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                                    FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

(Mark One)
  [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended August 28, 1998
                                       OR
  [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________________ to________________________

Commission file No. 0-11003

                               WEGENER CORPORATION

             (Exact name of registrant as specified in its charter)

         DELAWARE                                                 81-0371341
(State of incorporation)                                      (I.R.S. Employer
                                                             Identification No.)

11350 TECHNOLOGY CIRCLE, DULUTH, GEORGIA                          30097-1502
(Address of principal executive offices)                          (Zip Code)

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

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

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

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

                          Common Stock, $.01 par value

                                (Title of class)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days:
                        YES   [X]                  NO   [ ]

     As of November 2, 1998, 11,980,575 shares of registrant's Common Stock were
outstanding  and  the  aggregate  market  value  of the  Common  Stock  held  by
nonaffiliates  was $16,452,472  based on the last sale price of the Common Stock
as  quoted on the  NASDAQ  Small-Cap  Market on such  date.  (The  officers  and
directors of the registrant,  and owners of over 10% of the registrant's  common
stock, are considered affiliates for purposes of this calculation.)

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

                       DOCUMENTS INCORPORATED BY REFERENCE
     Portions of the definitive  Proxy  Statement  pertaining to the January 28,
1999 Annual  Meeting of  Stockholders,  only to the extent  expressly  so stated
herein, are incorporated herein by reference into Part III.

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<PAGE>

                               WEGENER CORPORATION
                                    FORM 10-K
                           YEAR ENDED AUGUST 28, 1998
                                      INDEX

                                     PART I

                                                                            Page
Item  1.    Business.......................................................    2
Item  2.    Properties.....................................................    9
Item  3.    Legal Proceedings..............................................    9

                                     PART II

Item  5.    Market for Registrant's Common Stock and 
            Related Stockholder Matters....................................    9
Item  6.    Selected Financial Data........................................   10
Item  7.    Management's Discussion and Analysis of Financial
            Condition and Results of Operations............................   11
Item  7a.   Quantitative and Qualitative Disclosures About Market Risk.....   20
Item  8.    Financial Statements and Supplementary Data....................   20
Item  9.    Changes in and Disagreements With Accountants on
            Accounting and Financial Disclosures...........................   37

                                    PART III

Item 10.    Directors and Executive Officers of the Registrant.............   37
Item 11.    Executive Compensation.........................................   37
Item 12.    Security Ownership of Certain Beneficial Owners
            and Management.................................................   37
Item 13.    Certain Relationships and Related Transactions.................   37

                                     PART IV

Item 14.    Exhibits, Financial Statement Schedules, and
            Reports on Form 8-K............................................   38

                                       1
<PAGE>

                                     PART I
ITEM 1.   BUSINESS

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

     (a)  General development of business.

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

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

     (b)  Financial information about industry segments.

     Segment  information  contained  in Note 11 to the  consolidated  financial
statements  on page 34 of this document is  incorporated  herein by reference in
response to this item.

     (c)  Narrative description of business.

          (i)  Principal products produced and services rendered, and

          (ii) Status of a product or segment.

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

WCI is an  international  provider  of digital  solutions  for video,  audio and
broadcast  data  networks.  Applications  include  broadcast  television,  cable
television,  radio network,  business television,  distance education,  business
music, satellite paging and financial information distribution. WCI services the
products  that it sells.  The Company  warrants its products for a period of one
year.  There were no significant  warranty  claims  outstanding as of August 28,
1998.

Throughout  fiscal 1998 and fiscal  1997,  WCI  continued to produce and develop
digital compression  products.  During fiscal 1997 WCI introduced COMPEL network
control software and the UNITY Digital Broadcast product family. COMPEL provides
networks with  unparalleled  ability to regionalize  programming and commercials
through total receiver  control.  COMPEL also allows network operators to remote
control uplinks providing bandwidth on demand. COMPEL control 

                                       2
<PAGE>

capability is integrated into the UNITY digital satellite  receivers.  Wegener's
digital  products  are in use  worldwide  in  distance  learning,  radio,  cable
television,  and private business networks.  In terms of new orders,  compressed
digital  products are the fastest growing  product  segment for the Company.  As
expected,  demand for the  Company's  analog  products has  continued to decline
following market demand for, and the Company's emphasis on, digital technology.

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

With ongoing  breakthroughs  in digital  compression,  digitized audio and video
products have become increasingly  important.  WCI manufactures MPEG-2 broadcast
quality digital video products for commercial program  distribution.  During the
second  quarter of fiscal  1998,  WCI  received  an  additional  order for cable
products from FOX/Liberty Networks, L.L.C. for its UNITY4000 MPEG2 digital video
satellite  receivers.  Part of  Wegener's  UNITY  digital  product  family,  the
UNITY4000 is utilized by FOX Sports Net, FX Networks and fxM: Movies from FOX.

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

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

GE Medical  Systems chose WCI digital video products for a network  comprised of
thousands  of  hospitals.  The  network  will be used  for  staff  training  and
information  programming.  Oregon  Ed-Net  is a  growing  network  that  reaches
hundreds of sites throughout Oregon. The network furnishes the

                                       3
<PAGE>

citizens of Oregon with direct student  instruction,  statewide  conferences and
general  audio/video  teleconferencing.  The  use of  Wegener's  COMPEL  network
control system allows Ed-Net  comprehensive  addressable control of receive IRDs
and downlink authorization.

During the fourth  quarter of fiscal  1998,  a new order was also  received  for
analog video receivers for use in Channel One.  Channel One, a pioneer  distance
learning  network,  broadcasts  educational  programming  to over 12,000 schools
throughout the United States.  WCI's ANCS network control system,  a predecessor
to COMPEL,  allows  programming to be transmitted and automatically  recorded on
VCRs at night for subsequent use.

CABLE TELEVISION  PRODUCTS.  The single most significant event for WCI in fiscal
1998 was the successful  deployment of UNITY4000  digital video  receivers.  WCI
completed the rollout of FX Networks and continues to ship  receivers for use in
Fox's regional sports networks.  With thousands of receivers in-service and more
coming  on-line  every day, the  network's  conversion  to digital has proceeded
smoothly. The rollout is expected to continue into fiscal 1999.

Additionally,  during the fourth quarter of fiscal 1998,  Paxson  Communications
Corporation  chose WCI's UNITY4000  digital video receivers to launch its family
programming  network  PAX  NET.  Paxson  will  deploy  UNITY4000  digital  video
receivers in both  broadcast  television  stations and cable headends and is the
latest  broadcast  network to select  COMPEL,  WCI's  patented  network  control
system.  Paxson will broadcast via a total of 78 television  stations in markets
that contain more than 72 million U.S. television households, including stations
in each of the top 20 U.S.  television markets as well as 43 of the nation's top
50 markets.  Paxson  Communications owns and operates the nation's largest group
of television stations.

WCI's  cue and  control  equipment  for  cable  television  networks  is used on
advertising  supported  networks to permit  affiliated  cable  systems to insert
local commercials at appropriate  times.  Control equipment  delivers  switching
commands from the network to provide program routing and blackouts.

An  additional  product  family  of the  cable  television  segment  is  graphic
generators.  These products deliver custom data by satellite that is graphically
displayed on a  subscriber's  television.  The Weather  Channel placed an add-on
order for Wegener  Weatherstar  Jrs. The  Weatherstar  Jr is a data receiver and
display  unit used to display  local  weather  information  at cable  television
systems.

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

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

                                       4
<PAGE>

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

BUSINESS  MUSIC.  This  market  consists  of  suppliers  of  business  music  to
restaurants,  offices and various retail  establishments.  WCI  manufactures the
equipment  required to transmit  audio and data from the business music supplier
to the end user via satellite. The equipment is controlled by the business music
supplier using WCI's network  control  technology.  Potential  users include any
business  purchasing  background  music,  foreground  music and broadcast  data.
During the fourth  quarter of fiscal 1998, WCI received an order in excess of $1
million for digital audio receivers from Music Technologies  International (MTI)
to provide in-store programming and commercials to thousands of retail locations
across the United States.

     (iii) Sources and availability of raw materials.

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

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

     The Company holds certain  patents with respect to some of its products and
markets its services and  products  under  various  trademarks  and  tradenames.
Additionally, the Company licenses certain analog audio processing technology to
several   manufacturing   companies   which   generated   royalty   revenues  of
approximately  $184,000,  $121,000 and $112,000 in fiscal 1998,  1997, and 1996,
respectively.  Although  the Company  believes  that the patents and  trademarks
owned are of value,  the Company  believes  that success in its industry will be
dependent upon new product  introductions,  frequent product  enhancements,  and
customer support and service. However, the Company intends to protect its rights
when, in its view, these rights are infringed upon.

     (v)  Seasonal variations in business.

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

                                       5
<PAGE>

     (vi) Working capital practices.

     Information  contained  under  the  caption  "Management's  Discussion  and
Analysis of Financial Condition and Results of Operations" (MD&A) on pages 11-19
of this document is incorporated herein by reference in response to this item.

     (vii) Dependence upon a limited number of customers.

     The Company sells to a variety of domestic and  international  customers on
an  open-unsecured  account basis.  These customers  principally  operate in the
cable  television,   broadcast  business  music,   private  network,   and  data
communications  industries.  Sales to FOX/Liberty Networks, L.L.C. accounted for
approximately  34.2% of  revenues in fiscal  1998.  Sales to The Church of Jesus
Christ of Latter-Day  Saints  accounted for  approximately  11.0% of revenues in
fiscal 1997. Sales to Ascent Network Services accounted for approximately  14.2%
of revenues in fiscal 1996. At August 28, 1998,  three  customers  accounted for
23.7%, 13.6% and 13.2%,  respectively of the Company's accounts  receivable.  At
August 29, 1997,  one customer  accounted  for 27.7% of the  Company's  accounts
receivable. Sales to a relatively small number of major customers have typically
comprised  a majority  of the  Company's  revenues.  This trend is  expected  to
continue in fiscal 1999.  There can be no assurance that the loss of one or more
of these  customers  would not have a material  adverse  effect on the Company's
operations.

     (viii) Backlog of orders.

     The Company's  backlog is comprised of undelivered,  firm customer  orders,
which are scheduled to ship within eighteen  months.  The Company's  backlog was
approximately $12,596,000 at August 28, 1998 and $19,501,000 at August 29, 1997.
Reference  is  hereby  made to  MD&A,  page  12,  of  this  document,  which  is
incorporated herein by reference in response to this item.

     The August 28, 1998 backlog is expected to ship during fiscal 1999.

     (ix) Government contracts.

     Not applicable.

     (x)  Competitive Conditions.

                                       6
<PAGE>

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

     (xi) Research and development activities.

     The  Company's  research  and  development  is designed to  strengthen  and
broaden its  existing  products  and systems  and to develop  new  products  and
systems.  A major portion of the fiscal 1998 research and  development  expenses
were spent in the digital  video product area.  WCI's  research and  development
expenses  totaled  $2,644,000  in fiscal 1998,  $1,999,000  in fiscal 1997,  and
$2,286,000  in fiscal  1996.  Additional  information  contained in MDA on pages
11-19 of this document is  incorporated  herein by reference in response to this
item.

     (xii) Environmental Regulation.

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

     (xiii) Number of employees.

     As of August 28, 1998,  the Company had 137  employees  employed by the WCI
manufacturing subsidiary,  and no employees employed by Wegener Corporation.  No
employees  are  parties to a  collective  bargaining  agreement  and the Company
believes that its relationships with its employees are good.

