================================================================================
                                    FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
(Mark One)
   [X]    ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15(D)  OF THE  SECURITIES
          EXCHANGE ACT OF 1934

For the fiscal year ended September 3, 1999

                                       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                         30097-1502
(Address of principal executive offices)                         (Zip Code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (770) 623-0096

                  REGISTRANT'S WEB SITE: HTTP://WWW.WEGENER.COM

        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                          Common Stock, $.01 par value

                                (Title of class)

     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 [ ]

     As of November 12, 1999,  11,771,016  shares of  registrant's  Common Stock
were  outstanding  and the  aggregate  market  value of the Common Stock held by
nonaffiliates  was $28,060,624  based on the last sale price of the Common Stock
as  quoted on the  NASDAQ  Small-Cap  Market on such  date.  (The  officers  and
directors of the registrant,  and owners of over 10% of the registrant's  common
stock, are considered affiliates for purposes of this calculation.)

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be  contained,  to the best of  registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the definitive  Proxy  Statement  pertaining to the January 25,
2000 Annual  Meeting of  Stockholders,  only to the extent  expressly  so stated
herein, are incorporated herein by reference into Part III.
================================================================================

<PAGE>

                               WEGENER CORPORATION
                                    FORM 10-K
                          YEAR ENDED SEPTEMBER 3, 1999
                                      INDEX

                                     PART I

                                                                            Page
Item  1.  Business.............................................................2
Item  2.  Properties..........................................................10
Item  3.  Legal Proceedings...................................................10

                                     PART II

Item  5.  Market for Registrant's Common Stock and
          Related Stockholder Matters.........................................10
Item  6.  Selected Financial Data.............................................11
Item  7.  Management's Discussion and Analysis of Financial
          Condition and Results of Operations.................................12
Item  7a. Quantitative and Qualitative Disclosures About Market Risk..........21
Item  8.  Financial Statements and Supplementary Data.........................21
Item  9.  Changes in and Disagreements With Accountants on Accounting and
          Financial Disclosures...............................................38

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant..................38
Item 11.  Executive Compensation..............................................38
Item 12.  Security Ownership of Certain Beneficial Owners
          and Management......................................................38
Item 13.  Certain Relationships and Related Transactions......................38

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules, and
          Reports on Form 8-K.................................................39

                                       1
<PAGE>

                                     PART I

ITEM 1. BUSINESS

     Wegener  Corporation,  the Registrant,  together with its subsidiaries,  is
referred to herein as the "Company" or "WGNR".

     (a)  General development of business.

     Wegener Corporation was formed in 1977 and is a Delaware  corporation.  The
Company conducts its continuing  business through Wegener  Communications,  Inc.
(WCI), its wholly-owned  subsidiary,  and Wegener Communications  International,
Inc., a wholly-owned subsidiary of WCI.

     WCI was formed in April 1978 and is a Georgia corporation. Its wholly-owned
subsidiary, Wegener Communications International, Inc., is a Small Foreign Sales
Corporation.  WCI, a market leader in digital and analog compression technology,
designs and manufactures communications transmission and receiving equipment for
the business broadcast, data communications, internet, cable and broadcast radio
and television industries for worldwide markets.

     (b)  Financial information about segments.

     Segment  information  contained  in Note 11 to the  consolidated  financial
statements of this document is  incorporated  herein by reference in response to
this item.

     (c)  Narrative description of business.

          (i)  Principal products produced and services rendered, and

          (ii) Status of a product or segment.

Satellite Communications Electronics.
-------------------------------------

WCI is an  international  provider  of digital  solutions  for video,  audio and
broadcast  data  networks.  Applications  include  broadcast  television,  cable
television,  radio network,  business television,  distance education,  business
music, satellite paging and financial information distribution. WCI services the
products  that it sells.  The Company  warrants its products for a period of one
year. There were no significant  warranty claims  outstanding as of September 3,
1999.

Throughout  fiscal 1999 and fiscal  1998,  WCI  continued to produce and develop
digital compression  products.  During fiscal 1997 WCI introduced COMPEL network
control software and the UNITY Digital Broadcast  product family.  During fiscal
1998 and 1999 WCI shipped these products  against  purchase  orders it received.
COMPEL provides  networks with unparalleled  ability to regionalize  programming
and  commercials  through total  receiver  control.  COMPEL also allows  network
operators to remotely  control  uplinks  providing  bandwidth on demand.  COMPEL
control  capability is integrated  into the UNITY digital  satellite  receivers.
Wegener's digital products are in use worldwide

                                       2
<PAGE>

in broadcast television, distance learning, radio, cable television, and private
business networks.  In terms of new orders,  digital technology products are the
fastest  growing product  segment for the Company.  As expected,  demand for the
Company's analog products has continued to decline  following market demand for,
and the Company's emphasis on, digital technology.

DIGITAL  COMMUNICATIONS.  The demand for digital products is being driven by the
high cost of satellite capacity and consumer demand for more channels. Satellite
capacity  is scarce due to  pressures  on both the supply and demand side of the
market. On the supply side, satellites are extremely expensive to launch, build,
and  maintain.  The  useful  life of a  satellite  is  limited  by the amount of
positioning  fuel that can be carried.  Also,  the  placement of  satellites  is
regulated  by the Federal  Communications  Commission  (FCC) and  therefore  the
number of  satellites  within  range of any given  location is  limited.  On the
demand side,  the cost of receive  hardware is being  steadily  reduced  through
advancing  technology.  The reduction in the cost of network hardware  increases
the economic  feasibility of a greater number of networks.  This is evidenced by
the trend in both  television and radio towards  narrow-casting  to well-defined
market segments as opposed to broadcasting  to the general  population.  Digital
compression  technology  allows a four to  ten-fold,  or more,  increase  in the
throughput of a satellite channel. For the network, this compression  represents
an opportunity  to reduce the cost of satellite use. For the satellite  operator
it represents an opportunity to increase the revenues  generated by an expensive
asset. Due to existing satellite transponder contracts and the cost of replacing
existing  analog  hardware,  the digital  conversion of major networks is taking
longer than anticipated.  These network conversions are expected to occur in the
near  future,  but it is  impossible  to predict the precise  timing of customer
internal  decision  processes.  Management  believes  the  market as a whole has
considerable built up demand for digital technology.

Major products introduced by WCI during fiscal 1999 were:

o    UNITY401 receiver for private business network  distribution.  The UNITY401
     provides DVB compliant  MPEG-2  digital  video  operating in either SCPC or
     MCPC modes from 2.5 to 50 MB, as well as audio and data in one unit.

o    ENVOY,  a new  standard  for  satellite  and  terrestrial  news  and  event
     gathering.  ENVOY is an  integrated  digital video  encoder/modulator  that
     includes  the latest  technologies  available  for both video  quality  and
     modulation.

o    UNITY-IP,  a complete  end-to-end  solution  for the  transmission  of high
     bandwidth  internet  data.  UNITY-IP  allows  programmers  and  IP  service
     providers to transmit data up to 50 MBPS.

o    COMPEL Web Access,  Internet  Connectivity  for Wegener's  Advanced Network
     Control System.  Users can create multiple virtual networks from one master
     COMPEL Control  system,  enabling total control over a defined sub network,
     yet preserve a central network control authority.

With ongoing  breakthroughs  in digital  compression,  digitized audio and video
products have become increasingly  important.  WCI manufactures MPEG-2 broadcast
quality  digital video  products for  commercial  program  distribution.  During
fiscal  1999,   WCI  received   additional   orders  for  cable   products  from
FOX/SportsNet  for its Unity 4000 MPEG2 digital video satellite  receivers.  The
Company received an order for approximately $6 million from FOX Digital,  a Unit
of FOX  Television  in  fiscal  1999.  The order  consists  of  UNITY5000  IRD's
(Integrated  Receiver Decoders) plus COMPEL Network Control.  The UNITY5000 will
allow for the delivery of high quality standard

                                       3
<PAGE>

definition and high  definition  digital video feeds from the FOX Network to its
affiliates.  These units will replace the Wegener analog system that has been in
use since 1993.

Ascent Network  Services placed  additional  orders for digital video equipment,
for  use  by  NBC  News  Channel's   digital  satellite  news  gathering  (DSNG)
operations.  The DVT encoders and UNITY receivers are used at both NBC affiliate
stations and in remote DSNG vehicles.  Turner  Broadcasting  purchased UNITY4422
contribution  quality  receivers to convert  Turner's  satellite  news gathering
trucks to digital.  Turner also uses WCI's digital  products for various network
feeds from around the world.

BUSINESS TELEVISION/DISTANCE LEARNING. The Company's analog and digital products
are used by businesses and educational  institutions to transmit  programming to
remote locations.

Autotote  placed  orders  in  fiscal  1999  totaling  approximately  $4  million
consisting  of UNITY401  receivers,  DiviCom  MPEG-2 video  encoders plus COMPEL
control for  transmitting  live  pari-mutuel  racing  signals via satellite from
racetracks to off-track facilities in North America.

Novanet  Communications Limited placed an order in excess of $1.4 million (U.S.)
for UNITY digital  products and COMPEL  network  control.  The order  included a
complete  UNITY  transmission  system plus  UNITY4000  and  UNITY401  receivers.
Novanet is converting its FM(2) services to the Wegener UNITY Digital  Broadcast
Platform,  a DVB compliant  technology.  The UNITY products will be used in this
conversion to provide  multimedia  services including high speed broadcast data,
audio and business television solutions to Novanet customers.

CABLE  TELEVISION  PRODUCTS.  During fiscal 1999,  WCI continued  rollout of the
UNITY 4000 digital  video  receivers to FX Networks  and Fox's  regional  sports
networks.

Additionally,  during fiscal 1999, Paxson  Communications  Corporation continued
its rollout of WCI's  UNITY4000  digital  video  receivers  to launch its family
programming  network PAX NET. Paxson deployed  UNITY4000 digital video receivers
in both broadcast television stations and cable headends.  Paxson broadcasts via
a total of 78  television  stations in markets that contain more than 72 million
U.S.  television  households,  including  stations  in  each  of the top 20 U.S.
television  markets  as  well  as 43 of  the  nation's  top 50  markets.  Paxson
Communications  owns and  operates  the  nation's  largest  group of  television
stations.

WCI continued to deliver cue and control equipment for cable television networks
through its channel affiliate, MegaHertz. Cue and control card equipment is used
on  advertising  supported  networks  to permit  cable  systems to insert  local
commercials at appropriate times.  Control equipment delivers switching commands
from the network to provide program routing and blackouts.

RADIO AND TELEVISION BROADCASTING.  Broadcasters use WCI equipment to distribute
digital audio, analog audio, video, and cue/network control signals.  Television
networks  such as  FOX,  NBC  and  Turner  Broadcasting,  use  WCI  products  to
distribute  high  quality   programming   from  remote   locations  and  between
affiliates.  Satellite based radio networks  distribute  programming and network
control signals to network affiliates.

                                       4
<PAGE>

JACOR,  a group radio station  owner and provider of radio network  programming,
operates a satellite delivered contribution network linking JACOR's major market
radio  properties.  Each major market is equipped with its own satellite uplink,
featuring WCI transmission  equipment and the COMPEL network control system. WCI
digital receivers are used to receive the programming at affiliate stations.

OPTICAL  FIBER  AND  TERRESTRIAL  MICROWAVE.  Most  of  WCI's  products  used on
satellite  communications  links are easily used on existing  microwave or fiber
circuits.  Typical  applications  are digital  video links,  plus voice and data
circuits that accompany a video signal.

BUSINESS  MUSIC.  This  market  consists  of  suppliers  of  business  music  to
restaurants,  offices and various retail  establishments.  WCI  manufactures the
equipment  required to transmit  audio and data from the business music supplier
to the end user via satellite. The equipment is controlled by the business music
supplier using WCI's network  control  technology.  Potential  users include any
business  purchasing  background  music,  foreground  music and broadcast  data.
During  fiscal  1999,  Broadcast  International  (BI) placed  add-on  orders for
Wegener digital audio receivers.  BI utilizes  Wegener's  digital audio products
for the  distribution  of music  and  advertising  for their  retail  customers,
primarily supermarkets and drug stores throughout the United States.

AEI  Soundcom  selected  Wegener  digital  audio  equipment  in fiscal  1999 for
satellite delivered business music in Australia. AEI Soundcom, recently acquired
by AEI Music Network of Seattle,  WA, is utilizing  Wegener DT96 and DR95 MPEG-2
digital audio products for upgrading its tape-delivered  business music services
to satellite  delivery in Australia.  Wegener has now become the selected vendor
for all AEI Soundcom music distribution within Australia.

     (iii) Sources and availability of raw materials.

     Raw materials consist of passive electronic components,  electronic circuit
boards and fabricated sheet metal. WCI purchases  approximately  one-half of its
raw  materials  from  direct  suppliers  and the other  half is  purchased  from
distributors.  Passive and active  components  include  parts such as resistors,
integrated  circuits and diodes.  WCI uses  approximately  ten  distributors and
three  subcontractors  to supply  its  electronic  components.  WCI often uses a
single  distributor or  subcontractor  to supply a total  subassembly or turnkey
solution  for higher  volume  products.  Direct  sources  provide  sheet  metal,
electronic  circuit  boards and other  materials  built to  specifications.  WCI
maintains relationships with approximately twenty direct suppliers.  Most of the
Company's materials are available from a number of different suppliers; however,
certain components used in existing and future products are currently  available
from  single  or  limited  sources.  Although  the  Company  believes  that  all
single-source  components currently are available in adequate quantities,  there
can be no assurance that shortages or unanticipated  delivery interruptions will
not develop in the future.  Any  disruption or  termination of supply of certain
single-source  components could have an adverse effect on the Company's business
and results of operations.

         (iv) Patents, trademarks, licenses, franchises and concessions held.

