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 August 28, 2009
 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
      or other jurisdiction
                (I.R.S.
      Employerof
      incorporation or organization)
                Identification
      No.)
 
 11350
      Technology Circle, Johns Creek, Georgia
                30097-1502(Address
      of principal executive offices)
                (Zip
      Code)
  Registrant’s telephone number,
including area code: (770)
623-0096
  Securities
registered pursuant to Section 12(b) of the Act:
 Title
      of each class
                Name
      of each exchange on which registeredCommon
      Stock, $.01 par value
                NASDAQ
      Stock Market
  Securities registered pursuant to
Section 12(g) of the Act:None
  Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.Yes ̈Nox
  Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act.Yes ̈Nox
  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: YesxNo ̈
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 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. x
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
  Large
Accelerated Filer  ̈Accelerated Filer  ̈Non-Accelerated Filer.  ̈Smaller reporting companyx
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes ̈Nox
  As of
February 27, 2009 (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 $1,729,928 based on the last sale price of the Common
Stock as quoted on the NASDAQ Stock 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 20, 2009, 12,647,051 shares of registrant’s Common Stock were
outstanding.
  DOCUMENTS
INCORPORATED BY REFERENCE
 Portions
      of the definitive Proxy Statement pertaining to the 2010 Annual Meeting of
      Stockholders, only to the extent expressly so stated herein, are
      incorporated herein by reference into Part III.
 WEGENER
CORPORATION
 FORM
10-K
 YEAR
ENDED AUGUST 28, 2009
 INDEX
  PagePART
      IItem
      1.
                                                                                              Business
                                                                                              2Item
      1A.
                                                                                              Risk
      Factors
                                                                                              12Item
      1B.
                                                                                              Unresolved
      Staff Comments
                                                                                              16Item
      2.
                                                                                              Properties
                                                                                              16Item
      3.
                                                                                              Legal
      Proceedings
                                                                                              16Item
      4.
                                                                                              Submission
      of Matters to a Vote of Security Holders
                                                                                              17PART
      IIItem
      5.
                                                                                              Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                                                                                              17Item
      6.
                                                                                              Selected
      Financial Data
                                                                                              19Item
      7.
                                                                                              Management's
      Discussion and Analysis of Financial Condition
      and Results of Operations
                                                                                              20Item
      7A.
                                                                                              Quantitative
      and Qualitative Disclosures About Market Risk
                                                                                              31Item
      8.
                                                                                              Financial
      Statements and Supplementary Data
                                                                                              32Item
      9.
                                                                                              Changes in and
      Disagreements With Accountants on Accounting and Financial
      Disclosure
                                                                                              54Item
      9A.
                                                                                              Controls
      and Procedures
                                                                                              54Item
      9A(T).
                                                                                              Controls
      and Procedures
                                                                                              54Item
      9B.
                                                                                              Other
      Information
                                                                                              55PART
      IIIItem
      10.
                                                                                              Directors,
      Executive Officers and Corporate Governance
                                                                                              55Item
      11.
                                                                                              Executive
      Compensation
                                                                                              55Item
      12.
                                                                                              Security Ownership
      of Certain Beneficial Owners and
      Management and Related Stockholder
      Matters
                                                                                              55Item
      13.
                                                                                              Certain
      Relationships and Related Transactions, and Director
      Independence
                                                                                              55Item
      14.
                                                                                              Principal
      Accounting Fees and Services
                                                                                              55PART
      IVItem
      15.
                                                                                              Exhibits
      and Financial Statement Schedules
                                                                                              56
  1
  PART
I
  ITEM
1.  BUSINESS
  Wegener®
Corporation, the Registrant, together with its subsidiary, is referred to herein
as “we,” “our,” “us,” the
“Company” or “Wegener.”
 
 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 an international provider of
digital video and audio solutions for broadcast television, radio, telco,
private and cable networks. With over 30 years experience in optimizing
point-to-multipoint multimedia distribution over satellite, fiber, and IP
networks, WCI offers a comprehensive product line that handles the scheduling,
management and delivery of media rich content to multiple devices, including
video screens, computers and audio devices. WCI focuses on long- and short-term
strategies for bandwidth savings, dynamic advertising, live events and affiliate
management.
 
 WCI’s
product line includes: iPump® media servers for file-based and live broadcasts;
Compel® Network Control and Compel® Conditional Access for dynamic command,
monitoring and addressing of multi-site video, audio, and data networks; and the
Unity® satellite media receivers for live radio and video broadcasts.
Applications served include: digital signage, linear and file-based TV
distribution, linear and file-based radio distribution, Nielsen rating
information, broadcast news distribution, business music distribution, corporate
communications, video and audio simulcasts.
 
 Recent
Developments
 
 The
accompanying consolidated financial statements have been prepared on a going
concern basis which contemplates the realization of assets and liquidation of
liabilities in the normal course of business and do not include any adjustments
to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may result from
the possible inability of the Company to continue as a going
concern.
 
 Net loss
for the year ended August 28, 2009, was $(2,606,000) or $(0.21) per share,
compared to net earnings of $383,000 or $0.03 per share for the year ended
August 29, 2008, and a net loss of $(753,000) or $(0.06) per share for the year
ended August 31, 2007. Fiscal 2008 net earnings included a gain on sale of
patents of $894,000. Revenues for fiscal 2009 decreased $8,839,000, or 41.1%, to
$12,655,000 from $21,494,000 in fiscal 2008.
 
 During
the first, second, third and fourth quarters of fiscal 2009 bookings were
approximately $1.3, $1.7, $1.1 million and $1.4 million, respectively. These
fiscal 2009 bookings and fiscal 2010 bookings to date, as well as our fiscal
2008 bookings, particularly during the fourth quarter of fiscal 2008, were well
below our expectations and internal forecasts primarily as a result of customer
delays in purchasing decisions, deferral of project expenditures and general
adverse economic and credit conditions.
 
 During
the fourth quarter of fiscal 2008 and in fiscal 2009, we made reductions in
headcount to bring the current number of employees at August 28, 2009, to 63
compared to 91 at August 29, 2008, and reduced engineering consulting and other
operating and overhead expenses. Beginning in January 2009, we reduced paid
working hours Company-wide by approximately 10%. Subsequent to August 28, 2009,
we made further reductions in headcount to bring the current number of employees
to 51.
 
 On July
16, 2009, we entered into a non-binding letter of intent (the “LOI”) with
Sencore, Inc. (“Sencore”), a portfolio company of The Riverside Company, a
private equity firm, regarding a possible acquisition of Wegener Corporation by
Sencore. The exclusivity period set forth in the LOI expired September 13, 2009.
Wegener Corporation’s Board of Directors unanimously voted to terminate the LOI
and on September 17, 2009, officially notified Sencore of the
termination.
 
 WCI’s
loan facility was amended and effective October 8, 2009, provides a maximum
credit limit of $4,000,000 and bears interest at the rate of twelve percent
(12%) per annum. The term of the amended loan facility is eighteen (18) months
beginning October 8, 2009, or upon demand in the event of default as provided by
the loan facility.
  2
  Effective
October 8, 2009, based on its completion of the October 8, 2009 amendment to our
loan facility, Wegener Corporation Board of Directors voted to conclude the
Strategic Alternatives review process and disband the Strategic Alternatives
Committee of the Board.
  Segment Information and
Financial Information by Geographical Area
  Segment information and financial
information by geographical area contained in Note 13 to the consolidated
financial statements contained in this report are incorporated herein by
reference in response to this item.
  MARKETS
AND INDUSTRY OVERVIEW
  The primary markets we serve are
business and private networks, broadcast television and program originators,
radio broadcasters, and cable and telecom headends.
  Business/Private
Networks
  Business networks consist of
corporations and enterprises distributing video, audio and/or data among their
sites. Private networks consist of networks that target video, audio and/or data
to a select group of subscribers or viewers. Our equipment is currently used for
a large percentage of the horse racing video distribution to off-track betting
locations in the United States and Sweden and we are continuing to expand that
market. We also have a strong presence in faith-based networks. We continue to
expand our presence in digital signage networks, providing networked equipment
to distribute and display information and advertisements dynamically to retail
customers and employees. Business and private network customers include Muzak
LLC, Roberts Communications, Inc., The Church of Jesus Christ of Latter-Day
Saints and Swedish ATG. In addition, we work through third-party integrators,
such as Ascent Media and Satellite Store Link, to reach this
market.
 
 Business and private networks are
interested in reducing bandwidth costs by utilizing IP infrastructure that they
may have in place to distribute some of their programming terrestrially. When
the number of sites is large or there are live programs that are broadcast, then
satellite is still the most effective means of distribution. Many private and
business networks are also interested in store-forward technology to reduce
their satellite bandwidth usage and to localize their messaging on a
site-by-site basis. Digital signage is one of the largest growth areas within
the business and private networks market. Digital signage networks are those
that display content in the front-office to educate consumers, advertise
products and brand the environment. Digital signage networks are often used
after hours to educate employees, as well.
  Broadcast Television and
Program Originators
  Broadcast television consists of (1)
broadcast networks (companies that distribute broadcast television channels
nationally to their affiliates typically via satellite); and (2) broadcast
stations (local stations which are typically affiliates of national broadcasters
that distribute typically free-to-air television to local viewers). Program
originators consist of programmers that provide television programming to cable,
DTH satellite (direct-to-home) and telecom companies for distribution to
consumers. Broadcast television and programmer customers include Big Ten Network
(BTN), HDNet, and ION Media.
 
 The analog to digital transition for
broadcasters was completed this summer, so all US broadcasters are distributing
their signals digitally. In digital, broadcast networks have launched high
definition channels of all their primary broadcast channels and broadcast
stations have launched high definition channels in most markets throughout the
United States. Broadcast networks continue to see their viewership eroded by
program originators and some have launched secondary channels to generate
additional revenue.
 
 Program originators continue to
distribute their programming over satellite to cable, DTH satellite, and telecom
companies. In addition, many offer programming through other means such as the
internet and mobile phones. Program originators continue to launch new channels
and original programming to compete for advertising dollars and are offering
increasing numbers of HD channels, 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 the security of their
high value content being stored in consumers’ homes in a digital and potentially
easy to copy format.
  3
  Broadcast
Radio
  Broadcast radio consists of companies
that broadcast, typically free-to-air, radio signals to local listeners. Radio
network customers include BBC World Service, EMF Broadcasting, Dial Global,
Christian Radio Consortium, Salem Radio Network and American Family
Radio.
 
 Broadcast radio operators are
interested in regionalizing their broadcasts to give a local feel to the
programming. They also want to shift their programming for time-zones so that
“drive times” are able to be addressed with particular morning and afternoon
shows and advertisements, which can demand higher advertising dollars. In
addition, they continue to come under pressure from advertisers to ensure
verification and accuracy of advertisements.
  Cable and
Telecom
  Cable headends consist of cable
distribution companies, such as cable multiple system operators (MSOs) and other
headends. We have a multiyear agreement with MegaHertz for exclusive
distribution of several of our products into cable headends in the United
States.
 
 Telecom is comprised of telephony
companies now offering television services to consumers. They are launching
video service offerings to compete with cable and DTH satellite companies, due
to a decline in telephone subscribers and the ability to reduce subscriber
churn.
 
 With the drop in costs and the analog
cut-off complete, more HD televisions are being purchased by consumers. This is
dramatically increasing the amount of HD programs being offered on cable,
satellite and telecom networks.
 
 Cable, DTH satellite and telecom
companies are all competing to provide consumers with television, telephone,
high speed internet services and, in some cases, cell phone service. To gain and
maintain subscribers, they continue to roll out high definition, video-on-demand
services and personal video recording devices.
 
 Satellite teleports are expanding their
distribution systems to include terrestrial delivery as well as
satellite.
  PRODUCTS
  Our products include: iPump® Media
Servers, Unity®
Satellite Receivers, Compel® Network
Control and Content Management Systems, Nielsen Media Research Products, SMD Set
Top Boxes, Digital Television (DTV) Digital Stream Processors, third-party
uplink products and customized products. See Note 13 to the consolidated
financial statements for information on the concentration of products
representing 10% or more of revenues in the past three fiscal
years.
  iPump®Media
Servers
  The iPump® product
line combines the features of our integrated receiver decoders (IRD) with
advanced media server functionality and IP router capabilities. The iPump® receives
and stores television, radio and other digital files from broadcast, cable and
business network operations utilizing file-based broadcasting technology
compared to traditional real-time linear broadcasts. File-based broadcasting
technology allows network operators to store content at receive locations with
an iPump® and then
play back the content locally either based on schedules or on-demand user
selection. Network operators with repetitive content in their programming
line-up can reduce their satellite space segment costs by sending programming,
advertising and playback schedules via 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, advertising and play-out
schedules without the necessity to maintain a constant signal on the
satellite.
 
 A feature of the iPump® and
Compel® system
is IP network delivery of files and commands to the iPump®. With
this ability, network operators can launch iPump® networks
over the internet or private IP networks. Additionally, they can control their
network from one integrated Compel® control
system while feeding select sites via IP that they cannot reach with their
satellite either due to location outside of the satellite footprint or inability
to place a satellite dish.
  4
  There are four models of the iPump® that
utilize file-based broadcasting technology. The iPump® 6400
Professional Media Server is designed for broadcast television and private
network customers. The iPump® 6420
Audio Media Server is designed specifically to meet the needs of radio
broadcasters. The iPump® 562 and
iPump® 525
Enterprise Media Servers are designed specifically for private network and
enterprise applications, such as digital signage. The iPump® 562 and
iPump® 525
Media Servers are the most recent additions to the iPump product line and
support new technologies such as MPEG-4 video decoding for high definition and
standard definition video, as well as Digital Video Broadcast (DVB)-S2 satellite
demodulation. The iPump®525 is
designed specifically to support terrestrial content distribution and
control.
 
 We are targeting all of our core
markets for the iPump® product
line. Within these markets, applications for the iPump® products
include: digital signage, corporate communications, training/education,
time-zone shifting, regional advertising insertion, and news
distribution.
  Unity
Receivers
  The Unity® 552 is
the newest addition to the Unity® products
and is targeted to meet the needs of private and business television networks.
The Unity® 552
supports MPEG-2 and MPEG-4 video with high definition support and DVB-S and
DVB-S2 demodulation. By upgrading to MPEG-4 video and DVB-S2 modulation, network
operators can reduce their bandwidth utilization by approximately half. This
allows them to launch additional services, reduce their expenses or convert to
high definition video. The Unity® 551
utilizes MPEG-2 for video distribution and is also targeted for private and
business television networks.
 
 The Unity® 4600
receiver is a digital satellite receiver used primarily by program originators
to distribute programming to cable and telecom headends. It offers analog and
digital outputs to support analog and digital headends. DVB-S2 satellite
demodulation support is available on the product. Cable headends utilize the
Unity® 4600 to
support digital high definition television distribution.
 
 The Unity® 4650
receiver is a digital receiver used primarily by broadcast television networks.
The Unity® 4650
receiver is a video and audio decoder that features MPEG 4:2:0 and 4:2:2 video
for enhanced video quality in broadcast television network
distribution.
 
 The Unity®202
audio receiver is designed for business music providers. It allows users to
select audio formats and offers audio storage for advertising insertion and
disaster recovery. It is our second generation file-based broadcasting business
music receiver.
  Compel®Network Control and Content
Management System and CompelConnect.com®
  Compel® Network
Control System has been a key differentiator to our products since 1989.
Compel® is used
in over 150 networks controlling over 100,000 receivers, and it features
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 Conditional Access, MediaPlan® Content
Management (CM) and MediaPlanÒ
i/o Ingest. Conditional Access utilizes a secure microprocessor in every
Unity® and
iPump® receiver
to deliver fast, secure conditional access to a network without the high cost of
consumer smart card systems. Unity®
satellite receivers and iPump® media
servers are controlled by the Compel® Network
Control System, so the markets for Compel® are the
same as for iPump® and
Unity®
receivers.
 
 The next
generation of Compel® is the
Compel® II
network control system which is currently under development. Compel® II
retains the features of the Compel® network
control system while adding new features designed to enhance the user interface
and simplify operations for dynamic media distribution. The control system has
been streamlined by unifying many different screens and utilities within a
single, user friendly, web-based graphical user interface. Using a web browser
access, operators can control live and file-based media distribution networks
from any web-enabled remote location. Built upon a scalable open architecture,
Compel® II also
makes it easier for network administrators to limit access of employees or
affiliates to only those features and functions their jobs require. New set-up
features allow administrators to create classes of users that designate each
user’s level of access.
  5
  CompelControl.comTM
provides the operations available in Compel® II as a
software as a service (SaaS). Customers can purchase rights to use Compel®via the
Internet on a monthly basis. We are targeting smaller networks where the
economics of the network could not support a Compel®purchase
for the service.
 
 MediaPlanÒ
CM and MediaPlanÒ
i/o products are control and management system modules to our CompelÒ
Control System. The MediaPlan® products
are crucial for customers when controlling iPump® Media
Server networks and are a competitive advantage in sales of iPump® Media
Servers.
 
 MediaPlan® CM is a
powerful content management system used for managing media and other files and
actively tracking their delivery throughout the iPump® network.
In a file-based broadcasting network, media is simultaneously stored in multiple
iPumps® in the
field, rather than all in one repository at a central location; therefore,
management of the dispersed media assets becomes a crucial part of the network
operation. Operators need easy ways to view the content on individual
iPumps® and
automated mechanisms for updating/deleting media as it changes. MediaPlan® CM is
designed to address those and many other specific needs of managing media files
in a file-based broadcasting network. Operators can create libraries of assets,
generate descriptive metadata information, view content at each iPump®, send
requested content directly to targeted users and track file usage.
 
 MediaPlan® i/o is
the media creation product for the iPump® network.
In traditional linear networks, network operators are required to compress the
video, distribute it to remote locations and decompress it for broadcast, all
within one or two seconds. This requires the use of real-time encoders to
compress the video and audio as it is sent to the receivers at the remote
locations. In file-based broadcasting networks, the paradigm changes and the
process of video and audio compression, media distribution and decompression of
the media for broadcast can be done at different times. Network operators can
prepare the media files containing the compressed video and audio ahead of
airtime. Additionally, they can distribute the media files any time before
airing, so they can optimize the use of their bandwidth. When it is time for the
program to be broadcast, it merely needs to be played from the local hard drive
on the iPump®, not
transported through the network. As the media creation tool, MediaPlan® i/o
handles the first part of the process, the creation of media files containing
compressed video and audio which will be sent to iPumps®.
 
 CompelConnect.com® is the
newest offering for Compel® control.
It transitions Compel® to a
SaaS (software as a service) model, so users of CompelConnect.com® can
access Compel® via the
Internet and use it as needed. Customers purchase bandwidth and rights to use
Compel® on a
monthly service basis, rather than purchasing Compel® as an
up-front capital expense. This is targeted for users of Compel® that
have either a small number of sites or limited bandwidth
requirements.
  Nielsen Media Research
Products
  We offer two products to encode Nielsen
Media Research identification tags into media for Nielsen program ratings: the
NAVE IIc® and
SpoTTrac®
Encoders.
 
 The NAVE IIc®
watermarks program audio with tagging information that identifies the television
program and the television station that originated the program. The watermarks
are used by Nielsen devices to automate the process of cataloging viewers’
television viewing habits which ultimately translate into Nielsen ratings. The
NAVE IIc® makes
advances over prior units in that it inserts the watermarks for audio in the
digital domain and can simultaneously insert watermarking on an entire transport
stream with up to four programs. Alternatively, stations have to down-convert to
analog audio to insert Nielsen data.
 
 The
SpoTTrac® Encoder
is a turnkey workstation that encodes both the audio and video of television
commercials, Public Service Announcements and other spots with Nielsen Media
Research content identification information as they are being produced and
distributed, so the content has the Nielsen codes all the way from the program
origination point. The tracked data is collected and integrated into Nielsen
Tracking Service’s reporting and performance management tools.
 
 SMD Set Top
Box
 
 The SMD 515 Set Top Box (SMD) is sold
both to telecom operators and private network customers. Telecom operators use
the SMD as the device in consumers’ homes to receive IPTV (internet protocol
television) services. It is currently integrated with Conklin-Intracom’s
middleware and conditional access solution for use by multiple telcom operators
in North America to provide premium IPTV services including high definition
programming, video on demand and integrated personal video
recording.
  6
  Private
networks use the SMD 515 Streaming Media Decoder as a peripheral decoder for the
iPump® 6400,
and it is designed for environments such as retail point-of-sale kiosks, point
of purchase (POP) digital signs and advertisements, and corporate
communications. It receives a video stream via Internet Protocol from the
iPump® 6400 and
outputs high quality video to large video monitors for digital signage or
classroom training applications. It supports HD video in MPEG-4 and MPEG-2
compression formats and advanced digital audio, in addition to standard
definition video and audio to ensure quality media displays for such high
visibility purposes.
 
 DTV Digital Stream
Processors
 
 The DTV Digital Stream Processor
product line is designed for cable and telecom headends. It allows them to
integrate local off-air HD broadcast television channels and digital programs
and easily insert them onto their networks. Our products provide for multiple
signals to be inserted with one unit. Models include DTV 720, DTV 742 and DTV
744.
  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, modulators and IP
encapsulators from other manufacturers, such as Harmonic, Inc. and
Thomson.
  Customized
Products
  We offer our customers the option to
create custom products for their needs when they cannot find off-the-shelf
products to satisfy their requirements. They pay non-recurring engineering
expenses through product pricing and/or up-front milestone payments. Typically
the products are based on our standard products and require modifications to fit
particular customer needs. This is an area of competitive advantage for
us.
 
 MARKET
OPPORTUNITY
 
 Growth opportunities are most
significant in the technologies in which we have been making significant R&D
investments, including file-based broadcasting technology, digital signage, IP
terrestrial distribution and MPEG-4 technology and DVB-S2. See “Research and
Development” below.
 
 We have completed shipments of
file-based broadcasting networks, including iPump®,
Compel® and
MediaPlan®, in
multiple applications, including digital signage, virtual channel generation and
broadcast radio. Some examples of iPump applications are described
below.
 
 A private network customer for digital
signage and distance training is using the iPump® for both
signage and training applications simultaneously. The customer is using the
iPump’s optional feature to generate two networks from a single unit. A third
output is streamed from the iPump over Ethernet to SMD Set-Tops. Within a retail
environment, the main output and the SMD are being used for advertising at the
point of sale and in the electronics department by outputting high quality video
advertisements to large video monitors. Within eight months of deployment, the
customer generated a positive return on equipment expenses through advertising
revenue. With this asset, the customer is also generating a back-room training
center for its employees at each site, basically for free since the
advertisements are funding the network. The customer can create customized
training schedules at each location depending on the employees’ availability, or
the employees can watch the materials on demand.
 
 The virtual channel application of the
iPump® allows a
current private network customer to reduce its budget for satellite bandwidth by
greater than 90% of what it had been spending prior to upgrading to iPump®.
Satellite bandwidth utilization was one of the customer’s largest operating
expenses, so this reduction represents a sizable savings, allowing the customer
to launch an additional channel. This network used to run continuously,
utilizing satellite bandwidth the entire time; now the customer uses bandwidth
only twice a month to update the iPumps® with new
content, advertisements and playout schedules. This example demonstrates the
significant savings that potential customers may achieve with the iPump®.
 
 iPump®
broadcast radio customers are using file-based broadcasting technology to update
its operations and enable localization of broadcasts. It allows them to send
repetitive material to their affiliates a single time and provides an easy
interface for affiliates to access the audio files. With the iPump®, radio
broadcasters can create a localized listening experience for each affiliate
location to drive increased advertising dollars and listener loyalty. One
customer regularly generates over 150,000 playlists per week through their
iPump® network
to localize all of its radio channels throughout the country.
  7
  The digital signage market is still
very fragmented and as the industry consolidates, there is increased opportunity
for our products. We have fielded multiple networks with over one thousand sites
of digital signage into the banking sector. Other sectors with fielded
iPump® networks
include retail and medical.
 