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

     Information   contained  in  Note  11  on  page  34  of  this  document  is
incorporated herein by reference in response to this item.

                                       7
<PAGE>

EXECUTIVE OFFICERS OF THE REGISTRANT

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

NAME AND BUSINESS EXPERIENCE                   AGE         OFFICE HELD

ROBERT A. PLACEK                               60     President,
President and Chief Executive Officer                 Chief Executive Officer
of the Company since August 1987 and                  and Chairman of the Board
Director since July 1987. Chairman of                 of the Company
the Board since 1995. Chairman and Chief              
Executive Officer and Director of WCI
since 1979. President of WCI from
October 1979 to June 1998.

KEITH N. SMITH                                 40     President of WCI
President of WCI since June 1998. Vice
President, Business Development of WCI
from March 1997 to June 1998. Co-founder
and Vice President/General Manager of
Microspace Communications Corporation
from April 1989 through May 1995. From
June 1995 until February 1997, Mr. Smith
and his wife pursued a sailing
sabbatical.

C. TROY WOODBURY, JR.                          51     Treasurer and          
Treasurer and Chief Financial Officer of              Chief Financial Officer
the Company since June 1988 and Director              of the Company and WCI 
since 1989. Treasurer and Chief                       
Financial Officer of WCI since 1992.
Executive Vice President of WCI from
July 1995 to June 1998. Chief Operating
Officer of WCI from September 1992 to
June 1998. Group Controller for
Scientific-Atlanta, Inc. from March 1975
to June 1988.

JAMES T. TRAICOFF                              48     Controller of the Company
Controller of the Company since November              and WCI
1991; Controller of WCI since July 1988;                                        
Controller for BBL Industries, Inc. from
April 1985 to July 1988.

                                        8
<PAGE>

ITEM 2.   PROPERTIES

     The  executive  offices of the  Company  are  located  at 11350  Technology
Circle, Duluth, Georgia 30097-1502.  This 40,000 square foot facility,  which is
located on a 4.7 acre site, was purchased by WCI in February 1987. During August
1989,  WCI  purchased an  additional  4.4 acres of adjacent  property.  WCI also
leases  approximately  11,300 square feet under a lease  expiring  during fiscal
1999, at an annual rental of approximately $87,000. WCI, expects to either renew
the current lease or be able to locate and lease other suitable facilities. This
space  is  for   additional   warehouse  and   manufacturing   capacity.   WCI's
manufacturing  facility is subject to a mortgage note securing the indebtedness.
WCI's 4.4 acres of adjacent  land is pledged as  collateral  under the Company's
line of credit facility.

ITEM 3.   LEGAL PROCEEDINGS

     No significant legal proceedings  involving the Company or its subsidiaries
were pending as of August 28, 1998.

                                     PART II

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

     The Company's Common Stock is traded on the NASDAQ Small-Cap Market (NASDAQ
symbol WGNR).  As of November 2, 1998 there were  approximately  426* holders of
record of Common Stock.  *(This number does not reflect beneficial  ownership of
shares held in nominee names).

     The  quarterly  ranges of high and low closing  sale prices for fiscal 1998
and 1997 were as follows:

                               FISCAL 98                     Fiscal 97
                               ---------                     ---------
                          HIGH          LOW             High          Low
First Quarter           $2 3/4        $1 7/16          $6            $3 7/8
Second Quarter           2 11/32       1 3/8            4 1/8         2 5/8
Third Quarter            3 19/32       2 1/32           3 7/8         1 7/16
Fourth Quarter           3 5/32        1 5/8            3 1/2         1 13/16

     The Company has not paid any cash  dividends on its Common  Stock.  For the
foreseeable future, the Company's Board of Directors does not intend to pay cash
dividends,  but  rather  plans to  retain  earnings  to  support  the  Company's
operations and growth.

                                       9
<PAGE>

ITEM 6.   SELECTED FINANCIAL DATA

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

<TABLE>
<CAPTION>
                                                                    Year ended
                                      ----------------------------------------------------------------------
                                      AUGUST 28,     August 29,      August 30,    September 1,   September 2,
                                         1998           1997            1996           1995           1994
------------------------------------------------------------------------------------------------------------
<S>                                   <C>            <C>             <C>            <C>            <C>      
Revenue                               $  34,255      $  21,812       $  23,195      $  19,488      $  16,521
                                                                                                 
 Net earnings (loss)                      2,760         (1,809)          1,456            385            (69)
                                                                                                 
 Net earnings (loss) per share                                                                   
    Basic                             $     .24      $    (.19)      $     .17      $     .05      $    (.01)
    Diluted                           $     .23      $    (.19)      $     .17      $     .05      $    (.01)
 Cash dividends paid per share (1)           --             --              --             --             --
------------------------------------------------------------------------------------------------------------
                                                                                                 
 Total assets                         $  25,905      $  25,614       $  27,737      $  22,018      $  11,893
 Long-term obligations inclusive                                                                 
     of current maturities                1,829          3,667           7,935          2,796          2,979
------------------------------------------------------------------------------------------------------------
</TABLE>

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

                                       10
<PAGE>

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

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

     The Company manufactures satellite communications equipment through Wegener
Communications, Inc. (WCI), a wholly-owned subsidiary. WCI manufactures products
for transmission of audio, data, and video via satellite.

RESULTS OF OPERATIONS

     Earnings  for the year ended August 28, 1998 were  $2,760,000  or $0.23 per
share,  compared to a net loss of $(1,809,000) or $(0.19) per share for the year
ended August 29, 1997 and earnings of $1,456,000 or $0.17 per share for the year
ended August 30, 1996.

     Revenues for fiscal 1998  increased  $12,443,000  or 57.0% to  $34,255,000,
from  $21,812,000  in fiscal 1997,  which compared to revenues of $23,195,000 in
fiscal  1996.  During  fiscal 1998,  the Company  continued to focus on improved
product quality and the development of new products.  Direct Broadcast Satellite
(DBS) revenues in fiscal 1998 increased $11,770,000 or 64.6% to $29,977,000 from
$18,207,000  in fiscal  1997.  Telecom  and Custom  Product  revenues  increased
$673,000 in fiscal 1998 to $4,278,000 from $3,605,000 in fiscal 1997.

     The increase in DBS revenues was due to continued strength in digital video
products for both the cable and broadcast TV industries and also in products for
the radio network  business.  Specifically,  significant  shipments were made to
FOX/Liberty  Networks,  L.L.C.,  and FX Networks to support their  conversion to
digital distribution of their cable networks. Furthermore, Paxson Communications
Corporation chose the Wegener UNITY4000  receiver and the COMPEL network control
software to  distribute  PAX TV.  Paxson  Communications  owns and  operates the
nation's largest group of television  stations and launched PAX TV, the national
family  entertainment  network,  on August 31, 1998 to both  broadcast and cable
television. Wegener's UNITY4000 receivers and COMPEL Software were also utilized
to  enable  NSN  Network  Services  to  provide  JACOR  a  satellite   delivered
contribution  network linking JACOR's major market radio properties.  JACOR is a
group  station  owner and  provider of radio  network  programming.  Orders were
received for Wegener's UNITY private network  receivers,  digital satellite news
gathering  products,  analog video  receivers  and digital  video  receivers for
distance learning, receivers used in paging networks,

                                       11
<PAGE>

and data  receivers.  The Telecom and Custom Product Group revenue  increase was
primarily  due to a higher  level of shipments in fiscal 1998 of cue and control
equipment to provide local commercial insertion capabilities to cable television
headend systems.

     WCI's backlog of orders  scheduled to ship within eighteen months decreased
$6,905,000 or 35.4% to $12,596,000 at August 28, 1998 from $19,501,000 at August
29, 1997 which  compares to  $13,807,000 at August 30, 1996. The August 28, 1998
backlog is expected  to ship during  fiscal  1999.  The Company  expects to book
sufficient  new orders in fiscal 1999 to achieve  profitability,  although there
can be fluctuations in quarter to quarter operating results due to the timing of
orders received.

     International  sales are generated through a direct sales  organization and
through  foreign  distributors.  International  sales were $2,712,000 or 7.9% of
revenues in fiscal 1998,  compared to  $2,964,000 or 13.6% of revenues in fiscal
1997,  and $2,549,000 or 11.0% of revenues in fiscal 1996.  Management  believes
that international  sales could increase as more business  opportunities  become
available  for  WCI  products  in  the  future.  All  international   sales  are
denominated in U.S. dollars.

     Gross  profit  increased  $6,893,000  or 139.9% in fiscal 1998  compared to
fiscal  1997.  Gross  profit  as a percent  of sales  was 34.5% in fiscal  1998,
compared  to 22.6% in fiscal 1997 and 32.2% in fiscal  1996.  The  increases  in
profit  margin  dollars and  percentages  in fiscal 1998 compared to fiscal 1997
were  mainly  due  to (1) an  increase  in  contribution  margin  percentage  of
approximately  7.5% due to an increase in revenues and lower variable costs, and
(2) higher revenues which resulted in the spreading of fixed costs over a larger
revenue  base.  Gross profit was  adversely  impacted by a net increase in fixed
manufacturing  overhead expenses of $319,000 or .9% of revenue, due primarily to
charges for reserves for  slow-moving  and obsolete  inventory of  $1,150,000 as
compared to $825,000 in fiscal 1997 and $775,000 in fiscal 1996.

     Selling,  general and administrative expenses decreased $231,000 or 4.5% to
$4,930,000  in fiscal 1998 from  $5,161,000  in fiscal 1997.  As a percentage of
revenues, selling, general and administrative expenses were 14.4% of revenues in
fiscal 1998 and 23.7% in fiscal 1997. The dollar  decrease of expenses in fiscal
1998 from fiscal 1997  includes  decreases  in (1) bad debt expense of $282,000,
(2)  restructuring  expense of $100,000,  and (3)  depreciation and amortization
expense of $35,000,  principally for loan  origination fees and convertible bond
issuance  costs.   These  decreases  were  partially   offset  by  increases  of
approximately  $311,000 due to higher levels of selling and  marketing  expenses
and  compensation  expenses.   Selling,   general  and  administrative  expenses
increased  $1,210,000 or 30.6% to  $5,161,000 in fiscal 1997 from  $3,951,000 in
fiscal 1996.  The increase of expenses in fiscal 1997 from fiscal 1996  includes
increases  in (1) bad debt  expense of $297,000,  (2)  restructuring  expense of
$100,000, (3) depreciation and amortization expense of $111,000, principally for
loan  origination fees and convertible bond issuance costs, and (4) professional
fees of $98,000.  Other increases of  approximately  $398,000 were due to higher
levels of selling and marketing expenses and compensation expenses.

     Research  and  development  expenditures,  including  capitalized  software
development  costs,  were  $3,080,000  or  9.0%  of  revenues  in  fiscal  1998,
$3,089,000  or 14.2% of  revenues in fiscal  1997,  and  $3,180,000  or 13.7% of
revenues in fiscal 1996. Software development costs 

                                       12
<PAGE>

totaling $436,000,  $1,090,000 and $894,000 were capitalized during fiscal 1998,
1997, and 1996,  respectively.  The decrease in capitalized software development
costs for the twelve  months  ended  August 28,  1998 was  principally  due to a
decrease in  expenditures  associated with digital video products and the COMPEL
network  control  software.   Research  and  development   expenses,   excluding
capitalized  software  development costs, were $2,644,000 or 7.7% of revenues in
fiscal 1998,  $1,999,000 or 9.2% of revenues in fiscal 1997,  and  $2,286,000 or
9.9% of revenues in fiscal 1996.