     The Company holds certain  patents with respect to some of its products and
markets its services and  products  under  various  trademarks  and  tradenames.
Additionally, the Company licenses

                                       5
<PAGE>

certain analog audio processing  technology to several  manufacturing  companies
which generated royalty revenues of approximately $73,000, $184,000 and $121,000
in fiscal 1999, 1998, and 1997, respectively. Although the Company believes that
the patents and trademarks owned are of value, the Company believes that success
in its  industry  will be  dependent  upon new product  introductions,  frequent
product  enhancements,  and customer support and service.  However,  the Company
intends to protect its rights  when,  in its view,  these  rights are  infringed
upon.

     (v)  Seasonal variations in business.

     There  does not  appear  to be any  seasonal  variations  in the  Company's
business.

     (vi) Working capital practices.

     Information  contained  under  the  caption  "Management's  Discussion  and
Analysis  of  Financial  Condition  and  Results of  Operations"  (MD&A) of this
document is incorporated herein by reference in response to this item.

     (vii) Dependence upon a limited number of customers.

     The Company sells 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 Sales to FOX/Liberty Networks,  L.L.C.  accounted for
approximately  19.2% and 34.2% of revenues in fiscal 1999 and 1998 respectively.
Sales  to The  Church  of  Jesus  Christ  of  Latter-Day  Saints  accounted  for
approximately  11.0% of  revenues  in fiscal  1997.  At  September  3, 1999,  no
customer  accounted for more than 10% of the Company's accounts  receivable.  At
August  28,  1998,  three  customers  accounted  for  23.7%,  13.6%  and  13.2%,
respectively of the Company's accounts  receivable.  Sales to a relatively small
number of major  customers have typically  comprised a majority of the Company's
revenues.  This trend is expected to  continue in fiscal  2000.  There can be no
assurance  that  the  loss of one or more of these  customers  would  not have a
material adverse effect on the Company's operations.

     (viii) Backlog of orders.

     The Company's  backlog is comprised of undelivered,  firm customer  orders,
which are scheduled to ship within eighteen  months.  The Company's  backlog was
approximately  $15,691,000  at September 3, 1999 and  $12,596,000  at August 28,
1998.  Reference is hereby made to MD&A of this document,  which is incorporated
herein by reference in response to this item.

     Approximately  $10,100,000  of the September 3, 1999 backlog is expected to
ship during fiscal 2000.

                                       6
<PAGE>

     (ix) Government contracts.

     Not applicable.

     (x)  Competitive Conditions.

     The  Company  competes  with  companies  which have  substantially  greater
resources  and a larger  number of products  than the  Company,  as well as with
small  specialized  companies.  Through  relationships  with  satellite  service
providers, the Company has positioned itself to provide end-to-end digital video
and  audio  solutions  to its  customers.  Competition  in the  market  for  the
Company's MPEG-2 broadcast television  electronics  products,  including digital
video equipment, is driven by timeliness,  performance, and price. The Company's
broadcast digital video products are in production and are competitively priced,
with unique, desirable features. Due to the large number of potential end users,
both small and large competitors continue to emerge. The Company believes it has
positioned  itself to capitalize  on the market trends in this business  through
careful  development  of its  product and market  strategies,  which have proven
successful in  increasing  revenues  from this sector.  In the cable  television
market  the  Company  believes  that the  competitive  position  for many of its
products is dominant. However, the UNITY product family is potentially competing
with  significant  and  established  firms.  WCI  believes  that it  maintains a
competitive   advantage   in  the  cable  and   broadcast   video   markets  for
advertising-supported  networks  through  its  ability to  provide  regionalized
programming and control. Other products for cable television include proprietary
cueing and network  control  devices.  Competition  for radio network  products,
including the Company's  digital audio products,  is very aggressive and pricing
is very  competitive.  The Company believes that its continued success in all of
its markets will depend on aggressive marketing and product development.

     (xi) Research and development activities.

     The  Company's  research  and  development  is designed to  strengthen  and
broaden its  existing  products  and systems  and to develop  new  products  and
systems.  A major portion of the fiscal 1999 research and  development  expenses
were spent in the digital  video product area.  WCI's  research and  development
expenses  totaled  $2,924,000  in fiscal 1999,  $2,644,000  in fiscal 1998,  and
$1,999,000  in fiscal 1997.  Additional  information  contained on page 3 and in
MD&A of this  document is  incorporated  herein by reference in response to this
item.

     (xii) Environmental Regulation.

     Federal,  state and local pollution  control  requirements have no material
effect upon the capital  expenditures,  earnings or the competitive  position of
the Company.

     (xiii) Number of employees.

     As of September 3, 1999, the Company had 131 employees  employed by the WCI
manufacturing subsidiary,  and no employees employed by Wegener Corporation.  No
employees are

                                       7
<PAGE>

parties to a collective  bargaining  agreement and the Company believes that its
relationships with its employees are good.

     (d) Financial  information about foreign and domestic operations and export
sales.

     Information  contained in Note 11 to the consolidated  financial statements
of this document is incorporated herein by reference in response to this item.

                                       8
<PAGE>

EXECUTIVE OFFICERS OF THE REGISTRANT

The  executive  officers  of the  Company,  for  purposes  of section  401(b) of
Regulation S-K, are as follows:

NAME AND BUSINESS EXPERIENCE               AGE    OFFICE HELD
--------------------------------------------------------------------------------
ROBERT A. PLACEK                           61     President,   Chief   Executive
President and Chief Executive Officer of          Officer  and  Chairman  of the
the  Company   since   August  1987  and          Board of the Company
Director of the Company since July 1987.
Chairman   of  the  Board   since  1995.
Chairman and Chief Executive Officer and
Director of WCI since 1979. President of
WCI from October 1979 to June 1998.

KEITH N. SMITH                             41     President of WCI
Director  of the  Company  since  March,
1999.  President of WCI since June 1998.
Vice President,  Business Development of
WCI  from   March  1997  to  June  1998.
Co-founder  and  Vice  President/General
Manager  of  Microspace   Communications
Corporation  from April 1989 through May
1995.  From  June  1995  until  February
1997,  Mr.  Smith and his wife pursued a
sailing sabbatical.

C. TROY WOODBURY, JR.                      52     Treasurer and Chief  Financial
Treasurer and Chief Financial Officer of          Officer of the Company and WCI
the Company since June 1988 and Director
since   1989.    Treasurer   and   Chief
Financial  Officer  of WCI  since  1992.
Executive  Vice  President  of WCI  from
July 1995 to June 1998.  Chief Operating
Officer  of WCI from  September  1992 to
June   1998.    Group   Controller   for
Scientific-Atlanta, Inc. from March 1975
to June 1988.

JAMES T. TRAICOFF                          49     Controller  of the Company and
Controller of the Company since November          WCI
1991; Controller of WCI since July 1988;
Controller for BBL Industries, Inc. from
April 1985 to July 1988.

                                       9
<PAGE>

ITEM 2. PROPERTIES

     The  executive  offices of the  Company  are  located  at 11350  Technology
Circle, Duluth, Georgia 30097-1502.  This 40,000 square foot facility,  which is
located on a 4.7 acre site, was purchased by WCI in February 1987. During August
1989,  WCI  purchased an  additional  4.4 acres of adjacent  property.  WCI also
leases approximately 11,300 square feet under a lease expiring during the second
quarter of fiscal 2000, at an annual  rental of  approximately  $87,000.  During
February 2000, the Company will move its production department into a new leased
facility located nearby,  and during the following sixty (60) days the materials
management and service  departments  will also be relocated to the new facility.
This new 21,000 square foot facility is covered by a lease  expiring  during the
second quarter of fiscal 2005. The annual rent is approximately $136,000 for the
first three (3) years and $143,000 for the fourth and fifth years.  WCI's 40,000
square foot facility is subject to a mortgage  note  securing the  indebtedness.
WCI's 4.4 acres of adjacent  land is pledged as  collateral  under the Company's
line of credit facility.

ITEM 3. LEGAL PROCEEDINGS

     No significant legal proceedings  involving the Company or its subsidiaries
were pending as of September 3, 1999.

                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

     The Company's Common Stock is traded on the NASDAQ Small-Cap Market (NASDAQ
symbol WGNR). As of November 12, 1999 there were  approximately  408* holders of
record of Common Stock.  *(This number does not reflect beneficial  ownership of
shares held in nominee names).

     The  quarterly  ranges of high and low closing  sale prices for fiscal 1999
and 1998 were as follows:

                                FISCAL 99                      Fiscal 98
                                ---------                      ---------
                           HIGH           LOW             High            Low
First Quarter            $1 27/32        $1 3/8         $2 3/4          $1 7/16
Second Quarter             2 9/32         1 1/2          2 11/32         1 3/8
Third Quarter              2 1/2          1 15/32        3 19/32         2 1/32
Fourth Quarter             2 3/16         1 3/8          3 5/32          1 5/8

     The Company has not paid any cash  dividends on its Common  Stock.  For the
foreseeable future, the Company's Board of Directors does not intend to pay cash
dividends,  but  rather  plans to  retain  earnings  to  support  the  Company's
operations  and  growth.  Furthermore,  the  Company is  prohibited  from paying
dividends in accordance with its financing agreement.

                                       10
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

                             SELECTED FINANCIAL DATA
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                  Year ended
                                     ---------------------------------------------------------------------
                                     September 3,   August 28,    August 29,     August 30,   September 1,
                                         1999          1998          1997           1996          1995
----------------------------------------------------------------------------------------------------------
<S>                                    <C>           <C>           <C>            <C>           <C>
Revenue                                $ 25,259      $ 34,255      $ 21,812       $ 23,195      $ 19,488
  Net earnings (loss)                       213         2,760        (1,809)         1,456           385

  Net earnings (loss) per share
    Basic                              $    .02      $    .24      $   (.19)      $    .17      $    .05
    Diluted                            $    .02      $    .23      $   (.19)      $    .17      $    .05

  Cash dividends paid per share (1)          --            --            --             --            --
--------------------------------------------------------------------------------------------------------
  Total assets                         $ 24,954      $ 25,905      $ 25,614       $ 27,737      $ 22,018
  Long-term obligations inclusive
    of current maturities                 1,205         1,829         3,667          7,935         2,796
========================================================================================================
</TABLE>

(1)  The Company has never paid cash  dividends on its common stock and does not
     intend to pay cash dividends in the foreseeable future.

                                       11
<PAGE>

ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     Certain   statements   contained   in  this  filing  are   "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of 1995, such as statements  relating to financial  results,  future business or
product  development  plans,  research  and  development   activities,   capital
spending,  financing sources or capital structure, the effects of regulation and
competition,  and are thus  prospective.  Such  forward-looking  statements  are
subject to risks,  uncertainties  and other  factors  which could  cause  actual
results to differ  materially  from future results  expressed or implied by such
forward-looking  statements.  Potential risks and uncertainties include, but are
not limited to, economic  conditions,  customer plans and  commitments,  product
demand,  government  regulation,  rapid technological  developments and changes,
performance  issues with key  suppliers  and  subcontractors,  delays in product
development   and   testing,    material   availability,    new   and   existing
well-capitalized competitors, and other uncertainties detailed from time to time
in the Company's periodic Securities and Exchange Commission filings.

     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

     Earnings for the year ended  September  3, 1999 were  $213,000 or $0.02 per
share diluted, compared to earnings of $2,760,000 or $0.23 per share diluted for
the year ended  August 28,  1998 and a net loss of  $(1,809,000)  or $(0.19) per
share diluted for the year ended August 29, 1997.

     Revenues for fiscal 1999 decreased $8,996,000 or 26.3% to $25,259,000, from
$34,255,000 in fiscal 1998.  During fiscal 1999, the Company  continued to focus
on  improved  product  quality  and  the  development  of new  products.  Direct
Broadcast Satellite (DBS) revenues in fiscal 1999 decreased  $7,720,000 or 26.4%
to  $21,501,000  from  $29,221,000  in fiscal 1998.  Telecom and Custom  Product
revenues  decreased  $1,271,000  or  29.7% in  fiscal  1999 to  $3,007,000  from
$4,278,000  in fiscal  1998.  Revenues  were  $4,717,000  for the fourth  fiscal
quarter of 1999,  compared to revenues of $7,527,000  for the final three months
of fiscal 1998.  The  decrease in DBS revenues in the fourth  quarter and fiscal
1999 was due to a slowdown in the pace of digital video product  orders for both
the cable and broadcast TV industries and also in products for the radio network
business.  The Telecom and Custom  Product Group revenue  decrease in the fourth
quarter  and fiscal 1999 was  primarily  due to a lower  level of  shipments  in
fiscal 1999 of cue and control  equipment to provide local commercial  insertion
capabilities to cable television headend systems.

     Fiscal  1998  revenues  increased  $12,443,000  or 57.0% from  fiscal  1997
revenues of  $21,812,000.  DBS revenues in fiscal 1998 increased  $11,770,000 or
64.6% to $29,977,000 from $18,207,000 in fiscal 1997. Telecom and Custom Product
revenues  increased  $673,000 in fiscal 1998 to  $4,278,000  from  $3,605,000 in
fiscal 1997.  The  increase in DBS  revenues  was due to increased  shipments of
digital video products to the cable and broadcast  television  industries and to
radio networks. Significant shipments were made in fiscal 1998 to 1) FOX/Liberty
Networks,  L.L.C.  and FX Networks  for  conversion  of their cable  networks to
digital distribution,  2) Paxson Communications  Corporation for distribution of
PAX TV to broadcast and cable television, and 3)

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<PAGE>

NSN Network Services for use in JACOR's Radio network distribution.  The Telecom
and Custom  product  revenue  increase  reflected  higher  shipments  of cue and
control equipment.