 Integrating IP terrestrial delivery
into our products increases the market for them, since it enables customers to
use them in tandem with satellite delivery networks, or completely autonomously
with solely terrestrial delivery. Terrestrial delivery is particularly cost
effective when networks have smaller numbers of receive locations. Integrating
this function into our solutions allows us to target smaller networks for our
solutions that had not been relevant with satellite only solutions.
 
 Another area of growth for us relates
to the development of MPEG-4/h.264 video decoding and DVB-S2 satellite
demodulation products (see “Research and Development” below for additional
information). The Unity® 552,
iPump® 562 and
iPump® 525
products offers MPEG-4/h.264 and/or DVB-S2 technology. The MPEG-4/h.264 standard
is the next evolutionary step in video compression and DVB-S2 is the newest
technology in satellite modulation. The two technologies combined reduce the
bandwidth requirements of satellite media distribution approximately in half.
This reduction in bandwidth requirements is significant, as bandwidth
utilization is one of the largest operating costs for our customers. This new
technology can drive growth in two ways. First, existing satellite operators can
replace their existing equipment with new MPEG-4/h.264 and DVB-S2 capable
equipment since they can justify the capital expense with the operational
benefits of the transition. Additionally, the lower operating expenses enable
new business models to develop that could not be supported by the older
technology’s cost structure.
 
 SALES
AND MARKETING
  Domestically, we sell our products
principally through our own direct sales force, which is organized
geographically and by market segment. We have sales representatives in Georgia,
New York and Eastern Canada. We use a major domestic value added reseller for
additional sales coverage in the cable market. We have relationships with a few
key integrators as an additional sales channel. Internationally, we sell
primarily through independent distributors and integrators, mostly in North
America, South America and Europe. The majority of our sales have payment terms
of net 30 days. Due to the technical nature of our business, system integration
engineering supports sales.
 
 Our marketing organization develops
strategies for product lines and provides direction to product development on
product feature requirements. Marketing is also responsible for setting price
levels and general support of the sales force, particularly with major proposal
responses, presentations and demonstrations. We focus on establishing WCI’s
brand further within the industry, including participation on technical
committees, publication of articles in industry journals, speaking opportunities
at industry events and exhibitions at trade shows.
 
 Manufacturing
and Suppliers; Sources and Availability of Raw Materials
  During fiscal years 2009and 2008, we used offshore manufacturers for a
significant amount of our finished goods or component inventories.Oneoffshore manufacturer accounted for
approximately 68%of inventory purchases in
fiscal 2009, and twooffshore manufacturers accounted for
approximately 52%and21% of inventory
purchases in fiscal 2008, respectively. They have facilities located in Taiwan
and the Peoples Republic of China.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 subassembly 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
andfuture products are
currently available from a 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.
  8
  Intellectual
Property
 
 Currently,
we hold four U.S patents, have one patent application pending, and four patents
published. During the fourth quarter of fiscal 2008, we completed the sale of
seven patents and patent applications to EPAX Consulting Limited Liability
Company relating to product distinction, system architecture and IP networking
for net proceeds of approximately $1,075,000 and recorded a gain of $894,000. We
retain a worldwide, non-exclusive, royalty-free license under the patents for
use in both existing and future products. A patent covering advanced receiver
grouping techniques in Compel® expired
on November 14, 2008. In addition to the advanced grouping techniques, we
believe Compel®, along
with our MediaPlanÒ
CM and MediaPlanÒ
i/o modules, offers other significant features and functionalities for complex
network control applications that provide us with an advantage over competitive
control systems. Compel®, which
has been operational since 1989, will continue to be upgraded and enhanced. The
expiration of the Compel®patent
has not had a material adverse effect on our business and results of operations.
However, no assurances may be given that a material adverse effect will not
occur in the future (see Item 1A. “Risk Factors” section below).
 
 We hold
nine active trademarks, such as Compel®, iPump®, Wegener® and Unity® and have
two pending trademark applications.
 
 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 and trademark 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 develop and market successfully 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
$66,000, and $86,000 in fiscal 2008 and 2007, respectively. No royalty revenues
were recorded in fiscal 2009 due to licensees no longer producing products using
the analog audio processing technology. We do not expect to receive future
royalty revenues from our licensees.
  During the second quarter of fiscal
2003, we entered into a license agreement with StarGuide Digital Networks, Inc.,
a Nevada corporation. This agreement granted a number of limited licenses 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. We have agreed to pay StarGuide a running royalty on certain of
our products. We believe that these royalties will not have a material adverse
effect on our financial condition or results of operations. In addition, as of
August 28, 2009, we have entered into sevenother license agreements for
utilization of various technologies. These agreements currently require royalty
payments, or may require future royalties for products under development, none
of which are expected to have a material adverse effect on our financial
condition or results of operations.
 
 Seasonal
Variations in Business
  There do not appear to be any seasonal
variations in our business.
  9
  Working
Capital Practices
  Information contained under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" (MD&A) section of this report is incorporated herein by
reference in response to this item.
  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 Jones Radio Networks, Muzak
and Mega Hertz accounted for approximately 21.9%, 18.1% and 10.7% of revenues in
fiscal 2009, respectively. Sales to Big Ten Network, Conklin-Intracom and Mega
Hertz accounted for approximately 14.4%, 13.3% and 12.1% of revenues in fiscal
2008, respectively. Sales to Jones Radio Networks,SSL (Satellite Store Link) and
Mega Hertz accounted for approximately 15.4%, 14.2% and 10.3% of revenues in
fiscal 2007, respectively. At August 28, 2009, three customers accounted for
more than 50.1% of our accounts receivable. At August 29, 2008, three customers
accounted for more than 33.6% of our 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 2010 and beyond. The loss
of one or more of these customers would likely have, at least in the near term,
a material adverse effect on our results of operations.
  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 $4,316,000 at August 28, 2009,
$8,491,000 at August 29, 2008, and $10,170,000 at August 31, 2007. Approximately
$3,173,000 of the August 28, 2009, backlog is expected to ship during fiscal
2010. At August 28, 2009, two customers accounted for 81.3% of the eighteen
month backlog and 77.3% of the backlog expected to ship during fiscal 2010.
Reference is hereby made to the information contained in MD&A, which is
incorporated herein by reference in response to this item.
 
 Competitive
Conditions
  We compete both with companies that
have substantially greater resources and with small specialized companies.
Competitive forces generally change on a year-by-year basis for the markets we
serve due to the length of time required to develop new products. 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.
 
 Broadcast Television and
Program Originators
  Competition for our products in the
broadcast television and program originators market is from large and
well-established companies such as Tandberg, Motorola and Cisco. We believe 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.
  Cable and
Telecom
  Competition for our DTV products is
mostly from smaller companies that do not have as favorable a reputation in the
cable television market. Significant orders for this product line will depend on
the overall growth of broadcast and telecom HDTV offerings.
 
 Competition
for the SMD Set Top box is from companies producing cable set-top boxes as well
as from companies specifically addressing the IPTV market.
 
 Broadcast
Radio
 
 Competition is currently limited to a
few smaller companies for our iPump® Media
Server in the broadcast radio market. We believe Compel® Network Control is a
competitive advantage in broadcast radio, as well as our full-featured
iPump®6420 Media Server.
  10
  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. We
believe our products are well positioned for this market and have competitive
advantages, such as our powerful network control and targeting capabilities.
Digital signage is a new and growing market which is currently very
fragmented.
 
 Research
and Development
  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 2009 research and development
expenses were spent on product development of our iPump®6420,
iPump® 562,
iPump® 525,
Compel®,and
Unity® 552
products. WCI’s research and development expenses totaled $1,962,000 in fiscal
2009, $3,213,000 in fiscal 2008, and $3,033,000 in fiscal 2007. Additional
information contained in the “Products” and “Intellectual Property” sections
above and in MD&A is incorporated herein by reference in response to this
item.
 
 Technological advances occur frequently
in our industry and our product offerings must be upgraded with the advances to
remain current with industry trends and attract potential customers. During
fiscal 2009, we invested in new technologies while they are still very
innovative and of high value to customers. During fiscal 2009, we invested in
MPEG-4/H.264 video decompression and DVB-S2 demodulation technology, file-based
broadcasting, digital signage, and network management. We anticipate that we
will continue to invest in all of these technologies in the coming years as they
are all at the beginning of their life cycles.
 
 MPEG-4/H.264
video compression and DVB-S2 modulation are new technologies that are now
fielded with our products. MPEG-4/H.264 compression and DVB-S2 modulation reduce
bandwidth utilization significantly, which is a material cost reduction for our
customers since satellite bandwidth utilization is one of their largest
operating expenses. Alternately, customers can upgrade to high definition video
and significantly increase its quality while maintaining similar bandwidth
utilization to their current MPEG-2 standard definition video and DVB-S
modulation networks. The Unity® 552
receiver, iPump® 562
server, iPump® 525 and
the SMD 515 decoder incorporate MPEG-4 and/or DVB-S2 technology.
 
 With our file-based broadcasting
solutions, network operators can intersperse live broadcasts with files that are
prepositioned on the receiver’s hard drive before they are played to air. This
allows operators to manage their bandwidth more closely and to regionalize their
broadcasts to make them more relevant for each market. Our iPump®
products, in combination with Compel® and
MediaPlan® control
provide advanced file-based broadcasting solutions for applications such as
digital signage and broadcast radio.
 
 The digital signage market requires
products to integrate text and graphics onto the screen with video to aid in
advertising, information distribution and branding. Our iPump® and
Compel® products
are being further developed to better serve the digital signage
market.
 
 Network control and management have
long been a differentiator for our Unity®
receivers and iPump® media
servers. Through fiscal 2009, we continued to invest in network control for our
products, which allows customers to create dynamic environments with their
receivers and to gain additional advertising revenue by regionalizing broadcasts
and advertisements. When network control is included in a file-based
broadcasting network, it becomes a very complex operation to manage the media
content and data files on media servers throughout the network. It is imperative
to customers that it is managed properly, as the content often has limited
viewing rights, so it must be deleted when rights have expired or replaced by
newer versions over time. Network control and management products, such as
Compel® and
MediaPlan®, manage
such operations.
 
 Employees
 
 As of August 28, 2009, we had 63full-time employees employed
by WCI and no employees employed by Wegener Corporation. Subsequent to August
28, 2009, we made further reductions in headcount to bring the current number of
employees to 51. No employees are parties to a collective bargaining agreement
and we believe that employee relations are good.
  11
  Available
Information
  Our Web site is
http://www.wegener.com. 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:
  Name
      and Business Experience
                    
                    Age
                    
                    Office
      HeldC. Troy Woodbury,
      Jr.
                      President
      and Chief Executive Officer of the Company and WCI since October 2009.
      Treasurer and Chief Financial Officer of the Company from June 1988 to
      October 2009 and Director since 1989.  Treasurer and Chief Financial
      Officer of WCI from 1992 to October 2009.  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.
                    
                    62
                    
                    President
      and Chief Executive Officer of the Company and WCIJames
      Traicoff
                      Treasurer
      and Chief Financial Officer of the Company and WCI since October 2009.
      Controller of the Company and WCI from July 1988 to October
      2009.
                    
                    59
                    
                    Treasurer
      and Chief Financial Officer of the Company and
  WCI
  On
October 13, 2009, Ned L. Mountain tendered his resignation as director of
Wegener Corporation and effective October 16, 2009, Mr. Mountain left WCI. Mr.
Mountain was President and Chief Operating Officer of WCI from January 2005 to
October 2009 and Director of the Company from May 2003 to October 2009.
Effective October 9, 2009, the Board of Directors appointed C. Troy Woodbury Jr.
as President and Chief Executive Officer of Wegener Corporation and WCI. James
Traicoff was appointed Treasurer and Chief Financial Officer of Wegener
Corporation and WCI. Robert Placek resigned as President and Chief Executive
Officer of Wegener Corporation on October 9, 2009, but remains as Chairman of
the Board of Wegener Corporation.
  ITEM
1A. RISK FACTORS
  Our
business, financial condition and operating results can be affected by a number
of factors, including those listed below, any one of which could cause our
actual results to vary materially from recent results or from our anticipated
future results. Any of these risks could also materially and adversely affect
our business, financial condition or the price of our common stock.
  We
may not have sufficient capital to continue as a going concern.
  Our
bookings and revenues during fiscal 2009 and to date in fiscal 2010 have been
insufficient to attain profitable operations and to provide adequate levels of
cash flow from operations. We have experienced recurring net losses from
operations, which have caused an accumulated deficit of approximately
$17,751,000 at August 28, 2009. We had a working capital deficit of
approximately $1,139,000 at August 28, 2009 compared to working capital of
approximately $1,053,000 at August 29, 2008. Our ability to continue as a going
concern will depend upon our ability to increase our bookings and revenues in
the near term to attain profitable operations and to generate sufficient cash
flow from operations. Should increased revenues not materialize, we are
committed to further reducing operating costs to bring them in line with reduced
revenue levels. Should we be unable to achieve near term profitability and
generate sufficient cash flow from operations and if we are unable to
sufficiently reduce operating costs, we would need to raise additional capital
or increase our borrowings. No assurances can be given that operating costs can
be sufficiently reduced, or if required, that additional capital or borrowings
would be available to allow us to continue as a going concern. The audit report
relating to the consolidated financial statements for the year ended August 28,
2009, contains an explanatory paragraph regarding the Company’s ability to
continue as a going concern.
  12
  The
volatility and disruption of the capital and credit markets, and adverse changes
in the global economy, will likely have a negative impact on our ability to
access the capital and credit markets.
 
 The
capital and credit markets have become increasingly tight as a result of adverse
economic conditions that have caused the failure and near failure of a number of
large financial services companies. If the capital and credit markets continue
to experience crisis and the availability of funds remains low, it is likely
that our ability to access the capital and credit markets will be limited,
available on less favorable terms or not available at all during this period in
the event we need to raise additional capital or obtain additional credit
facilities in order to continue as a going concern. In addition, if current
global economic conditions persist for an extended period of time or worsen
substantially, our business may suffer in a manner which could cause us to fail
to satisfy the representations, warranties and covenants to which we are subject
under our existing credit facility.
 
 Conditions and changes in the
national and global economic environments may adversely affect our business and
financial results.
 
 Economic
conditions have been weak and global financial markets have experienced a severe
downturn. The current global economic slowdown and tight credit markets has led
many of our customers to delay or plan lower capital expenditures, and we
believe that these economic and credit conditions caused certain of our
customers to reduce or delay orders for our products. If adverse economic and
credit conditions resulting from slower economic activity and tight credit
markets remain weak or deteriorate further, we may continue to experience a
material adverse impact on our business, financial condition and results of
operations.
 
 Our
future operating results are difficult to predict and may fluctuate
materially.
 
 Our
future operating results are difficult to predict and may be materially affected
by a number of factors, including: the timing of purchasing decisions by our
customers, the timing of new product announcements or introductions by us or our
competitors, competitive pricing pressures, adequate availability of components
and offshore manufacturing capacity. Additional factors affecting our operating
results include our ability to hire, retain and motivate adequate numbers of
engineers and other qualified employees, changes in product mix, and the effect
of adverse changes in economic conditions in the United States and international
markets. In addition, our markets have historically been cyclical and subject to
significant economic downturns. Our business is subject to rapid technological
changes and there can be no assurance, depending on the mix of future business,
that products stocked in inventory will not be rendered obsolete before we ship
them. As a result of these and other factors, there can be no assurance that we
will not experience material fluctuations in future operating results on a
quarterly or annual basis.
 
 Our
fluctuations in bookings and revenues affect our cash flow from operations. In
addition, our credit facility imposes a maximum borrowing limit and requires
compliance with debt representation, warranty and covenant
provisions.
 
 Our cash
collections from our accounts receivable are impacted by the timing and levels
of our bookings and revenues. Any shortfalls in such collections would require
us to increase borrowings under our credit facility which has a maximum
available credit limit of $4,000,000. Our loan facility requires us to be in
compliance with certain representations, warranties and covenants. Among which,
we are required by May 28, 2010 to be in compliance with the solvency
representation provision. This representation requires us to be able to pay our
debts as they become due, have sufficient capital to carry on our business and
own property at a fair saleable value greater than the amount required to pay
our debts. No assurances may be given that we will be in compliance with the
solvency provision by May 28, 2010. A breach of this or other restrictive
provisions of loan facility could result in a default on our indebtedness. If a
default occurs, any outstanding indebtedness, together with accrued interest,
would be immediately due and payable, and the lender could proceed against our
assets that secure that indebtedness.
  13
  Our
inability to pay vendors within normal trade payment terms could adversely
impact our operations.
 
 Our
bookings and revenues during fiscal 2009, as well as in fiscal 2010, have been
insufficient to attain profitable operations andto provide adequate levels of
cash flow from operations. During fiscal 2009, as well as to date in fiscal
2010, due to insufficient cash flow from operations and borrowing limitations
under our loan facility (effective October 8, 2009, a maximum of $4,000,000, and
prior to October 8, 2009, limited to available collateral), we negotiated
extended payment terms with our two offshore vendors and have been extending
other vendors beyond normal payment terms. Until such vendors are paid within
normal payment terms, no assurances can be given that required services and
materials needed to support operations will continue to be provided. Any
interruption of services or materials would likely have an adverse impact on our
operations.
  The
Nasdaq Stock Market may delist our securities, which could limit investors’
ability to trade in our securities.
 
 On August
21, 2008, we received a notice from The Nasdaq Stock Market (“Nasdaq”)
indicating that for the last 30 consecutive business days, the bid price of our
common stock had closed below the minimum $1.00 per share requirement for
continued inclusion under Marketplace Rule 4310(c)(4) (the “Rule”). The notice
also stated that we had been provided with 180 calendar days, or until February
17, 2009, to regain compliance in accordance with Marketplace Rule
4310(c)(8)(D). On October 16, 2008, Nasdaq announced it had temporarily
suspended enforcement of the minimum bid price and minimum market value of
publicly held shares through January 16, 2009. Subsequent extensions announced
by Nasdaq extended the enforcement date through July 13, 2009. As a result, we
now have until December 7, 2009, to regain compliance with the minimum bid rule.
If, at anytime before December 7, 2009, the bid price of our common stock closes
at $1.00 per share or more for a minimum of 10 consecutive business days, the
Nasdaq staff will provide written notification that we comply with the
Rule.
 
 If we
cannot regain compliance by December 7, 2009, the Nasdaq staff will determine
whether we meet The Nasdaq Capital Market initial listing criteria set forth in
Marketplace Rule 4310(c), except for the bid price requirement. If we meet the
initial listing criteria, the Nasdaq staff will notify us that we have been
granted an additional 180 calendar day compliance period. If we are not eligible
for an additional compliance period, the Nasdaq staff will provide written
notification that our securities will be delisted. At that time, we would appeal
the Nasdaq staff’s determination to delist our securities to a Listing
Qualifications Panel.
 
 If our
common stock is delisted by Nasdaq, the trading market for our common stock
would likely be adversely affected, as price quotations may not be as readily
obtainable, which would likely have a material adverse effect on the market
price of our common stock.
  We
have in the past experienced delays in product development and introduction, and
there can be no assurance that we will not experience further delays in
connection with our current product development or future development
activities.
 
 Delays in
development, testing, manufacture and/or release of new products or features,
including digital receivers, Compel® network
control software, MediaPlan® content
management software, streaming media, and other products could adversely affect
our sales and results of operations. In addition, there can be no assurance that
we will successfully identify new product opportunities, develop and bring new
products to market in a timely manner and achieve market acceptance of our
products, or that products and technologies developed by others will not render
our products or technologies obsolete or noncompetitive.
 
 Our
lengthy and variable qualification and sales cycles make it difficult to predict
the timing of a sale or whether a sale will be made.
 
 As is
typical in our industry, our customers may expend significant efforts in
evaluating and qualifying our products. This evaluation and qualification
process frequently results in a lengthy sales cycle, typically ranging from
three to six months and sometimes longer. While our customers are evaluating our
products and before they place an order with us, we may incur substantial sales,
marketing, and research and development expenses, expend significant management
efforts, increase manufacturing capacity and order long-lead-time supplies prior
to receiving an order. Even after this evaluation process, it is possible that a
potential customer will not purchase our products.
  14
  Our
customer base is concentrated and the loss of one or more of our key customers
would harm our business.
  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 2010 and beyond. In fiscal 2009,
three customers accounted for approximately 21.9%, 18.1% and 10.7% of revenues,
respectively. At August 28, 2009, two customers accounted for 81.3% of the
eighteen month backlog and 77.3% of the backlog expected to ship during fiscal
2010. In addition, recent disruptions in global economic and market conditions
could result in decreases in demand for our products as the current tightening
in credit in financial markets may adversely affect the ability of our major
customers to obtain financing for significant purchases. The loss of any
significant customer or any reduction in orders by any significant customer
would adversely affect our business and operating results and potentially our
liquidity.
  We
rely on third-party subcontractors, certain suppliers and offshore
manufacturers.
  We use offshore manufacturers for a
significant amount of finished goods or component inventories. One offshore
manufacturer accounted for approximately 68% of inventory purchases in fiscal
2009, and two offshore manufacturers accounted for approximately 52% and 21% of
inventory purchases in fiscal 2008, respectively. Certain raw materials, video
sub-components and licensed video processing technologies used in existing and
future products are currently available from a single source or limited sources.
Any disruption or termination of supply of certain single-source components or
technologies, or interruption of supply from offshore manufacturers, would
likely have a material adverse effect on our business and results of operations,
at least in the near term.
  Our
intellectual property rights may be insufficient to protect our competitive
position. In addition, our pending or future intellectual property applications
may not be issued.
 
 We hold
four U.S patents currently, including a patent covering advanced receiver
grouping techniques in Compel® which
expired on November 14, 2008 (see also “Intellectual Property”section above). We
hold nine active trademarks, such as Compel®,
iPump®,
Wegener® and
Unity®.
Currently we have one patent application pending, four patents published and two
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 and
trademark 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.
 
 We
may not be able to license necessary third-party technology or it may be
expensive to do so. In addition, claims that we infringe third-party
intellectual property rights could result in significant expenses and
restrictions on our ability to sell our products in particular
markets.
 
 In order
to develop and market successfully 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 technologydevelopment 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 wehaveinfringed 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.
 
 Competition in our industry is
intense and can result in reduced sales and market share.
 
 We
compete with companies which have substantially larger operations and greater
financial, engineering, marketing, production and other resources than we have.
These competitors may develop and market their products faster, devote greater
marketing and sales resources, or offer more aggressive pricing, than we can. As
a result, this could cause us to lose orders or customers or force reductions in
pricing, all of which would have a material adverse effect on our financial
position and results of operations.
  15
  Our business is subject to rapid
changes in technology and new product introductions.
  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. 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 to 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.
 
 Our
stock price is subject to volatility.
 