     Interest  expense  decreased  55.2% in fiscal 1998 compared to fiscal 1997,
and decreased  21.6% in fiscal 1997 compared to fiscal 1996. The decrease during
fiscal 1998 was primarily due to a decrease in the average  outstanding  balance
of the convertible debentures. The decrease during fiscal 1997 was primarily due
to a  decrease  in the  weighted  average  interest  rate of total  indebtedness
including the convertible debentures. The Company believes that interest expense
in fiscal 1999 will decrease as a result of a reduction in outstanding  debt and
lower interest rates.

     Interest  income was $465,000 in fiscal 1998  compared to $24,000 in fiscal
1997 and  $68,000 in fiscal  1996.  The  increase  in fiscal  1998 was due to an
increase  in the average  balance of cash and cash  equivalents  primarily  as a
result of an increase in customer  deposits received during fiscal 1998 and cash
provided from operations. Interest income is expected to decrease in fiscal 1999
due to lower  average  balances of cash and cash  equivalents  and a decrease in
investment yields.

     Fiscal 1998 income tax expense was comprised of a current federal and state
income tax  provision  of $93,000  and  $221,000,  respectively,  and a deferred
federal and state tax provision of $1,335,000 and $56,000, respectively.  Fiscal
1997  income tax  benefit  was  comprised  of a deferred  income tax  benefit of
$946,000,  principally  the result of an increase in the Company's net operating
loss  carryforward  and  increases in  temporary  differences  of inventory  and
accounts  receivable  reserves.  The Company recognized an income tax benefit in
fiscal 1996 of $848,000  primarily due to a reversal of the valuation  allowance
on the deferred tax assets.

     The Company  operates on a 52-53 week fiscal year.  The fiscal year ends on
the Friday nearest to August 31. Fiscal 1998,  1997 and 1996 contained 52 weeks.
All  references  herein to 1998,  1997 and 1996 refer to the fiscal years ending
August 28, 1998, August 29, 1997, and August 30, 1996.

LIQUIDITY AND CAPITAL RESOURCES

     Cash  provided by operating  activities in fiscal 1998 was  $5,787,000  and
$6,325,000  in fiscal 1997  compared  to cash used in  operating  activities  of
$6,041,000  in fiscal  1996.  Fiscal 1998 net  earnings  adjusted  for  non-cash
expenses  and  a  decrease  in  inventories  provided  cash  of  $7,485,000  and
$1,722,000,  respectively.  Changes in accounts  receivable and customer deposit
balances used cash of $3,451,000.

                                       13
<PAGE>

     Cash used by investment  activities was $959,000 in fiscal 1998 compared to
$2,128,000 in 1997 and $1,472,000 in 1996.  Cash used in 1998 includes  property
and equipment  expenditures  of $522,000 and capitalized  software  additions of
$437,000.

     Cash  used  by  financing  activities  was  $578,000  in  fiscal  1998  and
$2,126,000 in fiscal 1997  compared to cash provided by financing  activities of
$2,771,000 in fiscal 1996.  In fiscal 1998,  financing  activities  used cash of
$553,000 for scheduled repayments of long-term obligations.

     Net accounts  receivable  increased 15.2% to $5,315,000 at August 28, 1998,
from  $4,613,000 at August 29, 1997,  compared to $7,106,000 at August 30, 1996.
The increase in fiscal 1998 was primarily due to a $907,000 increase in revenues
during the fourth  quarter of fiscal 1998 compared to fiscal 1997. The allowance
for doubtful  accounts  was $257,000 at August 28, 1998,  $362,000 at August 29,
1997, and $58,000 at August 30, 1996.  Write-offs in fiscal 1998,  1997 and 1996
were $180,000, $53,000 and $70,000, respectively. Increases to the allowance and
charges to general  and  administrative  expense  were  $75,000 in fiscal  1998,
$357,000 in fiscal 1997 and $60,000 in fiscal 1996.

     During fiscal 1998, inventory reserves were increased by provisions charged
to cost of sales of $1,150,000 and were reduced by write-offs of $1,577,000. The
increase in the  provision  was to provide  additional  reserves  for (1) slower
moving analog Telecom products,  (2) excess digital audio  inventories,  and (3)
potentially  slow-moving  inventories  of earlier  generations  of other digital
products.  These  products  continue to sell but at reduced  quantities.  During
fiscal 1998 and 1997,  decreases in inventories  provided cash of $1,722,000 and
$1,877,000,  respectively,  while in fiscal 1996 increases in  inventories  used
cash of  $6,237,000.  During fiscal 1997  inventory  reserves were  increased by
provisions  charged to cost of sales of $825,000  and reduced by  write-offs  of
$481,000.  During fiscal 1996  inventory  reserves were  increased by provisions
charged to cost of sales of $775,000.

     On  May  31,  1996,  the  Company  issued   $5,000,000  of  8%  Convertible
debentures,  due May 31,  1999,  in a private  placement  to various  accredited
investors for net proceeds to the Company of $4,700,000.  The proceeds were used
for working  capital and reduction of the  line-of-credit  note  payable.  These
debentures  were  convertible  at the option of the holders at any time  through
maturity, into a number of shares of common stock at a price equal to the lesser
of (i)  $12.25  per share or (ii) a  percentage,  based on the  holding  period,
ranging  from 95% to 82.5%  (82.5% at August  30,  1996 and  thereafter)  of the
average of the lowest sale price on each of the five  trading  days  immediately
preceding the conversion date.  Interest at the rate of 8% per annum was payable
quarterly in cash or, at the option of the Company, by adding the amount of such
interest to the  outstanding  principal  amount due under the debenture.  During
fiscal  1997  and  1996  debentures  in  the  amount  of  $101,222  and  $33,973
respectively,  were issued for payment of accrued interest.  During fiscal 1998,
the balance of the debentures of $1,285,000 was converted into 950,658 shares of
common stock. The conversion was complete as of December 30, 1997. During fiscal
1997,  $3,850,000  principal  amount of debentures  was converted into 2,131,987
shares of common stock. No debentures were converted in fiscal 1996.

     On August 4, 1998,  WCI amended its  secured  revolving  line of credit and
term loan facility (loan  facility)  with a bank to provide a maximum  available
credit limit of $10,000,000 (previously

                                       14
<PAGE>

$8,500,000). The credit limit increase provides for advances of up to 70% of the
appraised  value of certain real property  subject to a sublimit of  $1,500,000.
The loan  facility  was also amended to extend the term through June 21, 2000 or
upon  demand,  to reduce the  interest  rate to the  bank's  prime rate (8.5% at
August 28, 1998)  (previously  prime plus 1/2% on the  revolving  line and prime
plus 1 1/2% on the term  line) and to amend the annual  facility  fee to $55,000
plus  an  additional  .75%  of  $3,000,000,   if  borrowings  exceed  $5,500,000
(previously $85,000).  Advances for real property are payable over 35 months and
bear interest at a fixed annual rate of 250 basis points over the five year U.S.
Treasury  rate in effect at the time of  disbursement.  Subsequent to August 28,
1998, $1,360,000 was advanced to pay off the existing mortgage note balances. At
the time of disbursement the annual interest rate was set at 6.519%.

     The term loan portion  provides for a maximum of $1,000,000 for advances of
up to 80% of the cost of equipment acquisitions.  Principal advances are payable
monthly over sixty months with a balloon payment due at maturity.  The revolving
line of credit is  subject  to  availability  advance  formulas  of 80%  against
eligible accounts receivable;  20% of eligible raw material inventories;  20% of
eligible  work-in-process  kit inventories;  and 40% to 50% of eligible finished
goods  inventories.  Advances  against  inventory  are  subject to a sublimit of
$2,000,000.  Revolving line of credit advances plus equipment term loan advances
are  subject to a sublimit of  $8,500,000.  At August 28,  1998,  the loans were
secured by a first  lien on  substantially  all of WCI's  assets  except  assets
secured under an existing mortgage note and equipment note on which the bank had
a second  lien.  Subsequent  to year end,  the  mortgage  note was paid off with
proceeds from the loan  facility.  The Company is required to maintain a minimum
tangible net worth with annual increases at each fiscal year-end commencing with
fiscal year 1997,  retain certain key employees,  limit  expenditures of Wegener
Corporation to $600,000 per fiscal year, and is precluded from paying dividends.
At August  28,  1998 the  Company  was in  compliance  with the  covenants.  The
revolving  line-of-credit and term loan had no outstanding balances as of August
28, 1998 and August 29, 1997.  At August 28, 1998,  $4,788,000  was available to
borrow under the advance formulas. Additionally,  Wegener Corporation guarantees
the revolving line of credit and term loan.

     The Company does not have any material  scheduled  commitments  for capital
expenditures  during fiscal 1999. The Company  expects that its current cash and
cash equivalents combined with expected cash flows from operating activities and
the  Company's  available  line of credit  will be  sufficient  to  support  the
Company's operations during fiscal 1999.

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

IMPACT OF INFLATION

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

                                       15
<PAGE>

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 1997,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement  of  Financial   Accounting   Standards   (SFAS)  No.  130  "Reporting
Comprehensive Income" (SFAS No. 130) which addresses standards for reporting and
display of  comprehensive  income and its  components in a full set of financial
statements.  SFAS No. 130 is effective for fiscal years beginning after December
15, 1997.  The Company will be required to adopt this  statement when it reports
its operating  results for the quarter ending November 27, 1998. The adoption is
not  expected to have a material  impact on the  presentation  of the  Company's
consolidated financial statements.

     Additionally, in June 1997, the FASB issued SFAS No. 131 "Disclosures about
Segments  of an  Enterprise  and  Related  Information."  SFAS No. 131  requires
companies to report certain information about operating  segments,  products and
services,  geographical  areas in which they operate,  and major customers.  The
statement is effective for fiscal years  beginning  after December 15, 1997. The
Company will be required to  retroactively  adopt this statement when it reports
its  operating  results for the quarter and year ended  September  3, 1999.  The
adoption is not expected to have a material impact on the Company's consolidated
financial statements.

     In February  1998,  the FASB issued SFAS No. 132,  "Employers'  Disclosures
about  Pensions  and  Other  Postretirements  Benefits."  SFAS No.  132  revises
employers' disclosures about pension and other postretirement benefits plans but
does not change  measurement or recognition of those plans.  Also,  SFAS No. 132
requires  additional  information on changes in the benefit obligations and fair
values  of plan  assets.  Presently,  the  Company  does not offer  pensions  or
postretirement benefits. Adoption of SFAS No. 132 will not have an effect on the
Company's financial position or results of operations.

     In June 1998,  the FASB  issued SFAS No. 133,  "Accounting  for  Derivative
Instruments."  SFAS No. 133 establishes  accounting and reporting  standards for
derivative instruments and for hedging activities. SFAS No. 133 requires that an
entity  recognize all  derivatives as either assets or  liabilities  and measure
those instruments at fair market value. Under certain  circumstances,  a portion
of the derivative's  gain or loss is initially  reported as a component of other
comprehensive  income  and  subsequently   reclassified  into  income  when  the
transaction  affects  earnings.  For a derivative  not  designated  as a hedging
instrument,  the gain or loss is  recognized  in income in the period of change.
Presently,  the Company does not use  derivative  instruments  either in hedging
activities or as investments. Accordingly, the Company believes that adoption of
SFAS No.  133 will  have no impact  on its  financial  position  or  results  of
operations.

OUTLOOK:  ISSUES AND UNCERTAINTIES

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

                                       16
<PAGE>

unable, for technological or other reasons, to develop competitive products in a
timely manner in response to changes in the industry, the Company's business and
operating results will be materially and adversely affected.