     WCI's backlog of orders  scheduled to ship within eighteen months increased
$3,095,000  or 24.6% to  $15,691,000  at September 3, 1999 from  $12,596,000  at
August 28, 1998. The August 28, 1998 backlog decreased  $6,905,000 or 35.4% from
$19,501,000  at August 29, 1997.  Approximately  $10,100,000 of the September 3,
1999 backlog is expected to ship during fiscal 2000. The Company expects to book
sufficient  new orders in fiscal 2000 to achieve  profitability,  although there
can be fluctuations in quarter to quarter operating results due to the timing of
orders received.

     International  sales are generated through a direct sales  organization and
through foreign  distributors.  International  sales were $3,494,000 or 13.8% of
revenues in fiscal 1999,  compared to  $3,311,000  or 9.7% of revenues in fiscal
1998,  and $3,143,000 or 14.4% of revenues in fiscal 1997.  Management  believes
that international  sales could increase as more business  opportunities  become
available  for  WCI  products  in  the  future.  All  international   sales  are
denominated in U.S. dollars.  Additional  financial  information on geographical
areas is provided in Note 11 of the consolidated financial statements.

     Gross  profit  decreased  $3,615,000  or 30.6% in fiscal  1999  compared to
fiscal  1998.  Gross  profit  as a percent  of sales  was 32.5% in fiscal  1999,
compared  to 34.5% in fiscal 1998 and 22.6% in fiscal  1997.  The  decreases  in
margin  dollars  and  percentages  were  mainly  due to lower  sales  during the
periods.  Gross profit margin percentages were favorably impacted in fiscal 1999
by a product mix of lower  variable cost  components  which was offset by higher
unit fixed costs due to the decrease in sales volumes.  Profit margins in fiscal
1999 included:  1) inventory  reserve charges of $750,000 compared to $1,150,000
in fiscal 1998, 2) warranty  provisions of $150,000 compared to no provisions in
fiscal 1998, and 3) no charges for write-offs of capitalized  software  compared
to $200,000 in fiscal  1998.  Gross  profit  increased  $6,893,000  or 139.9% in
fiscal 1998 compared to fiscal 1997.  The increases in profit margin dollars and
percentages  in fiscal  1998  compared  to fiscal  1997 were mainly due to 1) an
increase in  contribution  margin  percentage  of  approximately  7.5% due to an
increase in revenues and lower  variable  costs,  and 2) higher  revenues  which
resulted in the  spreading  of fixed  costs over a larger  revenue  base.  Gross
profit was adversely impacted by a net increase in fixed manufacturing  overhead
expenses of $319,000 or .9% of revenues,  due  primarily to charges for reserves
for slow-moving and obsolete  inventory of $1,150,000 in fiscal 1998 as compared
to $825,000 in fiscal 1997.

     Selling,  general and administrative expenses increased $217,000 or 4.4% to
$5,147,000  in fiscal 1999 from  $4,930,000  in fiscal 1998.  As a percentage of
revenues, selling, general and administrative expenses were 20.4% of revenues in
fiscal 1999 and 14.4% in fiscal 1998. The dollar  increase of expenses in fiscal
1999 from fiscal 1998 includes increases in (1) advertising  expense of $82,000,
(2) repairs and maintenance  expense of $112,000,  and (3) consulting expense of
$102,000.  These increases were partially  offset by a decrease of approximately
$143,000 in incentive  costs due to lower levels of revenues.  Selling,  general
and  administrative  expenses decreased $231,000 or 4.5% to $4,930,000 in fiscal
1998 from  $5,161,000  in fiscal  1997.  The decrease of expenses in fiscal 1998
from fiscal 1997  includes  decreases in (1) bad debt  expense of $282,000,  (2)
restructuring expense of $100,000, and (3) depreciation and amortization expense
of $35,000,  principally for loan origination fees and convertible bond issuance
costs.  Other increases of  approximately  $311,000 were due to higher levels of
selling and marketing  expenses and  compensation  expenses.  General  corporate
expenses included in selling, general and administrative

                                       13
<PAGE>

expense were approximately  $467,000,  $456,000,  and $578,000 in 1999, 1998 and
1997, respectively.

     Research  and  development  expenditures,  including  capitalized  software
development  costs,  were  $3,331,000  or  13.2% of  revenues  in  fiscal  1999,
$3,080,000  or 9.0% of  revenues  in fiscal  1998,  and  $3,089,000  or 14.2% of
revenues in fiscal 1997. The increase in expenditures in fiscal 1999 compared to
fiscal 1998 was primarily due to increases in  engineering  consulting and group
medical  insurance  expenses.  Software  development  costs  totaling  $407,000,
$436,000,  and $1,090,000 were  capitalized  during fiscal 1999, 1998, and 1997,
respectively. The decrease in software development costs in fiscal 1998 compared
to fiscal 1997 was principally due to a decrease in expenditures associated with
digital  video  products  and COMPEL  network  control  software.  Research  and
development  expenses,  excluding  capitalized  software development costs, were
$2,924,000  or 11.6% of revenues in fiscal 1999,  $2,644,000 or 7.7% of revenues
in fiscal 1998, and $1,999,000 or 9.2% of revenues in fiscal 1997.

     Interest expense  decreased 39% in fiscal 1999 compared to fiscal 1998, and
decreased  55.2% in fiscal 1998  compared to fiscal 1997.  The  decrease  during
fiscal 1999 was due primarily to a decrease in total indebtedness and a decrease
in the interest rate on the mortgage debt.  The decrease  during fiscal 1998 was
primarily  due  to  a  decrease  in  the  average  outstanding  balance  of  the
convertible  debentures.  The Company  believes that interest  expense in fiscal
2000 will decrease as a result of an expected  reduction in outstanding debt and
a reduction in the interest rate on the mortgage debt.

     Interest  income was $355,000 in fiscal 1999 compared to $465,000 in fiscal
1998 and  $25,000  in fiscal  1997.  The  decrease  in fiscal  1999 was due to a
decrease  in the  average  outstanding  balance  of cash  and  cash  equivalents
primarily as a result of a decrease in customer  deposits received during fiscal
1999.  Interest  income is  expected  to increase in fiscal 2000 due to expected
higher average outstanding balances of cash and cash equivalents.

     Fiscal 1999 income tax expense was comprised of a current federal and state
income tax expense of $480,000 and $55,000, respectively, and a deferred federal
and state tax benefit of $366,000 and $44,000, respectively.  Fiscal 1998 income
tax expense was  comprised of a current  federal and state income tax expense of
$93,000 and $221,000, respectively, and a deferred federal and state tax expense
of  $1,335,000  and  $56,000,  respectively.  Fiscal 1997 income tax benefit was
comprised of a deferred  income tax benefit of $946,000,  principally the result
of an increase in the Company's net operating loss carryforward and increases in
temporary   differences  of  inventory  and  accounts  receivable   reserves.  A
reconciliation  of the  Company's  effective  income tax rate as compared to the
statutory  U.S.  income  tax  rate is  provided  in  Note 8 of the  consolidated
financial statements.

     The Company  operates on a 52-53 week fiscal year.  The fiscal year ends on
the Friday nearest to August 31. Fiscal 1999 contained 53 weeks. Fiscal 1998 and
1997 each contained 52 weeks. All references herein to 1999, 1998 and 1997 refer
to the fiscal years ending  September 3, 1999,  August 28, 1998 , and August 29,
1997, respectively.

                                       14
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

     Cash  provided  by  operating  activities  in fiscal  1999 was  $4,787,000,
$5,787,000  in fiscal  1998,  and  $6,325,000  in fiscal  1997.  Fiscal 1999 net
earnings  adjusted for  non-cash  expenses  provided  cash of  $2,569,000  while
changes in accounts  receivable and customer deposit  balances  provided cash of
$2,756,000.  Changes in inventories,  accounts payable and accrued expenses, and
other assets used cash of $538,000.

     Cash used by investment  activities  was $1,041,000 in fiscal 1999 compared
to $959,000 in 1998 and $2,128,000 in 1997. Cash used in 1999 includes  property
and equipment  expenditures  of $634,000 and capitalized  software  additions of
$407,000.

     Cash  used by  financing  activities  was  $1,380,000  in  fiscal  1999 and
$578,000 in fiscal 1998 and $2,126,000 in fiscal 1997. In fiscal 1999, financing
activities  used  cash  of  $640,000  for  scheduled   repayments  of  long-term
obligations,  $703,000  for  repurchase  of common  stock and  $67,000  for debt
issuance  costs.  Proceeds from real property  advances  under the loan facility
provided cash of $1,360,000 which was used to pay off the existing mortgage note
balance of $1,343,000.  Proceeds from stock options  exercised  provided cash of
$13,000.

     On January 28,  1999,  the Board of Directors  approved a stock  repurchase
program  authorizing  the  repurchase of up to one million  shares of its common
stock over the following twelve months. As of September 3, 1999, the Company had
repurchased 386,500 shares of its common stock in open market transactions at an
average price of $1.82.

     Net accounts receivable decreased 50.7% to $2,618,000 at September 3, 1999,
from $5,315,000 at August 28, 1998,  compared to $4,613,000 at August 29, 1997 .
The  decrease  in fiscal  1999 was  primarily  due to a  $2,810,000  decrease in
revenues  during the fourth  quarter of fiscal  1999 and an overall  decrease in
annual  revenues of  $8,996,000  in fiscal 1999  compared  to fiscal  1998.  The
allowance for doubtful  accounts was $173,000 at September 3, 1999,  $257,000 at
August 28, 1998, and $362,000 at August 29, 1997. Write-offs, net of recoveries,
in fiscal 1999, 1998 and 1997 were $124,000, $180,000 and $53,000, respectively.
Increases to the  allowance  and charges to general and  administrative  expense
were $40,000 in fiscal 1999, $75,000 in fiscal 1998 and $357,000 in fiscal 1997.

     During fiscal 1999, inventory reserves were increased by provisions charged
to cost of sales of  $750,000.  The  increase  in the  provision  was to provide
additional  reserves for (1) slower moving analog Telecom  products,  (2) excess
digital  audio  inventories,  and (3)  potentially  slow-moving  inventories  of
earlier  generations of other digital products.  These products continue to sell
but at reduced  quantities.  In fiscal 1999  increases in inventory used cash of
$118,000. During fiscal 1998 and 1997, decreases in inventories provided cash of
$1,722,000 and $1,877,000,  respectively.  During fiscal 1998 inventory reserves
were increased by provisions  charged to cost of sales of $1,150,000 and reduced
by  write-offs  of  $1,577,000.  During  fiscal  1997  inventory  reserves  were
increased  by  provisions  charged to cost of sales of  $825,000  and reduced by
write-offs of $481,000.

     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.  The proceeds were used
for working capital and reduction of the line-of-credit note

                                       15
<PAGE>

payable.  These  debentures were convertible at the option of the holders at any
time through maturity,  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% (82.5% at August 30, 1996 and  thereafter) 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
was payable  quarterly 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.  During fiscal 1997  debentures in the amount of $101,222 were issued
for  payment  of  accrued  interest.  During  fiscal  1998,  the  balance of the
debentures of  $1,285,000  was  converted  into 950,658  shares of common stock.
During fiscal 1997, $3,850,000 principal amount of debentures was converted into
2,131,987 shares of common stock. The conversion was complete as of December 30,
1997.

     WCI  maintains  a loan  facility  with  a bank  which  provides  a  maximum
available  credit  limit of  $10,000,000  with  sublimits  as defined.  The loan
facility matures on June 21, 2000 or upon demand and requires an annual facility
fee of $55,000 plus an additional .75% of $3,000,000 if borrowings, at any time,
exceed $5,500,000.  The loan facility consists of 1) a term loan and a revolving
line of credit with a combined  borrowing limit of $8,500,000,  bearing interest
at the  bank's  prime rate  (8.25% at  September  3, 1999) and 2) a real  estate
advance facility with a maximum  borrowing limit of $1,500,000  bearing interest
at a fixed rate of 250 basis points over the five year U.S. Treasury rate.

     The term loan portion  provides for a maximum of $1,000,000 for advances of
up to 80% of the cost of equipment acquisitions.  Principal advances are payable
monthly over sixty months with a balloon payment due at maturity.  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% to 50% of eligible finished
goods  inventories.  Advances  against  inventory  are  subject to a sublimit of
$2,000,000.  The real estate advance  portion of the loan facility  provides for
advances of up to 70% of the appraised value of certain real property.  Advances
for real  property  are payable in 35 equal  principal  payments  with a balloon
payment due at maturity.

     During the first quarter of fiscal 1999, $1,360,000 was advanced to pay off
the existing  mortgage note  balance.  At the time of  disbursement,  the annual
interest rate was set at 6.519%. At September 3, 1999, the loans were secured by
a first lien on substantially all of WCI's assets except assets secured under an
existing  equipment  note on which the bank had a second  lien.  The  Company is
required to maintain a minimum  tangible net worth with annual increases at each
fiscal year-end  commencing with fiscal year 1997, retain certain key employees,
limit  expenditures  of Wegener  Corporation to $600,000 per fiscal year, and is
precluded  from  paying  dividends.  At  September  3, 1999 the  Company  was in
compliance  with the covenants.  The loan facility's  outstanding  balance under
real  property  advances was $971,000 at  September  3, 1999.  No balances  were
outstanding  on the loan  facility at August 28,  1998.  At  September  3, 1999,
$2,505,000  was available to borrow under the accounts  receivable and inventory
advance  formulas.   Additionally,   Wegener  Corporation  guarantees  the  loan
facility.

     The Company does not have any material  scheduled  commitments  for capital
expenditures during fiscal 2000. The Company's loan facility matures on June 21,
2000 along with a balloon payment due on the mortgage note. The Company believes
that the existing  line of credit and term loan facility will be renewed in June
2000, or that a suitable replacement line will be available from other financing
sources. The Company expects that its current cash and cash equivalents combined
with  expected cash flows from  operating  activities  and an available  line of
credit will be  sufficient  to support the  Company's  operations  during fiscal
2000.

