UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K
(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, 2004

                                       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 |_|

      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. |_|

      Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).

                        YES |_|                NO |X|

      As of the last business day of the  registrant's  most recently  completed
second fiscal  quarter,  the aggregate  market value of the Common Stock held by
non-affiliates  was $26,982,498 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.)

      As of November 15, 2004,  12,546,051  shares of registrant's  Common Stock
were outstanding

                       DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the definitive  Proxy Statement  pertaining to the January 25,
2005 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, 2004
                                      INDEX

                                     PART I

<TABLE>
<CAPTION>
                                                                                                                  Page
<S>                                                                                                                <C>
Item 1.     Business................................................................................................2
Item 2.     Properties.............................................................................................11
Item 3.     Legal Proceedings......................................................................................11
Item 4.     Submission of Matters to a Vote of Security Holders....................................................11

                                     PART II

Item 5.     Market for Registrant's  Common Equity,  Related  Stockholder  Matters and Issuer Purchases of
            Equity Securities......................................................................................11
Item 6.     Selected Financial Data................................................................................12
Item 7.     Management's Discussion and Analysis of Financial
            Condition and Results of Operations....................................................................13
Item 7a.    Quantitative and Qualitative Disclosures About Market Risk.............................................23
Item 8.     Financial Statements and Supplementary Data............................................................23
Item 9.     Changes in and Disagreements With Accountants on Accounting and
            Financial Disclosures..................................................................................43
Item 9A.    Controls and Procedures................................................................................43
Item 9B.    Other Information......................................................................................43

                                    PART III

Item 10.    Directors and Executive Officers of the Registrant.....................................................43
Item 11.    Executive Compensation.................................................................................43
Item 12.    Security Ownership of Certain Beneficial Owners
            and Management and Related Stockholder Matters.........................................................43
Item 13.    Certain Relationships and Related Transactions ........................................................43
Item 14.    Principal Accountant Fees and Services ................................................................43

                                     PART IV

Item 15.    Exhibits and Financial Statement Schedules.............................................................44
</TABLE>


                                       1
<PAGE>

                                     PART I

ITEM 1. BUSINESS

      Wegener(TM) Corporation,  the Registrant,  together with its subsidiaries,
is referred to herein as "we," "our," "us," the "Company" or "WGNR."

      (a)   General development of business.

      Wegener Corporation was formed in 1977 and is a Delaware  corporation.  We
conduct our continuing  business through Wegener  Communications,  Inc. (WCI), a
wholly-owned  subsidiary.  WCI  was  formed  in  April  1978  and  is a  Georgia
corporation. WCI is a leading provider of digital solutions for video, audio and
IP  data  networks,  primarily  via  satellite  delivery.  Applications  include
broadcast and cable television,  business television, IP data delivery, distance
education,  business  music and radio  networks.  COMPEL,  our patented  network
control  system,  provides  network  flexibility  to  regionalize   programming,
commercials and file transfers.

      (b)   Financial information about segments.

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

      (c)   Narrative description of business.

MARKETS AND INDUSTRY OVERVIEW

      The primary  markets we serve are  business  and private  networks,  cable
television, broadcast television and broadcast radio.

Business/Private Networks

      Business   networks   consist  of  corporate   and   enterprise   networks
distributing video, audio and/or data via satellite. Private networks consist of
networks that target video,  audio and/or data to a select group of  subscribers
or  viewers  via  satellite.  Historically,  our  equipment  is used for a large
percentage  of the horse  racing  video  distribution  in the United  States and
Sweden and we are  continuing  to expand that  market.  Our business and private
network customers  include Muzak LLC, Roberts  Communications,  Inc,  Scientific
Games-Autotote  Communication  Service  Division,  and Swedish companies ATG and
TERACOM. In addition,  we work through third-party  integrators,  such as Ascent
Media and Globecomm, to reach this market space.

      Business  networks  are  looking for  alternatives  to replace the current
methods of corporate  training  they use.  Currently  they (1) send  trainers to
facilities,  which is difficult to coordinate and  expensive,  or (2) send video
tapes,  which is costly and complicated to manage,  or (3) broadcast a satellite
television  network,  which  is  exceptionally  cost  prohibitive  and  requires
schedule coordination throughout the facilities,  or (4) stream programming over
their IP  networks,  which  provides  low quality  video and  requires  advanced
training for users and operators.  Video-on-demand  promises to reduce the costs
and complications of their networks by allowing operators to sent video files to
the remote  locations and allow trainees to view the training  videos when it is
convenient  for them  with no need to  coordinate  schedules  with  the  central
office.

      The dropping  cost of plasmas,  LCDs and  television  monitors has made it
economically  feasible for more  businesses to use wide screen  televisions  for
advertising.  Digital  signs and  advertisements  are  becoming  more common and
retail  stores are  beginning to test market video  advertisements  within their
prime locations.


                                       2
<PAGE>

Cable Television

      Cable  television  consists of (1) companies  that provide  programming to
cable,  direct-to-home  satellite  and telecom  companies  for  distribution  to
consumers,  and (2) cable distribution companies,  such as cable multiple system
operators.  Broadcast television consists of companies that broadcast, typically
free-to-air, television signals to local viewers. Cable television and broadcast
television  customers  include  FOX,  HDNet,  Time  Warner,   Adelphia,   Turner
Broadcasting,  and PaxTV.  In addition,  we work through  distributors,  such as
MegaHertz, AMT and Satellite Engineering Group.

      With the drop in costs of high definition televisions, more consumers have
now seen high definition  television and want a widescreen digital television to
watch DVDs and the programming  offered to them. This is increasing  pressure on
cable,  satellite  and  telecom  networks  to  offer  high  definition  to their
customers.

      Cable programmers  continue to distribute their programming over satellite
to cable,  direct to home  (DTH)  satellite,  and  telecom  companies.  They are
starting to stream  programming  directly to consumers via the internet as well.
They continue to launch new services to compete for  advertising  dollars.  They
are  launching  increasing  numbers  of  high  definition  services,  as well as
distributing  video-on-demand  content. They are concerned about the effect that
personal video recorders could potentially have on their advertising  revenue as
well as  about  the  security  of their  high  value  content  being  stored  in
consumers' homes in a digital and potentially easy to copy format.

      Cable,  DTH satellite  and telecom  companies are all competing to provide
consumers with television,  telephone and high speed internet services.  To gain
and  maintain  subscribers,  they are  rolling out the new high  definition  and
video-on-demand services and fielding personal video recording devices.

Broadcast Networks

      Broadcasters continue to launch local digital broadcast stations. Many are
opting to only  provide  HD  content  during  primetime  hours  from  their main
satellite feed and provide  multi-channel  SD services  during the day. They are
hoping the FCC will force cable operators to carry both their analog and digital
channels.

      Satellite  teleports  are  recovering  from global  slowdown that affected
satellite transponder use. They are increasingly looking at integrated video and
data solutions for their customers.

      Broadcast   radio   consists  of  companies  that   broadcast,   typically
free-to-air,  radio signals to local listeners.  Radio network customers include
EMF Broadcasting,  ABC Radio Network,  Christian Radio  Consortium,  Salem Radio
Network, Clear Channel and Educational Media Foundation.

PRODUCTS

      Our  products  include:  iPump(R)  Media  Servers,   MediaPlan(R)  Content
Management and Ingest,  Compel(R)  Network  Control System,  UNITY(R)  Satellite
Receivers,  DTV Digital  Stream  Processors,  analog  audio  products and uplink
products, such as encoders.

iPump Media Servers

      The iPump  6400 Media  Server  combines  the  features  of our  integrated
receiver  decoders  (IRD) with advanced  media server  functionality.  The iPump
delivers  and  stores  digital  content  into  broadcast,   cable  and  business
operations  utilizing  store and  forward  technology  compared  to  traditional
real-time  delivery.  Store and forward  technology  allows network operators to
store content at receive locations and then play back the content locally either
based on schedules or on-demand  user  selection.  Network  operators can reduce
their satellite space segment cost by sending programming and playback schedules
as stored files into the iPump for later  playback  according to the  schedules.
The network  operator can then  utilize  limited  satellite  time to refresh the
programming and play-out  schedules without the necessity to maintain a constant
signal on the satellite.


                                       3
<PAGE>

      The recently  introduced iPump 615 Streaming Media Decoder is a peripheral
settop decoder for the iPump 6400  Professional  Media Server. It receives an IP
stream via  Ethernet  from the iPump  6400 and  outputs  audio and video.  It is
designed  for high  volume  dynamic  environments  such as retail  point-of-sale
kiosks, point of purchase (POP) digital signs and advertisements,  and corporate
communications.  The iPump 615 offers high-definition video and advanced digital
audio, in addition to standard definition video and audio.

      We are  targeting  all of our core markets for the iPump  product.  Within
these markets, applications for the iPump products include:

      Business and Private Networks

            o     Interactive Training

            o     Distance Learning, Educational Purposes

            o     Customized Training by Site

            o     Retail Point-of-Sale Displays or Kiosks

            o     Corporate Communications

            o     Streaming Video/Audio/Data to the Desktop

      Television and Radio Broadcast

            o     Regional Advertising and Content

            o     Time Zone Shifted Programming

            o     News Distribution

            o     Reduction of Satellite Delivery Cost

      Cable Television

            o     Regional Ad Insertion

            o     Segment Spot Distribution by Group or Region

            o     Video on Demand


MediaPlan

      MediaPlan(R)  i/o and  MediaPlan(R) CM products are control and management
system  modules to our patented  Compel(R)  Control  System,  which is discussed
below.  The MediaPlan  products are crucial for customers in  controlling  iPump
Media Server  networks and are a competitive  advantage for us in sales of iPump
Media Servers.

      MediaPlan  i/o  is a  desktop  system  to  encode,  store,  edit  and  add
descriptive  information  to media  content.  MediaPlan  i/o  encodes  analog or
digital video and audio into digital files. All content is logged into libraries
for  retrieval.  MediaPlan i/o executes file delivery to the iPump Media Servers
for LAN,  IP and  terrestrial  network,  or desktop PC  distribution.  A browser
interface lets you control operations from any PC.

      MediaPlan  CM is a powerful  content  management  system used for managing
media  assets and actively  tracking  delivery of content  throughout  the iPump
network.   Operators  can  create  libraries  of  assets,  generate  descriptive
information, view content at each network iPump, send requested content directly
to targeted users and track file usage.

      MediaPlan  is an  enabler  for  iPump  sales,  so  the  same  markets  and
applications exist for MediaPlan as were described in the iPump section above.


                                       4
<PAGE>

Compel Network Control System

      Compel Network Control System is our patented  control system and has been
a key  differentiator  to our  products  since 1989.  Compel is used in over 150
networks  controlling over 100,000  receivers.  Compel has patented grouping and
addressing controls that provide  flexibility in network  management.  Receivers
can be controlled as individual  sites and as groups.  Commands are synchronized
with video and audio programming,  which allows users to regionalize programming
and blackout programming from  nonsubscribers,  as well as target commercials to
subscribers.

      Compel  option  modules  include Web Access and  Conditional  Access.  Web
Access  allows  multiple  users to access their Compel system from a LAN using a
browser.  Conditional  Access utilizes a secure micro in every Unity receiver to
deliver fast,  secure  conditional  access to a network without the high cost of
consumer smart card systems.

      Our Unity  satellite  receivers  and iPumps are  controlled  by our Compel
Network Control System,  so the markets for Compel are those for iPump and Unity
receivers.

Unity Receivers

      The Unity 4600  receiver is a digital  satellite  receiver  primarily  for
cable television  networks.  It offers analog and digital  outputs,  which allow
support for analog and digital cable headends.  Cable headends utilize the Unity
4600 to support high definition television distribution.

      The Unity 4650  receiver is our digital  receiver  primarily for broadcast
television networks.  The Unity 4650 receiver is a video and audio receiver that
features MPEG 4:2:0 and 4:2:2 video for enhanced  video  quality for  television
network distribution.

      The Unity 500  receiver  is  targeted  to meet the  needs of  private  and
business  television  networks.  It offers MPEG-2 video  distribution and has an
option  for  high  speed  Internet  Protocol  (IP)  delivery  of data  over  the
satellite.

      The Unity 201 audio receiver is designed for business music providers.  It
is a multichannel  per carrier  satellite  music receiver and offers an optional
audio storage card which adds a second stereo pair and one hour of audio storage
for ad insertion or disaster recovery.

DTV Digital Stream Processors

      The DTV Digital Stream Processors enable operators to capture off-air high
definition  broadcast  video  signals  and easily  insert  them for use on their
networks.  Our products  provide for  multiple  signals to be added to the cable
system through one unit. Models include DTV 720, DTV 742 and DTV 744. The market
for DTV products is cable and telecom television.

Analog Audio

      Our legacy  analog  products are sold  primarily  to the cable  television
market.  These products consist of Series 1600 and 1700  mainframes,  subcarrier
modulators,   demodulators  and  decoders,   which  are  used  for  cable  audio
distribution.  Our Series 2046 network  communications  and control system cards
allow  cable  operators  to  insert  local   commercials  which  increase  their
advertising revenues.


                                       5
<PAGE>

Uplink Equipment

      We offer  our  customers  complete  system  solutions  for video and audio
distribution.  The complete  system solution  requires us to resell  components,
such as encoders and  modulators,  from other  manufacturers,  such as Harmonic,
Inc.

MARKET OPPORTUNITY

      Growth opportunities are most significant in the business/private  network
market with our iPump  Solutions.  Sales to date have been limited for the iPump
due to a long and unpredictable  sales cycle,  product  introduction  delays and
customers deferring purchasing decisions. (See information contained in MD&A for
additional  discussion).  We  are  in the  process  of  rolling  out  our  first
large-scale  deployment of iPump and are working on pilot  programs with several
customers. Our iPump, MediaPlan and Compel products create systems that directly
address the next generation needs of the distance  learning,  corporate training
and digital advertising markets, which are all growing industries.

      In cable and  broadcast  markets,  our  revenue  will  likely  continue at
current levels.

      Another area of  potentially  strong  growth for us is HD Settop boxes for
Telecom companies. We have recently introduced our new IP settop box, called the
Streaming Media Decoder (SMD) 515, which helps phone companies attain the highly
desirable "triple play" of providing telephone, television and internet services
to their  subscribers.  The SMD 515 settop supports standard and high definition
television  through a DSL high speed  internet  connection.  No orders have been
received to date for the SMD 515 settop.  While it is possible that some revenue
for settops  could be recognized in late fiscal 2005, it is more likely that any
significant  revenue from this product line would be realized starting in fiscal
2006.

SALES AND MARKETING

      Domestically,  we sell our  products  principally  through  our own direct
sales force, which is organized geographically. We use a major cable distributor
for additional sales coverage in that market. We sell to international customers
primarily through independent distributors and integrators.

      Our  marketing  organization  develops  strategies  for product  lines and
provides direction to product development on product feature  requirements.  Our
marketing  organization is also responsible for setting price levels and general
support  of  the  sales  force,  particularly  with  major  proposal  responses,
presentations  and  demonstrations.  We are developing  initiatives to establish
more strongly  Wegener's brand within the industry,  including  participation on
technical   committees,   publication  of  articles  in  industry  journals  and
exhibitions at trade shows.

            (iii) Manufacturing and suppliers.

      During  fiscal  2004  and  fiscal  2003,   we  contracted   with  offshore
manufacturers  for a significant  amount of our finished goods. We are currently
working with three offshore  manufacturers  and we expect to increase the volume
of products supplied by these manufacturers in the future. Raw materials consist
of passive electronic components, electronic circuit boards and fabricated sheet
metal.  Approximately  20% of our raw  materials  are  purchased  directly  from
manufacturers  and the other 80% are purchased  from  distributors.  Passive and
active  components  include  parts such as  resistors,  integrated  circuits and
diodes. We use approximately ten distributors and two contract  manufacturers to
supply our electronic components. We often use a single contract manufacturer or
subcontractor  to supply a total sub  assembly  or turnkey  solution  for higher
volume products. Direct suppliers provide sheet metal, electronic circuit boards
and other  materials built to  specifications.  We maintain  relationships  with
approximately  20 direct  suppliers.  Most of our materials are available from a
number of different suppliers;  however, certain components used in existing and
future  products  are  currently  available  from single or a limited  number of
sources.  Although we believe 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  or
agreements  with  contract  manufacturers  could have an  adverse  effect on our
business  and  results  of  operations.  Our  manufacturing  operations  consist
primarily of final assembly and testing of our products,  utilizing  technically
trained personnel, electronic test equipment and proprietary test programs.