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

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

     The Company has invested a  significant  amount of  financial  resources to
acquire  certain raw  materials,  to incur  direct labor and to contract to have
specific outplant procedures performed

                                       17
<PAGE>

on  inventory  in  process.  The Company  purchased  this  inventory  based upon
previously known backlog and anticipated  future sales given existing  knowledge
of the marketplace.  The Company's inventory reserve of $1,440,000 at August 28,
1998,  is to provide  for items that are  potentially  slow-moving,  excess,  or
obsolete. Changes in market conditions, lower than expected customer demand, and
rapidly changing  technology could result in additional obsolete and slow-moving
inventory that is unsaleable or saleable at reduced  prices.  No estimate can be
made of a range of amounts of loss from obsolescence that might occur should the
Company's sales efforts not be successful.

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

     Certain raw materials, video sub-components,  and licensed video processing
technologies  used in existing and future products are currently  available from
single or limited sources.  Although the Company believes that all single-source
components  currently  are  available  in adequate  quantities,  there can be no
assurance  that  shortages  or  unanticipated  delivery  interruptions  will not
develop  in the  future.  Any  disruption  or  termination  of supply of certain
single-source  components or  technologies  could have an adverse  effect on the
Company's business and results of operations.

     The Company has made significant  investments in capitalized software costs
principally related to the digital audio and video products.  At August 28, 1998
capitalized software costs were $1,212,000. These costs are being amortized over
anticipated future gross revenues for the product or the estimated economic life
of the product.  Expected  future  revenues  and  estimated  economic  lives are
subject to revisions due to market  conditions,  technology  changes,  and other
factors  resulting in shortfalls of expected revenues or reduced economic lives.
During fiscal 1998,  $200,000 of capitalized  software costs were written-off to
cost of sales due to a  reduction  of expected  revenues on certain  slow-moving
products.

     The industry in which the Company  operates is subject to rapid  technology
changes  and  frequent  product  introductions.  The  Company  expects to remain
committed  to such  research  and  development  expenditures  as are required to
effectively  compete and maintain pace with the rapid  technological  changes in
the communications  industry and to support innovative engineering and design in
its future products.

     The Company had an accumulated  deficit of $117,000 at August 28, 1998. The
Company is very focused on  controlling  both direct and indirect  manufacturing
costs and other operating expenses. These costs will be adjusted as necessary if
the revenues of the Company do not increase as planned. Management believes that
digital  compression  technology may be profitably  employed to create increased
demand for its satellite  receiving equipment if those products are manufactured
in a high volume standardized production environment.

                                       18
<PAGE>

YEAR 2000

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

     Management  of the Company has reviewed the Company's  current  information
systems  and has  found  them,  with a few  minor  exceptions,  to be Year  2000
compliant.  However,  the Company is currently in the process of replacing their
older information systems with new systems that offer easier access to more data
and are certified to be able to handle the Year 2000 transition.

     Management  of the Company has  reviewed  and tested the  Company's  phone,
voice mail,  e-mail,  and security  systems and all are believed to be Year 2000
compliant.  Utility  companies  have been  contacted  and have  reported  to the
Company  that only minor  problems  have been noted in regards to their  billing
software as a result of their Year 2000 testing completed to date.

     The Company has requested Year 2000  compliance  statements  from all major
vendors. There have been no indications that major vendors will not be Year 2000
compliant. However, there can be no absolute assurances in this regard and their
failure to be  compliant  remains a  possibility.  If vendors  are not Year 2000
compliant,  there  can be no  assurance  that the  Company  will be able to find
suitable  alternate  suppliers and contract with them on reasonable terms, or at
all,  and such  inability  could  have a  material  and  adverse  impact  on the
Company's business and results of operations.

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

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

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

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

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

     The main risk to the  Company  with  respect to Year 2000 is the failure of
major vendors and service providers to be Year 2000 compliant.  Failure on their
part could result in delays in obtaining  parts,  increased  cost of parts,  and
overall  inability  to  manufacture  product in the event of a shutdown of major
utility  providers.  Major  vendors and service  providers  have reported to the
Company that they will be Year 2000  compliant.  The Company cannot estimate the
financial  impact of any failure to be Year 2000  compliant  by such third party
vendors and service providers.

                                       19
<PAGE>

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

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

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     No response to this item is required.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                       20
<PAGE>

                                            Wegener Corporation and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                            Year ended
                                                          ----------------------------------------------
                                                           AUGUST 28,       August 29,       August 30,
                                                              1998             1997             1996
--------------------------------------------------------------------------------------------------------
<S>                                                       <C>              <C>              <C>         
Revenue                                                   $ 34,254,673     $ 21,811,870     $ 23,195,052
--------------------------------------------------------------------------------------------------------

Operating costs and expenses
    Cost of products sold                                   22,435,716       16,885,840       15,721,320
    Selling, general and administrative                      4,929,999        5,160,975        3,951,086
    Research and development                                 2,644,353        1,999,106        2,286,378
--------------------------------------------------------------------------------------------------------

Operating costs and expenses                                30,010,068       24,045,921       21,958,784
--------------------------------------------------------------------------------------------------------

Operating income (loss)                                      4,244,605       (2,234,051)       1,236,268
    Interest expense                                          (244,607)        (545,914)        (696,513)
    Interest income                                            465,185           24,160           67,606
    Other income, net                                               --              605              717
--------------------------------------------------------------------------------------------------------

Earnings (loss) before income taxes                          4,465,183       (2,755,200)         608,078

Income tax expense (benefit)                                 1,705,000         (946,000)        (848,000)
--------------------------------------------------------------------------------------------------------

Net earnings (loss)                                       $  2,760,183     $ (1,809,200)    $  1,456,078
--------------------------------------------------------------------------------------------------------

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

Shares used in per share calculation
    Basic                                                   11,727,447        9,640,127        8,723,590
    Diluted                                                 12,090,911        9,640,127        9,210,470
--------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       21
<PAGE>

Wegener Corporation and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                      AUGUST 28,       August 29,
                                                                         1998             1997
--------------------------------------------------------------------------------------------------
ASSETS

Current assets
<S>                                                                  <C>              <C>         
    Cash and cash equivalents                                        $  6,492,760     $  2,242,433
    Accounts receivable                                                 5,314,938        4,612,634
    Inventories                                                         7,120,393        9,992,672
    Deferred income taxes                                               1,011,000        1,241,000
    Other                                                                  23,710           21,376
--------------------------------------------------------------------------------------------------

         Total current assets                                          19,962,801       18,110,115

Property and equipment                                                  4,523,297        4,979,856
Capitalized software costs                                              1,211,914        1,701,416
Deferred income taxes                                                          --          553,000
Other assets                                                              207,002          269,566
--------------------------------------------------------------------------------------------------

                                                                     $ 25,905,014     $ 25,613,953
--------------------------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
    Accounts payable                                                 $  2,113,205     $  2,128,941
    Accrued expenses                                                    1,490,041        1,440,945
    Customer deposits                                                     784,621        3,458,401
    Current maturities of long-term obligations                           597,664          599,157
--------------------------------------------------------------------------------------------------

          Total current liabilities                                     4,985,531        7,627,444

Long-term obligations, less current maturities                          1,231,338        1,782,460
Convertible debentures                                                         --        1,285,195
Deferred income taxes                                                     608,000               --
--------------------------------------------------------------------------------------------------

          Total liabilities                                             6,824,869       10,695,099
--------------------------------------------------------------------------------------------------

Commitments

Shareholders' equity
    Common stock, $.01 par value; 20,000,000 shares
        authorized; 12,314,575 and 11,363,917 shares issued               123,146          113,639
    Additional paid-in capital                                         19,407,417       18,084,700
    Deficit                                                              (117,492)      (2,877,675)
    Less treasury stock, at cost                                         (332,926)        (401,810)
--------------------------------------------------------------------------------------------------

         Total shareholders' equity                                    19,080,145       14,918,854
--------------------------------------------------------------------------------------------------

                                                                     $ 25,905,014     $ 25,613,953
--------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       22
<PAGE>

                                            Wegener Corporation and Subsidiaries

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                  Common Stock            Additional                           Treasury Stock
                                                  ------------             Paid-in                             --------------
                                              Shares         Amount        Capital         Deficit          Shares         Amount
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>          <C>            <C>            <C>                <C>          <C>         
BALANCE, at September 1, 1995                9,193,680    $    91,937    $14,131,187    $(2,524,553)       (515,354)    $  (478,530)

    Treasury stock reissued through
       stock options, commissions
          and 401(k) plan                           --             --        126,134             --          44,957          41,745
    Issuance of common stock for
       exercise of warrants and options         38,250            382        111,836             --              --              --
    Net earnings for the year                       --             --             --      1,456,078              --              --
-----------------------------------------------------------------------------------------------------------------------------------

BALANCE, at August 30, 1996                  9,231,930    $    92,319    $14,369,157    $(1,068,475)       (470,397)    $  (436,785)

    Treasury stock reissued through
       stock options and 401(k) plan                --             --         61,474             --          37,667          34,975
    Issuance of common stock for
       convertible debentures                2,131,987         21,320      3,654,069             --              --              --
    Net (loss) for the year                         --             --             --     (1,809,200)             --              --
-----------------------------------------------------------------------------------------------------------------------------------

BALANCE, at August 29, 1997                 11,363,917    $   113,639    $18,084,700    $(2,877,675)       (432,730)    $  (401,810)

    Treasury stock reissued through
       stock options and 401(k) plan                --             --         84,398             --          74,184          68,884
    Issuance of common stock for
       convertible debentures                  950,658          9,507      1,238,319             --              --              --
    Net earnings for the year                       --             --             --      2,760,183              --              --
-----------------------------------------------------------------------------------------------------------------------------------

BALANCE, AT AUGUST 28, 1998                 12,314,575    $   123,146    $19,407,417    $  (117,492)       (358,546)    $  (332,926)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       23
<PAGE>

Wegener Corporation and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                             YEAR ENDED      Year ended      Year ended
                                                             AUGUST 28,      August 29,      August 30,
                                                                1998            1997            1996
-------------------------------------------------------------------------------------------------------

CASH PROVIDED (USED) BY OPERATING ACTIVITIES
<S>                                                         <C>             <C>             <C>        
    Net earnings (loss)                                     $ 2,760,183     $(1,809,200)    $ 1,456,078
    Adjustments to reconcile net earnings (loss) to
           cash provided (used) by operating activities
        Depreciation and amortization                         1,784,787       1,471,201       1,050,964
        Write-down of capitalized software                      200,000         241,841              --
        Issuance of treasury stock for
            compensation expenses                               124,079          90,263         142,333
        Issuance of convertible debt for interest
            expense                                                  --         101,222          33,973
        Bad debt allowance                                       75,000         356,555          60,000
        Inventory reserves                                    1,150,000         825,000         775,000
        Deferred income taxes                                 1,391,000        (946,000)       (848,000)
        Warranty provisions                                          --         146,000              --
        Changes in assets and liabilities
            Accounts receivable                                (777,304)      2,136,795      (2,594,395)
            Inventories                                       1,722,279       1,877,151      (6,237,302)
            Other assets                                         (2,334)         (8,115)          2,932
            Accounts payable and accrued expenses                33,360        (970,989)        (11,101)
            Customer deposits                                (2,673,780)      2,813,166         128,175
-------------------------------------------------------------------------------------------------------

                                                              5,787,270       6,324,890      (6,041,343)
-------------------------------------------------------------------------------------------------------