                                       16
<PAGE>

     The Company has never paid cash  dividends on its common stock and does not
intend to pay cash dividends in the foreseeable future.

IMPACT OF INFLATION

     The Company does not believe that  inflation  has had a material  impact on
revenues or expenses during its last three fiscal years.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 1998, the Financial  Accounting Standards Board issued SFAS No. 133
"Accounting  for Derivative  Instruments and Hedging  Activities".  SFAS No. 133
establishes  accounting and reporting  standards requiring that every derivative
instrument,   including  certain  derivative   instruments   imbedded  in  other
contracts,  be  recorded in the  balance  sheet as either an asset or  liability
measured at its fair value.  The  statement  also  requires  that changes in the
derivative's  fair  value  be  recognized  in  earnings  unless  specific  hedge
accounting criteria are met. SFAS No. 137 delayed the effective date of SFAS No.
133 to fiscal years  beginning after June 15, 2000. The Company expects that the
adoption  of SFAS  No.  133 will not have a  material  impact  on its  financial
position or results of operations.

OUTLOOK:  ISSUES AND UNCERTAINTIES

     The market for the Company's  products is characterized by rapidly changing
technology,  evolving  industry  standards and frequent  product  introductions.
Product introductions are generally characterized by increased functionality and
better  quality,  sometimes  at reduced  prices.  The  introduction  of products
embodying new technology may render existing  products obsolete and unmarketable
or  marketable  at  substantially  reduced  prices.  The  Company's  ability  to
successfully  develop and introduce on a timely basis new and enhanced  products
that  embody new  technology,  and  achieve  levels of  functionality  and price
acceptable to the market will be a significant  factor in the Company's  ability
to grow and to remain  competitive.  If the Company is unable, for technological
or other reasons, to develop competitive products in a timely manner in response
to changes in the industry, the Company's business and operating results will be
materially and adversely affected.

     The  Company  competes  with  companies  which have  substantially  greater
resources  and a larger  number of products,  as well as with small  specialized
companies. Through relationships with technology partners and original equipment
manufacturer  (OEM)  suppliers,  the  Company has  positioned  itself to provide
end-to-end  solutions  to its  customers.  Competition  in the  market  for  the
Company's MPEG-2 broadcast television  electronics  products,  including digital
video equipment, is driven by timeliness,  performance, and price. The Company's
broadcast  digital video products in production are competitively  priced,  with
unique,  desirable features. The COMPEL Network Control System meets these needs
by providing regionalization of receiver control and spot advertisement.  Due to
the large  number of  potential  end  users,  both  small and large  competitors
continue to emerge.  The Company believes it has positioned itself to capitalize
on the market trends in this business through careful development of its product
and market

                                       17
<PAGE>

strategies,  which have  proven  successful  in  increasing  revenues  from this
sector. In the cable television market the Company believes that the competitive
position for many of its products is strong.  However,  the UNITY product family
competes  with  significant  and  established  firms.  Other  products for cable
television include  proprietary cueing and network control devices.  Competition
for radio network products,  including the Company's digital audio products,  is
very aggressive and pricing is very  competitive.  The Company believes that its
continued success in all of its markets will depend on aggressive  marketing and
product development.

     The  demand  for  digital  products  is being  driven  by the high  cost of
satellite  capacity and  increasing  demand for video and  multi-media  content.
Satellite capacity is scarce due to pressures on both the supply and demand side
of the market. On the supply side, satellites are extremely expensive to launch,
build, and maintain.  The useful life of a satellite is limited by the amount of
positioning  fuel that can be carried.  Also,  the  placement of  satellites  is
regulated  by the Federal  Communications  Commission  (FCC) and  therefore  the
number of  satellites  within  range of any given  location is  limited.  On the
demand side,  the cost of receive  hardware is being  steadily  reduced  through
advancing  technology.  The reduction in the cost of network hardware  increases
the economic  feasibility of a greater number of networks.  This is evidenced by
the trend in both  television and radio towards  narrow-casting  to well-defined
market segments as opposed to broadcasting  to the general  population.  Digital
compression  technology  allows a four to  ten-fold,  or more,  increase  in the
throughput of a satellite channel. For the network, this compression  represents
an opportunity  to reduce the cost of satellite use. For the satellite  operator
it represents an opportunity to increase the revenues  generated by an expensive
asset. The digital conversion of major networks is expected to continue,  but it
remains  difficult  to  predict  the  precise  timing  and  number of  customers
converting  to  digital.   Management   believes  the  market  as  a  whole  has
considerable built up demand for digital technology.  Although no assurances can
be given,  the Company expects to directly benefit from this increase in demand.
There may be fluctuations in the Company's  revenues and operating  results from
quarter to quarter due to several  factors,  including the timing of significant
orders  from  customers  and the  timing  of new  product  introductions  by the
Company.

     The Company has invested a  significant  amount of  financial  resources to
acquire  certain raw  materials,  to incur  direct labor and to contract to have
specific  outplant  procedures  performed on  inventory in process.  The Company
purchased this inventory  based upon  previously  known backlog and  anticipated
future  sales  given  existing  knowledge  of  the  marketplace.  The  Company's
inventory  reserve of  $2,198,000  at September 3, 1999, 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 might occur should the Company's sales efforts not
be successful.

     The Company's gross margin percentage is subject to variations based on the
product mix sold in any period and on sales volumes.  Start-up costs  associated
with new product introductions could adversely impact costs and future margins.

     Certain raw materials, video sub-components,  and licensed video processing
technologies  used in existing and future products are currently  available from
single or limited sources.  Although the Company believes that all single-source
components  currently  are  available  in adequate  quantities,  there can be no
assurance that shortages or unanticipated delivery

                                       18
<PAGE>

interruptions  will not develop in the future.  Any disruption or termination of
supply of certain single-source components or technologies could have an adverse
effect on the Company's business and results of operations.

     The  Company  has made  significant  investments  in  capitalized  software
principally  related to the digital  audio and video  products.  At September 3,
1999 capitalized software costs were $1,101,000. These 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.  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.

     The   industry  in  which  the   Company   operates  is  subject  to  rapid
technological advances and frequent product  introductions.  The Company expects
to remain  committed to research  and  development  expenditures  as 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 Company had  retained  earnings of $96,000 at  September  3, 1999.  The
Company is very focused on  controlling  both direct and indirect  manufacturing
costs and other operating expenses. These costs will be adjusted as necessary if
the revenues of the Company do not increase as planned. Management believes that
digital  compression  technology may be profitably  employed to create increased
demand for its satellite  receiving equipment if those products are manufactured
in a high volume standardized production environment.

YEAR 2000

     As  is  the  case  with  other  companies   utilizing  computers  in  their
operations, the Company has been faced with the task of addressing the Year 2000
issue.  The Year 2000 issue arises from the widespread use of computer  programs
that  rely  on  two-digit  codes  to  perform  computations  or  decision-making
functions.  The Company has done a comprehensive review of its computer programs
to identify systems which would be affected by the Year 2000 issue.

State of Readiness
------------------

     Management  of the Company has reviewed the Company's  current  information
systems and has found them to be Year 2000  compliant.  However,  the Company is
currently in the process of replacing older information systems with new systems
that offer easier access to more data and are certified to be able to handle the
Year  2000  transition.  Conversions  to the  new  systems  are  expected  to be
completed prior to December 31, 1999.

     Management  of the Company has  reviewed  and tested the  Company's  phone,
voice mail,  e-mail,  and security  systems and all are believed to be Year 2000
compliant.  Utility  companies  have been  contacted  and have  reported  to the
Company  that only minor  problems  have been noted in regards to their  billing
software  as a result of their Year 2000  testing  completed  to date.  Although
there can be no guarantee, no major interruption in service is anticipated.

                                       19
<PAGE>

     The Company has requested and received Year 2000 compliance statements from
major vendors. There are no indications that major vendors will not be Year 2000
compliant. However, there can be no absolute assurances in this regard and their
failure to be  compliant  remains a  possibility.  If vendors  are not Year 2000
compliant,  there  can be no  assurance  that the  Company  will be able to find
suitable  alternate  suppliers and contract with them on reasonable terms, or at
all,  and such  inability  could  have a  material  and  adverse  impact  on the
Company's business and results of operations. The Company has and is expected to
continue to have  material  sales to a  relatively  small  number of  customers.
Although the Company is not aware of any specific Year 2000 issues in regards to
these customers,  a loss of one or more of these customers could have a material
adverse effect on the Company's business and results of operations.

     All  test  equipment  used  in  engineering,   service,  and  manufacturing
departments has been reviewed and all are Year 2000 compliant.

     All of the Company's  products have been reviewed for Year 2000 compliance.
All are compliant  with the exception of certain minor  problems in the schedule
and repetitive  scheduler  programs of an older version of uplink software.  All
customers  affected by this have been offered a migration path to newer software
which is Year 2000 compliant.

Costs to Address the Year 2000 Issues
-------------------------------------

     Management of the Company believes that although the evaluation of internal
systems  is still in  process,  the  impact of the Year 2000  transition  on the
Company's  internal  systems has not and should not result in material  costs to
the Company or have a material adverse impact on future results.

Risks of the Year 2000 Issues
-----------------------------

     The main risk to the  Company  with  respect to Year 2000 is the failure of
major vendors and service providers to be Year 2000 compliant.  Failure on their
part could result in delays in obtaining  parts,  increased  cost of parts,  and
overall inability to design and manufacture  products in the event of a shutdown
of major utility providers. Major vendors and service providers have reported to
the Company  that they  believe  they will be Year 2000  compliant.  The Company
cannot estimate the financial impact of any failure to be Year 2000 compliant by
such third party vendors and service providers, although such failure could have
a  material  and  adverse  impact  on the  Company's  business  and  results  of
operations.  This risk is  particularly  acute with  respect to  non-U.S.  third
parties, as it is widely reported that many non-U.S.  businesses and governments
are not addressing their Year 2000 issues on a timely basis.

Contingency Plans
-----------------

     The  Company  does not have a  contingency  plan for Year  2000  compliance
because  it does not  anticipate  that it will fail to be Year  2000  compliant,
particularly in relation to those systems,  software programs, and hardware that
are under its control.  However,  there can be no  assurances  that all measures
being  taken  to  avoid  Year  2000  problems  will be  effective  and as  such,
unforeseen  issues could arise that could lead to a material adverse effect upon
the Company's business, operating results and financial condition.

                                       20
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The  Company's  exposure to market rate risk for changes in interest  rates
relates  primarily to its  revolving  line of credit and cash  equivalents.  The
interest  rate on  certain  advances  under  the line of  credit  and term  loan
facility  fluctuates  with the  bank's  prime  rate.  There  were no  borrowings
outstanding at September 3, 1999 subject to variable interest rate fluctuations.

     The Company's  cash  equivalents  consists of a repurchase  agreement and a
bank  certificate of deposit.  The cash equivalents have maturities of less than
three months and therefore are subject to minimal market risk.

     The Company does not enter into derivative financial instruments. All sales
and purchases are denominated in U.S. dollars.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                       21
<PAGE>

                                            Wegener Corporation and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                             Year ended
                                           ----------------------------------------------
                                           SEPTEMBER 3,      August 28,       August 29,
                                               1999             1998             1997
-----------------------------------------------------------------------------------------
<S>                                        <C>              <C>              <C>
Revenue                                    $ 25,259,155     $ 34,254,673     $ 21,811,870
-----------------------------------------------------------------------------------------
Operating costs and expenses
    Cost of products sold                    17,055,600       22,435,716       16,885,840
    Selling, general and administrative       5,147,117        4,929,999        5,160,975
    Research and development                  2,924,097        2,644,353        1,999,106
-----------------------------------------------------------------------------------------
Operating costs and expenses                 25,126,814       30,010,068       24,045,921
-----------------------------------------------------------------------------------------
Operating income (loss)                         132,341        4,244,605       (2,234,051)
    Interest expense                           (149,288)        (244,607)        (545,914)
    Interest income                             355,220          465,185           24,765
-----------------------------------------------------------------------------------------
Earnings (loss) before income taxes             338,273        4,465,183       (2,755,200)

Income tax expense (benefit)                    125,000        1,705,000         (946,000)
-----------------------------------------------------------------------------------------
Net earnings (loss)                        $    213,273     $  2,760,183     $ (1,809,200)
=========================================================================================
Net earnings (loss) per share
    Basic                                  $        .02     $        .24     $       (.19)
    Diluted                                $        .02     $        .23     $       (.19)
=========================================================================================
Shares used in per share calculation
    Basic                                    11,849,383       11,727,447        9,640,127
    Diluted                                  12,007,270       12,090,911        9,640,127
=========================================================================================
</TABLE>
          See accompanying notes to consolidated financial statements.

                                       22
<PAGE>

Wegener Corporation and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS

                                                   September 3,     August 28,
                                                       1999            1998
--------------------------------------------------------------------------------
ASSETS

Current assets
  Cash and cash equivalents                        $  8,858,591    $  6,492,760
  Accounts receivable                                 2,618,296       5,314,938
  Inventories                                         6,488,813       7,120,393
  Deferred income taxes                               1,325,000       1,011,000
  Other                                                 263,090          23,710
--------------------------------------------------------------------------------
    Total current assets                             19,553,790      19,962,801

Property and equipment                                4,242,588       4,523,297
Capitalized software costs                            1,100,747       1,211,914
Other assets                                             56,690         207,002
--------------------------------------------------------------------------------
                                                   $ 24,953,815    $ 25,905,014
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
  Accounts payable                                 $  2,018,149    $  2,113,205
  Accrued expenses                                    1,554,572       1,490,041
  Customer deposits                                     884,066         784,621
  Current maturities of long-term obligations         1,119,835         597,664
--------------------------------------------------------------------------------
    Total current liabilities                         5,576,622       4,985,531

Long-term obligations, less current maturities           85,424       1,231,338
Deferred income taxes                                   512,000         608,000
--------------------------------------------------------------------------------
    Total liabilities                                 6,174,046       6,824,869
--------------------------------------------------------------------------------
Commitments

Shareholders' equity
  Common stock, $.01 par value; 20,000,000
    shares authorized; 12,314,575 shares issued         123,146         123,146
  Additional paid-in capital                         19,492,570      19,407,417
  Retained earnings (deficit)                            95,781        (117,492)
  Less treasury stock, at cost                         (931,728)       (332,926)
--------------------------------------------------------------------------------
Total shareholders' equity                           18,779,769      19,080,145
--------------------------------------------------------------------------------
                                                   $ 24,953,815    $ 25,905,014
================================================================================

See accompanying notes to consolidated financial statements.

