UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K


(Mark
One)


x ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE


ACT
OF 1934




For the
fiscal year ended September 3, 2010


OR


 ̈ TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE


ACT
OF 1934




For the
transition period from__________________________to
_______________________




Commission
file No. 0-11003




WEGENER
CORPORATION


(Exact
name of registrant as specified in its charter)


Delaware
              81–0371341(State
      or other jurisdiction
              (I.R.S.
      Employerof
      incorporation or organization)
              Identification
      No.)





11350
      Technology Circle, Johns Creek, Georgia
              
              30097-1502(Address
      of principal executive offices)
              
              (Zip
      Code)




Registrant’s telephone number,
including area code: (770)
623-0096




Securities
registered pursuant to Section 12(b) of the Act:





Title
      of each class
              Name
      of each exchange on which registeredCommon
      Stock, $.01 par value
              Traded Over the
      Counter




Securities registered pursuant to
Section 12(g) of the Act:None




Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.Yes ̈Nox




Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act.Yes ̈Nox




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days:  YesxNo ̈




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





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of  “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.





Large
Accelerated Filer  ̈          
Accelerated Filer  ̈
      Non-Accelerated Filer.  ̈Smaller reporting
companyx




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes ̈Nox




As of
February 26, 2010 (the last business day of the registrant’s most recently
completed second fiscal quarter), the aggregate market value of the Common Stock
held by non-affiliates was $1,622,766 based on the last sale price of the Common
Stock as quoted on the NASDAQ Stock Market on such date.  (The
officers and directors of the registrant, and owners of over 10% of the
registrant’s common stock, are considered affiliates for purposes of this
calculation.)




As of
November 1, 2010, 12,647,051 shares of registrant’s Common Stock were
outstanding.




DOCUMENTS
INCORPORATED BY REFERENCE


Portions
of the definitive Proxy Statement pertaining to the 2011 Annual Meeting of
Stockholders, only to the extent expressly so stated herein, are incorporated
herein by reference into Part III.













WEGENER
CORPORATION


FORM
10-K


YEAR
ENDED SEPTEMBER 3, 2010


INDEX




PART
I




PageItem
      1.
                    Business
                    2Item
      1A.
                    Risk
      Factors
                    12Item
      1B.
                    Unresolved
      Staff Comments
                    16Item
      2.
                    Properties
                    16Item
      3.
                    Legal
      Proceedings
                    16Item
      4.
                    (Removed
      and Reserved)
                    17PART
      IIItem
      5.
                    Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                    17Item
      6.
                    Selected
      Financial Data
                    20Item
      7.
                    Management's
      Discussion and Analysis of FinancialCondition
      and Results of Operations
                    21Item
      7A.
                    Quantitative
      and Qualitative Disclosures About Market Risk
                    32Item
      8.
                    Financial
      Statements and Supplementary Data
                    32Item
      9.
                    Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
                    55Item
      9A.
                    Controls
      and Procedures
                    56Item
      9B.
                    Other
      Information
                    56PART
      IIIItem
      10.
                    Directors,
      Executive Officers and Corporate Governance
                    57Item
      11.
                    Executive
      Compensation
                    57Item
      12.
                    Security
      Ownership of Certain Beneficial Ownersand
      Management and Related Stockholder Matters
                    57Item
      13.
                    Certain
      Relationships and Related Transactions, and Director
      Independence
                    57Item
      14.
                    Principal
      Accountant Fees and Services
                    57PART
      IVItem
      15.
                    Exhibits
      and Financial Statement Schedules
                    58




1





PART
I




ITEM
1.  BUSINESS




Wegener®
Corporation, the Registrant, together with its subsidiary, is referred to herein
as “we,” “our,” “us,” the
“Company” or “Wegener.”





Wegener Corporation was formed in 1977
and is a Delaware corporation.  We conduct our continuing business
through Wegener Communications, Inc. (WCI), a wholly-owned
subsidiary.  WCI was formed in April 1978 and is a Georgia
corporation.  WCI is an international provider of digital video and
audio solutions for broadcast television, radio, telco, private and cable
networks. With over 30 years experience in optimizing point-to-multipoint
multimedia distribution over satellite, fiber, and IP networks, WCI offers a
comprehensive product line that handles the scheduling, management and delivery
of media rich content to multiple devices, including video screens, computers
and audio devices.  WCI focuses on long and short-term strategies for
bandwidth savings, dynamic advertising, live events and affiliate
management.





WCI’s
product line includes: iPump® media servers for file-based and live broadcasts;
Compel® Network Control and Compel® Conditional Access for dynamic command,
monitoring and addressing of multi-site video, audio, and data networks; and the
Unity® satellite media receivers for live radio and video
broadcasts.  Applications served include:  digital signage,
linear and file-based TV distribution, linear and file-based radio distribution,
Nielsen rating information, broadcast news distribution, business music
distribution, corporate communications, video and audio simulcasts.





Recent
Developments





The
accompanying consolidated financial statements have been prepared on a going
concern basis which contemplates the realization of assets and liquidation of
liabilities in the normal course of business.  These financial
statements do not include any adjustments relating to the recoverability and
classification of assets or the amounts and classification of liabilities that
may be necessary in the event the Company cannot continue as a going
concern.





Net loss
for the year ended September 3, 2010, was $(2,313,000) or $(0.18) per share,
compared to a net loss of $(2,606,000) or $(0.21) per share for the year ended
August 28, 2009, and net earnings of $383,000 or $0.03 per share for the year
ended August 29, 2008.  Fiscal 2008 net earnings included a gain on
sale of patents of $894,000. Revenues for fiscal 2010 decreased
$3,734,000, or 29.5%, to $8,921,000 from $12,655,000 in fiscal
2009.





During
the first, second, third and fourth quarters of fiscal 2010, bookings were
approximately $1.8 million, $2.1 million, $3.0 million and $1.4 million,
respectively. These fiscal 2010 bookings and fiscal 2011 bookings to date, as
well as our fiscal 2009 bookings, were well below our expectations and internal
forecasts primarily as a result of customer delays in purchasing decisions,
deferral of project expenditures and general adverse economic and credit
conditions.





During
the fourth quarter of fiscal 2008 and in fiscal 2009, we made reductions in
headcount to bring the number of employees at August 28, 2009, to 63 compared to
91 at August 29, 2008, and reduced engineering consulting and other operating
and overhead expenses.  Beginning in January 2009, we reduced paid
working hours Company-wide by approximately 10%.  During the first and
second quarters of fiscal 2010, we made further reductions in headcount to bring
the current number of employees to 49.





On July
16, 2009, we entered into a non-binding letter of intent (the “LOI”) with
Sencore, Inc. (“Sencore”), a portfolio company of The Riverside Company, a
private equity firm, regarding a possible acquisition of Wegener Corporation by
Sencore.  The exclusivity period set forth in the LOI expired
September 13, 2009. Wegener Corporation’s Board of Directors unanimously voted
to terminate the LOI and on September 17, 2009, officially notified Sencore of
the termination.





WCI’s
loan facility was amended effective October 8, 2009 and provided a maximum
credit limit of $4,000,000, with interest charged at the rate of twelve percent
(12%) per annum.  The term of the amended loan facility is eighteen
(18) months beginning October 8, 2009, or upon demand in the event of default as
provided by the loan facility.  Effective September 3, 2010, the
maximum credit limit was increased to $4,250,000 and the annual interest rate
was reduced to eight percent (8.0%) per annum.


2




Segment Information and
Financial Information by Geographical Area




Segment information and financial
information by geographical area contained in Note 13 to the consolidated
financial statements contained in this report are incorporated herein by
reference in response to this item.




MARKETS
AND INDUSTRY OVERVIEW




The primary markets we serve are
business and private networks, broadcast television and program originators,
radio broadcasters, and headends.




Business/Private
Networks




Business networks consist of
corporations and enterprises distributing video, audio and/or data among their
sites.  Private networks consist of networks that target video, audio
and/or data to a select group of subscribers or viewers. Our equipment is
currently used for a large percentage of the horse racing video distribution to
off-track betting locations in the United States and Sweden.  We also
have a strong presence in faith-based networks. We continue to expand our
presence in digital signage networks, providing networked equipment to
distribute and display information and advertisements dynamically to retail
customers and employees.  Business and private network customers
include Muzak LLC, The Church of Jesus Christ of Latter-Day Saints and Swedish
ATG.  In addition, we work through third-party integrators, such as
USSI, Satellite Store Link and Microspace to reach this market.





Business and private networks are
interested in reducing bandwidth costs by utilizing IP infrastructure that they
may have in place to distribute some of their programming
terrestrially.  When the number of sites is large or there are live
programs that are broadcast, then satellite is still the most effective means of
distribution.  Many private and business networks are also interested
in store-forward technology to reduce their satellite bandwidth usage and to
localize their messaging on a site-by-site basis.  Digital signage is
one of the largest growth areas within the business and private networks
market.  Digital signage networks are those that display content in
the front-office to educate consumers, advertise products and brand the
environment.  Digital signage networks are also often used to educate
employees.




Broadcast Television and
Program Originators




Broadcast television consists of (1)
broadcast networks (companies that distribute broadcast television channels
nationally to their affiliates typically via satellite); and (2) broadcast
stations (local stations which are typically affiliates of national broadcasters
that distribute typically free-to-air television to local
viewers).  Program originators consist of programmers that provide
television programming to cable, DTH satellite (direct-to-home) and telecom
companies for distribution to consumers.  Broadcast television and
programmer customers include HDNet and ION Media.





Broadcast networks have launched high
definition channels of all their primary broadcast channels and broadcast
stations have launched high definition channels in most markets throughout the
United States.  Broadcast networks continue to see their viewership
eroded by program originators.





Program originators continue to
distribute their programming over satellite to cable, DTH satellite, and telecom
companies.  In addition, many offer programming through other means
such as the internet and mobile phones.  Program originators continue
to launch new channels and original programming to compete for advertising
dollars and are offering increasing numbers of HD channels, as well as
distributing video-on-demand content.  They are concerned about the
effect that personal video recorders could potentially have on their advertising
revenue as well as the security of their high value content being stored in
consumers’ homes in a digital and potentially easy to copy format.




Broadcast
Radio




Broadcast radio consists of companies
that broadcast, typically free-to-air, radio signals to local
listeners.  Radio network customers include BBC World Service, EMF
Broadcasting, Dial Global, Christian Radio Consortium, Salem Radio Network and
American Family Radio.


3





Broadcast radio operators are
interested in regionalizing their broadcasts to give a local feel to the
programming. They also want to shift their programming for time-zones so that
“drive times” are able to be addressed with particular morning and afternoon
shows and advertisements, which can demand higher advertising
dollars.  In addition, they continue to come under pressure from
advertisers to ensure verification and accuracy of advertisements.




Headends




Headends consist of cable headends,
telco headends and DTH satellite headends.  Cable headends consist of
cable distribution companies, such as cable multiple system operators (MSOs) and
other headends.  Telecom is comprised of telephony companies now
offering television services to consumers.  They are launching video
service offerings to compete with cable and DTH satellite companies, due to a
decline in telephone subscribers and the ability to reduce subscriber
churn.





With the drop in costs and the analog
cut-off complete, more HD televisions are being purchased by
consumers.  This is dramatically increasing the amount of HD programs
being offered on cable, satellite and telecom networks.





Cable, DTH satellite and telecom
companies are all competing to provide consumers with television, telephone,
high speed internet services and, in some cases, cell phone
service.  To gain and maintain subscribers, they continue to roll out
high definition, video-on-demand services and personal video recording
devices.





Satellite teleports are expanding their
distribution systems to include terrestrial delivery as well as
satellite.




PRODUCTS




Our products include: iPump® Media
Servers, Unity®
Satellite Receivers, Compel® Network
Control and Content Management Systems,  Nielsen Media Research
Products,  SMD Set Top Boxes,  Digital Television (DTV) Digital
Stream Processors, third-party uplink products and customized
products.  See Note 13 to the consolidated financial statements for
information on the concentration of products representing 10% or more of
revenues in the past three fiscal years.




iPump®Media
Servers




The iPump® product
line combines the features of our integrated receiver decoders (IRD) with
advanced media server functionality and IP router capabilities.  The
iPump® receives
and stores television, radio and other digital files from broadcast, cable and
business network operations utilizing file-based broadcasting technology
compared to traditional real-time linear broadcasts.  File-based
broadcasting technology allows network operators to store content at receive
locations with an iPump® and then
play back the content locally either based on schedules or on-demand user
selection.  Network operators with repetitive content in their
programming line-up can reduce their satellite space segment costs by sending
programming, advertising and playback schedules via stored files into the
iPump® for
later playback according to the schedules.  The network operator can
then utilize limited satellite time to refresh the programming, advertising and
play-out schedules without the necessity to maintain a constant signal on the
satellite.





A feature of the iPump® and
Compel® system
is IP network delivery of files and commands to the iPump®.  With
this ability, network operators can launch iPump® networks
over the internet or private IP networks.  Additionally, they can
control their network from one integrated Compel® control
system while feeding select sites via IP that they cannot reach with their
satellite either due to location outside of the satellite footprint or inability
to place a satellite dish.





There are four models of the iPump® that
utilize file-based broadcasting technology.  The iPump® 6400
Professional Media Server is designed for broadcast television and private
network customers.  The iPump® 6420
Audio Media Server is designed specifically to meet the needs of
radio broadcasters.  The iPump® 562 and
iPump® 525
Enterprise Media Servers are designed specifically for private network and
enterprise applications, such as digital signage.  The iPump® 562 and
iPump® 525
Media Servers support MPEG-4/h.264 video decoding for high definition and
standard definition video. In addition the iPump® 562
supports Digital Video Broadcast (DVB)-S2 satellite demodulation.  The
iPump®525 is designed specifically to support terrestrial content distribution
and control.


4





We are targeting all of our core
markets for the iPump® product
line.  Within these markets, applications for the iPump® products
include: digital signage, corporate communications, training/education,
time-zone shifting, regional advertising insertion, and news
distribution.




Unity
Receivers




The Unity® 552 is
targeted to meet the needs of private and business television
networks.  The Unity® 552
supports MPEG-2 and MPEG-4/h.264 video with high definition support and DVB-S
and DVB-S2 demodulation.  By upgrading to MPEG-4/h.264 video and
DVB-S2 modulation, network operators can reduce their bandwidth utilization by
approximately half.  This allows them to launch additional services,
reduce their expenses or convert to high definition video. The Unity® 551
utilizes MPEG-2 for video distribution and is also targeted for private and
business television networks.





The Unity® 4600
receiver is a digital satellite receiver used primarily by program originators
to distribute programming to cable and telecom headends.  It offers
analog and digital outputs to support analog and digital
headends.  DVB-S2 satellite demodulation support is available on the
product.  Cable headends utilize the Unity® 4600 to
support digital high definition television distribution.





The Unity® 4650
receiver is a digital receiver used primarily by broadcast television
networks.  The Unity® 4650
receiver is a video and audio decoder that features MPEG-2 4:2:0 and 4:2:2 video
for broadcast television network distribution.





The Unity®202
audio receiver is designed for business music providers.  It allows
users to select audio formats and offers audio storage for advertising insertion
and disaster recovery.  It is our second generation file-based
broadcasting business music receiver.




Compel®Network Control and Content
Management System and CompelConnect.com®




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





Compel® option
modules include Conditional Access, MediaPlan® Content
Management (CM) and MediaPlanÒ
i/o Ingest. Conditional Access utilizes a secure microprocessor in Unity® and
iPump® receiver
to deliver fast, secure conditional access to a network without the high cost of
smart card systems.   Unity®
satellite receivers and iPump® media
servers are controlled by the Compel® Network
Control System, so the markets for Compel® are the
same as for iPump® and
Unity®
receivers.





The next
generation of Compel® is the
Compel® 2
network control system, which is currently under
development.  Compel® 2
retains the features of the Compel® network
control system while adding new features designed to enhance the user interface
and simplify operations for dynamic media distribution. The control system has
been streamlined by unifying many different screens and utilities within a
single, user friendly, web-based graphical user interface. Using a web browser
access, operators can control live and file-based media distribution networks
from any web-enabled remote location.  Built upon a scalable open
architecture, Compel® 2
also makes it easier for network administrators to limit access of employees or
affiliates to only those features and functions their jobs require. New set-up
features allow administrators to create classes of users that designate each
user’s level of access.





CompelControl.comTM
provides the operations available in Compel® 2 as
a software as a service (SaaS) offering.  Customers can purchase
rights to use Compel®2
via the Internet on a monthly basis.  We are targeting smaller
networks where the economics of the network could not support a Compel®purchase
for the service.