CASH PROVIDED (USED) BY INVESTMENT ACTIVITIES
    Property and equipment expenditures                        (522,066)     (1,038,413)       (578,801)
    Capitalized software additions                             (436,465)     (1,089,931)       (893,532)
-------------------------------------------------------------------------------------------------------

                                                               (958,531)     (2,128,344)     (1,472,333)
-------------------------------------------------------------------------------------------------------

CASH PROVIDED (USED) BY FINANCING ACTIVITIES
    Net change in borrowings under
         revolving line-of-credit                                    --      (1,530,332)     (1,548,633)
    Repayment of long-term debt and capitalized
        lease obligations                                      (552,615)       (539,074)       (891,996)
    Proceeds from long-term debt                                     --              --       5,617,037
    Proceeds from issuance of common stock                           --              --         112,219
    Debt issuance costs                                         (55,000)        (62,581)       (542,771)
    Proceeds from stock options exercised                        29,203           6,187          25,545
-------------------------------------------------------------------------------------------------------

                                                               (578,412)     (2,125,800)      2,771,401
-------------------------------------------------------------------------------------------------------

Increase (decrease) in cash and cash equivalents              4,250,327       2,070,746      (4,742,275)
Cash and cash equivalents, beginning of year                  2,242,433         171,687       4,913,962
-------------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of year                      $ 6,492,760     $ 2,242,433     $   171,687
-------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       24
<PAGE>

                                            Wegener Corporation and Subsidiaries

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

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

FISCAL YEAR.  The Company  operates on a 52-53 week fiscal year. The fiscal year
ends on the Friday  nearest to August 31. Fiscal 1998,  1997, and 1996 contained
52 weeks.  All  references  herein to 1998,  1997, and 1996 relate to the fiscal
years ending August 28, 1998, August 29, 1997 and August 30, 1996.

CASH  EQUIVALENTS.  Cash equivalents  consist of highly liquid  investments with
original  maturities  of  three  months  or  less.  At  August  28,  1998,  cash
equivalents consisted of a $4,000,000 repurchase agreement and a $2,300,000 bank
certificate  of deposit.  At August 29,  1997 cash  equivalents  consisted  of a
$2,200,000 bank certificate of deposit.

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

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

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

RESEARCH AND DEVELOPMENT.  The Company expenses research and development  costs,
including expenditures related to development of the Company's software products
that  do  not  qualify  for  capitalization.   Software  development  costs  are
capitalized  subsequent  to  establishing  the  technological  feasibility  of a
product.  Capitalized  costs are  amortized  based on the larger of the  amounts
computed  using (a) the ratio that current gross revenues for each product bears
to the total of current and  anticipated  future gross revenues for that product
or (b) the straight-line  method over the remaining  estimated  economic life of
the product.  Expected future revenues and estimated  economic lives are subject
to revisions due to market  conditions,  technology  changes,  and other factors
resulting in shortfalls of expected  revenues or reduced economic lives.  During
fiscal 1998 and 1997, $200,000 and $242,000 respectively of capitalized software
costs were written-off to cost of sales due to a reduction of expected  revenues
on certain slow-moving  products.  Software development costs capitalized during
fiscal  1998,  1997,  and  1996  totaled  $436,000,  $1,090,000,  and  $894,000,
respectively. Amortization expense, included in cost of goods sold was $726,000,
$415,000, and $252,000 for the same periods.  Capitalized software costs, net of
accumulated  amortization,  were $1,212,000 at August 28, 1998 and $1,701,000 at
August 29, 1997.  Accumulated  amortization amounted to $1,981,000 at August 28,
1998 and $813,000 at August 29, 1997.

                                       25
<PAGE>

Wegener Corporation and Subsidiaries

STOCK BASED  COMPENSATION.  Prior to August 31, 1996, the Company  accounted for
stock options  granted under its stock  incentive  plans in accordance  with the
provisions of Accounting  Principles Board (APB) Opinion No. 25,  Accounting for
Stock Issued to Employees,  and related  interpretations.  As such, compensation
expense would be recorded on the date of grant only if the current  market price
of the  underlying  stock exceeded the exercise  price.  On August 31, 1996, the
Company  adopted  Statement of  Financial  Accounting  Standards  (SFAS) No. 123
"Accounting for Stock-Based  Compensation,"  which permits entities to recognize
as expense over the vesting period the fair value of all  stock-based  awards on
the date of grant.  SFAS No. 123 also  allows  entities to continue to apply the
provisions  of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share  disclosures  for employee stock option grants made in fiscal
1996 and future years as if the fair-value-based  method defined in SFAS No. 123
had been applied. The Company has elected to continue to apply the provisions of
APB Opinion No. 25 and has provided the pro forma disclosure  provisions of SFAS
No. 123.

INCOME TAXES.  Income taxes are based on income  (loss) for financial  reporting
purposes and reflect a current tax  liability  (asset) for the  estimated  taxes
payable  (recoverable)  in the  current-year  tax return and changes in deferred
taxes.  Deferred tax assets or liabilities  are recognized for the estimated tax
effects of temporary  differences between financial reporting and taxable income
(loss) and for tax credit and loss  carryforwards  based on enacted tax laws and
rates.

EARNINGS PER SHARE. In February 1997, the Financial  Accounting  Standards Board
(FASB) issued SFAS No. 128,  "Earnings per Share".  This  statement  establishes
standards for computing and presenting  earnings per share (EPS), and supersedes
APB  Opinion  No.  15. The  Statement  replaces  primary  EPS with basic EPS and
requires  a dual  presentation  of basic  and  diluted  EPS.  The  Statement  is
effective for both interim and annual  periods  ending after  December 15, 1997.
All prior period EPS data has been restated.

Basic net earnings  per share is computed by dividing net earnings  available to
common shareholders  (numerator) by the weighted average number of common shares
outstanding  (denominator) during the period and excludes the dilutive effect of
stock options and convertible  debentures.  Diluted net earnings per share gives
effect to all dilutive  potential common shares  outstanding during a period. In
computing diluted net earnings per share, the average stock price for the period
is used in determining  the number of shares assumed to be reacquired  under the
treasury  stock method from the exercise of stock  options and the  if-converted
method to compute the dilutive effect of convertible debentures.

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

<TABLE>
<CAPTION>
                                                                   Year ended
                                                   ------------------------------------------

                                                    AUGUST 28,     August 29,      August 30,
                                                       1998           1997            1996
                                                   ------------------------------------------
<S>                                                <C>            <C>             <C>        
BASIC
    Net earnings (loss) available to
        to common shareholders                     $ 2,760,183    $(1,809,200)    $ 1,456,078
                                                   -----------    -----------     -----------
    Weighted average shares
        outstanding                                 11,727,447      9,640,127       8,723,590
                                                   -----------    -----------     -----------

    Net earnings (loss) per share                  $       .24    $      (.19)    $       .17
                                                   ===========    ===========     ===========
DILUTED
    Net earnings (loss) available to
        common shareholders                        $ 2,760,183    $(1,809,200)    $ 1,456,078

    Convertible debenture interest
        and amortization of bond
        issue cost, net of income
        taxes                                           11,658             --          83,959
                                                   -----------    -----------     -----------

    Total                                          $ 2,771,841    $(1,809,200)    $ 1,540,037
                                                   -----------    -----------     -----------
    Weighted average shares
        outstanding                                 11,727,447      9,640,127       8,723,590

    Effect of dilutive potential common shares:
            Stock options                              250,467             --         331,761
            Convertible debentures                     112,997             --         155,119
                                                   -----------    -----------     -----------

    Total                                           12,090,911      9,640,127       9,210,470
                                                   -----------    -----------     -----------

    Net earnings (loss) per share                  $       .23    $      (.19)    $       .17
                                                   ===========    ===========     ===========
</TABLE>

                                       26
<PAGE>

                                            Wegener Corporation and Subsidiaries

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

<TABLE>
<CAPTION>
                                                          Year ended
                                      --------------------------------------------------
                                         AUGUST 28,        August 29,       August 30,
                                            1998              1997             1996
                                      --------------    --------------    --------------
<S>                                   <C>               <C>               <C>
Common stock options:
    Number of shares                          48,500           579,000                --
    Range of exercise prices          $2.44 TO 12.13     $.75 to 12.13                --
                                      ==============    ==============    ==============
Convertible debentures:
    Common shares calculated under
        the if-converted method                   --           653,247                --
                                      ==============    ==============    ==============
</TABLE>

FINANCIAL  INSTRUMENTS.  The Company's financial instruments consist of cash and
cash equivalents, trade accounts receivable,  accounts payable, accrued expenses
and long and short-term  bank borrowings and  convertible  debentures.  The fair
value of these instruments  approximates  their recorded value. The Company does
not have  financial  instruments  with  off-balance  sheet risk.  The fair value
estimates were based on market information  available to management as of August
28, 1998.

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

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

RECLASSIFICATIONS. Certain reclassifications have been made to the 1997 and 1996
financial statements to conform to the 1998 presentation.

2.   ACCOUNTS RECEIVABLE

Accounts receivable are summarized as follows:

                                                   AUGUST 28,        August 29,
                                                      1998              1997
--------------------------------------------------------------------------------
        Accounts receivable - trade               $ 5,139,414       $ 4,881,565
        Recoverable income taxes                      295,000                --
        Other receivables                             137,515            92,812
--------------------------------------------------------------------------------
                                                    5,571,929         4,974,377

        Less allowance for doubtful accounts         (256,991)         (361,743)
--------------------------------------------------------------------------------

                                                  $ 5,314,938       $ 4,612,634
--------------------------------------------------------------------------------

                                       27
<PAGE>

Wegener Corporation and Subsidiaries

3.   INVENTORIES

Inventories are summarized as follows:

                                                AUGUST 28,           August 29,
                                                   1998                 1997
--------------------------------------------------------------------------------
        Raw materials                         $  2,692,937         $  4,550,550
        Work-in-process                          3,139,249            4,051,281
        Finished goods                           2,727,727            3,256,294
--------------------------------------------------------------------------------
                                                 8,559,913           11,858,125

        Less inventory reserves                 (1,439,520)          (1,865,453)
--------------------------------------------------------------------------------

                                              $  7,120,393         $  9,992,672
--------------------------------------------------------------------------------

The Company has invested a significant amount of financial  resources to acquire
certain raw  materials,  to incur direct labor and to contract to have  specific
outplant  procedures  performed on inventory in process.  The Company  purchased
this inventory based upon prior backlog and anticipated  future sales based upon
existing  knowledge  of the  marketplace.  The  Company's  inventory  reserve of
approximately  $1,440,000  at August 28, 1998,  is to provide for items that are
potentially  slow-moving,  excess,  or obsolete.  Changes in market  conditions,
lower than expected  customer  demand,  and rapidly  changing  technology  could
result in additional  obsolete and  slow-moving  inventory that is unsaleable or
saleable at reduced  prices.  No  estimate  can be made of a range of amounts of
loss from obsolescence  that are reasonably  possible should the Company's sales
efforts not be successful.