                                       23
<PAGE>

                                            Wegener Corporation and Subsidiaries

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                            Common Stock            Additional      Retained             Treasury Stock
                                            ------------             Paid-in        Earnings             --------------
                                        Shares         Amount        Capital        (Deficit)         Shares         Amount
-----------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>           <C>            <C>            <C>                <C>          <C>
BALANCE, at August 30, 1996            9,231,930    $    92,319    $14,369,157    $(1,068,475)       (470,397)    $  (436,785)

  Treasury stock reissued through
    stock options and 401(k) plan             --             --         61,474             --          37,667          34,975
  Issuance of common stock for
    convertible debentures             2,131,987         21,320      3,654,069             --              --              --
  Net (loss) for the year                     --             --             --     (1,809,200)             --              --
-----------------------------------------------------------------------------------------------------------------------------
BALANCE, at August 29, 1997           11,363,917    $   113,639    $18,084,700    $(2,877,675)       (432,730)    $  (401,810)

  Treasury stock reissued through
    stock options and 401(k) plan             --             --         84,398             --          74,184          68,884
  Issuance of common stock for
    convertible debentures               950,658          9,507      1,238,319             --              --              --
  Net earnings for the year                   --             --             --      2,760,183              --              --
-----------------------------------------------------------------------------------------------------------------------------
BALANCE, at August 28, 1998           12,314,575    $   123,146    $19,407,417    $  (117,492)       (358,546)    $  (332,926)

  Treasury stock reissued through
    stock options and 401(k) plan             --             --         85,153             --         112,587         104,542
  Treasury stock purchased                    --             --             --             --        (386,500)       (703,344)
    Net earnings for the year                 --             --             --        213,273              --              --
-----------------------------------------------------------------------------------------------------------------------------
BALANCE, at September 3, 1999         12,314,575    $   123,146    $19,492,570    $    95,781        (632,459)    $  (931,728)
=============================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

                                       24
<PAGE>

Wegener Corporation and Subsidiaries

                                          CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                      YEAR ENDED       Year ended       Year ended
                                                     SEPTEMBER 3,      August 28,       August 29,
                                                         1999             1998             1997
---------------------------------------------------------------------------------------------------
Cash provided by (used for) operating activities
<S>                                                  <C>              <C>              <C>
  Net earnings (loss)                                $    213,273     $  2,760,183     $ (1,809,200)
  Adjustments to reconcile net earnings (loss) to
      cash provided by operating activities
    Depreciation and amortization                       1,649,546        1,784,787        1,471,201
    Write-down of capitalized software                         --          200,000          241,841
    Issuance of treasury stock for
      compensation expenses                               176,398          124,079           90,263
    Issuance of convertible debt for interest
      expense                                                  --               --          101,222
    Bad debt allowance                                     40,000           75,000          356,555
    Inventory reserves                                    750,000        1,150,000          825,000
    Deferred income taxes                                (410,000)       1,391,000         (946,000)
    Warranty provisions                                   150,000               --          146,000
    Changes in assets and liabilities
      Accounts receivable                               2,656,642         (777,304)       2,136,795
      Inventories                                        (118,420)       1,722,279        1,877,151
      Other assets                                       (239,380)          (2,334)          (8,115)
      Accounts payable and accrued expenses              (180,525)          33,360         (970,989)
      Customer deposits                                    99,445       (2,673,780)       2,813,166
---------------------------------------------------------------------------------------------------
                                                        4,786,979        5,787,270        6,324,890
---------------------------------------------------------------------------------------------------
Cash used for investment activities
  Property and equipment expenditures                    (634,239)        (522,066)      (1,038,413)
  Capitalized software additions                         (406,486)        (436,465)      (1,089,931)
---------------------------------------------------------------------------------------------------
                                                       (1,040,725)        (958,531)      (2,128,344)
---------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities
  Net change in borrowings under
    revolving line-of-credit                                   --               --       (1,530,332)
  Repayment of long-term debt and capitalized
    lease obligations                                  (1,983,251)        (552,615)        (539,074)
  Proceeds from long-term debt                          1,359,508               --               --
  Purchase of treasury stock                             (703,344)              --               --
  Debt issuance costs                                     (66,633)         (55,000)         (62,581)
  Proceeds from stock options exercised                    13,297           29,203            6,187
---------------------------------------------------------------------------------------------------
                                                       (1,380,423)        (578,412)      (2,125,800)
---------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents                   2,365,831        4,250,327        2,070,746
Cash and cash equivalents, beginning of year            6,492,760        2,242,433          171,687
---------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year               $  8,858,591     $  6,492,760     $  2,242,433
===================================================================================================
</TABLE>

       See accompanying notes to consolidated financial statements.

                                       25
<PAGE>

                                            Wegener Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION.  The financial  statements
include the  accounts of Wegener  Corporation  (WGNR)  (the  "Company")  and its
wholly-owned   subsidiaries.   Wegener   Communications,   Inc.  (WCI)  designs,
manufactures and distributes satellite  communications  electronics equipment in
the U.S., and internationally through Wegener Communications  International Inc.
All significant  intercompany  balances and transactions have been eliminated in
consolidation.

USE OF ESTIMATES.  The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,  the
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period.  Examples include provisions for bad debts,  inventory  obsolescence and
warranties. Actual results could vary from these estimates.

FISCAL YEAR.  The Company  operates on a 52-53 week fiscal year. The fiscal year
ends on the Friday  nearest to August 31.  Fiscal 1999  contained 53 weeks while
fiscal 1998 and 1997 each  contained 52 weeks.  All  references  herein to 1999,
1998, and 1997 relate to the fiscal years ending  September 3, 1999,  August 28,
1998 and August 29, 1997, respectively.

CASH  EQUIVALENTS.  Cash equivalents  consist of highly liquid  investments with
original  maturities  of three  months  or less.  At  September  3,  1999,  cash
equivalents consisted of a $7,000,000 repurchase agreement and a $1,500,000 bank
certificate  of deposit.  At August 28,  1998 cash  equivalents  consisted  of a
$4,000,000 repurchase agreement and $2,300,000 bank certificate of deposit.

INVENTORIES.  Inventories  are  stated  at the lower of cost  (standards,  which
approximate actual cost on a first-in,  first-out basis) or market.  Inventories
include the cost of raw materials, labor and manufacturing overhead. The Company
makes  provisions  for  obsolete  or slow moving  inventories  as  necessary  to
properly reflect inventory value.

PROPERTY, EQUIPMENT AND DEPRECIATION. Property and equipment are stated at cost.
Certain assets are financed under lease contracts  which have been  capitalized.
Aggregate lease payments, discounted at appropriate rates, have been recorded as
long-term  debt,  the  related  leased  assets  have been  capitalized,  and the
amortization of such assets is included in depreciation expense. 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 to property and equipment are  capitalized  and repairs
and  maintenance  are expensed as incurred.  Long-lived  assets are reviewed for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying amount of an asset may not be  recoverable.  If the sum of the expected
future  undiscounted cash flows is less than the carrying amount of the asset, a
loss is recognized for the difference  between the fair value and carrying value
of the asset.

REVENUE RECOGNITION. Product sales and services are recorded when the product is
shipped or the service is rendered to the customer, all significant  contractual
obligations  have  been  satisfied  and  the  collectibility  of  the  resulting
receivable is reasonably assured.

RESEARCH AND DEVELOPMENT.  The Company expenses research and development  costs,
including expenditures related to development of the Company's software products
that  do  not  qualify  for  capitalization.   Software  development  costs  are
capitalized  subsequent  to  establishing  the  technological  feasibility  of a
product.  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.  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.  During
fiscal  1998 and 1997,  $200,000  and  $242,000,  respectively,  of  capitalized
software costs were  written-off to cost of sales due to a reduction of expected
revenues on certain slow-moving products. Software development costs capitalized
during fiscal 1999, 1998, and 1997 totaled $406,000,  $436,000,  and $1,090,000,
respectively. Amortization expense, included in cost of goods sold was $518,000,
$726,000, and $415,000 for the same periods.  Capitalized software costs, net of
accumulated amortization, were $1,101,000 at September 3, 1999 and $1,212,000 at
August 28, 1998. Accumulated amortization amounted to $2,498,000 at September 3,
1999 and $1,981,000 at August 28, 1998.

STOCK BASED  COMPENSATION.  Prior to August 31, 1996, the Company  accounted for
stock options  granted under its stock  incentive  plans in accordance  with the
provisions of Accounting  Principles Board (APB) Opinion No. 25,  Accounting for
Stock Issued to Employees,  and related  interpretations.  As such, compensation
expense would be

                                       26
<PAGE>

Wegener Corporation and Subsidiaries

recorded on the date of grant only if the current market price of the underlying
stock  exceeded the exercise  price.  On August 31,  1996,  the Company  adopted
Statement of  Financial  Accounting  Standards  (SFAS) No. 123  "Accounting  for
Stock-Based  Compensation,"  which permits entities to recognize as expense over
the  vesting  period  the fair  value of all  stock-based  awards on the date of
grant.  SFAS No. 123 also allows entities to continue to apply the provisions of
APB Opinion No. 25 and provide pro forma net income and pro forma  earnings  per
share  disclosures  for  employee  stock  option  grants made in fiscal 1997 and
future years as if the fair-value-based  method defined in SFAS No. 123 had been
applied.  The Company has  elected to  continue to apply the  provisions  of APB
Opinion No. 25 and has provided the pro forma disclosure  provisions of SFAS No.
123.

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  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.

EARNINGS  PER  SHARE.  Basic and  diluted  net  earnings  (loss)  per share were
computed in  accordance  with SFAS No.  128,  "Earnings  per  Share".  Basic net
earnings  per share is computed by dividing  net  earnings  available  to common
shareholders  (numerator)  by the  weighted  average  number  of  common  shares
outstanding  (denominator) during the period and excludes the dilutive effect of
stock options and convertible  debentures.  Diluted net earnings per share gives
effect to all dilutive  potential common shares  outstanding during a period. In
computing diluted net earnings per share, the average stock price for the period
is used in determining  the number of shares assumed to be reacquired  under the
treasury  stock method from the exercise of stock  options and the  if-converted
method to compute the dilutive effect of convertible debentures.

The following tables represent required  disclosure of the reconciliation of the
earnings  and  shares of the basic and  diluted  net  earnings  (loss) per share
computations.

                                                      Year ended
                                     ------------------------------------------
                                     September 3,     August 28,     August 29,
                                         1999            1998           1997
                                     ------------------------------------------
Basic
    Net earnings (loss)              $    213,273    $ 2,760,183    $(1,809,200)
                                     ------------    -----------    -----------
    Weighted average shares
        outstanding                    11,849,383     11,727,447      9,640,127
                                     ------------    -----------    -----------
    Net earnings (loss) per share    $        .02    $       .24    $      (.19)
                                     ============    ===========    ===========

Diluted
    Net earnings (loss)              $    213,273    $ 2,760,183    $(1,809,200)

    Convertible debenture interest
        and amortization of bond
        issue cost, net of income
        taxes                                  --         11,658             --
                                     ------------    -----------    -----------
    Total                            $    213,273    $ 2,771,841    $(1,809,200)
                                     ------------    -----------    -----------
    Weighted average shares
        outstanding                    11,849,383     11,727,447      9,640,127

    Effect of dilutive potential
        common shares:
            Stock options                 157,887        250,467             --
            Convertible debentures             --        112,997             --
                                     ------------    -----------    -----------
    Total                              12,007,270     12,090,911      9,640,127
                                     ------------    -----------    -----------
    Net earnings (loss) per share    $        .02    $       .23    $      (.19)
                                     ============    ===========    ===========

                                       27
<PAGE>

                                            Wegener Corporation and Subsidiaries

Options and convertible debentures excluded from the diluted earnings (loss) per
share calculation due to their anti-dilutive effect are as follows:

<TABLE>
<CAPTION>
                                                              Year ended
                                    ----------------------------------------------------------
                                    SEPTEMBER 3,  1999      August 28, 1998    August 29, 1997
                                    ------------------     ----------------   ----------------
Common stock options:
<S>                                        <C>              <C>                 <C>
     Number of shares                        6,000                  48,500            579,000
     Range of exercise prices              $  1.78          $2.44 to 12.13      $.75 to 12.13
                                    ==================     ================    ===============
Convertible debentures:
     Common shares calculated under
     the if-converted method                    --                      --            653,247
                                    ==================     ================    ===============
</TABLE>

FINANCIAL  INSTRUMENTS.  The Company's financial instruments consist of cash and
cash equivalents, trade accounts receivable,  accounts payable, accrued expenses
and long and short-term  bank  borrowings.  The fair value of these  instruments
approximates   their  recorded  value.  The  Company  does  not  have  financial
instruments with off-balance  sheet risk. The fair value estimates were based on
market information available to management as of September 3, 1999.