MediaPlanÒ
CM and MediaPlanÒ
i/o products are control and management system modules to our CompelÒ
Control System.  The MediaPlan® products
are crucial for customers when controlling iPump® Media
Server networks and are a competitive advantage in sales of iPump® Media
Servers.




5


MediaPlan® CM is a
powerful content management system used for managing media and other files and
actively tracking their delivery throughout the iPump®
network.  In a file-based broadcasting network, media is
simultaneously stored in multiple iPumps® in the
field, rather than all in one repository at a central location; therefore,
management of the dispersed media assets becomes a crucial part of the network
operation.  Operators need easy ways to view the content on individual
iPumps® and
automated mechanisms for updating/deleting media as it
changes.  MediaPlan® CM is
designed to address those and many other specific needs of managing media files
in a file-based broadcasting network.  Operators can create libraries
of assets, generate descriptive metadata information, view content at each
iPump®, send
requested content directly to targeted users and track file usage.





MediaPlan® i/o is
the media creation product for the iPump®
network.  In traditional linear networks, network operators are
required to compress the video, distribute it to remote locations and decompress
it for broadcast, all within one or two seconds.  This requires the
use of real-time encoders to compress the video and audio as it is sent to the
receivers at the remote locations.  In file-based broadcasting
networks, the paradigm changes and the process of video and audio compression,
media distribution and decompression of the media for broadcast can be done at
different times.  Network operators can prepare the media files
containing the compressed video and audio ahead of
airtime.  Additionally, they can distribute the media files any time
before airing, so they can optimize the use of their bandwidth.  When
it is time for the program to be broadcast, it merely needs to be played from
the local hard drive on the iPump®, not
transported through the network.  As the media creation tool,
MediaPlan® i/o
handles the first part of the process, the creation of media files containing
compressed video and audio which will be sent to iPumps®.  The
functions of MediaPlan are being integrated into Compel® 2 as
options.





CompelConnect.com® is the
newest offering for Compel® 2
control.  It transitions Compel® to a
SaaS (software as a service) model, so users of CompelConnect.com® can
access Compel® via the
Internet and use it as needed.  Customers purchase bandwidth and
rights to use Compel® on a
monthly service basis, rather than purchasing Compel® 2 as an
up-front capital expense.  This is targeted for users of Compel® 2 that
have either a small number of sites or limited bandwidth
requirements.




Nielsen Media Research
Products




We offer two products to encode Nielsen
Media Research identification tags into media for Nielsen program
ratings:  the NAVE IIc® and
SpoTTrac®
Encoders.





The NAVE IIc®
watermarks program audio with tagging information that identifies the television
program and the television station that originated the program.  The
watermarks are used by Nielsen devices to automate the process of cataloging
viewers’ television viewing habits which ultimately translate into Nielsen
ratings.  The NAVE IIc® makes
advances over prior units in that it inserts the watermarks for audio in the
digital domain and can simultaneously insert watermarking on an entire transport
stream with up to four programs.  Alternatively, stations have to
down-convert to analog audio to insert Nielsen data.





The
SpoTTrac® Encoder
is a turnkey workstation that encodes both the audio and video of television
commercials, Public Service Announcements and other spots with Nielsen Media
Research content identification information as they are being produced and
distributed, so the content has the Nielsen codes all the way from the program
origination point.  The tracked data is collected and integrated into
Nielsen Tracking Service’s reporting and performance management
tools.





SMD Set Top
Box





Telecom operators use the SMD 515
Set Top Box (SMD) as the device in consumers’ homes to receive IPTV (internet
protocol television) services.  It is currently integrated with
Conklin-Intracom’s middleware and conditional access solution for use by
multiple telcom operators in North America to provide premium IPTV services
including high definition programming, video on demand and integrated personal
video recording.





DTV Digital Stream
Processors





The DTV Digital Stream Processor
product line is designed for cable and telecom headends.   It
allows them to integrate local off-air HD broadcast television channels and
digital programs and easily insert them into their networks.  Our
products provide for multiple signals to be inserted with one
unit.  Models include DTV 720, DTV 742 and DTV 744.


6




Uplink
Equipment




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




Customized
Products




We offer our customers the option to
create custom products for their needs when they cannot find off-the-shelf
products to satisfy their requirements.  They pay non-recurring
engineering expenses through product pricing and/or up-front milestone
payments.  Typically the products are based on our standard products
and require modifications to fit particular customer needs.  This is
an area of competitive advantage for us.





MARKET
OPPORTUNITY





Growth opportunities are most
significant in the technologies in which we have been making significant R&D
investments, including file-based broadcasting technology, digital signage, IP
terrestrial distribution and MPEG-4/h.264 technology and DVB-S2.  See
“Research and Development” below.





We have completed shipments of
file-based broadcasting networks, including iPump®,
Compel® and
MediaPlan®, in
multiple applications, including digital signage, virtual channel generation and
broadcast radio.  Some examples of iPump applications are described
below.





A private network customer for digital
signage and distance training is using the iPump® for both
signage and training applications simultaneously.  The customer is
using the iPump’s optional feature to generate two networks from a single
unit.  A third output is streamed from the iPump over Ethernet to SMD
Set-Tops.  Within a retail environment, the main output and the SMD
are being used for advertising at the point of sale and in the electronics
department by outputting high quality video advertisements to large video
monitors.  Within eight months of deployment, the customer generated a
positive return on equipment expenses through advertising
revenue.  With this asset, the customer is also generating a back-room
training center for its employees at each site, basically for free, since the
advertisements are funding the network.  The customer can create
customized training schedules at each location depending on the employees’
availability, or the employees can watch the materials on demand.





The virtual channel application of the
iPump® allows a
current private network customer to reduce its budget for satellite bandwidth by
greater than 90% of what it had been spending prior to upgrading to iPump®.  Satellite
bandwidth utilization was one of the customer’s largest operating expenses, so
this reduction represents a sizable savings, allowing the customer to launch an
additional channel.  This network used to run continuously, utilizing
satellite bandwidth the entire time; now the customer uses bandwidth only twice
a month to update the iPumps® with new
content, advertisements and playout schedules.  This example
demonstrates the significant savings that potential customers may achieve with
the iPump®.





iPump®
broadcast radio customers are using file-based broadcasting technology to update
its operations and enable localization of broadcasts.  It allows them
to send repetitive material to their affiliates a single time and provides an
easy interface for affiliates to access the audio files.  With the
iPump®, radio
broadcasters can create a localized listening experience for each affiliate
location to drive increased advertising dollars and listener
loyalty.  One customer regularly generates over 150,000 playlists per
week through their iPump® network
to localize all of its radio channels throughout the country.





The digital signage market is still
very fragmented and as the industry consolidates, there is increased opportunity
for our products.  We have fielded multiple networks with over two
thousand sites of digital signage into the banking sector.  Other
sectors with fielded iPump® networks
include retail and medical.





Integrating IP terrestrial delivery
into our products increases the market for them, since it enables customers to
use them in tandem with satellite delivery networks, or completely autonomously
with solely terrestrial delivery.  Terrestrial delivery is
particularly cost effective when networks have smaller numbers of receive
locations.  Integrating this function into our solutions allows us to
target smaller networks for our solutions that had not been relevant with
satellite only solutions.




7


Another area of growth for us relates
to the development of MPEG-4/h.264 video decoding and DVB-S2 satellite
demodulation products (see “Research and Development” below for additional
information).  The Unity® 552,
iPump® 562 and
iPump® 525
products offers MPEG-4/h.264 and/or DVB-S2 technology.  The
MPEG-4/h.264 standard is the latest evolutionary step in video compression and
DVB-S2 is the newest technology in satellite modulation.  The two
technologies combined reduce the bandwidth requirements of satellite media
distribution approximately in half.  This reduction in bandwidth
requirements is significant, as bandwidth utilization is one of the largest
operating costs for our customers.  This new technology can drive
growth in two ways.  First, existing satellite operators can replace
their existing equipment with new MPEG-4/h.264 and DVB-S2 capable equipment
since they can justify the capital expense with the operational benefits of the
transition.  Additionally, the lower operating expenses enable new
business models to develop that could not be supported by the older technology’s
cost structure.





SALES
AND MARKETING




Domestically, we sell our products
principally through our own direct sales force, which is organized
geographically and by market segment. We have sales representatives in Georgia,
New York and Eastern Canada.  We use a major domestic value added
reseller for additional sales coverage in the cable market.  We have
relationships with a few key integrators as an additional sales
channel.  Internationally, we sell primarily through independent
distributors and integrators, mostly in North America, South America and
Europe.  The majority of our sales have payment terms of net 30
days.  Due to the technical nature of our business, system integration
engineering supports sales.





Our marketing organization develops
strategies for product lines and provides direction to product development on
product feature requirements.  Marketing is also responsible for
setting price levels and general support of the sales force, particularly with
major proposal responses, presentations and demonstrations.  We focus
on establishing WCI’s brand further within the industry, including participation
on technical committees, publication of articles in industry journals, speaking
opportunities at industry events and exhibitions at trade shows.





Manufacturing
and Suppliers; Sources and Availability of Raw Materials




During fiscal years 2010 and 2009, we
used offshore manufacturers for a significant amount of our finished goods or
component inventories.Anoffshore manufacturer, with facilitieslocated in Taiwan and the Peoples
Republic of China,accounted for
approximately 79%and
68%of inventory purchases
in fiscal 2010and fiscal 2009,
respectively.Raw materials consist of passive
electronic components, electronic circuit boards and fabricated sheet
metal.  Approximately 20% of our raw materials are purchased directly
from manufacturers and the other 80% are purchased from
distributors.  Passive and active components include parts such as
resistors, integrated circuits and diodes.  We use approximately ten
distributors and two contract manufacturers to supply our electronic
components.  We often use a single contract manufacturer or
subcontractor to supply a total subassembly or turnkey solution for higher
volume products.  Direct suppliers provide sheet metal, electronic
circuit boards and other materials built to specifications.  We
maintain relationships with approximately 20 direct suppliers.  Most
of our materials are available from a number of different suppliers; however,
certain components used in existing andfuture products are currently
available from a single or a limited number of sources.  Although we
believe that all single-source components currently are available in adequate
quantities, there can be no assurance that shortages or unanticipated delivery
interruptions will not develop in the future.  Any disruption or
termination of supply of certain single-source components or agreements with
contract manufacturers could have an adverse effect on our business and results
of operations.  Our manufacturing operations consist primarily of
final assembly and testing of our products, utilizing technically trained
personnel, electronic test equipment and proprietary test
programs.




Intellectual
Property





Currently,
we hold five U.S patents and have two patent applications
pending.  During the fourth quarter of fiscal 2008, we completed
the sale of seven patents and patent applications to EPAX Consulting Limited
Liability Company relating to product distinction, system architecture and IP
networking for net proceeds of approximately $1,075,000 and recorded a gain
of $894,000.  We retain a worldwide, non-exclusive, royalty-free
license under the patents for use in both existing and future
products.  A patent covering advanced receiver grouping techniques in
Compel® expired
on November 14, 2008.  In addition to the advanced grouping
techniques, we believe Compel®, along
with our MediaPlanÒ
CM and MediaPlanÒ
i/o modules, offers other significant features and functionalities for complex
network control applications that provide us with an advantage over competitive
control systems.  Compel®, which
has been operational since 1989, will continue to be upgraded and
enhanced.  The expiration of the Compel®patent
has, to date, not had a material adverse effect on our business and results of
operations.  However, no assurances may be given that a material
adverse effect will not occur in the future (see Item 1A. “Risk Factors” section
below).


8




We hold
nine active trademarks, such as Compel®, iPump®, Wegener® and Unity® and have
two pending trademark applications.





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





Although
we believe that the patents and trademarks we own are of value, we believe that
success in our industry will be dependent upon new product introductions,
frequent product enhancements, and customer support and
service.  However, we intend to protect our rights when, in our view,
these rights are infringed upon. Additionally, we license certain analog audio
processing technology to several manufacturing companies which generated royalty
revenues of approximately $66,000 in fiscal 2008. No royalty revenues were
recorded in fiscal 2010 and 2009 due to licensees no longer producing products
using the analog audio processing technology.  We do not expect to
receive future royalty revenues from our licensees.




As of September 3, 2010, we have
entered into approximately six license agreements for utilization of various
technologies. These agreements currently require royalty payments, or may
require future royalties for products under development, none of which are
expected to have a material adverse effect on our financial condition or results
of operations.




Seasonal
Variations in Business




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




Working
Capital Practices




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




Dependence
upon a Limited Number of Customers




We sell to a variety of domestic and
international customers on an open-unsecured account basis.  These
customers principally operate in the cable television, broadcast, business
music, private network and data communications industries.  Sales to
Muzak and The Church of Jesus Christ of Latter-Day Saints accounted for
approximately 22.8% and 10.7% of revenues in fiscal 2010,
respectively.  Sales to Jones Radio Networks, Muzak and Mega Hertz
accounted for approximately 21.9%, 18.1% and 10.7% of revenues in fiscal 2009,
respectively.  Sales to Big Ten Network, Conklin-Intracom and Mega
Hertz accounted for approximately 14.4%, 13.3% and 12.1% of revenues in fiscal
2008, respectively.  At September 3, 2010, four customers accounted
for approximately 24.1%, 18.1%, 14.1% and 10.7%, respectively, of our accounts
receivable. At August 28, 2009, three customers accounted for more than
50.1% of our accounts receivable.  Sales to a relatively small number
of major customers have typically comprised a majority of our
revenues.  This trend is expected to continue in fiscal 2011 and
beyond. The loss of one or more of these customers would likely have, at least
in the near term, a material adverse effect on our results of
operations.




9




Backlog
of Orders




Our backlog is comprised of
undelivered, firm customer orders, which are scheduled to ship within 18
months.  Our eighteen month backlog was approximately $5,972,000 at
September 3, 2010, $4,316,000 at August 28, 2009, and $8,491,000 at August 29,
2008. Approximately $3,542,000 of the September 3, 2010, backlog is
expected to ship during fiscal 2011. At September 3, 2010, two customers
accounted for 87% of the eighteen month backlog and 88% of the backlog expected
to ship during fiscal 2011.  Reference is hereby made to the
information contained in MD&A, which is incorporated herein by reference in
response to this item.





Competitive
Conditions




We compete both with companies that
have substantially greater resources and with small specialized
companies.  Competitive forces generally change on a year-by-year
basis for the markets we serve due to the length of time required to develop new
products.  Through relationships with component and integrated
solution providers, we believe we are positioned to provide complete end-to-end
digital video and audio systems to our customers.





Broadcast Television and
Program Originators




Competition for our products in the
broadcast television and program originators market is from large and
well-established companies such as Tandberg, Motorola and Cisco.  We
believe our Unity® products
have a competitive advantage with our advanced Compel® control,
so we focus on opportunities where that advantage is of value to the
customer.




Headends




Competition for our DTV products is
mostly from smaller companies that do not have as favorable a reputation in the
cable television market.  Significant orders for this product line
will depend on the overall growth of broadcast and telecom HDTV
offerings.





Competition
for the SMD Set Top box is from companies producing cable set-top boxes as well
as from companies specifically addressing the IPTV market.





Broadcast
Radio





Competition is currently limited to a
few companies for our iPump® Media
Server in the broadcast radio market.  Our solution includes Compel®
Network Control and our full-featured iPump®6420
Media Server.




Business and Private
Networks




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





Research
and Development




Our research and development activities
are designed to strengthen and enhance our existing products and systems and to
develop new products and systems.  Our development strategy is to
identify features, products and systems which are, or are expected to be, needed
by a number of customers.  A major portion of the fiscal 2010 and 2009
research and development expenses were spent on product development of our
iPump®6420, iPump® 562,
iPump® 525,
Compel®,and
Unity® 552
products.  WCI’s research and development expenses totaled $1,148,000
in fiscal 2010 and $1,962,000 in fiscal 2009.  Additional information
contained in the “Products” and “Intellectual Property” sections above and in
MD&A is incorporated herein by reference in response to this
item.





Technological advances occur frequently
in our industry and our product offerings must be upgraded with the advances to
remain current with industry trends and attract potential
customers.  During fiscal 2010, we invested in new technologies while
they are still very innovative and of high value to customers.  During
fiscal 2010, we invested in file-based broadcasting, digital signage, and
network management.  We anticipate that we will continue to invest in
these technologies in the coming years.


10




With our file-based broadcasting
solutions, network operators can intersperse live broadcasts with files that are
prepositioned on the receiver’s hard drive before they are played to
air.  This allows operators to manage their bandwidth more closely and
to regionalize their broadcasts to make them more relevant for each
market.  Our iPump®
products, in combination with Compel® and
MediaPlan® control,
provide advanced file-based broadcasting solutions for applications such as
digital signage and broadcast radio.