                                       6
<PAGE>

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

      We hold certain patents with respect to some of our products and we market
our services and products  under various  trademarks and  tradenames.  We have a
number of patent and  trademark  applications  pending.  Although  we attempt to
protect  our   intellectual   property  rights  through   patents,   trademarks,
copyrights, licensing arrangements and other measures, we cannot assure you that
any patent, trademark,  copyright or other intellectual property rights owned by
us will not be invalidated,  circumvented or challenged,  that such intellectual
property  rights will provide  competitive  advantages to us, or that any of our
pending or future patent  applications will be issued. We also cannot assure you
that others will not  develop  technologies  that are similar or superior to our
technology,  duplicate our  technology or design around the patents that we own.
In order to successfully  develop and market certain of our planned products for
digital applications, we may be required to enter into technology development or
licensing  agreements  with third  parties.  Although  many  companies are often
willing to enter into such technology  development or licensing  agreements,  we
cannot assure you that such agreements will be negotiated on terms acceptable to
us, or at all.  The failure to enter into  technology  development  or licensing
agreements,  when  necessary,  could limit our ability to develop and market new
products and could cause our business to suffer.  Third parties have in the past
claimed,  and may in the future claim,  that we have infringed  their current or
future  intellectual  property  rights.  There can be no assurance  that we will
prevail in any intellectual property  infringement  litigation given the complex
technical issues and inherent uncertainties in litigation. Even if we prevail in
litigation,  such litigation could result in substantial  costs and diversion of
resources and could negatively affect our business, operating results, financial
position and cash flows.

Although  we believe  that the patents and  trademarks  we own are of value,  we
believe  that  success  in our  industry  will be  dependent  upon  new  product
introductions,  frequent product enhancements, and customer support and service.
However,  we intend to protect our rights  when,  in our view,  these rights are
infringed  upon.  Additionally,  we  license  certain  analog  audio  processing
technology to several  manufacturing  companies which generated royalty revenues
of approximately $87,000, $141,000, and $120,000 in fiscal 2004, 2003, and 2002,
respectively.  These royalty license  agreements renew annually unless cancelled
by the licensee on the expiration date.

      During  the second  quarter of fiscal  2003,  WCI  entered  into a license
agreement with StarGuide Digital  Networks,  Inc., a Nevada  Corporation.  These
limited licenses were granted to WCI under a number of StarGuide patents related
to delivering  IP data by satellite  and  store/forward  audio.  These  licenses
extend to and conclude upon the last to expire of any licensed  patent.  WCI has
agreed to pay  StarGuide  a running  royalty on certain  of WCI's  products.  We
believe  that these  royalties  will not have a material  adverse  effect on our
financial condition or results of operations.

            (v)   Seasonal variations in business.

      There do not appear to be any seasonal variations in our business.

            (vi)  Working capital practices.

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


                                       7
<PAGE>

            (vii) Dependence upon a limited number of customers.

      We sell  to a  variety  of  domestic  and  international  customers  on an
open-unsecured  account basis. These customers  principally operate in the cable
television,  broadcast business music,  private network, and data communications
industries.  Sales to Muzak  accounted  for  approximately  39.6% of revenues in
fiscal 2004.  Sales to Roberts  Communications  Network and Muzak  accounted for
approximately 16.3% and 39.3% of revenues in fiscal 2003, respectively. Sales to
Roberts   Communications   Network  and  Muzak  and  affiliates   accounted  for
approximately  27.9% and 27.5% of  revenues  in fiscal  2002,  respectively.  At
September 3, 2004,  two  customers  accounted  for more than 10% of our accounts
receivable.  At August 29, 2003,  two  customers  accounted for more than 10% of
accounts receivable.  Sales to a relatively small number of major customers have
typically  comprised  a majority  of our  revenues.  This trend is  expected  to
continue in fiscal 2005. The loss of one or more of these customers would likely
have, at least in the near term, a material adverse effect on our operations.

            (viii) Backlog of orders.

      Our backlog is comprised of undelivered,  firm customer orders,  which are
scheduled to ship within 18 months. Our eighteen month backlog was approximately
$12,010,000  at  September  3,  2004,   $12,699,000  at  August  29,  2003,  and
$10,700,000  at August 30,  2002.  Three  customers  accounted  for 98.5% of the
backlog  at  September  3, 2004.  Reference  is hereby  made to the  information
contained in MD&A, which is incorporated herein by reference in response to this
item.  The total  multi-year  backlog  at  September  3, 2004 was  approximately
$21,030,000.

      Approximately $10,503,000 of the September 3, 2004, backlog is expected to
ship during fiscal 2005.  Three customers  accounted for 98.5% of our backlog at
September  3, 2004 and for 98.1% of the backlog  expected to ship during  fiscal
2005.

            (ix)  Government contracts.

      Not applicable.

            (x)   Competitive Conditions.

      WCI competes both with companies that have substantially greater resources
and with small specialized companies. Competitive forces generally change slowly
over time for the markets we serve.  Through  relationships  with  component and
integrated solution providers,  we believe we are positioned to provide complete
end-to-end digital video and audio systems to our customers.

Cable Television

      Competition for our Unity products in the cable television  market is from
large and well-established  companies,  such as Scientific Atlanta and Motorola.
Our  Unity  products  have a  competitive  advantage  with our  advanced  Compel
control,  so we focus on  opportunities  where that advantage is of value to the
customer.

      Competition for our DTV products is mostly from smaller companies that are
not as well  established in the cable  television  market.  Our products in this
area offer technical advantages over competing offerings. Significant orders for
this  product line depend on the overall  growth of  broadcast  and telecom HDTV
offerings and possible legislative decisions by the FCC in the future.

Broadcast Television


                                       8
<PAGE>

      Competition for our Unity products in the broadcast  television  market is
from the same  large and  well-established  companies  with  which we compete in
cable television,  such as Scientific  Atlanta and Motorola.  Our Unity products
have a competitive  advantage with our advanced Compel  control,  so we focus on
opportunities  where that  advantage is of value to the  customer.  In addition,
since the revenue  opportunities in broadcast television are smaller than cable,
our competitors do not compete for all of those opportunities as aggressively.

Broadcast Radio

      Competition is currently  limited to a few competitors for our iPump Media
Server in the broadcast radio market.  The  competition is formidable,  but with
our long  history in the  market,  we expect to be able to compete  successfully
with the iPump.

Business and Private Networks

      Competition in the business and private  networks  market  generally comes
from  smaller  companies  with  unique  products  tailored  to the  needs of the
customer.  Competition in this field is increasing,  although still limited, and
we expect to be among the industry key players. Our products are well positioned
for this market and have  competitive  advantages,  such as our powerful network
control and targeting capabilities.

            (xi)  Research and development activities.

      Our research and  development  activities  are designed to strengthen  and
enhance our  existing  products  and systems  and to develop  new  products  and
systems. Our development strategy is to identify features,  products and systems
which  are,  or are  expected  to be,  needed by a number of  customers  A major
portion of the fiscal 2004 research and  development  expenses were spent on new
product  development of our iPump 6400 and 615, MediaPlan CM, DTV digital stream
processors and the Unity 4600 products . WCI's research and development expenses
totaled $3,095,000 in fiscal 2004,  $2,853,000 in fiscal 2003, and $2,410,000 in
fiscal 2002.  Additional  information contained on pages 2-5 and in MD&A in this
report is incorporated herein by reference in response to this item.

            (xii) Environmental Regulation.

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

            (xiii) Number of employees.

      As of September 3, 2004, we had 93 full time employees employed by WCI and
no employees  employed by Wegener  Corporation.  No  employees  are parties to a
collective bargaining agreement and we believe that employee relations are good.

            (d)   Financial information about geographic areas.

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

            (e)   Available information.

      Our Web site is http://www.wegener.com


                                       9
<PAGE>

Information  contained on our web site should not be considered  incorporated by
reference in this Form 10-K

EXECUTIVE OFFICERS OF THE REGISTRANT

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

<TABLE>
<CAPTION>
      NAME AND BUSINESS EXPERIENCE                                    AGE                   OFFICE HELD

<S>                                                                    <C>           <C>
      ROBERT A. PLACEK                                                 66            Chairman of the Board,
      President and Chief Executive Officer                                          President and Chief Executive
      of the Company since August 1987 and Director of the                           Officer of the Company and WCI
      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 and from March 2002
      to present.

      NED L. MOUNTAIN                                                  56            Executive Vice President of
      Executive Vice President of WCI since March 2002 and                           WCI
      Director of the Company since May 2003.  Senior Vice
      President of Business Development of WCI from 1996
      to 2002.  Vice President European Operations of WCI
      from 1994 to 1995.  Numerous Sales and Marketing
      positions from 1981to 1994.  Corporate Senior
      Engineer of UA-Columbia Cablevision from 1979 to
      1981.

      C. TROY WOODBURY, JR.                                            57            Treasurer and
      Treasurer and Chief Financial Officer of the Company                           Chief Financial Officer
      since June 1988 and Director since 1989.  Treasurer                            of the Company and WCI
      and Chief Financial Officer of WCI since 1992.
      Senior Vice President of Finance of WCI since March 2002. Executive Vice
      President of WCI from July 1995 to March 2002. Chief Operating Officer of
      WCI from September 1992 to June 1998. Group Controller for
      Scientific-Atlanta, Inc. from March 1975 to June 1988.
</TABLE>


                                       10
<PAGE>

ITEM 2. PROPERTIES

      Our executive,  sales,  engineering and administrative offices 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 a  21,000  square  foot  manufacturing  facility  in
Alpharetta,  Georgia under a five-year  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. We expect that we will be
able to renew the  lease  for up to three  years at  approximately  the  current
annual rental rate.  WCI's 40,000 square foot facility and 4.4 acres of adjacent
land are pledged as collateral under our line of credit facility.

ITEM 3. LEGAL PROCEEDINGS

      From time to time in the  ordinary  course of  business,  we have become a
defendant in various  types of legal  proceedings.  We do not believe that these
proceedings,  individually  or in the  aggregate,  will have a material  adverse
effect on our financial position, results of operations or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      Not applicable

                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S  COMMON EQUITY,  RELATED STOCKHOLDER MATTERS
        AND ISSUER PURCHASES OF EQUITY SECURITIES

      Our Common Stock is traded on the NASDAQ  Small-Cap Market (NASDAQ symbol:
WGNR). As of November 15, 2004, there were  approximately 381* holders of record
of Common Stock.  *(This number does not reflect beneficial  ownership of shares
held in nominee name).

The  quarterly  ranges of high and low sale prices for fiscal 2004 and 2003 were
as follows:

                                FISCAL 2004                     Fiscal 2003
                           ---------------------           ---------------------
                           HIGH            LOW              High            Low
First Quarter              $3.15           $2.00           $1.07           $ .60
Second Quarter              3.28            1.94            1.10             .69
Third Quarter               2.63            1.35            1.72             .73
Fourth Quarter              2.05            1.06            2.49            1.29

      We  have  not  paid  any  cash  dividends  on our  Common  Stock.  For the
foreseeable  future,  our  Board  of  Directors  does  not  intend  to pay  cash
dividends,  but rather plans to retain  earnings to support our  operations  and
growth.  Furthermore, we are prohibited from paying dividends in accordance with
our bank loan  agreement,  as more fully  described in MD&A and in Note 7 to the
consolidated financial statements contained in this report.


                                       11
<PAGE>

      The  following  table  summarizes  information  as of  September  3, 2004,
regarding  our  common  stock   reserved  for  issuance  under  the  our  equity
compensation plans.

<TABLE>
<CAPTION>
                                                                                      Number of Securities
                                                                                     Remaining Available for
                                         Number of Securities    Weighted-Average   Future Issuance Under the
                                           to be Issued Upon      Exercise Price         Plans (Excluding
                                             Exercise of         of Outstanding     Securities Reflected in
                                          Outstanding Options         Options               Column (a)
      Plan Category                              (a)                   (b)                    (c)
-------------------------------------------------------------------------------------------------------------
<S>                                            <C>                   <C>                     <C>
Equity Compensation Plans
    Approved by Security
    Holders                                    1,537,781             $    1.66               485,419
Equity Compensation Plans
    Not Approved by Security
    Holders(1)                                   100,000             $    5.63                    --
-------------------------------------------------------------------------------------------------------------

Total                                          1,637,781             $    1.90               485,419
==============================================================================================================
</TABLE>

(1)   Represents a  compensation  arrangement  pursuant to an  agreement  with a
      third  party to provide a national  financial  relations  program  for the
      Company, which agreement terminated in fiscal 2001.

ITEM 6. SELECTED FINANCIAL DATA

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

<TABLE>
<CAPTION>
                                                                       Year ended
-----------------------------------------------------------------------------------------------------------------
                                   SEPTEMBER 3,     August 29,       August 30,      August 31,     September 1,
                                       2004           2003             2002            2001            2000
-----------------------------------------------------------------------------------------------------------------
<S>                                  <C>            <C>              <C>             <C>              <C>
Revenue                              $ 18,104       $ 20,133         $ 23,459        $ 20,333         $ 22,894

Operating income (loss)                (3,086)          (240)           1,311          (3,100)          (5,469)

Net earnings (loss)                    (2,108)            88              808          (1,976)          (3,329)

Net earnings (loss) per share
    Basic                            $   (.17)          $(a)         $    .07        $   (.17)        $   (.28)
    Diluted                          $   (.17)          $(a)         $    .07        $   (.17)        $   (.28)
 Cash dividends paid per share (1)         --            --                --              --               --
-----------------------------------------------------------------------------------------------------------------

 Total assets                        $ 17,496         $ 18,168        $ 18,700         $ 18,660       $ 24,147
 Long-term obligations inclusive
     of current maturities                 --              4               10              55              578
=================================================================================================================
</TABLE>

      (a)   Less than $.01 per share.

      (1)   We have never  paid cash  dividends  on our common  stock and do not
            intend   to  pay  cash   dividends   in  the   foreseeable   future.
            Additionally, our line of credit precludes the payment of dividends.


                                       12
<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  resources 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,  availability  of raw  materials,  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,  through  Wegener(TM)  Communications,  Inc.  (WCI), a wholly-owned
subsidiary,  designs and manufactures  communications transmission and receiving
equipment for the business broadcast,  data communications,  cable and broadcast
radio and television industries.

      We operate on a 52-53 week fiscal year. The fiscal year ends on the Friday
nearest to August 31.  Fiscal year 2004  contained  53 weeks while  fiscal years
2003 and 2002 contained 52 weeks. All references  herein to 2004, 2003 and 2002,
refer to the fiscal years ending  September 3, 2004,  August 29, 2003 and August
30, 2002, respectively.

OVERVIEW

We continue to believe the iPump, with its store and forward technology,  is the
right product for our markets and will make a significant contribution to future
bookings and revenues.  The iPump Media Server uses a store and forward approach
to network operations compared to traditional real-time video and audio delivery
networks.  The iPump  Media  Server  provides  customers  with  many  additional
capabilities not available in traditional  real-time delivery networks,  such as
streaming  video and  audio to the  desktop,  more  efficient  use of  expensive
satellite  bandwidth  and the  ability  to  originate  two  complete  television
networks from a single unit.

Although  our results for fiscal 2004 were  disappointing,  we believe  that the
store and forward  market is just  beginning  to see the  potential  of this new
technology.  In some cases,  we have had to educate  potential  customers on the
benefits of the  technology,  which has lengthened the sales cycle. In addition,
the  system is  complex  enough  that many end  customers  are not  running  the
networks themselves;  they are contracting  third-party  integrators and service
providers for network operations. In these applications, our sales team has more
limited access to the end customers,  which reduces our visibility on the sales.
Additionally,  key customers have deferred  purchasing  decisions until calendar
year 2005 due to budget constraints caused by a weak economy.