Financial  instruments that potentially subject the Company to concentrations of
credit risk, consist principally of cash and cash equivalents and trade accounts
receivable.  The Company  invests cash through a  high-credit-quality  financial
institution and performs periodic evaluations of the relative credit standing of
the financial institution. A concentration of credit risk may exist with respect
to trade receivables,  as a substantial  portion of the Company's  customers are
affiliated with the cable television,  business broadcast and telecommunications
industries.  The  Company  performs  ongoing  credit  evaluations  of  customers
world-wide  and  generally  does not  require  collateral  from  its  customers.
Historically,  the Company has not  experienced  significant  losses  related to
receivables  from individual  customers or groups of customers in any particular
industry or geographic area.

FOREIGN  CURRENCY.  The U.S.  dollar is the  Company's  functional  currency for
financial reporting. International sales are made and remitted in U.S. dollars.

RECENTLY ISSUED  ACCOUNTING  STANDARDS.  In June 1998, the Financial  Accounting
Standards Board issued SFAS No. 133  "Accounting for Derivative  Instruments and
Hedging Activities". SFAS No. 133 establishes accounting and reporting standards
requiring  that  every  derivative  instrument,   including  certain  derivative
instruments  imbedded in other  contracts,  be recorded in the balance  sheet as
either an asset or  liability  measured at its fair value.  The  statement  also
requires that changes in the  derivative's  fair value be recognized in earnings
unless  specific  hedge  accounting  criteria are met.  SFAS No. 137 delayed the
effective  date of SFAS No. 133 to fiscal years  beginning  after June 15, 2000.
The Company  expects  that the adoption of SFAS No. 133 will not have a material
impact on its financial position or results of operations.

RECLASSIFICATIONS. Certain reclassifications have been made to the 1998 and 1997
financial statements to conform to the 1999 presentation.

2. ACCOUNTS RECEIVABLE

Accounts receivable are summarized as follows:

                                             SEPTEMBER 3,     August 28,
                                                 1999            1998
--------------------------------------------------------------------------------
     Accounts receivable - trade             $ 2,675,022     $ 5,139,414
     Other receivables                           115,859         137,515
--------------------------------------------------------------------------------
                                               2,790,881       5,571,929

     Less allowance for doubtful accounts       (172,585)       (256,991)
--------------------------------------------------------------------------------
                                             $ 2,618,296     $ 5,314,938
================================================================================

                                       28
<PAGE>

Wegener Corporation and Subsidiaries

3.  INVENTORIES

Inventories are summarized as follows:

                                             SEPTEMBER 3,     August 28,
                                                 1999            1998
--------------------------------------------------------------------------------
     Raw materials                           $ 2,845,784     $ 2,692,937
     Work-in-process                           3,146,479       3,139,249
     Finished goods                            2,695,044       2,727,727
--------------------------------------------------------------------------------
                                               8,687,307       8,559,913

     Less inventory reserves                  (2,198,494)     (1,439,520)
--------------------------------------------------------------------------------
                                             $ 6,488,813     $ 7,120,393
================================================================================

The Company has invested a significant amount of financial  resources to acquire
certain raw  materials,  to incur direct labor and to contract to have  specific
outplant  procedures  performed on inventory in process.  The Company  purchased
this inventory based upon prior backlog and anticipated  future sales based upon
existing  knowledge  of the  marketplace.  The  Company's  inventory  reserve of
approximately  $2,198,000 at September 3, 1999, 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 are reasonably  possible should the Company's sales
efforts not be successful.


4. PROPERTY AND EQUIPMENT

Major classes of property and equipment consisted of the following:

<TABLE>
<CAPTION>
                                          Estimated
                                         Useful Lives  September 3,       August 28,
                                           (Years)         1999              1998
------------------------------------------------------------------------------------
<S>                                           <C>      <C>              <C>
     Land                                       --     $    707,210     $    707,210
     Buildings and improvements               3-30        3,689,643        3,689,643
     Machinery and equipment                   3-5        7,191,332        6,544,101
     Furniture and fixtures                      5          592,782          567,672
     Application software                        5          777,568          734,590
------------------------------------------------------------------------------------
                                                         12,958,535       12,243,216

     Less accumulated depreciation                       (8,715,947)      (7,719,919)
------------------------------------------------------------------------------------
                                                       $  4,242,588     $  4,523,297
====================================================================================
</TABLE>

Depreciation  expense  for  fiscal  1999,  1998 and 1997  totaled  approximately
$888,000, $777,000, and $660,000, respectively.  Assets recorded under a capital
lease  included in property  and  equipment  at September 3, 1999 and August 28,
1998 are  machinery  and  equipment of  approximately  $613,000 and  accumulated
amortization of approximately $474,000 and $345,000, respectively.

5. ACCRUED EXPENSES

Accrued expenses consisted of the following:

                                         SEPTEMBER 3, 1999     August 28, 1998
--------------------------------------------------------------------------------
     Compensation                            $  464,833          $  637,333
     Royalties                                  364,676             175,061
     Other                                      725,063             677,647
--------------------------------------------------------------------------------
                                             $1,554,572          $1,490,041
================================================================================

                                       29
<PAGE>

                                            Wegener Corporation and Subsidiaries

6. FINANCING AGREEMENTS
REVOLVING LINE-OF-CREDIT AND TERM LOAN FACILITY

WCI  maintains a loan facility  with a bank which  provides a maximum  available
credit limit of $10,000,000 with sublimits as defined. The loan facility matures
on June 21, 2000 or upon demand and  requires an annual  facility fee of $55,000
plus an  additional  .75% of  $3,000,000  if  borrowings,  at any  time,  exceed
$5,500,000. The loan facility consists of 1) a term loan and a revolving line of
credit with a combined  borrowing limit of $8,500,000,  bearing  interest at the
banks  prime rate  (8.25% at  September  3, 1999) and 2) a real  estate  advance
facility  with a maximum  borrowing  limit of $1,500,000  bearing  interest at a
fixed rate of 250 basis points over the five year U.S. Treasury rate.

The term loan portion provides for a maximum of $1,000,000 for advances of up to
80% of the  cost of  equipment  acquisitions.  Principal  advances  are  payable
monthly over sixty months with a balloon payment due at maturity.  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% to 50% of eligible finished
goods  inventories.  Advances  against  inventory  are  subject to a sublimit of
$2,000,000.  The real estate advance  portion of the loan facility  provides for
advances of up to 70% of the appraised value of certain real property.  Advances
for real  property  are payable in 35 equal  principal  payments  with a balloon
payment due at maturity.

During the first quarter of fiscal 1999,  $1,360,000 was advanced to pay off the
existing mortgage note balance. At the time of disbursement, the annual interest
rate was set at 6.519%.  At September 3, 1999, the loans were secured by a first
lien on  substantially  all of  WCI's  assets  except  assets  secured  under an
existing  equipment  note on which the bank had a second  lien.  The  Company is
required to maintain a minimum  tangible net worth with annual increases at each
fiscal year-end  commencing with fiscal year 1997, retain certain key employees,
limit  expenditures  of Wegener  Corporation to $600,000 per fiscal year, and is
precluded  from  paying  dividends.  At  September  3, 1999 the  Company  was in
compliance  with the covenants.  The loan facility's  outstanding  balance under
real  property  advances was $971,000 at  September  3, 1999.  No balances  were
outstanding  on the loan  facility at August 28,  1998.  At  September  3, 1999,
$2,505,000  was available to borrow under the accounts  receivable and inventory
advance  formulas.   Additionally,   Wegener  Corporation  guarantees  the  loan
facility.

<TABLE>
<CAPTION>
     LONG-TERM OBLIGATIONS
     Long-term obligations consist of:
                                                                         SEPTEMBER 3,     August 28,
                                                                             1999            1998
----------------------------------------------------------------------------------------------------
<S>                                                                      <C>             <C>
     Mortgage note, monthly principal $38,843 plus interest at 6.519%
       balance due June 2000, collateralized by real estate and cross
       collateralized under the loan facility                            $   971,077     $        --
     Mortgage note, (interest at the bank's prime rate plus 1%) paid in
       full in fiscal 1999                                                        --       1,362,933
     Other long-term obligations, collateralized by equipment                234,182         466,069
----------------------------------------------------------------------------------------------------
                                                                           1,205,259       1,829,002

     Less current maturities                                              (1,119,835)       (597,664)
----------------------------------------------------------------------------------------------------
                                                                         $    85,424     $ 1,231,338
====================================================================================================
</TABLE>

                                       30
<PAGE>

Wegener Corporation and Subsidiaries

At September 3, 1999,  other long-term  obligations  include a promissory  note,
bearing interest at 9.6% per annum, with monthly principal and interest payments
of $12,597 through April 2001 and a capital lease obligation bearing interest at
11.5% per annum,  with monthly principal and interest payments of $3,318 through
February 2000.

A summary of future  maturities  of  long-term  debt and minimum  capital  lease
obligations follows:

                                    Debt      Capital Lease
     Fiscal Year                Maturities     Obligations         Total
--------------------------------------------------------------------------------
     2000                      $  1,106,877   $     13,270     $  1,120,147
     2001                            85,424             --           85,424
--------------------------------------------------------------------------------
     Less interest                       --           (312)            (312)
--------------------------------------------------------------------------------
                               $  1,192,301   $     12,958     $  1,205,259
================================================================================

The Company  leases certain office and  manufacturing  facilities,  vehicles and
equipment under long-term  noncancelable  operating  leases which expire through
fiscal 2005.  Future minimum lease  commitments  are  approximately  as follows:
2000-$232,000;   2001-$238,000;   2002-$229,000;  2003-$228,000;  and  2004  and
thererafter-$202,000.  Rent expense under all leases was approximately $225,000,
$209,000 and $202,000 for fiscal years 1999, 1998, and 1997, respectively.

7. 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.  The  proceeds  were used for  working
capital and  reduction of the  line-of-credit  note  payable.  These  debentures
converted  at the option of the  holders at any time  through  maturity,  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%  (82.5% at August 30,  1996 and  thereafter)  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 was paid 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.  During
fiscal  1997  debentures  in the amount of  $101,222  were issued for payment of
accrued  interest.  During  fiscal  1998 and  1997,  $1,285,000  and  $3,850,000
principal  amount of  debentures  were  converted  into  950,658 and  2,131,987,
respectively,  shares  of  common  stock.  No  convertible  debentures  remained
outstanding at September 3, 1999 and August 28, 1998.

8. INCOME TAXES

The provision for income tax expense (benefit) consists of the following:


                                                Year ended
                             ---------------------------------------------------
                             SEPTEMBER 3,       August 28,       August 29,
                                 1999              1998             1997
--------------------------------------------------------------------------------
     Current
       Federal               $   480,000       $    93,000       $      --
       State                      55,000           221,000              --
--------------------------------------------------------------------------------
                                 535,000           314,000              --
--------------------------------------------------------------------------------
     Deferred
       Federal                  (366,000)        1,335,000        (862,000)
       State                     (44,000)           56,000         (84,000)
--------------------------------------------------------------------------------
                                (410,000)        1,391,000        (946,000)
--------------------------------------------------------------------------------
     Total                   $   125,000       $ 1,705,000       $(946,000)
================================================================================

                                       31
<PAGE>

                                            Wegener Corporation and Subsidiaries

The effective  income tax rate differs from the U.S.  federal  statutory rate as
follows:

                                                         Year ended
                                          -------------------------------------
                                          September 3,   August 28,   August 29,
                                              1999          1998         1997
     --------------------------------------------------------------------------
     Statutory U.S. income tax rate           34.0%        (34.0)%      (34.0)%
     State taxes, net of federal
       benefits                                2.0           4.8         (3.0)
     Foreign sales corporation benefit        (5.0)          (.7)          --
     Non-deductible expenses                   4.3            .3           .6
     Other, net                                1.7           (.2)         2.1
     --------------------------------------------------------------------------
     Effective income tax rate                37.0%         38.2%       (34.3)%
     ==========================================================================

Deferred  tax  assets  and  liabilities  that  arise  as a result  of  temporary
differences are as follows:

                                                  SEPTEMBER 3,      August 28,
                                                      1999             1998
-------------------------------------------------------------------------------
  Deferred tax assets:
    Accounts receivable and inventory reserves    $  1,098,000     $    860,000
    Accrued expenses                                   227,000          151,000
-------------------------------------------------------------------------------
    Total deferred tax assets                        1,325,000        1,011,000
-------------------------------------------------------------------------------
  Deferred tax liabilities:
    Depreciation                                       (28,000)         (82,000)
    Capitalized software costs                        (418,000)        (460,000)
    Other                                              (66,000)         (66,000)
-------------------------------------------------------------------------------
    Total deferred tax liabilities                    (512,000)        (608,000)
-------------------------------------------------------------------------------
  Net deferred tax asset                          $    813,000     $    403,000
===============================================================================
  Consolidated balance sheet classifications:
    Current deferred tax asset                    $  1,325,000     $  1,011,000
    Noncurrent deferred tax liability                 (512,000)        (608,000)
-------------------------------------------------------------------------------
    Net deferred tax asset                        $    813,000     $    403,000
===============================================================================

Net deferred tax assets increased $410,000 to $813,000 at September 3, 1999 from
$403,000 at August 28, 1998.  The increase was  principally  due to increases in
inventory  reserves and warranty  provisions.  Net deferred tax assets decreased
$1,391,000  to $403,000 at August 28, 1998 from  $1,794,000  at August 29, 1997.
The  decrease  was   principally  due  to  utilization  of  net  operating  loss
carryforwards and tax credit carryforwards in fiscal 1998.

No  provision  for  deferred tax  liability  has been made on the  undistributed
earnings of the Foreign Sales  Corporation  as the earnings will not be remitted
in the foreseeable future and are considered permanently invested. The amount of
the  unrecognized  deferred  tax  liability  for the  undistributed  earnings of
approximately $627,000 was approximately $213,000.

