NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and liquidation of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that may be necessary in the event the Company cannot continue as a going concern.
We have experienced recurring net losses which have caused an accumulated deficit of approximately $21,731,000 at September 2, 2011. We had a working capital deficit of approximately $4,441,000 at September 2, 2011 compared to a working capital deficit of $3,248,000 at September 3, 2010.
During the first, second, third and fourth quarters of fiscal 2011 bookings were approximately $3.2, $0.7, $1.6 and $0.9 million, respectively. During fiscal 2010 bookings were $8.3 million. These bookings were well below our expectations primarily as a result of customer delays in purchasing decisions, deferral of project expenditures and general adverse economic and credit conditions.
Our backlog scheduled to ship within eighteen months was approximately $3.5 million at September 2, 2011. The total multi-year backlog at September 2, 2011, was also approximately $3.5 million. Approximately $2.6 million of the September 2, 2011 backlog is scheduled to ship during fiscal 2012.
Our bookings and revenues during fiscal 2011, as well as to date in fiscal 2012, have been insufficient to attain profitable operations and to provide adequate levels of cash flow from operations. In addition, significant fiscal 2012 shippable bookings are currently required to meet our quarterly financial and cash flow projections beginning in the first quarter of fiscal 2012 and continuing for each subsequent quarter. We currently estimate that, depending on product mix, break-even revenue levels range from approximately $13.0 million to $13.5 million on an annual basis.
During the prior three fiscal years, we made reductions in headcount, engineering consulting, and other operating and overhead expenses. Beginning in January 2009 and continuing throughout fiscal 2010, we reduced paid working hours Company-wide by approximately 10%. During the first quarter of fiscal 2011, to increase engineering capacity, the 10% reduction in paid working hours was eliminated for engineering personnel. During fiscal years 2009 through fiscal 2011, as well as to date in fiscal 2012, due to insufficient cash flow from operations and borrowing limitations under our loan facility, we negotiated extended payment terms with our two offshore vendors and have been extending other vendors well beyond normal payment terms. Until such vendors are paid within normal payment terms, no assurances can be given that required services and materials needed to support operations will continue to be provided. In addition, no assurances can be given that vendors will not pursue legal means to collect past due balances owed. Any interruption of services or materials or initiation of legal means to collect balances owed would likely have an adverse impact on our operations and could impact our ability to continue as a going concern.
At September 2, 2011, our primary source of liquidity for cash flows was our $4,250,000 loan facility, which initially matured on April 7, 2011. The loan facility automatically renews for successive twelve (12) month periods provided, however, the lender may terminate the facility by providing a ninety (90) day written notice of termination at any time after April 7, 2011. No assurances may be given that our loan facility will continue for the duration of the twelve month renewal period. In the event of a ninety day notice of termination of our loan facility, we would need to obtain additional credit facilities or raise additional capital to continue as a going concern and to execute our business plan. There is no assurance that such financing would be available or, if available, that we would be able to complete financing on satisfactory terms.
Our cash flow requirements during fiscal 2011 were financed primarily by our line of credit borrowings and our working capital. During fiscal 2011, our net borrowings under our loan facility increased $400,000 to the maximum credit limit of $4,250,000 at September 2, 2011 from 3,850,000 at September 3, 2010. At November 15, 2011, the outstanding balance on the line of credit remained at $4,250,000 and our cash balances were approximately $275,000.
With our line of credit currently at the maximum limit, our very near term liquidity is dependent on our working capital and primarily on the timely collection of accounts receivable balances and conversion of inventory into receivable balances. During fiscal 2011 and continuing to date, the days outstanding of our accounts receivable has increased beyond our expectations, primarily due to a delay in payment from one customer, which has adversely impacted our cash balances. Our low level of bookings has lengthened the cycle of conversion of inventory into receivable balances and then into cash balances.
Our near term liquidity and ability to continue as a going concern is dependent on our ability to timely collect our existing accounts receivable balances and to generate sufficient new orders and revenues in the very near term to provide sufficient cash flow from operations to pay our current level of operating expenses, to provide for inventory purchases and to reduce past due amounts owed to vendors and service providers. No assurances may be given that the Company will be able to achieve sufficient levels of new orders in the near term to provide adequate levels of cash flow from operations. Should we be unable to achieve near term profitability and generate sufficient cash flow from operations, we would need to raise additional capital or obtain additional borrowings beyond our existing loan facility. We currently have limited sources of capital, including the public and private placement of equity securities and additional debt financing. No assurances can be given that additional capital or borrowings would be available to allow us to continue as a going concern. If near term shippable bookings are insufficient to provide adequate levels of near term liquidity and any required additional capital or borrowings are unavailable, we will likely be forced to enter into federal bankruptcy proceedings.
2. Summary of Significant Accounting Policies
Nature of Operations and Principles of Consolidation. The consolidated financial statements include the accounts of Wegener Corporation (WGNR, “we,” “our,” “us” or the “Company”) and its wholly-owned subsidiary, Wegener Communications, Inc. We design, manufacture and distribute satellite communications electronics equipment in the U.S. and internationally. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Examples include valuation allowances for deferred tax assets, and provisions for bad debts, inventory obsolescence and warranties. Actual results could vary from these estimates.
Fiscal Year. We operate on a 52-53 week fiscal year. The fiscal year ends on the Friday nearest to August 31. Fiscal year 2011 contained fifty-two weeks while fiscal year 2010 contained fifty-three weeks. All references herein to 2011 and 2010 refer to the fiscal years ended September 2, 2011 and September 3, 2010, respectively.
Cash and Bank Overdrafts. Cash balances consist of checking account balances held at a high credit-quality financial institution. Bank overdrafts consist of outstanding checks that have not cleared our bank. Overdrafts are offset against cash balances to the extent that cash balances are available in the account on which the checks are issued. Any remaining balances of overdrafts would be included in our accounts payable balances. At September 2, 2011 and at September 3, 2010 outstanding checks in the amount of $82,000 and $161,000, respectively, were offset against cash balances.
Accounts Receivable. Accounts receivable are stated at the amounts billed to customers under normal trade terms, less an allowance for doubtful accounts. Credit is extended based on the evaluation of the customer’s financial condition and generally we do not require collateral from our customers. However, in certain circumstances letters of credit or deposits may be required from customers. The allowance for doubtful accounts is provided based upon a review of individual customer accounts, historical payment information and existing economic conditions. Accounts receivable standard terms are net 30 days from the date of invoice. Receivables are charged to the allowance for doubtful accounts when all attempts to collect have failed and they are determined to be uncollectible. Historically, we have not experienced significant losses related to receivables from individual customers or groups of customers in any particular industry or geographic area.
We are subject to concentrations of credit risk principally through accounts receivable, as a substantial portion of our customers are affiliated with the cable television, radio, business broadcast and telecommunications industries.
Inventories. Inventories are stated at the lower of cost (at standard, which approximates actual cost on a first-in, first-out basis) or market. Inventories include the cost of raw materials, direct labor and manufacturing overhead. The Company makes provisions for obsolete or slow-moving inventories as necessary to properly reflect inventory at its net realizable value.
Property, Equipment and Depreciation. Property and equipment are stated at cost. 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 or improvements to property and equipment that significantly add to the productive capacity or extend the useful life of an asset are capitalized. The cost of repairs and maintenance are expensed as incurred.
Other Assets. Other assets consist primarily of technology licenses, patents and trademarks. Costs of license agreements are amortized on a straight-line basis over the lesser of the contractual term or their estimated useful lives. Legal expenses related to the filing of patent and trademark applications are capitalized. Upon issuance, these costs will also be amortized on a straight-line basis over the lesser of the legal life of the patents and trademarks or their estimated useful lives.
Impairment of Long-lived Assets. Long-lived assets, including property and equipment and intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recognized in the amount that the carrying amount of the asset exceeds its fair value. Fair value is determined based on discounted future net cash flows associated with the use of the asset.
Revenue Recognition. Our principal sources of revenue are from the sale of satellite communications equipment (“hardware products”) and network control software products (“software products”), and product repair services, extended maintenance contracts and installation and training services (“services”). Historically, product repair services, maintenance contracts and installation and training services are less than 10% of our net revenues. Provisions for returns, discounts and trade-ins, based on historical experience, have not been material. Our revenue recognition policies are in compliance with FASB Accounting Standards Codification (ASC) Topic 605 “Revenue Recognition.” Revenue is recognized when persuasive evidence of an agreement with the customer exists, delivery has occurred or services have been provided, the sales price is fixed or determinable, collectability is reasonably assured, and risk of loss and title have transferred to the customer.