The digital signage market requires
products to integrate text and graphics onto the screen with video to aid in
advertising, information distribution and branding.  Our iPump® and
Compel® products
had major additions to the digital signage offerings during fiscal 2010 to
better serve the market.





Network control and management have
long been a differentiator for our Unity®
receivers and iPump® media
servers.  Through fiscal 2010, we continued to invest in network
control for our products, which allows customers to create dynamic environments
with their receivers and to gain additional advertising revenue by regionalizing
broadcasts and advertisements.  When network control is included in a
file-based broadcasting network, it becomes a very complex operation to manage
the media content and data files on media servers throughout the
network.  It is imperative to customers that it is managed properly,
as the content often has limited viewing rights, so it must be deleted when
rights have expired or replaced by newer versions over time.  Network
control and management products, such as Compel® and
MediaPlan®, manage
such operations.





During
fiscal 2010, we launched CompelConnect.com service based on our new Compel 2
product, which was under development during fiscal 2010.





Employees





As of September 3, 2010, we had 49full-time employees
employed by WCI and no employees employed by Wegener
Corporation.    No employees are parties to a collective
bargaining agreement and we believe that employee relations are
good.





Available
Information




Our Web site is
http://www.wegener.com.  Information contained on our Web site should
not be considered incorporated by reference in this Form 10-K.




11




EXECUTIVE
OFFICERS OF THE REGISTRANT




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




Name
      and Business Experience
                
                Age
                
                Office
      HeldC.
      Troy Woodbury, Jr.
                  President
      and Chief Executive Officer of the Company and WCI since October 2009.
      Treasurer and Chief Financial Officer of the Company from June 1988 to
      October 2009 and Director since 1989.  Treasurer and Chief
      Financial Officer of WCI from 1992 to October 2009.  Senior Vice
      President of Finance of WCI from March 2002 to October
      2009.  Executive Vice President of WCI from July 1995 to March
      2002.  Chief Operating Officer of WCI from September 1992 to
      June 1998.  Group Controller for Scientific-Atlanta, Inc. from
      March 1975 to June 1988.
                
                63
                
                President
      and
                  Chief
      Executive Officer
                  of
      the Company and WCIJames
      Traicoff
                  Treasurer
      and Chief Financial Officer of the Company and WCI since October
      2009.  Controller of the Company and WCI from July 1988 to
      October 2009.
                
                60
                
                Treasurer
      and
                  Chief
      Financial Officer
                  of
      the Company and WCI




On
October 13, 2009, Ned L. Mountain tendered his resignation as director of
Wegener Corporation and effective October 16, 2009, Mr. Mountain left
WCI.  Mr. Mountain was President and Chief Operating Officer of WCI
from January 2005 to October 2009 and Director of the Company from May 2003 to
October 2009. Effective October 9, 2009, the Board of Directors appointed
C. Troy Woodbury Jr. as President and Chief Executive Officer of Wegener
Corporation and WCI.  James Traicoff was appointed Treasurer and Chief
Financial Officer of Wegener Corporation and WCI.  Robert Placek
resigned as President and Chief Executive Officer of Wegener Corporation on
October 9, 2009, but remains as Chairman of the Board of Wegener
Corporation.




ITEM
1A. RISK FACTORS




Our
business, financial condition and operating results can be affected by a number
of factors, including those listed below, any one of which could cause our
actual results to vary materially from recent results or from our anticipated
future results. Any of these risks could also materially and adversely affect
our business, financial condition or the price of our common stock.




We
may not have sufficient capital to continue as a going concern.




Our
bookings and revenues during fiscal 2010 and to date in fiscal 2011 have been
insufficient to attain profitable operations and to provide adequate levels of
cash flow from operations.  We have experienced recurring net losses
from operations, which have caused an accumulated deficit of approximately
$20,265,000 at September 3, 2010.  We had a working capital deficit of
approximately $3,248,000 at September 3, 2010 compared to a working capital
deficit of approximately $1,139,000 at August 28, 2009.  Our ability
to continue as a going concern will depend upon our ability to increase our
bookings and revenues in the near term to attain profitable operations and to
generate sufficient cash flow from operations. Should increased revenues not
materialize, we are committed to further reducing operating costs to bring them
in line with reduced revenue levels.  Should we be unable to achieve
near term profitability and generate sufficient cash flow from operations and if
we are unable to sufficiently reduce operating costs, we would need to raise
additional capital or increase our borrowings. No assurances can be given that
operating costs can be sufficiently reduced, or if required, that additional
capital or borrowings would be available to allow us to continue as a going
concern.  The audit reports relating to the Consolidated Financial
Statements for the years ended September 3, 2010, August 28, 2009 and August 29,
2008 contain explanatory paragraphs regarding the Company’s ability to continue
as a going concern.


12





The
volatility and disruption of the capital and credit markets, and adverse changes
in the global economy, will likely have a negative impact on our ability to
access the capital and credit markets.





The
capital and credit markets have become increasingly tight as a result of adverse
economic conditions that have caused the failure and near failure of a number of
large financial services companies.  If the capital and credit markets
continue to experience crisis and the availability of funds remains low, it is
likely that our ability to access the capital and credit markets will be
limited, available on less favorable terms or not available at all during this
period in the event we need to raise additional capital or obtain additional
credit facilities in order to continue as a going concern.  In
addition, if current global economic conditions persist for an extended period
of time or worsen substantially, our business may suffer in a manner which could
cause us to fail to satisfy the representations, warranties and covenants to
which we are subject under our existing credit facility.





Conditions and changes in the
national and global economic environments may adversely affect our business and
financial results.





Economic
conditions have been weak and global financial markets have experienced a severe
downturn.  The current global economic slowdown and tight credit
markets has led many of our customers to delay or plan lower capital
expenditures, and we believe that these economic and credit conditions caused
certain of our customers to reduce or delay orders for our
products.  If adverse economic and credit conditions resulting from
slower economic activity and tight credit markets remain weak or deteriorate
further, we may continue to experience a material adverse impact on our
business, financial condition and results of operations.





Our
future operating results are difficult to predict and may fluctuate
materially.





Our
future operating results are difficult to predict and may be materially affected
by a number of factors, including: the timing of purchasing decisions by our
customers, the timing of new product announcements or introductions by us or our
competitors, competitive pricing pressures, adequate availability of components
and offshore manufacturing capacity.  Additional factors affecting our
operating results include our ability to hire, retain and motivate adequate
numbers of engineers and other qualified employees, changes in product mix, and
the effect of adverse changes in economic conditions in the United States and
international markets. In addition, our markets have historically been cyclical
and subject to significant economic downturns. Our business is subject to rapid
technological changes and there can be no assurance, depending on the mix of
future business, that products stocked in inventory will not be rendered
obsolete before we ship them. As a result of these and other factors, there can
be no assurance that we will not experience material fluctuations in future
operating results on a quarterly or annual basis.





Our
fluctuations in bookings and revenues affect our cash flow from
operations.  In addition, our credit facility imposes a maximum
borrowing limit, requires compliance with debt representation, warranty and
covenant provisions, and matures on April 7, 2011.





Our
cash collections from our accounts receivable are impacted by the timing and
levels of our bookings and revenues.  Any shortfalls in such
collections would require us to increase borrowings under our credit facility
which has a maximum available credit limit of $4,250,000.  Our loan
facility requires us to be in compliance with certain representations,
warranties and covenants. Among which, we were required by September 3, 2010 to
be in compliance with the solvency representation provision. This representation
requires us to be able to pay our debts as they become due, have sufficient
capital to carry on our business and own property at a fair saleable value
greater than the amount required to pay our debts.  The solvency
representation provision was subsequently extended to the last day of our second
quarter in fiscal 2011 (March 4, 2011).  A breach of this
or other restrictive provisions of the loan facility could result in a default
on our indebtedness.  If a default occurs, any outstanding
indebtedness, together with accrued interest, would be immediately due and
payable, and the lender could proceed against our assets that secure that
indebtedness. No assurances may be given that upon maturity (April 7, 2011) our
loan facility will be renewed.  In the event the loan facility is not
renewed, we would need to obtain additional credit facilities or raise
additional capital to continue as a going concern and to execute our business
plan  There is no assurance that such financing would be available or,
if available, that we would be able to complete financing on satisfactory
terms.





Our
inability to pay vendors within normal trade payment terms could adversely
impact our operations.





Our
bookings and revenues during fiscal 2010, as well as to date in fiscal 2011,
have been insufficient to attain profitable operations andto provide adequate
levels of cash flow from operations.  During fiscal 2010, as well as
to date in fiscal 2011, due to insufficient cash flow from operations and
borrowing limitations under our loan facility, we negotiated extended payment
terms with our offshore vendor and have been extending other vendors beyond
normal payment terms. Until such vendors are paid within normal payment terms,
no assurances can be given that required services and materials needed to
support operations will continue to be provided.  In addition, no
assurances can be given that vendors will not pursue legal means to collect past
due balances owed.  Any interruption of services or materials would
likely have an adverse impact on our operations.




13


The
Nasdaq Stock Market delisted our securities, which could limit investors’
ability to trade in our securities.




On
December 9, 2009, we received a letter (the “December 9th
Letter”) from Nasdaq indicating that the Company’s securities would be delisted
from Nasdaq at the opening of business on December 16, 2009 and a Form 25-NSE
would be filed with the Securities and Exchange Commission (the “Commission”)
which would remove the Company’s securities from listing and registration on
Nasdaq.  However, the December 9th Letter
also indicated that an official appeal by the Company to the Nasdaq Hearing
Panel (the “Panel”) would stay the suspension of the Company’s securities and
the filing of the Form 25-NSE pending the Panel’s determination.  On
December 11, 2009, the Company officially filed an appeal with the
Panel.





On
February 17, 2010, the Company received notification from Nasdaq (the
“Notification”), that as a result of the information presented by the Company at
the appeal hearing held on January 13, 2010, the Panel granted the Company’s
request to remain listed on Nasdaq subject to conditions stipulated in the
Notification.





The
Notification stipulated that on or before June 7, 2010 (the “Exception
Deadline”), the Company would be required to be compliant with Listing Rule
5550(b) which required shareholders’ equity of at least $2,500,000 or the
Company meeting the listing alternatives of (i) a market value of listed
securities of $35 million, or (ii) net income from continuing operations of
$500,000 in the most recently completed fiscal year or in two of the last three
most recently completed fiscal years. In addition, the Company was required to
be compliant with Marketplace Rule 4320 (current Listing Rule 5550(a) (2)),
which required the Company’s common stock to maintain a minimum bid price of
$1.00 per share. In order to regain such compliance, the Company’s common stock
must maintain a minimum closing bid price of $1.00 per share for a period of ten
consecutive trading days or beyond ten trading days at the determination of the
Panel.





The
Company was required to notify the Panel of any significant events occurring
prior to June 7, 2010, including, without limitation, any event that might call
into question the Company’s historical financial information or that might
impact the Company’s ability to maintain compliance with any Nasdaq listing
requirement or the Exception Deadline.  The Panel reserved the right
to reconsider their decision based on any event, condition or circumstance that
existed or developed that would, in the opinion of the Panel, make continued
listing of the Company’s common stock inadvisable or unwarranted.





On April
8, 2010, we notified the Panel that based on our current level of existing
backlog of orders scheduled to ship in our fiscal third quarter ending May 28,
2010, and our expected level of new shippable bookings for the third quarter, we
did not expect that we would be able to comply with the Nasdaq requirements by
the Exception Deadline.  On April 20, 2010, the Company received
notification from Nasdaq that the Panel had determined to delist the Company’s
common stock. Nasdaq suspended trading of our common stock shares effective at
the open of trading on April 22, 2010 and our common stock has not traded on
NASDAQ since that time. As a result, on April 22, 2010, our common stock began
trading over-the-counter under the symbol WGNR.PK. On June 9, 2010, NASDAQ filed
a Form 25 with the Securities and Exchange Commission to complete the delisting.
The delisting became effective ten days after the filing of Form
25.





The
delisting of our common stock by Nasdaq could adversely affect the trading
market for our common stock, as price quotations may not be as readily
obtainable, which would likely have a material adverse effect on the market
price of our common stock and the Company’s ability to raise
additional  capital.





We
have in the past experienced delays in product development and introduction, and
there can be no assurance that we will not experience further delays in
connection with our current product development or future development
activities.





Delays
in development, testing, manufacture and/or release of new products or features,
including digital receivers, Compel® network
control software, MediaPlan® content
management software, streaming media, and other products could adversely affect
our sales and results of operations.  In addition, there can be no
assurance that we will successfully identify new product opportunities, develop
and bring new products to market in a timely manner and achieve market
acceptance of our products, or that products and technologies developed by
others will not render our products or technologies obsolete or
noncompetitive.


14




Our
lengthy and variable qualification and sales cycles make it difficult to predict
the timing of a sale or whether a sale will be made.





As
is typical in our industry, our customers may expend significant efforts in
evaluating and qualifying our products. This evaluation and qualification
process frequently results in a lengthy sales cycle, typically ranging from
three to six months and sometimes longer. While our customers are evaluating our
products and before they place an order with us, we may incur substantial sales,
marketing, and research and development expenses, expend significant management
efforts, increase manufacturing capacity and order long-lead-time supplies prior
to receiving an order. Even after this evaluation process, it is possible that a
potential customer will not purchase our products.





Our
customer base is concentrated and the loss of one or more of our key customers
would harm our business.




Sales to a relatively small number of
major customers have typically comprised a majority of our revenues, and that
trend is expected to continue throughout fiscal 2011 and beyond. In fiscal 2010,
two customers accounted for approximately 22.9% and 10.8% of revenues,
respectively.  At September 3, 2010, two customers accounted for 87%
of the eighteen month backlog and 88% of the backlog expected to ship during
fiscal 2011.  In addition, recent disruptions in global economic and
market conditions could result in decreases in demand for our products as the
current tightening in credit in financial markets may adversely affect the
ability of our major customers to obtain financing for significant
purchases.  The loss of any significant customer or any reduction in
orders by any significant customer would adversely affect our business and
operating results and potentially our liquidity.




We
rely on third-party subcontractors, certain suppliers and offshore
manufacturers.




We use offshore manufacturers for a
significant amount of finished goods or component inventories.  One
offshore manufacturer accounted for approximately 79% and 68% of inventory
purchases in fiscal 2010 and 2009, respectively.  Certain raw
materials, video sub-components and licensed video processing technologies used
in existing and future products are currently available from a single source or
limited sources. Any disruption or termination of supply of certain
single-source components or technologies, or interruption of supply from
offshore manufacturers, would likely have a material adverse effect on our
business and results of operations, at least in the near term.




Our
intellectual property rights may be insufficient to protect our competitive
position.  In addition, our pending or future intellectual property
applications may not be issued.





We hold
five U.S patents and nine active trademarks, such as Compel®,
iPump®,
Wegener® and
Unity®. (see
also “Intellectual Property” section above).  Currently we have two
patent and two trademark applications pending. Although we attempt to protect
our intellectual property rights through patents, trademarks, copyrights,
licensing arrangements and other measures, we cannot assure you that any patent,
trademark, copyright or other intellectual property rights owned by us will not
be invalidated, circumvented or challenged, that such intellectual property
rights will provide competitive advantages to us, or that any of our pending or
future patent and trademark applications will be issued.  We also
cannot assure you that others will not develop technologies that are similar or
superior to our technology, duplicate our technology or design around the
patents that we own.





We
may not be able to license necessary third-party technology or it may be
expensive to do so.  In addition, claims that we infringe third-party
intellectual property rights could result in significant expenses and
restrictions on our ability to sell our products in particular
markets.





In order
to develop and market successfully certain of our planned products for digital
applications, we may be required to enter into technology development or
licensing agreements with third parties.  Although many companies are
often willing to enter into such technology development or licensing agreements,
we cannot assure you that such agreements will be negotiated on terms acceptable
to us, or at all.  The failure to enter into technologydevelopment or licensing
agreements, when necessary, could limit our ability to develop and market new
products and could cause our business to suffer.  Third parties have
in the past claimed, and may in the future claim, that wehaveinfringed their current or
future intellectual property rights.  There can be no assurance that
we will prevail in any intellectual property infringement litigation given the
complex technical issues and inherent uncertainties in
litigation.  Even if we prevail in litigation, such litigation could
result in substantial costs and diversion of resources and could negatively
affect our business, operating results, financial position and cash
flows.


15




Competition in our industry is
intense and can result in reduced sales and market share.





We
compete with companies which have substantially larger operations and greater
financial, engineering, marketing, production and other resources than we
have.  These competitors may develop and market their products faster,
devote greater marketing and sales resources, or offer more aggressive pricing,
than we can.  As a result, this could cause us to lose orders or
customers or force reductions in pricing, all of which would have a material
adverse effect on our financial position and results of operations.




Our business is subject to rapid
changes in technology and new product introductions.