 Our
common stock has experienced substantial price volatility and such volatility
may occur in the future, particularly as a result of quarter to quarter
variations in the actual or anticipated financial results of the Company or
other companies in the satellite communications industry or in the markets we
serve. These and other factors may adversely affect the market price of our
common stock.
  ITEM
1B. UNRESOLVED STAFF COMMENTS
  Not applicable
  ITEM
2. PROPERTIES
  Our executive, sales, engineering and
administrative offices are located at 11350 Technology Circle, Johns Creek,
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 which remains
undeveloped. WCI also leases a 21,000 square foot manufacturing facility in
Alpharetta, Georgia under a three year lease expiring in April 2012 with annual
rents of approximately $83,000 in fiscal 2010, $143,000 in fiscal 2011 and
$95,000 in fiscal 2012. WCI's 40,000 square foot facility, including the 4.7
acre site on which the building is located, and 4.4 acres of adjacent land
are pledged as collateral under our line of credit facility.
  ITEM
3. LEGAL PROCEEDINGS
  On June
1, 2006, a complaint was filed by Rembrandt Technologies, LP (Rembrandt) against
Charter Communications, Inc. (Charter), Cox Communications Inc. (Cox), CSC
Holdings, Inc. (CSC) and Cablevisions Systems Corp. (Cablevision) in the United
States District Court for the Eastern District of Texas alleging patent
infringement. The complaint alleges that products and services sold by Charter
infringe certain Rembrandt patents related to cable modem, voice-over internet,
and video technology and applications. The case may be expensive to defend and
there may be substantial monetary exposure if Rembrandt is successful in its
claim against Charter and then elects to pursue other cable operators that use
the allegedly infringing products. Wegener has not been named a party in the
suit. However, subsequent to December 1, 2006, Charter has requested us to
defend and indemnify Charter to the extent that the Rembrandt allegations are
premised upon Charter’s use of products that we have sold to Charter. To date,
we have not agreed to Charter’s request.
 
 On June
1, 2006, a complaint substantially similar to the above described suit was filed
by Rembrandt against Time Warner Cable (TWC) in the United States District Court
for the Eastern District of Texas. Wegener has not been named a party in the
suit, but TWC has requested us (as well as other equipment vendors) to
contribute 2% of the defense costs related to this matter as a result of the
products that we and others have sold to TWC. To date, we have not agreed to
contribute to the payment of legal costs related to this case.
 
 In
addition, Cisco Systems, Inc. (Scientific Atlanta) has made indemnity demands
against us, related to the fact that a number of Cisco’s customers that are
defendants in the Rembrandt lawsuit have made indemnity demands against Cisco.
Cisco’s demands are based upon allegations that Wegener sold devices to these
companies that are implicated by the patent infringement claims in the Rembrandt
lawsuit. To date, we have not agreed to Cisco’s demands.
 
 These
actions have been consolidated into a multi-district action pending in the
United States District Court for the District of Delaware. On October 23, 2009,
the Delaware District Court issued an Order dismissing eight of the substantive
patent claims embodied in the consolidated action, as well as all counterclaims.
The parties also have agreed to summary judgment of non-infringement on a
remaining patent claim, but the grounds for such summary judgment have not yet
been finalized. The Court subsequently asked each of the parties to the
consolidated lawsuits to submit any motions for fees and costs with respect to
one another by November 16, 2009. At this point, we are presently unable to
assess the impact, if any, of this litigation on Wegener.
  16
  ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  There were no matters submitted to a
vote of security holders in the fourth quarter of the fiscal year covered by
this report.
  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 Stock Market (NASDAQ symbol: WGNR). As of November 3, 2009, there were
approximately 336holders of record of Common Stock. This number does not reflect
beneficial ownership of shares held in nominee or “street” name.
  The
quarterly ranges of high and low sale prices for fiscal 2009 and 2008 were as
follows:
  Fiscal 2009
                    
                    
                    Fiscal 2008High
                    
                    
                    Low
                    
                    
                    High
                    
                    
                    LowFirst
      Quarter
                    
                    $
                    1.10
                    
                    
                    $
                    . 32
                    
                    
                    $
                    1.22
                    
                    
                    $
                    . 83Second
      Quarter
                    
                    
                    .54
                    
                    
                    
                    .10
                    
                    
                    
                    1.01
                    
                    
                    
                    .76Third
      Quarter
                    
                    
                    .45
                    
                    
                    
                    .15
                    
                    
                    
                    1.49
                    
                    
                    
                    .74Fourth
      Quarter
                    
                    
                    .38
                    
                    
                    
                    .10
                    
                    
                    
                    1.22
                    
                    
                    
                    .58
  Dividends
  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 any earnings
to support our operations.  Furthermore, we are prohibited from paying
dividends under our loan agreement, as more fully described in MD&A and in
Note 9 to the consolidated financial statements contained in this
report.
  Recent
Sales of Unregistered Securities
  There
were no unregistered sales of securities during the fiscal year ended
August 28, 2009.
  Stock
Performance Graph
  The
following graph compares the cumulative total stockholder return of our common
stock with the cumulative total return of the NASDAQ Composite Index and the
NASDAQ Telecommunications Index for the five fiscal years ended August 28,
2009. The graph assumes that $100 was invested on September 3, 2004 in our
common stock and each index and that all dividends were reinvested. We have not
declared any cash dividends on our common stock. Stockholder returns over the
indicated period should not be considered indicative of future stockholder
returns.
  17


9/3/04
                    
                    
                    9/2/05
                    
                    
                    9/1/06
                    
                    
                    8/31/07
                    
                    
                    8/29/08
                    
                    
                    8/28/09Wegener
      Corporation
                    
                    
                    100.00
                    
                    
                    
                    96.92
                    
                    
                    
                    96.92
                    
                    
                    
                    80.00
                    
                    
                    
                    44.62
                    
                    
                    
                    17.69NASDAQ
      Composite
                    
                    
                    100.00
                    
                    
                    
                    117.36
                    
                    
                    
                    121.51
                    
                    
                    
                    144.91
                    
                    
                    
                    128.33
                    
                    
                    
                    110.24NASDAQ
      Telecommunications
                    
                    
                    100.00
                    
                    
                    
                    114.50
                    
                    
                    
                    128.78
                    
                    
                    
                    179.43
                    
                    
                    
                    159.70
                    
                    
                    
                    134.82
  (1)         
The stock performance graph shall not be deemed soliciting material or to be
filed with the Securities and Exchange Commission or subject to
Regulation 14A or 14C under the Securities Exchange Act of 1934 (the
“Exchange Act”) or to the liabilities of Section 18 of the Exchange Act,
nor shall it be incorporated by reference into any past or future filing under
the Securities Act of 1933 (the “Securities Act”) or the Exchange Act, except to
the extent we specifically request that it be treated as soliciting material or
specifically incorporate it by reference into a filing under the Securities Act
or the Exchange Act.
  Equity
Compensation Plan Information
 
 The
following table summarizes information as of August 28, 2009, regarding our
common stock reserved for issuance under our equity compensation
plans.
  18
 
 . Plan Category
                                
                                Number of Securities
                                  tobe Issued Upon
                                  Exercise of
                                  OutstandingOptions
                                  (a)
                                
                                
                                Weighted-
                                  Average
                                  ExercisePriceofOutstanding
                                  Options
                                  (b)
                                
                                
                                Number of Securities Remaining
                                  Available for Future Issuance
      Under
                                  the Plans (Excluding
Securities
                                  Reflected in Column (a))
                                  (c)Equity
      Compensation Plans Approved by Security Holders
                                
                                
                                731,375
                                
                                
                                $
                                1.42
                                
                                
                                
                                -Equity Compensation PlansNot Approved by Security
      Holders
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Total
                                
                                
                                731,375
                                
                                
                                $
                                1.42
                                
                                
                                
                                -
  ITEM
6. SELECTED FINANCIAL DATA
  SELECTED
FINANCIAL DATA
 (in thousands, except per share
amounts)
 
 Year endedAugust 28,
                      2009
                    
                    
                    August 29,
                      2008
                    
                    
                    August 31,
                      2007
                    
                    
                    September 1,
                      2006
                    
                    
                    September 2,
                      2005Revenues,
      net
                    
                    $
                    12,655
                    
                    
                    $
                    21,494
                    
                    
                    $
                    21,546
                    
                    
                    $
                    20,388
                    
                    
                    $
                    21,902Operating
      (loss) income  (a)
                    
                    
                    (2,477
                    )
                    
                    
                    540
                    
                    
                    
                    (613
                    )
                    
                    
                    (2,811
                    )
                    
                    
                    (1,470
                    )Net
      (loss) earnings  (a) (b)
                    
                    
                    (2,606
                    )
                    
                    
                    383
                    
                    
                    
                    (753
                    )
                    
                    
                    (2,883
                    )
                    
                    
                    (5,671
                    )Net
      (loss) earnings  per share
                    
                    $
                    (.21
                    )
                    
                    $
                    .03
                    
                    
                    $
                    (.06
                    )
                    
                    $
                    (.23
                    )
                    
                    $
                    (.45
                    )Basic
                    
                    $
                    (.21
                    )
                    
                    $
                    .03
                    
                    
                    $
                    (.06
                    )
                    
                    $
                    (.23
                    )
                    
                    $
                    (.45
                    )DilutedCash
      dividends paid per share (c)
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Total
      assets
                    
                    $
                    9,542
                    
                    
                    $
                    13,213
                    
                    
                    $
                    12,812
                    
                    
                    $
                    11,128
                    
                    
                    $
                    12,802Long-term
      obligations inclusive of current maturities
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
  (a)
                The
      year ended August 29, 2008 includes a fourth quarter gain on sale of
      patents of $894,000.
  (b)
                The
      year ended September 2, 2005 includes a fourth quarter noncash tax charge
      of $4,710,000    to provide a full valuation allowance
      for net deferred tax assets.
  (c)
                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.
  
  19
  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, and the Company
intends that such forward-looking statements are subject to the safe harbors
created thereby.  Forward-looking statements may be identified by words
such as "believes," "expects," "projects," "plans," "anticipates," and similar
expressions, and include, for example, statements relating to expectations
regarding  future sales, income and cash flows.  Forward-looking
statements are based upon the Company’s current expectations and assumptions,
which are subject to a number of risks and uncertainties including, but not
limited to:  customer acceptance and effectiveness of recently introduced
products; development of additional business for the Company’s digital video and
audio transmission product lines; effectiveness of the sales organization; the
successful development and introduction of new products in the future; delays in
the conversion by private and broadcast networks to next generation digital
broadcast equipment; acceptance by various networks of standards for digital
broadcasting; the Company’s liquidity position and capital resources; general
market and industry conditions which may not improve during fiscal year
2010  and beyond; and success of the Company’s research and development
efforts aimed at developing new products.  Additional 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, intellectual property disputes,
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 risks and uncertainties detailed from
time to time in the Company’s periodic Securities and Exchange Commission
filings, including the Company’s most recent Annual Report on Form
10-K.  Such forward-looking statements are subject to risks,
uncertainties and other factors and are subject to change at any time, which
could cause actual results to differ materially from future results expressed or
implied by such forward-looking statements.
  These
risks are exacerbated by the recent crisis in national and international
financial markets and the global economic downturn, and we are unable to predict
with certainty what long-term effects these developments will continue to have
on our Company.  During 2008 and into 2009, the capital and credit
markets have experienced unprecedented levels of extended volatility and
disruption.  We believe that these unprecedented developments have
adversely affected our business, financial condition and results of operations
in fiscal years 2009 and 2008.
  Forward-looking
statements speak only as of the date the statement was made. The Company
does not undertake any obligation to update any forward-looking
statements.
  OVERVIEW
 
 We design
and manufacture satellite communications equipment through Wegener
Communications, Inc. (WCI), a wholly-owned subsidiary. WCI is an international
provider of digital video and audio solutions for broadcast television, radio,
telco, private and cable networks. With over 30 years experience in optimizing
point-to-multipoint multimedia distribution over satellite, fiber, and IP
networks, WCI offers a comprehensive product line that handles the scheduling,
management and delivery of media rich content to multiple devices, including
video screens, computers and audio devices.  WCI focuses on long- and
short-term strategies for bandwidth savings, dynamic advertising, live events
and affiliate management.
 
 WCI’s
product line includes: iPump® media servers for file-based and live broadcasts;
Compel® Network Control and Compel® Conditional Access for dynamic command,
monitoring and addressing of multi-site video, audio, and data networks; and the
Unity® satellite media receivers for live radio and video
broadcasts.  Applications served include:  digital signage,
linear and file-based TV distribution, linear and file-based radio distribution,
Nielsen rating information, broadcast news distribution, business music
distribution, corporate communications, video and audio simulcasts.
  We
operate on a 52-53 week fiscal year.  The fiscal year ends on the
Friday nearest to August 31.  Fiscal years 2009, 2008 and 2007
contained 52 weeks.  All references herein to 2009, 2008 and 2007,
refer to the fiscal years ending August 28, 2009, August 29, 2008, and August
31, 2007, respectively.
 
 Our
fiscal 2009 revenues decreased $8,839,000, or 41.1%, to $12,655,000 from
$21,494,000 in fiscal 2008.  Our net loss for fiscal 2009 was
$(2,606,000) or $(0.21) per share compared to net earnings of $383,000 or $0.03
per share for fiscal 2008.  Fiscal 2008 net earnings included a
one-time gain on sale of patents of $894,000.
  20
 
 Current
Financial Position and Liquidity
 
 During
the first, second, third and fourth quarters of fiscal 2009 bookings were
approximately $1.3, $1.7, $1.1 million and $1.3 million, respectively. These
fiscal 2009 bookings and fiscal 2010 bookings to date, as well as our fiscal
2008 bookings, particularly during the fourth quarter of fiscal 2008, were well
below our expectations and internal forecasts primarily as a result of customer
delays in purchasing decisions, deferral of project expenditures and general
adverse economic and credit conditions.
 
 Our
bookings and revenues during fiscal 2009 and to date have been insufficient to
attain profitable operations and to provide adequate levels of cash flow from
operations. Our ability to continue as a going concern will depend upon our
ability to increase our bookings and revenues in the near term to
attain profitable operations and to generate sufficient cash flow from
operations. Should increased revenues not materialize, we are committed to
further reducing operating costs to bring them in line with reduced revenue
levels.  Should we be unable to achieve near term profitability and
generate sufficient cash flow from operations and if we are unable to
sufficiently reduce operating costs, we would need to raise additional capital
or increase our borrowings. No assurances can be given that operating costs can
be sufficiently reduced, or if required, that additional capital or borrowings
would be available to allow us to continue as a going concern. If we are unable
to continue as a going concern, we will likely be forced to seek protection
under the federal bankruptcy laws.  (See Note 1
to theConsolidated Financial Statements).
 
 At August
28, 2009, our primary source of liquidity was a $4,000,000 loan facility, which
matures on April 7, 2011.  During fiscal 2009, our line of credit net
borrowings increased $916,000 to the outstanding balance of $2,799,000 at August
28, 2009 from $1,883,000 at August 29, 2008.  During fiscal 2009, the
average daily balance outstanding was $3,357,000 and the highest outstanding
balance was $4,077,000.  At November 20, 2009, the outstanding balance
on the loan facility was $3,691,000 and our cash balances primarily funded from
loan advances were approximately $387,000.
 
 Operating
activities provided $120,000 of cash and investing activities used $1,015,000 of
cash, which consisted of capitalized software additions of $997,000, equipment
additions of $2,000 and $17,000 for license agreements and legal fees related to
the filing of applications for various patents and trademarks.  Loan
facility fees used $25,000 of cash.  (See the Liquidity and Capital
Resources section for further discussion.)
 
 Current
Developments
 
 We
announced an alternative offering for Compel® at the
2009 National Association of Broadcasters (NAB) Convention in April 2009,
CompelControl.comTM.  CompelControl.comTM provides the operations
available in Compel® II as a
software as a service (SaaS).  Customers can purchase rights to use
Compel®via
the Internet on a monthly basis, rather than to purchase Compel®as
an upfront capital expense.  We are targeting smaller networks where
the economics of the network could not support a Compel®purchase
for the service.
 
 In
addition, at the NAB Convention we released the new iPump® 525
media server which supports bandwidth-saving features, such as MPEG-4/h.264
video compression and file-based workflows. The iPump® 525
provides a cost-effective approach to supporting any multi-site video projects
with high levels of customization per television screen.  The
iPump® 525 can
be controlled by either Compel® or
CompelConnect.com®.
Combined with Compel®, unique
programming content can reach individual retail stores, departments, schools, or
hospitals, and can be rapidly updated by central network operators. Employees at
display locations do not have to manage or interact with the media servers
because all functions and upgrades are scheduled and managed remotely from the
Compel® network
control system at the central operations center. The iPump® 525
is optimized for high quality video and on-screen graphics, and provides a
reliable, consistent experience compared to PC solutions.
 
 During
fiscal 2009, we completed the main development of the iPump® 6420
Media Server for broadcast radio customers.  The iPump® 6420 is
one of the most full featured media servers for broadcast radio on the
market.  Our radio broadcast solutions allow radio broadcasters to
control hundreds and thousands of affiliate stations from one central location,
while making them relevant and compelling to their local
listeners.  With the iPump 6420, radio broadcasters can delay
programming based on time zones to target drive times; they can customize the
radio broadcast – both programming and advertisements - for each individual
affiliate station; and they can shift individual syndicated programs within
their play to air schedule.
 
 We
continue to protect our intellectual property.  During fiscal 2009, we
were granted another patent and applied for new trademarks, including
CompelConnect.comTM.
  21
 
 During
the second quarter of fiscal 2007, the Board of Directors formed a committee of
independent directors (the “committee”) to explore strategic and financial
alternatives to enhance shareholder value.  We retained Near Earth LLC
as our exclusive financial advisor in this evaluation process.  These
strategic alternatives may include: (i) technology licensing agreements, (ii)
product development and marketing arrangements, joint ventures or strategic
partnerships, (iii) strategic acquisitions, mergers or other business
combinations, or (iv) the merger or sale of all or part of the Company. On July
16, 2009, we entered into a non-binding letter of intent (the “LOI”) with
Sencore, Inc. (“Sencore”), a portfolio company of The Riverside Company, a
private equity firm, regarding a possible acquisition of Wegener Corporation by
Sencore.  The exclusivity period set forth in the LOI expired
September 13, 2009. Wegener Corporation’s Board of Directors unanimously voted
to terminate the LOI and on September 17, 2009, officially notified Sencore of
the termination. Effective October 8, 2009, based on its completion of a twelfth
amendment to our revolving line of credit and term loan facility, Wegener
Corporation Board of Directors voted to conclude the Strategic Alternatives
review process and disband the Strategic Alternatives Committee of the Board.
(See the Liquidity and Capital Rescources section 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:
 
 Year
      endedAugust
      28,
                            2009
                          
                          
                          August
      29,
                            2008
                          
                          
                          August
      31,
                            2007Revenues,
      net
                          
                          
                          100.0
                          %
                          
                          
                          100.0
                          %
                          
                          
                          100.0
                          %Cost
      of products sold
                          
                          
                          69.5
                          
                          
                          
                          60.9
                          
                          
                          
                          64.8Gross
      margin
                          
                          
                          30.5
                          
                          
                          
                          39.1
                          
                          
                          
                          35.2Selling,
      general, and administrative
                          
                          
                          34.5
                          
                          
                          
                          25.8
                          
                          
                          
                          24.0Research
      & development
                          
                          
                          15.5
                          
                          
                          
                          14.9
                          
                          
                          
                          14.1Gain
      on sale of patents
                          
                          
                          -
                          
                          
                          
                          (4.2
                          )
                          
                          
                          -Operating
      (loss) income
                          
                          
                          (19.6
                          )
                          
                          
                          2.5
                          
                          
                          
                          (2.8
                          )Interest
      expense
                          
                          
                          (1.0
                          )
                          
                          
                          (0.7
                          )
                          
                          
                          (0.7
                          )Interest
      income
                          
                          
                          -
                          
                          
                          
                          0.0
                          
                          
                          
                          0.0Net
      (loss) earnings
                          
                          
                          (20.6
                          )%
                          
                          
                          1.8
                          %
                          
                          
                          (3.5
                          )%
 
 During
the fourth quarter of fiscal 2008 and in fiscal 2009, we made reductions in
headcount to bring the current number of employees at August 28, 2009, to 63
compared to 91 at August 29, 2008, and reduced engineering consulting and other
operating and overhead expenses.  Beginning in January 2009, we
reduced paid working hours Company-wide by approximately
10%.  Subsequent to August 28, 2009, we made further reductions in
headcount to bring the current number of employees to 51.
  Net loss
for the year ended August 28, 2009, was $(2,606,000) or $(0.21) per share,
compared to net earnings of $383,000 or $0.03 per share for the year ended
August 29, 2008, and a net loss of $(753,000) or $(0.06) per share for the year
ended August 31, 2007.  Fiscal 2008 net earnings included a gain on
sale of patents of $894,000.
  Revenues for fiscal 2009 decreased
$8,839,000, or 41.1%, to $12,655,000 from $21,494,000 in fiscal
2008.  Direct Broadcast Satellite (DBS) revenues (including service
revenues) in fiscal 2009 decreased $8,834,000, or 41.2%, to $12,631,000 from
$21,465,000 in fiscal 2008.  The decrease in revenues in fiscal 2009
were due to a decrease in the volume of shippable bookings.  Analog
and Custom Products Group revenues were $24,000 in fiscal 2009 compared to
$29,000 in fiscal 2008.  Our revenue levels are not subject to
significant annual fluctuations in unit pricing.  Product volumes are
driven by product mix of orders.  In addition, 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.  Fiscal 2009 included revenues from shipments of (i) our
iPump®6420 media servers and Compel® network
control software to Dial Global, Comtelsat De Mexico and to Educational Media
Foundation for their network expansion, (ii) continued shipments of our
Encompass LE2, our next generation business music audio receiver, to business
music provider Muzak LLC, and (iii) our SpoTTrac® and NAVE
IIc®
encoders used to encode Nielsen Media Research identification tags into media
for Nielsen program ratings.  In addition, shipments in fiscal 2009
continued to MegaHertz for distribution of our products to the U.S. cable
market.
  22
 
 Revenues
for fiscal 2008 decreased $52,000, or 0.2%, to $21,494,000 from $21,546,000 in
fiscal 2007.  Direct Broadcast Satellite (DBS) revenues (including
service revenues) in fiscal 2008 increased $49,000, or 0.2%, to $21,465,000 from
$21,416,000 in fiscal 2007.  Analog and Custom Products Group revenues
were $29,000 in fiscal 2008 compared to $129,000 in fiscal
2007.  Fiscal 2008 included revenues from shipments of (i) our SMD 515
IPTV (internet protocol television) set top box to Conklin-Intracom for use by
multiple telco operators in North America, (ii) our new iPump® 562
enterprise media server to Satellite Store Link (SSL) for expansion of SSL’s
digital signage projects in Latin America, and  (iii) our new
Unity® 552
Enterprise Media Receiver (Unity® 552) to
one of our larger private network customers.  Additionally in fiscal
2008, we completed shipments of our Unity® 4600 to
the Big Ten Network (BTN) for a new cable network being distributed by Fox Cable
Networks.Shipments
in fiscal 2008 continued to MegaHertz for distribution of our products to the
U.S. cable market and to business music provider Muzak LLC, of our new Encompass
LE2, our next generation business music audio receiver.
 
 WCI's
backlog of orders scheduled to ship within 18 months was $4,316,000 at August
28, 2009, $8,491,000 at August 29, 2008, and $10,170,000 at August 31,
2007.  The total multi-year backlog at August 28, 2009 was $6,800,000
compared to $13,300,000 at August 29, 2008. Approximately $3,173,000 of the
August 28, 2009, backlog is expected to ship during fiscal 2010. At August
28, 2009, two customers accounted for 81.3% of the eighteen month backlog and
77.3% of the backlog expected to ship during fiscal 2010.
 