Revenue from hardware products is recognized when risk of loss and title has transferred which is generally upon shipment. In some cases, particularly with international shipments and domestic shipment using common carriers arranged by the customer, customer contracts are fulfilled under terms known as ex-works, in accordance with international commercial terms. In these instances, revenue is recognized upon delivery, which is the date that the goods are made available to the customer as requested by the customer and no further obligations of the Company remain. Hardware products are typically sold on a stand-alone basis but may include separate hardware maintenance contracts. Embedded in our hardware products is internally developed software of varying applications that function together with the hardware to deliver the product’s essential functionality. The embedded software is not sold separately, is not a significant focus of the marketing effort and we do not provide post-contract customer support specific to embedded software. The functionality that the software provides is marketed as part of the overall product.
When arrangements contain multiple elements, the deliverables are separated into more than one unit of accounting when the following criteria are met: (i) the delivered element(s) has value to the customer on a stand-alone basis, and (ii) if a general right of return exists relative to the delivered item, delivery or performance of the undelivered element(s) is probable and substantially in the control of the Company. We allocate revenue to all deliverables based on their relative selling prices. In such circumstances, we use a hierarchy to determine the selling price to be used for allocating revenue to deliverables: (i) vendor-specific objective evidence of selling price (“VSOE”), (ii) third-party evidence of selling price (“TPE”), and (iii) management’s best estimate of the selling price (“BESP”). VSOE generally exists only when we sell the deliverable separately and is the price actually charged by the Company for that deliverable. The objective of BESP is to determine the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. We determine the BESP for a product or service by considering multiple factors including, but not limited to, geographies, market conditions, competitive landscape, internal costs, gross margin objectives, and pricing practices. If a delivered element does not meet the criteria in the applicable accounting guidance to be considered a separate unit of accounting, revenue is deferred until the undelivered elements are fulfilled. Accordingly, the determination of BESP can impact the timing of revenue recognition for an arrangement.
Revenue from our network control software products and software-related elements is recognized in accordance with ASC Topic 985-605 “Software-Revenue Recognition.” Software-related elements include all non-software deliverables for which a software deliverable is essential to its functionality. Typical deliverables in a software arrangement may include network control software, extended software maintenance contracts, training and installation. When software arrangements contain multiple elements and VSOE of fair value exists for all undelivered elements, we account for the delivered elements using the residual method. In arrangements where VSOE of fair value is not available for all undelivered elements, we defer the recognition of all revenue under an arrangement until all elements, except post contract support, have been delivered. When post contract support remains the only undelivered element for such contracts, revenue is then recognized using the residual method. Fair value of software-related elements is based on separate sales to other customers or upon renewal rates quoted in contracts when the quoted renewal rates are deemed to be substantive. Software and hardware maintenance contract revenues are recognized ratably over the term of the arrangement, which is typically one year.
Service revenues are recognized at the time of performance. Extended maintenance contract revenues are recognized ratably over the term of the arrangement, which is typically one year.
At September 2, 2011, deferred extended service maintenance revenues were $391,000, and deferred revenues related to the fair value of undelivered elements were $10,000 and are expected to be recognized as revenue in varying amounts throughout fiscal 2012.
We recognize revenue in certain circumstances before delivery has occurred (commonly referred to as “bill and hold” transactions). In such circumstances, among other things, risk of ownership has passed to the buyer, the buyer has made a written fixed commitment to purchase the finished goods, the buyer has requested the finished goods be held for future delivery as scheduled and designated by them, and no additional performance obligations by the Company exist. For these transactions, the finished goods are segregated from inventory and normal billing and credit terms are granted. For the year ended September 2, 2011, $550,000 of revenue to one customer were recorded as bill and hold transactions in the first quarter of fiscal 2011. At September 2, 2011, all products had been delivered and accounts receivable for these revenues were paid in full. For the year ended September 3, 2010, no revenues were recorded as bill and hold transactions.
We have included all shipping and handling billings to customers in revenues, and freight costs incurred for product shipments have been included in cost of revenues.
Research and Development/Capitalized Software Costs. We expense research and development costs, including expenditures related to development of our software products that do not qualify for capitalization. Software development costs are capitalized subsequent to establishing technological feasibility. Capitalized costs 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. This has resulted in amortization periods ranging from two to three years. Expected future revenues and estimated economic lives are subject to revisions due to market conditions, technology changes and other factors resulting in shortfalls of expected revenues or reduced economic lives. Software development costs capitalized during fiscal 2011 and 2010 totaled $899,000 and $848,000, respectively. Amortization expense, included in cost of revenues, was $874,000 and $850,000 for the same periods, respectively. Capitalized software costs, net of accumulated amortization, were $1,288,000 at September 2, 2011 and $1,263,000 at September 3, 2010. Accumulated amortization amounted to $7,349,000 at September 2, 2011 and $7,629,000 at September 3, 2010. During fiscal years 2011 and 2010, approximately $1,154,000 and $6,915,000, respectively, of fully amortized capitalized software cost associated with products no longer being sold or supported was written off against the accumulated amortization balance. This had no effect on net capitalized software cost at September 2, 2011 and September 3, 2010 or fiscal 2011 and fiscal 2010 cost of revenues.
Advertising and Sales Promotion Expenses. Our policy is to expense advertising and sales promotion costs as incurred. Advertising and sales promotion expenses include media advertising, trade shows, customer events, product literature and market research costs. These expenses totaled $85,000 and $128,000 for fiscal years 2011 and 2010, respectively.
Share-Based Compensation. We account for share-based payments to employees, including grants of employee stock options, in accordance with ASC Topic 718, “Compensation-Stock Compensation” (ASC 718). ASC 718 requires that these awards be recognized as compensation expense in the consolidated financial statements based on their fair values. That expense will be recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). In fiscal year 2011, share-based compensation expense included in selling, general and administrative expenses amounted to approximately $111,000. For fiscal year 2010 there was no share-based compensation expense.
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’s 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. Valuation allowances are established to reduce deferred tax assets to amounts that we expect are more likely than not to be realizable. At September 2, 2011, net deferred tax assets were fully offset by a valuation allowance of $7,978,000.
Net Loss Per Share. Basic and diluted net loss per share was computed in accordance with ASC Topic 260 “Earnings Per Share.” Basic net loss per share is computed by dividing net loss (numerator) by the weighted average number of common shares outstanding (denominator) during the period and exclude the dilutive effect of stock options. Because the Company reported a net loss in fiscal 2011 and fiscal 2010, common stock equivalents, which consisted of stock options, were anti-dilutive; therefore, the amounts reported for basic and dilutive loss per share were the same.
The following tables represent required disclosure of the reconciliation of the net loss and shares of the basic and diluted net loss per share computations:
| | | Years ended | |
| | | September 2, 2011 | | | September 3, 2010 | |
| Basic and diluted | | | | | | |
| Net loss | | $ | (1,466,411 | ) | | $ | (2,313,380 | ) |
| Weighted average shares outstanding | | | 13,019,304 | | | | 12,647,051 | |
| Net loss per share | | $ | (.11 | ) | | $ | (.18 | ) |
Stock options excluded from the diluted loss per share calculation due to their antidilutive effect are as follows:
| | | Years ended | |
| | | September 2, 2011 | | | September 3, 2010 | |
| Common stock options: | | | | | | |
| Number of underlying shares | | | 1,308,875 | | | | 665,375 | |
| Range of exercise prices | | $ | .125 to $2.50 | | | $ | .63 to $2.50 | |
Fair Value Measurements. The Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
| | • | Level 1 – Quoted prices in active markets for identical assets or liabilities. |
| | • | Level 2 – Observable inputs, other than quoted prices included in Level 1, such as quoted prices for markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
| | • | Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
Fair Value of Financial Instruments. The carrying amount of cash and other current assets and liabilities, such as accounts receivable and accounts payable as presented in the consolidated financial statements, approximates fair value based on the short-term nature of these instruments. We believe the carrying amounts of our line of credit borrowings approximate fair value because the interest rates at September 2, 2011, approximated market interest rates.
Foreign Currency. The U.S. dollar is our functional currency for financial reporting. International sales are predominately made and remitted in U.S. dollars.
Recently Issued Accounting Standards. On September 4, 2010, we adopted guidance issued by the FASB on revenue recognition. Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product are no longer within the scope of the software revenue recognition guidance, and software-enabled products are now subject to other relevant revenue recognition guidance. Additionally, the FASB issued guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence of the selling price for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance included new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. Adoption of the new guidance did not have a material impact on our consolidated financial statements or result in any change in our units of accounting or timing of revenue recognition and is not expected to have a material impact in subsequent periods.