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





Our
stock price is subject to volatility.





Our
common stock has experienced substantial price volatility and such volatility
may occur in the future, particularly as a result of quarter to quarter
variations in the actual or anticipated financial results of the Company or
other companies in the satellite communications industry or in the markets we
serve. These and other factors may adversely affect the market price of our
common stock.




ITEM
1B.  UNRESOLVED STAFF COMMENTS




Not applicable




ITEM
2. PROPERTIES




Our executive, sales, engineering and
administrative offices are located at 11350 Technology Circle, Johns Creek,
Georgia 30097-1502.  This 40,000 square foot facility, which is
located on a 4.7 acre site, was purchased by WCI in February
1987.  During August 1989, WCI purchased an additional 4.4 acres of
adjacent property which remains undeveloped.  WCI also leases a 9,500
square foot manufacturing facility in Alpharetta, Georgia under a three year
lease expiring in January 2013 with annual rents of approximately $62,000 in
fiscal 2011, $64,000 in fiscal 2012 and $27,000 in fiscal 2013.  WCI's
40,000 square foot facility, including the 4.7 acre site on which the building
is located, and 4.4 acres of adjacent land are pledged as collateral under our
line of credit facility.




ITEM
3. LEGAL PROCEEDINGS




On
June 1, 2006, a complaint was filed by Rembrandt Technologies, LP
(Rembrandt) against Charter Communications, Inc. (Charter), Cox Communications
Inc. (Cox), CSC Holdings, Inc. (CSC) and Cablevisions Systems Corp.
(Cablevision) in the United States District Court for the Eastern District of
Texas alleging patent infringement.  The complaint alleges that
products and services sold by Charter infringe certain Rembrandt patents related
to cable modem, voice-over internet, and video technology and
applications.  The case may be expensive to defend and there may be
substantial monetary exposure if Rembrandt is successful in its claim against
Charter and then elects to pursue other cable operators that use the allegedly
infringing products.  Wegener has not been named a party in the
suit.  However, subsequent to December 1, 2006, Charter has requested
us to defend and indemnify Charter to the extent that the Rembrandt allegations
are premised upon Charter’s use of products that we have sold to Charter.
 To date, we have not agreed to Charter’s
request.





On
June 1, 2006, a complaint substantially similar to the above described suit
was filed by Rembrandt against Time Warner Cable (TWC) in the United States
District Court for the Eastern District of Texas.  Wegener has not
been named a party in the suit, but TWC has requested us (as well as other
equipment vendors) to contribute a portion of the defense costs related to this
matter as a result of the products that we and others have sold to TWC.  To
date, we have not agreed to contribute to the payment of legal costs related to
this case.


16




In
addition, Cisco Systems, Inc. (Scientific Atlanta) has made indemnity demands
against us, related to the fact that a number of Cisco’s customers that are
defendants in the Rembrandt lawsuit have made indemnity demands against
Cisco.  Cisco’s demands are based upon allegations that Wegener sold
devices to these companies that are implicated by the patent infringement claims
in the Rembrandt lawsuit.  To date, we have not agreed to Cisco’s
demands.





These
actions have been consolidated into a multi-district action pending in the
United States District Court for the District of Delaware.  On October
23, 2009, the Delaware District Court issued an Order dismissing eight of the
substantive patent claims embodied in the consolidated action, as well as all
counterclaims. The parties also have agreed to summary judgment of
non-infringement on a remaining patent claim, but the grounds for such summary
judgment have not yet been finalized. The Court subsequently asked each of the
parties to the consolidated lawsuits to submit any motions for fees and costs
with respect to one another by November 16, 2009.  Parties have
submitted briefs on that issue, which has yet to be decided by the
Court.   At this point, we are presently unable to assess the impact,
if any, of this litigation on Wegener.





On
October 4, 2010, a Second Amended Complaint was filed by Multimedia Patent Trust
(“MPT”) against Fox News Networks, LLC (“Fox News”) and other parties in the
United States District Court for the Southern District of California for patent
infringement.  (The initial Complaint was filed on January 19,
2010).  The Second Amended Complaint asserts that Fox News has
infringed upon certain MPT patents relating to video compression, encoding and
decoding.  This litigation may be very expensive to defend and there
could be significant financial exposure if MPT is successful in its claims. On
November 3, 2010, however, Fox News wrote to Wegener, asking Wegener to fully
indemnify, hold harmless and defend Fox News in connection with the
litigation.  In its letter, Fox News states that it has identified
Wegener as a vendor that provided Fox News with products and/or services
relating to video compression.   Fox News states further that it
believes that MPT’s claims give rise to indemnity obligations and other
obligations for Wegener products obtained from Wegener by Fox
News.  The November 3, 2010 letter asks Wegener to acknowledge such
tender on or before November 24, 2010.  Wegener has not agreed to do
so, nor has Wegener acknowledged or agreed that the specific claims against Fox
by MPT give rise to such obligations on the part of Wegener. At this point, we
are unable to assess the impact of this litigation, if any, on
Wegener.




ITEM
4. REMOVED AND RESERVED




PART
II




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





On April 22, 2010, our Common Stock
began trading over-the-counter under the symbol WGNR.PK. Prior to
April 22, 2010 our Common Stock traded on The NASDAQ Stock Market.  As
of November 1, 2010, there were approximately 333holders of record of
Common Stock.  This number does not reflect beneficial ownership of
shares held in nominee or “street” name.


17




The
quarterly ranges of high and low sale prices for fiscal 2010 and 2009 were as
follows:




Fiscal 2010
                    
                    
                    Fiscal 2009High
                    
                    
                    Low
                    
                    
                    High
                    
                    
                    LowFirst
      Quarter
                    
                    $
                    .38
                    
                    
                    $
                    .20
                    
                    
                    $
                    1.10
                    
                    
                    $
                    .32Second
      Quarter
                    
                    
                    .29
                    
                    
                    
                    .08
                    
                    
                    
                    .54
                    
                    
                    
                    .10Third
      Quarter
                    
                    
                    .30
                    
                    
                    
                    .10
                    
                    
                    
                    .45
                    
                    
                    
                    .15Fourth
      Quarter
                    
                    
                    .15
                    
                    
                    
                    .07
                    
                    
                    
                    .38
                    
                    
                    
                    .10




Dividends




We have not paid any cash dividends on
our Common Stock.  For the foreseeable future, our Board of Directors
does not intend to pay cash dividends, but rather plans to retain any earnings
to support our operations.  Furthermore, we are prohibited from paying
dividends under our loan agreement, as more fully described in MD&A and in
Note 9 to the consolidated financial statements contained in this
report.




Recent
Sales of Unregistered Securities




There
were no unregistered sales of securities during the fiscal year ended
September 3, 2010.




Stock
Performance Graph




The
following graph compares the cumulative total stockholder return of our common
stock with the cumulative total return of the NASDAQ Composite Index and the
NASDAQ Telecommunications Index for the five fiscal years ended
September 3, 2010. The graph assumes that $100 was invested on
September 2, 2005 in our common stock and each index and that all dividends
were reinvested. We have not declared any cash dividends on our common stock.
Stockholder returns over the indicated period should not be considered
indicative of future stockholder returns.




18









9/2/05
                  
                  
                  9/1/06
                  
                  
                  8/31/07
                  
                  
                  8/29/08
                  
                  
                  8/28/09
                  
                  
                  9/3/10Wegener
      Corporation
                  
                  
                  100.00
                  
                  
                  
                  100.00
                  
                  
                  
                  82.54
                  
                  
                  
                  46.03
                  
                  
                  
                  18.25
                  
                  
                  
                  7.94NASDAQ
      Composite
                  
                  
                  100.00
                  
                  
                  
                  102.72
                  
                  
                  
                  124.11
                  
                  
                  
                  110.06
                  
                  
                  
                  94.81
                  
                  
                  
                  100.82NASDAQ
      Telecommunications
                  
                  
                  100.00
                  
                  
                  
                  101.86
                  
                  
                  
                  142.10
                  
                  
                  
                  122.80
                  
                  
                  
                  103.52
                  
                  
                  
                  104.15




(1)         
The stock performance graph shall not be deemed soliciting material or to be
filed with the Securities and Exchange Commission or subject to
Regulation 14A or 14C under the Securities Exchange Act of 1934 (the
“Exchange Act”) or to the liabilities of Section 18 of the Exchange Act,
nor shall it be incorporated by reference into any past or future filing under
the Securities Act of 1933 (the “Securities Act”) or the Exchange Act, except to
the extent we specifically request that it be treated as soliciting material or
specifically incorporate it by reference into a filing under the Securities Act
or the Exchange Act.




Equity
Compensation Plan Information





The
following table summarizes information as of September 3, 2010, regarding our
common stock reserved for issuance under our equity compensation
plans.


19





Plan Category
                    
                    Number of Securities
                      to be Issued Upon
                      Exercise of
                      Outstanding Options
                      (a)
                    
                    
                    Weighted-Average
                      Exercise Price
                      of Outstanding
                      Options
                      (b)
                    
                    
                    Number of Securities Remaining
                      Available for Future Issuance Under
                      the Plans (Excluding Securities
                      Reflected in Column (a))
                      (c)Equity
      Compensation Plans Approved by Security Holders
                    
                    
                    665,375
                    
                    
                    $
                    1.33
                    
                    
                    
                    1,250,000Equity
      Compensation PlansNot
      Approved by Security Holders
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Total
                    
                    
                    665,375
                    
                    
                    $
                    1.33
                    
                    
                    
                    1,250,000




ITEM
6. SELECTED FINANCIAL DATA




SELECTED
FINANCIAL DATA


(in thousands, except per share
amounts)





September 3,
                          2010
                        
                        
                        August 28,
                          2009
                        
                        
                        August 29,
                          2008
                        
                        
                        August 31,
                          2007
                        
                        
                        September 1,
                          2006Revenues,
      net
                        
                        $
                        8,921
                        
                        
                        $
                        12,655
                        
                        
                        $
                        21,494
                        
                        
                        $
                        21,546
                        
                        
                        $
                        20,388Operating
      (loss) income (a)
                        
                        
                        (1,841
                        )
                        
                        
                        (2,477
                        )
                        
                        
                        540
                        
                        
                        
                        (613
                        )
                        
                        
                        (2,811
                        )Net
      (loss) earnings (a)
                        
                        
                        (2,313
                        )
                        
                        
                        (2,606
                        )
                        
                        
                        383
                        
                        
                        
                        (753
                        )
                        
                        
                        (2,883
                        )Net
      (loss) earnings per shareBasic
                        
                        $
                        (.18
                        )
                        
                        $
                        (.21
                        )
                        
                        $
                        .03
                        
                        
                        $
                        (.06
                        )
                        
                        $
                        (.23
                        )Diluted
                        
                        $
                        (.18
                        )
                        
                        $
                        (.21
                        )
                        
                        $
                        .03
                        
                        
                        $
                        (.06
                        )
                        
                        $
                        (.23
                        )Cash
      dividends paid per share (b)
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Total
      assets
                        
                        $
                        8,362
                        
                        
                        $
                        9,542
                        
                        
                        $
                        13,213
                        
                        
                        $
                        12,812
                        
                        
                        $
                        11,128Long-term
      obligations inclusive of current maturities
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -




(a)
              The
      year ended August 29, 2008 includes a fourth quarter gain on sale of
      patents of $894,000.




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




20




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


Certain
statements contained in this filing are “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995, and the Company
intends that such forward-looking statements are subject to the safe harbors
created thereby.  Forward-looking statements may be identified by words
such as "believes," "expects," "projects," "plans," "anticipates," and similar
expressions, and include, for example, statements relating to expectations
regarding  future sales, income and cash flows.  Forward-looking
statements are based upon the Company’s current expectations and assumptions,
which are subject to a number of risks and uncertainties including, but not
limited to: the Company’s
ability to continue as a going concern;customer acceptance and
effectiveness of recently introduced products; development of additional
business for the Company’s digital video and audio transmission product lines;
effectiveness of the sales organization; the successful development and
introduction of new products in the future; delays in the conversion by private
and broadcast networks to next generation digital broadcast equipment;
acceptance by various networks of standards for digital broadcasting; the
Company’s liquidity position and capital resources; general market and industry
conditions which may not improve during fiscal year 2011  and beyond; and
success of the Company’s research and development efforts aimed at developing
new products.  Additional potential risks and uncertainties include,
but are not limited to, economic conditions, customer plans and commitments,
product demand, government regulation, rapid technological developments and
changes, intellectual property disputes, performance issues with key suppliers
and subcontractors, delays in product development and testing, availability of
raw materials, new and existing well-capitalized competitors, and other risks
and uncertainties detailed from time to time in the Company’s periodic
Securities and Exchange Commission filings, including the Company’s most recent
Annual Report on Form 10-K.  Such forward-looking statements are
subject to risks, uncertainties and other factors and are subject to change at
any time, which could cause actual results to differ materially from future
results expressed or implied by such forward-looking statements.




These
risks were exacerbated by the 2008 crisis in national and international
financial markets and the resulting global economic downturn which is continuing
into 2010, and we are unable to predict with certainty what long-term effects
these developments will continue to have on our Company.  During 2008
and into 2009, the capital and credit markets experienced unprecedented levels
of extended volatility and disruption.  We believe that these
unprecedented developments adversely affected our business, financial condition
and results of operations in fiscal years 2010 and 2009.




Forward-looking
statements speak only as of the date the statement was made. The Company
does not undertake any obligation to update any forward-looking
statements.




OVERVIEW





We design
and manufacture satellite communications equipment through Wegener
Communications, Inc. (WCI), a wholly-owned subsidiary. WCI is an international
provider of digital video and audio solutions for broadcast television, radio,
telco, private and cable networks. With over 30 years experience in optimizing
point-to-multipoint multimedia distribution over satellite, fiber, and IP
networks, WCI offers a comprehensive product line that handles the scheduling,
management and delivery of media rich content to multiple devices, including
video screens, computers and audio devices.  WCI focuses on long- and
short-term strategies for bandwidth savings, dynamic advertising, live events
and affiliate management.





WCI’s
product line includes: iPump® media servers for file-based and live broadcasts;
Compel® Network Control and Compel® Conditional Access for dynamic command,
monitoring and addressing of multi-site video, audio, and data networks; and the
Unity® satellite media receivers for live radio and video
broadcasts.  Applications served include:  digital signage,
linear and file-based TV distribution, linear and file-based radio distribution,
Nielsen rating information, broadcast news distribution, business music
distribution, corporate communications, video and audio simulcasts.




We
operate on a 52-53 week fiscal year.  The fiscal year ends on the
Friday nearest to August 31.  Fiscal year 2010 contained fifty-three
weekswhile fiscal
years 2009 and 2008 contained 52 weeks.  The additional week in fiscal
2010 did not have a material impact on our financial position as of September 3,
2010, or our results of operations and cash flows for the year then
ended.  All references herein to 2010, 2009 and 2008, refer to the
fiscal years ended September 3, 2010, August 28, 2009, and August 29, 2008,
respectively.





Our
fiscal 2010 revenues decreased $3,734,000, or 29.5%, to $8,921,000 from
$12,655,000 in fiscal 2009.  Our net loss for fiscal 2010 was
$(2,313,000) or $(0.18) per share compared to a net loss of $(2,606,000) or
$(0.21) per share for fiscal 2009.





The
accompanying Consolidated Financial Statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
possible inability of the Company to continue as a going
concern.  The audit reports
relating to the Consolidated Financial Statements for the years ended September
3, 2010, August 28, 2009 and August 29, 2008 contain explanatory paragraphs
regarding the Company’s ability to continue as a going concern.




21





Current
Financial Position and Liquidity





During
the first, second, third and fourth quarters of fiscal 2010 bookings were
approximately $1.8 million, $2.1 million, $3.0 million and $1.4 million,
respectively. These fiscal 2010 bookings and fiscal 2011 bookings to date, as
well as our fiscal 2009 bookings, were well below our expectations and internal
forecasts primarily as a result of customer delays in purchasing decisions,
deferral of project expenditures and general adverse economic and credit
conditions.





Our
bookings and revenues during fiscal 2010 and to date have been insufficient to
attain profitable operations and to provide adequate levels of cash flow from
operations. Our ability to continue as a going concern will depend upon our
ability to increase our bookings and revenues in the near term to
attain profitable operations and to generate sufficient cash flow from
operations. Should increased revenues not materialize, we are committed to
further reducing operating costs to bring them in line with reduced revenue
levels.  Should we be unable to achieve near term profitability and
generate sufficient cash flow from operations and if we are unable to
sufficiently reduce operating costs, we would need to raise additional capital
or increase our borrowings. No assurances can be given that operating costs can
be sufficiently reduced, or if required, that additional capital or borrowings
would be available to allow us to continue as a going concern. If we are unable
to continue as a going concern, we will likely be forced to seek protection
under the federal bankruptcy laws.  (See Note 1
to theConsolidated Financial Statements).