4.   PROPERTY AND EQUIPMENT

Major classes of property and equipment consisted of the following:

                                       Estimated
                                      Useful Lives   AUGUST 28,      August 29,
                                        (Years)         1998            1997
--------------------------------------------------------------------------------
        Land                                 --     $   707,210     $   707,210
        Buildings and improvements         3-30       3,689,643       3,689,643
        Machinery and equipment             3-5       6,544,101       7,369,121
        Furniture and fixtures                5         567,672         621,965
        Application software                  5         734,590         734,590
--------------------------------------------------------------------------------
                                                     12,243,216      13,122,529
        Less accumulated depreciation
            and amortization                         (7,719,919)     (8,142,673)
--------------------------------------------------------------------------------

                                                    $ 4,523,297    $  4,979,856
--------------------------------------------------------------------------------

Depreciation  expense  for  fiscal  1998,  1997 and 1996  totaled  approximately
$777,000, $660,000, and $562,000, respectively.  Assets recorded under a capital
lease  included in property and equipment at August 28, 1998 and August 29, 1997
are  machinery  and  equipment  of   approximately   $613,000  and   accumulated
amortization of approximately $345,000 and $216,000, respectively.

5.   ACCRUED EXPENSES

Accrued expenses consisted of the following:

                                                 AUGUST 28,           August 29,
                                                    1998                 1997
--------------------------------------------------------------------------------
         Compensation                           $  637,333           $  431,446
         Royalties                                 175,061              333,759
         Other                                     677,647              675,740
--------------------------------------------------------------------------------

                                                $1,490,041           $1,440,945
--------------------------------------------------------------------------------

                                       28
<PAGE>

                                            Wegener Corporation and Subsidiaries

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

On August 4, 1998,  WCI amended its  secured  revolving  line of credit and term
loan  facility  ("loan  facility")  with a bank to  provide a maximum  available
credit limit of $10,000,000 (previously  $8,500,000).  The credit limit increase
provides  for  advances  of up to 70% of the  appraised  value of  certain  real
property subject to a sublimit of $1,500,000. The loan facility was also amended
to extend the term through June 21, 2000 or upon demand,  to reduce the interest
rate to the bank's prime rate (8.5% at August 28, 1998)  (previously  prime plus
1/2% on the revolving  line and prime plus 1 1/2% on the term line) and to amend
the annual  facility fee to $55,000 plus an additional  .75% of  $3,000,000,  if
borrowings exceed $5,500,000  (previously  $85,000).  Advances for real property
are payable over 35 months and bear interest at a fixed annual rate of 250 basis
points  over  the  five  year  U.S.  Treasury  rate  in  effect  at the  time of
disbursement.  Subsequent to August 28, 1998, $1,360,000 was advanced to pay off
the existing  mortgage note  balances.  At the time of  disbursement  the annual
interest rate was set at 6.519%.

The term loan portion provides for a maximum of $1,000,000 for advances of up to
80% of the  cost of  equipment  acquisitions.  Principal  advances  are  payable
monthly over sixty months with a balloon payment due at maturity.  The revolving
line of credit is  subject  to  availability  advance  formulas  of 80%  against
eligible accounts receivable;  20% of eligible raw material inventories;  20% of
eligible  work-in-process  kit inventories;  and 40% to 50% of eligible finished
goods  inventories.  Advances  against  inventory  are  subject to a sublimit of
$2,000,000.  Revolving line of credit advances plus equipment term loan advances
are  subject to a sublimit of  $8,500,000.  At August 28,  1998,  the loans were
secured by a first  lien on  substantially  all of WCI's  assets  except  assets
secured under an existing mortgage note and equipment note on which the bank had
a second  lien.  Subsequent  to year end,  the  mortgage  note was paid off with
proceeds from the loan  facility.  The Company is required to maintain a minimum
tangible net worth with annual increases at each fiscal year-end commencing with
fiscal year 1997,  retain certain key employees,  limit  expenditures of Wegener
Corporation to $600,000 per fiscal year, and is precluded from paying dividends.
At August  28,  1998 the  Company  was in  compliance  with the  covenants.  The
revolving  line-of-credit and term loan had no outstanding balances as of August
28, 1998 and August 29, 1997.  At August 28, 1998,  $4,788,000  was available to
borrow under the advance formulas. Additionally,  Wegener Corporation guarantees
the  revolving  line of  credit  and  term  loan.  Information  relative  to the
revolving line-of credit is as follows:

<TABLE>
<CAPTION>
                                                                                           Year ended
                                                                                  AUGUST 28,        August 29,
                                                                                     1998              1997
--------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>               <C>        
Maximum amount outstanding at any month-end                                               --       $ 1,758,397
Average amount outstanding during the period                                              --           201,117
Weighted average interest rate during the period                                          --              16.3%
--------------------------------------------------------------------------------------------------------------

      LONG-TERM OBLIGATIONS
      Long-term obligations consist of:
                                                                                  AUGUST 28,        August 29,
                                                                                     1998              1997
---------------------------------------------------------------------------------------------------------------
      Mortgage note, payable $36,620 monthly, including interest
          through February 2002, collateralized by real estate and
          cross collateralized under the loan facility, interest is
          charged at the bank's prime rate plus 1%.                              $ 1,362,933       $ 1,651,200
      Capital lease obligations, bearing interest ranging  from 11.1%
          to 12.0%, principal and interest payable monthly, currently
          $13,706, final payments due from January 1999 through
          February 2000                                                              121,430           257,259
      Other long-term obligations, collateralized by equipment                       344,639           473,158
--------------------------------------------------------------------------------------------------------------
                                                                                   1,829,002         2,381,617

      Less current maturities                                                       (597,664)         (599,157)
--------------------------------------------------------------------------------------------------------------

                                                                                 $ 1,231,338       $ 1,782,460
--------------------------------------------------------------------------------------------------------------
</TABLE>

                                       29
<PAGE>

Wegener Corporation and Subsidiaries

Other long-term  obligations include a promissory note, bearing interest at 9.6%
per annum, with monthly principal and interest payments of $12,597 through April
2001.  The  outstanding  balance was $344,639 at August 28, 1998 and $465,672 at
August 29, 1997.

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

                                                     Capital
                                      Debt            Lease
               Fiscal Year         Maturities      Obligations          Total
--------------------------------------------------------------------------------
               1999                $  495,488       $  110,237       $  605,725
               2000                   490,216           19,905          510,121
               2001                   477,339                -          477,339
               2002                   244,529                -          244,529
--------------------------------------------------------------------------------
                                    1,707,572          130,142        1,837,714
               Less interest               --           (8,712)          (8,712)
--------------------------------------------------------------------------------
                                
                                   $1,707,572       $  121,430       $1,829,002
--------------------------------------------------------------------------------
                              
The Company  leases certain office and  manufacturing  facilities,  vehicles and
equipment under long-term  noncancelable  operating  leases which expire through
fiscal 2002.  Future minimum lease  commitments  are  approximately  as follows:
1999-$133,000; 2000-$102,000; 2001-$96,000; 2002-$89,000; and 2003-$87,000. Rent
expense under all leases was approximately  $209,000,  $202,000 and $299,000 for
fiscal years 1998, 1997, and 1996, respectively.

7.   CONVERTIBLE DEBENTURES

On May 31, 1996, the Company issued $5,000,000 of 8% Convertible debentures, due
May 31, 1999,  in a private  placement to various  accredited  investors for net
proceeds  to the  Company of  $4,700,000.  The  proceeds  were used for  working
capital and  reduction of the  line-of-credit  note  payable.  These  debentures
converted  at the option of the  holders at any time  through  maturity,  into a
number of shares of common  stock at a price  equal to the  lesser of (i) $12.25
per share or (ii) a percentage, based on the holding period, ranging from 95% to
82.5%  (82.5% at August 30,  1996 and  thereafter)  of the average of the lowest
sale price on each of the five trading days immediately preceding the conversion
date.  Interest at the rate of 8% per annum was paid quarterly beginning July 1,
1996 in cash or, at the  option of the  Company,  by adding  the  amount of such
interest to the  outstanding  principal  amount due under the debenture.  During
fiscal  1997  and  1996  debentures  in  the  amount  of  $101,222  and  $33,973
respectively,  were issued for payment of accrued  interest.  During fiscal 1998
and  1997,  $1,285,000  and  $3,850,000  principal  amount  of  debentures  were
converted into 950,658 and 2,131,987,  respectively,  shares of common stock. No
convertible debentures remained outstanding at August 28, 1998.

8.   INCOME TAXES

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

                                                  Year ended
                                ------------------------------------------------
                                 AUGUST 28,         August 29,        August 30,
                                    1998               1997              1996
--------------------------------------------------------------------------------
Current
    Federal                     $    93,000         $      --         $      --
    State                           221,000                --                --
--------------------------------------------------------------------------------
                                    314,000                --                --
--------------------------------------------------------------------------------
Deferred
    Federal                       1,335,000          (862,000)         (827,000)
    State                            56,000           (84,000)          (21,000)
--------------------------------------------------------------------------------
                                  1,391,000          (946,000)         (848,000)
--------------------------------------------------------------------------------
Total                           $ 1,705,000         $(946,000)        $(848,000)
--------------------------------------------------------------------------------

                                       30
<PAGE>

                                            Wegener Corporation and Subsidiaries

The effective  income tax rate differs from the U.S.  federal  statutory rate of
34% as follows:

                                                        Year ended
                                        ----------------------------------------
                                        AUGUST 28,      August 29,    August 30,
                                           1998            1997          1996
--------------------------------------------------------------------------------
Statutory U.S. income tax rate             34.0%          (34.0)%        34.0%
State taxes, net of federal                                          
    benefits                                4.8            (3.0)          3.4
Change in valuation allowance                --              --        (179.1)
Foreign sales corporation benefit           (.7)             --            --
Non-deductible expenses                      .3              .6           2.4
Other, net                                  (.2)            2.1           (.2)
--------------------------------------------------------------------------------
                                                                     
Effective income tax rate                  38.2%          (34.3)%      (139.5)%
--------------------------------------------------------------------------------

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

                                                     AUGUST 28,      August 29,
                                                        1998            1997
--------------------------------------------------------------------------------
Deferred tax assets:
    Accounts receivable and inventory reserves      $   860,000     $ 1,075,000
    Accrued expenses                                    151,000         166,000
    Net operating loss carryforwards                         --       1,078,000
    General business credit carryforwards                    --         137,000
    AMT credit carryovers                                    --         159,000
--------------------------------------------------------------------------------
    Total deferred tax assets                         1,011,000       2,615,000
--------------------------------------------------------------------------------
Deferred tax liabilities:
    Depreciation                                        (82,000)        (95,000)
    Capitalized software costs                         (460,000)       (653,000)
    Other                                               (66,000)        (73,000)
--------------------------------------------------------------------------------
    Total deferred tax liabilities                     (608,000)       (821,000)
--------------------------------------------------------------------------------
Net deferred tax asset                              $   403,000     $ 1,794,000
--------------------------------------------------------------------------------
Consolidated balance sheet classifications:
    Current deferred tax asset                      $ 1,011,000     $ 1,241,000
    Noncurrent deferred tax asset                            --         553,000
    Noncurrent deferred tax liability                  (608,000)             --
--------------------------------------------------------------------------------
Net deferred tax asset                              $   403,000     $ 1,794,000
--------------------------------------------------------------------------------

Net deferred tax assets decreased $1,391,000 to $403,000 at August 28, 1998 from
$1,794,000 at August 29, 1997. The decrease was  principally  due to utilization
of net operating loss carryforwards and tax credit carryforwards in fiscal 1998.
Deferred  tax assets  increased  $946,000  at August 29,  1997 from  $848,000 at
August 30,  1996.  The increase  was  principally  due to an increase in the net
operating loss  carryforward and increases in accounts  receivable and inventory
reserves.

No  provision  for  deferred tax  liability  has been made on the  undistributed
earnings of the Foreign Sales  Corporation  as the earnings will not be remitted
in the foreseeable future and are considered permanently invested. The amount of
the  unrecognized  deferred  tax  liability  for the  undistributed  earnings of
approximately $552,000 was approximately $188,000.

