 31, 1996, compared to $3,079,000 at September 1, 1995. At May 31, 1996, approximately $1,189,000 was available to borrow under the accounts receivable portion of the advance formula. Long-term debt and current maturities were $8,285,000 at the end of the third quarter compared to $2,796,000 at September 1, 1995. SUBSEQUENT EVENT On June 5, 1996, Wegener Communications, Inc. (WCI) obtained from a bank a new secured revolving line of credit and term loan facility with a combined maximum available credit limit of $8,500,000 expiring May 4, 1999 or upon demand. The term loan portion provides for a maximum of $1,000,000 for advances of up to 80% of the cost of equipment acquisitions. Interest on the term loan is payable monthly at the bank's prime rate plus 1 1/2%. Principal advances are payable monthly over sixty months with a balloon payment due at maturity. Interest on the revolving line of credit portion is payable monthly at the bank's prime rate plus 1/2%. Additionally, the facility requires an annual facility fee of 1% of the maximum credit limit. The revolving line of credit is subject to availability advance formulas of 80% against eligible accounts receivable; 20% of eligible raw material inventories; 20% of eligible work-in-process kit inventories; and 40% and 50% of eligible finished goods inventories. Advances against inventory are subject to a sublimit of $2,000,000. The loans are secured by a first lien on substantially all of WCI's assets except assets secured under the existing mortgage note and equipment note on which the bank has a second lien. The Company is required to maintain a minimum tangible net worth with minimum annual increases at each fiscal year-end commencing with fiscal year 1997. Initial advances under the revolving line of credit were used to pay off the balances outstanding under the existing revolving line of credit and term loan facility with a credit finance company which expired on June 21, 1996. 14 PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 4.1: Promissory Note dated April 8, 1996 in favoer of Lyon Credit Corporation by Wegener Communications, Inc. in the principal amount of $600,000. (b) Reports on Form 8-K - No reports on Form 8-K were filed during the quarter ended May 31, 1996. 15 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: July 11, 1996 By: /s/ Robert A. Placek -------------------------------------- Robert A. Placek President Date: July 11, 1996 By: /s/ C. Troy Woodbury, Jr. -------------------------------------- C. Troy Woodbury, Jr. Treasurer and Chief Financial Officer 16 EX-4.1 2 PROMISSARY NOTE PROMISSORY NOTE Exhibit A to Security Agreement No.: 20-00094 $600,000.00 - ------------ April 8, 1996 FOR VALUE RECEIVED, the undersigned, hereinafter called "Borrower", promises to pay to the order of Lyon Credit Corporation, hereinafter called "Payee", at its office located at 1266 East Main Street, Stamford, Connecticut 06902, or at such other place as Payee may from time to time designate, the principal sum of Six Hundred Thousand and no/100 Dollars ($600,000.00), together with interest thereon at the rate of 9.6% per annum, with principal and interest payable in Sixty (60) consecutive monthly installments, commencing May 1, 1996, and continuing on the same date of each month thereafter until this Note is fully paid, with each installment in the amount of Twelve Thousand Five Hundred ninety-seven and 04/100 Dollars ($12,597.04). The interest rate stated above is based on the corresponding term U.S. Treasury Note Rate as of March 25, 1996, (the "Effective Date"). Borrower and Payee agree that any change in the U.S. Treasury Note, from the Effective Date to the date of funding of the extension of credit evidenced by this Note, will result in a corresponding change in the interest rate for this Note. This Note is referred to in and is entitled to the benefits of that certain Security Agreement No. 20-00094 , dated as of April 8, 1996, (the "Security Agreement") and Schedule No. 0210-001 thereto, dated as of even date herewith (the "Schedule") by and between the Borrower and Payee, encumbering and granting a security interest in certain property and securing the indebtedness described herein. All payments received in respect of this Note shall be applied, first, to accrued interest and then to principal. The acceptance by Payee or any holder hereof of any payment which is less than the full amount then due and owing shall not constitute a waiver of Payee's or such holder's right to receive payment in full at such time or at any prior or subsequent time. Borrower shall, upon the occurrence of an "Event of Loss" (as that term