In May 2011, the FASB issued an update to the accounting on fair value measurement to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards (“IFRS”). This update changes certain fair value measurement principles and enhances the disclosure requirements for fair value measurements. This update does not extend the use of fair value accounting, but provides guidance on how it should be applied where its use is already required or permitted by other standards within U.S. GAAP or IFRS. This update is effective for interim and annual periods beginning after December 15, 2011 and is applied prospectively. Early adoption is prohibited. This guidance is effective for the Company at the beginning of the third quarter in fiscal 2012 (March 3, 2012). The adoption is not expected to have a material impact on the Company’s financial position or its results of operations.
3. Accounts Receivable
Accounts receivable are summarized as follows:
| | | September 2, 2011 | | | September 3, 2010 | |
| Accounts receivable – trade | | $ | 2,321,372 | | | $ | 1,743,411 | |
| Other receivables | | | - | | | | 30,253 | |
| | | | 2,321,372 | | | | 1,773,664 | |
| Less: allowance for doubtful accounts | | | (265,033 | ) | | | (139,693 | ) |
| Accounts receivable, net | | $ | 2,056,339 | | | $ | 1,633,971 | |
A relatively small number of major customers have typically comprised a majority of our revenues and that trend is expected to continue throughout fiscal 2012 and beyond (see Note 13). At September 2, 2011, four customers accounted for approximately 28.1%, 15.5%, 14.0% and 10.1%, respectively, of our accounts receivable while at September 3, 2010, four customers accounted for approximately 24.2%, 18.1%, 14.1% and 10.7%, respectively, of our accounts receivable.
4. Inventories
Inventories are summarized as follows:
| | | September 2, 2011 | | | September 3, 2010 | |
| Raw materials | | $ | 2,317,852 | | | $ | 3,641,664 | |
| Work-in-process | | | 649,384 | | | | 703,531 | |
| Finished goods | | | 2,450,746 | | | | 3,275,183 | |
| | | | 5,417,982 | | | | 7,620,378 | |
| Less: inventory reserves | | | (3,887,616 | ) | | | (4,475,288 | ) |
| Inventories, net | | $ | 1,530,366 | | | $ | 3,145,090 | |
We have invested a significant amount of financial resources to acquire certain raw materials, sub-assemblies and finished goods, to incur direct labor and to contract to have specific outplant procedures performed on certain inventory in process. We purchased this inventory based upon prior backlog and anticipated future sales based upon our existing knowledge of the marketplace. Our inventory reserve of approximately $3,888,000 at September 2, 2011, is to provide for items that are potentially slow-moving, excess or obsolete. Changes in market conditions, lower than expected customer demand and rapidly changing technology could result in additional obsolete and slow-moving inventory that is unsaleable or saleable at reduced prices. No estimate can be made of a range of amounts of loss from obsolescence that is reasonably possible should our sales efforts not be successful.
5. Property and Equipment
Major classes of property and equipment consisted of the following:
| | | Estimated Useful Lives (Years) | | | September 2, 2011 | | | September 3, 2010 | |
| Land | | | - | | | $ | 707,210 | | | $ | 707,210 | |
| Buildings and improvements | | | 3-30 | | | | 3,802,373 | | | | 3,778,469 | |
| Machinery and equipment | | | 3-5 | | | | 9,949,547 | | | | 10,447,085 | |
| Furniture and fixtures | | | 5 | | | | 587,136 | | | | 587,136 | |
| Total property and equipment | | | | | | | 15,046,266 | | | | 15,519,900 | |
| Less accumulated depreciation | | | | | | | (13,577,060 | ) | | | (13,901,885 | ) |
| | | | | | | | | | | | | |
| Property and equipment, net | | | | | | $ | 1,469,206 | | | $ | 1,618,015 | |
Depreciation expense for fiscal 2011 and 2010 totaled approximately $193,000 and $141,000, respectively. Repair and maintenance expenses amounted to $120,000 and $134,000 during fiscal years 2011 and 2010, respectively.
6. Other Assets
Other assets consisted of the following:
| | | September 2, 2011 | |
| | | Cost | | | Accumulated Amortization | | | Net | |
| License agreements | | $ | 958,800 | | | $ | (958,800 | ) | | $ | - | |
| Patents and patent applications | | | 299,540 | | | | (118,221 | ) | | | 181,319 | |
| Trademarks and trademark applications | | | 82,820 | | | | (73,628 | ) | | | 9,192 | |
| Other | | | 6,889 | | | | - | | | | 6,889 | |
| | | $ | 1,348,049 | | | $ | (1,150,649 | ) | | $ | 197,400 | |
| | | September 3, 2010 | |
| | | Cost | | | Accumulated Amortization | | | Net | |
| License agreements | | $ | 958,800 | | | $ | (958,800 | ) | | $ | - | |
| Patents and patent applications | | | 300,124 | | | | (89,407 | ) | | | 210,717 | |
| Trademarks and trademark applications | | | 82,820 | | | | (65,482 | ) | | | 17,338 | |
| Other | | | 6,889 | | | | - | | | | 6,889 | |
| | | $ | 1,348,633 | | | $ | (1,113,689 | ) | | $ | 234,944 | |
Amortization expense of other assets amounted to $37,000 and $108,000 for fiscal years 2011 and 2010, respectively. Amortization expense for fiscal 2010 included $60,000 related to write-offs of two patent applications due to rejection of the applications.
We conduct an ongoing review of our intellectual property rights and potential trademarks. As of September 2, 2011, we incurred legal fees of $85,000 related to the filing of applications for various patents and $1,000 related to the filing of trademarks. Upon issuance, these costs will be amortized on a straight-line basis over the lesser of the legal life of the patents and trademarks or their estimated useful lives of four to ten years. If it becomes more likely than not that the patent application will not be granted, we will write off the deferred cost at that time. At September 2, 2011, the cost of registered patents and trademarks amounted to $215,000 and $82,000, respectively. License agreements are amortized over the lesser of the contractual term or their estimated useful lives of one to five years.
7. Accrued Expenses
Accrued expenses consisted of the following:
| | | September 2, 2011 | | | September 3, 2010 | |
| Vacation | | $ | 573,212 | | | $ | 538,268 | |
| Interest | | | 777,589 | | | | 436,490 | |
| Payroll and related expenses | | | 109,889 | | | | 101,939 | |
| Royalties | | | 194,671 | | | | 99,212 | |
| Warranty | | | 122,638 | | | | 136,448 | |
| Taxes and insurance | | | 34,757 | | | | 97,810 | |
| Commissions | | | 31,529 | | | | 23,413 | |
| Professional fees | | | 195,476 | | | | 155,238 | |
| Other | | | 29,875 | | | | 142,704 | |
| | | $ | 2,069,636 | | | $ | 1,731,522 | |
Accrued Warranty
We warrant our products for a 12 to 14 month period beginning at the date of shipment. Our general warranty provides for repair or replacement of defective products returned during the warranty period at no cost to the customer. Based on historical claim rates, provisions for warranty repairs are not material and we expense costs for warranty repairs at the point at which the expense is considered probable. Although we may not be contractually required, at management’s discretion, and in a single limited circumstance, we made post warranty accommodations to a specific customer based upon ongoing negotiations with that customer, and warranty provisions were increased by $112,000 and $50,000 during fiscal years 2011 and 2010, respectively, based upon what management determined to be the most probable amount of ultimate settlement. The total cumulative amount of accrued warranty related to the single occurrence was approximately $210,000. During the fourth quarter of fiscal 2011, $123,000 of the cumulative amount was offset against accounts receivable balances which left a balance of $87,000 at September 2, 2011. At September 3, 2010, the amount of accrued warranty related to the single occurrence was approximately $98,000.
8. Deferred Revenue
Deferred revenue consists of the unrecognized revenue portion of extended service maintenance contracts and the fair value of revenue related to future performance obligations. Extended service maintenance contract revenues are recognized ratably over the maintenance contract term, which is typically one year. At September 2, 2011, deferred extended service maintenance revenues were $391,000, and deferred revenues related to future performance obligations were $10,000 and are expected to be recognized as revenue in varying amounts throughout fiscal 2012. At September 3, 2010, deferred extended service maintenance revenues were $519,000, and deferred revenues related to future performance obligations were $10,000.
9. Financing Agreements
Revolving Line of Credit
WCI’s revolving line of credit (“loan facility”), amended and effective October 8, 2009, is provided by The David E. Chymiak Trust Dated December 15, 1999 (the “Trust”). The Trust is controlled by David E. Chymiak who is a beneficial owner of approximately 8.5% of our outstanding common stock. The loan facility provides a maximum credit limit of $4,250,000 excluding any accrued unpaid interest and bears interest at the rate of eight percent (8.0%) per annum. At September 2, 2011, the outstanding balance on the loan facility was at the maximum credit limit of $4,250,000 and accrued unpaid interest amounted to approximately $771,000. At November 15, 2011, the outstanding balance on the line of credit remained at $4,250,000. All principal and interest shall be payable in U.S. dollars or, upon mutual agreement of the parties decided in good faith at the time payment is due, other good and valuable consideration. The loan facility is secured by a first lien on substantially all of WCI’s assets, including land and buildings, and is guaranteed by Wegener Corporation.