The iPump has experienced delays in feature introductions and resulting bookings
and revenues.  A number of factors have  contributed to this. Some of the delays
were due to the inherent  complexity  of the hardware and software  development.
The conceptual design of the iPump allows for extremely varied  applications for
the product,  which caused us to try to focus on too many  applications.  We now
have a  clear  set of  applications  that  we are  targeting  for  the  product.
Additionally,  new  features and  functionality  have been added to the original
design, which resulted from prospective  customers'  feedback.  For example, our
MediaPlan i/o and MediaPlan CM modules were added to enhance content  management
and ease of  network  operations.  Capacity,  file  transfer  speeds  and  other
enhancements  were added to meet application  requirements.  We believe this has
resulted in a more desirable, marketable and technologically advanced product.

In order to achieve better results, we undertook a rigorous fiscal 2005 planning
process  in  September  2004.  The  planning  resulted  in  extensive  plans for
operational,  financial  and  organizational  goals for the year.  We anticipate
clearer  focus and  execution  within  the  organization  based on the  planning
process.


                                       13
<PAGE>

Current Developments

Growth opportunities are most significant in the business/private network market
with  our  iPump  Solutions.  We are in  the  process  of  deploying  our  first
large-scale  rollout of iPump and are working with  multiple  customers on pilot
programs.  Our iPump, MediaPlan and Compel products create systems that directly
address the next generation needs of satellite delivery of content.

Product  approval of the DTV series  product  line is underway  with major cable
Multiple System Operators (MSOs),  which is required before their affiliates can
purchase our DTV products.  Charter, Time Warner,  Adelphia and Comcast have all
approved some or all versions of our DTV products.

Customers,  integrators  and  partners  have  expressed  great  interest  in our
recently  announced IP Settop box, called the Streaming Media Decoder (SMD) 515.
It allows phone companies to provide  television service to consumers over their
existing DSL high speed  internet  connections  to complete the "triple play" of
telephone,  television  and  internet  service  offerings.  The SMD  515  Settop
supports standard and high definition television.

During the first quarter of fiscal 2005, we booked an order for $9,600,000  from
a  business  music  network  customer.  This new order  extends  and  amends our
existing  multi-year contract into fiscal year 2009. This order is not reflected
in the backlog  reported as of September  3, 2004,  but will be reflected in the
backlog to be reported  at the end of the first  quarter of fiscal 2005 and will
increase the total multi-year backlog significantly.

Third  party  offshore  contract  manufacturers  are being used for high  volume
products,  such as the  Unity(R)  4600,  iPump  and  other  products,  to secure
competitive product pricing.  Additionally, key partnerships continue to develop
with  complementary  companies in our market space to meet customer  demands for
complete network solutions.  Internally, we continue to focus on maintaining ISO
9001:2000 certification.

The rebranding of our corporate  image was unveiled at the National  Association
of Broadcasters  (NAB) tradeshow in April 2004. We have received a very positive
response from our  customers  and are now  marketing our products  under the new
Wegener brand.

It is anticipated that revenues and operating  performance for the first quarter
of fiscal 2005 will  improve  substantially  compared  to the fourth  quarter of
fiscal  2004.  Although  no  assurances  may be given  and order  visibility  is
limited,  we  believe we will  record  sufficient  new orders in fiscal  2005 to
achieve  increased  revenues  and fiscal year  profitability  compared to fiscal
2004.

FINANCIAL POSITION AND LIQUIDITY

We have no long-term debt or line of credit borrowings  outstanding at September
3, 2004. Our cash and cash equivalents were $1,521,000 at September 3, 2004. Our
$5,000,000 bank loan facility, which is subject to availability advance formulas
based on  eligible  accounts  receivable,  import  letter of  credit  commitment
balances and  inventories,  is currently being used to support import letters of
credit issued to our offshore manufacturers, which at September 3, 2004 amounted
to  $1,916,000.  At  September  3,  2004,  approximately  $2,049,000  net of the
outstanding  letters  of  credit  was  available  to borrow  under  the  advance
formulas.  We believe that the loan facility along with cash and cash equivalent
balances will be sufficient to support  operations  over the next twelve months.
Beginning in the first half of fiscal 2005,  we expect that,  from time to time,
we will use  borrowings on the line of credit to support  operations.  We expect
bookings for new products to result in increased  revenues  during  fiscal 2005,
which  could  require an  increase  in the  credit  limit  primarily  to support
increases in import letter of credit balances. While no assurances may be given,
we believe  additional  credit limits would be made available under the existing
line of  credit to  support  borrowing  requirements  resulting  from  increased
revenues.

Should the bookings and revenue for the new  products  not  materialize,  we are
committed to reducing operating costs to bring them in line with revenue levels.

(See  the  Liquidity  and  Capital  Resources  section  on page  22 for  further
discussion.)

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the components of the
results of operations as a percentage of revenue:


                                       14
<PAGE>

                                                     Year ended
                                     ------------------------------------------
                                     SEPTEMBER 3,     August 29,     August 30,
                                        2004            2003           2002
                                     ------------------------------------------
Revenue                                 100.0%         100.0%         100.0%
Cost of products sold                    73.3           62.7           66.7
    Gross margin                         26.7           37.3           33.3
Selling, general, and administrative     26.7           24.3           17.5
Research & development                   17.1           14.2           10.3
Operating income (loss)                 (17.0)          (1.2)           5.6
Interest expense                         (0.5)         (0 .3           (0.3)
Interest income                           0.2            0.3            0.1
Earnings (loss) before income taxes     (17.3)          (1.3)           5.5
Income tax expense (benefit)             (5.7)          (1.7)           2.0
Net earnings (loss)                     (11.6)%          0.4%           3.4%
                                     ==========================================

      Net loss for the year ended September 3, 2004, was $(2,108,000) or $(0.17)
per diluted  share,  compared to net  earnings of $88,000 or less than $0.01 per
diluted  share for the year ended August 29, 2003,  and net earnings of $808,000
or $0.07 per diluted share for the year ended August 30, 2002.

      Revenues for fiscal 2004 decreased  $2,029,000,  or 10.1%,  to $18,104,000
from  $20,133,000  in fiscal 2003.  Direct  Broadcast  Satellite  (DBS) revenues
(including  service revenues) in fiscal 2004 decreased  $1,555,000,  or 8.3%, to
$17,167,000 from $18,722,000 in fiscal 2003. Telecom and Custom Product revenues
decreased  $474,000,  or 33.6%,  in fiscal 2004 to $937,000  from  $1,411,000 in
fiscal 2003. Revenues and order backlog are subject to the timing of significant
orders  from  customers,  and as a result  revenue  levels  may  fluctuate  on a
quarterly and yearly basis. DBS revenues and bookings were adversely impacted by
delayed purchasing  decisions in the digital satellite  transmission  market and
particularly  by a longer than  expected  sales cycle for the iPump Media Server
and DTV 700 series products.  Fiscal 2004 revenues included shipments of network
equipment to Roberts  Communications for network upgrades and expansion,  and to
Ascent Media for new cable network  applications  and expansion of private video
networks.  Shipments to Ascent Media included  deliveries of iPump Media Servers
for their network  applications.  The Telecom and Custom  Products Group revenue
decrease  in  fiscal  2004 was  primarily  due to  completion  of  shipments  of
commercial insertion equipment in fiscal 2003 to a cable television operator.

      Revenues for fiscal 2003 decreased  $3,326,000,  or 14.2%,  to $20,133,000
from  $23,459,000  in fiscal 2002.  Direct  Broadcast  Satellite  (DBS) revenues
(including service revenues) in fiscal 2003 decreased  $3,664,000,  or 16.4%, to
$18,722,000 from $22,386,000 in fiscal 2002. Telecom and Custom Product revenues
increased  $338,000,  or 31.5%,  in fiscal 2003 to $1,411,000 from $1,073,000 in
fiscal 2002.  The decrease in DBS revenues in fiscal 2003 was primarily a result
of a lower  backlog of orders at the  beginning  of fiscal 2003  compared to the
beginning of fiscal 2002. Revenues were adversely impacted by delayed purchasing
decisions  in the digital  satellite  transmission  market and  delayed  product
introductions by the Company. Fiscal 2002 revenues included shipments of network
equipment  to  Roberts   Communications  to  provide   television   coverage  of
horseracing  to off-track  betting  venues  throughout  the United  States,  and
shipments  of  digital  receivers  to FOX  Digital  and FOX Sports Net for their
broadcast  and cable  television  networks.  Revenues  from these two  customers
decreased  approximately  $5,563,000  in fiscal 2003  compared  to fiscal  2002.
Decreases  in fiscal  2003  revenues  were  partially  offset  by  approximately
$494,000  of earned  deposits.  The Telecom and Custom  Products  Group  revenue
increase  in fiscal  2003 was  primarily  due to an  increase  in orders  from a
distributor  to provide  commercial  insertion  equipment to a cable  television
operator.


                                       15
<PAGE>

      WCI's backlog of orders scheduled to ship within 18 months was $12,010,000
at  September  3,  2004,  compared  to  $12,699,000  at  August  29,  2003,  and
$10,700,000  at August 30, 2002.  The total  multi-year  backlog at September 3,
2004, was  approximately  $21,030,000.  Our backlog has been impacted by delayed
purchasing decisions in the digital satellite transmission market, a longer than
expected sales cycle for the iPump Media Server and DTV 700 series products, and
delayed  timing  of new  product  introductions  by the  Company.  Approximately
$10,503,000 of the September 3, 2004,  backlog is expected to ship during fiscal
2005.  Three  customers  accounted for 98.5% of our backlog at September 3, 2004
and for 98.1% of the backlog  expected to ship during  fiscal  2005.  Sales to a
relatively  small number of major customers have typically  comprised a majority
of our  revenues  and that trend is  expected to  continue.  (See note 11 to the
consolidated   financial   statements,   Segment   Information  and  Significant
Customers.) Future revenues are subject to the timing of significant orders from
customers and are difficult to forecast.  As a result,  we expect future revenue
levels and  operating  results to  fluctuate  from  quarter  to  quarter.  It is
anticipated  that  revenues and operating  performance  for the first quarter of
fiscal 2005 will improve substantially  compared to the fourth quarter of fiscal
2004.  Although no assurances may be given and order  visibility is limited,  we
believe we will record sufficient new orders in fiscal 2005 to achieve increased
revenues and fiscal year profitability compared to fiscal 2004.

      International  sales are generated through a direct sales organization and
through  foreign  distributors.  International  sales were  $606,000  or 3.3% of
revenues in fiscal 2004 compared to $839,000 or 4.2% of revenues in fiscal 2003,
and $1,473,000 or 6.3% of revenues in fiscal 2002.  International  shipments are
generally  project specific and revenues,  therefore,  are subject to variations
from year to year  based on the timing of  customer  orders.  All  international
sales are  denominated  in U.S.  dollars.  Additional  financial  information on
geographic  areas  is  provided  in  Note  11  to  the  consolidated   financial
statements.

      Gross  profit as a percent of sales was 26.7% in fiscal  2004  compared to
37.3% in fiscal 2003,  and 33.3% in fiscal 2002.  Gross  profit  margin  dollars
decreased $2,670,000,  or 35.6%, to $4,840,000 in fiscal 2004 from $7,510,000 in
fiscal 2003. Fiscal 2002 gross profit margin dollars amounted to $7,822,000. The
decrease  in margin  percentages  and  dollars in fiscal  2004 was mainly due to
lower  revenues,  an increase of $654,000 in capitalized  software  amortization
expense and an increase of $150,000 in inventory reserve  expenses.  The product
mix for fiscal 2004 included  increased  amounts of lower margin reseller uplink
equipment compared to fiscal 2003.  Reseller equipment  comprised  approximately
7.8% of sales in fiscal 2004 compared to 2.3% of sales in fiscal 2003.

      Selling, general, and administrative (SG&A) expenses decreased $67,000, or
1.4%,  to  $4,831,000  in fiscal  2004 from  $4,898,000  in  fiscal  2003.  As a
percentage of revenues,  SG&A expenses were 26.7% of revenues in fiscal 2004 and
24.3% in fiscal  2003.  SG&A  expenses  in fiscal  2004  included  an  insurance
reimbursement  of $191,000  for a portion of corporate  legal costs  expensed in
fiscal 2003 related to defending  the Company  against an  unsolicited,  hostile
takeover attempt by Radyne ComStream, Inc. SG&A expenses in fiscal 2003 included
$974,000 in corporate  legal and  professional  fees  related to  defending  the
Company against the unsolicited  hostile takeover  attempt by Radyne  ComStream,
Inc.  and  related  litigation.   WCI's  SG&A  expenses  increased  $755,000  to
$4,085,000 in fiscal 2004 from  $3,330,000  in fiscal 2003.  Sales and marketing
salary expenses  increased  $319,000 due to an increase in personnel,  marketing
expenses  increased  $205,000 due to  increased  sales  activity  related to new
products.

      SG&A expenses increased  $797,000,  or 19.4%, to $4,898,000 in fiscal 2003
from $4,101,000 in fiscal 2002. As a percentage of revenues,  SG&A expenses were
24.3% of  revenues  in fiscal 2003 and 17.5% in fiscal  2002.  SG&A  expenses in
fiscal 2003  included  the  $974,000 in corporate  legal and  professional  fees
related to defending the Company against an unsolicited hostile takeover attempt
by Radyne ComStream, Inc. and related litigation.  These expenses were partially
offset by decreases in certain expenses of $177,000, primarily depreciation, bad
debt provisions and outside sales agent commissions.

      General  corporate  expenses  included in SG&A expense were  approximately
$746,000, $1,568,000, and $510,000, in fiscal 2004, 2003 and 2002, respectively.
The decrease in fiscal 2004  corporate  expenses was primarily due to a decrease
in legal and  professional  fees incurred in fiscal 2003 related to the takeover
attempt.  Fiscal 2004  included an  insurance  reimbursement  of $191,000  for a
portion of the fiscal 2003 corporate legal costs.


                                       16
<PAGE>

      Research and  development  expenditures,  including  capitalized  software
development  costs,  were  $4,789,000  or  26.4% of  revenues  in  fiscal  2004,
$4,230,000  or 21.0% of  revenues in fiscal  2003,  and  $2,983,000  or 12.7% of
revenues in fiscal 2002. The increase in expenditures in fiscal 2004 compared to
fiscal 2003 was due to increases in engineering  consulting  expenses  primarily
related  to the  development  of  iPump  Media  Server  and the DTV  series  700
products.  The increase in  expenditures  in fiscal 2003 compared to fiscal 2002
was due to increases in engineering  consulting costs,  prototype parts expenses
and personnel costs primarily  related to the development of iPump Media Server,
Unity  4600  digital  receiver,  and  the  DTV  series  700  products.  Software
development costs totaling $1,693,000, $1,377,000, and $573,000 were capitalized
during fiscal 2004,  2003 and 2002,  respectively.  The increases in capitalized
software  costs during fiscal 2004 compared to 2003, and fiscal 2003 compared to
fiscal 2002, are due to increased  expenditures  on the COMPEL  network  control
software,  the iPump  Media  Server,  UNITY4600  and DTV  series  700  products.
Research and development  expenses,  excluding  capitalized software development
costs, were $3,095,000 or 17.1% of revenues in fiscal 2004,  $2,853,000 or 14.2%
of revenues in fiscal 2003,  and $2,410,000 or 10.3% of revenues in fiscal 2002.
We expect  fiscal 2005  research and  development  expenditures  to  approximate
fiscal 2004 levels as we continue to develop and enhance DBS products.

      Interest  expense was $96,000 in fiscal 2004 compared to $69,000 in fiscal
2003 and $64,000 in fiscal 2002. Interest expense in fiscal years 2004, 2003 and
2002 was  principally  associated  with letters of credit  commitments  and bank
float  charges on lockbox  collections.  The increase in fiscal 2004 compared to
fiscal 2003 was primarily due to an increase in the average  outstanding  letter
of credit commitment  balances.  We believe that interest expense in fiscal 2005
will  increase  compared  to fiscal 2004 as a result of  expected  increases  in
letter of credit commitment  balances and line of credit borrowings,  as well as
increases in prime rates.

      Interest  income was $43,000 in fiscal 2004  compared to $57,000 in fiscal
2003 and $33,000 in fiscal 2002.  The decrease in fiscal 2004 compared to fiscal
2003 was  mainly due to lower  average  balances  of cash and cash  equivalents,
which was offset by a one-time benefit of $19,000 related to the collection of a
trade accounts  receivable.  The increase in fiscal 2003 compared to fiscal 2002
was  mainly  due to  higher  average  outstanding  balances  of  cash  and  cash
equivalents.