 Sales to
a relatively small number of major customers have typically comprised a majority
of our revenues and that trend is expected to continue.  In fiscal
2009, three customers accounted for approximately 21.2%, 18.1% and 10.7% of
revenues, respectively.  (See Note 13 to the Consolidated Financial
Statements, “Segment Information and Concentrations”.)  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 continue to fluctuate from quarter to
quarter.
  International sales are generated
through a direct sales organization and through foreign
distributors.  International sales were $1,595,000 or 12.6% of
revenues in fiscal 2009 compared to $3,686,000 or 17.2% of revenues in fiscal
2008, and $3,396,000 or 24.5% of revenues in fiscal
2007.  International shipments are generally project specific, and
therefore revenues 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 13 to the consolidated financial statements.
  Gross profit as a percent of sales was
30.5% in fiscal 2009 compared to 39.1% in fiscal 2008, and 35.2% in fiscal
2007.  Gross profit margin dollars decreased $4,541,000, or 54.1%, to
$3,856,000 in fiscal 2009 from $8,398,000 in fiscal 2008.  Fiscal 2007
gross profit margin dollars amounted to $7,583,000.  Profit margins in
fiscal 2009 and 2008 were favorably impacted by the reversal of an accrued
warranty liability of $130,000 and $310,000, respectively, for previously
estimated warranty provisions that were no longer required.  Warranty
provisions charged to cost of sales were $50,000 in fiscal 2008 and $625,000 in
fiscal 2007.  Profit margins in fiscal 2009 included inventory reserve
charges of $630,000 to provide for slow-moving and excess inventory primarily
associated with first generation digital products. No inventory provisions were
recorded in fiscal 2008, while inventory provisions of $250,000 were recorded in
fiscal 2007.  Capitalized software amortization expenses included in
cost of sales in fiscal 2009 were $949,000, compared to $1,238,000 in fiscal
2008 and $1,517,000 in fiscal 2007. Capitalized software amortization expenses
in fiscal 2010 are expected to approximate fiscal 2009 expenses.
  Selling, general, and administrative
(SG&A) expenses decreased $1,168,000, or 21.1%, to $4,371,000 in fiscal 2009
from $5,539,000 in fiscal 2008.  As a percentage of revenues, SG&A
expenses were 34.5% of revenues in fiscal 2009 and 25.8% in fiscal 2008.
Corporate SG&A expenses in fiscal 2009 decreased $150,000, or 13.1%, to
$996,000 from $1,146,000 in fiscal 2008.  The decrease was mainly due
to lowerprofessional fees and director
compensation.WCI’s SG&A expenses
decreased $1,018,000, or 23.2%, to $3,375,000 in fiscal 2009 from $4,393,000 in
fiscal 2008.  The decrease in WCI’s SG&A expenses in fiscal 2009
was mainly due to decreases in (i) salaries and related payroll costs of
$318,000 primarily due to a 10% reduction in Company-wide paid working hours
beginning in January 2009 and reductions in headcount, (ii) sales and marketing
expenses of $270,000, (iii) general overhead costs of $243,000 due to reductions
in recruiting and training expenses and overall cost reduction efforts of
overhead expenses, (iv) in-house commission expenses of $147,000 due to a
decrease in bookings, and (v) professional fees of $40,000. SG&A expenses
included $8,000 of noncash share-based compensation expense in fiscal 2008
compared to none in fiscal 2009.
  23
  Selling, general, and administrative
(SG&A) expenses increased $376,000, or 7.3%, to $5,539,000 in fiscal 2008
from $5,163,000 in fiscal 2007.  As a percentage of revenues, SG&A
expenses were 25.8% of revenues in fiscal 2008 and 24.0% in fiscal 2007.
Corporate SG&A expenses in fiscal 2008 increased $125,000, or 12.2%, to
$1,146,000 from $1,021,000 in fiscal 2007.  The increase was mainly
due to increased professional fees related to Sarbanes-Oxley
compliance.WCI’s
SG&A expenses increased $252,000, or 6.1%, to $4,393,000 in fiscal 2008 from
$4,141,000 in fiscal 2007.  The increase in WCI’s SG&A expenses in
fiscal 2008 was mainly due to increases in (i) salaries and related payroll
costs of $88,000, (ii) employee placement fees and related training of $38,000,
(iii) general overhead costs of $91,000, and (iv) professional fees of $42,000.
These increases were offset by lower sales and marketing expenses of
$50,000.  WCI’s SG&A expenses in fiscal 2008 included no bad debt
provision expense compared to a benefit of $50,000 from the reversal of bad debt
provisions in fiscal 2007.  SG&A expenses included $8,000 of
noncash share-based compensation expense in fiscal 2008 compared to $17,700 in
fiscal 2007.
  Research and development expenditures,
including capitalized software development costs, were $2,959,000 or 23.4% of
revenues in fiscal 2009, $4,427,000 or 20.6% of revenues in fiscal 2008, and
$4,562,000 or 21.2% of revenues in fiscal 2007.  The decrease in
expenditures fiscal 2009 compared to fiscal 2008 was mainly due to lower
salaries, as a result of reduced head count and the 10% reduction in
Company-wide paid working hours beginning in January 2009, and
lower consulting costs.  The decrease in expenditures fiscal 2008
compared to fiscal 2007 was mainly due to lower consulting costs, which were
partially offset by increases in salaries, headcount and recruiting costs
related to new hires.  Software development costs totaling $997,000,
$1,214,000, and $1,528,000 were capitalized during fiscal 2009, 2008 and 2007,
respectively.  The decreases in capitalized software costs in fiscal
2009 compared to fiscal 2008 were related to completed projects and reductions
in headcount and consulting costs. The decreases in capitalized software
costs in fiscal 2008 compared to fiscal 2007 were related to completed
projects.  Research and development expenses, excluding capitalized
software development costs, were $1,962,000 or 15.5% of revenues in fiscal 2009,
$3,213,000 or 14.9% of revenues in fiscal 2008, and $3,033,000 or 14.1% of
revenues in fiscal 2007. We believe current staffing levels are adequate to
accomplish research and development activities in fiscal 2010.  Should
additional engineering recourses be required in fiscal 2010, we believe
engineering consulting services would be sufficiently available.
 
 During
the fourth quarter of fiscal 2008, we completed the sale of selected
patents and patent applications to EPAX Consulting Limited Liability Company for
net proceeds of approximately $1,075,000 and recorded a gain of
$894,000.  The group of patents and patent applications sold relate to
product distinction, system architecture and IP networking.  We
retained a worldwide, non-exclusive, royalty-free license under the patents for
use in both existing and future products.
 
 Interest expense was $129,000 in fiscal
2009 compared to $159,000 in fiscal 2008 and $150,000 in fiscal
2007.  The decrease in fiscal 2009 compared to fiscal 2008 was due to
a lower average bank prime rate which was offset by an increase in the average
outstanding line-of-credit balance.  We believe that interest expense
in fiscal 2010 will significantly increase compared to fiscal 2009 as a result
of expected increases in average line of credit borrowings, due to the increase
in our loan interest rate, as further discussed in the Liquidity and Capital
Resources section.
 
 No
income tax benefit was recorded for fiscal 2009 due to an increase in the
deferred tax asset valuation allowance.  In fiscal 2009, the deferred
tax asset increased $938,000 primarily due to an increase in net operation loss
carryforwards and provision for inventory reserves, and decreased $199,000 due
to the expiration of state income tax credits. The net increase of $739,000 in
the deferred tax asset was offset by a corresponding increase in the valuation
allowance.  No income tax expense was recorded for fiscal 2008, due to
utilization of net operating loss and alternative minimum tax credit
carryforwards.  In fiscal 2008, the deferred tax asset decreased
$141,000 which was offset by a decrease in the valuation allowance by the same
amount.  No income tax benefits were recorded in fiscal 2007 due to an
increase in the deferred tax asset valuation allowance of
$271,000.  At August 28, 2009, net deferred tax assets of $6,617,000
were fully reserved by a valuation allowance.
 
 SFAS No.
109, "Accounting for Income Taxes," requires that a valuation allowance be
established when it is “more likely than not” that all or a portion of a
deferred tax asset will not be realized.  A review of all available
positive and negative evidence must be considered in judging the likelihood of
realizing tax benefits.  Forming a conclusion that a valuation
allowance is not needed is difficult when there is negative evidence such as
cumulative losses in recent years.  Cumulative losses are one of the
most difficult pieces of negative evidence to overcome in the absence of
sufficient existing orders and backlog (versus forecasted future orders)
supporting a return to profitability. Additional orders and backlog are
currently needed for profitability in fiscal 2009.  Our assessment in
applying SFAS No. 109 indicated that a full valuation allowance for our net
deferred tax assets was required as of August 28, 2009 and August 29,
2008.
  24
 
 At August
28, 2009, we had a federal net operating loss carryforward of $11,825,000, of
which $1,438,000 expires in fiscal 2021, $1,296,000 in fiscal 2023, $3,396,000
in fiscal 2024, $1,454,000 in fiscal 2025, $1,755,000 in fiscal 2026, $265,000
in fiscal 2027 and $2,221,000 in fiscal 2029.  Additionally, we had an
alternative minimum tax credit of $134,000 which was fully offset by the
valuation allowance.
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 We have
experienced recurring net losses from operations, which have caused an
accumulated deficit of approximately $17,951,000 at August 28, 2009 and raised
doubts as to our ability to continue as a going concern.  We had a
working capital deficit of approximately $1,139,000 at August 28, 2009 compared
to working capital of approximately $1,053,000 at August 29, 2008.
  Our cash
flow requirements during fiscal 2009 were financed by our loan facility. During
fiscal 2009, our net borrowings under our loan facility increased $916,000 to
$2,799,000 at August 28, 2009.
  During
the fourth quarter of fiscal 2008 and in fiscal 2009, we made reductions in
headcount to bring the current number of employees at August 28, 2009, to 63
compared to 91 at August 29, 2008, and reduced engineering consulting and other
operating and overhead expenses.  Beginning in January 2009, we
reduced paid working hours Company-wide by approximately
10%.  Subsequent to August 28, 2009, we made further reductions in
headcount to bring the current number of employees to 51. During fiscal 2009, as
well as to date in fiscal 2010, due to insufficient cash flow from operations
and borrowing limitations under our loan facility (effective October 8, 2009,
the maximum of $4,000,000, and prior to October 8, 2009, limited to available
collateral), we negotiated extended payment terms with our two offshore vendors
and have been extending other vendors beyond normal payment terms. Until such
vendors are paid within normal payment terms, no assurances can be given that
required services and materials needed to support operations will continue to be
provided. Any interruption of services or materials would likely have an adverse
impact on our operations.
  During
the first, second, third and fourth quarters of fiscal 2009 bookings were
approximately $1.3, $1.7, $1.1 million and $1.4 million, respectively. These
fiscal 2009 bookings and fiscal 2010 bookings to date, as well as our fiscal
2008 bookings, particularly during the fourth quarter of fiscal 2008, were well
below our expectations primarily as a result of customer delays in purchasing
decisions, deferral of project expenditures and general adverse economic and
credit conditions.
  Our
backlog scheduled to ship within eighteen months was approximately $4.3 million
at August 28, 2009, compared to $8.5 million at August 29, 2008.  The
total multi-year backlog at August 28, 2009, was approximately $6.8 million,
compared to $13.3 million at August 29, 2008 and $13.6 million at May 30,
2008.  Approximately $3.2 million of the August 28, 2009 backlog is
scheduled to ship during fiscal 2010.
  Our
bookings and revenues during fiscal 2009, as well as to date in fiscal 2010,
have been insufficient to attain profitable operations andto provide adequate
levels of cash flow from operations.  In addition, significant fiscal
2010 shippable bookings are currently required to meet our financial and cash
flow projections beginning in the first quarter of fiscal 2010 and continuing
for each subsequent quarter.
  Our
ability to continue as a going concern will depend upon our ability to increase
our bookings and revenues in the near term to
attain profitable operations and generate sufficient cash flow from operations.
Should increased revenues not materialize, we are committed to further reducing
operating costs to bring them in line with reduced revenue
levels.  Should we be unable to achieve near term profitability and
generate sufficient cash flow from operations and if we are unable to further
reduce operating costs, we would need to raise additional capital or obtain
additional borrowings beyond our existing loan facility. No assurances can be
given that operating costs can be further reduced, or if required, that
additional capital or borrowings would be available to allow us to continue as a
going concern. If we are unable to continue as a going concern, we will likely
be forced to seek protection under the federal bankruptcy laws.
 
 On July
16, 2009, we entered into a non-binding letter of intent (the “LOI”) with
Sencore, Inc. (“Sencore”), a portfolio company of The Riverside Company, a
private equity firm, regarding a possible acquisition of Wegener Corporation by
Sencore.  The exclusivity period set forth in the LOI expired
September 13, 2009. Wegener Corporation’s Board of Directors unanimously voted
to terminate the LOI and on September 17, 2009, officially notified Sencore of
the termination.
  25
  Effective
September 16, 2009, we entered into an Eleventh Amendment (“Amendment”) to the
Loan and Security Agreement (the “Loan Agreement”) with Bank of America, N.A.
(the “bank”). The Amendment extended the maturity date of our revolving line of
credit and term loan facility (“loan facility”) with the bank to November 30,
2009 (previously September 30, 2009), reduced the maximum available credit limit
to $4,000,000 (previously $5,000,000) and increased the interest rate to the
bank’s prime rate plus two percent (previously the bank’s prime
rate).  In addition, the Amendment allowed for over advances in excess
of the existing availability collateral formulas of up to five hundred thousand
dollars during the term of the loan facility.  The Amendment was
subject to the bank receiving, on or before October 15, 2009, a fully executed
asset purchase agreement or merger agreement satisfactory to the bank, in its
reasonable business judgment, for the sale or merger of Wegener Corporation to
or into a third-party purchaser; provided, however, the failure to so provide
such fully executed asset purchase or merger agreement to the bank on or before
October 15, 2009 would have been an automatic Event of Default as defined and
set forth in the Loan Agreement, and the bank would have all of its rights and
remedies as provided for in the Loan Agreement without further
notice.  At August 28, 2009, we were in violation of the bank’s
tangible net worth debt covenant.
 
 On
October 8, 2009, the bank assigned its rights (the “Assignment”) under the Loan
Agreement to The David E. Chymiak Trust Dated December 15, 1999 (the
“Trust”).  Immediately before becoming such assignee, the Trust
entered into a twelfth amendment to the Loan Agreement, dated October 8, 2009
(the “Twelfth Amendment”) which became effective immediately upon the
consummation of the Assignment.  Accordingly, by virtue of the
Assignment, the Trust succeeded to all the rights and obligations of the bank
under the Loan Agreement, except as otherwise provided in the Twelfth Amendment.
In connection with the Assignment, the Trust paid a total of $2,941,000 to the
bank amounting to all amounts we owed to the bank.  Therefore, we no
longer have a lending relationship with the bank. (See Note 9 to the
Consolidated Financial Statements).
 
 Among
other things, the Twelfth Amendment provides a maximum loan limit of four
million dollars (the “Loan Limit”), excluding any accrued unpaid
interest.  The term of the Loan Agreement is eighteen (18) months
beginning October 8, 2009 (“Original Term”), or upon demand in the event of
default as provided by the Loan Agreement. The outstanding loan balance bears
interest at the rate of twelve percent (12%) per annum.  The Twelfth
Amendment automatically renews for successive twelve (12) month periods
provided, however, the Trust may terminate the Loan Agreement by providing the
Borrower ninety (90) days’ prior written notice of termination at any time
beginning on or after ninety (90) days prior to the expiration of the Original
Term. Principal and interest shall be payable upon the earlier of the maturity
date, an event of default, or 90 days  following the date on which the
Trust provides written notice to terminate the agreement.  All
principal and interest shall be payable in U.S. dollars and/or such other good
and valuable consideration as the parties may agree in good faith at the time
payment is due.  The Twelfth Amendment removed collateral availability
advance formula provisions which limited the maximum borrowing to the amount of
available collateral and the 2.0% annual facility fee provision. In addition, it
removed the minimum tangible net worth and minimum fixed coverage ratio annual
debt covenant provisions. The Twelfth Amendment suspended the Loan Agreement’s
solvency representation provision until the last day of our third quarter of
fiscal 2010 (May 28, 2010). This representation requires the company to be able
to pay its debts as they become due, have sufficient capital to carry on its
business and own property at a fair saleable value greater than the amount
required to pay its debts.  In addition the Company is required to
retain certain executive officers. We are currently in compliance with the debt
covenants as provided under the Twelfth Amendment.
 
 On
October 1, 2009, we entered into an unsecured promissory note with David E.
Chymiak in the amount of two hundred and fifty thousand dollars
($250,000).  The loan bears interest at the rate of 8.0% per year with
a maturity date of October 31, 2009. The maturity date was subsequently extended
to November 30, 2009.
 
 The accompanying
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.  The audit report
relating to the consolidated financial statements for the year ended August 28,
2009, contains an explanatory paragraph regarding the Company’s ability to
continue as a going concern.
 
 Financing
Agreements
 
 WCI’s
loan facility, amended and effective October 8, 2009, consists of a revolving
line of credit and term loan with a maximum combined available credit limit of
$4,000,000 (previously $5,000,000 during fiscal 2009).  The term of
the amended loan facility is eighteen (18) months beginning October 8, 2009
(“Original Term”), or upon demand in the event of default as provided by the
loan facility.  The outstanding loan balance bears interest at the
rate of twelve percent (12%) per annum (previously at our former bank’s prime
and effective September 16, 2009, bank’s prime plus 2.0%).  The loan
facility automatically renews for successive twelve (12) month periods provided,
however, the lender may terminate the facility by providing ninety (90) days’
prior written notice of termination at any time beginning on or after ninety
(90) days prior to the expiration of the Original Term.  Principal and
interest shall be payable upon the earlier of the maturity date, an event of
default, or 90 days  following the date on which the Trust provides
written notice to terminate the agreement.  All principal and interest
shall be payable in U.S. dollars or, upon mutual agreement of the parties
decided in good faith at the time payment is due, other good and valuable
consideration.
  26
 
 The loan
is secured by a first lien on substantially all of WCI’s assets, including land
and buildings, and is guaranteed by Wegener Corporation.  At August
28, 2009, balances outstanding on the bank revolving line of credit amounted to
$2,799,000. At November 20, 2009, the outstanding balance on the line of credit
was $3,691,000 and our cash balances primarily funded from loan advances were
approximately $387,000.
 
 During
fiscal 2009, the average daily balance outstanding was $3,357,000 and the
highest outstanding balance was $4,077,000.  During fiscal 2010 we
expect the average daily balance to increase and interest expense to increase
due to the increase in the annual interest rate.
 
 The loan
facility requires us to be in compliance with certain representations,
warranties and covenants.   Among which, we are required by May
28, 2010 to be in compliance with the solvency representation provision. This
representation requires us to be able to pay our debts as they become due, have
sufficient capital to carry on our business and own property at a fair saleable
value greater than the amount required to pay our debts.  No
assurances may be given that we will be in compliance with the solvency
provision by May 28, 2010.  In addition, we are required to retain
certain executive officers and are precluded from paying dividends.
 
 On
October 1, 2009, we entered into an unsecured promissory note with David E.
Chymiak in the amount of two hundred and fifty thousand dollars
($250,000).  The loan bears interest at the rate of 8.0% per year with
a maturity date of October 31, 2009. The maturity date was subsequently extended
to November 30, 2009.
 
 Operating
Activities
 
 Cash provided by operating activities
was $120,000 in fiscal 2009 and $771,000 in fiscal 2008, while operating
activities used cash of $955,000 in fiscal 2007.  Fiscal 2009 net loss
adjusted for expense provisions and depreciation and amortization (before
working capital changes) used cash of $668,000. Decreases in inventories and
other assets provided cash of $1,258,000 while changes in accounts receivable
and customer deposits used cash of $42,000.  Decreases in accounts
payable, accrued expenses and deferred revenue used cash of $7,000, $218,000 and
$203,000, respectively.
  Net
accounts receivable decreased $1,381,000 to $1,582,000 at August 28, 2009, from
$2,963,000 at August 29, 2008, compared to $5,172,000 at August 31,
2007.  The allowance for doubtful accounts was $146,000 at August 28,
2009, $230,000 at August 29, 2008 and $251,000 at August 31, 2007.  In
fiscal 2007, reductions in the allowance for doubtful accounts provided benefits
of $50,000.  Write-offs were $84,000 in fiscal 2009 and $21,000 in
fiscal 2008.
  Customer deposits decreased $1,424,000
to $504,000 at August 28, 2009, from $1,928,000 at August 29,
2008.  The decrease in customer deposits was due to completion of
shipments in fiscal 2009 of a large order to one customer.  Customer
deposits vary with the timing and terms of customer bookings.
 
 At August 28, 2009, our net inventory
balances decreased $1,831,000 to $4,464,000 from $6,295,000 at August 29, 2008,
compared to $3,380,000 at August 31, 2007.The increase in
inventories in fiscal 2008 was primarily due to our new fiscal 2008 product
introductions of the iPump® 562
Enterprise Media Server, the Unity® 552
receiver and the Encompass-LE2 audio receiver. In addition, inventory levels
were increased for the iPump® 6400
Media Server and Nielsen Media Research products.  These inventory
purchases required sufficient lead times with our offshore manufacturers and
which required estimates of expected future bookings.  Our fiscal 2008
bookings were below our expectations which resulted in higher than expected
inventories at August 29, 2008.  During fiscal 2009, we implemented
efforts to reduce inventory levels.  Inventory reserves were increased
by provisions charged to cost of sales of $630,000 in fiscal 2009 to provide for
slow-moving and excess inventory primarily associated with first generation
digital products. No inventory provisions were recorded in fiscal 2008, while
inventory provisions of $250,000 were recorded in fiscal
2007.    Inventory reserves were decreased by write-offs of
$11,000 in fiscal 2009, $21,000 in fiscal 2008 and none in fiscal 2007.
Decreases in inventories in fiscal 2009 provided $1,202,000 of
cash.   Increases in inventories in fiscal 2008 used $2,915,000
of cash, while a decrease in inventories in fiscal 2007 provided $228,000 of
cash.
  27
 
 Investing
Activities
 
 Cash used by investing activities in
fiscal 2009 was $1,015,000 compared to $537,000 in fiscal 2008 and $1,970,000 in
fiscal 2007.  In fiscal 2009, investing activities consisted of
capitalized software additions of $997,000, equipment additions of $2,000 and
$17,000 for license agreements and legal fees related to the filing of
applications for various patents and trademarks.  In fiscal 2008,
investing activities consisted of capitalized software additions of $1,214,000,
equipment additions of $336,000 and $62,000 for license agreements and legal
fees related to the filing of applications for various patents and trademarks,
while proceeds from the sale of patents and patent applications provided
$1,075,000 of cash.  Capitalized software expenditures were incurred
primarily for the development of Compel® network
control and MediaPlan®
software, the iPump® Media
Server, and MPEG-4/h.264 products.
 
 Financing
Activities
 
 Financing activities in fiscal 2009
provided $916,000 of cash from net line-of-credit borrowings and used $25,000 of
cash for loan facility fees. Financing activities in fiscal 2008 used $132,000
of cash to reduce net line-of-credit borrowings and $100,000 of cash for loan
facility fees.
 
 Contractual
Obligations
 
 We have
one manufacturing and purchasing agreement for certain finished goods
inventories.AtAugust 28, 2009,
outstanding purchase commitments under these agreements amounted to
$552,000.  At August 28, 2009, we had no letters of credit
outstanding.
 
