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