The initial term of the amended loan facility matured on April 7, 2011. The loan facility automatically renews for successive twelve (12) month periods provided, however, the Trust may terminate the facility by providing a ninety (90) day written notice of termination at any time after April 7, 2011. Principal and interest shall be payable upon the earlier of the maturity date, an event of default as provided by the loan facility, or 90 days following the date on which the Trust provides written notice to terminate the agreement. In the event of a ninety day notice of termination of our loan facility, we would need to obtain additional credit facilities or raise additional capital to continue as a going concern and to execute our business plan. There is no assurance that such financing would be available or, if available, that we would be able to complete financing on satisfactory terms.
The amended loan facility’s debt covenants required us to be in compliance with a solvency representation provision which required us to be able to pay our debts as they become due, have sufficient capital to carry on our business and own property at a fair saleable value greater than the amount required to pay our debts. At the end of our fiscal 2011 third quarter (June 3, 2011), we were not in compliance with the solvency representation provision, however, on June 29, 2011, the loan facility’s security agreement was amended to remove the solvency representation provision from the debt covenants. In addition, we are required to retain certain executive officers and are precluded from paying dividends. At September 2, 2011, we were in compliance with the debt covenants.
10. Income Taxes
No income tax benefit was recorded for fiscal 2011 due to an increase in the deferred tax asset valuation allowance. In fiscal 2011, the deferred tax asset increased $528,000 primarily due to an increase in the net operating loss carryforward. The increase in the deferred tax asset was offset by a corresponding increase in the valuation allowance. No income tax benefit was recorded in fiscal 2010 due to an increase in the deferred tax asset valuation allowance. In fiscal 2010, the deferred tax asset increased $833,000 primarily due to an increase in the net operating loss carryforward.
The effective income tax rate differs from the U.S. federal statutory rate as follows:
| | | Years Ended | |
| | | September 2, 2011 | | | September 3, 2010 | |
| Statutory U.S. income tax rate | | | 34.0% | | | | 34.0% | |
| State taxes, net of federal benefits | | | 2.0 | | | | 2.0 | |
| Valuation allowance | | | (34.8) | | | | (36.0) | |
| Non-deductible expenses | | | (1.1) | | | | (.1) | |
| Other, net | | | (.1) | | | | .1 | |
| Effective income tax rate | | | -% | | | | -% | |
The effective tax rate for fiscal 2011 and 2010 reflected the recording of a full valuation allowance against net deferred tax assets, as further discussed below.
Deferred tax assets and liabilities that arise as a result of temporary differences are as follows:
| | | September 2, 2011 | | | September 3, 2010 | |
| Deferred tax assets (liabilities): | | | | | | |
| Inventory reserves | | $ | 2,224,000 | | | $ | 2,290,000 | |
| Accounts receivable allowance | | | 101,000 | | | | 53,000 | |
| Accrued expenses | | | 311,000 | | | | 256,000 | |
| Net operating loss carryforwards | | | 5,637,000 | | | | 5,167,000 | |
| AMT credit carryovers | | | 134,000 | | | | 134,000 | |
| Depreciation | | | 71,000 | | | | 93,000 | |
| Capitalized software costs | | | (490,000 | ) | | | (480,000 | ) |
| Other | | | (10,000 | ) | | | (63,000 | ) |
| Deferred tax assets | | | 7,978,000 | | | | 7,450,000 | |
| Valuation allowance | | | (7, 978,000 | ) | | | (7,450,000 | ) |
| Net deferred tax asset | | $ | - | | | $ | - | |
| Consolidated balance sheet classifications: | | | | | | | | |
| Current deferred tax asset | | $ | 2,699,000 | | | $ | 2,610,000 | |
| Noncurrent deferred tax asset | | | 5,279,000 | | | | 4,840,000 | |
| Valuation allowance | | | (7,978,000 | ) | | | (7,450,000 | ) |
| Net deferred tax asset | | $ | - | | | $ | - | |
A valuation allowance is established when it is “more likely than not” that all or a portion of a deferred tax asset will not be realized. A review of all available positive and negative evidence was considered in judging the likelihood of realizing tax benefits. Forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years. Cumulative losses are one of the most difficult pieces of negative evidence to overcome in the absence of sufficient existing orders and backlog (versus forecasted future orders) supporting a return to profitability. Our assessment indicated that a full valuation allowance for our net deferred tax assets was required as of September 2, 2011 and September 3, 2010. The valuation allowance increased $528,000 in fiscal 2011. At September 2, 2011, net deferred tax assets of $7,978,000 were fully reserved by a valuation allowance.
At September 2, 2011, we had a federal net operating loss carryforward of $15,614,000, of which $1,438,000 expires in fiscal 2021, $1,296,000 in fiscal 2023, $3,396,000 in fiscal 2024, $1,454,000 in fiscal 2025, $1,755,000 in fiscal 2026, $265,000 in fiscal 2027, $2,221,000 in fiscal 2029, $2,405,000 in fiscal 2030 and $1,384,000 in fiscal 2031. Additionally, we had an alternative minimum tax credit of $134,000 which was fully offset by the valuation allowance.
Assets and liabilities are recognized for a tax position, based solely on its technical merits that is believed to be more likely than not to be fully sustainable upon examination. As of September 2, 2011 and September 3, 2010, there was no accrual for interest or penalties related to uncertain tax positions. Our accounting policy for penalties and interest is to include such amounts, if any, in income tax expense.
We reassess the validity of our conclusions regarding uncertain income tax positions on a quarterly basis to determine if facts or circumstances have arisen that might cause us to change our judgment regarding the likelihood of a tax position’s sustainability under audit. As we believe that all such positions are fully supportable by existing Federal law and related interpretations, there are no uncertain positions to consider in accordance with ASC Topic 740 “Income Taxes”.
We are subject to U.S. federal income tax as well as income tax of numerous state jurisdictions. We are subject to U.S. federal tax examinations by tax authorities for fiscal years 2008 through 2011. Income tax examinations that we may be subject to from the various state taxing authorities vary by jurisdiction.
11. Share-Based Compensation Plans
2011 and 2010 Incentive Plans. On February 1, 2011, our stockholders approved the 2011 Incentive Plan (the “2011 Plan”). The effective date of the 2011 Plan was January 1, 2011. On February 2, 2010, our stockholders approved the 2010 Incentive Plan (the “2010 Plan”). The effective date of the 2010 Plan was January 1, 2010. The 2011 Plan and the 2010 Plan each have ten-year terms. Each Plan provides for awards of up to an aggregate of 1,250,000 shares of common stock which may be represented by (i) incentive or nonqualified stock options, (ii) stock appreciation rights (tandem and free-standing), (iii) restricted stock, (iv) deferred stock, or (v) performance units entitling the holder, upon satisfaction of certain performance criteria, to awards of common stock or cash. The maximum total number of shares of Restricted Stock, Deferred Stock and/or Performance Units that may be granted at full value shall not exceed 500,000 shares. Eligible participants include officers and other key employees, non-employee directors, consultants and advisors to the Company. The exercise price per share in the case of incentive stock options and any tandem stock appreciation rights may not be less than 100% of the fair market value on the date of grant or, in the case of an option granted to a 10% or greater stockholder, not less than 110% of the fair market value on the date of grant. The exercise price for any other option and stock appreciation rights shall be at least 100% of the fair market value on the date of grant. The exercise period for nonqualified stock options may not exceed ten years and one day from the date of the grant, and the exercise period for incentive stock options or stock appreciation rights shall not exceed ten years from the date of the grant (five years for a 10% or greater stockholder). No awards have been granted under the 2011 Plan.