 The
following summarizes our contractual obligations as of August 28, 2009 and
the effects such obligations are expected to have on liquidity and cash flow in
future periods:
  Payments
      Due by PeriodContractual
      Obligations
                                    
                                    Total
                                    
                                    
                                    One
      Year
                                    
                                    
                                    2
      –3 Years
                                    
                                    
                                    4
      –5 YearsOperating
      leases
                                    
                                    $
                                    346,000
                                    
                                    
                                    $
                                    102,000
                                    
                                    
                                    $
                                    244,000
                                    
                                    
                                    $
                                    -Bank
      line of credit
                                    
                                    
                                    2,799,000
                                    
                                    
                                    
                                    2,799,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Purchase
      commitments
                                    
                                    
                                    552,000
                                    
                                    
                                    
                                    552,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Total
                                    
                                    $
                                    3,697,000
                                    
                                    
                                    $
                                    3,453,000
                                    
                                    
                                    $
                                    244,000
                                    
                                    
                                    $
                                    -
  The
Company has never paid cash dividends on its common stock and does not intend to
pay cash dividends in the foreseeable future.
  OFF-BALANCE
SHEET ARRANGEMENTS
  At August
28, 2009, we had no off-balance sheet arrangements.
  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 judgments.  These policies are as follows:
  Revenue
Recognition – Our revenue recognition policies are in compliance with
Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition,” and SAB No. 101,
“Revenue Recognition in Financial Statements.”  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 extended service maintenance
agreements are recognized ratably over the term of the agreements, which is
typically one year.  The unrecognized revenue portion of maintenance
contracts invoiced and the fair value of future performance obligations are
recorded as deferred revenue. In addition, any invoices generated in excess of
revenue recognized are recorded as deferred revenue until the revenue
recognition criteria are met.  At August 28, 2009, deferred extended
service maintenance revenues were $537,000, and deferred revenues related to
future performance obligations were $32,000 and are expected to be recognized as
revenue in varying amounts throughout fiscal 2010.  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 August 28,
2009, revenues attributable to two customers in the amount of $1,236,000 were
recorded prior to delivery as bill and hold transactions.  At August
28, 2009, accounts receivable for these revenues were paid in
full.
  28
  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.We evaluate our
products to assess whether software is more than incidental to a
product.  When we conclude that software is more than incidental to a
product, we will account for the product as a software product. Revenue on
software products and software-related elements is recognized in accordance with
Statement of Financial Position (SOP) No. 97-2, “Software Revenue
Recognition” as amended by SOP No. 98-9, “Software Revenue Recognition, with
Respect to Certain Transactions.”  Significant judgment may be
required in determining whether a product is a software or hardware
product.
 
 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 August 28, 2009, inventories, net of reserve
provisions of approximately $4,689,000, amounted to $4,464,000.
  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 August 28, 2009, capitalized
software costs, net of accumulated amortization, amounted to
$1,265,000.
  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 upon
generating sufficient future taxable income prior to the expiration of the loss
and credit carryforwards.  The valuation allowance increased $739,000
in fiscal 2009, and decreased $141,000 in fiscal 2008 and increased $271,000 in
fiscal 2007.  At August 28, 2009, net deferred tax assets of
$6,617,000 were fully reserved by a valuation allowance.
  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 August 28, 2009, accounts
receivable net of allowances for doubtful accounts amounted to
$1,582,000.
  29
  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
June 2009, the FASB issued SFAS No. 168, “The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles” (“SFAS No. 168”). SFAS No. 168 replaces SFAS No. 162, “The Hierarchy
of Generally Accepted Accounting Principles”, and establishes the FASB
Accounting Standards Codification (the “Codification”) as the source of
authoritative accounting principles recognized by the FASB. The Codification is
to be applied by nongovernmental entities in the preparation of financial
statements in conformity with generally accepted accounting principles and it
supersedes all existing non-SEC accounting and reporting standards. SFAS No. 168
also identifies the framework for selecting the principles used in preparation
of financial statements that are presented in conformity with GAAP. SFAS No. 168
is effective for financial statements issued for interim and annual periods
ending after September 15, 2009. The Company expects that the adoption of
SFAS No. 168 will not have a material impact on its financial position, results
of operations or cash flows.
 
 In
June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation
No. 46(R)”(“SFAS No. 167”). SFAS
No. 167 eliminates FASB Interpretation No. 46(R)’s exceptions to consolidating
qualifying special-purpose entities, contains new criteria for determining the
primary beneficiary, and increases the frequency of required reassessments to
determine whether a company is the primary beneficiary of a variable interest
entity. SFAS No. 167 also contains a new requirement that any term, transaction,
or arrangement that does not have a substantive effect on an entity’s status as
a variable interest entity, a company’s power over a variable interest entity,
or a company’s obligation to absorb losses or its right to receive benefits of
an entity must be disregarded in applying FASB Interpretation No. 46(R)’s
provisions. The elimination of the qualifying special-purpose entity concept and
its consolidation exceptions means more entities will be subject to
consolidation assessments and reassessments. SFAS No. 167 is effective as of the
beginning of an enterprise’s first fiscal year beginning after November 15,
2009, and for interim periods within that first period, with earlier adoption
prohibited. The Company has not determined the impact, if any, SFAS No. 167 will
have on its future consolidated financial statements.
 
 In
December 2007, the FASB issued SFAS No. 141 (Revised), “Business Combinations”
(“SFAS No. 141(R)”). SFAS No. 141(R) establishes principles and requirements for
how the acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree; recognizes and measures the goodwill acquired in a
business combination or a gain from a bargain purchase; determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of a business combination. SFAS No. 141(R) is
effective as of the beginning of an entity’s first fiscal year that begins after
December 15, 2008. The guidance is effective
for us beginning August 29, 2009 and will apply to business combinations
completed on or after that date, if any. The adoption of this guidance is not
expected to have a material impact on our Consolidated Financial
Statements.
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (“SFAS No. 160”). SFAS No. 160 establishes
new accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. Specifically, this
statement requires the recognition of a noncontrolling interest (minority
interest) as equity in the consolidated financial statements and separate from
the parent’s equity. The amount of net income attributable to the noncontrolling
interest will be included in consolidated net income on the face of the income
statement. SFAS No. 160 clarifies that changes in a parent’s ownership interest
in a subsidiary that do not result in deconsolidation are equity transactions if
the parent retains its controlling financial interest. In addition, this
statement requires that a parent recognize a gain or loss in net income when a
subsidiary is deconsolidated. Such gain or loss will be measured using the fair
value of the noncontrolling equity investment on the deconsolidation date. SFAS
No. 160 also includes expanded disclosure requirements regarding the interests
of the parent and its noncontrolling interest. SFAS No. 160 is effective for
fiscal years beginning on or after December 15, 2008. Earlier adoption is
prohibited. The
adoption of thisSFAS No. 160is not expected to have a
material impact on our Consolidated Financial Statements as we currently have no
noncontrolling interest in our subsidiary.
  30
  In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities”(SFAS No. 159). SFAS
No. 159 provides companies with an option to report selected financial assets
and liabilities at fair value. SFAS No. 159 also establishes presentation and
disclosure requirements designed to facilitate comparisons between companies
that choose different measurement attributes for similar types of assets and
liabilities and to provide additional information that will help investors and
other financial statement users to easily understand the effect of the company’s
choice to use fair value on its earnings. Additionally, SFAS No. 159 requires
entities to display the fair value of those assets and liabilities for which the
company has chosen to use fair value on the face of the balance sheet. SFAS
No. 159 is effective as of the beginning of an entity’s first fiscal year
beginning after November 15, 2007. We adopted SFAS No. 159 on August 30,
2008, the first day of the start of fiscal year 2009. The Company did not elect
the fair value option for any financial instruments or certain other financial
assets and liabilities that were not previously required to be measured at fair
value.  Therefore, adoption of SFAS No. 159 had no impact on our
financial position or results of operations.
  In
September 2006, FASB issued SFAS No. 157, “Fair Value Measurements”, which
defines fair value, provides a framework for measuring fair value, and expands
the disclosures required for fair value measurements. SFAS No. 157 applies to
other accounting pronouncements that require fair value measurements; it does
not require any new fair value measurements. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007 and was adopted by the Company
on August 30, 2008, the first day of the start of fiscal year 2009 and had
no impact on our financial position or results of operations. In February 2008,
the FASB issued FASB Staff Position (FSP) No. FAS 157-2, “Effective Date of FASB
Statement No. 157”. FSP No. 157-2 delays the effective date of SFAS
No. 157 to fiscal years beginning after November 15, 2008 for all non-financial
assets and non-financial liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually) and will be adopted by the Company beginning in the first
quarter of fiscal 2010.
  ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Our exposure to market rate risk for
changes in interest rates during fiscal 2009 related primarily to our revolving
line of credit facility.  The interest rate on certain advances under
the line of credit and term loan facility fluctuated with the bank’s prime rate
and effective September 16, 2009 the bank’s prime rate plus 2.0% (bank’s prime
rate 3.25% at August 28, 2009). At August 28, 2009, balances outstanding on
the revolving line of credit amounted to $2,799,000. Effective October 8, 2009,
the amended line of credit carried a fixed interest rate of 12.0% and an
unsecured promissory note dated October 1, 2009, carried a fixed rate of
interest of 8.0%
 
 We do not enter into derivative
financial instruments.  All sales and purchases are denominated in
U.S. dollars.
  31
 
 ITEM
8.                        FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
  PageManagement’s
      Statement of Responsibility
                          33Report
      of Independent Registered Public Accounting Firm
                          34Consolidated
      Statements of OperationsYears
      ended August 28, 2009, August 29, 2008, and August 31,
2007
                          35Consolidated
      Balance SheetsAs
      of August 28, 2009 and August 29, 2008.
                          36Consolidated
      Statements of Shareholders' EquityYears
      ended August 28, 2009, August 29, 2008, and August 31,
2007
                          37Consolidated
      Statements of Cash FlowsYears
      ended August 28, 2009, August 29, 2008, and August 31,
2007
                          38Notes
      to Consolidated Financial Statements
                          39Consolidated
      Supporting Schedules Filed:Schedule II-Valuation and Qualifying
    AccountsYears
      ended August 28, 2009, August 29, 2008, and August 31,
2007
                          58
  32
 
 MANAGEMENT'S
RESPONSIBILITY FOR FINANCIAL STATEMENTS
 
 The
management of Wegener Corporation is responsible for the accuracy andconsistency 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
registered public accounting firm. 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.
 
 
 
 C. Troy
Woodbury, Jr.
 President
and Chief Executive Officer
 
 
 James
Traicoff.
 Treasurer
and Chief Financial Officer
  33
 
 REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Board of
Directors and Shareholders of Wegener Corporation
 Johns
Creek, Georgia
 
 We have
audited the accompanying consolidated balance sheets of Wegener Corporation and
subsidiary as of August 28, 2009 and August 29, 2008, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended August 28, 2009. 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.  The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting.  Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting.  Accordingly, we express no such
opinion.
 
 An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, 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 consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Wegener Corporation and
subsidiary at August 28, 2009 and August 29, 2008, and the results of its
operations and its cash flows for each of the three years in the period ended
August 28, 2009, in conformity with accounting principles generally accepted in
the United States of America.
  The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has suffered recurring losses from operations and has a
net capital deficiency that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
 
 Atlanta,
      Georgia
                    BDO
      Seidman, LLPNovember
      25, 2009
  34
 
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 
 Year endedAugust 28,
                                            2009
                                          
                                          
                                          August 29,
                                            2008
                                          
                                          
                                          August 31,
                                            2007Revenues,
      net
                                          
                                          $
                                          12,655,107
                                          
                                          
                                          $
                                          21,494,493
                                          
                                          
                                          $
                                          21,546,029Operating
      costs and expensesCost
      of products sold
                                          
                                          
                                          8,798,915
                                          
                                          
                                          
                                          13,096,881
                                          
                                          
                                          
                                          13,962,644Selling,
      general and administrative
                                          
                                          
                                          4,370,941
                                          
                                          
                                          
                                          5,538,901
                                          
                                          
                                          
                                          5,162,848Research
      and development
                                          
                                          
                                          1,961,827
                                          
                                          
                                          
                                          3,213,131
                                          
                                          
                                          
                                          3,033,358Gain
      on sale of  patents
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (894,127
                                          )
                                          
                                          
                                          -Operating
      costs and expenses
                                          
                                          
                                          15,131,683
                                          
                                          
                                          
                                          20,954,786
                                          
                                          
                                          
                                          22,158,850Operating
      (loss) income
                                          
                                          
                                          (2,476,576
                                          )
                                          
                                          
                                          539,707
                                          
                                          
                                          
                                          (612,821
                                          )Interest
      expense
                                          
                                          
                                          (129,123
                                          )
                                          
                                          
                                          (158,586
                                          )
                                          
                                          
                                          (149,590
                                          )Interest
      income
                                          
                                          
                                          -
                                          
                                          
                                          
                                          2,162
                                          
                                          
                                          
                                          9,649Net
      (loss) earnings
                                          
                                          $
                                          (2,605,699
                                          )
                                          
                                          $
                                          383,283
                                          
                                          
                                          $
                                          (752,762
                                          )Net
      (loss) earnings  per share
                                          
                                          $
                                          (.21
                                          )
                                          
                                          $
                                          .03
                                          
                                          
                                          $
                                          (.06
                                          )Basic
                                          
                                          $
                                          (.21
                                          )
                                          
                                          $
                                          .03
                                          
                                          
                                          $
                                          (.06
                                          )DilutedShares
      used in per share calculationBasic
                                          
                                          
                                          12,647,051
                                          
                                          
                                          
                                          12,647,051
                                          
                                          
                                          
                                          12,614,007Diluted
                                          
                                          
                                          12,647,051
                                          
                                          
                                          
                                          12,659,414
                                          
                                          
                                          
                                          12,614,007
  See accompanying
notes to consolidated financial statements.
  35


CONSOLIDATED
BALANCE SHEETS





August
      28,
                                          
                                          
                                          August
      29,2009
                                          
                                          
                                          2008AssetsCurrent
      assetsCash
                                          
                                          $
                                          3,476
                                          
                                          
                                          $
                                          8,023Accounts
      receivable, net
                                          
                                          
                                          1,581,926
                                          
                                          
                                          
                                          2,963,060Inventories,
      net
                                          
                                          
                                          4,463,586
                                          
                                          
                                          
                                          6,295,476Other
                                          
                                          
                                          171,676
                                          
                                          
                                          
                                          211,832Total
      current assets
                                          
                                          
                                          6,220,664
                                          
                                          
                                          
                                          9,478,391Property
      and equipment, net
                                          
                                          
                                          1,720,031
                                          
                                          
                                          
                                          1,709,250Capitalized
      software costs, net
                                          
                                          
                                          1,265,445
                                          
                                          
                                          
                                          1,217,585Other
      assets
                                          
                                          
                                          335,557
                                          
                                          
                                          
                                          454,050Land
      held for sale
                                          
                                          
                                          -
                                          
                                          
                                          
                                          353,712Total
      assets
                                          
                                          $
                                          9,541,697
                                          
                                          
                                          $
                                          13,212,988Liabilities
      and Shareholders’ EquityCurrent
      liabilitiesBank
      line of credit
                                          
                                          $
                                          2,799,088
                                          
                                          
                                          $
                                          1,883,243Accounts
      payable
                                          
                                          
                                          1,964,367
                                          
                                          
                                          
                                          1,971,379Accrued
      expenses
                                          
                                          
                                          1,523,925
                                          
                                          
                                          
                                          1,871,887Deferred
      revenue
                                          
                                          
                                          568,673
                                          
                                          
                                          
                                          771,521Customer
      deposits
                                          
                                          
                                          503,952
                                          
                                          
                                          
                                          1,927,567Total
      current liabilities
                                          
                                          
                                          7,360,005
                                          
                                          
                                          
                                          8,425,597Commitments
      and contingenciesShareholders’
      equityCommon
      stock, $.01 par value; 30,000,000 atAugust
      28,2009 and 20,000,000 at August 29,2008shares
      authorized; 12,647,051 issued and outstanding
                                          
                                          
                                          126,471
                                          
                                          
                                          
                                          126,471Additional
      paid-in capital
                                          
                                          
                                          20,006,702
                                          
                                          
                                          
                                          20,006,702Accumulated
      deficit
                                          
                                          
                                          (17,951,481
                                          )
                                          
                                          
                                          (15,345,782
                                          )Total
      shareholders’ equity
                                          
                                          
                                          2,181,692
                                          
                                          
                                          
                                          4,787,391Total
      liabilities and shareholders’ equity
                                          
                                          $
                                          9,541,697
                                          
                                          
                                          $
                                          13,212,988





See
accompanying notes to consolidated financial statements.


36





CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY





AdditionalCommon
      Stock
                                            
                                            
                                            Paid-in
                                            
                                            
                                            AccumulatedShares
                                            
                                            
                                            Amount
                                            
                                            
                                            Capital
                                            
                                            
                                            DeficitBALANCE
      at September 1, 2006
                                            
                                            
                                            12,579,051
                                            
                                            
                                            $
                                            125,791
                                            
                                            
                                            $
                                            19,924,915
                                            
                                            
                                            $
                                            (14,976,303
                                            )Common
      stock issued throughstock options
                                            
                                            
                                            68,000
                                            
                                            
                                            
                                            680
                                            
                                            
                                            
                                            56,440
                                            
                                            
                                            
                                            -Share-based
      compensation
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            17,667
                                            
                                            
                                            
                                            -Net
      loss for the year
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (752,762
                                            )BALANCE
      at August 31, 2007
                                            
                                            
                                            12,647,051
                                            
                                            
                                            $
                                            126,471
                                            
                                            
                                            $
                                            19,999,022
                                            
                                            
                                            $
                                            (15,729,065
                                            )Share-based
      compensation
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            7,680
                                            
                                            
                                            
                                            -Net
      earnings for the year
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            383,283BALANCE
      at August 29, 2008
                                            
                                            
                                            12,647,051
                                            
                                            
                                            $
                                            126,471
                                            
                                            
                                            $
                                            20,006,702
                                            
                                            
                                            $
                                            (15,345,782
                                            )Net
      loss for the year
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (2,605,699
                                            )BALANCE
      at August 28, 2009
                                            
                                            
                                            12,647,051
                                            
                                            
                                            $
                                            126,471
                                            
                                            
                                            $
                                            20,006,702
                                            
                                            
                                            $
                                            (17,951,481
                                            )




See accompanying
notes to consolidated financial statements.


37


CONSOLIDATED
STATEMENTS OF CASH FLOWS





Year endedAugust 28,
                              
                              
                              August 29,
                              
                              
                              August 31,2009
                              
                              
                              2008
                              
                              
                              2007Cash
      flows from operating activitiesNet
      (loss) earnings
                              
                              $
                              (2,605,699
                              )
                              
                              $
                              383,283
                              
                              
                              $
                              (752,762
                              )Adjustments
      to reconcile net (loss) earnings to cash provided by (used for)
      operating activitiesDepreciation
      and amortization
                              
                              
                              1,437,847
                              
                              
                              
                              1,853,499
                              
                              
                              
                              2,311,047Gain
      on sale of patents
                              
                              
                              -
                              
                              
                              
                              (894,127
                              )
                              
                              
                              -Share-based
      compensation expense
                              
                              
                              -
                              
                              
                              
                              7,680
                              
                              
                              
                              17,667Decrease
      in provision for bad debts
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (50,000
                              )Increase
      in provision for inventory reserves
                              
                              
                              630,000
                              
                              
                              
                              -
                              
                              
                              
                              250,000(Decrease)
      increase in provision for warranty reserves
                              
                              
                              (130,000
                              )
                              
                              
                              (260,000
                              )
                              
                              
                              625,000Changes
      in assets and liabilitiesAccounts
      receivable
                              
                              
                              1,381,134
                              
                              
                              
                              2,209,288
                              
                              
                              
                              (3,342,227
                              )Inventories
                              
                              
                              1,201,890
                              
                              
                              
                              (2,915,066
                              )
                              
                              
                              227,617Other
      assets
                              
                              
                              56,075
                              
                              
                              
                              (16,985
                              )
                              
                              
                              38,281Accounts
      payable
                              
                              
                              (7,012
                              )
                              
                              
                              826,052
                              
                              
                              
                              (380,982
                              )Accrued
      expenses
                              
                              
                              (217,962
                              )
                              
                              
                              (477,335
                              )
                              
                              
                              (169,490
                              )Deferred
      revenue
                              
                              
                              (202,848
                              )
                              
                              
                              (2,662
                              )
                              
                              
                              (334,553
                              )Customer
      deposits
                              
                              
                              (1,423,615
                              )
                              
                              
                              56,894
                              
                              
                              
                              605,868Net
      cash provided by (used for) operating activities
                              
                              
                              119,810
                              
                              
                              
                              770,521
                              
                              
                              
                              (954,534
                              )Cash
      flows from investing activitiesProperty
      and equipment expenditures
                              
                              
                              (1,742
                              )
                              
                              
                              (335,161
                              )
                              
                              
                              (256,085
                              )Capitalized
      software additions
                              
                              
                              (996,731
                              )
                              
                              
                              (1,213,870
                              )
                              
                              
                              (1,528,343
                              )License
      agreements, patents, and trademarkexpenditures
                              
                              
                              (16,729
                              )
                              
                              
                              (62,734
                              )
                              
                              
                              (185,918
                              )Proceeds
      from sale of patents
                              
                              
                              -
                              
                              
                              
                              1,075,000
                              
                              
                              
                              -Net
      cash used for investing activities
                              
                              
                              (1,015,202
                              )
                              
                              
                              (536,765
                              )
                              
                              
                              (1,970,346
                              )Cash
      flows from financing activitiesNet
      change in borrowings under revolvingline-of-credit
                              
                              
                              915,845
                              
                              
                              
                              (132,461
                              )
                              
                              
                              2,015,704Loan
      facility fees
                              
                              
                              (25,000
                              )
                              
                              
                              (100,000
                              )
                              
                              
                              (100,000
                              )Proceeds
      from stock options exercised
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              57,120Net
      cash provided by (used for) financing activities
                              
                              
                              890,845
                              
                              
                              
                              (232,461
                              )
                              
                              
                              1,972,824(Decrease)
      increase in cash
                              
                              
                              (4,547
                              )
                              
                              
                              1,295
                              
                              
                              
                              (952,056
                              )Cash,
      beginning of year
                              
                              
                              8,023
                              
                              
                              
                              6,728
                              
                              
                              
                              958,784Cash,
      end of year
                              
                              $
                              3,476
                              
                              
                              $
                              8,023
                              
                              
                              $
                              6,728Supplementary
      information:Cash
      paid for interest
                              
                              $
                              129,123
                              
                              
                              $
                              158,586
                              
                              
                              $
                              149,590




See
accompanying notes to consolidated financial statements.


38





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS




Note  1.  Going
Concern




The
accompanying consolidated financial statements have been prepared on a going
concern basis which contemplates the realization of assets and liquidation of
liabilities in the normal course of business and do not include any adjustments
to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may result from
the possible inability of the Company to continue as a going
concern.




We have
experienced recurring net losses from operations, which have caused an
accumulated deficit of approximately $17,951,000 at August 28,
2009.  We had a working capital deficit of approximately $1,139,000 at
August 28, 2009 compared to working capital of approximately $1,053,000 at
August 29, 2008.




Our cash
flow requirements during fiscal 2009 were financed by our bank loan facility.
During fiscal 2009, our net borrowings under our loan facility increased
$916,000 to $2,799,000 at August 28, 2009.  Our loan facility, amended
and effective October 8, 2009, provides a maximum borrowing limit of
$4,000,000.  As described in Note 9., the bank assigned our facility
to a related party.  At November 20, 2009, the outstanding balance on
this loan facility was $3,691,000 and our cash balances primarily funded from
loan advances were approximately $387,000.




During
the fourth quarter of fiscal 2008 and in fiscal 2009, we made reductions in
headcount to bring the current number of employees at August 28, 2009, to 63
compared to 91 at August 29, 2008, and reduced engineering consulting and other
operating and overhead expenses.  Beginning in January 2009, we
reduced paid working hours Company-wide by approximately
10%.  Subsequent to August 28, 2009, we made further reductions in
headcount to bring the current number of employees to 51. During fiscal 2009, as
well as to date in fiscal 2010, due to insufficient cash flow from operations
and borrowing limitations under our loan facility, we negotiated extended
payment terms with our two offshore vendors and have been extending other
vendors beyond normal payment terms. Until such vendors are paid within normal
payment terms, no assurances can be given that required services and materials
needed to support operations will continue to be provided. Any interruption of
services or materials would likely have an adverse impact on our
operations.