      Fiscal 2004 income tax benefit of  $1,031,000  was  comprised  of deferred
federal and state tax  benefits  of  $969,000  and  $62,000,  respectively.  Net
deferred tax assets increased $1,031,000 to $4,169,000 at September 3, 2004. The
increase was principally  due to increases in net operating loss  carryforwards,
offset by  reductions  of general  business  and  foreign tax credits of $98,000
which expired September 3, 2004. Realization of deferred tax assets is dependent
on generating  sufficient  future  taxable income prior to the expiration of the
loss and  credit  carryforwards.  At  September  3, 2004,  we had a federal  net
operating loss  carryforward of $6,295,000,  which expires beginning fiscal 2020
through 2024. Additionally, we had an alternative minimum tax credit of $138,000
and state  income tax credits of  $199,000  expiring  in fiscal  2009.  Although
realization  is not  assured,  we believe it is more likely than not that all of
the  deferred  tax assets  will be realized  based on our backlog and  financial
projections.  The amount considered  realizable could be reduced if estimates of
future taxable income during the carryforward period are reduced.

      Fiscal  2003 income tax expense of  $340,000  was  comprised  of a current
state income tax benefit of $50,000 and deferred  federal and state tax benefits
of $85,000 and $205,000, respectively. The fiscal 2003 state income tax benefits
were  favorably  impacted  primarily  by state  income tax  credits of  $199,000
related  to Georgia  retraining  credits.  Net  deferred  tax  assets  increased
$290,000 to  $3,138,000  at August 29, 2003 from  $2,848,000 at August 30, 2002.
The  increase  was  principally  due to state income tax credits of $199,000 and
increases in net operating loss carryforwards. Fiscal 2002 income tax expense of
$473,000 was comprised of a current  federal income tax benefit of $114,000 from
receipt of alternative minimum tax refunds as a result of federal income tax law
changes and  deferred  federal  and state  income tax  expenses of $549,000  and
$38,000,  respectively.  A  reconciliation  of our effective  income tax rate as
compared  to the  statutory  U.S.  income tax rate is  provided in Note 8 to the
consolidated financial statements.

CRITICAL ACCOUNTING POLICIES

Certain accounting policies are very important to the portrayal of our financial
condition and results of operations and require  management's most subjective or
difficult judgements. These policies are as follows:


                                       17
<PAGE>

REVENUE  RECOGNITION - Our revenue  recognition  policies are in compliance with
Staff Accounting  Bulletin (SAB) No. 104,  "Revenue  Recognition",  SAB No. 101,
"Revenue Recognition in Financial Statements" and EITF Issue No. 00-21, "Revenue
Arrangements with Multiple  Deliverables." Revenue is recognized when persuasive
evidence of an agreement with the customer exists, products are shipped or title
passes pursuant to the terms of the agreement with the customer,  the amount due
from the  customer  is  fixed  or  determinable,  collectibility  is  reasonably
assured,  and there are no significant future performance  obligations.  Service
revenues are  recognized  at the time of  performance.  Revenues  from  separate
service  maintenance  agreements  are  recognized  ratably  over the term of the
agreements.  We recognize revenue in certain  circumstances  before delivery has
occurred  (commonly  referred  to as  "bill  and  hold"  transactions).  In such
circumstances,  among other  things,  risk of ownership has passed to the buyer,
the buyer has made a written fixed  commitment  to purchase the finished  goods,
the buyer has  requested  the  finished  goods be held for  future  delivery  as
scheduled and  designated by them,  and no  additional  performance  obligations
exist by us. For these  transactions,  the finished  goods are  segregated  from
inventory  and normal  billing and credit terms are granted.  For the year ended
September  3, 2004,  revenues to one customer in the amount of  $3,837,000  were
recorded prior to delivery as bill and hold transactions.  At September 3, 2004,
accounts  receivable for these revenues  amounted to $1,140,000 and were paid in
full subsequent to September 3, 2004.

These policies require  management,  at the time of the  transaction,  to assess
whether the  amounts due are fixed or  determinable,  collection  is  reasonably
assured and no future performance obligations exist. These assessments are based
on  the  terms  of  the   agreement   with  the   customer,   past  history  and
creditworthiness  of the customer.  If management  determines that collection is
not  reasonably  assured  or  future  performance   obligations  exist,  revenue
recognition is deferred until these conditions are satisfied.

Our  principal  sources  of  revenues  are from the sales of  various  satellite
communications  equipment.  Embedded  in our  products is  internally  developed
software of varying applications. Historically, we have not sold or marketed our
software  separately or otherwise  licensed our software  apart from the related
communications equipment.  Should we begin to market or sell software whereby it
is more than an incidental  component of the hardware,  then we would  recognize
software  license  revenue in accordance  with SOP No. 97-2,  "Software  Revenue
Recognition" as amended by SOP No. 98-9,  "Software  Revenue  Recognition,  with
Respect to Certain Transactions."

INVENTORY  RESERVES - Inventories  are valued at the lower of cost (at standard,
which  approximates  actual  cost on a  first-in,  first-out  basis) or  market.
Inventories include the cost of raw materials, labor and manufacturing overhead.
We make inventory  reserve  provisions to properly reflect inventory value based
on a review of inventory quantities on hand, sales forecasts, new products being
developed and technology  changes.  These reserves are 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,  which could require additional inventory reserve provisions.
At  September  3, 2004,  inventories,  net of reserve  provisions,  amounted  to
$3,840,000.

CAPITALIZED   SOFTWARE  COSTS  -  Software  development  costs  are  capitalized
subsequent to  establishing  technological  feasibility.  Capitalized  costs are
amortized  based on the larger of the amounts  computed using (a) the ratio that
current  gross  revenues  for each  product  bears to the total of  current  and
anticipated  future gross  revenues  for that  product or (b) the  straight-line
method over the  remaining  estimated  economic  life of the  product.  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, which could result in additional
amortization expense or write-offs.  At September 3, 2004,  capitalized software
costs, net of accumulated amortization, amounted to $1,668,000.

DEFERRED TAX ASSET VALUATION  ALLOWANCE - Deferred tax assets are recognized for
deductible  temporary  differences,  net operating loss carryforwards and credit
carryforwards,  if it is more  likely  than not that  the tax  benefits  will be
realized.  Realization  of our deferred  tax assets is  dependent on  generating
sufficient  future taxable income prior to the expiration of the loss and credit
carryforwards. Although realization is not assured, we believe it is more likely
than not that all of the  deferred  tax  assets  will be  realized  based on our
backlog  and  financial  projections.  The  amount of the  deferred  tax  assets
considered realizable,  however, could be reduced if estimates of future taxable
income  during  the  carryforward  period  are  reduced.  Any  reduction  in the
realizable  value of deferred  tax assets would result in a charge to income tax
expense in the period such  determination was made. In addition,  any reductions
in corporate  federal tax rates would reduce the carrying  value of deferred tax
assets.  Each 1% reduction in corporate  federal tax rates would reduce deferred
tax assets by approximately  $35,000 based on the deferred tax asset balances at
September  3, 2004.  At  September  3, 2004,  deferred  tax assets  amounted  to
$4,169,000,  including  $2,260,000 in net  operating  loss  carryforwards  which
expire in fiscal 2020 through 2024 and state tax credits of $199,000 expiring in
fiscal 2009.


                                       18
<PAGE>

ACCOUNTS RECEIVABLE VALUATION - We maintain allowances for doubtful accounts for
estimated  losses resulting from the inability of our customers to make required
payments.  If the  financial  condition of our  customers  were to  deteriorate,
resulting  in an  impairment  of  their  ability  to make  payments,  additional
allowances  may be required.  At September 3, 2004,  accounts  receivable net of
allowances for doubtful accounts amounted to $2,480,000.

LIQUIDITY AND CAPITAL RESOURCES

      At September 3, 2004, our primary  sources of liquidity were cash and cash
equivalents  of $1,521,000 and a $5,000,000  bank loan  facility.  Cash and cash
equivalents  decreased  $2,692,000 in fiscal 2004. We have no long-term  debt or
line of credit  borrowings  outstanding  at  September  3,  2004.  Our bank loan
facility,  which is subject to availability  advance  formulas based on eligible
accounts   receivable,   import  letter  of  credit   commitment   balances  and
inventories,  is currently being used to support import letters of credit issued
to  our  offshore  manufacturers,   which  at  September  3,  2004  amounted  to
$1,916,000.   At  September  3,  2004,   approximately  $2,049,000  net  of  the
outstanding  letters  of  credit  was  available  to borrow  under  the  advance
formulas.  We believe that the loan facility along with cash and cash equivalent
balances  will be  sufficient  to support  our  operations  over the next twelve
months. Beginning in the first half of fiscal 2005, we expect that, from time to
time,  we will use  borrowings on the line of credit to support  operations.  We
expect  bookings for new products to result in increased  revenues during fiscal
2005,  which could require an increase in the credit limit  primarily to support
increases in import letter of credit balances. While no assurances may be given,
WCI believes additional credit limits would be made available under the existing
line of  credit to  support  borrowing  requirements  resulting  from  increased
revenues. Should the bookings and revenues for the new products not materialize,
we are committed to reducing  operating costs to bring them in line with revenue
levels.

      Cash used by  operating  activities  in  fiscal  2004 was  $562,000.  Cash
provided by operating activities was $1,792,000 in fiscal 2003 and $3,986,000 in
fiscal 2002.  Fiscal 2004 net loss  adjusted for non cash  expenses used cash of
$581,000.  Increases in  inventories  and other  assets used cash of  $2,062,000
while  changes in accounts  receivable  and customer  deposits  provided cash of
$1,786,000.  Changes in accounts payable and accrued  expenses  provided cash of
$295,000.

      Cash used by investing  activities in fiscal 2004 was $2,299,000  compared
to  $2,673,000  in fiscal 2003 and  $720,000  in fiscal  2002.  In fiscal  2004,
investing   activities   used  cash  of  $395,000  for  property  and  equipment
expenditures,  $1,693,000 for  capitalized  software  additions and $210,000 for
legal expenses  related to the filing of  applications  for various  patents and
trademarks.  Capitalized software expenditures were incurred for the development
of COMPEL network control  software,  the iPump Media Server,  UNITY4600 and DTV
series 700  products.  Property  and  equipment  expenditures  were for  planned
additions of principally  manufacturing  and engineering test equipment.  Fiscal
2005  expenditures for investing  activities are expected to approximate  fiscal
2004 levels.

      Cash provided by financing  activities  was $168,000 in fiscal 2004.  Cash
used by  financing  activities  was $24,000 in fiscal 2003 and $75,000 in fiscal
2002.  In fiscal 2004,  financing  activities  used cash of $4,000 for scheduled
repayments  of long-term  obligations  and $38,000 for loan facility  fees,  and
provided $210,000 of cash from the exercise of stock options.

      Net accounts receivable decreased $1,080,000 to $2,480,000 at September 3,
2004, from  $3,560,000 at August 29, 2003,  compared to $3,038,000 at August 30,
2002.  The decrease in fiscal 2004 was  primarily  due to lower  revenues in the
fourth  quarter of fiscal 2004  compared to the same period of fiscal 2003.  The
allowance for doubtful  accounts was $363,000 at September 3, 2004,  $355,000 at
August 29,  2003 and  $352,000  at August 30,  2002.  Write-offs  were $5,000 in
fiscal 2004,  $27,000 in fiscal 2003 and $108,000 in fiscal 2002.  Recoveries in
fiscal 2004 were $14,000.  Increases to the allowance and charges to general and
administrative  expense  were $ 0 in fiscal  2004,  $30,000  in fiscal  2003 and
$155,000 in fiscal 2002.


                                       19
<PAGE>

      Customer  deposits  increased  $705,000 to $960,000 at  September 3, 2004,
from  $255,000  at August  29,  2003,  primarily  due to two  customer  bookings
scheduled to ship in fiscal  2005.  Customer  deposits  vary with the timing and
terms of customer bookings.

      Inventory before reserves increased  $1,674,000 to $7,307,000 at September
3, 2004,  from  $5,633,000 at August 29, 2003. The increase was primarily due to
deliveries in the fourth quarter of fiscal 2004 of iPump Media Servers and Unity
4600  receivers  from offshore  manufacturers  which are expected to ship in the
first half of fiscal 2005. During fiscal 2004, inventory reserves were increased
by  provisions  charged  to cost of  sales  of  $225,000.  The  increase  in the
provision  was  to  provide  additional  reserves  for 1)  slower-moving  analog
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. Inventory reserves were increased by
provisions  charged to cost of sales of $75,000 in fiscal  2003 and  $800,000 in
fiscal 2002.  Inventory  reserves  were  decreased by  write-offs of $248,000 in
fiscal  2004,  $365,000 in fiscal 2003 and  $1,176,000  in fiscal  2002.  During
fiscal 2004,  increases in inventories  used cash of  $1,922,000.  During fiscal
2003 and  2002,  decreases  in  inventories  provided  cash of  $1,703,000,  and
$2,765,000, respectively.

      WCI's bank loan  facility  provides a maximum  available  credit  limit of
$5,000,000 subject to availability  advance formulas.  The loan facility matures
on June 30, 2006, or upon demand and requires an annual  facility fee of .75% of
the  maximum  credit  limit.  The loan  facility  consists  of a term loan and a
revolving line of credit with a combined borrowing limit of $5,000,000,  bearing
interest at the bank's prime rate (4.75% at September 3, 2004).

      The term loan facility  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 60 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 materials inventories;
20% of eligible work-in process kit inventories; 40% to 50% of eligible finished
goods  inventories and 50% of import letter of credit commitment  balances.  The
loan is  secured  by a first  lien on  substantially  all of  WCI's  assets  and
guaranteed  by Wegener  Corporation.  At  September  3, 2004,  no balances  were
outstanding  on the revolving line of credit or the equipment term loan portions
of the loan  facility.  The loan  facility  is  currently  being used to support
import letters of credit issued to offshore manufacturers, which at September 3,
2004 amounted to $1,916,000. At September 3, 2004, approximately $2,049,000, net
of  outstanding  letters of credit,  was  available  to borrow under the advance
formulas.

      We are  required  to  maintain a minimum  tangible  net worth with  annual
increases  at each fiscal  year end  commencing  with  fiscal year 2005,  retain
certain key employees, maintain certain financial ratios, and are precluded from
paying  dividends.  At September 3, 2004,  we were in  compliance  with all loan
facility  covenants.  We believe that the loan facility along with cash and cash
equivalent balances will be sufficient to support operations through fiscal 2005

      In  addition,  at  September  3,  2004,  we had  land  and  buildings  and
improvements  with a cost basis of  $4,454,000  which had no  mortgage  balances
outstanding.

      We have three manufacturing and purchasing agreements for certain finished
goods inventories.  At September 3, 2004, outstanding purchase commitments under
these agreements  amounted to $7,233,000.  Pursuant to the above agreements,  at
September  3,  2004,  we had  outstanding  letters  of credit  in the  amount of
$1,916,000.

A summary of our  long-term  contractual  obligations  as of  September  3, 2004
consisted of:

                                          Payments Due by Period
                          -------------------------------------------------

Contractual Obligations      Total      One Year     2-3 Years    4-5 Years

Operating leases          $  127,000   $  117,000   $    6,000   $    4,000

Purchase commitments       7,741,000    6,808,000      933,000           --
                          -------------------------------------------------
Total                     $7,868,000   $6,925,000   $  939,000   $    4,000
                          =================================================

                                       20
<PAGE>

IMPACT OF INFLATION

      We do not believe that inflation has had a material  impact on revenues or
expenses during the past three fiscal years.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

      In January  2003,  the EITF  released  Issue No.  00-21,  ("EITF  00-21"),
"Revenue  Arrangements  with Multiple  Deliverables,"  which  addressed  certain
aspects of the  accounting  by a vendor  for  arrangements  under  which it will
perform  multiple  revenue-generating  activities.   Specifically,   EITF  00-21
addresses  whether an arrangement  contains more than one unit of accounting and
the  measurement  and  allocation  to the separate  units of  accounting  in the
arrangement.  EITF 00-21 is effective for revenue  arrangements  entered into in
fiscal periods  beginning after June 15, 2003. The adoption of this standard did
not have a material impact our financial position or results of operations.