On December 6, 2010, pursuant to the 2010 Plan, the Compensation Committee authorized the issuance to all eligible employees of the Company common stock options to purchase an aggregate of 563,700 shares of common stock and issued equally to the four non-employee members of the Board of Directors common stock options to purchase an aggregate of 100,000 shares of common stock. Stock options for 638,700 shares of common stock are exercisable at $0.125 and one stock option for 25,000 shares of common stock, issued to a 10% or greater stockholder and executive officer, is exercisable at $0.1375. The options vest upon issuance and expire five years from the date of issuance. In addition, 500,000 shares of restricted common stock were granted to two executive officers. The aggregate grant date fair values of the stock options and restricted common stock were $48,000 and $63,000, respectively. The total amount of approximately $111,000 was included in selling, general and administrative expense in fiscal 2011. The weighted average fair value of stock options granted was $.073. The weighted-average assumptions used in the Black-Scholes option pricing model for the stock option grants were as follows: expected volatility - the Company’s stock began trading over-the-counter in April 2010, and we believe there is insufficient data to project the Company’s future volatility, as a result, the expected volatility of similar public entities in similar industries was considered in estimating our volatility of 100%; risk free interest rate - .75% based upon observed interest rates appropriate for the expected term of our employee stock options; expected life – 2.5 years because the Company has had minimal experience with the exercise of options for use in determining the expected life for each award, the simplified method was used to calculate an expected life based on the midpoint between the issue (vesting) date and the end of the contractual term of the stock award; expected dividend yield – none because the Company does not currently pay dividends. In addition, tax reimbursement bonuses related to the restricted stock awards were granted in the amount of $32,319 which was recognized as selling, general and administrative expense in fiscal 2011. During fiscal 2011, options exercisable at $0.125 for 20,200 shares of common stock were forfeited. At September 2, 2011, 102,500 shares of common stock remained available for issuance under the 2010 Incentive Plan.
1998 Incentive Plan. On February 26, 1998, our stockholders approved the 1998 Incentive Plan (the “1998 Plan”). The effective date of the 1998 Plan is January 1, 1998 and the 1998 Plan had a ten-year term. The 1998 Incentive Plan expired and terminated effective December 31, 2007. The Plan provided for awards of up to an aggregate of 2,000,000 shares of common stock which could be represented by (i) incentive or nonqualified stock options, (ii) stock appreciation rights, (iii) restricted stock, (iv) deferred stock, or (v) performance units entitling the holder, upon satisfaction of certain performance criteria, to awards of common stock or cash. In addition, the 1998 Plan provided for loans and supplemental cash payments to persons participating in the 1998 Plan in connection with awards granted. Eligible participants included officers and other key employees, non-employee directors, consultants and advisors to the Company. The exercise price per share in the case of incentive stock options and any tandem stock appreciation rights could not be less than 100% of the fair market value on the date of grant or, in the case of an option granted to a 10% or greater stockholder, could not be less than 110% of the fair market value on the date of grant. The exercise price for any other option and stock appreciation rights could be at least 75% of the fair market value on the date of grant. The exercise period for nonqualified stock options could not exceed ten years and one day from the date of the grant, and the expiration period for incentive stock options or stock appreciation rights could not exceed ten years from the date of the grant (five years for a 10% or greater stockholder). The 1998 Plan contained an automatic option grant program to non-employee members of the Board of Directors. Such members could each be granted an option to purchase 3,000 shares of common stock on the last day of each December on which regular trading occurred on the NASDAQ Stock Market, at an exercise price equal to the fair market value of such stock on the date of grant. Such options could be exercisable during the period of ten years and one day from the date of grant of the option. At September 2, 2011, options for 661,375 remained outstanding under the 1998 Incentive Plan.
A summary of stock option transactions for the above plans follows:
| | | Number of Shares | | | Range of Exercise Prices | | | Weighted Average Exercise Price | |
| Outstanding at: | | | | | | | | | | | | |
| August 28, 2009 | | | 731,375 | | | $ | .63 – 2.50 | | | $ | 1.42 | |
| Forfeited or cancelled | | | (66,000 | ) | | | 2.31 | | | | 2.31 | |
| Outstanding at: | | | | | | | | | | | | |
| September 3, 2010 | | | 665,375 | | | $ | .63 – 2.50 | | | $ | 1.33 | |
| Granted | | | 663,700 | | | | .125 – .1375 | | | | .126 | |
| Forfeited or cancelled | | | (20,200 | ) | | | .125 – .63 | | | | .22 | |
| Outstanding at September 2, 2011 | | | 1,308,875 | | | $ | .125 – 2.50 | | | $ | .74 | |
| Available for issue at September 2, 2011 | | | 1,352,500 | | | | - | | | | - | |
| Options exercisable at: | | | | | | | | | | | | |
| September 2, 2011 | | | 1,308,875 | | | $ | .125 – 2.50 | | | $ | .74 | |
| September 3, 2010 | | | 665,375 | | | $ | .63 – 2.50 | | | $ | 1.33 | |
The weighted average remaining contractual life of options outstanding and exercisable at September 2, 2011, was 3.1 years. There was no intrinsic value of the options outstanding and exercisable at September 2, 2011. The weighted average grant-date fair value of options granted during fiscal year 2011 was $0.073.
12. Employee Benefit Plans
WCI has a 401(k) Profit Sharing Plan and Trust (the “Plan”) covering substantially all employees. Amounts to be contributed to the Plan each year are subject to the approval of the Board of Directors. No profit sharing contributions were declared for fiscal years 2011 and 2010.
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 a quarterly discretionary match. During fiscal years 2011 and 2010, all matching contributions, including a discretionary matching contribution of 25%, were suspended. In addition, the Plan was amended to make all Company matching contributions discretionary. Any matching contributions would be in the form of the Company’s stock or cash at the discretion of the Board of Directors.
13. Segment Information and Concentrations
ASC Topic 280 “Segment Reporting,” established standards for the way that public business enterprises report information about operating segments in their financial statements. The standard defines operating segments as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Based on these standards, we have determined that we operate in a single operating segment: the manufacture and sale of satellite communications equipment.
In this single operating segment we have three sources of revenues as follows:
| | | Years ended | |
| | | September 2,
2011 | | | September 3, 2010 | |
| Direct Broadcast Satellite | | $ | 8,711,536 | | | $ | 8,516,561 | |
| Analog and Custom Products | | | - | | | | 16,875 | |
| Service | | | 399,287 | | | | 387,983 | |
| Revenues, net | | $ | 9,110,823 | | | $ | 8,921,419 | |
Concentrations of products representing 10% or more of the year’s revenues are as follows:
| | | Years ended | |
| | | September 2,
2011 | | | September 3, 2010 | |
| Products: | | | | | | |
| Private network receivers | | 11.5% | | | 13.3% | |
| iPump media servers | | 29.5% | | | (a) | |
| Professional and broadcast receivers | | (a) | | | 11.9% | |
| SMD 515 set top boxes | | (a) | | | (a) | |
| Audio broadcast receivers | | 25.4% | | | 28.0% | |
| Network control products | | (a) | | | 11.4% | |
| | (a) | Revenues for the year were less than 10% of total revenues. |
Products representing 10% or more of annual revenues are subject to fluctuations from year to year as new products and technologies are introduced, new product features and enhancements are added, and as customers upgrade or expand their network operations. Fiscal 2011 product mix included ipump® 6400 media server equipment for an international health and education network, ipump® 6420 audio media servers to radio broadcasters for network expansion projects, continued shipments of Unity® 201 audio broadcast receivers to background music providers,Unity®550 private network receivers to a faith-based organization for network upgrades and to service providers for digital signage displays to their retail client. Fiscal 2010 product mix included Unity®550 private network receivers to a faith-based organization for network upgrades and continued shipments of Unity® 201 audio broadcast receivers.
Revenues by geographic areas are as follows:
| | | Years ended | |
| | | September 2, 2011 | | | September 3, 2010 | |
| Geographic Area: | | | | | | |
| United States | | $ | 6,481,592 | | | $ | 7,119,816 | |
| Canada | | | 76,399 | | | | 48,650 | |
| Europe | | | 660,256 | | | | 1,235,258 | |
| Latin America and Mexico | | | 1,769,891 | | | | 336,850 | |
| Other | | | 122,685 | | | | 180,845 | |
| Revenues, net | | $ | 9,110,823 | | | $ | 8,921,419 | |
Revenues attributed to geographic areas are based on the location of the customer. All of our assets are located in the United States.
We sell 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. Customers representing 10% or more of the fiscal year’s revenues are as follows:
| | | Years ended | |
| | | September 2,
2011 | | | September 3,
2010 | |
| Customer 1 | | 24.6% | | | 22.8% | |
| Customer 2 | | (a) | | | 10.7% | |
| Customer 3 | | 17.7% | | | (a) | |
| | (a) | Revenues for the year were less than 10% of total revenues. |
Sales to a relatively small number of major customers have typically comprised a majority of our revenues and that trend is expected to continue throughout fiscal 2012 and beyond. Future revenues are subject to the timing of significant orders from customers and are difficult to forecast. As a result, future revenue levels may fluctuate from quarter to quarter.