At
September 3, 2010, our primary source of liquidity was a $4,250,000 loan
facility, which matures on April 7, 2011.  During fiscal 2010, our
line of credit net borrowings increased $1,051,000 to the outstanding balance of
$3,850,000 at September 3, 2010 from $2,799,000 at August 28,
2009.  At November 1, 2010, the outstanding balance on the loan
facility amounted to $4,100,000 and our cash balances were approximately
$351,000.





Operating
activities provided $71,000 of cash and investing activities used $895,000 of
cash, which consisted of capitalized software additions of $848,000, equipment
additions of $39,000 and $8,000 for license agreements and legal fees related to
the filing of applications for various patents and trademarks.  (See
the Liquidity and Capital Resources section for further
discussion.)





Current
Developments





We
announced our new Digital Signage solution at the 2010 Digital Signage Expo in
February 2010 and at InfoComm 2010 in June 2010. Our Digital Signage solution
includes CompelConnect.comTM SaaS (software-as-a-service) network control and
iPump® media players. It is designed to seamlessly scale from a pilot to a
multi-site installation and provides signage creation tools to design and
control video, graphic and text sequences, along with scheduling tools to
maximize the use of local advertising, branding and emergency
notifications.  Our digital signage products are targeted for use by
advertising agencies, banks, corporate communications, private media networks,
healthcare, houses of worship, retail and systems integrators for support of
multiple clients, marketing zones and applications simultaneously.





At the
2010 National Association of Broadcasters (NAB) Convention in April 2010, we
exhibited a number of innovative media localization solutions to promote the
various ways file-based broadcasting tools can be used to enhance commercial and
private media networks with local audio, graphic and video content. For
broadcast television applications, we presented our next generation of solutions
to increase advertising and branding opportunities for content
providers.  Combining file-based workflows and standard broadcasting
techniques for live video, we introduced methods to insert and overlay
multimedia elements over live high definition (HD) or standard definition (SD)
video on a network-wide scale which will allow content providers to customize
national live feeds with static and moving text messages, transparent graphics
overlays and local insertions of video.  Our basic configuration is an
add-on to a standard satellite receiver network utilizing Compel® network
control and iPump® 6400
media servers.  For radio broadcasting, we exhibited our and
iPump® 6420
professional audio server which allows radio broadcasters new opportunities to
combine file-based content with live broadcasts including, (i)
ShowShiftingTM  which allows either affiliates or the network operator
to specify when and how often specific syndication programs play
and  (ii) MicroCastingTM - which provides remote affiliate stations
with highly customized content while retaining all of the normal network
features including: local ad insertion, local liners, downstream equipment
cueing, and Radio Broadcast Data System (RBDS) data.  Our Compel® network
control platform included refinements specifically designed for central-casting
radio networks including supporting thousands of grouping options and
combinations to assist dynamic content distribution to affiliates.  In
addition we exhibited our media localization network control tool which included
CompelConnect.comTM , a new software-as-a-service (SaaS) which provides
management tools for content distribution, scheduling, playout control and
continuous monitoring of iPump® media
receivers/players. Using partitioned web access, clients have access to a
full-featured remote Compel® network
control system via the Internet.


22




On
February 17, 2010, we received notification from The Nasdaq Stock Market
(“Nasdaq”) (the “Notification”), that as a result of the information presented
at an appeal hearing held on January 13, 2010, the Panel granted our request to
remain listed on Nasdaq subject to conditions stipulated in the
Notification.  The Notification stipulated that on or before June 7,
2010 (the “Exception Deadline”), we were required to have shareholders’ equity
of at least $2,500,000 and our common stock to maintain a minimum bid price of
$1.00 per share for a period of ten consecutive trading days.  On
April 8, 2010, we notified the Panel that based on our current level of existing
backlog of orders scheduled to ship in our fiscal third quarter ending May 28,
2010, and our expected level of new shippable bookings for the third quarter, we
did not expect that we would be able to comply with the Nasdaq requirements by
the Exception Deadline.  On April 20, 2010, the Company received
notification from Nasdaq that the Panel had determined to delist the Company’s
common stock shares. Nasdaq suspended trading of our common stock shares
effective at the open of trading on April 22, 2010 and our common stock has not
traded on NASDAQ since that time. As a result, on April 22, 2010, our common
stock began trading over-the-counter under the symbol WGNR.PK. On June 9, 2010,
NASDAQ filed a Form 25 with the Securities and Exchange Commission to complete
the delisting. The delisting became effective ten days after the filing of Form
25.





During
the second quarter of fiscal 2007, the Board of Directors formed a committee of
independent directors to explore strategic and financial alternatives to enhance
shareholder value.  We retained an outside financial advisor to assist
us in this evaluation process.  The strategic alternatives included:
(i) technology licensing agreements, (ii) product development and marketing
arrangements, joint ventures or strategic partnerships, (iii) strategic
acquisitions, mergers or other business combinations, or (iv) the merger or sale
of all or part of the Company. On July 16, 2009, we entered into a non-binding
letter of intent (the “LOI”) with Sencore, Inc. (“Sencore”), a portfolio company
of The Riverside Company, a private equity firm, regarding a possible
acquisition of Wegener Corporation by Sencore.  The exclusivity period
set forth in the LOI expired September 13, 2009. Wegener Corporation’s Board of
Directors unanimously voted to terminate the LOI and on September 17, 2009,
officially notified Sencore of the termination. Effective October 8, 2009, based
on its completion of a twelfth amendment to our revolving line of credit and
term loan facility, Wegener Corporation’s Board of Directors voted to conclude
the strategic alternatives review process and disband the committee. (See the
Liquidity and Capital Rescources section for further discussion.)




RESULTS
OF OPERATIONS




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





September 3,
                      2010
                    
                    
                    August 28, 2009
                    
                    
                    August 29,
                      2008Revenues,
      net
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %Cost
      of products sold
                    
                    
                    70.1
                    
                    
                    
                    69.5
                    
                    
                    
                    60.9Gross
      margin
                    
                    
                    29.9
                    
                    
                    
                    30.5
                    
                    
                    
                    39.1Selling,
      general, and administrative
                    
                    
                    37.7
                    
                    
                    
                    34.5
                    
                    
                    
                    25.8Research
      and development
                    
                    
                    12.9
                    
                    
                    
                    15.5
                    
                    
                    
                    14.9Gain
      on sale of patents
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (4.2
                    )Operating
      (loss) income
                    
                    
                    (20.6
                    )
                    
                    
                    (19.6
                    )
                    
                    
                    2.5Interest
      expense
                    
                    
                    (5.3
                    )
                    
                    
                    (1.0
                    )
                    
                    
                    (0.7
                    )Net
      (loss) earnings
                    
                    
                    (25.9
                    )%
                    
                    
                    (20.6
                    )%
                    
                    
                    1.8
                    %





During
the fourth quarter of fiscal 2008 and in fiscal 2009, we made reductions in
headcount to bring the number of employees at August 28, 2009, to 63 compared to
91 at August 29, 2008, and reduced engineering consulting and other operating
and overhead expenses.  Beginning in January 2009, we reduced paid
working hours Company-wide by approximately 10%.  During the first and
second quarters of fiscal 2010, we made further reductions in headcount to bring
the current number of employees to 49.




Net loss
for the year ended September 3, 2010, was $(2,313,000) or $(0.18) per share,
compared to a net loss of $(2,606,000) or $(0.21) per share for the year ended
August 28, 2009, and net earnings of $383,000 or $0.03 per share for the year
ended August 29, 2008.  Fiscal 2008 net earnings included a gain on
sale of patents of $894,000.




23




Revenues for fiscal 2010 decreased
$3,734,000, or 29.5%, to $8,921,000 from $12,655,000 in fiscal
2009.  Direct Broadcast Satellite (DBS) revenues (including service
revenues) in fiscal 2010 decreased $3,727,000, or 29.5%, to $8,904,000 from
$12,631,000 in fiscal 2009.  The decrease in revenues in fiscal 2010
was due to a decrease in the volume of shippable bookings.  Our
revenue levels are not subject to significant annual fluctuations in unit
pricing.  Product volumes are driven by product mix of
orders.  In addition, revenues and order backlog are subject to the
timing of significant orders from customers, and as a result revenue levels may
fluctuate on a quarterly and yearly basis.  Fiscal 2010 revenues
included continued shipments of (i) Encompass LE2 to business music provider,
Muzak LLC., (ii) Unity®4600, Unity®550 and Unity®4650 receivers to Roberts
Communications Network for network upgrades, (iii) shipments of our
Unity®550 for network upgrades to a
faith-based private network and (iv) shipments of Compel®network control software,
iPump®6420 media servers and
Unity®4600 receivers  to BBC World
Services for network upgrades.  In addition, revenues included
shipments of our network control system and Unity®202 enterprise audio receivers to a
new international customer for upgrades to its existing background music
network, shipments of iPump®6420 media servers and
Compel®network control software for
Educational Media Foundation’s network expansion and continued shipments of
ourSpoTTrac®and NAVE IIc®encoders used to encode Nielsen Media
Research identification tags into media for Nielsen program
ratings.





Revenues
for fiscal 2009 decreased $8,839,000, or 41.1%, to $12,655,000 from $21,494,000
in fiscal 2008.  Direct Broadcast Satellite (DBS) revenues (including
service revenues) in fiscal 2009 decreased $8,834,000, or 41.2%, to $12,631,000
from $21,465,000 in fiscal 2008.  The decrease in revenues in fiscal
2009 was due to a decrease in the volume of shippable
bookings.  Fiscal 2009 included revenues from shipments of (i) our
iPump®6420 media servers and Compel® network
control software to Dial Global, Comtelsat De Mexico and to Educational Media
Foundation for their network expansion, (ii) continued shipments of our
Encompass LE2, our next generation business music audio receiver, to business
music provider Muzak LLC, and (iii) our SpoTTrac® and NAVE
IIc®
encoders used to encode Nielsen Media Research identification tags into media
for Nielsen program ratings.  In addition, shipments in fiscal 2009
continued to MegaHertz for distribution of our products to the U.S. cable
market.





WCI's
backlog of orders scheduled to ship within 18 months was $5,972,000 at September
3, 2010, $4,316,000 at August 28, 2009, and $8,491,000 at August 29,
2008.  The total multi-year backlog at September 3, 2010 was
$6,100,000 compared to $6,800,000 at August 28, 2009. Approximately
$3,542,000 of the September 3, 2010, backlog is expected to ship during fiscal
2011. At September 3, 2010, two customers accounted for 87% of the eighteen
month backlog and 88% of the backlog expected to ship during fiscal
2011.





Sales to
a relatively small number of major customers have typically comprised a majority
of our revenues and that trend is expected to continue.  In fiscal
2010, two customers accounted for approximately 22.9% and 10.8% of revenues,
respectively.  (See Note 13 to the Consolidated Financial Statements,
“Segment Information and Concentrations”.)  Future revenues are
subject to the timing of significant orders from customers and are difficult to
forecast.  As a result, we expect future revenue levels and operating
results to continue to fluctuate from quarter to quarter.




International sales were $1,802,000 or
20.2% of revenues in fiscal 2010 compared to $1,595,000 or 12.6% of revenues in
fiscal 2009, and $3,686,000 or 17.2% of revenues in fiscal
2008.  International shipments are generally project specific, and
therefore revenues are subject to variations from year to year based on the
timing of customer orders.  Additional financial information on
geographic areas is provided in Note 13 to the consolidated financial
statements.




Gross profit as a percent of sales was
29.9% in fiscal 2010 compared to 30.5% in fiscal 2009, and 39.1% in fiscal
2008.  Gross profit margin dollars decreased $1,187,000, or 30.8%, to
$2,669,000 in fiscal 2010 from $3,856,000 in fiscal 2009.  Fiscal 2008
gross profit margin dollars amounted to $8,398,000.  Warranty
provisions charged to cost of products sold were $50,000 in fiscal 2010, none in
fiscal 2009 and $50,000 in fiscal 2008.  Profit margins in fiscal 2009
and 2008 were favorably impacted by the reversal of an accrued warranty
liability of $130,000 and $310,000, respectively, for previously estimated
warranty provisions that were no longer required.  Profit margins in
fiscal 2010 and 2009 included inventory reserve charges of $90,000 and $630,000,
respectively, to provide for slow-moving and excess inventory primarily
associated with first generation digital products. No inventory provisions were
recorded in fiscal 2008.  Capitalized software amortization expenses
included in cost of products sold in fiscal 2010 were $850,000, compared to
$949,000 in fiscal 2009 and $1,238,000 in fiscal 2008. Capitalized software
amortization expenses in fiscal 2011 are expected to approximate fiscal 2010
expenses.


24




Selling, general, and administrative
(SG&A) expenses decreased $1,009,000, or 23.1%, to $3,362,000 in fiscal 2010
from $4,371,000 in fiscal 2009.  As a percentage of revenues, SG&A
expenses were 37.7% of revenues in fiscal 2010 and 34.5% in fiscal 2009.
Corporate SG&A expenses in fiscal 2010 decreased $465,000, or 46.7%, to
$531,000 from $996,000 in fiscal 2009.  The decrease was mainly due
to lower professional fees and director compensation.WCI’s SG&A expenses
decreased $544,000, or 16.1%, to $2,831,000 in fiscal 2010 from $3,375,000 in
fiscal 2009.  WCI’s SG&A expenses in fiscal 2010 included
approximately $171,000 of severance costs compared to approximately $62,000 in
the same period of fiscal 2009.  The increase in SG&A severance
costs of $109,000 were offset by decreases in (i) salaries and related payroll
costs of $488,000 due to the reductions in headcount and a 10% reduction in
company-wide paid working hours beginning in January 2009, (ii) general overhead
costs of $214,000 due to the cost reduction efforts, elimination of 401(k)
company matching expense and reductions in loan origination fee amortization
expense , (iii) in-house commission expenses of $32,000, and (iv) professional
fees of $25,000.These
decreases were offset by an increase in bad debt provisions of $80,000 and
increased sales and marketing expenses of $27,000.




Selling, general, and administrative
(SG&A) expenses decreased $1,168,000, or 21.1%, to $4,371,000 in fiscal 2009
from $5,539,000 in fiscal 2008.  As a percentage of revenues, SG&A
expenses were 34.5% of revenues in fiscal 2009 and 25.8% in fiscal 2008.
Corporate SG&A expenses in fiscal 2009 decreased $150,000, or 13.1%, to
$996,000 from $1,146,000 in fiscal 2008.  The decrease was mainly due
to lower professional fees and director compensation.WCI’s SG&A expenses
decreased $1,018,000, or 23.2%, to $3,375,000 in fiscal 2009 from $4,393,000 in
fiscal 2008.  The decrease in WCI’s SG&A expenses in fiscal 2009
was mainly due to decreases in (i) salaries and related payroll costs of
$318,000 primarily due to a 10% reduction in company-wide paid working hours
beginning in January 2009 and reductions in headcount, (ii) sales and marketing
expenses of $270,000, (iii) general overhead costs of $243,000 due to reductions
in recruiting and training expenses and overall cost reduction efforts of
overhead expenses, (iv) in-house commission expenses of $147,000 due to a
decrease in bookings, and (v) professional fees of $40,000. SG&A expenses
included $8,000 of noncash share-based compensation expense in fiscal 2008
compared to none in fiscal 2009.




Research and development expenditures,
including capitalized software development costs, were $1,996,000 or 22.4% of
revenues in fiscal 2010, $2,959,000 or 23.4% of revenues in fiscal 2009, and
$4,427,000 or 20.6% of revenues in fiscal 2008.  The decrease in
expenditures during fiscal 2010 compared to fiscal 2009 was mainly due to lower
salaries as a result of reduced head count and the 10% reduction in company-wide
paid working hours beginning in January 2009.  The decrease in
expenditures during fiscal 2009 compared to fiscal 2008 was mainly due to lower
salaries as a result of the reduced head count and the 10% reduction in
company-wide paid working hours and lower consulting
costs.  Software development costs totaling $848,000, $997,000, and
$1,214,000 were capitalized during fiscal 2010, 2009 and 2008,
respectively.  The decreases in capitalized software costs in fiscal
2010 compared to fiscal 2009 were primarily due to the reductions in
headcount. The decreases in capitalized software costs in fiscal 2009
compared to fiscal 2008 were related to completed projects and the reductions in
headcount and consulting costs.  Research and development expenses,
excluding capitalized software development costs, were $1,148,000 or 12.9% of
revenues in fiscal 2010, $1,962,000 or 15.5% of revenues in fiscal 2009, and
$3,213,000 or 14.9% of revenues in fiscal 2008. We believe current staffing
levels are adequate to accomplish research and development activities in fiscal
2011.  Should additional engineering resources be required in fiscal
2011, we believe engineering consulting services would be sufficiently
available.