      In May  2003,  the FASB  issued  SFAS No.  150,  "Accounting  for  Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes  standards for how an issuer  classifies and measures in its
statement   of   financial   position   certain   financial   instruments   with
characteristics  of both  liabilities  and equity.  It  requires  that an issuer
classify a financial  instrument  that is within its scope as a liability (or an
asset in some  circumstances)  because  that  financial  instrument  embodies an
obligation of the issuer. Many of such instruments were previously classified as
equity.  The statement is effective for  financial  instruments  entered into or
modified  after May 31, 2003, and otherwise is effective at the beginning of the
first  interim  period  beginning  after June 15,  2003,  except  for  mandatory
redeemable financial instruments of nonpublic entities. On November 7, 2003, the
FASB deferred the classification  and measurement  provisions of SFAS No. 150 as
they apply to  certain  mandatory  redeemable  non-controlling  interests.  This
deferral  is expected to remain in effect  while  these  provisions  are further
evaluated  by the  FASB.  We have not  entered  into any  financial  instruments
covered by this  statement  and the  adoption  of this  standard  did not have a
material  impact  on  our  consolidated   financial  statements  or  results  of
operations.

OUTLOOK: ISSUES AND UNCERTAINTIES

      The  market  for  our  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.  Our 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 our  ability  to  grow  and  remain
competitive.  If we are unable,  for technological or other reasons,  to develop
competitive  products in a timely manner in response to changes in the industry,
our business and operating results will be materially and adversely affected.

      WCI competes with companies that 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,  We are positioned to provide end-to-end solutions
to our customers.  Competition in the market for our MPEG-2 broadcast television
electronics   products,   including  digital  video  equipment,   is  driven  by
timeliness,  performance  and price.  Our broadcast  digital  video  products in
production are competitively priced, with unique, desirable features. The COMPEL
Network  Control  System meets customer  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. We believe we
are  positioned 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 we believe  that the  competitive  position  for many of our  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 our digital audio  products,  is very  aggressive  and pricing is very
competitive.  We believe that our  continued  success in all of our markets will
depend on aggressive marketing and product development.


                                       21
<PAGE>

      The  demand  for  digital  products  is being  driven  by the high cost of
satellite capacity and increasing demand for video and multi-media  content. 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.  We believe the market as a whole has considerable  built-up demand for
digital  technology.  Although no assurances can be given, we expect to directly
benefit from this increase in demand.  There may be fluctuations in our 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 us.

      We have  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.  We  purchased  this
inventory based upon previously known backlog and anticipated future sales given
existing  knowledge of the marketplace.  Our inventory  reserve of $3,467,000 at
September  3, 2004,  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 our sales efforts not be successful.

      Sales to a  relatively  small  number of major  customers  have  typically
comprised  a majority  of our  revenues,  and that trend is expected to continue
throughout fiscal 2005 and beyond.  Future revenues are subject to the timing of
significant  orders from  customers and are difficult to forecast.  As a result,
future revenues may fluctuate from quarter to quarter. Three customers accounted
for 98.5% of the  backlog  at  September  3,  2004 and for 98.1% of the  backlog
scheduled to ship during fiscal 2005.

      Our 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.  We are
very focused on  controlling  both direct and indirect  manufacturing  costs and
other operating expenses.  These costs will be adjusted as necessary if revenues
do not  increase  as  planned.  Management  believes  that  digital  compression
technology  may be  profitably  employed  to  create  increased  demand  for our
satellite  receiving  equipment  if those  products are  manufactured  in a high
volume, standardized production environment.

      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 we believe that all single-source components
are currently 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 or technologies  could have a material adverse effect on our business
and results of operations.

      We have made significant  investments in capitalized  software principally
related to digital audio and video products.  At September 3, 2004,  capitalized
software costs were $1,668,000. 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.


                                       22
<PAGE>

      The  industry  in which  we  operate  is  subject  to rapid  technological
advances and frequent  product  introductions.  We expect to remain committed to
research and  development  expenditures  as required to compete  effectively and
maintain  pace  with  the  rapid  technological  changes  in the  communications
industry and to support innovative engineering and design for future products.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Our  exposure to market rate risk for  changes in interest  rates  relates
primarily to our revolving  line of credit  facility 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,  2004,   subject  to  variable   interest   rate
fluctuations.

      At September 3, 2004, cash equivalents  consisted of bank commercial paper
in the amount of $1,045,000.  The cash  equivalents have maturities of less than
three months and therefore are subject to minimal market risk.

      We do not  enter  into  derivative  financial  instruments.  All sales and
purchases are denominated in U.S. dollars.

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                                                          Page

Report of Independent Registered Public Accounting Firm....................24

Consolidated Statements of Operations
     Years ended September 3, 2004, August 29, 2003, and August 30, 2002...25

Consolidated Balance Sheets
     As of September 3, 2004 and August 29, 2003...........................26

Consolidated Statements of Shareholders' Equity
     Years ended September 3, 2004, August 29, 2003, and August 30, 2002...27

Consolidated Statements of Cash Flows
     Years ended September 3, 2004, August 29, 2003, and August 30, 2002...28

Notes to Consolidated Financial Statements.................................29

Consolidated Supporting Schedules Filed:

Schedule II-Valuation and Qualifying Accounts
     Years ended September 3, 2004, August 29, 2003, and August 30, 2002...46


                                       23
<PAGE>

              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  registered public accounting
firm, 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 REGISTERED PUBLIC ACCOUNTING FIRM

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, 2004, and August 29, 2003, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of three  years in the period  ended  September  3,  2004.  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 the  standards of the Public
Company Accounting Oversight Board (United States). 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
principles  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, 2004, and August 29, 2003, and
the  consolidated  results of their  operations and their cash flows for each of
the  three  years in the  period  ended  September  3, 2004 in  conformity  with
accounting   principles   generally   accepted   in   the   United   States   of
America.


/s/ BDO Seidman,  LLP
Atlanta,  Georgia       BDO Seidman,  LLP
December 1, 2004


                                       24
<PAGE>

Wegener Corporation and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                         Year ended
                                                        ---------------------------------------------
                                                          SEPTEMBER 3,    August 29,      August 30,
                                                             2004            2003            2002
-----------------------------------------------------------------------------------------------------
<S>                                                      <C>             <C>             <C>
Revenue                                                  $ 18,104,284    $ 20,133,180    $ 23,458,923
-----------------------------------------------------------------------------------------------------

Operating costs and expenses
    Cost of products sold                                  13,263,822      12,622,799      15,636,657
     (including non-cash equity related charges of
     $- , $11,688 and $31,256, respectively)
    Selling, general and administrative                     4,830,875       4,897,864       4,101,062
     (including non-cash equity related charges
of $ - , $17,360 and $58,807, respectively)
    Research and development                                3,095,393       2,852,573       2,409,949
     (including non-cash equity related charges of
     $139,800, $27,872 and $68,006, respectively)
-----------------------------------------------------------------------------------------------------

Operating costs and expenses                               21,190,090      20,373,236      22,147,668
-----------------------------------------------------------------------------------------------------

Operating income (loss)                                    (3,085,806)       (240,056)      1,311,255
    Interest expense                                          (95,962)        (69,165)        (64,061)
    Interest income                                            42,870          56,980          33,386
-----------------------------------------------------------------------------------------------------

Earnings (loss) before income taxes                        (3,138,898)       (252,241)      1,280,580

Income tax expense (benefit)                               (1,031,000)       (340,000)        473,000
-----------------------------------------------------------------------------------------------------

Net earnings (loss)                                      $ (2,107,898)   $     87,759    $    807,580
=====================================================================================================

Net earnings (loss) per share
    Basic                                                $       (.17)          $ (a)    $        .07
    Diluted                                              $       (.17)          $ (a)    $        .07
=====================================================================================================

Shares used in per share calculation
    Basic                                                  12,456,914      12,328,571      12,160,865
    Diluted                                                12,456,914      12,479,866      12,229,240
=====================================================================================================
</TABLE>

      (a)   Less  than $.01 per share

          See accompanying notes to consolidated financial statements.


                                       25
<PAGE>

Wegener Corporation and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                 SEPTEMBER 3,     August 29,
                                                                   2004             2003
--------------------------------------------------------------------------------------------
<S>                                                             <C>             <C>
ASSETS

Current assets
    Cash and cash equivalents                                   $  1,520,761    $  4,213,252
    Accounts receivable                                            2,479,712       3,560,127
    Inventories                                                    3,839,840       2,142,835
    Deferred income taxes                                          2,199,000       2,109,000
    Other                                                            283,291         143,397
--------------------------------------------------------------------------------------------

          Total current assets                                    10,322,604      12,168,611

Property and equipment, net                                        2,699,502       2,913,551
Capitalized software costs, net                                    1,667,632       1,304,416
Deferred income taxes                                              1,970,000       1,029,000
Other assets                                                         835,878         752,003
--------------------------------------------------------------------------------------------

                                                                $ 17,495,616    $ 18,167,581
============================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
    Accounts payable                                            $  1,293,564    $  1,195,034
    Accrued expenses                                               1,719,119       1,432,749
    Customer deposits                                                960,092         254,667
    Current maturities of long-term obligations                           --           4,320
--------------------------------------------------------------------------------------------

          Total current liabilities                                3,972,775       2,886,770

Long-term obligations, less current maturities                            --              --
--------------------------------------------------------------------------------------------

          Total liabilities                                        3,972,775       2,886,770
--------------------------------------------------------------------------------------------

Commitments and contingencies

Shareholders' equity
    Common stock, $.01 par value; 20,000,000
      shares authorized; 12,526,051 and 12,381,251 shares            125,261         123,813
      respectively, issued and outstanding                        19,819,549      19,471,069
    Additional paid-in capital                                    (6,421,969)     (4,314,071)
    Deficit

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

Total shareholders' equity                                        13,522,841      15,280,811
--------------------------------------------------------------------------------------------
                                                                $ 17,495,616    $ 18,167,581
============================================================================================
</TABLE>

              See accompanying notes to consolidated financial statements.


                                       26
<PAGE>

Wegener Corporation and Subsidiaries

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                       Additional       Retained
                                               Common Stock             Paid-in          Earnings                Treasury Stock
                                            Shares         Amount       Capital         (Deficit)          Shares           Amount
----------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>          <C>            <C>             <C>                  <C>        <C>
BALANCE at August 31, 2001                12,314,575   $    123,146   $ 19,751,694    $ (5,209,410)        269,588    $   (577,562)

    Treasury stock reissued through
       stock options and 401(k) plan              --             --       (237,717)             --        (196,611)        421,217
    Net earnings for the year                     --             --             --         807,580              --              --
----------------------------------------------------------------------------------------------------------------------------------
BALANCE at August 30, 2002                12,314,575   $    123,146   $ 19,513,977    $ (4,401,830)         72,977    $   (156,345)

    Issuance of shares through
       stock options and 401(k) plan          66,676            667        (42,908)             --         (72,977)        156,345
    Net earnings for the year                     --             --             --          87,759              --              --
----------------------------------------------------------------------------------------------------------------------------------
BALANCE at August 29, 2003                12,381,251   $    123,813   $ 19,471,069    $ (4,314,071)             --    $         --
   Common stock issued through
    stock options                            144,800          1,448        208,680              --              --              --
   Value of stock options granted
    for services                                  --             --        139,800              --              --              --
   Net loss for the year                          --             --             --      (2,107,898)             --              --
==================================================================================================================================
BALANCE AT SEPTEMBER 3, 2004              12,526,051   $    125,261   $ 19,819,549    $ (6,421,969)             --    $         --
==================================================================================================================================
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       27
<PAGE>

Wegener Corporation and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                             Year ended
                                                              -----------------------------------------
                                                              SEPTEMBER 3,    August 29,    August 30,
                                                                 2004           2003           2002
-------------------------------------------------------------------------------------------------------
<S>                                                           <C>            <C>            <C>
CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES
  Net earnings (loss)                                         $(2,107,898)   $    87,759    $   807,580
  Adjustments to reconcile net earnings (loss) to
        cash (used for) provided by operating activities
     Depreciation and amortization                              2,103,160      1,513,179      1,692,485
     Issuance of treasury stock for
        benefit plan                                                   --         82,409        158,119
     Value of stock options granted for services                  139,800             --             --
     Provision for bad debts                                           --         30,000        155,000
     Provision for inventory reserves                             225,000         75,000        800,000
     Provision (benefit) for deferred income taxes             (1,031,000)      (290,000)       587,000
     Provision for warranty reserves                               90,000             --             --
     Changes in assets and liabilities
        Accounts receivable                                     1,080,415       (552,365)    (2,116,342)
        Inventories                                            (1,922,005)     1,702,838      2,765,210
        Other assets                                             (139,894)       (53,331)        44,029
        Accounts payable and accrued expenses                     294,900       (280,687)      (870,935)
        Customer deposits                                         705,425       (522,356)       (36,102)
-------------------------------------------------------------------------------------------------------

                                                                 (562,097)     1,792,446      3,986,044
-------------------------------------------------------------------------------------------------------

CASH USED FOR INVESTMENT ACTIVITIES
  Property and equipment expenditures                            (395,063)      (584,245)      (147,478)
  Capitalized software additions                               (1,693,243)    (1,377,359)      (572,718)
  License agreements, patents, and trademark
        expenditures                                             (210,396)      (710,947)            --
-------------------------------------------------------------------------------------------------------

                                                               (2,298,702)    (2,672,551)      (720,196)
-------------------------------------------------------------------------------------------------------

CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
  Repayment of long-term debt and capitalized
        lease obligations                                          (4,320)        (6,094)       (44,660)
  Loan facility fees                                              (37,500)       (50,000)       (55,536)
  Proceeds from stock options exercised                           210,128         31,695         25,381
-------------------------------------------------------------------------------------------------------
                                                                  168,308        (24,399)       (74,815)
-------------------------------------------------------------------------------------------------------

Increase (decrease) in cash and cash equivalents               (2,692,491)      (904,504)     3,191,033
Cash and cash equivalents, beginning of year                    4,213,252      5,117,756      1,926,723
-------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year                        $ 1,520,761    $ 4,213,252    $ 5,117,756
========================================================================================================
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       28
<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,  "we,"  "our," "us" or 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. 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 year 2004  contained  53 weeks
while fiscal years 2003 and 2002 contained 52 weeks.  All  references  herein to
2004, 2003 and 2002, refer to the fiscal years ending September 3, 2004,  August
29, 2003 and August 30, 2002, respectively.

CASH  EQUIVALENTS.  Cash equivalents  consist of highly liquid  investments with
original  maturities  of three  months  or less.  At  September  3,  2004,  cash
equivalents  consisted of bank commercial paper in the amount of $1,045,000.  At
August 29, 2003,  cash  equivalents  consisted of bank  commercial  paper in the
amount of $1,850,000, and variable rate municipals in the amount of $2,000,000.

INVENTORIES.  Inventories  are stated at the lower of cost (at  standard,  which
approximates actual cost on a first-in,  first-out basis) or market. Inventories
include the cost of raw materials, 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   financed  under  lease   contracts  have  been   capitalized.
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.

OTHER ASSETS.  Other assets consist primarily of technology  licenses,  patents,
trademarks, and loan facility fees. Costs of license agreements are amortized on
a straight-line  basis over their estimated useful lives. Legal expenses related
to the  filing  of patent  and  trademark  applications  are  capitalized.  Upon
issuance,  these costs will also be amortized on a straight-line  basis over the
lesser of the legal life of the patents and trademarks or their estimated useful
lives. Annual loan facility fees are amortized equally over twelve months.