                                       31
<PAGE>

Wegener Corporation and Subsidiaries

9.   COMMON STOCK AND STOCK OPTIONS.

1998 INCENTIVE  PLAN. On February 26, 1998, the  stockholders  approved the 1998
Incentive  Plan (the  "1998  plan").  The Plan  provides  for awards of up to an
aggregate of 1,000,000  shares of Common Stock which may be  represented  by (i)
incentive or non-qualified stock options, (ii) stock appreciation rights (tandem
and  free-standing),  (iii)  restricted  stock,  (iv)  deferred  stock,  or  (v)
performance units entitling the holder, upon satisfaction of certain performance
criteria, to awards of Common Stock or cash. In addition, the 1998 Plan provides
for loans and supplemental cash payments to persons participating in the Plan in
connection with awards granted. Eligible participants include officers and other
key employees,  non-employee directors, consultants and advisors of the Company.
The  exercise  price per share in the case of  incentive  stock  options and any
tandem stock  appreciation  rights will be not less than 100% of the fair market
value on the date of grant  or,  in the case of an  option  granted  to a 10% or
greater stockholder,  not less than 110% of the fair market value on the date of
grant.  The exercise  price for any other option and stock  appreciation  rights
shall  be at least  75% of the fair  market  value  on the  date of  grant.  The
exercise period for non-qualified stock options may not exceed ten years and one
day from the date of the grant, and the expiration period for an incentive stock
option or stock appreciation  rights shall not exceed ten years from the date of
the  grant.  The 1998  plan  contains  an  automatic  option  grant  program  to
non-employee  members  of the  Board of  Directors.  Such  members  will each be
granted an option to purchase  2,000  shares of Common  Stock on the last day of
each December on which regular trading occurs on the Nasdaq Stock Market,  at an
exercise  price  equal to the  fair  market  value of such  stock on the date of
grant.  Such options will be exercisable  during the period of ten years and one
day from the date of grant of the option.  In addition,  upon the exercise of an
option by a  non-employee  director,  the Company will pay a  supplemental  cash
amount  equal to the  greater of the  Company's  minimum  federal  and state tax
withholding  obligation  with  respect  to the  exercise  of the option and such
supplemental  payment,  or an amount  sufficient to defray the federal and state
tax  consequences to the non-employee  director  attributable to the exercise of
the option and such supplemental payment. The effective date of the 1998 plan is
January 1, 1998 and the plan has a ten year term.  No options were granted under
the plan as of August 28, 1998.

1989 DIRECTORS' STOCK OPTION PLAN. On January 9, 1990, the stockholders approved
the Wegener  Corporation  1989  Directors'  Incentive  Plan  permitting  certain
participating  directors  of the  Company to be  eligible  to receive  incentive
awards  consisting  of common stock of the Company,  performance  units or stock
appreciation  rights payable in stock or cash, or non-qualified stock options to
purchase  such  stock,  or any  combination  of  the  foregoing,  together  with
supplemental  cash  payments.  During the second  quarter  of fiscal  1995,  the
Company amended the 1989 Directors'  Stock Option Plan to increase the aggregate
number of shares of common  stock  that may be awarded  from  100,000 to 300,000
shares;  to remove the  ineligibility  provision for certain  directors;  and to
grant annually to each non-employee  director,  options to purchase 2,000 shares
of common  stock at an exercise  price  equal to the fair  market  value of such
stock on the date of grant. The exercise price per share for non-qualified stock
options or stock  appreciation  rights shall not be less than 85% of fair market
value  on the  date  the  award  is made or not  more  than  nine  trading  days
immediately preceding such date. The expiration period for a non-qualified stock
option shall be ten years and one day from the date of the grant. The expiration
period for stock appreciation rights, including any extension,  shall not exceed
ten years from the date of grant.  During  fiscal 1998  options were granted for
44,000  shares of common stock at exercise  prices  ranging from $1.44 to $2.00.
Subsequent to August 28, 1998,  options for 46,000  shares with exercise  prices
ranging from $2.00 to $12.13 were cancelled and reissued at an exercise price of
$1.41.  Options for 4,000  shares of common stock were granted in each of fiscal
years  1997 and 1996 at  exercise  prices  of $3.94  and  $12.13,  respectively.
Additionally,  during  fiscal 1997,  options for 193,000  shares of common stock
with exercise  prices ranging from $1.50 to $7.00 were cancelled and reissued at
an exercise  price of $1.44 per share.  At August 28,  1998,  2,000 common stock
shares  remained  available for awards under the plan.  This plan will terminate
and expire effective December 1, 1999.

1988  INCENTIVE  PLAN. On January 10, 1989, the  stockholders  approved the 1988
Incentive Plan  providing to key employees  other than directors of the Company,
incentive  awards  consisting  of  common  stock,  performance  units  or  stock
appreciation  rights  payable in stock or cash;  or incentive  or  non-qualified
stock options to purchase stock; or any combination of the above,  together with
supplemental  cash payments.  The aggregate  number of shares issuable under the
1988 plan is 750,000 common shares.  The exercise price per share in the case of
incentive stock options and any tandem stock  appreciation  rights will be equal
to 100% of the fair market  value or, in the case of an option  granted to a 10%
or greater  stockholder,  l10% of the fair market value.  The exercise price for
any other option and stock appreciation rights shall be at least 85% of the fair
market  value on the  date the  option  is  granted.  The  exercise  period  for
non-qualified  stock options shall be ten years and one day from the date of the
grant,  and the  expiration  period  for an  incentive  stock  option  or  stock
appreciation  rights  shall not  exceed  ten years  from the date of the  grant.
During  fiscal 1998 options  were granted for 150,000  shares of common stock at
exercise prices of $1.44 and $2.00.  Subsequent to August 28, 1998,  options for
105,000  shares at an exercise  price of $2.00 were cancelled and reissued at an
exercise price of $1.41. During fiscal 1997 options for 180,250 shares of common
stock with exercise  prices ranging from $1.50 to $7.00 per share were cancelled
and reissued at an exercise price of $1.44 per share. In addition, during fiscal
1997 new options were granted for 150,000

                                       32
<PAGE>

                                            Wegener Corporation and Subsidiaries

shares of common  stock at an exercise  price of $1.44 per share.  At August 28,
1998,  211,465 shares  remained  available for awards under the plan.  This plan
will terminate and expire effective December 1, 1998.

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

                                                                    Weighted
                                    Number        Range of           Average
                                  of Shares    Exercise Prices   Exercise Price
--------------------------------------------------------------------------------
Outstanding at
    September 1, 1995              458,644     $ .43 -  7.00         $ 3.34
       Granted                       4,000             12.13          12.13
       Exercised                   (28,144)      .43 -   .75            .91
--------------------------------------------------------------------------------
Outstanding at
    August 30, 1996                434,500     $  .75 -12.13         $ 3.58
       Granted or reissued         527,250      1.44 -  3.94           1.46
       Exercised                    (5,500)      .75 -  1.50           1.13
       Forfeited or cancelled     (377,250)     1.50 -  7.00           4.28
--------------------------------------------------------------------------------
Outstanding at
    August 29, 1997                579,000     $  .75 -12.13         $ 1.55
       Granted                     194,000      1.44 -  2.00           1.80
       Exercised                   (26,250)      .75 -  1.44           1.12
       Forfeited or cancelled      (10,750)      .75 -  1.44           1.36
--------------------------------------------------------------------------------
OUTSTANDING AT
    AUGUST 28, 1998                736,000     $  .75 -12.13         $ 1.63
--------------------------------------------------------------------------------
Options exercisable at
    AUGUST 28, 1998                386,000       $.75 -12.13         $ 1.63
    August 29, 1997                315,500        .75 -12.13           1.65
--------------------------------------------------------------------------------

Weighted average fair value of options            Per Share        Aggregate
    granted during the year ended               Option Value         Total
--------------------------------------------------------------------------------
AUGUST 28, 1998                                     $ .91          $175,493
August 29, 1997                                       .76           198,562
August 30, 1996                                      7.40            29,607
--------------------------------------------------------------------------------

The weighted average remaining contractual life of options outstanding at August
28, 1998 was 4.6 years.

The Company  applies APB Opinion No. 25 in  accounting  for its stock  incentive
plan and,  accordingly,  no compensation  cost has been recognized for its stock
options in the financial  statements.  If compensation  cost had been determined
under SFAS No. 123 based on the fair value of stock  options at the grant  date,
the Company's net earnings  (loss) and earnings  (loss) per share for the fiscal
years 1998, 1997 and 1996 would have changed to the pro forma amounts below:

                                                     Year ended
                                      ------------------------------------------
                                       AUGUST 28,     August 29,      August 30,
                                          1998           1997            1996
--------------------------------------------------------------------------------
Net earnings (loss)
    As Reported                       $ 2,760,183    $(1,809,200)    $ 1,456,078
    Pro Forma                           2,676,143     (1,902,485)      1,426,471
--------------------------------------------------------------------------------
Earnings (loss) per share
    As Reported
        Basic                         $       .24    $      (.19)    $       .17
        Diluted                               .23           (.19)            .17
    Pro Forma
        Basic                                 .23           (.20)            .16
        Diluted                               .22           (.20)            .16
--------------------------------------------------------------------------------

                                       33
<PAGE>

Wegener Corporation and Subsidiaries

Pro forma net earnings  (loss) reflects only options granted during fiscal years
1998, 1997 and 1996. Therefore, the full impact of calculating compensation cost
for stock  options  under  SFAS No.  123 is not  reflected  in the pro forma net
earnings (loss) amounts  presented above because  compensation cost is reflected
over the options' vesting period and compensation cost for options granted prior
to September 2, 1995 is not considered.

The fair value of stock  options used to compute pro forma net  earnings  (loss)
and earnings  (loss) per share  disclosures  is the  estimated  present value at
grant  date using the  Black-Scholes  option-pricing  model  with the  following
weighted average  assumptions for 1998, 1997 and 1996. No dividend yield for all
years;  expected volatility of 60% in 1998 and 1997 and 40% in 1996; a risk free
interest  rate of 5.6% in 1998,  6.6% in 1997 and 5.6% in 1996;  and an expected
option life of 3.9 years in 1998, 4.5 years in 1997 and 10.0 years in 1996.

OTHER  OPTIONS,  AWARDS AND  WARRANTS.  At August 28,  1998,  options for 22,500
common  shares,  fully  exercisable  at a price of $2.44 per share,  expiring on
December 8, 1998, were outstanding.  During fiscal 1996 options for 4,500 common
shares were exercised.  In conjunction with a private  placement of common stock
during fiscal 1995 the Company issued  warrants for 45,000 shares at an exercise
price of $3.00 per share expiring on June 23, 1997. During fiscal 1997, warrants
for 11,250 common shares expired. During fiscal 1996, warrants for 33,750 common
shares were exercised. In addition, stock awards issued under the 1988 Incentive
Plan of 12,500 shares remained outstanding at August 28, 1998.

In February 1998, the FASB issued SFAS No. 132,  "Employers'  Disclosures  about
Pensions and Other  Postretirements  Benefits." SFAS No. 132 revises  employers'
disclosures about pension and other  postretirement  benefits plans but does not
change  measurement or recognition of those plans.  Also,  SFAS No. 132 requires
additional  information on changes in the benefit obligations and fair values of
plan assets.  Presently,  the Company does not offer pensions or  postretirement
benefits.  Adoption  of SFAS No.  132 will not have an effect  on the  Company's
financial position or results of operations.