At September 2, 2011, four customers accounted for approximately 28.1%, 15.5%, 14.0% and 10.1%, respectively, of our accounts receivable while at September 3, 2010, four customers accounted for approximately 24.2%, 18.1%, 14.1% and 10.7%, respectively, of our accounts receivable. When deemed appropriate, we use letters of credit and credit insurance to mitigate the credit risk associated with foreign sales.
During fiscal years 2011 and 2010, we used offshore manufacturers for a significant amount of our finished goods or component inventories. An offshore manufacturer, with facilities located in Taiwan and the Peoples Republic of China, accounted for approximately 58% and 79% of inventory purchases in fiscal 2011 and fiscal 2010, respectively. If these suppliers are unable to meet the Company’s needs, losses of potential customers could result, which could adversely affect operating results.
14. Commitments and Contingencies
Purchase Commitments
We have two manufacturing and purchasing agreements for certain finished goods inventories. At September 2, 2011, outstanding purchase commitments under these agreements amounted to $1,444,000.
Operating Leases
We lease certain office and manufacturing facilities and equipment under long-term noncancelable operating leases that expire through fiscal 2013. Approximate future minimum lease commitments are as follows: 2012-$65,000; 2013-$29,000. Rent expense under all leases was approximately $78,000 and $101,000 for fiscal years 2011 and 2010, respectively.
Indemnification Obligations
We are obligated to indemnify our officers and the members of our Board of Directors pursuant to our bylaws and contractual indemnity agreements. We routinely sell products with limited intellectual property indemnification included in the terms of sale or in certain contractual arrangements. The scope of these indemnities varies, but in some instances includes indemnification for costs, damages and expenses (including reasonable attorneys’ fees) finally awarded in any suit by a third party against the purchaser to the extent based upon a finding the design or manufacture of the purchased item infringes the proprietary rights of such third party. Certain requests for indemnification have been received by us pursuant to these arrangements.
On June 1, 2006, a complaint was filed by Rembrandt Technologies, LP (Rembrandt) against Charter Communications, Inc. (Charter), Cox Communications Inc. (Cox), CSC Holdings, Inc. (CSC) and Cablevisions Systems Corp. (Cablevision) in the United States District Court for the Eastern District of Texas alleging patent infringement. The complaint alleges that products and services sold by Charter infringe certain Rembrandt patents related to cable modem, voice-over internet, and video technology and applications. Wegener has not been named a party in the suit. However, subsequent to December 1, 2006, Charter has requested us to defend and indemnify Charter to the extent that the Rembrandt allegations are premised upon Charter’s use of products that we have sold to Charter. To date, we have not agreed to Charter’s request.
On June 1, 2006, a complaint substantially similar to the above described suit was filed by Rembrandt against Time Warner Cable (TWC) in the United States District Court for the Eastern District of Texas. Wegener has not been named a party in the suit, but TWC has requested us (as well as other equipment vendors) to contribute a portion of the defense costs related to this matter as a result of the products that we and others have sold to TWC. To date, we have not agreed to contribute to the payment of legal costs related to this case.
In addition, Cisco Systems, Inc. (Scientific Atlanta) has made indemnity demands against us, related to the fact that a number of Cisco’s customers that are defendants in the Rembrandt lawsuit have made indemnity demands against Cisco. Cisco’s demands are based upon allegations that Wegener sold devices to these companies that are implicated by the patent infringement claims in the Rembrandt lawsuit. To date, we have not agreed to Cisco’s demands.
These actions have been consolidated into a multi-district action pending in the United States District Court for the District of Delaware. The Delaware District Court issued an Order dismissing eight of the substantive patent claims embodied in the consolidated action, as well as all counterclaims. The parties also agreed to summary judgment of non-infringement on a remaining patent claim.
On November 13, 2009, the Court allowed the parties to the consolidated lawsuits to file motions for fees and costs with respect to one another. On July 13, 2011, the Court ruled that the motion for attorney’s fees and costs was premature. On September 7, 2011, the Delaware District Court issued a Final Judgment and Order dismissing the claims. On September 28, 2011, Rembrandt Technologies LP filed a Notice of Appeal from the Court’s September 7, 2011 judgment, the Court’s construction ruling concerning one of the patents in question, and all prior rulings, orders and judgments of the Court. At this point, we are presently unable to assess the impact, if any, of this litigation on Wegener.
On October 4, 2010, a Second Amended Complaint was filed by Multimedia Patent Trust (MPT) against Fox News Networks, LLC (Fox News) and other parties in the United States District Court for the Southern District of California for patent infringement. (The initial Complaint was filed on January 19, 2010). The Second Amended Complaint asserts that Fox News has infringed upon certain MPT patents relating to video compression, encoding and decoding. This litigation may be very expensive to defend and there could be significant financial exposure if MPT is successful in its claims. On November 3, 2010, however, Fox News wrote to Wegener, asking Wegener to fully indemnify, hold harmless and defend Fox News in connection with the litigation. In its letter, Fox News states that it has identified Wegener as a vendor that provided Fox News with products and/or services relating to video compression. Fox News states further that it believes that MPT’s claims give rise to indemnity obligations and other obligations for Wegener products obtained from Wegener by Fox News. The November 3, 2010 letter asked Wegener to acknowledge such tender on or before November 24, 2010. Wegener has not agreed to do so, nor has Wegener acknowledged or agreed that the specific claims against Fox News by MPT give rise to such obligations on the part of Wegener. On August 11, 2011, counsel for MPT served a subpoena on Wegener seeking certain documents relating to the subject matter of the patent infringement action. On September 8, 2011, Wegener produced certain documents in response to that subpoena. Additional responsive documents may be produced in the future on a schedule to be agreed upon by Wegener and MPT. At this point, we are unable to assess the impact of this litigation, if any, on Wegener.
To date, there have been no findings related to the above matters that our products and/or services have infringed upon the proprietary rights of others. Although it is reasonably possible a liability may be incurred in the future related to these indemnification claims, at this point, any possible range of loss cannot be reasonably estimated.
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None
| ITEM 9A. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Management has evaluated, with the participation of our Chief Executive Officer (CEO) and our Chief Financial Officer (CFO), the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report (September 2, 2011). Based upon that evaluation, our CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective to ensure that the information required to be disclosed in our reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Report of Management on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Securities Exchange Act Rule 13a-15(f).
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of its internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, using the criteria for effective internal control over financial reporting described in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that, as of September 2, 2011, the Company’s internal control over financial reporting was effective.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the exemption provided to issuers that are not “large accelerated filers” nor “accelerated filers” under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| ITEM 9B. | OTHER INFORMATION |
None
PART III
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Information contained in the Proxy Statement pertaining to the 2012 Annual Meeting of Stockholders (“Proxy Statement”) is incorporated herein by reference in partial response to this item. See also Item 1. “Business - Executive Officers of the Registrant” on page 11 of this Report.
| ITEM 11. | EXECUTIVE COMPENSATION |
Information contained in the Proxy Statement is incorporated herein by reference in response to this item.
See also exhibit 10.8 which is incorporated herein by reference.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Information contained in the Proxy Statement is incorporated herein by reference in response to this item. See also Item 5, “MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES-Equity Compensation Plan Information” on page 17 of this report.
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Information contained in the Proxy Statement is incorporated herein by reference in response to this item.
| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Information contained in the Proxy Statement is incorporated herein by reference in response to this item.
PART IV
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) (1) The following consolidated financial statements of Wegener Corporation and subsidiary and the related Reports of Independent Registered Public Accounting Firms thereon are filed as part of this report:
Report of Independent Registered Public Accounting Firm (Habif, Arogeti & Wynne, LLP).
Consolidated Balance Sheets - September 2, 2011 and September 3, 2010.
Consolidated Statements of Operations - Years ended September 2, 2011 and September 3, 2010.
Consolidated Statements of Capital Deficit - Years ended September 2, 2011 and September 3, 2010.
Consolidated Statements of Cash Flows - Years ended September 2, 2011 and September 3, 2010.
Notes to Consolidated Financial Statements.
Separate financial statements of the Registrant have been omitted because the Registrant is primarily a holding company and the subsidiary included in the consolidated financial statements is wholly-owned.
| (a) | (2) | The following consolidated financial statements schedule for Wegener Corporation and subsidiary is included herein: |
Schedule II-Valuation and Qualifying Accounts
Years ended September 2, 2011 and September 3, 2010.
| (a) | (3) | The exhibits filed in response to Item 601 of Regulation S-K are listed in the Exhibit Index below. |
| | (b) | See Part IV, Item 15(a) (3). |
| | (c) | See Part IV, item 15(a) (2). |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders of Wegener Corporation
Johns Creek, Georgia
The audits referred to in our report dated December 1, 2011, relating to the consolidated financial statements of Wegener Corporation and subsidiary, which is contained in Item 8 of this Form 10-K also included the audits of the financial statement schedule listed in the accompanying index. The financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ Habif, Arogeti & Wynne, LLP.