REVENUE  RECOGNITION.  Our revenue  recognition  policies are in compliance with
Staff Accounting  Bulletin (SAB) No. 104,  "Revenue  Recognition",  SAB No. 101,
"Revenue Recognition in Financial Statements" and EITF Issue No. 00-21, "Revenue
Arrangements with Multiple  Deliverables." Revenue is recognized when persuasive
evidence of an agreement with the customer exists, products are shipped or title
passes pursuant to the terms of the agreement with the customer,  the amount due
from the  customer  is  fixed  or  determinable,  collectibility  is  reasonably
assured,  and there are no significant future performance  obligations.  Service
revenues are  recognized  at the time of  performance.  Revenues  from  separate
service  maintenance  agreements  are  recognized  ratably  over the term of the
agreements.  We have recognized revenue in certain circumstances before delivery
has occurred  (commonly  referred to as "bill and hold"  transactions).  In such
circumstances,  among other  things,  risk of ownership has passed to the buyer,
the buyer has made a written fixed  commitment  to purchase the finished  goods,
the buyer has  requested  the finished  goods to be held for future  delivery as
scheduled and designated by them, and no additional  performance  obligations by
the Company  exist.  For these  transactions,  the finished goods are segregated
from  inventory  and normal  billing and credit terms are granted.  For the year
ended  September 3, 2004,  revenues to one customer in the amount of  $3,837,000
were recorded prior to delivery as bill and hold  transactions.  At September 3,
2004,  accounts  receivable for these  revenues  amounted to $1,140,000 and were
paid in full subsequent to September 3, 2004.


                                       29
<PAGE>

Wegener Corporation and Subsidiaries

These policies require  management,  at the time of the  transaction,  to assess
whether the  amounts due are fixed or  determinable,  collection  is  reasonably
assured,  and no future  performance  obligations  exist.  These assessments are
based on the  terms  of the  agreement  with  the  customer,  past  history  and
creditworthiness  of the customer.  If management  determines that collection is
not  reasonably  assured  or  future  performance   obligations  exist,  revenue
recognition is deferred until these conditions are satisfied.

Our  principal  sources  of  revenues  are from the sales of  various  satellite
communications  equipment.  Embedded in the  Company's  products  is  internally
developed software of varying  applications.  Historically,  we have not sold or
marketed our software  separately or otherwise  licensed our software apart from
the related communications equipment. Should we begin to market or sell software
whereby  it is more  than  an  incidental  component  of the  hardware,  we will
recognize  software  license revenue in accordance with SOP No. 97-2,  "Software
Revenue  Recognition" as amended by SOP No. 98-9, "Software Revenue Recognition,
with Respect to Certain Transactions."

In accordance with EITF Issue 00-10,  "Accounting for Shipping and Handling Fees
and Costs," we included  all  shipping  and  handling  billings to  customers in
revenues, and freight costs incurred for product shipments have been included in
cost of products sold.

RESEARCH AND  DEVELOPMENT/CAPITALIZED  SOFTWARE COSTS.  We expense  research and
development costs, including expenditures related to development of our software
products that do not qualify for capitalization.  Software development costs are
capitalized subsequent to establishing  technological  feasibility.  Capitalized
costs are amortized  based on the larger of the amounts  computed  using (a) the
ratio that current gross revenues for each product bears to the total of current
and anticipated future gross revenues for that products or (b) the straight-line
method over the  remaining  estimated  economic  life of the  product.  This has
resulted in  amortization  periods of  primarily  three years.  Expected  future
revenues and  estimated  economic  lives are subject to revisions  due to market
conditions,  technology  changes and other  factors  resulting in  shortfalls of
expected  revenues  or  reduced  economic  lives.   Software  development  costs
capitalized  during fiscal 2004, 2003 and 2002, totaled  $1,693,000,  $1,377,000
and $573,000,  respectively.  Amortization expense, included in cost of products
sold, was $1,330,000,  $715,000 and $826,000 for the same periods, respectively.
Capitalized software costs, net of accumulated amortization,  were $1,668,000 at
September 3, 2004 and  $1,304,000 at August 29, 2003.  Accumulated  amortization
amounted to $6,600,000 at September 3, 2004 and $5,270,000 at August 29, 2003.

LONG-LIVED ASSETS. 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.

STOCK-BASED  COMPENSATION.  We have adopted the  disclosure-only  provisions  of
Statement of Financial  Accounting  Standards  (SFAS) No. 123,  "Accounting  for
Stock-Based   Compensation,"  as  amended  by  SFAS  No.  148,  "Accounting  for
Stock-Based  Compensation - Transition  and  Disclosure,"  but apply  Accounting
Principles  Board  Opinion  (APB)  No.  25,  "Accounting  for  Stock  Issued  to
Employees" and related  interpretations  in accounting for our plans.  Under APB
No. 25, when the  exercise  price of employee  stock  options  equals the market
price of the underlying  stock on the date of grant, no compensation  expense is
recognized.

The following table includes disclosures required by SFAS No. 123, as amended by
SFAS No. 148, and illustrates the effect on net earnings (loss) and net earnings
(loss) per share as if we had applied the fair value  recognition  provisions of
SFAS No. 123:


                                       30
<PAGE>

Wegener Corporation and Subsidiaries

                                                Year ended
---------------------------------------------------------------------------
                                   SEPTEMBER 3,     August 29,   August 30,
                                      2004            2003          2002
---------------------------------------------------------------------------
Net earnings (loss)
  As Reported                    $ (2,107,898)     $  87,759     $  807,580
  Add:
      Compensation cost
      included in reported
      net earnings (loss)                  --             --             --
  Deduct:
      Compensation cost
  using the fair value
  method, net of tax                 (131,075)       (53,519)      (122,984)
---------------------------------------------------------------------------
  Pro Forma                      $ (2,238,973)     $  34,240     $  684,596
===========================================================================
Earnings (loss) per share
  As Reported
      Basic                      $       (.17)         $ (a)     $      .07
      Diluted                            (.17)           (a)            .07
  Pro Forma
      Basic                              (.18)           (a)            .06
      Diluted                            (.18)           (a)            .06
============================================================================

      (a)   Less than $.01 per share

The fair  value of each  option  was  estimated  on the date of grant  using the
Black-Scholes   option  pricing  model  with  the  following   weighted  average
assumptions:

                                                Year ended
---------------------------------------------------------------------------
                               SEPTEMBER 3,       August 29,     August 30,
                                   2004             2003            2002
---------------------------------------------------------------------------

Risk free interest rate              4.00%           4.75%           5.00%
Expected term                   2.8 YEARS         3 years         3 years
Volatility                             90%             90%             75%
Expected annual dividends            NONE            none            none

The weighted average fair value of options granted was as follows:

                                                 Year ended
--------------------------------------------------------------------------------
                            SEPTEMBER 3,         August 29,          August 30,
                               2004                2003                 2002
--------------------------------------------------------------------------------

Per share option value      $      1.23         $       .86         $       .47
Aggregate total             $   474,230         $    46,530         $   256,706

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.  Valuation  allowances are  established to reduce  deferred tax assets to
amounts that we expect are more likely than not realizable.

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 are  computed by dividing  net  earnings  available to common
shareholders  (numerator)  by the  weighted  average  number  of  common  shares
outstanding  (denominator)  during the period and exclude the dilutive effect of
stock  options.  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 hypothetical exercise of stock options.


                                       31
<PAGE>

Wegener Corporation and Subsidiaries

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:

<TABLE>
<CAPTION>

                                                                  Year ended
                                                  -------------------------------------------
                                                   SEPTEMBER 3,     August 29,    August 30,
                                                      2004            2003          2002
                                                  -------------------------------------------
<S>                                               <C>             <C>            <C>
BASIC
    Net earnings (loss)                           $ (2,107,898)   $     87,759   $    807,580
                                                  -------------------------------------------

    Weighted average shares
        outstanding                                 12,456,914      12,328,571     12,160,865
                                                  -------------------------------------------

    Net earnings (loss) per share                 $       (.17)   $        (a)   $        .07
                                                  ============================================
DILUTED
    Net earnings (loss)                           $ (2,107,898)   $     87,759   $    807,580

    Weighted average shares
        outstanding                                 12,456,914      12,328,571     12,160,865

    Effect of dilutive potential common shares:
            Stock options                                   --         151,295         68,375
                                                  -------------------------------------------
    Total                                           12,456,914      12,479,866     12,229,240
                                                  -------------------------------------------
    Net earnings (loss) per share                 $       (.17)   $        (a)   $        .07
                                                  ============================================
</TABLE>

             (a) Less than $.01 per share

Stock options excluded from the diluted earnings (loss) per share calculation
due to their antidilutive effect are as follows:

<TABLE>
<CAPTION>
                                                        Year ended
                                ------------------------------------------------------------
                                  SEPTEMBER 3,          August 29,            August 30,
                                      2004                 2003                  2002
<S>                              <C>                  <C>                 <C>
 Common stock options:
     Number of shares               1,627,781            796,050               882,550
     Range of exercise prices    $ .63 TO $5.63       $1.41 to $5.63      $1.41 to $5.63
</TABLE>

FINANCIAL  INSTRUMENTS.  Our  financial  instruments  consist  of cash  and cash
equivalents,  trade accounts receivable,  accounts payable, accrued expenses and
long and short-term borrowings. The fair value of these instruments approximates
their recorded  value.  We do 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, 2004.

Financial   instruments  that  potentially   subject  us  to  concentrations  of
market/credit  risk consist  principally of cash and cash  equivalents and trade
accounts  receivable.  We invest cash  through a high  credit-quality  financial
institution.  A  concentration  of credit  risk may exist with  respect to trade
receivables,  as a substantial  portion of our customers are affiliated with the
cable  television,  business  broadcast and  telecommunications  industries.  We
perform ongoing credit  evaluations of customers  worldwide and generally do not
require  collateral  from our  customers.  We review  accounts  receivable  on a
regular basis to determine if any such amounts may be potentially uncollectible.
We include any balances that are  determined to be  uncollectible,  along with a
general  reserve,  in the overall  allowance  for doubtful  accounts.  After all
attempts  to collect a  receivable  have  failed the  receivable  is written off
against the  allowance.  Based on our best estimate we believe the allowance for
doubtful  accounts  is  adequate  as  presented.   Historically,   we  have  not
experienced  significant losses related to receivables from individual customers
or groups of customers in any particular industry or geographic area.


                                       32
<PAGE>

Wegener Corporation and Subsidiaries

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

RECENTLY ISSUED ACCOUNTING  STANDARDS.  In January 2003, the EITF released Issue
No. 00-21, ("EITF 00-21"),  "Revenue  Arrangements with Multiple  Deliverables,"
which addressed  certain aspects of the accounting by a vendor for  arrangements
under   which   it  will   perform   multiple   revenue-generating   activities.
Specifically, EITF 00-21 addresses whether an arrangement contains more than one
unit of accounting and the  measurement  and allocation to the separate units of
accounting in the arrangement.  EITF 00-21 is effective for revenue arrangements
entered into in fiscal  periods  beginning  after June 15, 2003. The adoption of
this  statement did not have any impact on our financial  position or results of
operations.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with  Characteristics  of both Liabilities and Equity." SFAS No. 150
establishes standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities  and  equity.  It  requires  that an  issuer  classify  a  financial
instrument  that is  within  its  scope  as a  liability  (or an  asset  in some
circumstances)  because that financial  instrument embodies an obligation of the
issuer.  Many of such  instruments  were  previously  classified as equity.  The
statement is effective for financial  instruments entered into or modified after
May 31, 2003,  and  otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatory  redeemable financial
instruments  of nonpublic  entities.  On November 7, 2003, the FASB deferred the
classification  and  measurement  provisions  of SFAS No.  150 as they  apply to
certain  mandatory  redeemable   non-controlling  interests.  This  deferral  is
expected to remain in effect while these provisions are further evaluated by the
FASB.  We have  not  entered  into any  financial  instruments  covered  by this
statement  and the adoption of this  standard did not have a material  impact on
our consolidated financial statements or results of operations.

RECLASSIFICATIONS. Certain reclassifications have been made to the 2003 and 2002
financial statements to conform to the 2004 presentation.


                                       33
<PAGE>

Wegener Corporation and Subsidiaries

2.  ACCOUNTS RECEIVABLE

Accounts receivable are summarized as follows:

                                                  SEPTEMBER 3,       August 29,
                                                      2004             2003
--------------------------------------------------------------------------------
      Accounts receivable - trade                  $ 2,766,528      $ 3,838,644
      Other receivables                                 76,473           76,143
--------------------------------------------------------------------------------
                                                     2,843,001        3,914,787

      Less allowance for doubtful accounts            (363,289)        (354,660)
--------------------------------------------------------------------------------
                                                   $ 2,479,712      $ 3,560,127
================================================================================

3.  INVENTORIES
Inventories are summarized as follows:
                                                SEPTEMBER 3,         August 29,
                                                   2004                2003
--------------------------------------------------------------------------------
Raw materials                                   $ 3,004,350         $ 2,347,542
Work-in-process                                   1,073,275             951,078
Finished goods                                    3,229,704           2,334,578
--------------------------------------------------------------------------------
                                                  7,307,329           5,633,198
 Less inventory reserves                         (3,467,489)         (3,490,363)
--------------------------------------------------------------------------------
                                                $ 3,839,840         $ 2,142,835
================================================================================

We have invested a significant amount of financial  resources to acquire certain
raw materials,  sub- assemblies and finished goods, to incur direct labor and to
contract to have specific outplant procedures  performed on certain inventory in
process.  We purchased this inventory  based upon prior backlog and  anticipated
future sales based upon our existing knowledge of the marketplace. Our inventory
reserve of  approximately  $3,467,000  at September  3, 2004,  is to provide for
items that are potentially  slow-moving,  excess or obsolete.  Changes in market
conditions,  lower than expected customer demand and rapidly changing technology
could result in additional obsolete and slow-moving inventory that is unsaleable
or saleable at reduced prices.  No estimate can be made of a range of amounts of
loss from obsolescence that is reasonably  possible should our sales efforts not
be successful.

4. PROPERTY AND EQUIPMENT

Major classes of property and equipment consist of the following:

<TABLE>
<CAPTION>
                                               Estimated
                                             Useful Lives      SEPTEMBER 3,    August 29,
                                               (Years)           2004          2003
------------------------------------------------------------------------------------------
<S>                                                  <C>      <C>             <C>
    Land                                                --    $    707,210    $    707,210
    Buildings and improvements                        3-30       3,746,690       3,746,690
    Machinery and equipment                            3-5       9,217,354       8,952,095
    Furniture and fixtures                               5         602,269         514,915
    Application software                               3-5         737,090         737,090
------------------------------------------------------------------------------------------
                                                                15,010,613      14,658,000
    Less accumulated depreciation
        and amortization                                       (12,311,111)    (11,744,449)
------------------------------------------------------------------------------------------

                                                              $  2,699,502    $  2,913,551
------------------------------------------------------------------------------------------
</TABLE>

Depreciation  expense  for fiscal  2004,  2003 and 2002,  totaled  approximately
$609,000, $666,000 and $816,000,  respectively.  Assets recorded under a capital
lease  included in property  and  equipment  at September 3, 2004 and August 29,
2003,  are  machinery and equipment of  approximately  $613,000 and  accumulated
amortization of approximately $613,000.


                                       34
<PAGE>

Wegener Corporation and Subsidiaries

5. OTHER ASSETS
Other assets consisted of the following:

                                          SEPTEMBER 3, 2004
------------------------------------------------------------------------------
                                        COST         ACCUMULATED        NET
                                                    AMORTIZATION
      License agreements             $   570,000    $  (197,828)   $   372,172
      Patent applications                352,406             --        352,406
      Trademarks                          73,937           (776)        73,161
      Loan facility fees                  37,500         (6,250)        31,250
      Other                                6,889             --          6,889
------------------------------------------------------------------------------
                                     $ 1,040,732    $  (204,854)   $   835,878
==============================================================================

                                                  August 29, 2003
------------------------------------------------------------------------------
                                        Cost        Accumulated        Net
                                                    Amortization
      License agreements             $   570,000    $   (82,500)   $   487,500
      Patent applications                174,369             --        174,369
      Trademarks                          41,578             --         41,578
      Loan facility fees                  50,000         (8,333)        41,667
      Other                                6,889             --          6,889
------------------------------------------------------------------------------
                                     $   842,836    $   (90,833)   $   752,003
==============================================================================

Amortization expense of other assets amounted to $164,000,  $133,000 and $50,000
for fiscal years 2004, 2003 and 2002, respectively.

We conduct an ongoing review of our  intellectual  property rights and potential
trademarks.  As of September 3, 2004, we incurred  $352,000 and $63,000 of legal
expenses  related  to  the  filing  of  applications  for  various  patents  and
trademarks,  respectively.  Upon  issuance,  these costs will be  amortized on a
straight-line  basis  over the  lesser  of the  legal  life of the  patents  and
trademarks or their  estimated  useful lives. If it becomes more likely than not
that the patent application will not be granted,  we will write-off the deferred
cost at that time.  At  September  3, 2004,  the cost of  registered  trademarks
amounted to $11,000.  License  agreements  are  amortized  over their  estimated
useful life of five years. Loan facility fees are amortized over twelve months.