is defined in the Security Agreement) with respect to any Item of Collateral described in the Schedule, prepay this Note by that amount and in the manner provided in the Security Agreement. Borrower may, on any regular installment payment date, prepay in full, but not in part, the then entire unpaid principal balance hereof together with all accrued unpaid interest thereon to the date of such prepayment, provided that along with and in addition to such prepayment Borrower shall pay (i) a Page 1 of 3 prepayment premium equal to two per cent (2%) of the principal balance prepaid for each full or partial year by which the prepayment date antedates the scheduled date of final installment of principal hereunder, and (ii) any and all other sums due hereunder and/or under the Security Agreement. Time is of the essence hereof. If payment of any installment or any other sum due under this Note or Security Agreement is not paid within ten (10) days after its due date, Borrower agrees to pay a late charge of five cents (5CENTS) per dollar on, and in addition to, the amount of each such payment, but not exceeding the lawful maximum rate . In the event Borrower shall fail to make any payment under this Note within ten (10) days after its due date or if any other "Event of Default" (as that term is defined in the Security Agreement) shall occur, then, the entire unpaid principal balance hereof with accrued unpaid interest thereon together with all other sums payable under this Note or the Security Agreement, shall, at the option of Payee and without notice or demand to Borrower, become immediately due and payable, such accelerated balance bearing interest until paid at the default rate of fifteen percent (15%) per annum , or if prohibited by law, at such lesser rate that is not prohibited by law. Notwithstanding the foregoing, if at any time implementation of any provision hereof shall cause any amount contracted for or charged herein or collectable hereunder to exceed any applicable lawful maximum rate, then the interest shall be limited to lawful maximum. Borrower and all sureties, endorsers, guarantors and any others who may at any time become liable for the payment hereof hereby consent to any and all extensions of time, renewals, waivers, and modifications of, and substitutions or releases of security or of any party primarily or secondarily liable, on, this Note or the Security Agreement or any of the terms and provisions of either that may be made, granted or consented to by Payee, and agree that suit may be brought and maintained against any one or more of them, at the election of Payee, without joinder of the others as parties thereto, and that Payee shall not be required to first foreclose, proceed against, or exhaust any security herefor in order to enforce payment by them, or any one or more of them, of this note. Borrower and all sureties, endorsers, guarantors or any others who may at any time become liable for the payment hereof hereby severally waive: presentment, notice of nonpayment, demand for payment, notice of dishonor, and all other notices in connection with this Note; filing of suit; diligence in collecting on this Note or enforcing any of the security herefor; and all benefits of valuation, appraisement and exemption laws, and further severally agree to pay, if permitted by law, all expenses incurred in collection, including, without limitation, reasonable attorney's fees. If Borrower is a corporation, it and the persons signing on its behalf represent and warrant that the execution and delivery of this Note has been authorized by its board of directors and by all other necessary and appropriate corporate and shareholder action. This Note is transferable in accordance with the terms of the Security Agreement. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Page 2 of 3 IN WITNESS WHEREOF, the Borrower has executed this Note as of the date first above written. WEGENER COMMUNICATIONS, INC., as Borrower By: /s/ C. Troy Woodbury, Jr. -------------------------- Name: C. Troy Woodbury, Jr. ------------------------- Title: Exec. V. P. & COO ------------------------- Attest: /s/ J. Elaine Miller ----------------------- Name: J. Elaine Miller ------------------------ Title: Secretary ------------------------ (Seal) Page 3 of 3 EX-27 3 EXHIBIT 27
5 1 9-MOS AUG-30-1996 SEP-02-1995 MAY-31-1996 4,229,397 0 4,522,569 (83,171) 12,547,937 21,239,163 11,997,559 (7,351,005) 26,983,397 8,011,779 7,370,087 0 0 92,320 11,509,211 26,983,397 15,137,204 15,137,204 9,661,473 14,273,058 (56,253) 0 (487,875) 432,524 0 0 0 0 0 432,524 0.05 0.05
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