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





Interest expense was $472,000 in fiscal
2010 compared to $129,000 in fiscal 2009 and $159,000 in fiscal
2008.  The increase was primarily due to the increase in our loan
interest rate and an increase in the line of credit outstanding balances and
unsecured promissory note borrowings.  Effective September 3, 2010,
the annual interest rate on the line of credit borrowings was reduced from 12%
to 8%, as further discussed in the Liquidity and Capital Resources
section.





No
income tax benefit was recorded for fiscal 2010 due to an increase in the
deferred tax asset valuation allowance.  In fiscal 2010, the deferred
tax asset increased $833,000 primarily due to an increase in the net operating
loss carryforward. The increase in the deferred tax asset was offset by a
corresponding increase in the valuation allowance.  In fiscal 2009,
the deferred tax asset increased $938,000 primarily due to an increase in the
net operating loss carryforward and provision for inventory reserves, and
decreased $199,000 due to the expiration of state income tax credits. The net
increase of $739,000 in the deferred tax asset was offset by a corresponding
increase in the valuation allowance.  No income tax expense was
recorded for fiscal 2008, due to utilization of net operating loss and
alternative minimum tax credit carryforwards.  At September 3, 2010,
net deferred tax assets of $7,450,000 were fully reserved by a valuation
allowance.


25




A
valuation allowance is established when it is “more likely than not” that all or
a portion of a deferred tax asset will not be realized.  A review of
all available positive and negative evidence must be considered in judging the
likelihood of realizing tax benefits.  Forming a conclusion that a
valuation allowance is not needed is difficult when there is negative evidence
such as cumulative losses in recent years.  Cumulative losses are one
of the most difficult pieces of negative evidence to overcome in the absence of
sufficient existing orders and backlog (versus forecasted future orders)
supporting a return to profitability. Additional orders and backlog are
currently needed for profitability in fiscal 2011.  Our assessment
indicated that a full valuation allowance for our net deferred tax assets was
required as of September 3, 2010 and August 28, 2009.





At
September 3, 2010, we had a federal net operating loss carryforward of
$14,219,000, of which $1,438,000 expires in fiscal 2021, $1,296,000 in fiscal
2023, $3,396,000 in fiscal 2024, $1,454,000 in fiscal 2025, $1,755,000 in fiscal
2026, $265,000 in fiscal 2027, $2,221,000 in fiscal 2029 and $2,394,000 in
fiscal 2030.  Additionally, we had an alternative minimum tax credit
of $134,000 which was fully offset by the valuation allowance.





LIQUIDITY
AND CAPITAL RESOURCES





We have
experienced recurring net losses from operations, which have caused an
accumulated deficit of approximately $20,265,000 at September 3, 2010 and raised
substantial doubt as to our ability to continue as a going
concern.  We had a working capital deficit of approximately $3,248,000
at September 3, 2010 compared to a working capital deficit of $1,139,000 at
August 28, 2009 which compared to working capital of approximately $1,053,000 at
August 29, 2008.




Our cash
flow requirements during fiscal 2010 were financed primarily by our loan
facility. During fiscal 2010, our net borrowings under our loan facility
increased $1,051,000 to $3,850,000 at September 3, 2010.




During
the fourth quarter of fiscal 2008 and in fiscal 2009, we made reductions in
headcount to bring the number of employees at August 28, 2009, to 63 compared to
91 at August 29, 2008, and reduced engineering consulting and other operating
and overhead expenses.  Beginning in January 2009 and continuing
through out fiscal 2010, we reduced paid working hours Company-wide by
approximately 10%.  During the first and second quarters of fiscal
2010, we made further reductions in headcount to bring the current number of
employees to 49.   During fiscal 2009 and fiscal 2010, as well as
to date in fiscal 2011, due to insufficient cash flow from operations and a
maximum borrowing limit under our loan facility, we negotiated extended payment
terms with our two offshore vendors and have been extending other vendors beyond
normal payment terms. Until such vendors are paid within normal payment terms,
no assurances can be given that required services and materials needed to
support operations will continue to be provided.  In addition, no
assurances can be given that vendors will not pursue legal means to collect past
due balances owed. Any interruption of services or materials would likely have
an adverse impact on our operations.




During
the first, second, third and fourth quarters of fiscal 2010 bookings were
approximately $1.8 million, $2.1 million, $3.0 million and $1.4 million,
respectively. Fiscal 2009 bookings were approximately $5.5 million. These fiscal
2010 bookings and fiscal 2009 bookings, as well as our fiscal 2008 bookings,
particularly during the fourth quarter of fiscal 2008, were well below our
expectations primarily as a result of customer delays in purchasing decisions,
deferral of project expenditures and general adverse economic and credit
conditions.




Our
backlog scheduled to ship within eighteen months was approximately $6.0 million
at September 3, 2010, compared to $4.3 million at August 28,
2009.  The total multi-year backlog at September 3, 2010, was
approximately $6.1 million, compared to $6.8 million at August 28,
2009.  Approximately $3.5 million of the September 3, 2010 backlog is
scheduled to ship during fiscal 2011.




Our
bookings and revenues during fiscal 2010, as well as to date in fiscal 2011,
have been insufficient to attain profitable operations andto provide adequate
levels of cash flow from operations.  In addition, significant fiscal
2011 shippable bookings are currently required to meet our financial and cash
flow projections beginning in the first quarter of fiscal 2011 and continuing
for each subsequent quarter.  We currently estimate that, depending on
product mix, break-even revenue levels range from approximately $13.0 million to
$13.5 million on an annual basis.




26


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




On July
16, 2009, we entered into a non-binding letter of intent (the “LOI”) with
Sencore, Inc. (“Sencore”), a portfolio company of The Riverside Company, a
private equity firm, regarding a possible acquisition of Wegener Corporation by
Sencore.  The exclusivity period set forth in the LOI expired
September 13, 2009. Wegener Corporation’s Board of Directors unanimously voted
to terminate the LOI and on September 17, 2009, officially notified Sencore of
the termination.





Financing
Agreements





Effective
September 16, 2009, we entered into an Eleventh Amendment (“Amendment”) to the
Loan and Security Agreement (the “Loan Agreement”) with Bank of America, N.A.
(the “Bank”). The Amendment extended the maturity date of our revolving line of
credit and term loan facility (“Loan Facility”) with the Bank to November 30,
2009 (previously September 30, 2009), reduced the maximum available credit limit
to $4,000,000 (previously $5,000,000) and increased the interest rate to the
Bank’s prime rate plus two percent (previously the Bank’s prime
rate).  In addition, the Amendment allowed for over advances in excess
of the existing availability collateral formulas of up to five hundred thousand
dollars during the term of the Loan Facility.  The Amendment was
subject to the Bank receiving, on or before October 15, 2009, a fully executed
asset purchase agreement or merger agreement satisfactory to the Bank, in its
reasonable business judgment, for the sale or merger of Wegener Corporation to
or into a third-party purchaser; provided, however, the failure to so provide
such fully executed asset purchase or merger agreement to the Bank on or before
October 15, 2009 would have been an automatic event of default as defined and
set forth in the Loan Agreement, and the Bank would have all of its rights and
remedies as provided for in the Loan Agreement without further
notice.  At August 28, 2009, we were in violation of the Bank’s
tangible net worth debt covenant.




On
October 8, 2009, the Bank assigned its rights (the “Assignment”) under the Loan
Agreement to The David E. Chymiak Trust Dated December 15, 1999 (the
“Trust”).  David E Chymiak is a beneficial owner of 8.8% of our
outstanding common stock.  The David E. Chymiak Trust Dated December
15, 1999, is controlled by Mr. Chymiak.  Immediately before becoming
such assignee, the Trust entered into a twelfth amendment to the Loan Agreement,
dated October 8, 2009 (the “Twelfth Amendment”) which became effective
immediately upon the consummation of the Assignment.  Accordingly, by
virtue of the Assignment, the Trust succeeded to all the rights and obligations
of the Bank under the Loan Agreement, except as otherwise provided in the
Twelfth Amendment. In connection with the Assignment, the Trust paid a total of
$2,941,000 to the Bank amounting to all amounts we owed to the
Bank.  Therefore, we no longer have a lending relationship with the
Bank. (See Note 9 to
theConsolidated Financial Statements).





Among
other things, the Twelfth Amendment provided a maximum loan limit of four
million dollars (the “Loan Limit”), excluding any accrued unpaid interest
andbore interest
at the rate of twelve percent (12%) per annum.  Effective September 3,
2010, the Loan Limit was increased to $4,250,000 and the annual interest rate
was reduced toeight (8.0%) per
annum.The
term of the Loan Agreement is eighteen (18) months beginning October 8, 2009
(“Original Term”), or upon demand in the event of default as provided by the
Loan Agreement. The Twelfth Amendment automatically renews for successive twelve
(12) month periods provided, however, the Trust may terminate the Loan Agreement
by providing the Borrower ninety (90) days’ prior written notice of termination
at any time beginning on or after ninety (90) days prior to the expiration of
the Original Term. Principal and interest shall be payable upon the earlier of
the maturity date, an event of default, or 90 days  following the date
on which the Trust provides written notice to terminate the
agreement.  All principal and interest shall be payable in U.S.
dollars and/or such other good and valuable consideration as the parties may
agree in good faith at the time payment is due.  The Twelfth Amendment
removed collateral availability advance formula provisions which limited the
maximum borrowing to the amount of available collateral and the 2.0% annual
facility fee provision. In addition, it removed the minimum tangible net worth
and minimum fixed coverage ratio annual debt covenant provisions. The Twelfth
Amendment suspended the Loan Agreement’s solvency representation provision until
the last day of our third quarter of fiscal 2010 (May 28, 2010). On June 11,
2010, the Company and the Trust entered into a Thirteenth Amendment to the Loan
Agreement. The Thirteenth Amendment further suspended the date of compliance for
the solvency representation to the last day of our fiscal 2010 fourth quarter
ending on September 3, 2010.  This representation requires the Company
to be able to pay its debts as they become due, have sufficient capital to carry
on its business and own property at a fair saleable value greater than the
amount required to pay its debts.  The solvency representation
provision was subsequently extended to the last day of our second quarter in
fiscal 2011 (March 4, 2011).  In addition, we are required to retain
certain executive officers and are precluded from paying
dividends.  The Twelfth Amendment removed the minimum tangible net
worth and minimum fixed coverage ratio annual debt covenant
provisions.


27




The loan
is secured by a first lien on substantially all of WCI’s assets, including land
and buildings, and is guaranteed by Wegener Corporation.  At September
3, 2010, balances outstanding on the revolving line of credit amounted to
$3,850,000. At November 1, 2010, the outstanding balance on the line of credit
amounted to $4,100,000 and our cash balances were approximately
$351,000.





No
assurances may be given that upon maturity (April 7, 2011) our Loan Agreement
will be renewed.  In the event the Loan Agreement is not renewed, we
would need to obtain additional credit facilities or raise additional capital to
continue as a going concern and to execute our business plan  There is
no assurance that such financing would be available or, if available, that we
would be able to complete financing on satisfactory terms.





On
October 1, 2009, we entered into an unsecured promissory note with David E.
Chymiak in the amount of two hundred and fifty thousand dollars
($250,000).  The loan bore interest at the rate of 8.0% per year with
an initial maturity date of October 31, 2009. The maturity date was subsequently
extended to September 10, 2010.  Principal and interest on the
unsecured promissory note were paid in full during the fourth quarter of fiscal
2010.





Operating
Activities





Cash provided by operating activities
was $71,000 in fiscal 2010, $120,000 in fiscal 2009 and $771,000 in fiscal
2008.  Fiscal 2010 net loss adjusted for expense provisions and
depreciation and amortization (before working capital changes) used cash of
$994,000. Decreases in inventories and other assets provided cash of $1,165,000
while changes in accounts receivable and customer deposits used cash of
$396,000.  Increases in accounts payable and accrued expenses provided
cash of $335,000.  A decrease in deferred revenue used cash of
$39,000.




Net
accounts receivable increased $52,000 to $1,634,000 at September 3, 2010, from
$1,582,000 at August 28, 2009, compared to $2,963,000 at August 29,
2008.  The allowance for doubtful accounts was $140,000 at September
3, 2010, $146,000 at August 28, 2009 and $230,000 at August 29,
2008.  In fiscal 2010, the allowance for doubtful accounts was
increased by $80,000 and reduced by write-offs of $86,000.  Write-offs
were $84,000 in fiscal 2009 and $21,000 in fiscal 2008.




Customer deposits decreased $264,000 to
$240,000 at September 3, 2010, from $504,000 at August 28, 2009.  The
decrease in customer deposits was due to completion of shipments in fiscal 2010
of a large order to one customer.  Customer deposits vary with the
timing and terms of customer bookings.





At September 3, 2010, our net inventory
balances decreased $1,319,000 to $3,145,000 from $4,464,000 at August 28, 2009,
compared to $6,295,000 at August 29, 2008.The higher level of
inventories in fiscal 2008 was primarily due to our new fiscal 2008 product
introductions of the iPump® 562
Enterprise Media Server, the Unity® 552
receiver and the Encompass-LE2 audio receiver. In addition, inventory levels
were increased for the iPump® 6400
Media Server and Nielsen Media Research products.  These inventory
purchases required sufficient lead times with our offshore manufacturers and
which required estimates of expected future bookings.  Our fiscal 2008
bookings were below our expectations which resulted in higher than expected
inventories at August 29, 2008.  During fiscal 2009 and 2010, we
implemented efforts to reduce inventory levels.  Inventory reserves
were increased by provisions charged to cost of products sold of $90,000 and
$630,000 in fiscal 2010 and 2009, respectively, to provide for slow-moving and
excess inventory primarily associated with first generation digital products. No
inventory provisions were recorded in fiscal 2008.  Inventory reserves
were decreased by write-offs of $304,000 in fiscal 2010, $11,000 in fiscal 2009
and $21,000 in fiscal 2008. Decreases in inventories in fiscal 2010 and 2009
provided $1,228,000 and $1,202,000, respectively, of
cash.   Increases in inventories in fiscal 2008 used $2,915,000
of cash.


28





Investing
Activities





Cash used by investing activities in
fiscal 2010 was $895,000 compared to $1,015,000 in fiscal 2009 and $537,000 in
fiscal 2008. In fiscal 2010, investing activities consisted of capitalized
software additions of $848,000, equipment additions of $39,000 and $8,000 for
legal fees related to the filing of applications for various patents and
trademarks.  In fiscal 2009, investing activities consisted of
capitalized software additions of $997,000, equipment additions of $2,000 and
$17,000 for legal fees related to the filing of applications for various patents
and trademarks.  In fiscal 2008, investing activities consisted of
capitalized software additions of $1,214,000, equipment additions of $335,000
and $63,000 for license agreements and legal fees related to the filing of
applications for various patents and trademarks, while proceeds from the sale of
patents and patent applications provided $1,075,000 of
cash.  Capitalized software expenditures were incurred primarily for
the development of Compel® network
control and MediaPlan®
software, the iPump® Media
Server, and MPEG-4/h.264 products.





Financing
Activities





Financing activities in fiscal 2010
provided $1,051,000 of cash from line of credit borrowings and $250,000 of cash
from a note payable borrowing and used $250,000 of cash for repayment of the
note payable.  Financing activities in fiscal 2009 provided $916,000
of cash from net line of credit borrowings and used $25,000 of cash for loan
facility fees. Financing activities in fiscal 2008 used $132,000 of cash to
reduce net line of credit borrowings and $100,000 of cash for loan facility
fees.





Contractual
Obligations





We have
one manufacturing and purchasing agreement for certain finished goods
inventories.AtSeptember 3, 2010,
outstanding purchase commitments under these agreements amounted to
$274,000.  At September 3, 2010, we had no letters of credit
outstanding.





The
following summarizes our contractual obligations as of September 3,
2010 and the effects such obligations are expected to have on liquidity and
cash flow in future periods:




Payments Due by PeriodContractual Obligations
                                    
                                    Total
                                    
                                    
                                    One Year
                                    
                                    
                                    2 –3 Years
                                    
                                    
                                    4 –5 YearsOperating
      leases
                                    
                                    $
                                    157,000
                                    
                                    
                                    $
                                    67,000
                                    
                                    
                                    $
                                    90,000
                                    
                                    
                                    $
                                    -Line
      of credit
                                    
                                    
                                    3,850,000
                                    
                                    
                                    
                                    3,850,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Purchase
      commitments
                                    
                                    
                                    274,000
                                    
                                    
                                    
                                    274,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Total
                                    
                                    $
                                    4,281,000
                                    
                                    
                                    $
                                    4,191,000
                                    
                                    
                                    $
                                    90,000
                                    
                                    
                                    $
                                    -




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




OFF-BALANCE
SHEET ARRANGEMENTS




At
September 3, 2010, we had no off-balance sheet arrangements.