                                       32
<PAGE>

Wegener Corporation and Subsidiaries

9. COMMON STOCK AND STOCK OPTIONS.

1998 INCENTIVE  PLAN. On February 26, 1998, the  stockholders  approved the 1998
Incentive  Plan (the  "1998  plan").  The Plan  provides  for awards of up to an
aggregate of 1,000,000  shares of common stock which may be  represented  by (i)
incentive or non-qualified 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. In addition, the 1998 Plan provides
for loans and supplemental cash payments to persons participating in the Plan in
connection with awards granted. Eligible participants include officers and other
key employees,  non-employee directors, consultants and advisors of the Company.
The  exercise  price per share in the case of  incentive  stock  options and any
tandem stock  appreciation  rights will be not 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  75% of the fair  market  value  on the  date of  grant.  The
exercise period for non-qualified stock options may not exceed ten years and one
day from the date of the grant, and the expiration period for an incentive stock
option or stock appreciation  rights shall not exceed ten years from the date of
the  grant.  The 1998  plan  contains  an  automatic  option  grant  program  to
non-employee  members  of the  Board of  Directors.  Such  members  will each be
granted an option to purchase  2,000  shares of common  stock on the last day of
each December on which regular trading occurs 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 will be exercisable  during the period of ten years and one
day from the date of grant of the option.  In addition,  upon the exercise of an
option by a  non-employee  director,  the Company will pay a  supplemental  cash
amount  equal to the  greater of the  Company's  minimum  federal  and state tax
withholding  obligation  with  respect  to the  exercise  of the option and such
supplemental  payment,  or an amount  sufficient to defray the federal and state
tax  consequences to the non-employee  director  attributable to the exercise of
the option and such supplemental payment. The effective date of the 1998 plan is
January 1, 1998 and the plan has a ten year term. During fiscal 1999 options for
212,000  shares of common stock were granted with exercise  prices  ranging from
$1.41 to $1.78.

1989 DIRECTORS'  INCENTIVE PLAN. On January 9, 1990, the  stockholders  approved
the Wegener  Corporation  1989  Directors'  Incentive  Plan  permitting  certain
participating  directors  of the  Company to be  eligible  to receive  incentive
awards  consisting  of common stock of the Company,  performance  units or stock
appreciation  rights payable in stock or cash, or non-qualified stock options to
purchase  such  stock,  or any  combination  of  the  foregoing,  together  with
supplemental  cash  payments.  During the second  quarter  of fiscal  1995,  the
Company amended the 1989 Directors'  Stock Option Plan to increase the aggregate
number of shares of common  stock  that may be awarded  from  100,000 to 300,000
shares;  to remove the  ineligibility  provision for certain  directors;  and to
grant annually to each non-employee  director,  options to purchase 2,000 shares
of common  stock at an exercise  price  equal to the fair  market  value of such
stock on the date of grant. The exercise price per share for non-qualified stock
options or stock  appreciation  rights shall not be less than 85% of fair market
value  on the  date  the  award  is made or not  more  than  nine  trading  days
immediately preceding such date. The expiration period for a non-qualified stock
option shall be ten years and one day from the date of the grant. The expiration
period for stock appreciation rights, including any extension,  shall not exceed
ten years from the date of grant.  During fiscal 1999,  options for 2,000 shares
of common stock were granted at an exercise price of $1.78. Additionally, during
fiscal  1999  options for 50,000  shares of common  stock with  exercise  prices
ranging from $1.53 to $12.13 were cancelled and reissued at an exercise price of
$1.41. During fiscal 1998 options were granted for 44,000 shares of common stock
at exercise  prices  ranging  from $1.44 to $2.00.  Options for 4,000  shares of
common  stock  were  granted in each of fiscal  years 1998 and 1997 at  exercise
prices of $1.53 and $3.94, respectively. During fiscal 1997, options for 193,000
shares of common  stock with  exercise  prices  ranging from $1.50 to $7.00 were
cancelled and reissued at an exercise price of $1.44 per share.  At September 3,
1999, no common stock shares remained  available for awards under the plan. This
plan will terminate and expire effective December 1, 1999.

1988  INCENTIVE  PLAN. On January 10, 1989, the  stockholders  approved the 1988
Incentive Plan  providing to key employees  other than directors of the Company,
incentive  awards  consisting  of  common  stock,  performance  units  or  stock
appreciation  rights  payable in stock or cash;  or incentive  or  non-qualified
stock options to purchase stock; or any combination of the above,  together with
supplemental  cash payments.  The aggregate  number of shares issuable under the
1988 plan is 750,000 common shares.  The exercise price per share in the case of
incentive stock options and any tandem stock  appreciation  rights will be equal
to 100% of the fair market  value or, in the case of an option  granted to a 10%
or greater  stockholder,  l10% of the fair market value.  The exercise price for
any other option and stock appreciation rights shall be at least 85% of the fair
market  value on the  date the  option  is  granted.  The  exercise  period  for
non-qualified  stock options shall be ten years and one day from the date of the
grant,  and the  expiration  period  for an  incentive  stock  option  or  stock
appreciation  rights  shall not  exceed  ten years  from the date of the  grant.
During fiscal 1999,  options for 105,000 shares of common stock with an exercise
price of $2.00 were cancelled and reissued at an exercise price of $1.41. During
fiscal 1998 options were granted for 150,000  shares of common stock at exercise
prices of $1.44 and $2.00.  During  fiscal 1997  options  for 180,250  shares of
common  stock with  exercise  prices  ranging from $1.50 to $7.00 per share were
cancelled  and  reissued at an exercise  price of $1.44 per share.  In addition,
during  fiscal 1997 new options were granted for 150,000  shares of common stock
at an  exercise  price of $1.44 per  share.  This plan  terminated  and  expired
December 1, 1998.

                                       33
<PAGE>

                                            Wegener Corporation and Subsidiaries

A summary of stock option transactions for the above plans follows:

                                                                     Weighted
                                     Number. of     Range of          Average
                                      Shares    Exercise Prices   Exercise Price
--------------------------------------------------------------------------------
     Outstanding at
       August 30, 1996                434,500     $.75 - 12.13    $       3.58
       Granted or reissued            527,250      1.44 - 3.94            1.46
       Exercised                       (5,500)      .75 - 1.50            1.13
       Forfeited or cancelled        (377,250)     1.50 - 7.00            4.28
--------------------------------------------------------------------------------
     Outstanding at
       August 29, 1997                579,000     $.75 - 12.13    $       1.55
       Granted                        194,000      1.44 - 2.00            1.80
       Exercised                      (26,250)      .75 - 1.44            1.12
       Forfeited or cancelled         (10,750)      .75 - 1.44            1.36
--------------------------------------------------------------------------------
     Outstanding at
       August 28, 1998                736,000     $.75 - 12.13    $       1.63
       Granted or reissued            369,000      1.41 - 1.78            1.45
       Exercised                       (9,000)            1.44            1.44
       Forfeited or cancelled        (175,250)    1.44 - 12.13            2.33
--------------------------------------------------------------------------------
     OUTSTANDING AT
       SEPTEMBER 3, 1999              920,750      $.75 - 1.78    $       1.43
================================================================================
     Options exercisable at
       SEPTEMBER 3, 1999              494,250      $.75 - 1.78    $       1.41
       August 28, 1998                386,000      .75 - 12.13            1.63
================================================================================

Weighted average fair value of options               Per Share      Aggregate
granted during the year ended                      Option Value       Total
--------------------------------------------------------------------------------
SEPTEMBER 3, 1999                                      $.68         $140,535
August 28, 1998                                         .91          175,493
August 29, 1997                                         .76          198,562
================================================================================

The  weighted  average  remaining  contractual  life of options  outstanding  at
September 3, 1999 was 4.2 years.

The Company  applies APB Opinion No. 25 in  accounting  for its stock  incentive
plan and,  accordingly,  no compensation  cost has been recognized for its stock
options in the  financial  statements.  If the Company had elected to  recognize
compensation  cost based on the fair  value at grant  dates for  options  issued
under the plans described above,  consistent with the method  prescribed by SFAS
No. 123, net earnings (loss) and earnings (loss) per share would have changed to
the pro forma amounts indicated below:


                                                    Year ended
                                   ---------------------------------------------
                                   SEPTEMBER 3,     August 28,      August 29,
                                      1999             1998            1997
--------------------------------------------------------------------------------
     Net earnings (loss)
       As Reported                $    213,273    $  2,760,183    $ (1,809,200)
       Pro Forma                        46,662       2,676,143      (1,902,485)
--------------------------------------------------------------------------------
     Earnings (loss) per share
       As Reported
         Basic                    $        .02    $        .24    $       (.19)
         Diluted                           .02             .23            (.19)
       Pro Forma
         Basic                             .00             .23            (.20)
         Diluted                           .00             .22            (.20)
================================================================================

                                       34
<PAGE>

Wegener Corporation and Subsidiaries

The fair value of stock  options used to compute pro forma net  earnings  (loss)
and earnings  (loss) per share  disclosures  is the  estimated  present value at
grant  date using the  Black-Scholes  option-pricing  model  with the  following
weighted average  assumptions for 1999, 1998 and 1997. No dividend yield for all
years;  expected volatility of 50% in 1999 and 60% in 1998 and 1997; a risk free
interest rate of 5.0% in 1999,  5.6% in 1998,  and 6.6% in 1997; and an expected
option life of 3.3 years in 1999, 3.9 years in 1998, and 4.5 years in 1997.

OTHER  OPTIONS,  AWARDS AND  WARRANTS.  During  fiscal 1999,  options for 22,500
common shares, with an exercise price of $2.44 per share expired. In conjunction
with a private  placement of common stock during fiscal 1995 the Company  issued
warrants for 45,000 shares at an exercise  price of $3.00 per share  expiring on
June 23, 1997. During fiscal 1997, warrants for 11,250 common shares expired. In
addition,  stock awards  issued under the 1988  Incentive  Plan of 12,500 shares
remained outstanding at September 3, 1999.

STOCK REPURCHASE PROGRAM. On January 28, 1999, the Board of Directors approved a
stock repurchase program  authorizing the repurchase of up to one million shares
of its common stock over the following  twelve months.  As of September 3, 1999,
the Company had  repurchased  386,500  shares of its common stock in open market
transactions at an average price of $1.82.

10. EMPLOYEE BENEFIT PLANS

WCI has a profit-sharing plan covering  substantially all employees.  Amounts to
be  contributed  to the plan each year are  determined at the  discretion of the
Board of Directors subject to legal limitations.  No contributions were declared
for fiscal years 1999, 1998 and 1997.

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  subject to WCI's  profitability.  During
fiscal  1999,  an  additional  discretionary  matching  contribution  of  25% of
employee  contributions  was made  for all  quarters.  During  fiscal  1998,  an
additional 25% matching contribution was made for the third and fourth quarters.
All  matching  contributions  are in the  form of  Company  stock or cash at the
discretion of the Company's Board of Directors.  Matching Company  contributions
in the form of common stock were approximately $176,000 in fiscal 1999, $124,000
in fiscal 1998 and $90,000 in fiscal 1997.

11. SEGMENT INFORMATION AND SIGNIFICANT CUSTOMERS

During 1999, the Company adopted SFAS No. 131 "Disclosures  about Segments of an
Enterprise and Related Information" which establishes 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  about 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 the
Company  has  determined  that it operates in a single  operating  segment:  the
manufacture and sale of satellite communications equipment.

In this single  operating  segment the Company has three distinct product lines.
Revenues from customers in each of these product lines are as follows:

                                                    Year ended
                                   ---------------------------------------------
                                   SEPTEMBER 3,     August 28,      August 29,
                                       1999            1998            1997
--------------------------------------------------------------------------------
Product Line
    Direct Broadcast Satellite     $21,500,769     $29,220,638     $17,511,242
    Telecom and Custom Products      3,007,288       4,277,727       3,604,794
    Service                            751,098         756,308         695,834
--------------------------------------------------------------------------------
                                   $25,259,155     $34,254,673     $21,811,870
================================================================================

                                       35
<PAGE>

                                            Wegener Corporation and Subsidiaries

Revenues by geographic areas are as follows:

                                                    Year ended
                                   ---------------------------------------------
                                   SEPTEMBER 3,     August 28,      August 29,
                                       1999            1998            1997
--------------------------------------------------------------------------------
Geographic Area
    United States                  $21,765,145    $30,943,573     $18,669,030
    Canada                           1,585,004         57,090          34,603
    Europe                           1,136,041        881,595       1,707,177
    Asia                                66,420      1,852,677          75,275
    Latin America                      617,146        488,517         875,033
    Other                               89,399         31,221         450,752
--------------------------------------------------------------------------------
                                   $25,259,155    $34,254,673     $21,811,870
================================================================================

Revenue attributed to geographic areas is based on the location of the customer.
All of the Company's long-lived assets are located in the United States.

The Company  sells 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. Single customers accounted for 19.2%, 34.2% and 11.0% of revenues in
fiscal  years  1999,  1998,  and  1997,  respectively,  and  represent  revenues
principally within the Direct Broadcast  Satellite product line. At September 3,
1999,  no  customers  accounted  for  more  than 10% of the  Company's  accounts
receivable.  At August 28, 1998, three customers  accounted for 23.7%, 13.6% and
13.2%,   respectively  of  the  Company's  accounts   receivable.   When  deemed
appropriate, the Company uses letters-of-credit and credit insurance to mitigate
the credit risk associated with foreign sales.