During
the first, second, third and fourth quarters of fiscal 2009 bookings were
approximately $1.3, $1.7, $1.1 million and $1.4 million, respectively. These
fiscal 2009 bookings and fiscal 2010 bookings to date, as well as our fiscal
2008 bookings, particularly during the fourth quarter of fiscal 2008, were well
below our expectations primarily as a result of customer delays in purchasing
decisions, deferral of project expenditures and general adverse economic and
credit conditions.




Our
backlog scheduled to ship within eighteen months was approximately $4.3 million
at August 28, 2009, compared to $8.5 million at August 29, 2008.  The
total multi-year backlog at August 28, 2009, was approximately $6.8 million,
compared to $13.3 million at August 29, 2008 and $13.6 million at May 30,
2008.  Approximately $3.2 million of the August 28, 2009 backlog is
scheduled to ship during fiscal 2010.




Our
bookings and revenues during fiscal 2009, as well as to date in fiscal 2010,
have been insufficient to attain profitable operations andto provide adequate
levels of cash flow from operations.  In addition, significant fiscal
2010 shippable bookings are currently required to meet our quarterly financial
and cash flow projections for the remainder of fiscal 2010.




Our
ability to continue as a going concern will depend upon our ability to increase
our bookings and revenues in the near term to
attain profitable operations and generate sufficient cash flow from operations.
Should increased revenues not materialize, we are committed to further reducing
operating costs to bring them in line with reduced revenue
levels.  Should we be unable to achieve near term profitability and
generate sufficient cash flow from operations and if we are unable to further
reduce operating costs, we would need to raise additional capital or obtain
additional borrowings beyond our existing loan facility. No assurances can be
given that operating costs can be further reduced, or if required, that
additional capital or borrowings would be available to allow us to continue as a
going concern. If we are unable to continue as a going concern, we will likely
be forced to seek protection under the federal bankruptcy laws.




39




2.  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 subsidiary.  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 valuation allowances
for deferred tax assets, and provisions for bad debts, inventory obsolescence
and warranties.  Actual results could vary from these
estimates.





Reclassifications.  Certain
reclassifications have been made to the 2008 and 2007 financial statements to
conform to the 2009 presentation.





Fiscal
Year.We
operate on a 52-53 week fiscal year.  The fiscal year ends on the
Friday nearest to August 31.  Fiscal years 2009, 2008 and 2007
contained 52 weeks.  All references herein to 2009, 2008 and 2007,
refer to the fiscal years ended August 28, 2009, August 29, 2008, and August 31,
2007, respectively.





Cash
and Bank Overdrafts.Cash balances
consist of checking account balancesheld at a high
credit-quality financial institution.  Bank overdrafts consist of
outstanding checks that have not cleared our bank.  Overdrafts are
offset against cash balances to the extent that cash balances are available in
the account on which the checks are issued.  Remaining balances of
overdrafts are included in our accounts payable balances.  At August
28, 2009 and August 29, 2008, outstanding checks in the amount of $323,000 and
$418,000, respectively, were included in accounts payable balances.





Accounts
Receivable.  Accounts receivable are stated at the amounts
billed to customers under normal trade terms, less an allowance for doubtful
accounts. Credit is extended based on the evaluation of the customer’s financial
condition and generally we do not require collateral from our
customers.  The allowance for doubtful accounts is provided based upon
a review of individual customer accounts, historical payment information and
existing economic conditions.  Accounts receivable standard terms are
net 30 days from date of invoice.  Receivables are charged to the
allowance for doubtful accounts when all attempts to collect have failed and
they are determined to be uncollectible. Historically, we have not experienced
significant losses related to receivables from individual customers or groups of
customers in any particular industry or geographic area.





Our
policy is not to require collateral on accounts receivable.  However,
in certain circumstances letters of credit or deposits may be required from
customers.  We are subject to concentrations of credit risk
principally through accounts receivable, as a substantial portion of our
customers are affiliated with the cable television, radio, business broadcast
and telecommunications industries.  At August 28, 2009, three
customers accounted for approximately 22.8%, 15.4% and 11.8%, respectively, of
our accounts receivable.  At August 29, 2008, two customers accounted
for approximately 12.3% and 11.9%, respectively, of our accounts
receivable.





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 at its net realizable 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 evenly over twelve months.




40




Revenue
Recognition.Our
revenue recognition policies are in compliance with Staff Accounting Bulletin
(SAB) No. 104, “Revenue Recognition,” and SAB No. 101, “Revenue Recognition in
Financial Statements.”  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, collectability is reasonably assured, and
when there are no significant future performance obligations.  Service
revenues are recognized at the time of performance. Extended service maintenance
contract revenues are recognized ratably over the maintenance contract term,
which is typically one year. The unrecognized revenue portion of maintenance
contracts invoiced and the fair value of future performance obligations are
recorded as deferred revenue.  In addition, any invoices generated in
excess of revenue recognized are recorded as deferred revenue until the
revenue recognition criteria are met.  At August 28, 2009, deferred
extended service maintenance revenues were $537,000, and deferred revenues
related to future performance obligations were $32,000 and are expected to be
recognized as revenue in varying amounts throughout fiscal 2010.





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 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 August 28, 2009, revenues attributable to
two customers in the amount of $1,236,000 were recorded prior to delivery as
bill and hold transactions.  At August 28, 2009, accounts receivable
for these revenues were paid in full.  For the year ended August 29,
2008, revenues attributable to one customer in the amount of $495,000 were
recorded prior to delivery as bill and hold transactions.  At August
29, 2008, accounts receivable for these revenues were paid in full.





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.  We evaluate
our products to assess whether software is more than incidental to a
product.  When we conclude that software is more than incidental to a
product, we will account for the product as a software product. Revenue on
software products and software-related elements is recognized in accordance with
Statement of Position (SOP) No. 97-2, “Software Revenue Recognition”
as amended by SOP No. 98-9, “Software Revenue Recognition, with Respect to
Certain Transactions.”  Significant judgment may be required in
determining whether a product is a software or hardware product.





In
accordance with Emerging Issues Task Force (EITF) Issue 00-10, “Accounting for
Shipping and Handling Fees and Costs,” we include all shipping and handling
billings to customers in revenues, and freight costs incurred for product
shipments are 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 product 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 2009,
2008 and 2007, totaled $997,000, $1,214,000 and $1,528,000,
respectively.  Amortization expense, included in cost of products
sold, was $949,000, $1,238,000 and $1,517,000 for the same periods,
respectively.  Capitalized software costs, net of accumulated
amortization, were $1,265,000 at August 28, 2009 and $1,218,000 at August 29,
2008.  Accumulated amortization amounted to $13,694,000 at August 28,
2009 and $12,745,000 at August 29, 2008.




Advertising
and Sales Promotion Expenses.Our
policy is to expense advertising and sales promotion costs as incurred.
Advertising and sales promotion expenses include media advertising, trade shows,
customer events, product literature and market research costs. These expenses
totaled $178,000, $258,000 and $329,000 for fiscal years 2009, 2008 and 2007,
respectively.




41




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.  Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.




Share-Based
Compensation.We account for
share-based payments to employees, including grants of employee stock options,
in accordance with Statement of Financial Accounting Standards (SFAS) No. 123
(Revised), “Share-Based Payment” (SFAS No. 123R).  SFAS No. 123R
requires that these awards be recognized as compensation expense in the
consolidated financial statements based on their fair values. That expense will
be recognized over the period during which an employee is required to provide
services in exchange for the award, known as the requisite service period
(usually the vesting period).  For fiscal years 2009, 2008 and 2007,
stock-based compensation expense included in selling, general and administrative
expenses amounted to $0, $8,000 and $18,000, respectively.





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 endedAugust 28,
                              
                              
                              August 29,
                              
                              
                              August 31,2009
                              
                              
                              2008
                              
                              
                              2007Risk
      free interest rate
                              
                              
                              -
                              
                              
                              
                              3.45
                              %
                              
                              
                              4.70
                              %Expected
      term
                              
                              
                              -
                              
                              
                              5.0
      years
                              
                              
                              10.0
      yearsVolatility
                              
                              
                              -
                              
                              
                              
                              70
                              %
                              
                              
                              90
                              %Expected
      annual dividends
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Forfeiture
      rate
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -





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





Year
      endedAugust
      28,
                              
                              
                              August
      29,
                              
                              
                              August
      31,2009
                              
                              
                              2008
                              
                              
                              2007Per
      share option value
                              
                              
                              -
                              
                              
                              $
                              .51
                              
                              
                              $
                              .90Aggregate
      total
                              
                              
                              -
                              
                              
                              $
                              8,000
                              
                              
                              $
                              16,000





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.  At August 28, 2009, net deferred tax assets were
fully offset by a valuation allowance of $6,483,000.





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 (loss) 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
(loss) per share gives effect to all dilutive potential common shares
outstanding during a period.  In computing diluted net earnings (loss)
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.




42





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





Year endedAugust 28,
                              
                              
                              August 29,
                              
                              
                              August 31,2009
                              
                              
                              2008
                              
                              
                              2007BasicNet
      (loss) earnings
                              
                              $
                              (2,605,699
                              )
                              
                              $
                              383,283
                              
                              
                              $
                              (752,762
                              )Weighted
      average shares outstanding
                              
                              
                              12,647,051
                              
                              
                              
                              12,647,051
                              
                              
                              
                              12,614,007Net
      (loss) earnings per share
                              
                              $
                              (.21
                              )
                              
                              $
                              .03
                              
                              
                              $
                              (.06
                              )DilutedNet
      (loss) earnings
                              
                              $
                              (2,605,699
                              )
                              
                              $
                              383,283
                              
                              
                              $
                              (752,762
                              )Weighted
      average shares outstanding
                              
                              
                              12,647,051
                              
                              
                              
                              12,647,051
                              
                              
                              
                              12,614,007Effect
      of dilutive potentialcommon
      shares:Stock
      options
                              
                              
                              -
                              
                              
                              
                              12,363
                              
                              
                              
                              -Total
                              
                              
                              12,647,051
                              
                              
                              
                              12,659,414
                              
                              
                              
                              12,614,007Net
      (loss) earnings per share
                              
                              $
                              (.21
                              )
                              
                              $
                              .03
                              
                              
                              $
                              (.06
                              )





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





Year
      endedAugust
      28,
                                
                                
                                August
      29,
                                
                                
                                August
      31,2009
                                
                                
                                2008
                                
                                
                                2007Common
      stock options:Number
      of shares
                                
                                
                                731,375
                                
                                
                                
                                839,531
                                
                                
                                
                                971,531Range
      of exercise prices
                                
                                $
                                .63
      to $2.72
                                
                                
                                $
                                1.00
      to $2.72
                                
                                
                                $
                                .63
      to $2.72





Fair
Value of financial Instruments.  The carrying amount of cash
and other current assets and liabilities, such as accounts receivable and
accounts payable as presented in the consolidated financial statements,
approximates fair value based on the short-term nature of these instruments. We
believe the carrying amounts of our line of credit borrowings approximate fair
value because the interest rates at August 28, 2009, were variable rates subject
to change with, or approximated, market interest rates.





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







Subsequent
Events.Wehave reviewed and evaluated material
subsequent events from the balance sheet date of August 28, 2009 through
the financial statements issue date of November 25, 2009. All appropriate
subsequent event disclosures, if any, have been made in the notes to our
Consolidated Financial Statements.





Recently
Issued Accounting Standards.  In June 2009, the FASB
issued SFAS No. 168, “The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 168”). SFAS
No. 168 replaces SFAS No. 162, “The Hierarchy of Generally Accepted Accounting
Principles”, and establishes the FASB Accounting Standards Codification (the
“Codification”) as the source of authoritative accounting principles recognized
by the FASB. The Codification is to be applied by nongovernmental entities in
the preparation of financial statements in conformity with generally accepted
accounting principles and it supersedes all existing non-SEC accounting and
reporting standards. SFAS No. 168 also identifies the framework for selecting
the principles used in preparation of financial statements that are presented in
conformity with GAAP. SFAS No. 168 is effective for financial statements issued
for interim and annual periods ending after September 15, 2009. The Company
expects that the adoption of SFAS No. 168 will not have a material impact on its
financial position, results of operations or cash flows.




43




In
June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation
No. 46(R)”(“SFAS No. 167”). SFAS
No. 167 eliminates FASB Interpretation No. 46(R)’s exceptions to consolidating
qualifying special-purpose entities, contains new criteria for determining the
primary beneficiary, and increases the frequency of required reassessments to
determine whether a company is the primary beneficiary of a variable interest
entity. SFAS No. 167 also contains a new requirement that any term, transaction,
or arrangement that does not have a substantive effect on an entity’s status as
a variable interest entity, a company’s power over a variable interest entity,
or a company’s obligation to absorb losses or its right to receive benefits of
an entity must be disregarded in applying FASB Interpretation No. 46(R)’s
provisions. The elimination of the qualifying special-purpose entity concept and
its consolidation exceptions means more entities will be subject to
consolidation assessments and reassessments. SFAS No. 167 is effective as of the
beginning of an enterprise’s first fiscal year beginning after November 15,
2009, and for interim periods within that first period, with earlier adoption
prohibited. The Company has not determined the impact, if any, SFAS No. 167 will
have on its future consolidated financial statements.





In
December 2007, the FASB issued SFAS No. 141 (Revised), “Business Combinations”
(“SFAS No. 141(R)”). SFAS No. 141(R) establishes principles and requirements for
how the acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree; recognizes and measures the goodwill acquired in a
business combination or a gain from a bargain purchase; determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of a business combination. SFAS No. 141(R) is
effective as of the beginning of an entity’s first fiscal year that begins after
December 15, 2008. The guidance is effective
for us beginning August 29, 2009 and will apply to business combinations
completed on or after that date, if any. The adoption of this guidance is not
expected to have a material impact on our Consolidated Financial
Statements.





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (“SFAS No. 160”). SFAS No. 160 establishes
new accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. Specifically, this
statement requires the recognition of a noncontrolling interest (minority
interest) as equity in the consolidated financial statements and separate from
the parent’s equity. The amount of net income attributable to the noncontrolling
interest will be included in consolidated net income on the face of the income
statement. SFAS No. 160 clarifies that changes in a parent’s ownership interest
in a subsidiary that do not result in deconsolidation are equity transactions if
the parent retains its controlling financial interest. In addition, this
statement requires that a parent recognize a gain or loss in net income when a
subsidiary is deconsolidated. Such gain or loss will be measured using the fair
value of the noncontrolling equity investment on the deconsolidation date. SFAS
No. 160 also includes expanded disclosure requirements regarding the interests
of the parent and its noncontrolling interest. SFAS No. 160 is effective for
fiscal years beginning on or after December 15, 2008. Earlier adoption is
prohibited. The
adoption of thisSFAS No. 160is not expected to have a
material impact on our Consolidated Financial Statements as we currently have no
noncontrolling interest in our subsidiary.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities”(SFAS No. 159). SFAS
No. 159 provides companies with an option to report selected financial assets
and liabilities at fair value. SFAS No. 159 also establishes presentation and
disclosure requirements designed to facilitate comparisons between companies
that choose different measurement attributes for similar types of assets and
liabilities and to provide additional information that will help investors and
other financial statement users to easily understand the effect of the company’s
choice to use fair value on its earnings. Additionally, SFAS No. 159 requires
entities to display the fair value of those assets and liabilities for which the
company has chosen to use fair value on the face of the balance sheet. SFAS
No. 159 is effective as of the beginning of an entity’s first fiscal year
beginning after November 15, 2007. We adopted SFAS No. 159 on August 30,
2008, the first day of the start of fiscal year 2009. The Company did not elect
the fair value option for any financial instruments or certain other financial
assets and liabilities that were not previously required to be measured at fair
value.  Therefore, adoption of SFAS No. 159 had no impact on our
financial position or results of operations.




In
September 2006, FASB issued SFAS No. 157, “Fair Value Measurements”, which
defines fair value, provides a framework for measuring fair value, and expands
the disclosures required for fair value measurements. SFAS No. 157 applies to
other accounting pronouncements that require fair value measurements; it does
not require any new fair value measurements. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007 and was adopted by the Company
on August 30, 2008, the first day of the start of fiscal year 2009 and had
no impact on our financial position or results of operations. In February 2008,
the FASB issued FASB Staff Position (FSP) No. FAS 157-2, “Effective Date of FASB
Statement No. 157”. FSP No. 157-2 delays the effective date of SFAS
No. 157 to fiscal years beginning after November 15, 2008 for all non-financial
assets and non-financial liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually) and will be adopted by the Company beginning in the first
quarter of fiscal 2010.




44




3.  Accounts
Receivable


Accounts
receivable are summarized as follows:


August
      28,
                              2009
                            
                            
                            August
      29,
                              2008Accounts
      receivable – trade
                            
                            $
                            1,649,047
                            
                            
                            $
                            3,090,272Other
      receivables
                            
                            
                            78,889
                            
                            
                            
                            103,0211,727,936
                            
                            
                            
                            3,193,293Less
      allowance for doubtful accounts
                            
                            
                            (146,010
                            )
                            
                            
                            (230,233
                            )Accounts
      receivable, net
                            
                            $
                            1,581,926
                            
                            
                            $
                            2,963,060





4.  Inventories


Inventories
are summarized as follows:


August
      28,
                            2009
                          
                          
                          August
      29,
                            2008Raw
      materials
                          
                          $
                          4,430,492
                          
                          
                          $
                          5,312,531Work-in-process
                          
                          
                          958,658
                          
                          
                          
                          1,301,753Finished
      goods
                          
                          
                          3,763,793
                          
                          
                          
                          3,751,4979,152,943
                          
                          
                          
                          10,365,781Less
      inventory reserves
                          
                          
                          (4,689,357
                          )
                          
                          
                          (4,070,305
                          )Inventories,
      net
                          
                          $
                          4,463,586
                          
                          
                          $
                          6,295,476





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 $4,689,000
at August 28, 2009, is to provide for items that are potentially
slow-moving, excess or obsolete.  Changes in market conditions, lower
than expected customer demand and rapidly changing technology could result in
additional obsolete and slow-moving inventory that is unsaleable or saleable at
reduced prices.  No estimate can be made of a range of amounts of loss
from obsolescence that is reasonably possible should our sales efforts not be
successful.





5.  Property
and Equipment


Major
classes of property and equipment consist of the following:





Estimated
                                        Useful Lives
                                        (Years)
                                      
                                      
                                      August 28,
                                        2009
                                      
                                      
                                      August 29,
                                        2008Land
                                      
                                      -
                                      
                                      
                                      $
                                      707,210
                                      
                                      
                                      $
                                      353,498Buildings
      and improvements
                                      
                                      3-30
                                      
                                      
                                      
                                      3,751,290
                                      
                                      
                                      
                                      3,751,290Machinery
      and equipment
                                      
                                      3-5
                                      
                                      
                                      
                                      10,490,572
                                      
                                      
                                      
                                      10,508,729Furniture
      and fixtures
                                      
                                      5
                                      
                                      
                                      
                                      587,599
                                      
                                      
                                      
                                      587,599Total
      property and equipment
                                      
                                      
                                      
                                      
                                      
                                      
                                      15,536,671
                                      
                                      
                                      
                                      15,201,116Less
      accumulated depreciation and amortization
                                      
                                      
                                      
                                      
                                      
                                      
                                      (13,816,640
                                      )
                                      
                                      
                                      (13,491,866
                                      )Property
      and equipment, net
                                      
                                      
                                      
                                      
                                      
                                      $
                                      1,720,031
                                      
                                      
                                      $
                                      1,709,250





At August
28, 2009, we evaluated the criteria of SFAS No. 144 (as amended), “Accounting
for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144) and
concluded that land previously classified as held for sale no longer met the
held for sale criteria of SFAS No. 144.  Accordingly, at August 28,
2009, land in the amount of $353,712 is classified as held for use in the above
table.




45




Depreciation
expense for fiscal 2009, 2008 and 2007, totaled approximately $329,000,
$404,000, and $413,000, respectively.  Assets recorded under a capital
lease included in property and equipment at August 28, 2009, are machinery and
equipment of approximately $613,000, which were fully
amortized.  Repair and maintenance expenses amounted to $154,000,
$205,000 and $220,000 during fiscal years 2009, 2008 and 2007,
respectively.





6.
Other Assets


Other
assets consist of the following:


August 28, 2009Cost
                          
                          
                          Accumulated
                            Amortization
                          
                          
                          NetLicense
      agreements
                          
                          $
                          958,800
                          
                          
                          $
                          (953,384
                          )
                          
                          $
                          5,416Patents
      and patent applications
                          
                          
                          353,057
                          
                          
                          
                          (66,799
                          )
                          
                          
                          286,258Trademarks
      and trademark applications
                          
                          
                          82,820
                          
                          
                          
                          (54,159
                          )
                          
                          
                          28,661Loan
      facility fees
                          
                          
                          25,000
                          
                          
                          
                          (16,667
                          )
                          
                          
                          8,333Other
                          
                          
                          6,889
                          
                          
                          
                          -
                          
                          
                          
                          6,889$
                          1,426,566
                          
                          
                          $
                          (1,091,009
                          )
                          
                          $
                          335,557





August 29, 2008Cost
                          
                          
                          Accumulated
                            Amortization
                          
                          
                          NetLicense
      agreements
                          
                          $
                          958,800
                          
                          
                          $
                          (925,384
                          )
                          
                          $
                          33,416Patents
      and patent applications
                          
                          
                          336,328
                          
                          
                          
                          (47,725
                          )
                          
                          
                          288,603Trademarks
      and trademark applications
                          
                          
                          82,820
                          
                          
                          
                          (41,011
                          )
                          
                          
                          41,809Loan
      facility fees
                          
                          
                          100,000
                          
                          
                          
                          (16,667
                          )
                          
                          
                          83,333Other
                          
                          
                          6,889
                          
                          
                          
                          -
                          
                          
                          
                          6,889$
                          1,484,837
                          
                          
                          $
                          (1,030,787
                          )
                          
                          $
                          454,050





Amortization
expense of other assets amounted to $160,000, $212,000, and $381,000 for fiscal
years 2009, 2008 and 2007, respectively.  Amortization expense for the
year ended August 31, 2007 included $111,000 related to write-offs of remaining
net balances of certain license agreements due to termination of the
agreements.





During
the fourth quarter of fiscal 2008, we completed the sale of selected
patents and patent applications to EPAX Consulting Limited Liability Company for
net proceeds of approximately $1,075,000 and recorded a gain of
$894,000.  The group of patents and patent applications sold relate to
product distinction, system architecture and IP networking.  We
retained a worldwide, non-exclusive, royalty-free license under the patents for
use in both existing and future products.





We
conduct an ongoing review of our intellectual property rights and potential
trademarks.  As of August 28, 2009, we incurred legal fees of $228,000
related to the filing of applications for various patents and $1,000 related to
the filing of trademarks.  Upon issuance, these costs will be
amortized on a straight-line basis over the lesser of the legal life of the
patents and trademarks or their estimated useful lives of four to ten years. If
it becomes more likely than not that the patent application will not be granted,
we will write off the deferred cost at that time.  At August 28, 2009,
the cost of registered patents and trademarks amounted to $126,000 and $82,000,
respectively.License agreements are
amortized over their estimated useful life of one to five years.  Loan
facility fees are amortized over twelve months.




During
the second quarter of fiscal 2003, we entered into a license agreement with
StarGuide Digital Networks, Inc., a Nevada corporation.  This
agreement granted a number of limited licenses 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.  At August 28, 2009, this license was fully amortized and
requires no additional renewal fee.   The agreement provides for
a continuing running royalty payment on certain of our products.  We
believe that these royalties will not have a material adverse effect on our
financial condition or results of operations.  In addition, as of
August 28, 2009, we have entered into seven other license agreements for
utilization of various technologies. These agreements generally are for a one
year period with annual renewal fees currently ranging from $10,000 to
$15,000.  In addition, these agreements currently require royalty
payments, or may require future royalties for products under development, none
of which are expected to have a material adverse effect on our financial
condition or results of operations.