CRITICAL
ACCOUNTING POLICIES




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




Revenue
Recognition – Our principal sources of revenue are from hardware
products, network control software products, services and software and hardware
maintenance contracts.Our revenue
recognition policies are in compliance with FASB Accounting Standards
Codification (ASC) Topic 605 “Revenue Recognition.” Revenue is recognized when
persuasive evidence of an agreement with the customer exists, delivery has
occurred or services have been provided, the sale price is fixed or
determinable, collectability is reasonably assured, and risk of loss and title
have transferred to the customer. Revenue from product sales is recognized when
risk of loss and title has transferred which is generally upon shipment or in
some cases upon delivery. Service revenues are recognized at the time of
performance. Provisions for returns, discounts and trade-ins, based on
historical experience, have not been material.





29





When
arrangements contain multiple elements, we evaluate all deliverables in the
arrangement at the outset of the arrangement based on applicable accounting
guidance on accounting for revenue arrangements with multiple deliverables. If
the undelivered elements qualify as separate units of accounting based on
applicable accounting guidance, which include that the delivered elements have
value to the customer on a stand-alone basis and that objective and reliable
evidence of fair value exists for undelivered elements, we allocate the
arrangement fee based on the relative fair value of the elements of the
arrangement. If a delivered element does not meet the criteria in the applicable
accounting guidance to be considered a separate unit of accounting, revenue is
deferred until the undelivered elements are fulfilled. We establish fair value
by reference to the price the customer is required to pay when an item is sold
separately using contractually stated, substantive renewal rates, where
applicable, or the average price of recently completed stand alone sales
transactions. Accordingly, the determination as to whether appropriate objective
and reliable evidence of fair value exists can impact the timing of revenue
recognition for an arrangement.




Embedded
in our hardware products is internally developed software of varying
applications. The embedded software is not sold separately, is not a significant
focus of the marketing effort and we do not provide post-contract customer
support specific to embedded software. The functionality that the software
provides is marketed as part of the overall product and is incidental to the
product as a whole. Significant judgment may be required in determining whether
a product is a software or hardware product.





Revenue
from our network control software products and software-related elements is
recognized in accordance with ASC Topic 985-605 “Software-Revenue Recognition.”
Software-related elements include all non-software deliverables for which a
software deliverable is essential to its functionality. When software
arrangements contain multiple elements and vendor specific objective evidence
(VSOE) of fair value exists for all undelivered elements, we account for the
delivered elements using the residual method. In arrangements where VSOE of fair
value is not available for all undelivered elements, we would defer the
recognition of all revenue under an arrangement until all elements, except post
contract support, have been delivered. When post contract support remains the
only undelivered element for such contracts, revenue is then recognized using
the residual method. Fair value of software-related elements is based on
separate sales to other customers or upon renewal rates quoted in contracts when
the quoted renewal rates are deemed to be substantive. Software and hardware
maintenance contract revenues are recognized ratably over the term of the
arrangement, which is typically one year.





At
September 3, 2010, deferred extended service maintenance revenues were $519,000,
and deferred revenues related to the fair value of undelivered elements were
$10,000 and are expected to be recognized as revenue in varying amounts
throughout fiscal 2011.





We
recognize revenue in certain circumstances before delivery has occurred
(commonly referred to as “bill and hold” transactions). In such circumstances,
among other things, risk of ownership has passed to the buyer, the buyer has
made a written fixed commitment to purchase the finished goods, the buyer has
requested the finished goods be held for future delivery as scheduled and
designated by them, and no additional performance obligations by the Company
exist. For these transactions, the finished goods are segregated from inventory
and normal billing and credit terms are granted. For the year ended
September 3, 2010, no revenues were recorded as bill and hold transactions.
For the year ended August 28, 2009, revenues attributable to two customers in
the amount of $1,236,000 were recorded prior to delivery as bill and hold
transactions. At August 28, 2009, accounts receivable for these revenues were
paid in full. For the year ended August 29, 2008, revenues attributable to one
customer in the amount of $495,000 were recorded prior to delivery as bill and
hold transactions. At August 29, 2008, accounts receivable for these revenues
were paid in full.




These
policies require management, at the time of the transaction, to assess whether
the amounts due are fixed or determinable, collection is reasonably assured, and
to perform an evaluation of arrangements containing multiple elements.
These assessments are based on the terms of the arrangement with the customer,
past history and creditworthiness of the customer. If management determines that
collection is not reasonably assured or undelivered elements are unfulfilled,
revenue recognition is deferred until these conditions are
satisfied.





Inventory
- Inventories are valued at the lower of cost (at standard, which approximates
actual cost on a first-in, first-out basis) or market. Inventories include the
cost of raw materials, labor and manufacturing overhead. We make inventory
reserve provisions to properly reflect inventory value based on a review of
inventory quantities on hand, sales forecasts, new products being developed and
technology changes. These reserves are to provide for items that are potentially
slow-moving, excess or obsolete. Changes in market conditions, lower than
expected customer demand and rapidly changing technology could result in
additional obsolete and slow-moving inventory that is unsaleable or saleable at
reduced prices, which could require additional inventory reserve provisions. At
September 3, 2010, inventories, net of reserve provisions of approximately
$4,475,000, amounted to $3,145,000. At August 28, 2009, inventories, net of
reserve provisions of approximately $4,689,000, amounted to
$4,464,000.





30




Capitalized
Software Costs-Software development costs are capitalized subsequent to establishing
technological feasibility. Capitalized costs are amortized based on the larger
of the amounts computed using (a) the ratio that current gross revenues for each
product bears to the total of current and anticipated future gross revenues for
that product, or (b) the straight-line method over the remaining estimated
economic life of the product. Expected future revenues and estimated economic
lives are subject to revisions due to market conditions, technology changes and
other factors resulting in shortfalls of expected revenues or reduced economic
lives, which could result in additional amortization expense or write-offs. At
September 3, 2010, capitalized software costs, net of accumulated amortization,
amounted to $1,263,000. At August 28, 2009, capitalized software costs, net of
accumulated amortization, amounted to $1,265,000.




Deferred
Tax Asset Valuation Allowance – Deferred tax assets are recognized for
deductible temporary differences, net operating loss carryforwards and tax
credit carryforwards, if it is more likely than not that the tax benefits will
be realized. Realization of our deferred tax assets is dependent upon generating
sufficient future taxable income prior to the expiration of the loss and tax
credit carryforwards. The valuation allowance increased $833,000 in fiscal 2010,
$739,000 in fiscal 2009, and decreased $141,000 in fiscal 2008. At September 3,
2010, net deferred tax assets of $7,450,000 were fully reserved by a valuation
allowance. At August 28, 2009, net deferred tax assets of $6,617,000 were fully
reserved by a valuation allowance.




Accounts
Receivable Valuation – We maintain allowances for doubtful accounts for
estimated losses resulting from the inability of our customers to make required
payments. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required. At September 3, 2010, accounts receivable net of
allowances for doubtful accounts amounted to $1,634,000. At August 28, 2009,
accounts receivable net of allowances for doubtful accounts amounted to
$1,582,000.




IMPACT
OF INFLATION




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




IMPACT
OF RECENTLY ISSUED OR ADOPTED ACCOUNTING STANDARDS




In
June 2009, the FASB Accounting Standards Codification (Codification)
was issued to become the source of authoritative U.S. generally accepted
accounting principles (GAAP) to be applied by non-governmental entities and
supersede all then-existing non-Securities and Exchange Commission (SEC)
accounting and reporting standards. Rules and interpretive releases of the SEC
under authority of federal securities laws are also sources of authoritative
GAAP for SEC registrants. All other non-grandfathered non-SEC accounting
literature not included in the Codification became non-authoritative. The
Codification was effective for financial statements issued for interim and
annual periods ending after September 15, 2009. The Company adopted the
provisions in the first quarter of fiscal 2010. References made to FASB guidance
throughout this document have been updated for the codification. The adoption
did not impact the Company’s financial position or its results of
operations.





In
June 2009, the FASB issued authoritative guidance that changed the
consolidation model for variable interest entities. The provisions are effective
for the first quarter of fiscal 2011. The adoption is not expected to have a
material impact on the Company’s financial position or its results of
operations.




In
September 2006, the FASB issuedauthoritative guidance for
fair value measurements, which established the definition of fair value,
provided a framework for measuring fair value and expanded the disclosure
requirements about fair value measurements. This guidance did not require any
new fair value measurements but rather applies to all other accounting
pronouncements that require or permit fair value measurements. In February 2008,
the FASB issued authoritative guidance which delayed by a year the effective
date for certain non-financial assets and liabilities. The Company adopted the
provisions of the guidance for financial assets and liabilities in the first
quarter of fiscal 2009. The adoption did not have a material impact on the
Company’s financial position or its results of operations. The Company adopted
the remaining provisions in the first quarter of fiscal 2010 for non-financial
assets and liabilities, including goodwill and intangible assets. This adoption
likewise did not have a material impact on the Company’s financial position or
its results of operations.





31





In
September 2009, the Emerging Issues Task Force issued new guidance pertaining to
the accounting for revenue arrangements with multiple deliverables. The new
guidance addressed how to determine whether an arrangement involving multiple
deliverables contains more than one unit of accounting, and how the arrangement
consideration should be allocated among the separate units of accounting. The
new guidance is effective for fiscal years beginning after June 15, 2010
and may be applied retrospectively or prospectively for new or materially
modified arrangements. In addition, early adoption is permitted. The Company has
evaluated this new guidance and believes it will not have a material impact on
the Company’s financial position or its results of operations.




In
September 2009, the Emerging Issues Task Force issued new guidance that changed
the accounting model for revenue arrangements that include both tangible
products and software elements that are “essential to the functionality” and
removes these products from the scope of current software revenue guidance. The
new guidance shall be applied on a prospective basis for revenue arrangements
entered into or materially modified in fiscal years beginning on or after
June 15, 2010. Earlier application is permitted as of the beginning of a
Company’s fiscal year provided the Company has not previously issued financial
statements for any period within that year. An entity shall not elect early
application of this guidance unless it also elects early application of the new
rule pertaining to accounting for revenue arrangements with multiple
deliverables. The Company has evaluated this new guidance and believes it will
not have a material impact on the Company’s financial position or its results of
operations.




ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




As a
smaller reporting company, we are not required to provide the information
required by this Item, pursuant to 305(e) of Regulation S-K.




ITEM
8.                      FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA


PageManagement’s
      Statement of Responsibility
              
              33Report
      of Independent Registered Public Accounting Firm (Habif, Arogeti &
      Wynne, LLP)
              
              34Report
      of Independent Registered Public Accounting Firm (BDO USA, LLP formerly
      known as BDO Seidman, LLP)
              
              35Consolidated
      Statements of Operations Years ended September 3, 2010, August 28, 2009,
      and August 29, 2008
              
              36Consolidated
      Balance Sheets As of September 3, 2010 and August 28,
2009.
              
              37Consolidated
      Statements of (Capital Deficit) Shareholders' Equity Years ended September
      3, 2010, August 28, 2009, and August 29, 2008
              
              38Consolidated
      Statements of Cash Flows Years ended September 3, 2010, August 28, 2009,
      and August 29, 2008
              
              39Notes
      to Consolidated Financial Statements
              
              40Consolidated
      Supporting Schedules Filed:Schedule
      II-Valuation and Qualifying Accounts Years ended September 3, 2010, August
      28, 2009, and August 29, 2008
              
              61


32





MANAGEMENT'S
RESPONSIBILITY FOR FINANCIAL STATEMENTS





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





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





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





Habif,
Arogeti & Wynne, LLP, the Company's independent registered public accounting
firm, has audited the financial statements as of and for the year ended
September 3, 2010 prepared by management. BDO USA, LLP (formerly known as BDO
Seidman, LLP) has audited the financial statements as of August 28, 2009 and for
each of the two years in the period ended August 28, 2009, prepared by
management. Both firm’s opinions on the statements are presented
below.











C. Troy
Woodbury, Jr.


President
and Chief Executive Officer









James
Traicoff


Treasurer
and Chief Financial Officer




33





REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board of
Directors and Shareholders of Wegener Corporation
 Johns
Creek, Georgia





We have
audited the accompanying consolidated balance sheet of Wegener Corporation and
subsidiary as of September 3, 2010, and the related consolidated statements of
operations, (capital deficit) shareholders' equity and cash flows for the year
then ended. 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 audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion.





An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.





In our opinion, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Wegener Corporation and subsidiary
as of September 3, 2010, and the results of their operations and their cash
flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.




The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has suffered recurring losses from operations and has
a capital deficiency that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.




/s/
Habif, Arogeti & Wynne, LLP





Habif,
Arogeti & Wynne, LLP





Atlanta,
Georgia




November
15, 2010


34




REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board of
Directors and Shareholders of Wegener Corporation
 Johns
Creek, Georgia





We have
audited the accompanying consolidated balance sheet of Wegener Corporation and
subsidiary as of August 28, 2009, and the related consolidated statements of
operations, (capital deficit) shareholders' equity and cash flows for each of
the two years in the period ended August 28, 2009. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our
audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.





In our opinion, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Wegener Corporation and subsidiary
at August 28, 2009, and the results of its operations and its cash flows for
each of the two years in the period ended August 28, 2009, in conformity with
accounting principles generally accepted in the United States of
America.




The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has suffered recurring losses from operations and has a
net capital deficiency that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.




/s/ BDO
USA, LLP





BDO USA,
LLP (formerly known as BDO Seidman, LLP)




Atlanta,
Georgia




November
25, 2009


35




Wegener
Corporation and subsidiary





CONSOLIDATED
STATEMENTS OF OPERATIONS





Years endedSeptember 3,
                                    2010
                                  
                                  
                                  August 28,
                                    2009
                                  
                                  
                                  August 29,
                                    2008Revenues,
      net
                                  
                                  $
                                  8,921,419
                                  
                                  
                                  $
                                  12,655,107
                                  
                                  
                                  $
                                  21,494,493Operating
      costs and expensesCost
      of products sold
                                  
                                  
                                  6,252,225
                                  
                                  
                                  
                                  8,798,915
                                  
                                  
                                  
                                  13,096,881Selling,
      general and administrative
                                  
                                  
                                  3,362,234
                                  
                                  
                                  
                                  4,370,941
                                  
                                  
                                  
                                  5,538,901Research
      and development
                                  
                                  
                                  1,148,211
                                  
                                  
                                  
                                  1,961,827
                                  
                                  
                                  
                                  3,213,131Gain
      on sale of patents
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (894,127
                                  )Operating
      costs and expenses
                                  
                                  
                                  10,762,670
                                  
                                  
                                  
                                  15,131,683
                                  
                                  
                                  
                                  20,954,786Operating
      (loss) income
                                  
                                  
                                  (1,841,251
                                  )
                                  
                                  
                                  (2,476,576
                                  )
                                  
                                  
                                  539,707Interest
      expense-related party
                                  
                                  
                                  (448,426
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Interest
      expense
                                  
                                  
                                  (23,703
                                  )
                                  
                                  
                                  (129,123
                                  )
                                  
                                  
                                  (158,586
                                  )Interest
      income
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  2,162Net
      (loss) earnings
                                  
                                  $
                                  (2,313,380
                                  )
                                  
                                  $
                                  (2,605,699
                                  )
                                  
                                  $
                                  383,283Net
      (loss) earnings per shareBasic
                                  
                                  $
                                  (.18
                                  )
                                  
                                  $
                                  (.21
                                  )
                                  
                                  $
                                  .03Diluted
                                  
                                  $
                                  (.18
                                  )
                                  
                                  $
                                  (.21
                                  )
                                  
                                  $
                                  .03Shares
      used in per share calculationBasic
                                  
                                  
                                  12,647,051
                                  
                                  
                                  
                                  12,647,051
                                  
                                  
                                  
                                  12,647,051Diluted
                                  
                                  
                                  12,647,051
                                  
                                  
                                  
                                  12,647,051
                                  
                                  
                                  
                                  12,659,414




See accompanying
notes to consolidated financial statements.