12. STATEMENT OF CASH FLOWS

Interest payments were approximately $159,000, $247,000, and $563,000 for fiscal
years 1999, 1998 and 1997, respectively. Income taxes paid in 1999 and 1998 were
$253,000 and $488,000, respectively. No income taxes were paid in 1997. Non-cash
investing and financing  activities in fiscal 1999 were:  (1) 103,337  shares of
treasury  stock reissued for 401(k)  matching  Company  contributions  valued at
approximately  $176,000.  Non-cash investing and financing  activities in fiscal
1998 were:  (1) 48,184  shares of treasury  stock  reissued for 401(k)  matching
Company contributions valued at approximately  $124,000,  and (2) 950,658 shares
of common  stock  issued  upon  conversion  of  $1,285,000  principal  amount of
convertible  debentures.  Non-cash investing and financing  activities in fiscal
1997 were: (1) equipment acquired under capital leases of approximately $20,000;
(2)  32,167  shares of  treasury  stock  reissued  for 401(k)  matching  Company
contributions  valued at  approximately  $90,000,  and (3)  2,131,987  shares of
common  stock  issued  upon  conversion  of  $3,850,000   principal   amount  of
convertible debentures.

13. FOURTH QUARTER ADJUSTMENTS

During the  fourth  quarter of the year ended  September  3, 1999,  the  Company
recorded  as a charge  to cost of sales a  $500,000  increase  in the  inventory
obsolescence reserve.

During  the  fourth  quarter of the year ended  August  29,  1997,  the  Company
recorded  as  charges  to  cost  of  sales:  (1) an  increase  in the  inventory
obsolescence  reserve of $825,000;  (2) a write-down of capitalized  software in
the  amount of  $242,000;  and (3) an  increase  in the  warranty  provision  of
$70,000. In addition,  charges to selling,  general, and administrative expenses
were recorded for (1) an increase in the allowance of bad debts of $266,000; and
(2) a restructuring reserve of $100,000.

                                       36
<PAGE>

Wegener Corporation and Subsidiaries

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

The  management  of Wegener  Corporation  is  responsible  for the  accuracy and
consistency of all the information contained in the annual report, including the
accompanying  consolidated  financial  statements.  These  statements  have been
prepared to conform with generally accepted accounting principles appropriate to
the  circumstances  of the Company.  The  statements  include  amounts  based on
estimates and judgments as required.

Wegener  Corporation  maintains internal accounting controls designed to provide
reasonable assurance that the financial records are accurate, that the assets of
the Company are safeguarded,  and that the financial  statements  present fairly
the consolidated financial position, results of operations and cash flows of the
Company.

The Audit  Committee of the Board of  Directors  reviews the scope of the audits
and the findings of the independent  certified public accountants.  The auditors
meet regularly with the Audit Committee to discuss audit and financial reporting
issues, with and without management present.

BDO Seidman,  LLP the Company's  independent  certified public accountants,  has
audited the financial  statements  prepared by management.  Their opinion on the
statements is presented below.

/s/ Robert A. Placek
Robert A. Placek,
President, Chief Executive Officer
and Chairman of the Board

/s/ C. Troy Woodbury, Jr.
C. Troy Woodbury, Jr.
Treasurer and Chief Financial Officer


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Shareholders
  of Wegener Corporation
Duluth, Georgia

     We have audited the  accompanying  consolidated  balance  sheets of Wegener
Corporation  and  subsidiaries  as of September 3, 1999 and August 28, 1998, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of three  years in the period  ended  September  3,  1999.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principals  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all  material  respects,  the  consolidated  financial  position  of  Wegener
Corporation and subsidiaries as of September 3, 1999 and August 28, 1998 and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended  September 3, 1999 in conformity  with generally
accepted accounting principles.





                              /s/ BDO Seidman, LLP

Atlanta, Georgia                           BDO Seidman, LLP
October 27, 1999

                                       37
<PAGE>

ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

         None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information  contained  under the caption  "ELECTION OF  DIRECTORS"  in the
Proxy   Statement   pertaining  to  the  January  25,  2000  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 8 of this Report.

ITEM 11. EXECUTIVE COMPENSATION

     Information contained under the caption "EXECUTIVE  COMPENSATION" contained
in the Proxy Statement is  incorporated  herein by reference in response to this
item.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information  contained  under the  captions  "ELECTION  OF  DIRECTORS"  and
"SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL OWNERS AND MANAGEMENT"  contained in
the Proxy  Statement  is  incorporated  herein by  reference in response to this
item.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information contained under the caption "CERTAIN  RELATIONSHIPS AND RELATED
TRANSACTIONS"  contained  in the  Proxy  Statement  is  incorporated  herein  by
reference in response to this item.

                                       38
<PAGE>

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a)  (1)  The  following   consolidated  financial  statements  of  Wegener
Corporation  and  subsidiaries  and the related Report of Independent  Certified
Public Accountants thereon are filed as part of this report:

Consolidated Balance Sheets September 3, 1999 and August 28, 1998

Consolidated  Statements of Operations Years ended September 3, 1999, August 28,
     1998, and August 29, 1997

Consolidated  Statements of Shareholders'  Equity Years ended September 3, 1999,
     August 28, 1998, and August 29, 1997

Consolidated  Statements of Cash Flows Years ended September 3, 1999, August 28,
     1998, and August 29, 1997

Notes to Consolidated Financial Statements

Report of Independent Certified Public Accountants

     Separate  financial  statements of the Registrant have been omitted because
the Registrant is primarily a holding company and all  subsidiaries  included in
the consolidated financial statements are deemed to be totally held.

     (a)  (2) The  following  consolidated  financial  statements  schedule  for
Wegener  Corporation  and  subsidiaries,  and the related  Report of Independent
Certified Public Accountants are included herein, beginning on page 39:

     Schedule II Valuation  and  Qualifying  Accounts  Years ended  September 3,
1999, August 28, 1998, and August 29, 1997

     (a) (3) The  exhibits  filed in response to Item 601 of  Regulation S K are
listed in the Exhibit Index on pages 41 and 42.

     (b) There were no reports on Form 8-K filed for the Quarter ended September
3, 1999.

     (c) See Part IV, Item 14(a)(3).

     (d) Not applicable.

                                       39
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Shareholders
  of Wegener Corporation
Duluth, Georgia

     The audits  referred to in our report dated  October 27, 1999,  relating to
the consolidated  financial  statements of Wegener Corporation and subsidiaries,
which  is  contained  in Item 8 of this  Form  10-K  included  the  audit 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 presents fairly, in all
material respects, the information set forth therein.


                                                      /s/ BDO Seidman, LLP
     Atlanta, Georgia                                 BDO Seidman, LLP
     October 27, 1999

                                       40
<PAGE>

                                   SCHEDULE II
                      WEGENER CORPORATION AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                 Balance at       Charged to                                      Balance at
                                 Beginning        Costs and                                         End of
                                 of Period        Expenses       Write-offs      Recoveries         Period
                                ------------    ------------    ------------     ----------      ------------
Allowance for doubtful
  accounts receivable:

<S>                             <C>             <C>             <C>              <C>             <C>
YEAR ENDED SEPTEMBER 3, 1999    $    256,991    $     40,000    $   (124,406)    $         --    $    172,585

Year ended August 28, 1998      $    361,743    $     75,000    $   (180,018)    $        266    $    256,991

Year ended August 29, 1997      $     57,912    $    356,555    $    (53,279)    $        555    $    361,743



Inventory Reserves:

YEAR ENDED SEPTEMBER 3, 1999    $  1,439,520    $    750,000    $         --     $      8,974    $  2,198,494

Year ended August 28, 1998      $  1,865,453    $  1,150,000    $ (1,576,764)    $        831    $  1,439,520

Year ended August 29, 1997      $  1,521,926    $    825,000    $   (481,473)    $         --    $  1,865,453
</TABLE>

                                       41
<PAGE>

EXHIBIT INDEX

     The  following  documents  are  filed as  exhibits  to this  report.  Those
exhibits  previously filed and  incorporated  herein by reference are identified
below by an asterisk.  For each such asterisked exhibit there is shown below the
description  of the previous  filing.  Exhibits  which are not required for this
report are omitted.

Exhibit Number      Description of Document
--------------      -----------------------

*3.1                By-Laws (Reg. No. 2-81795, Exhibits 3(a) and 3(b)).

*3.2                Certificate of  Incorporation as amended through May 4, 1989
                    (1989 10-K, filed November 30, 1989, Exhibit 3.2).

*3.3                Amendment to Certificate of Incorporation  (1997 10-Q, filed
                    June 27, 1997, Exhibit 3.1).

*4.0                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.

*4.1                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 (1996  10-K,  filed  November  27,
                    1996, Exhibit 4.1).

*4.2                Loan Agreement, Promissory Note and Deed to Secure Debt, and
                    Security  Agreement  dated  February  27, 1987  between Bank
                    South,  N.A.  and Wegener  Communications,  Inc.  respecting
                    $3,500,000  promissory  note (1990 10-K,  filed November 29,
                    1990, Exhibit 4.4).

*4.3                Promissory  Note dated April 8, 1996 in favor of Lyon Credit
                    Corporation   and  Wegener   Communications,   Inc.  in  the
                    principal amount of $600,000 (1996 10Q, filed July 11, 1996,
                    Exhibit 4.1).

*4.5                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.

                    No other  long-term debt instrument of the Registrant or its
                    subsidiaries  authorizes  indebtedness  exceeding 10% of the
                    total assets of the  Registrant  and its  subsidiaries  on a
                    consolidated  basis and the Registrant  hereby undertakes to
                    provide the Commission  upon request with any long-term debt
                    instrument not filed herewith.

*10.1               1988  Incentive  Plan (1989 10-K,  filed  November 30, 1989,
                    Exhibit 10.2).

*10.2               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.  (1995 10-K,  filed  December  15, 1994,
                    Exhibit 10.4).

                                       42
<PAGE>

Exhibit Number      Description of Document
--------------      -----------------------

*10.3               Wegener  Communications,  Inc. Profit Sharing Plan and Trust
                    dated January 1, 1982, amended and restated as of January 1,
                    1984. (1987 10-K, dated and filed November 25, 1987, Exhibit
                    10.14).

*10.4               1989  Directors'  Incentive Plan (1990 10-K,  filed November
                    29, 1990, Exhibit 10.9).

*10.4.1             Amendment  to  1989  Directors'   Incentive  Plan  effective
                    February 1, 1995 (1995 10-K, filed December 13, 1996).

*10.5               1998  Incentive  Plan  (1998  Form  S-8,   Registration  No.
                    333-51205, filed April 28, 1998, Exhibit 10.1).

*21.                Subsidiaries  of the Registrant  (1990 10-K,  filed November
                    29, 1990, Exhibit 22).

23.                 Consent of BDO Seidman, LLP.

27.                 Financial Data Schedule.

                                       43
<PAGE>

                                   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
Date:  November 22, 1999                By /s/ Robert A. Placek
                                           ----------------------------------
                                           Robert A. Placek
                                           President

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 22nd day of November, 1999.

Signature                                        Title

/s/ Robert A. Placek           President, Chief Executive Officer and Chairman
---------------------------    of the Board (Principal Executive Officer)
Robert A. Placek

/s/ C. Troy Woodbury, Jr.      Treasurer and Chief Financial Officer, Director
---------------------------    (Principal Financial and Accounting Officer)
C. Troy Woodbury, Jr.

/s/ James T. Traicoff          Controller
---------------------------
James T. Traicoff

/s/ James H. Morgan, Jr.       Director
---------------------------
James H. Morgan, Jr.

/s/ Joe K. Parks               Director
---------------------------
Joe K. Parks

/s/ Thomas G. Elliot           Director
---------------------------
Thomas G. Elliot

                                    44
<PAGE>

DIRECTORS
Robert A. Placek
Chairman of the Board,
President and Chief
Executive Officer
Wegener Corporation

James H. Morgan, Jr., Esq.
Partner
Smith, Gambrell & Russell, LLP

C. Troy Woodbury, Jr.
Treasurer and Chief
Financial Officer
Wegener Corporation

Keith N. Smith
President, Wegener
Communications, Inc.

Joe K. Parks
Retired, Served as
Laboratory Director
Systems Development Laboratory
Georgia Tech Research Institute
Georgia Institute of Technology

Thomas G. Elliot
Senior Vice President of
Technical Projects
CableLabs

OFFICERS
Robert A. Placek
Chairman of the Board,
President and Chief
Executive Officer

Keith N. Smith
President, Wegener
Communications, Inc.

C. Troy Woodbury, Jr.
Treasurer and Chief
Financial Officer

James T. Traicoff
Controller

INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
BDO Seidman, LLP
285 Peachtree Center Avenue
Suite 800
Atlanta, Georgia 30303-1230

TRANSFER AGENT
Securities Transfer Corporation
16910 Dallas Parkway
Suite 100
Dallas, Texas 75248

CORPORATE
HEADQUARTERS
11350 Technology Circle
Duluth/Atlanta, Georgia 30097-1502

ANNUAL MEETING
The annual meeting of stockholders will be held on January 25, 2000 at 7 p.m. at
the Corporate Headquarters.

COMMON STOCK NASDAQ
NASDAQ Small-Cap Market Symbol: WGNR

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:
     Elaine Miller, Secretary
     Investor Relations
     Wegener Corporation
     11350 Technology Circle
     Duluth, Georgia 30097-1502

WEB SITE
HTTP://WWW.WEGENER.COM

QUARTERLY COMMON
STOCK PRICES
The  Company's  common  stock is  traded on the  NASDAQ  Small-Cap  Market.  The
quarterly  ranges of high and low  closing  sale prices for fiscal 1999 and 1998
were as follows:

                            High         Low
---------------------------------------------

FISCAL YEAR ENDING SEPTEMBER 3, 1999

First Quarter             $1 27/32     $1 3/8

Second Quarter              2 9/32      1 1/2

Third Quarter                2 1/2    1 15/32

Fourth Quarter              2 3/16      1 3/8
---------------------------------------------

Fiscal Year Ending August 28, 1998

First Quarter               $2 3/4    $1 7/16

Second Quarter             2 11/32      1 3/8

Third Quarter              3 19/32     2 1/32

Fourth Quarter              3 5/32      1 5/8

---------------------------------------------

The Company had approximately  408* shareholders of record at November 12, 1999.
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).