46




7.  Accrued
Expenses


Accrued
expenses consist of the following:


August 28,
                                2009
                              
                              
                              August 29,
                                2008Vacation
                              
                              $
                              530,652
                              
                              
                              $
                              557,478Payroll
      and related expenses
                              
                              
                              223,319
                              
                              
                              
                              354,673Royalties
                              
                              
                              161,247
                              
                              
                              
                              159,115Warranty
                              
                              
                              98,882
                              
                              
                              
                              228,882Taxes
      and insurance
                              
                              
                              154,035
                              
                              
                              
                              150,318Commissions
                              
                              
                              31,516
                              
                              
                              
                              37,391Professional
      fees
                              
                              
                              290,072
                              
                              
                              
                              337,408Other
                              
                              
                              34,202
                              
                              
                              
                              46,622$
                              1,523,925
                              
                              
                              $
                              1,871,887





Accrued  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 $99,000 at August 28, 2009 and $229,000 at August 29, 2008.  For
the fiscal year ended August 28, 2009, the warranty provisions were reduced by
$130,000 for previously estimated provisions that were no longer
required.  For the fiscal year ended August 29, 2008, the accrual was
increased by $50,000, reduced by $45,000 for satisfied warranty claims and
reduced by $310,000 for previously estimated provisions that were no longer
required.  For the fiscal year ended August 31, 2007, the accrual was
increased by $625,000 and reduced by $426,000 for satisfied warranty
claims.  Net warranty recoveries amounted to $130,000 and $260,000 in
fiscal 2009 and 2008, respectively.  Warranty expense amounted to
$625,000 in fiscal 2007.





8.
Deferred Revenue


Deferred
revenue consists of the unrecognized revenue portion of extended service
maintenance contracts and the fair value of revenue related to future
performance obligations. Extended service maintenance contract revenues are
recognized ratably over the maintenance contract term, which is typically one
year.  At August 28, 2009, deferred extended service maintenance
revenues were $537,000, and deferred revenues related to future performance
obligations were $32,000 and are expected to be recognized as revenue in varying
amounts throughout fiscal 2010.  At August 29, 2008, deferred extended
service maintenance revenues were $733,000, and deferred revenues related to
future performance obligations were $38,000.





9.  Financing
Agreements


Revolving
Line of Credit and Term Loan Facilities





Effective
September 16, 2009, we entered into an Eleventh Amendment (“Amendment”) to the
Loan and Security Agreement (the “Loan Agreement”) with Bank of America, N.A.
(the “bank”). The Amendment extended the maturity date of our revolving line of
credit and term loan facility (“loan facility”) with the bank to November 30,
2009 (previously September 30, 2009), reduced the maximum available credit limit
to $4,000,000 (previously $5,000,000) and increased the interest rate to the
bank’s prime rate plus two percent (previously the bank’s prime
rate).  In addition, the Amendment allowed for over advances in excess
of the existing availability collateral formulas of up to $500,000 during the
term of the loan facility.  The Amendment was subject to the bank
receiving, on or before October 15, 2009, a fully executed asset purchase
agreement or merger agreement satisfactory to the bank, in its reasonable
business judgment, for the sale or merger of Wegener Corporation to or into a
third-party purchaser; provided, however, the failure to so provide such fully
executed asset purchase or merger agreement to the bank on or before October 15,
2009 would have been an automatic Event of Default as defined and set forth in
the Loan Agreement, and the bank would have all of its rights and remedies as
provided for in the Loan Agreement without further notice.




47




On
October 8, 2009, the bank assigned its rights (the “Assignment”) under the Loan
Agreement to The David E. Chymiak Trust Dated December 15, 1999 (the
“Trust”).  Immediately before becoming such assignee, the Trust
entered into a Twelfth amendment to the Loan Agreement, dated October 8, 2009
(the “Twelfth Amendment”) which became effective immediately upon the
consummation of the Assignment.  Accordingly, by virtue of the
Assignment, the Trust succeeded to all the rights and obligations of the bank
under the Loan Agreement, except as otherwise provided in the Twelfth Amendment.
In connection with the Assignment, the Trust paid a total of $2,941,000 to the
bank amounting to all amounts we owed to the bank.  Therefore, we no
longer have a lending relationship with the bank.





WCI’s
loan facility, amended and effective October 8, 2009, consists of a revolving
line of credit and term loan with a maximum combined available credit limit of
$4,000,000.  The term of the amended loan facility is eighteen (18)
months beginning October 8, 2009 (“Original Term”), or upon demand in the event
of default as defined by the loan facility.The outstanding
loan balance bears interest at the rate of twelve percent (12%) per
annum.  The loan facility automatically renews for successive twelve
(12) month periods provided, however, the lender may terminate the loan facility
by providing ninety (90) days’ prior written notice of termination at any time
beginning on or after ninety (90) days prior to the expiration of the Original
Term.  Principal and interest shall be payable upon the earlier of the
maturity date, an event of default, or 90 days following the date on which the
Trust provides written notice to terminate the agreement.  All
principal and interest shall be payable in U.S. dollars or, upon mutual
agreement of the parties decided in good faith at the time payment is due, other
good and valuable consideration.





The loan
is secured by a first lien on substantially all of WCI’s assets, including land
and buildings, and is guaranteed by Wegener Corporation.  At August
28, 2009, balances outstanding on the revolving line of credit amounted to
$2,799,000.  At November 20, 2009, the outstanding balance on the line
of credit was $3,691,000 and our cash balances primarily funded from loan
advances were approximately $387,000.





During
fiscal 2009, the average daily balance outstanding was $3,357,000 and the
highest outstanding balance was $4,077,000.  During fiscal 2010 we
expect the average daily balance to increase and interest expense to increase
due to the significant increase in the annual interest rate.





The
amended loan facility requires us to be in compliance with a solvency
representation provision on the last day of our third quarter of fiscal 2010
(May 28, 2010). This representation requires us to be able to pay our debts as
they become due, have sufficient capital to carry on our business and own
property at a fair saleable value greater than the amount required to pay our
debts.  In addition, we are required to retain certain executive
officers and are precluded from paying dividends.  The Twelfth
Amendment removed the minimum tangible net worth and minimum fixed coverage
ratio annual debt covenant provisions.





On
October 1, 2009, we entered into an unsecured promissory note with David E.
Chymiak in the amount of two hundred and fifty thousand dollars
($250,000).  The loan bears interest at the rate of 8.0% per year with
a maturity date of October 31, 2009. The maturity date was subsequently extended
to November 30, 2009.





David E.
Chymiak is a beneficial owner of 8.8% of our outstanding common stock. The David
E. Chymiak Trust Dated December 15, 1999, is controlled by Mr.
Chymiak.





10.  Income
Taxes


No income
tax benefit was recorded for fiscal 2009 due to an increase in the deferred tax
asset valuation allowance.  In fiscal 2009, the deferred tax asset
increased $938,000 primarily due to an increase in net operating loss
carryforwards and the provision for inventory reserves, and decreased $199,000
due to the expiration state income tax credits. The net increase of $739,000 in
the deferred tax asset was offset by a corresponding increase in the valuation
allowance.  No income tax expense was recorded for fiscal 2008 due to
utilization of net operating loss and alternative minimum tax credit
carryforwards.  In fiscal 2008, the deferred tax asset decreased
$141,000, which was offset by a decrease in the valuation allowance by the same
amount.  No income tax benefits were recorded in fiscal 2007 as the
Company incurred net losses of $(753,000) and the increase in the deferred tax
asset was offset by a corresponding increase in the valuation allowance due to
the uncertainty as to the realization of the deferred tax asset.





48




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




Year endedAugust 28,
                              2009
                            
                            
                            August 29,
                              2008
                            
                            
                            August 31,
                              2007Statutory
      U.S. income tax rate
                            
                            
                            34.0
                            %
                            
                            
                            (34.0
                            )%
                            
                            
                            34.0
                            %State
      taxes, net of federal benefits
                            
                            
                            2.0
                            
                            
                            
                            (2.1
                            )
                            
                            
                            2.0Expired
      state tax credit
                            
                            
                            (7.6
                            )
                            
                            
                            -
                            
                            
                            
                            -Valuation
      allowance
                            
                            
                            (28.4
                            )
                            
                            
                            36.0
                            
                            
                            
                            (36.0
                            )Non-deductible
      expenses
                            
                            
                            (.1
                            )
                            
                            
                            (0.8
                            )
                            
                            
                            (0.4
                            )Other,
      net
                            
                            
                            .1
                            
                            
                            
                            0.9
                            
                            
                            
                            0.4Effective
      income tax rate
                            
                            
                            -
                            %
                            
                            
                            -
                            %
                            
                            
                            -
                            %





The
effective tax rate for fiscal 2009, 2008 and 2007 reflected the recording of a
full valuation allowance against net


deferred
tax assets, as further discussed below.





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




August 28,
                                                              2009
                                                            
                                                            
                                                            August 29,
                                                              2008Deferred
      tax assets (liabilities):Accounts
      receivable and inventory reserves
                                                            
                                                            $
                                                            2,357,000
                                                            
                                                            
                                                            $
                                                            2,149,000Accrued
      expenses
                                                            
                                                            
                                                            239,000
                                                            
                                                            
                                                            
                                                            298,000Net
      operating loss carryforwards
                                                            
                                                            
                                                            4,352,000
                                                            
                                                            
                                                            
                                                            3,570,000Credit
      carryforwards
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            199,000AMT
      credit carryovers
                                                            
                                                            
                                                            134,000
                                                            
                                                            
                                                            
                                                            134,000Depreciation
                                                            
                                                            
                                                            137,000
                                                            
                                                            
                                                            
                                                            118,000Capitalized
      software costs
                                                            
                                                            
                                                            (481,000
                                                            )
                                                            
                                                            
                                                            (463,000
                                                            )Other
                                                            
                                                            
                                                            (121,000
                                                            )
                                                            
                                                            
                                                            (127,000
                                                            )Deferred
      tax assets
                                                            
                                                            
                                                            6,617,000
                                                            
                                                            
                                                            
                                                            5,878,000Valuation
      allowance
                                                            
                                                            
                                                            (6,617,000
                                                            )
                                                            
                                                            
                                                            (5,878,000
                                                            )Net
      deferred tax asset
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            -Consolidated
      balance sheet classifications:Current
      deferred tax asset
                                                            
                                                            $
                                                            2,548,000
                                                            
                                                            
                                                            $
                                                            2,393,000Noncurrent
      deferred tax asset
                                                            
                                                            
                                                            4,069,000
                                                            
                                                            
                                                            
                                                            3,485,000Valuation
      allowance
                                                            
                                                            
                                                            (6,617,000
                                                            )
                                                            
                                                            
                                                            (5,878,000
                                                            )Net
      deferred tax asset
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            -





SFAS
No. 109, "Accounting for Income Taxes," requires that a valuation allowance be
established when it is “more likely than not” that all or a portion of a
deferred tax asset will not be realized. A review of all available positive and
negative evidence was considered in judging the likelihood of realizing tax
benefits. Forming a conclusion that a valuation allowance is not needed is
difficult when there is negative evidence such as cumulative losses in recent
years. Cumulative losses is one of the most difficult pieces of negative
evidence to overcome in the absence of sufficient existing orders and backlog
(versus forecasted future orders) supporting a return to
profitability.  Our assessment in applying SFAS No. 109 indicated that
a full valuation allowance for our net deferred tax assets was required as of
August 28, 2009 and August 29, 2008.  The valuation allowance
increased $739,000 in fiscal 2009.  At August 28, 2009, net
deferred tax assets of $6,617,000 were fully reserved by a valuation
allowance.





At August
28, 2009, we had a federal net operating loss carryforward of $11,828,000, of
which $1,438,000 expires in fiscal 2021, $1,296,000 in fiscal 2023, $3,396,000
in fiscal 2024, $1,454,000 in fiscal 2025, $1,755,000 in fiscal 2026, $265,000
in fiscal 2027 and $2,221,000 in fiscal 2029.  Additionally, we had an
alternative minimum tax credit of $134,000 which was fully offset by the
valuation allowance.




We
adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109” (FIN No. 48) as of
September 1, 2007, the first day of the first quarter of fiscal
2008.  The adoption of FIN No. 48 had no impact on our financial
position or results of operations.  We are subject to U.S. federal
income tax as well as income tax of numerous state jurisdictions. We are subject
to U.S. federal tax examinations by tax authorities for fiscal years 2004
through 2008. Income tax examinations that we may be subject to from the various
state taxing authorities vary by jurisdiction. Our policy under FIN No. 48 for
penalties and interest is to include such amounts, if any, in income tax
expense.




49




11.Share-Based Compensation
Plans


1998 Incentive
Plan.On February 26, 1998, our stockholders approved the 1998
Incentive Plan (the “1998 Plan”).  The effective date of the 1998 Plan
is January 1, 1998 and the 1998 Plan had a ten-year term.  The 1998
Incentive Plan expired and terminated effective December 31,
2007.  The Plan provided for awards of up to an aggregate of 2,000,000
shares of common stock which could be represented by (i) incentive or
nonqualified stock options, (ii) stock appreciation rights (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
provided for loans and supplemental cash payments to persons participating in
the 1998 Plan in connection with awards granted.  Eligible
participants included officers and other key employees, non-employee directors,
consultants and advisors to the Company.  The exercise price per share
in the case of incentive stock options and any tandem stock appreciation rights
could not be less than 100% of the fair market value on the date of grant or, in
the case of an option granted to a 10% or greater stockholder, could not be less
than 110% of the fair market value on the date of grant.  The exercise
price for any other option and stock appreciation rights could be at least 75%
of the fair market value on the date of grant.  The exercise period
for nonqualified stock options could not exceed ten years and one day from the
date of the grant, and the expiration period for incentive stock options or
stock appreciation rights could not exceed ten years from the date of the grant
(five years for a 10% or greater stockholder).  The 1998 Plan
contained an automatic option grant program to non-employee members of the Board
of Directors.  Such members could each be granted an option to
purchase 3,000 shares of common stock on the last day of each December on which
regular trading occurred on the NASDAQ Stock Market, at an exercise price equal
to the fair market value of such stock on the date of grant.  Such
options could be exercisable during the period of ten years and one day from the
date of grant of the option.  On December 31, 2007, the five
non-employee directors were granted options to purchase an aggregate of 15,000
shares at an exercise price of $0.85. On December 31, 2006, the six non-employee
directors were granted options to purchase an aggregate of 18,000 shares at an
exercise price of $1.03.





1989 Directors' Incentive
Plan.On January 9, 1990, the stockholders approved the
Wegener Corporation 1989 Directors' Incentive Plan (“1989 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.  The aggregate number of shares of
common stock that could be awarded under the 1989 plan was 300,000
shares.  The exercise price per share for nonqualified stock options
or stock appreciation rights could 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 was ten years and one day from the date of the grant.  The
expiration period for stock appreciation rights, including any extension, could
not exceed ten years from the date of grant.  This plan terminated and
expired effective December 1, 1999.  During fiscal 2009, options for
16,000 shares of common stock expired.   At August 28, 2009, no
options remained outstanding under the 1989 Directors’ Incentive
Plan.




50




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


Number
                                          of Shares
                                        
                                        
                                        Range of
                                          ExercisePrices
                                        
                                        
                                        Weighted
                                          Average
                                          Exercise PriceOutstanding
      atSeptember
      1, 2006
                                        
                                        
                                        1,282,531
                                        
                                        
                                        $
                                        .63
      – 2.72
                                        
                                        
                                        $
                                        1.56Granted
                                        
                                        
                                        18,000
                                        
                                        
                                        
                                        1.03
                                        
                                        
                                        
                                        1.03Exercised
                                        
                                        
                                        (68,000
                                        )
                                        
                                        
                                        .84
                                        
                                        
                                        
                                        .84Forfeited
      or cancelled
                                        
                                        
                                        (261,000
                                        )
                                        
                                        
                                        .84
      – 2.39
                                        
                                        
                                        
                                        1.75Outstanding
      atAugust  31,
      2007
                                        
                                        
                                        971,531
                                        
                                        
                                        $
                                        .63
      – 2.72
                                        
                                        
                                        $
                                        1.55Granted
                                        
                                        
                                        15,000
                                        
                                        
                                        
                                        .85
                                        
                                        
                                        
                                        .85Forfeited
      or cancelled
                                        
                                        
                                        (58,000
                                        )
                                        
                                        
                                        1.41
      – 2.21
                                        
                                        
                                        
                                        1.45Outstanding
      atAugust  29,
      2008
                                        
                                        
                                        928,531
                                        
                                        
                                        $
                                        .63
      – 2.72
                                        
                                        
                                        $
                                        1.55Forfeited
      or cancelled
                                        
                                        
                                        (197,156
                                        )
                                        
                                        
                                        1.41
      – 2.21
                                        
                                        
                                        
                                        2.03Outstanding
      at August 28, 2009
                                        
                                        
                                        731,375
                                        
                                        
                                        $
                                        .63
      – 2.50
                                        
                                        
                                        $
                                        1.42Available
      for issue at  August 28, 2009
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Options
      exercisable at:August
      28, 2009
                                        
                                        
                                        731,375
                                        
                                        
                                        $
                                        .63
      – 2.50
                                        
                                        
                                        $
                                        1.55August
      29, 2008
                                        
                                        
                                        928,531
                                        
                                        
                                        $
                                        .63
      – 2.72
                                        
                                        
                                        $
                                        1.55





The
weighted average remaining contractual life of options outstanding and
exercisable at August 28, 2009, was 3.4 years.  There was no intrinsic
value of the options outstanding and exercisable at August 28,
2009.  The weighted average grant-date fair value of options granted
during fiscal years 2008 and 2007 was $0.51 and $1.03,
respectively.





12.
Employee Benefit Plans


WCI has a
401(k) Profit SharingPlan and Trust covering
substantially all employees.  Amounts to be contributed to the plan
each year are subject to the approval of the Board of Directors.  No
profit sharing contributions were declared for fiscal years 2009, 2008 and
2007.





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 the fourth quarter of
fiscal 2009, all matching contributions, including a discretionary matching
contribution of 25%, were suspended.  In addition, the plan was
amended to make all Company matching contributions
discretionary.  During fiscal years 2008 and 2007, 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 Board of
Directors.  During fiscal 2009, 2008 and 2007, all matching
contributions in the amount of $155,000, $298,000 and $288,000, respectively,
were in the form of cash.





13. Segment Information and
Concentrations


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.




51





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




Year
      endedAugust
      28,
                                    2009
                                  
                                  
                                  August
      29,
                                    2008
                                  
                                  
                                  August
      31,
                                    2007Direct
      Broadcast Satellite
                                  
                                  $
                                  12,012,781
                                  
                                  
                                  $
                                  20,920,764
                                  
                                  
                                  $
                                  20,821,987Analog
      and Custom Products
                                  
                                  
                                  23,822
                                  
                                  
                                  
                                  29,335
                                  
                                  
                                  
                                  129,529Service
                                  
                                  
                                  618,504
                                  
                                  
                                  
                                  544,394
                                  
                                  
                                  
                                  594,513Revenues,
      net
                                  
                                  $
                                  12,655,107
                                  
                                  
                                  $
                                  21,494,493
                                  
                                  
                                  $
                                  21,546,029




Concentrations
of products representing 10% or more of the year’s revenues are as
follows:




Year
      endedAugust
      28,
                                    
                                    
                                    August
      29,
                                    
                                    
                                    August
      31,Products
                                    
                                    2009
                                    
                                    
                                    2008
                                    
                                    
                                    2007iPump
      media servers
                                    
                                    
                                    19.2
                                    %
                                    
                                    
                                    14.1
                                    %
                                    
                                    
                                    32.0
                                    %Professional
      and broadcast receivers
                                    
                                    
                                    12.4
                                    %
                                    
                                    
                                    27.4
                                    %
                                    
                                    
                                    20.6
                                    %SMD
      515 set top boxes
                                    
                                    (a)
                                    
                                    
                                    
                                    12.8
                                    %
                                    
                                    (a)Audio
      broadcast receivers
                                    
                                    
                                    18.1
                                    %
                                    
                                    
                                    10.0
                                    %
                                    
                                    (a)Network
      control products
                                    
                                    
                                    13.7
                                    %
                                    
                                    (a)
                                    
                                    
                                    (a)




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





Products
representing 10% or more of annual revenues are subject to fluctuations from
year to year as new products and technologies are introduced, new product
features and enhancements are added, and as customers upgrade or expand their
network operations.  Fiscal 2009, 2008 and 2007 product mix featured
new iPump®products for broadcast radio customers adopting store and forward
technologies in their network upgrades and a new customer for a digital signage
network. The Unity® 4600 and
4650 products in fiscal 2008 benefited from a new cable network and expansion of
high definition television distribution by cable headends. A new Unity® 201
audio broadcast receiver for business music applications was developed during
fiscal 2007 and began shipping in the first quarter of fiscal 2008.





Revenues
by geographic areas are as follows:




Year endedAugust 28,
                                
                                
                                August 29,
                                
                                
                                August 31,2009
                                
                                
                                2008
                                
                                
                                2007Geographic
      AreaUnited
      States
                                
                                $
                                11,060,100
                                
                                
                                $
                                17,808,780
                                
                                
                                $
                                16,257,878Canada
                                
                                
                                36,945
                                
                                
                                
                                359,881
                                
                                
                                
                                258,889Europe
                                
                                
                                479,501
                                
                                
                                
                                952,965
                                
                                
                                
                                1,739,715Latin
      America and Mexico
                                
                                
                                1,070,943
                                
                                
                                
                                2,288,407
                                
                                
                                
                                3,272,959Other
                                
                                
                                7,618
                                
                                
                                
                                84,460
                                
                                
                                
                                16,588Revenues,
      net
                                
                                $
                                12,655,107
                                
                                
                                $
                                21,494,493
                                
                                
                                $
                                21,546,029





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





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




52






Year endedAugust 28,
                        
                        
                        August 29,
                        
                        
                        August 31,2009
                        
                        
                        2008
                        
                        
                        2007Customer
      1
                        
                        
                        21.2
                        %
                        
                        
                        (a)
                        
                        
                        
                        15.4
                        %Customer
      2
                        
                        
                        18.1
                        %
                        
                        
                        (a)
                        
                        
                        
                        (a)Customer
      3
                        
                        
                        10.7
                        %
                        
                        
                        13.3
                        %
                        
                        
                        10.3
                        %Customer
      4
                        
                        
                        (a)
                        
                        
                        
                        14.4
                        %
                        
                        
                        (a)Customer
      5
                        
                        
                        (a)
                        
                        
                        
                        12.1
                        %
                        
                        
                        (a)Customer
      6
                        
                        
                        (a)
                        
                        
                        
                        (a)
                        
                        
                        
                        14.2
                        %




(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 2010
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
August 28, 2009, three customers accounted for approximately 22.8%, 15.4%
and 11.8%, respectively, of our accounts receivable, while at August 29,
2008, two customers accounted for approximately 12.3% and 11.9%, respectively,
of our accounts receivable.  When deemed appropriate, we use letters
of credit and credit insurance to mitigate the credit risk associated with
foreign sales.





During
fiscal years 2009 and 2008, we used offshore manufacturers for a significant
amount of our finished goods or component inventories.  Two offshore
manufacturers accounted for approximately 68% and 1% of inventory purchases
in fiscal 2009, and two offshore manufacturers accounted for approximately 52%
and 21% of inventory purchases in fiscal 2008, respectively.  They
have facilities located in Taiwan and the Peoples Republic of
China.  If these suppliers are unable to meet the Company’s needs,
losses of potential customers could result, which could adversely affect
operating results.





14.
Commitments and Contingencies


Purchase
Commitments


We have
one manufacturing and purchasing agreement for certain finished goods
inventories.  AtAugust 28, 2009,
outstanding purchase commitments under this agreement amounted to
$552,000.  At August 28, 2009, we had no letters of credit
outstanding.