10.  EMPLOYEE BENEFIT PLANS.

WCI has a profit-sharing plan covering  substantially all employees.  Amounts to
be  contributed  to the plan each year are  determined at the  discretion of the
Board of Directors subject to legal limitations.  No contributions were declared
for fiscal years 1998, 1997 and 1996.

Eligible  WCI  employees  are  permitted  to make  contributions,  up to certain
regulatory  limits,  to the plan on a tax deferred basis under Section 401(k) of
the Internal  Revenue  Code.  The plan provides for a minimum  company  matching
contribution on a quarterly  basis at the rate of 25% of employee  contributions
with a  quarterly  discretionary  match  subject  to  WCI's  profitability.  All
matching  contributions  are in  the  form  of  Company  stock  or  cash  at the
discretion of the Company's Board of Directors.  Matching Company  contributions
in the form of common stock were approximately  $124,000 in fiscal 1998, $90,000
in fiscal 1997 and $37,000 in fiscal 1996.

11.  SEGMENT INFORMATION AND SIGNIFICANT CUSTOMERS

WCI  operates  in a  single  industry  segment  of the  manufacture  and sale of
satellite  communications  electronics  equipment.  General  corporate  expenses
included  in selling,  general and  administrative  expense  were  approximately
$456,000,  $578,000,  and  $412,000  in 1998,  1997 and 1996  respectively.  Net
equipment  sales to foreign  customers were $2,712,000 for the year ended August
28, 1998,  $2,964,000 for the year ended August 29, 1997, and $2,549,000 for the
year ended August 30, 1996. All foreign sales are  denominated in U.S.  dollars.
Sales to foreign  customers in 1998,  1997 and 1996 were  primarily to customers
located in Latin  America,  Canada,  Asia and Europe.  Profit margins on foreign
sales are approximately the same as on domestic sales.

The Company  sells to a variety of domestic  and  international  customers on an
open-unsecured  account basis. These customers  principally operate in the cable
television,  broadcast business music,  private network, and data communications
industries. Single customers accounted for 34.2%, 11.0% and 14.2% of revenues in
fiscal years 1998,  1997,  and 1996,  respectively.  At August 28,  1998,  three
customers  accounted for 23.7%,  13.6% and 13.2%,  respectively of the Company's
accounts receivable. At August 29, 1997, one customer accounted for 27.7% of the
Company's  accounts  receivable.  When  deemed  appropriate,  the  Company  uses
letters-of-credit  and credit  insurance to mitigate the credit risk  associated
with foreign sales.

Additionally,  in June 1997,  the FASB  issued SFAS No. 131  "Disclosures  about
Segments  of an  Enterprise  and  Related  Information."  SFAS No. 131  requires
companies to report certain information about operating segments, products and

                                       34
<PAGE>

services,  geographical  areas in which they operate,  and major customers.  The
statement is effective for fiscal years  beginning  after December 15, 1997. The
Company will be required to  retroactively  adopt this statement when it reports
its  operating  results  for the  quarter and year ended  August 27,  1999.  The
adoption is not expected to have a material impact on the Company's consolidated
financial statements.

12.  STATEMENT OF CASH FLOWS

Interest payments were approximately $247,000, $563,000, and $592,000 for fiscal
years 1998, 1997 and 1996, respectively. Income taxes paid in 1998 were $488,000
and none in 1997 and 1996. Non-cash investing and financing activities in fiscal
1998 were:  (1) 48,184  shares of treasury  stock  reissued for 401(k)  matching
Company  contributions valued at approximately  $124,000,  and 950,658 shares of
common  stock were issued upon  conversion  of  $1,285,000  principal  amount of
convertible  debentures.  Non-cash investing and financing  activities in fiscal
1997 were: (1) equipment acquired under capital leases of approximately $20,000;
(2)  32,167  shares of  treasury  stock  reissued  for 401(k)  matching  Company
contributions  valued at  approximately  $90,000,  and (3)  2,131,987  shares of
common  stock were issued upon  conversion  of  $3,850,000  principal  amount of
convertible  debentures.  Non-cash investing and financing  activities in fiscal
1996  were:  (1)  equipment  acquired  under  capital  leases  of  approximately
$380,000;  (2) 6,517  shares of  treasury  stock  reissued  for 401(k)  matching
Company contributions valued at approximately  $65,000; and (3) 10,296 shares of
treasury stock reissued for compensation valued at approximately $77,000.

13.  FOURTH QUARTER ADJUSTMENTS

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

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

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

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

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

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

/s/ Robert A. Placek

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


/s/ C. Troy Woodbury, Jr.

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


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Shareholders
    of Wegener Corporation
Duluth, Georgia

     We have audited the  accompanying  consolidated  balance  sheets of Wegener
Corporation and  subsidiaries as of August 28, 1998 and August 29, 1997, and the
related  consolidated  statements of operations,  shareholders'  equity and cash
flows  for each of three  years in the  period  ended  August  28,  1998.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

     In our opinion,  the financial statements referred to above present fairly,
in all  material  respects,  the  consolidated  financial  position  of  Wegener
Corporation  and  subsidiaries as of August 28, 1998 and August 29, 1997 and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended  August 28, 1998 in  conformity  with  generally
accepted accounting principles.


                                           /s/ BDO Seidman, LLP

Atlanta, Georgia                           BDO Seidman, LLP
October 22, 1998

                                       35
<PAGE>

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

     None

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information  contained  under the caption  "ELECTION OF  DIRECTORS"  in the
Proxy   Statement   pertaining  to  the  January  28,  1999  Annual  Meeting  of
Stockholders  ("Proxy Statement") is incorporated herein by reference in partial
response to this item.  See also Item 1.  "Business - Executive  Officers of the
Registrant" on page 8 of this Report.

ITEM 11.  EXECUTIVE COMPENSATION

     Information  contained  under the  captions  "EXECUTIVE  COMPENSATION"  and
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS," respectively, contained in the
Proxy Statement is incorporated herein by reference in response to this item.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

                                       36
<PAGE>

                                     PART IV

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

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

Consolidated Balance Sheets August 28, 1998 and August 29, 1997

Consolidated  Statements of Operations  Years ended August 28, 1998,  August 29,
  1997, and August 30, 1996

Consolidated  Statements  of  Shareholders'  Equity Years ended August 28, 1998,
  August 29, 1997, and August 30, 1996

Consolidated  Statements  of Cash Flows Years ended August 28, 1998,  August 29,
  1997, and August 30, 1996

Notes to Consolidated Financial Statements

Report of Independent Certified Public Accountants

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

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

     Schedule II Valuation and Qualifying  Accounts Years ended August 28, 1998,
August 29, 1997, and August 30, 1996

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

     (b)  There were no reports on Form 8-K filed for the  Quarter ended  August
28, 1998.

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

     (d)  Not applicable.

                                       37
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Shareholders
    of Wegener Corporation
Duluth, Georgia

     The audit referred to in our report dated October 22, 1998, relating to the
consolidated financial statements of Wegener Corporation and subsidiaries, which
is  contained in Item 8 of this Form 10-K  included  the audit of the  financial
statement  schedule listed in the accompanying  index.  The financial  statement
schedule is the responsibility of the Company's  management.  Our responsibility
is to  express  an  opinion on the  financial  statement  schedule  based on our
audits.

     In our opinion,  such financial  statement schedule presents fairly, in all
material respects, the information set forth therein.


                                             /s/ BDO Seidman, LLP

Atlanta, Georgia                             BDO Seidman, LLP
October 22, 1998

                                       38
<PAGE>

                                   SCHEDULE II
                      WEGENER CORPORATION AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS

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

<S>                                 <C>             <C>             <C>             <C>             <C>        
YEAR ENDED AUGUST 28, 1998          $   361,743     $    75,000     $  (180,018)    $       266     $   256,991

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

Year ended August 30, 1996          $    41,602     $    60,000     $   (70,190)    $    26,500     $    57,912


Inventory Reserves:

YEAR ENDED AUGUST 28, 1998          $ 1,865,453     $ 1,150,000     $(1,576,764)    $       831     $ 1,439,520

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

Year ended August 30, 1996          $   736,290     $   775,000     $        --     $    10,636     $ 1,521,926
</TABLE>

                                       39
<PAGE>

EXHIBIT INDEX

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

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

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

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

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

     *4.0           See By-Laws and Certificate of  Incorporation,  Exhibits 3.1
                    and 3.2. See Articles II and VIII of the By-Laws and Article
                    IV of the Certificate.

     *4.1           Loan and  Security  Agreement  and Demand Note dated June 5,
                    1996 by and between Wegener Communications, Inc. and LaSalle
                    National  Bank  respecting   $8,500,000  combined  revolving
                    credit note and term note (1996  10-K,  filed  November  27,
                    1996, Exhibit 4.1).

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

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

     4.5            Loan and Security  Agreement - First  Amendment dated August
                    4, 1998 by and  between  Wegener  Communications,  Inc.  and
                    LaSalle  National  Bank  respecting   $10,000,000   combined
                    revolving credit note and term note.

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

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

     *10.2          License Agreement, Distributorship and Supply Agreement, and
                    Purchase Pooling and Warehouse  Agreement dated May 28, 1994
                    by  and  between  Wegener  Communications,  Inc.  and  Cross
                    Technologies,  Inc.  (1995 10-K,  filed  December  15, 1994,
                    Exhibit 10.4).

                                       40
<PAGE>

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

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

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

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

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

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

     23.            Consent of BDO Seidman, LLP.

     27.            Financial Data Schedule.


                                       41
<PAGE>

                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

 WEGENER CORPORATION
 Date:  November 9, 1998                By  /s/ Robert A. Placek           
                                           ----------------------------------
                                           Robert A. Placek
                                           President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities indicated on this 9th day of November, 1998.

Signature                                        Title

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

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

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

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

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

                                       42
<PAGE>

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

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

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

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

Thomas G. Elliot
Senior Vice President of
Technical Projects
CableLabs


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

Keith N. Smith
President, Wegener
Communications, Inc.

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

James T. Traicoff
Controller


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


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


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


ANNUAL MEETING
The annual meeting of stockholders will be held on January 28, 1999 at 7 p.m. at
the Corporate Headquarters.


COMMON STOCK NASDAQ
NASDAQ Small-Cap Market Symbol:
WGNR


FORM 10-K REPORT
Wegener  Corporation's Annual Report on Form 10-K, filed with the Securities and
Exchange Commission, is available free of charge by written request to:
     Elaine Miller, Secretary
     Investor Relations
     Wegener Corporation
     11350 Technology Circle
     Duluth, Georgia 30097-1502


WEB SITE
HTTP://WWW.WEGENER.COM


QUARTERLY COMMON
STOCK PRICES
The  Company's  common  stock is  traded on the  NASDAQ  Small-Cap  Market.  The
quarterly  ranges of high and low  closing  sale prices for fiscal 1998 and 1997
were as follows:

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

FISCAL YEAR ENDING AUGUST 28, 1998

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

Second Quarter             2 11/32   1 3/8

Third Quarter              3 19/32   2 1/32

Fourth Quarter             3 5/32    1 5/8
--------------------------------------------

Fiscal Year Ending August 29, 1997

First Quarter             $ 6       $3 7/8

Second Quarter             4 1/8     2 5/8

Third Quarter              3 7/8     1 7/16

Fourth Quarter             3 1/2     1 13/16
--------------------------------------------

The Company had  approximately  426* shareholders of record at November 2, 1998.
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).

                                       43