6.  ACCRUED EXPENSES
Accrued expenses consist of the following:

                                               SEPTEMBER 3,           August 29,
                                                  2004                  2003

      Compensation                             $   728,304           $   570,977
      Royalties                                    295,673               261,639
      Warranty                                     151,390                65,651
      Taxes and insurance                           50,235                41,503
      Commissions                                  119,493               168,832
      Professional fees                            254,057               245,129
      Other                                        119,967                79,018
--------------------------------------------------------------------------------
                                               $ 1,719,119           $ 1,432,749
================================================================================


                                       35
<PAGE>

Wegener Corporation and Subsidiaries

7.  FINANCING AGREEMENTS
REVOLVING LINE OF CREDIT AND TERM LOAN FACILITY

WCI's bank loan facility provides a maximum available credit limit of $5,000,000
subject to availability advance formulas.  The loan facility matures on June 30,
2006, or upon demand and requires an annual  facility fee of .75% of the maximum
credit limit. The loan facility  consists of a term loan and a revolving line of
credit with a combined  borrowing limit of $5,000,000,  bearing  interest at the
bank's prime rate (4.75% at September 3, 2004).

The term loan facility  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 60 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 materials inventories;  20% of
eligible work-in process kit inventories;  40% to 50% of eligible finished goods
inventories and 50% of import letter of credit commitment balances.  The loan is
secured by a first lien on  substantially  all of WCI's assets and guaranteed by
Wegener  Corporation.  At September 3, 2004, no balances were outstanding on the
revolving  line of  credit  or the  equipment  term  loan  portions  of the loan
facility. The loan facility is currently being used to support import letters of
credit issued to offshore manufacturers,  which at September 3, 2004 amounted to
$1,916,000. At September 3, 2004, approximately  $2,049,000,  net of outstanding
letters of credit, was available to borrow under the advance formulas.

We are required to maintain a minimum  tangible net worth with annual  increases
at each fiscal year end  commencing  with fiscal year 2005,  retain  certain key
employees,  maintain  certain  financial  ratios,  and are precluded from paying
dividends.  At September 3, 2004, we were in  compliance  with all loan facility
covenants. We believe that the loan facility along with cash and cash equivalent
balances will be sufficient to support operations through fiscal 2005.

8.  INCOME TAXES
The provision for income tax expense (benefit) consists of the following:

                                                      Year ended
--------------------------------------------------------------------------------
                                     SEPTEMBER 3,    August 29,     August 30,
                                        2004            2003          2002
--------------------------------------------------------------------------------
       Current
          Federal                    $        --    $        --    $  (114,000)
          State                               --        (50,000)            --
--------------------------------------------------------------------------------

                                              --        (50,000)      (114,000)
--------------------------------------------------------------------------------
      Deferred
          Federal                       (969,000)       (85,000)       549,000
          State                          (62,000)      (205,000)        38,000
--------------------------------------------------------------------------------

                                      (1,031,000)      (290,000)       587,000
--------------------------------------------------------------------------------

      Total                          $(1,031,000)   $  (340,000)   $   473,000
================================================================================

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

                                                             Year ended
--------------------------------------------------------------------------------
                                        SEPTEMBER 3,     August 29,   August 30,
                                           2004            2003          2002
      Statutory U.S. income tax rate      (34.0)%         (34.0)%        34.0%
      State taxes, net of federal
          benefits                         (2.0)          (99.8)          1.9
      Expired federal tax credit            3.1              --            --
      Non-deductible expenses                .2             1.6            .7
      Other, net                            (.1)           (2.6)           .3
--------------------------------------------------------------------------------
      Effective income tax rate           (32.8)%         (134.8)%       36.9%
================================================================================


                                       36
<PAGE>

Wegener Corporation and Subsidiaries

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

                                                     SEPTEMBER 3,   August 29,
                                                        2004           2003
--------------------------------------------------------------------------------
      Deferred tax assets (liabilities):
         Accounts receivable and inventory reserves  $ 1,969,000    $ 1,957,000
         Accrued expenses                                231,000        179,000
         Net operating loss carryforwards              2,260,000      1,043,000
         Credit carryforwards                            199,000        297,000
         AMT credit carryovers                           138,000        138,000
         Depreciation                                     80,000        121,000
          Capitalized software costs                    (634,000)      (496,000)
          Other                                          (74,000)      (101,000)
--------------------------------------------------------------------------------
      Net deferred tax asset                         $ 4,169,000    $ 3,138,000
================================================================================
      Consolidated balance sheet classifications:
          Current deferred tax asset                 $ 2,199,000    $ 2,109,000
          Noncurrent deferred tax asset                1,970,000      1,029,000
--------------------------------------------------------------------------------
          Net deferred tax asset                     $ 4,169,000    $ 3,138,000
--------------------------------------------------------------------------------

Net deferred tax assets increased $1,031,000 to $4,169,000 at September 3, 2004.
The  increase  was   principally   due  to  increases  in  net  operating   loss
carryforwards,  offset by reductions of general business and foreign tax credits
of $98,000 which expired  September 3, 2004.  Net deferred tax assets  increased
$290,000 to $3,138,000 at August 29, 2003. The increase was  principally  due to
state  income tax  credits of  $199,000  and  increases  in net  operating  loss
carryforwards.  Realization  of deferred tax assets is  dependent on  generating
sufficient  future taxable income prior to the expiration of the loss and credit
carryforwards. Although realization is not assured, we believe it is more likely
than not that all of the  deferred  tax  assets  will be  realized  based on our
backlog  and  financial  projections.  The  amount of the  deferred  tax  assets
considered  realizable,  however, could be reduced in the near term if estimates
of further taxable income during the carryforward period are reduced.

At  September  3, 2004,  we had a federal net  operating  loss  carryforward  of
$6,295,000,  which expires beginning fiscal 2020 through 2024. Additionally,  we
had an  alternative  minimum tax credit of $138,000 and state income tax credits
of $199,000 expiring in fiscal 2009.

9. COMMON STOCK AND STOCK OPTIONS.

1998 INCENTIVE  PLAN. On February 26, 1998, our  stockholders  approved the 1998
Incentive  Plan (the  "1998  Plan").  The Plan  provides  for awards of up to an
aggregate of 2,000,000  shares of common stock which may be  represented  by (i)
incentive or nonqualified stock options,  (ii) stock appreciation rights (tandem
and  free-standing),  (iii)  restricted  stock,  (iv)  deferred  stock,  or  (v)
performance units entitling the holder, upon satisfaction of certain performance
criteria, to awards of common stock or cash. In addition, the 1998 Plan provides
for loans and  supplemental  cash payments to persons  participating in the 1998
Plan in connection with awards granted.  Eligible  participants include officers
and other key employees, non-employee directors, consultants and advisors to the
Company. The exercise price per share in the case of incentive stock options and
any  tandem  stock  appreciation  rights  may 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 nonqualified  stock options may not exceed ten years and one
day from the date of the grant,  and the expiration  period for incentive  stock
options or stock appreciation rights shall not exceed ten years from the date of
the grant (five years for a 10% or greater stockholder).  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 3,000 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.  On
December 31, 2003, non-employee directors were granted options to purchase 9,000
shares at an exercise  price of $2.08.  The automatic  grants in fiscal 2003 and
2002 were  suspended;  however,  on  January  21,  2003 and  January  22,  2002,
non-employee  directors  were  granted  options to purchase  9,000  shares at an
exercise  price of $1.09  and  40,900  shares  at an  exercise  price of  $1.00,
respectively.  The  effective  date of the 1998 Plan is  January 1, 1998 and the
1998 Plan has a ten-year term. During fiscal 2004, options for 100,000 shares of
common  stock,  exercisable  at $2.39,  were  granted  pursuant to a  consulting
agreement  to  provide  software  development  services.  The fair  value of the
options was measured on the grant date using the  Black-Scholes  option  pricing
model.  As the options were fully vested and  nonforfeitable,  the fair value of
$139,800 was charged to research  and  development  expenses in fiscal 2004,  in
accordance with EITF 96-18,  "Accounting for Equity  Instruments That are Issued
to Other Than Employees for Acquiring,  or in Conjunction with Selling, Goods or
Services."  Additionally,  during  fiscal  2004,  other  stock  option  activity
included  grants of options to  employees  to purchase an  aggregate  of 368,156
shares,  vesting 25% annually  beginning  one year from the date of grant,  at a
weighted  average  exercise  price of $2.21.  Options  for  141,800  shares with
exercise prices ranging from $.84 to $2.31 were exercised and options for 33,000
shares were forfeited.  During fiscal 2003,  options for 54,000 shares of common
stock were granted to outside  directors  and  employees  pursuant to employment
agreements at exercise prices ranging from $.91 to $2.09. Additionally,  options
for 7,500 shares were  forfeited and options for 23,000 shares were exercised at
$.84 and $1.47.  During fiscal 2002,  options for an aggregate of 552,375 shares
of common  stock were  granted at exercise  prices  ranging  from $.60 to $1.03.
Additionally,  options for 25,000  shares were  forfeited and options for 22,000
shares were exercised at prices ranging from $.60 to $.67. At September 3, 2004,
options for 495,419 shares of common stock were  available for future  issuance.
Subsequent  to  September  3, 2004,  options  to  purchase  10,000  shares at an
exercise price of $1.38 were granted to a non-employee director.


                                       37
<PAGE>

Wegener Corporation and Subsidiaries

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 nonqualified  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 nonqualified  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 nonqualified 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.  This plan  terminated  and expired  effective
December 1, 1999.  During fiscal 2004, no options were exercised.  During fiscal
2003,  options for 16,500 shares were  exercised at $ .75. At September 3, 2004,
options for 265,000 shares of common stock remained  outstanding  under the 1989
Directors' Incentive Plan.

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,  incentive or nonqualified  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
nonqualified  stock  options shall be ten years and one day from the date of the
grant, and the exercise period for incentive stock options or stock appreciation
rights  shall not exceed ten years  from the date of the  grant.  During  fiscal
2003,  options for 114,000 shares of common stock were forfeited.  During fiscal
2002,  options  for 7,500  shares of common  stock were  exercised  at $1.44 and
options  for 96,500  shares were  forfeited.  This plan  terminated  and expired
December 1, 1998.  At September  3, 2004,  no options for shares of common stock
remained outstanding under the 1988 Incentive Plan.


                                       38
<PAGE>

Wegener Corporation and Subsidiaries

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

                                                                    Weighted
                                        Number       Range of       Average
                                      of Shares   Exercise Prices Exercise Price
--------------------------------------------------------------------------------
      Outstanding at
          August 31, 2001              1,034,050    $.75 - 5.63       $ 2.04
             Granted                     552,375     .60 - 1.03          .90
             Exercised                   (29,500)    .60 - 1.44          .86
             Forfeited or cancelled     (121,500)   1.44 - 2.31         1.56
================================================================================
      Outstanding at
          August 30, 2002              1,435,425    $.63 - 5.63       $ 1.67
             Granted                      54,000     .91 - 2.09         1.65
             Exercised                   (39,500)    .75 -  .84          .80
             Forfeited or cancelled     (121,500)   1.41 - 2.31         1.47
================================================================================
      Outstanding at
          August 29, 2003              1,328,425    $.63 - 5.63       $ 1.70
             Granted                     477,156    2.08 - 2.72         2.25
             Exercised                  (144,800)    .84 - 2.31         1.45
             Forfeited or cancelled      (33,000)          1.47         1.47
================================================================================
      OUTSTANDING AT
          SEPTEMBER 3, 2004            1,627,781    $.63 - 5.63       $ 1.89
      AVAILABLE FOR ISSUE AT
          SEPTEMBER 3, 2004              495,419             --           --
================================================================================
      OPTIONS EXERCISABLE AT
          SEPTEMBER 3, 2004            1,257,414    $.63 - 5.63       $ 1.80
          August 29, 2003              1,293,425    $.63 - 5.63       $ 1.70
================================================================================

The  weighted  average  remaining  contractual  life of options  outstanding  at
September 3, 2004, was 3.8 years.

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 2004, 2003 and 2002.

Eligible  WCI  employees  are  permitted  to make  contributions,  up to certain
regulatory  limits,  to the plan on a tax deferred basis under Section 401(k) of
the Internal  Revenue  Code.  The plan provides for a minimum  Company  matching
contribution on a quarterly  basis at the rate of 25% of employee  contributions
with a quarterly  discretionary  match. During fiscal years 2004, 2003 and 2002,
an  additional   discretionary   matching   contribution   of  25%  of  employee
contributions was made for all quarters.  All matching  contributions are in the
form of  Company  stock  or cash at the  discretion  of the  Company's  Board of
Directors.  During  fiscal  2004,  all matching  contributions  in the amount of
$235,000 were in the form of cash.  During the first five months of fiscal 2003,
matching contributions were made in the form of Company stock with the remainder
of the  fiscal  year's  contributions  made in the  form of  cash.  Fiscal  2003
matching contributions of $189,000 consisted of $132,000 in the form of cash and
$57,000 in the form of Company stock. Matching Company contributions of $158,000
in fiscal 2002 were in the form of Company stock.

11. SEGMENT  INFORMATION  AND SIGNIFICANT  CUSTOMERS SFAS No. 131,  "Disclosures
about Segments of an Enterprise and Related Information,"  established standards
for the way that public business  enterprises report information about operating
segments in their financial statements.  The standard defines operating segments
as components of an enterprise  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 we have determined that we operate in a single operating segment:  the
manufacture and sale of satellite communications equipment.

                                       39
<PAGE>

Wegener Corporation and Subsidiaries

In this single operating segment we have three sources of revenues as follows:

<TABLE>
<CAPTION>
                                                                   Year ended
                                                 ------------------------------------------------
                                                 SEPTEMBER 3,       August 29,        August 30,
                                                      2004             2003              2002
     --------------------------------------------------------------------------------------------

<S>                                               <C>               <C>               <C>
         Direct Broadcast Satellite               $16,533,758       $18,152,647       $21,932,974
         Telecom and Custom Products                  937,498         1,411,493         1,073,345
         Service                                      633,028           569,040           452,604
     --------------------------------------------------------------------------------------------

                                                  $18,104,284       $20,133,180       $23,458,923
     ============================================================================================
</TABLE>

Revenues by geographic areas are as follows:

<TABLE>
<CAPTION>
                                                                   Year ended
                                                 ------------------------------------------------
                                                 SEPTEMBER 3,       August 29,        August 30,
                                                      2004             2003              2002
     --------------------------------------------------------------------------------------------

<S>                                               <C>               <C>               <C>
     Geographic Area
         United States                            $17,498,397       $19,293,956       $21,986,074
         Canada                                        83,711           314,625           576,733
         Europe                                       366,474           262,958           387,524
         Asia                                          92,756           147,318           219,778
         Latin America and Mexico                      20,788            18,366            69,522
         Other                                         42,158            95,957           219,292
     --------------------------------------------------------------------------------------------

                                                  $18,104,284       $20,133,180       $23,458,923
     ============================================================================================
</TABLE>

Revenues  attributed  to  geographic  areas  are  based on the  location  of the
customer. All of our long-lived assets are located in the United States.

We  sell  to  a  variety  of  domestic   and   international   customers  on  an
open-unsecured  account basis. These customers  principally operate in the cable
television,  broadcast business music,  private network and data  communications
industries.  Customers  representing  10% or more of the year's  revenues are as
follows:

                                   Year ended
                      -------------------------------------
                      SEPTEMBER 3,   August 29,  August 30,
                           2004         2003        2002
          -------------------------------------------------

          Customer 1       39.6%        39.3%       27.5%
          Customer 2        (a)         16.3%       27.9%
          Customer 3        (a)          (a)        11.1%

          (a) Revenues for the year were less than 10% of total revenues.

Sales to a relatively small number of major customers have typically comprised a
majority of our  revenues  and that trend is  expected  to  continue  throughout
fiscal 2005 and beyond. Future revenues are subject to the timing of significant
orders from customers and are difficult to forecast. As a result, future revenue
levels may fluctuate from quarter to quarter.