Operating
Leases


We lease
certain office and manufacturing facilities and equipment under long-term
noncancelable operating leases that expire through fiscal
2012.  Approximate future minimum lease commitments are as follows:
2010-$102,000; 2011-$149,000; 2012-$95,000.  Rent expense under all
leases was approximately $153,000, $195,000 and $210,000 for fiscal years 2009,
2008 and 2007, respectively.





Indemnification
Obligations


We are
obligated to indemnify our officers and the members of our Board of Directors
pursuant to our bylaws and contractual indemnity agreements. We routinely sell
products with limited intellectual property indemnification included in the
terms of sale or in certain contractual arrangements. The scope of these
indemnities varies, but in some instances includes indemnification for damages
and expenses (including reasonable attorneys’ fees). Certain requests for
indemnification have been received by us pursuant to these arrangements (see
Part I, Item 3. Legal Proceedings for further discussion).


53





15.
Quarterly Financial Data (Unaudited)





QuarterFirst
                          
                          
                          Second
                          
                          
                          Third
                          
                          
                          Fourth
                          
                          
                          YearFiscal
      2009Revenues,
      net
                          
                          $
                          2,322,778
                          
                          
                          $
                          4,511,124
                          
                          
                          $
                          2,946,898
                          
                          
                          $
                          2,874,307
                          
                          
                          $
                          12,655,107Gross
      profit
                          
                          
                          624,363
                          
                          
                          
                          1,537,441
                          
                          
                          
                          878,588
                          
                          
                          
                          815,800
                          
                          
                          
                          3,856,192Operating
      (loss) income
                          
                          
                          (1,153,940
                          )
                          
                          
                          39,849
                          
                          
                          
                          (853,373
                          )
                          
                          
                          (509,112
                          )
                          
                          
                          (2,476,576
                          )Net
      (loss) earnings
                          
                          
                          (1,192,739
                          )
                          
                          
                          8,247
                          
                          
                          
                          (882,802
                          )
                          
                          
                          (538,405
                          )
                          
                          
                          (2,605,699
                          )Net
      (loss) earnings  per shareBasic
                          
                          
                          (.09
                          )
                          
                          
                          .00
                          
                          
                          
                          (.07
                          )
                          
                          
                          (.04
                          )
                          
                          
                          (.21
                          )Diluted
                          
                          
                          (.09
                          )
                          
                          
                          .00
                          
                          
                          
                          (.07
                          )
                          
                          
                          (.04
                          )
                          
                          
                          (.21
                          )Fiscal
      2008Revenues,
      net
                          
                          $
                          5,025,929
                          
                          
                          $
                          6,666,420
                          
                          
                          $
                          4,392,919
                          
                          
                          $
                          5,409,225
                          
                          
                          $
                          21,494,493Gross
      profit
                          
                          
                          2,063,190
                          
                          
                          
                          2,541,054
                          
                          
                          
                          1,598,851
                          
                          
                          
                          2,194,517
                          
                          
                          
                          8,397,612Operating (loss)
      income
                          
                          
                          (9,364
                          )
                          
                          
                          366,284
                          
                          
                          
                          (735,646
                          )
                          
                          
                          918,433
                          (a)
                          
                          
                          539,707
                          (a)Net
      (loss) earnings
                          
                          
                          (50,507
                          )
                          
                          
                          336,325
                          
                          
                          
                          (775,124
                          )
                          
                          
                          872,589
                          (a)
                          
                          
                          383,283
                          (a)Net (loss)
      earnings  per shareBasic
                          
                          
                          (.00
                          )
                          
                          
                          .03
                          
                          
                          
                          (.06
                          )
                          
                          
                          .07
                          
                          
                          
                          .03Diluted
                          
                          
                          (.00
                          )
                          
                          
                          .03
                          
                          
                          
                          (.06
                          )
                          
                          
                          .07
                          
                          
                          
                          .03




(a)
Includes gain on sale of patents of $894,127





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


None.





ITEM
9A. CONTROLS AND PROCEDURES


Not
applicable





ITEM
9A (T). CONTROLS AND PROCEDURES





Evaluation
of Disclosure Controls and Procedures





Management
has evaluated, with the participation of our Chief Executive Officer (CEO) and
our Chief Financial Officer (CFO), the effectiveness of the design and operation
of the Company’s disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as
of the end of the period covered by this report (August 28,
2009).  Based upon that evaluation, our CEO and CFO have concluded
that the Company’s disclosure controls and procedures were effective to ensure
that the information required to be disclosed in our reports that we file or
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported, within the time periods specified  in the
Commission’s rules and forms, including to ensure that information required to
be disclosed by us in the reports filed or submitted  under the
Securities Exchange Act of 1934 is accumulated and communicated to our
management, including our principal executive and principal financial officers,
or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.





Report
of Management on Internal Control over Financial Reporting





Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting as such term is defined in Securities Exchange
Act Rule 13a-15(f).





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.


54





The
Company’s management assessed the effectiveness of its internal control over
financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, using
the criteria for effective internal control over financial reporting described
in “Internal Control – Integrated Framework” issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this assessment,
management concluded that, as of August 28, 2009, the Company’s internal control
over financial reporting was effective.





This
annual report does not include an attestation report of the Company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management's report
in this annual report.





There has
been no change in our internal control over financial reporting during our most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.





ITEM
9B. OTHER INFORMATION


None





PART
III





ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE





Information contained in the Proxy
Statement pertaining to the 2010 Annual Meeting of Stockholders (“Proxy
Statement”) is incorporated herein by reference in partial response to this
item.  See also Item 1.  “Business - Executive Officers of
the Registrant” on page 11 of this Report.





ITEM
11. EXECUTIVE COMPENSATION





Information contained in the Proxy
Statement is incorporated herein by reference in response to this
item.


See also
exhibit 10.8 which is incorporated herein by reference.





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





Information contained in the Proxy
Statement is incorporated herein by reference in response to this
item.  See also Item 5, “MARKET FOR THE REGISTRANT'S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES-Equity
Compensation Plan Information” on page 16 of this report.





ITEM 13.
              CERTAIN
      RELATIONSHIPS AND RELATED
      TRANSACTIONS, AND
      DIRECTOR INDEPENDENCE





Information contained in the Proxy
Statement is incorporated herein by reference in response to this
item.





ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES





Information
contained in the Proxy Statement is incorporated herein by reference in response
to this item.


55


PART
IV





ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES





(a)           (1)
The following consolidated financial statements of Wegener Corporation and
subsidiary 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 – August 28, 2009 and August 29, 2008.





Consolidated
Statements of Operations - Years ended August 28, 2009, August 29, 2008 and
August 31, 2007.





Consolidated
Statements of Shareholders' Equity - Years ended August 28, 2009, August 29,
2008 and August 31, 2007.





Consolidated
Statements of Cash Flows - Years ended August 28, 2009, August 29, 2008 and
August 31, 2007.





Notes to
Consolidated Financial Statements.





Separate financial statements of the
Registrant have been omitted because the Registrant is primarily a holding
company and the subsidiary included in the consolidated financial statements is
wholly-owned.





(a)
            (2)
            The
      following consolidated financial statements schedule for Wegener
      Corporation and subsidiary is included
herein:





Schedule
II-Valuation and Qualifying Accounts Years ended August 28, 2009, August 29,
2008 and August 31, 2007.


(a)
              (3)
              The
      exhibits filed in response to Item 601 of Regulation S-K are listed in the
      Exhibit Index below.


(b)
              See
      Part IV, Item 15(a) (3).
 
 (c)
              See
      Part IV, item 15(a) (2).


56





REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board of
Directors and Shareholders of Wegener Corporation


Johns
Creek, Georgia





The audits referred
to in our report dated November 25, 2009, relating to the consolidated financial
statements of Wegener Corporation and subsidiary, which is contained in Item 8
of this Form 10-K also included the 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, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.





Atlanta,
      Georgia
                
                BDO
      Seidman, LLPNovember
      25, 2009


57


SCHEDULE
II


WEGENER
CORPORATION AND SUBSIDIARY


VALUATION
AND QUALIFYING ACCOUNTS





Balance
      at
                                                Beginning
                                                of Period
                                              
                                              
                                              Charged
      to
                                                Costs
      and
                                                Expenses
                                              
                                              
                                              Write-offs
                                              
                                              
                                              Recoveries
                                              
                                              
                                              Balance
      at
                                                End
      of
                                                PeriodAllowance
      for doubtful accounts receivable:Year
      ended August 28, 2009
                                              
                                              $
                                              230,233
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              (84,223
                                              )
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              146,010Year
      ended August 29, 2008
                                              
                                              $
                                              251,316
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              (21,083
                                              )
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              230,233Year
      ended August 31, 2007
                                              
                                              $
                                              301,012
                                              
                                              
                                              $
                                              (50,000
                                              )
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              304
                                              
                                              
                                              $
                                              251,316Inventory
      Reserves:Year
      ended August 28, 2009
                                              
                                              $
                                              4,070,305
                                              
                                              
                                              $
                                              630,000
                                              
                                              
                                              $
                                              (10,948
                                              )
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              4,689,357Year
      ended August 29, 2008
                                              
                                              $
                                              4,092,313
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              (22,008
                                              )
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              4,070,305Year
      ended August 31, 2007
                                              
                                              $
                                              3,842,313
                                              
                                              
                                              $
                                              250,000
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              4,092,313Accrued
      Warranty:Year
      ended August 28, 2009
                                              
                                              $
                                              228,882
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              (130,000
                                              )
                                              
                                              $
                                              98,882Year
      ended August 29, 2008
                                              
                                              $
                                              534,052
                                              
                                              
                                              $
                                              50,000
                                              
                                              
                                              $
                                              (45,170
                                              )
                                              
                                              $
                                              (310,000
                                              )
                                              
                                              $
                                              228,882Year
      ended August 31, 2007
                                              
                                              $
                                              334,674
                                              
                                              
                                              $
                                              625,000
                                              
                                              
                                              $
                                              (425,622
                                              )
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              534,052


58





EXHIBIT
INDEX





The following documents are filed as
exhibits to this report.  An asterisk (*) identifies exhibits filed
herewith.  Exhibits which are not required for this report are
omitted.  Exhibits 10.3 through 10.6, 10.8, 10.10 and 10.11 identify
management contracts or compensatory plans.





Exhibit No.
              
              
              
              Description of Exhibit3.1
              
              
              
              Certificate
      of Incorporation as amended through May 4, 1989. (1)3.1.1
              
              
              
              Amendment
      to Certificate of Incorporation. (2)3.1.2
              *
              
              
              Amendment
      to Certificate of Incorporation effective January 27,
  2009.3.2
              
              
              
              By-laws
      of the Company, as Amended and Restated May 17, 2006.
  (19)3.2.1
              
              
              
              Amendments
      to Article III, Section 3.2 and Article XII of the By-laws of the Company,
      effective as of September 29, 2006. (4)4.1
              
              
              
              See
      By-Laws and Certificate of Incorporation, Exhibits 3.1 and
      3.2.  See Articles II and VIII of the By-Laws and Article IV of
      the Certificate.4.2
              
              
              
              Loan
      and Security Agreement and Demand Note dated June 5, 1996, by and between
      Wegener Communications, Inc. and LaSalle National Bank respecting
      $8,500,000 combined revolving credit note and term note.
    (5)4.2.1
              
              
              
              Loan
      and Security Agreement – First Amendment dated August 4, 1998, by and
      between Wegener Communications, Inc. and LaSalle National Bank respecting
      $10,000,000 combined revolving credit note and term note.
    (6)4.2.2
              
              
              
              Loan
      and Security Agreement – Third Amendment dated December 11, 2000, by and
      between Wegener Communications, Inc., and LaSalle National Bank respecting
      $10,000,000 combined revolving credit note and term note.
    (7)4.2.3
              
              
              
              Loan
      and Security Agreement – Fourth Amendment dated March 28, 2002, by and
      between Wegener Communications, Inc., and LaSalle National Bank respecting
      $5,000,000 combined revolving credit note and term note.
    (8)4.2.4
              
              
              
              Loan
      and Security Agreement – Fifth Amendment dated June 27, 2003, by and
      between Wegener Communications, Inc. and LaSalle National Bank respecting
      $5,000,000 combined revolving credit note and term
      note.  (9)4.2.5
              
              
              
              Loan
      and Security Agreement – Sixth Amendment dated June 27, 2004, by and
      between Wegener Communications, Inc. and LaSalle National Bank respecting
      $5,000,000 combined revolving credit note and term note.
    (10)4.2.6
              
              
              
              Loan
      and Security Agreement – Seventh Amendment dated July 13, 2006, by and
      between Wegener Communications, Inc. and LaSalle National Bank respecting
      $5,000,000 combined revolving credit note and term note.
    (20)4.2.7
              
              
              
              Loan
      and Security Agreement – Eighth Amendment dated November 15, 2006, by and
      between Wegener Communications, Inc. and LaSalle National Bank respecting
      $5,000,000 combined revolving credit note and term note.
    (20)4.2.8
              
              
              
              Loan
      and Security Agreement – Ninth Amendment dated June 28, 2007, by and
      between Wegener Communications, Inc. and LaSalle National Bank respecting
      $5,000,000 combined revolving credit note and term note.
    (21)


59





Exhibit No.
            
            
            
            Description of Exhibit4.2.9
            
            
            
            Loan
      and Security Agreement – Tenth Amendment dated September 8, 2008, by and
      between Wegener Communications, Inc. and LaSalle National Bank respecting
      $5,000,000 combined revolving credit note and term
note.4.2.10
            
            
            
            Loan
      and Security Agreement – Eleventh Amendment dated September 14, 2009, by
      and between Wegener Communications, Inc. and LaSalle National Bank
      respecting $4,000,000 combined revolving credit note and term note.
      (23)4.2.11
            
            
            
            Loan
      and Security Agreement –Twelfth Amendment dated October 8, 2009, by and
      between Wegener Communications, Inc. and The David E. Chymiak Trust Dated
      December 15, 1999, as assignee of the Bank of America, N.A.,successor
      interest by merger to LaSalle Bank National Association, respecting
      $4,000,000 combined revolving credit note and term note.
    (24)4.3
            
            
            
            Stockholder
      Rights Agreement. (3)4.3.1
            
            
            
            Amendment
      No. 1, dated as of September 29, 2006, to the Company's Stockholder Rights
      Agreement. (4)10.1
            
            
            
            License
      Agreement, Distributorship and Supply Agreement, and Purchase Pooling and
      Warehouse Agreement dated May 28, 1994, by and between Wegener
      Communications, Inc. and Cross Technologies, Inc. (11)10.2
            
            
            
            Wegener
      Communications, Inc. 401(k) Profit Sharing Plan and Trust dated January 1,
      1982, amended and restated as of January 1, 1984. (12)10.3
            
            
            
            1989
      Directors' Incentive Plan. (13)10.3.1
            
            
            
            Amendment
      to 1989 Directors’ Incentive Plan effective February 1, 1995.
      (14)10.4
            
            
            
            1998
      Incentive Plan. (15)10.5
            
            
            
            Form
      of Agreement between Wegener Corporation and Robert A. Placek, Ned L.
      Mountain, and C. Troy Woodbury, Jr. respecting severance payments in the
      event of a change of control. (16)10.6
            
            
            
            Director
      Compensation Plan for 2004. (17)10.7
            
            
            
            Agreement,
      dated September 29, 2006, by and among Wegener Corporation, Henry
      Partners, L.P., Matthew Partners, L.P., Henry Investment Trust, L.P., and
      David W. Wright. (4)10.8
            *
            
            
            Executive
      Compensation for the fiscal year ended August 28, 2009.10.9
            
            
            
            Patent
      Purchase Agreement effective as of May 22, 2008, by and between Wegener
      Communications, Inc. and EPAX Consulting Limited Liability
      Company.(22)10.10
            
            
            
            Amendments
      to Agreement between Wegener Corporation and Ned L. Mountain, and C. Troy
      Woodbury, Jr., respectively, respecting severance payments in the event of
      a change of control.10.11
            
            
            
            Agreement
      between Wegener Corporation and Robert A. Placek respecting payments in
      the event of termination of employment.14.1
            
            
            
            Wegener
      Corporation Code of Business Conduct and Ethics. (18)21.1
            
            
            
            Subsidiary
      of the Registrant. (17)


60





Exhibit No.
            
            
            
            Description of Exhibit23.1
            *
            
            
            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.





(1)
            
            Incorporated
      by reference to the Company's Annual Report on Form 10-K for the fiscal
      year ended September 1, 1989, as filed with the Commission on November 30,
      1989.+(2)
            
            Incorporated
      by reference to the Company's Quarterly Report on Form 10-Q for the
      quarter ended May 30, 1997, as filed with the Commission on June 30,
      1997.+(3)
            
            Incorporated
      by reference to the Company's Current Report on Form 8-K, dated May 1,
      2003, as filed with the Commission on May 6, 2003.+(4)
            
            Incorporated
      by reference to the Company's Current Report on Form 8-K, dated September
      29, 2006, as filed with the Commission on October 3,
  2006.+(5)
            
            Incorporated
      by reference to the Company's Annual Report on Form 10-K for the fiscal
      year ended August 30, 1996, as filed with the Commission on November 27,
      1996.+(6)
            
            Incorporated
      by reference to the Company's Annual Report on Form 10-K for the fiscal
      year ended August 28, 1998, as filed with the Commission on November 10,
      1998.+(7)
            
            Incorporated
      by reference to the Company's Quarterly Report on Form 10-Q for the
      quarter ended March 2, 2001, as filed with the Commission on April 16,
      2001.+(8)
            
            Incorporated
      by reference to the Company's Quarterly Report on Form 10-Q for the
      quarter ended May 31, 2002, as filed with the Commission on Jun e 28,
      2002.+(9)
            
            Incorporated
      by reference to the Company's Quarterly Report on Form 10-Q for the
      quarter ended May 30, 2003, as filed with the Commission on July 9,
      2003.+(10)
            
            Incorporated
      by reference to the Company's Quarterly Report on Form 10-Q for the
      quarter ended May 28, 2004, as filed with the Commission on July 12,
      2004.+(11)
            
            Incorporated
      by reference to the Company's Annual Report on Form 10-K for the fiscal
      year ended September 2, 1994, as filed with the Commission on December 16,
      1994.+(12)
            
            Incorporated
      by reference to the Company's Annual Report on Form 10-K/A for the fiscal
      year ended September 2, 2005, as filed with the Commission on January 10,
      2006.+(13)
            
            Incorporated
      by reference to the Company's Annual Report on Form 10-K for the fiscal
      year ended August 31, 1990, as filed with the Commission on November 29,
      1990.+(14)
            
            Incorporated
      by reference to the Company's Annual Report on Form 10-K for the fiscal
      year ended September 1, 1995, as filed with the Commission on December 14,
      1995.+(15)
            
            Incorporated
      by reference to the Company's Registration Statement on Form S-8 (No.
      333-51205), as filed with the Commission on April 28,
  1998.(16)
            
            Incorporated
      by reference to the Company's Schedule 14D-9, as filed with the Commission
      on May 6, 2003.+(17)
            
            Incorporated
      by reference to the Company's Annual Report on Form 10-K for the fiscal
      year ended September 3, 2004, as filed with the Commission on December 2,
      2004.+(18)
            
            Incorporated
      by reference to the Company's Annual Report on Form 10-K for the fiscal
      year ended August 29, 2003, as filed with the Commission on November 26,
      2003.+(19)
            
            Incorporated
      by reference to the Company's Current Report on Form 8-K, dated May 17,
      2006, as filed with the Commission on May 22, 2006.+(20)
            
            Incorporated
      by reference to the Company's Annual Report on Form 10-K for the fiscal
      year ended September 1, 2006, as filed with the Commission on November 30,
      2006.+(21)
            
            Incorporated
      by reference to the Company's Quarterly Report on Form 10-Q for the
      quarter ended June 1, 2007, as filed with the Commission on July 16,
      2007.+(22)
            
            Incorporated
      by reference to the Company's Quarterly Report on Form 10-Q for the
      quarter ended May 30, 2008, as filed with the Commission on July 10,
      2008.+(23)
            
            Incorporated
      by reference to the Company's Current Report on Form 8-K, dated September
      13, 2009, as filed with the Commission on September 17,
    2009.+(24)
            
            Incorporated
      by reference to the Company's Current Report on Form 8-K, dated October 8,
      2009, as filed with the Commission on October 14,
2009.++
            
            SEC
      file No. 0-11003


61





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
      CORPORATIONDate:  November
      25, 2009
              By
              /s/ C. Troy Woodbury,
Jr.C.
      Troy Woodbury, Jr.President
      and Chief Executive Officer





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated on this 25th day of November 2009.





Signature
              
              Title/s/ Robert A. Placek
              
              Chairman of the Board, DirectorRobert A. Placek/s/ C. Troy Woodbury, Jr.
              
              President and Chief Executive Officer, DirectorC. Troy Woodbury, Jr.
              
              (Principal Executive Officer)/s/ James Traicoff
              
              Treasurer and Chief Financial OfficerJames Traicoff
              
              (Principal Financial and Accounting Officer)/s/ Phylis Eagle-Oldson
              
              DirectorPhylis Eagle-Oldson/s/ Thomas G. Elliot
              
              DirectorThomas G. Elliot/s/ Jeffrey J. Haas
              
              DirectorJeffrey J. Haas/s/ Stephen J. Lococo
              
              DirectorStephen J. Lococo


62





DIRECTORS


Robert A.
Placek


Chairman
of the Board





Phylis
Eagle-Oldson


President
and Chief Executive


Officer
of Emma L. Bowen


Foundation





Thomas G.
Elliot


Principal


TGE &
Associates





Jeffrey
J. Haas


Professor
of Law


New York
Law School





Stephen
J. Lococo


President
and Portfolio


Manager
of Footprints Asset


Management
& Research





C. Troy
Woodbury, Jr.


President
and Chief


Executive
Officer


Wegener
Corporation and Wegener Communications, Inc.





OFFICERS


C. Troy
Woodbury, Jr.


President
and Chief


Executive
Officer





James
Traicoff


Treasurer
and Chief


Financial
Officer





INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM


BDO
Seidman, LLP


1100
Peachtree Street


Suite
700


Atlanta,
Georgia 30309-4516





TRANSFER
AGENT


Securities
Transfer Corporation


2591
Dallas Parkway


Suite
102


Frisco,
Texas 75034





CORPORATE


HEADQUARTERS


11350
Technology Circle


Johns
Creek /Atlanta, Georgia 30097-1502





ANNUAL
MEETING


The
annual meeting of stockholders will be held on January 26, 2010 at 9:00 a.m. at
the Corporate Headquarters.





COMMON
STOCK NASDAQ


NASDAQ
Stock 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:





James
Traicoff


Investor
Relations


Wegener
Corporation


11350
Technology Circle


Johns
Creek, Georgia


30097-1502





WEB
SITE


HTTP://WWW.WEGENER.COM





QUARTERLY
COMMON STOCK
PRICES


The
Company’s common stock is traded on the NASDAQ Stock Market.  The
quarterly ranges of high and low sale prices for fiscal 2009 and 2008 were as
follows:





High
                
                
                LowFiscal
      Year Ended August 28, 2009First
      Quarter
                
                $
                1.10
                
                
                $
                . 32Second
      Quarter
                
                
                .54
                
                
                
                .10Third
      Quarter
                
                
                .45
                
                
                
                .15Fourth
      Quarter
                
                
                .38
                
                
                
                .18





Fiscal
      Year Ended August 29, 2008First
      Quarter
                
                $
                1.22
                
                
                $
                .83Second
      Quarter
                
                
                1.01
                
                
                
                .76Third
      Quarter
                
                
                1.49
                
                
                
                .74Fourth
      Quarter
                
                
                1.22
                
                
                
                .58





The
Company had approximately 336* shareholders of record at November 3,
2009.  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).


63