Habif, Arogeti & Wynne, LLP.
Atlanta, Georgia
December 1, 2011
SCHEDULE II
WEGENER CORPORATION AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
| | | Balance at Beginning of Period | | | Charged to Costs and Expenses | | | Write-offs | | | Recoveries | | | Balance at End of Period | |
| Allowance for doubtful accounts receivable: | | | | | | | | | | | | | | | |
| Year ended September 2, 2011 | | $ | 139,693 | | | $ | 133,000 | | | $ | (7,660 | ) | | $ | - | | | $ | 265,033 | |
| Year ended September 3, 2010 | | $ | 146,010 | | | $ | 80,000 | | | $ | (86,317 | ) | | $ | - | | | $ | 139,693 | |
| | | | | | | | | | | | | | | | | | | | | |
| Inventory Reserves: | | | | | | | | | | | | | | | | | | | | |
| Year ended September 2, 2011 | | $ | 4,475,288 | | | $ | 110,000 | | | $ | (967,172 | ) | | $ | 269,500 | | | $ | 3,887,616 | |
| Year ended September 3, 2010 | | $ | 4,689,357 | | | $ | 90,000 | | | $ | (304,069 | ) | | $ | - | | | $ | 4,475,288 | |
| | | | | | | | | | | | | | | | | | | | | |
| Accrued Warranty: | | | | | | | | | | | | | | | | | | | | |
| Year ended September 2, 2011 | | $ | 136,448 | | | $ | 112,000 | | | $ | (125,810 | ) | | $ | - | | | $ | 122,638 | |
| Year ended September 3, 2010 | | $ | 98,882 | | | $ | 50,000 | | | $ | (12,434 | ) | | $ | - | | | $ | 136,448 | |
EXHIBIT INDEX
The following documents are filed as exhibits to this report. An asterisk (*) identifies exhibits filed herewith. Exhibits which are not required for this report are omitted. Exhibits 10.3 through 10.6, 10.8, 10.10 and 10.11 identify management contracts or compensatory plans.
| Exhibit No. | | Description of Exhibit |
| | | |
| 3.1 | | Certificate of Incorporation as amended through May 4, 1989. (1) |
| | | |
| 3.1.1 | | Amendment to Certificate of Incorporation. (2) |
| | | |
| 3.1.2 | | Amendment to Certificate of Incorporation effective January 27, 2009. |
| | | |
| 3.2 | | By-laws of the Company, as Amended and Restated May 17, 2006. (19) |
| | | |
| 3.2.1 | | Amendments to Article III, Section 3.2 and Article XII of the By-laws of the Company, effective as of September 29, 2006. (4) |
| | | |
| 4.1 | | 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. |
| | | |
| 4.2 | | Loan and Security Agreement and Demand Note dated June 5, 1996, by and between Wegener Communications, Inc. and LaSalle National Bank respecting $8,500,000 combined revolving credit note and term note. (5) |
| | | |
| 4.2.1 | | Loan and Security Agreement – First Amendment dated August 4, 1998, by and between Wegener Communications, Inc. and LaSalle National Bank respecting $10,000,000 combined revolving credit note and term note. (6) |
| | | |
| 4.2.2 | | Loan and Security Agreement – Third Amendment dated December 11, 2000, by and between Wegener Communications, Inc., and LaSalle National Bank respecting $10,000,000 combined revolving credit note and term note. (7) |
| | | |
| 4.2.3 | | Loan and Security Agreement – Fourth Amendment dated March 28, 2002, by and between Wegener Communications, Inc., and LaSalle National Bank respecting $5,000,000 combined revolving credit note and term note. (8) |
| | | |
| 4.2.4 | | Loan and Security Agreement – Fifth Amendment dated June 27, 2003, by and between Wegener Communications, Inc. and LaSalle National Bank respecting $5,000,000 combined revolving credit note and term note. (9) |
| | | |
| 4.2.5 | | Loan and Security Agreement – Sixth Amendment dated June 27, 2004, by and between Wegener Communications, Inc. and LaSalle National Bank respecting $5,000,000 combined revolving credit note and term note. (10) |
| | | |
| 4.2.6 | | Loan and Security Agreement – Seventh Amendment dated July 13, 2006, by and between Wegener Communications, Inc. and LaSalle National Bank respecting $5,000,000 combined revolving credit note and term note. (20) |
| | | |
4.2.7 | | Loan and Security Agreement – Eighth Amendment dated November 15, 2006, by and between Wegener Communications, Inc. and LaSalle National Bank respecting $5,000,000 combined revolving credit note and term note. (20) |
| Exhibit No. | | Description of Exhibit |
| | | |
4.2.8 | | Loan and Security Agreement – Ninth Amendment dated June 28, 2007, by and between Wegener Communications, Inc. and LaSalle National Bank respecting $5,000,000 combined revolving credit note and term note. (21) |
| | | |
4.2.9 | | Loan and Security Agreement – Tenth Amendment dated September 8, 2008, by and between Wegener Communications, Inc. and LaSalle National Bank respecting $5,000,000 combined revolving credit note and term note. |
| | | |
| 4.2.10 | | Loan and Security Agreement – Eleventh Amendment dated September 14, 2009, by and between Wegener Communications, Inc. and LaSalle National Bank respecting $4,000,000 combined revolving credit note and term note. (23) |
| | | |
| 4.2.11 | | Loan and Security Agreement –Twelfth Amendment dated October 8, 2009, by and between Wegener Communications, Inc. and The David E. Chymiak Trust Dated December 15, 1999, as assignee of the Bank of America, N.A., successor interest by merger to LaSalle Bank National Association, respecting $4,000,000 combined revolving credit note and term note. (24) |
| | | |
| 4.2.12 | | Loan and Security Agreement –Thirteenth Amendment dated June 11, 2010, by and between Wegener Communications, Inc. and The David E. Chymiak Trust Dated December 15, 1999, as assignee of the Bank of America, N.A., successor interest by merger to LaSalle Bank National Association, respecting $4,000,000 combined revolving credit note and term note. (25) |
| | | |
| 4.2.13 | | Loan and Security Agreement –Fourteenth Amendment dated September 3, 2010, by and between Wegener Communications, Inc. and The David E. Chymiak Trust Dated December 15, 1999, as assignee of the Bank of America, N.A., successor interest by merger to LaSalle Bank National Association, respecting $4,250,000 combined revolving credit note and term note. (27) |
| | | |
| 4.2.14 | | Loan and Security Agreement –Fiftteenth Amendment dated November 8, 2010, by and between Wegener Communications, Inc. and The David E. Chymiak Trust Dated December 15, 1999, as assignee of the Bank of America, N.A., successor interest by merger to LaSalle Bank National Association, respecting $4,250,000 combined revolving credit note and term note. (28) |
| | | |
| 4.2.15 | | Loan and Security Agreement –Sixteenth Amendment dated April 13, 2011, by and between Wegener Communications, Inc. and The David E. Chymiak Trust Dated December 15, 1999, as assignee of the Bank of America, N.A., successor interest by merger to LaSalle Bank National Association, respecting $4,250,000 combined revolving credit note and term note. (29) |
| | | |
| 4.2.16 | | Loan and Security Agreement –Seventeenth Amendment dated June 29, 2011, by and between Wegener Communications, Inc. and The David E. Chymiak Trust Dated December 15, 1999, as assignee of the Bank of America, N.A., successor interest by merger to LaSalle Bank National Association, respecting $4,250,000 combined revolving credit note and term note. (30) |
| | | |
| 4.3 | | Stockholder Rights Agreement. (3) |
| | | |
| 4.3.1 | | Amendment No. 1, dated as of September 29, 2006, to the Company’s Stockholder Rights Agreement. (4) |
| | | |
| 10.1 | | 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. (11) |
| | | |
| Exhibit No. | | Description of Exhibit |
| | | |
| 10.2 | | Wegener Communications, Inc. 401(k) Profit Sharing Plan and Trust dated January 1, 1982, amended and restated as of January 1, 1984. (12) |
| | | |
| 10.3 | | 1989 Directors’ Incentive Plan. (13) |
| | | |
| 10.3.1 | | Amendment to 1989 Directors’ Incentive Plan effective February 1, 1995. (14) |
| | | |
| 10.4 | | 1998 Incentive Plan. (15) |
| | | |
| 10.5 | | Form of Agreement between Wegener Corporation and Robert A. Placek, Ned L. Mountain, and C. Troy Woodbury, Jr. respecting severance payments in the event of a change of control. (16) |
| | | |
| 10.6 | | Director Compensation Plan for 2004. (17) |
| | | |
| 10.7 | | Agreement, dated September 29, 2006, by and among Wegener Corporation, Henry Partners, L.P., Matthew Partners, L.P., Henry Investment Trust, L.P., and David W. Wright. (4) |
| | | |
| 10.8 | * | Executive Compensation for the fiscal year ended September 2, 2011. |
| | | |
| 10.9 | | Patent Purchase Agreement effective as of May 22, 2008, by and between Wegener Communications, Inc. and EPAX Consulting Limited Liability Company.(22) |