At September 3, 2004 and at August 29, 2003,  two  customers  accounted for more
than 10% of our accounts receivable.  When deemed appropriate, we use letters of
credit and credit  insurance to mitigate the credit risk associated with foreign
sales.



                                       40
<PAGE>
Wegener Corporation and Subsidiaries

12. STATEMENTS OF CASH FLOWS
Interest  payments were  approximately  $96,000,  $69,000 and $64,000 for fiscal
years 2004, 2003 and 2002,  respectively.  Income tax refunds received in fiscal
2002 were  $208,000.  No income  taxes  were paid or  received  in 2004 or 2003.
Noncash  financing  activities  in fiscal 2004  included the fair value of stock
options granted for services valued at $140,000. Noncash financing activities in
fiscal 2003 included  72,977 shares of treasury stock reissued and 27,176 shares
of common  stock  issued for 401(k)  matching  Company  contributions  valued at
approximately  $82,000.  Noncash  financing  activities  in fiscal 2002 included
167,111  shares  of  treasury  stock  reissued  for  401(k)   matching   Company
contributions valued at approximately $158,000.

13. COMMITMENTS AND CONTINGENCIES
We have three manufacturing and purchasing agreements for certain finished goods
inventories.  At September 3, 2004, outstanding purchase commitments under these
agreements  amounted  to  $7,233,000.  Pursuant  to  the  above  agreements,  at
September  3,  2004,  we had  outstanding  letters  of credit  in the  amount of
$1,916,000.

During the first  quarter of fiscal 2004,  we entered into a two-year  agreement
aggregating $870,000 for engineering design and software  development  services.
At  September  3, 2004,  the  outstanding  commitment  under the  agreement  was
$508,000.

We lease certain  office and  manufacturing  facilities,  vehicles and equipment
under long-term non-cancelable operating leases that expire through fiscal 2007.
Future minimum lease  commitments are  approximately as follows:  2005-$117,000,
2006-$4,000,  2007-$2,000,  2008-$2,000,  2009-$2,000.  Rent  expense  under all
leases was approximately $228,000,  $242,000 and $243,000 for fiscal years 2004,
2003 and 2002, respectively.

From time to time in the ordinary course of business, we have become a defendant
in various types of legal proceedings. We do not believe that these proceedings,
individually  or in the  aggregate,  will have a material  adverse effect on our
financial position, results of operations or cash flows.

On June 20,  2003,  Jerry Leuch  commenced  an action  styled as a direct  class
action and a derivative action against Robert A. Placek,  Thomas G. Elliot,  Joe
K. Parks,  C. Troy  Woodbury,  Jr.,  Wendell  Bailey,  Ned  Mountain and Wegener
Corporation  in the Court of Chancery of the State of  Delaware,  In and For New
Castle County.  The Plaintiff  alleged that the individual  defendants  violated
their  fiduciary  duties due to him and other  shareholders,  the members of the
alleged class, as well as Wegener.  The relief sought by Plaintiff  included:  a
declaration  that the Defendants must consider and evaluate all bona fide offers
to  purchase  all of the  outstanding  shares of Wegener  consistent  with their
fiduciary  duties;  a declaration that this action is properly styled as a class
action;  an injunction  against  proceeding with any business  combination which
benefited  the  individual  defendants  and an  injunction  requiring  that  any
conflicts  of interest be resolved in favor of the Wegener  shareholders;  and a
declaration  removing the  anti-takeover  measures enacted by Wegener's Board of
Directors. The Complaint sought an award of Plaintiff's costs and attorneys' and
other fees. An answer was filed by Wegener,  denying all substantive allegations
in the  complaint.  On January 9, 2004,  the  Complaint  was  dismissed  without
prejudice.

14. GUARANTEES
Warranty
We warrant our  products  for a 12 to 14 month  period  beginning at the date of
shipment.  The warranty provides for repair or replacement of defective products
returned during the warranty period at no cost to the customer. We expense costs
for routine  warranty  repairs as incurred.  Additional  provisions are made for
non-routine  warranty repairs based on estimated costs to repair at the point in
time in which the warranty claim is  identified.  Accrued  warranty  liabilities
amounted to $151,000 at September 3, 2004. For the year ended September 3, 2004,
the  accrual  was  increased  by $90,000  and  reduced  by $4,000 for  satisfied
warranty claims.  Warranty expense recognized during the year ended September 3,
2004, amounted to $90,000.

Letters of Credit
WCI provides  standby  letters of credit in the  ordinary  course of business to
certain  suppliers  pursuant to  manufacturing  and  purchasing  agreements.  At
September 3, 2004, outstanding letters of credit amounted to $1,916,000.



                                       41
<PAGE>
Wegener Corporation and Subsidiaries

Financing Agreements
The Company guarantees the bank loan facility of WCI. The bank facility provides
a maximum  available  credit  limit of  $5,000,000.  At  September  3, 2004,  no
balances were outstanding on the loan facility.

15. QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                         -------------------------------------------------------------      -------------
                                                                   Quarter
                                         -------------------------------------------------------------      -------------
                                            First           Second           Third           Fourth              Year
<S>                                      <C>             <C>              <C>             <C>                <C>
FISCAL 2004
   REVENUE                               $4,750,205      $4,712,923       $4,777,394      $3,863,762         $18,104,284
   GROSS PROFIT                           1,274,668       1,198,311        1,392,372         975,111           4,840,462
   OPERATING (LOSS)                        (687,204)       (854,717)        (550,703)       (993,182)         (3,085,806)
   NET (LOSS)                              (448,668)       (655,264)        (356,641)       (647,325)         (2,107,898)
   NET (LOSS) PER SHARE
      BASIC                                   (0.04)          (0.05)           (0.03)          (0.05)             (0.17)
      DILUTED                                 (0.04)          (0.05)           (0.03)          (0.05)             (0.17)

Fiscal 2003
   Revenue                               $3,945,118      $5,219,152       $6,254,459      $4,714,451         $20,133,180
   Gross profit                           1,301,208       1,874,297        2,441,736       1,893,140           7,510,381
   Operating income (loss)                 (583,587)        187,755          195,159(b)      (39,383)(b)        (240,056)
   Net earnings (loss)                     (369,546)        116,657          122,968         217,680 (c)          87,759
   Net earnings (loss) per share
      Basic                                   (0.03)           0.01             0.01            0.02                  (a)
      Diluted                                 (0.03)           0.01             0.01            0.02                  (a)

</TABLE>
      (a)   Less than $ .01 per share
      (b)   Includes  $809,000 in the third  quarter and  $165,000 in the fourth
            quarter  of  corporate  legal  and  professional   fees  related  to
            defending  the  Company  against  an  unsolicited  hostile  takeover
            attempt by Radyne ComStream, Inc., and related litigation.
      (c)   Includes $199,000 of state income tax credits earned.





                                       42
<PAGE>

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

      None.

ITEM 9A. CONTROLS AND PROCEDURES

      The Company carried out an evaluation,  under the supervision and with the
participation of the Company's management, including the Chief Executive Officer
(CEO) and the Chief Financial  Officer (CFO), of the effectiveness of the design
and operation of the Company's  disclosure controls and procedures as of the end
of the period covered by this report. Based upon that evaluation,  the Company's
CEO and CFO have concluded that the Company's disclosure controls and procedures
(as defined in Rules  13a-15(e) and 15d-15(e) of the Securities  Exchange Act of
1934,  as  amended)  are  effective.  There has been no change in the  Company's
internal control over financial  reporting that has materially  affected,  or is
reasonably  likely to materially  affect,  the Company's  internal  control over
financial reporting.

ITEM 9B. OTHER INFORMATION

      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,  2005  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 9 of this Report.

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

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

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      Information  contained  under the caption  "PRINCIPAL  ACCOUNTANT FEES AND
SERVICES" in the Proxy Statement is incorporated herein by reference in response
to this item."


                                       43
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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

Report of Independent Registered Public Accounting Firm.

Consolidated Balance Sheets - September 3, 2004, and August 29, 2003.

Consolidated  Statements of Operations - Years ended  September 3, 2004,  August
29, 2003, and August 30, 2002.

Consolidated Statements of Shareholders' Equity - Years ended September 3, 2004,
August 29, 2003, and August 30, 2002.

Consolidated  Statements of Cash Flows - Years ended  September 3, 2004,  August
29, 2003, and August 30, 2002.

Notes to Consolidated Financial Statements.

      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 wholly-owned.

      (a)(2) The  following  consolidated  financial   statements  schedule  for
             Wegener  Corporation and subsidiaries is included herein, beginning
             on page 46:

             Schedule II-Valuation and Qualifying Accounts Years ended September
             3, 2004, August 29, 2003, and August 30, 2002.

      (a)(3) The exhibits  filed  in response  to Item 601 of Regulation S-K are
             listed in the Exhibit Index on pages 47 and 48.

      (b)    See Part IV, Item 15(a) (3).

      (c)    See Part IV, item 15(a) (2).


                                       44
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders of Wegener Corporation
Duluth, Georgia

      The audits  referred to in our report dated December 1, 2004,  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
December 1, 2004


                                       45
<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
  account receivable:
<S>                  <C>                      <C>            <C>            <C>             <C>            <C>
YEAR ENDED SEPTEMBER 3, 2004                  $   354,660    $        --    $    (5,105)    $    13,734    $   363,289

Year ended August 29, 2003                    $   351,592    $    30,000    $   (26,932)    $        --    $   354,660

Year ended August 30, 2002                    $   305,021    $   155,000    $  (108,429)    $        --    $   351,592


Inventory Reserves:

YEAR ENDED SEPTEMBER 3, 2004                  $ 3,490,363    $   225,000    $  (247,873)    $        --    $ 3,467,489

Year ended August 39, 2003                    $ 3,780,607    $    75,000    $  (365,244)    $        --    $ 3,490,363

Year ended August 30, 2002                    $ 4,156,494    $   800,000    $(1,175,887)    $        --    $ 3,780,607
</TABLE>


                                       46
<PAGE>

EXHIBIT INDEX

      The following  documents are filed as exhibits to this report. An asterisk
identifies those exhibits  previously filed and incorporated herein by reference
below. 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.   Exhibits   10.3  through  10.6  identify   management   contracts  or
compensatory plans.

    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,  SEC file No.  0-11003,
                  Exhibit 3.2).

         *3.3     Amendment to Certificate of  Incorporation  (1997 10-Q,  filed
                  June 27, 1997, SEC file No. 0-11003, Exhibit 3.1).

         *3.4     Amended and  Restated  By-laws  (Form 8-K,  dated as of May 1,
                  2003 and filed May 6, 2003, 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,  SEC
                  file No. 0-11003, 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 (1998 10-K,  filed  November  9, 1998,  SEC
                  file No. 0-11003, Exhibit 4.5).

         *4.6     Loan and Security  Agreement - Third  Amendment dated December
                  11, 2000, by and between  Wegener  Communications,  Inc.,  and
                  LaSalle   National  Bank   respecting   $10,000,000   combined
                  revolving  credit  note and term note.  (2001 10-Q filed April
                  16, 2001, Exhibit 4.1.)

         *4.7     Loan and Security Agreement - Fourth Amendment dated March 28,
                  2002, by and between Wegener Communications, Inc., and LaSalle
                  National Bank respecting  $5,000,000 combined revolving credit
                  note and term note (2002 10-Q  filed  June 28,  2002,  Exhibit
                  4.1.)

         *4.8     Loan and Security  Agreement - Fifth  Amendment dated June 27,
                  2003, by and between Wegener Communications,  Inc. and LaSalle
                  National Bank respecting  $5,000,000 combined revolving credit
                  note and term note.  (2003  10-Q  filed July 9, 2003,  Exhibit
                  4.1.)

         *4.9     Stockholder  Rights  Agreement  (Form 8-K,  dated as of May 1,
                  2003 and filed May 6, 2003, Exhibit 4.1).

         *4.10    Loan and Security  Agreement - Sixth  Amendment dated June 27,
                  2004, by and between Wegener Communications,  Inc. and LaSalle
                  National Bank respecting  $5,000,000 combined revolving credit
                  note and term note.  (2004  10-Q  filed July 9, 2004,  Exhibit
                  4.1.)

                  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.  Exhibit Number  Description of
                  Document *10.1 License Agreement,  Distributorship  and Supply
                  Agreement,  and Purchase Pooling and Warehouse Agreement dated
                  May 28, 1994, by and between Wegener Communications,  Inc. and
                  Cross Technologies,  Inc. (1995 10-K, filed December 15, 1994,
                  SEC file No. 0-11003, Exhibit 10.4).



                                       47
<PAGE>
    Exhibit Number                    Description of Document

         *10.2    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, SEC file
                  No. 0-11003, Exhibit 10.14).

         *10.3    1989 Directors'  Incentive Plan (1990 10-K, filed November 29,
                  1990, SEC file No. 0-11003, Exhibit 10.9).

         *10.3.1  Amendment to 1989 Directors' Incentive Plan effective February
                  1, 1995,  (1995 10-K,  filed  December 13, 1996,  SEC file No.
                  0-11003, Exhibit 10.4.1).

         *10.4    1998   Incentive  Plan  (1998  Form  S-8,   Registration   No.
                  333-51205, filed April 28, 1998, Exhibit 10.1).

         *10.5    Form of Agreement  between  Wegener  Corporation and Robert A.
                  Placek, Ned L. Mountain,  and C. Troy Woodbury, Jr. respecting
                  severance payments in the event of change of control (Schedule
                  14D-9, filed May 6, 2003, Exhibit (e) (1)).

         10.6     Director Compensation Plan for 2004

         *14.1    Wegener  Corporation Code of Business Conduct and Ethics (2003
                  10-K,  filed November 26, 2003, SEC file No. 0-11003,  Exhibit
                  14.1).

         21       Subsidiaries of the Registrant .

         23       Consent of BDO Seidman, LLP.

         31.1     Certification  of the  Chief  Executive  Officer  pursuant  to
                  Section 302 of the Sarbanes-Oxley Act of 2002.

         31.2     Certification  of the  Chief  Financial  Officer  pursuant  to
                  Section 302 of the Sarbanes-Oxley Act of 2002.

         32.1     Certification  of the  Chief  Executive  Officer  pursuant  to
                  Section 906 of the Sarbanes-Oxley Act of 2002.

         32.2     Certification  of the  Chief  Financial  Officer  pursuant  to
                  Section 906 of the Sarbanes-Oxley Act of 2002.


                                       48
<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:  December 2, 2004                          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 2nd day of December 2004.

<TABLE>
<CAPTION>
Signature                                        Title

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

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

    /s/ Ned L. Mountain                          Director, Executive Vice President of WCI
---------------------------------------
   Ned L. Mountain

    /s/ Phylis Eagle-Oldson                      Director
---------------------------------------
    Phylis Eagle-Oldson

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

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

    /s/ Wendell H. Bailey                        Director
---------------------------------------
   Wendell H. Bailey
</TABLE>


                                       49
<PAGE>

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

Ned L. Mountain
Executive Vice President
Wegener Communications, Inc.

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

Phylis Eagle-Oldson
President and Chief Executive
Officer of Emma L. Bowen
Foundation

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

Thomas G. Elliot
Senior Vice President of
Technical Projects
CableLabs

Wendell H. Bailey
President and Chief Executive
Officer of Strategic
Technology International

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

Ned L. Mountain
Executive Vice President
Wegener Communications, Inc.

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

INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
BDO Seidman, LLP
285 Peachtree Center Avenue
Suite 800
Atlanta, Georgia 30303-1230

TRANSFER AGENT
Securities Transfer Corporation
2591 Dallas Parkway
Suite 102
Frisco, Texas 75034

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

ANNUAL  MEETING The annual meeting of  stockholders  will be held on January 25,
2005 at 7:00 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 sale prices for fiscal 2004 and 2003 were as
follows:

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

FISCAL YEAR ENDING SEPTEMBER 3, 2004

First Quarter           $3.15    $2.00
Second Quarter           3.28     1.94
Third Quarter            2.63     1.35
Fourth Quarter           2.05     1.06
--------------------------------------

FISCAL YEAR ENDING AUGUST 29, 2003

First Quarter           $1.07    $ .60
Second Quarter           1.10      .69
Third Quarter            1.72      .73
Fourth Quarter           2.49     1.29
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The Company had approximately  381* shareholders of record at November 15, 2004.
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).


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