| | | |
| 10.10 | | Amendments to Agreement between Wegener Corporation and Ned L. Mountain, and C. Troy Woodbury, Jr., respectively, respecting severance payments in the event of a change of control. |
| | | |
| 10.11 | | Agreement between Wegener Corporation and Robert A. Placek respecting payments in the event of termination of employment. |
| | | |
| 10.12 | | 2010 Incentive Plan (26) |
| | | |
| 10.13 | | 2011 Incentive Plan (31) |
| | | |
| 14.1 | | Wegener Corporation Code of Business Conduct and Ethics. (18) |
| | | |
| 21.1 | | Subsidiary of the Registrant. (17) |
| | | |
| 23.1 | * | Consent of Habif, Arogeti & Wynne, LLP. |
| | | |
| 31.1 | * | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | |
| 31.2 | * | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | |
| 32.1 | * | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | | |
| 32.2 | * | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| (1) | | Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended September 1, 1989, as filed with the Commission on November 30, 1989.+ |
| (2) | | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 30, 1997, as filed with the Commission on June 30, 1997.+ |
| (3) | | Incorporated by reference to the Company’s Current Report on Form 8-K, dated May 1, 2003, as filed with the Commission on May 6, 2003.+ |
| (4) | | Incorporated by reference to the Company’s Current Report on Form 8-K, dated September 29, 2006, as filed with the Commission on October 3, 2006.+ |
| (5) | | Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 30, 1996, as filed with the Commission on November 27, 1996.+ |
| (6) | | Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 28, 1998, as filed with the Commission on November 10, 1998.+ |
| (7) | | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 2, 2001, as filed with the Commission on April 16, 2001.+ |
| (8) | | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2002, as filed with the Commission on Jun e 28, 2002.+ |
| (9) | | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 30, 2003, as filed with the Commission on July 9, 2003.+ |
| (10) | | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 28, 2004, as filed with the Commission on July 12, 2004.+ |
| (11) | | Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended September 2, 1994, as filed with the Commission on December 16, 1994.+ |
| (12) | | Incorporated by reference to the Company’s Annual Report on Form 10-K/A for the fiscal year ended September 2, 2005, as filed with the Commission on January 10, 2006.+ |
| (13) | | Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 1990, as filed with the Commission on November 29, 1990.+ |
| (14) | | Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended September 1, 1995, as filed with the Commission on December 14, 1995.+ |
| (15) | | Incorporated by reference to the Company’s Registration Statement on Form S-8 (No. 333-51205), as filed with the Commission on April 28, 1998. |
| (16) | | Incorporated by reference to the Company’s Schedule 14D-9, as filed with the Commission on May 6, 2003.+ |
| (17) | | Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended September 3, 2004, as filed with the Commission on December 2, 2004.+ |
| (18) | | Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended August 29, 2003, as filed with the Commission on November 26, 2003.+ |
| (19) | | Incorporated by reference to the Company’s Current Report on Form 8-K, dated May 17, 2006, as filed with the Commission on May 22, 2006.+ |
| (20) | | Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended September 1, 2006, as filed with the Commission on November 30, 2006.+ |
| (21) | | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 1, 2007, as filed with the Commission on July 16, 2007.+ |
| (22) | | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 30, 2008, as filed with the Commission on July 10, 2008.+ |
| (23) | | Incorporated by reference to the Company’s Current Report on Form 8-K, dated September 13, 2009, as filed with the Commission on September 17, 2009.+ |
| (24) | | Incorporated by reference to the Company’s Current Report on Form 8-K, dated October 8, 2009, as filed with the Commission on October 14, 2009.+ |
| (25) | | Incorporated by reference to the Company’s Current Report on Form 8-K, dated June 11, 2010, as filed with the Commission on June 14, 2010.+ |
| (26) | | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 26, 2010, as filed with the Commission on April 12, 2010.+ |
| (27) | | Incorporated by reference to the Company’s Current Report on Form 8-K, dated September 3, 2010, as filed with the Commission on September 7, 2010.+ |
| (28) | | Incorporated by reference to the Company’s Current Report on Form 8-K, dated November 8, 2010, as filed with the Commission on November 9, 2010.+ |
| (29) | | Incorporated by reference to the Company’s Current Report on Form 8-K, dated April 13, 2011, as filed with the Commission on April 14, 2011.+ |
| (30) | | Incorporated by reference to the Company’s Current Report on Form 8-K, dated June 29, 2011, as filed with the Commission on June 29, 2011.+ |
| (31) | | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 4, 2011, as filed with the Commission on April 18, 2011.+ |
| + | | SEC file No. 0-11003 |
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 | | | |
| By: | /s/ C. Troy Woodbury, Jr. | |
| | | C. Troy Woodbury, Jr. | |
| | | President and Chief Executive Officer | |
| | | | |
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 1st day of December 2011.
| Signature | | Title | | |
| | | | | |
| /s/ Robert A. Placek | | Chairman of the Board, Director | | |
| Robert A. Placek | | | | |
| | | | | |
| /s/ C. Troy Woodbury, Jr. | | President and Chief Executive Officer, Director | | |
| C. Troy Woodbury, Jr. | | (Principal Executive Officer) | | |
| | | | | |
| /s/ James Traicoff | | Treasurer and Chief Financial Officer | | |
| James Traicoff | | (Principal Financial and Accounting Officer) | | |
| | | | | |
| /s/ Phylis Eagle-Oldson | | Director | | |
| Phylis Eagle-Oldson | | | | |
| �� | | | | |
| /s/ Jeffrey J. Haas | | Director | | |
| Jeffrey J. Haas | | | | |
| | | | | |
| /s/ Stephen J. Lococo | | Director | | |
| Stephen J. Lococo | | | | |
| | | | | |
DIRECTORS Robert A. Placek Chairman of the Board
Phylis Eagle-Oldson President and Chief Executive Officer of Emma L. Bowen Foundation
Jeffrey J. Haas Professor of Law New York Law School
Manager of Footprints Asset
C. Troy Woodbury, Jr.
President and Chief Executive Officer Wegener Corporation and Wegener Communications, Inc. | OFFICERS C. Troy Woodbury, Jr. President and Chief Executive Officer
James Traicoff Treasurer and Chief Financial Officer
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Habif, Arogeti &Wynne, LLP 5 Concourse Parkway Suite 1000 Atlanta, Georgia 30328
TRANSFER AGENT Securities Transfer Corporation 2591 Dallas Parkway Suite 102 Frisco, Texas 75034
CORPORATE HEADQUARTERS 11350 Technology Circle Johns Creek /Atlanta, Georgia 30097-1502
ANNUAL MEETING The annual meeting of stockholders will be held on January 31, 2012 at 9:00 a.m. at the Corporate Headquarters.
COMMON STOCK OTCQB Symbol: WGNR.PK |
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:
James Traicoff
Investor Relations
Wegener Corporation
11350 Technology Circle
Johns Creek, Georgia
30097-1502
WEB SITE
HTTP://WWW.WEGENER.COM
QUARTERLY COMMON STOCK PRICES
The Company’s common stock is traded over-the-counter.
The quarterly ranges of high and low sale prices for fiscal 2011 and 2010 were as follows:
| | | High | | | Low | |
| Fiscal Year Ended September 2, 2011 | | | | | | | | |
| First Quarter | | $ | .14 | | | $ | .07 | |
| Second Quarter | | | .18 | | | | .09 | |
| Third Quarter | | | .18 | | | | .06 | |
| Fourth Quarter | | | .08 | | | | .03 | |
Fiscal Year Ended September 3, 2010
| First Quarter | | $ | .38 | | | $ | .20 | |
| Second Quarter | | | .29 | | | | . 08 | |
| Third Quarter | | | .30 | | | | .10 | |
| Fourth Quarter | | | .15 | | | | .07 | |
The Company had approximately 335* shareholders of record at November 1, 2011. The Company has never paid cash dividends on its common stock and does not intend to pay cash dividends in the foreseeable future.
*(This number does not reflect beneficial ownership of shares held in nominee names).