36





Wegener
Corporation and subsidiary





CONSOLIDATED
BALANCE SHEETS





September 3,
                                                                2010
                                                              
                                                              
                                                              August 28,
                                                                2009AssetsCurrent
      assetsCash
                                                              
                                                              $
                                                              231,091
                                                              
                                                              
                                                              $
                                                              3,476Accounts
      receivable, net
                                                              
                                                              
                                                              1,633,971
                                                              
                                                              
                                                              
                                                              1,581,926Inventories,
      net
                                                              
                                                              
                                                              3,145,090
                                                              
                                                              
                                                              
                                                              4,463,586Other
                                                              
                                                              
                                                              234,986
                                                              
                                                              
                                                              
                                                              171,676Total
      current assets
                                                              
                                                              
                                                              5,245,138
                                                              
                                                              
                                                              
                                                              6,220,664Property
      and equipment, net
                                                              
                                                              
                                                              1,618,015
                                                              
                                                              
                                                              
                                                              1,720,031Capitalized
      software costs, net
                                                              
                                                              
                                                              1,263,405
                                                              
                                                              
                                                              
                                                              1,265,445Other
      assets
                                                              
                                                              
                                                              234,944
                                                              
                                                              
                                                              
                                                              335,557Total
      assets
                                                              
                                                              $
                                                              8,361,502
                                                              
                                                              
                                                              $
                                                              9,541,697Liabilities
      and (Capital Deficit) Shareholders’ EquityCurrent
      liabilitiesLine
      of credit-related party
                                                              
                                                              $
                                                              3,850,000
                                                              
                                                              
                                                              $
                                                              -Bank
      line of credit
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              2,799,088Accounts
      payable
                                                              
                                                              
                                                              2,142,114
                                                              
                                                              
                                                              
                                                              1,964,367Accrued
      expenses
                                                              
                                                              
                                                              1,731,522
                                                              
                                                              
                                                              
                                                              1,523,925Deferred
      revenue
                                                              
                                                              
                                                              529,583
                                                              
                                                              
                                                              
                                                              568,673Customer
      deposits
                                                              
                                                              
                                                              239,971
                                                              
                                                              
                                                              
                                                              503,952Total
      current liabilities
                                                              
                                                              
                                                              8,493,190
                                                              
                                                              
                                                              
                                                              7,360,005Commitments
      and contingencies(Capital
      deficit) shareholders’ equityCommon
      stock, $.01 par value; 30,000,000 shares authorized; 12,647,051 shares
      issued and outstanding
                                                              
                                                              
                                                              126,471
                                                              
                                                              
                                                              
                                                              126,471Additional
      paid-in capital
                                                              
                                                              
                                                              20,006,702
                                                              
                                                              
                                                              
                                                              20,006,702Accumulated
      deficit
                                                              
                                                              
                                                              (20,264,861
                                                              )
                                                              
                                                              
                                                              (17,951,481
                                                              )Total
      (capital deficit) shareholders’ equity
                                                              
                                                              
                                                              (131,688
                                                              )
                                                              
                                                              
                                                              2,181,692Total
      liabilities and (capital deficit) shareholders’ equity
                                                              
                                                              $
                                                              8,361,502
                                                              
                                                              
                                                              $
                                                              9,541,697




See accompanying
notes to consolidated financial statements.





37




Wegener
Corporation and subsidiary





CONSOLIDATED
STATEMENTS OF (CAPITAL DEFICIT)


SHAREHOLDERS’
EQUITY





AdditionalCommon Stock
                                            
                                            
                                            Paid-in
                                            
                                            
                                            AccumulatedShares
                                            
                                            
                                            Amount
                                            
                                            
                                            Capital
                                            
                                            
                                            DeficitBALANCE
      at August 31, 2007
                                            
                                            
                                            12,647,051
                                            
                                            
                                            $
                                            126,471
                                            
                                            
                                            $
                                            19,999,022
                                            
                                            
                                            $
                                            (15,729,065
                                            )Share-based
      compensation
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            7,680
                                            
                                            
                                            
                                            -Net
      earnings for the year
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            383,283BALANCE
      at August 29, 2008
                                            
                                            
                                            12,647,051
                                            
                                            
                                            $
                                            126,471
                                            
                                            
                                            $
                                            20,006,702
                                            
                                            
                                            $
                                            (15,345,782
                                            )Net
      loss for the year
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (2,605,699
                                            )BALANCE
      at August 28, 2009
                                            
                                            
                                            12,647,051
                                            
                                            
                                            $
                                            126,471
                                            
                                            
                                            $
                                            20,006,702
                                            
                                            
                                            $
                                            (17,951,481
                                            )Net
      loss for the year
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (2,313,380
                                            )BALANCE
      at September 3, 2010
                                            
                                            
                                            12,647,051
                                            
                                            
                                            $
                                            126,471
                                            
                                            
                                            $
                                            20,006,702
                                            
                                            
                                            $
                                            (20,264,861
                                            )




See accompanying
notes to consolidated financial statements.





38




Wegener
Corporation and subsidiary




CONSOLIDATED
STATEMENTS OF CASH FLOWS





Years
      endedSeptember
      3,
                                            2010
                                          
                                          
                                          August
      28,
                                            2009
                                          
                                          
                                          August
      29,
                                            2008Cash
      flows from operating activitiesNet
      (loss) earnings
                                          
                                          $
                                          (2,313,380
                                          )
                                          
                                          $
                                          (2,605,699
                                          )
                                          
                                          $
                                          383,283Adjustments
      to reconcile net (loss) earnings to cash provided by operating
      activitiesDepreciation
      and amortization
                                          
                                          
                                          1,099,368
                                          
                                          
                                          
                                          1,437,847
                                          
                                          
                                          
                                          1,853,499Gain
      on sale of patents
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (894,127
                                          )Share-based
      compensation expense
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          7,680Increase
      in provision for bad debts
                                          
                                          
                                          80,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Increase
      in provision for inventory reserves
                                          
                                          
                                          90,000
                                          
                                          
                                          
                                          630,000
                                          
                                          
                                          
                                          -Increase
      (decrease) in provision for warranty reserves
                                          
                                          
                                          50,000
                                          
                                          
                                          
                                          (130,000
                                          )
                                          
                                          
                                          (260,000
                                          )Changes
      in assets and liabilitiesAccounts
      receivable
                                          
                                          
                                          (132,045
                                          )
                                          
                                          
                                          1,381,134
                                          
                                          
                                          
                                          2,209,288Inventories
                                          
                                          
                                          1,228,496
                                          
                                          
                                          
                                          1,201,890
                                          
                                          
                                          
                                          (2,915,066
                                          )Other
      assets
                                          
                                          
                                          (63,310
                                          )
                                          
                                          
                                          56,075
                                          
                                          
                                          
                                          (16,985
                                          )Accounts
      payable
                                          
                                          
                                          177,747
                                          
                                          
                                          
                                          (7,012
                                          )
                                          
                                          
                                          826,052Accrued
      expenses
                                          
                                          
                                          157,597
                                          
                                          
                                          
                                          (217,962
                                          )
                                          
                                          
                                          (477,335
                                          )Deferred
      revenue
                                          
                                          
                                          (39,090
                                          )
                                          
                                          
                                          (202,848
                                          )
                                          
                                          
                                          (2,662
                                          )Customer
      deposits
                                          
                                          
                                          (263,981
                                          )
                                          
                                          
                                          (1,423,615
                                          )
                                          
                                          
                                          56,894Net
      cash provided by operating activities
                                          
                                          
                                          71,402
                                          
                                          
                                          
                                          119,810
                                          
                                          
                                          
                                          770,521Cash
      flows from investing activitiesProperty
      and equipment expenditures
                                          
                                          
                                          (38,958
                                          )
                                          
                                          
                                          (1,742
                                          )
                                          
                                          
                                          (335,161
                                          )Capitalized
      software additions
                                          
                                          
                                          (848,240
                                          )
                                          
                                          
                                          (996,731
                                          )
                                          
                                          
                                          (1,213,870
                                          )License
      agreements, patents, and trademark expenditures
                                          
                                          
                                          (7,501
                                          )
                                          
                                          
                                          (16,729
                                          )
                                          
                                          
                                          (62,734
                                          )Proceeds
      from sale of patents
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,075,000Net
      cash used for investing activities
                                          
                                          
                                          (894,699
                                          )
                                          
                                          
                                          (1,015,202
                                          )
                                          
                                          
                                          (536,765
                                          )Cash
      flows from financing activitiesChange
      in borrowings under revolving line-of-credit
                                          
                                          
                                          1,050,912
                                          
                                          
                                          
                                          915,845
                                          
                                          
                                          
                                          (132,461
                                          )Proceeds
      from note payable
                                          
                                          
                                          250,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Repayment
      of note payable
                                          
                                          
                                          (250,000
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Loan
      facility fees
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (25,000
                                          )
                                          
                                          
                                          (100,000
                                          )Net
      cash provided by (used for) financing activities
                                          
                                          
                                          1,050,912
                                          
                                          
                                          
                                          890,845
                                          
                                          
                                          
                                          (232,461
                                          )Increase
      (decrease) in cash
                                          
                                          
                                          227,615
                                          
                                          
                                          
                                          (4,547
                                          )
                                          
                                          
                                          1,295Cash,
      beginning of year
                                          
                                          
                                          3,476
                                          
                                          
                                          
                                          8,023
                                          
                                          
                                          
                                          6,728Cash,
      end of year
                                          
                                          $
                                          231,091
                                          
                                          
                                          $
                                          3,476
                                          
                                          
                                          $
                                          8,023Supplementary
      information:Cash
      paid for interest
                                          
                                          $
                                          35,639
                                          
                                          
                                          $
                                          129,123
                                          
                                          
                                          $
                                          158,586




See accompanying
notes to consolidated financial statements.





39




Wegener
Corporation and subsidiary




NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS




Note
1. Going Concern


The
accompanying consolidated financial statements have been prepared on a going
concern basis which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. These financial statements do not
include any adjustments relating to the recoverability and classification of
assets or the amounts and classification of liabilities that may be necessary in
the event the Company cannot continue as a going concern.




We have
experienced recurring net losses from operations, which have caused an
accumulated deficit of approximately $20,265,000 at September 3, 2010. We had a
working capital deficit of approximately $3,248,000 at September 3, 2010
compared to a working capital deficit of $1,139,000 at August 28,
2009.




Our cash
flow requirements during fiscal 2010 were financed primarily by our loan
facility. During fiscal 2010, our net borrowings under our loan facility
increased $1,051,000 to $3,850,000 at September 3, 2010 from approximately
$2,799,000 at August 28, 2009. Our loan facility was amended effective October
8, 2009, provides a maximum borrowing limit of $4,250,000 and matures on April
7, 2011. As described in Note 9, the bank assigned our facility to a related
party. At November 1, 2010, the outstanding balance on the loan facility
amounted to $4,100,000 and our cash balances were approximately
$351,000.




No
assurances may be given that upon maturity our loan facility will be renewed. In
the event the loan facility is not renewed, we would need to obtain additional
credit facilities or raise additional capital to continue as a going concern and
to execute our business plan There is no assurance that such financing would be
available or, if available, that we would be able to complete financing on
satisfactory terms.




During
the fourth quarter of fiscal 2008 and in fiscal 2009, we made reductions in
headcount to bring the number of employees at August 28, 2009, to 63 compared to
91 at August 29, 2008, and reduced engineering consulting and other operating
and overhead expenses. Beginning in January 2009 and continuing throughout
fiscal 2010, we reduced paid working hours Company-wide by approximately 10%.
During the first and second quarters of fiscal 2010, we made further reductions
in headcount to bring the current number of employees to 49. During fiscal 2009
and fiscal 2010, as well as to date in fiscal 2011, due to insufficient cash
flow from operations and a maximum borrowing limit under our loan facility, we
negotiated extended payment terms with our two offshore vendors and have been
extending other vendors beyond normal payment terms. Until such vendors are paid
within normal payment terms, no assurances can be given that required services
and materials needed to support operations will continue to be provided. In
addition, no assurances can be given that vendors will not pursue legal means to
collect past due balances owed. Any interruption of services or materials or
initiation of legal means to collect balances owed would likely have an adverse
impact on our operations and could impact our ability to continue as a going
concern.




During
the first, second, third and fourth quarters of fiscal 2010 bookings were
approximately $1.8 million, $2.1 million, $3.0 million and $1.4 million,
respectively. These fiscal 2010 bookings, as well as our fiscal 2009 and fiscal
2008 bookings, particularly during the fourth quarter of fiscal 2008, were well
below our expectations primarily as a result of customer delays in purchasing
decisions, deferral of project expenditures and general adverse economic and
credit conditions.




Our
backlog scheduled to ship within eighteen months was approximately $6.0 million
at September 3, 2010. The total multi-year backlog at September 3, 2010, was
approximately $6.1 million. Approximately $3.5 million of the September 3, 2010
backlog is scheduled to ship during fiscal 2011.




Our
bookings and revenues during fiscal 2010, as well as to date in fiscal 2011,
have been insufficient to attain profitable operations and to provide adequate
levels of cash flow from operations. In addition, significant fiscal 2011
shippable bookings are currently required to meet our quarterly financial and
cash flow projections beginning in the first quarter of fiscal 2011 and
continuing for each subsequent quarter.




Our near
term liquidity and ability to continue as a going concern will depend upon our
ability to timely collect our existing accounts receivable balances and to
generate sufficient new orders and revenues in the near term to provide
sufficient cash flow from operations to pay our operating expenses and to reduce
past due amounts owed to vendors and service providers. Should increased
revenues not materialize, we are committed to further reducing operating costs
to bring them in line with reduced revenue levels. Should we be unable to
achieve near term profitability and generate sufficient cash flow from
operations and if we are unable to further reduce operating costs, we would need
to raise additional capital or obtain additional borrowings beyond our existing
loan facility. No assurances can be given that operating costs can be further
reduced, or if required, that additional capital or borrowings would be
available to allow us to continue as a going concern. If we are unable to
continue as a going concern, we will likely be forced to seek protection under
the federal bankruptcy laws.


40




Wegener
Corporation and subsidiary





On
February 17, 2010, we received notification from The Nasdaq Stock Market
(“Nasdaq”) (the “Notification”), that as a result of the information presented
at an appeal hearing held on January 13, 2010, our request to remain listed on
Nasdaq was granted subject to conditions stipulated in the Notification. The
Notification stipulated that on or before June 7, 2010 (the “Exception
Deadline”), we were required to have stockholders’ equity of at least $2,500,000
and our common stock to maintain a minimum bid price of $1.00 per share for a
period of ten consecutive trading days. On April 8, 2010, we notified the Panel
that based on our current level of existing backlog of orders scheduled to ship
in our fiscal third quarter ending May 28, 2010, and our expected level of new
shippable bookings for the third quarter, we did not expect that we would be
able to comply with the Nasdaq requirements by the Exception Deadline. On April
20, 2010, the Company received notification from Nasdaq, that the Panel had
determined to delist the Company’s common stock shares. Nasdaq suspended trading
of our common stock shares effective at the open of trading on April 22, 2010
and our common stock has not traded on NASDAQ since that time. As a result, on
April 22, 2010, our common stock began trading over-the-counter under the symbol
WGNR.PK. On June 9, 2010, NASDAQ filed a Form 25 with the Securities and
Exchange Commission to complete the delisting. The delisting became effective
ten days after the filing of Form 25.





2.
Summary of Significant Accounting Policies





Nature
of Operations and Principles of Consolidation.The financial statements
include the accounts of Wegener Corporation (WGNR, “we,” “our,” “us” or the
“Company") and its wholly-owned subsidiary. Wegener Communications, Inc. (WCI)
designs, manufactures and distributes satellite communications electronics
equipment in the U.S. and internationally. All significant intercompany balances
and transactions have been eliminated in consolidation.





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





Fiscal
Year.We
operate on a 52-53 week fiscal year. The fiscal year ends on the Friday nearest
to August 31. Fiscal year 2010 contained fifty-three weekswhile fiscal years 2009
and 2008 contained 52 weeks. All references herein to 2010, 2009 and 2008, refer
to the fiscal years ended September 3, 2010, August 28, 2009, and August 29,
2008, respectively.





Cash
and Bank Overdrafts. Cash balances consist of checking account
balances held at a high credit-quality financial institution. Bank
overdrafts consist of outstanding checks that have not cleared our
bank. Overdrafts are offset against cash balances to the extent that cash
balances are available in the account on which the checks are
issued. Remaining balances of overdrafts are included in our accounts
payable balances. At September 3, 2010 outstanding checks in the amount of
$161,000 were offset against cash balances. At August 28, 2009 outstanding
checks in the amount of $323,000 were included in accounts payable
balances.




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





Our
policy is not to require collateral on accounts receivable. However, in certain
circumstances letters of credit or deposits may be required from customers. We
are subject to concentrations of credit risk principally through accounts
receivable, as a substantial portion of our customers are affiliated with the
cable television, radio, business broadcast and telecommunications
industries.





41





Wegener
Corporation and subsidiary





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





Property,
Equipment and Depreciation.Property and
equipment are stated at cost. Depreciation is computed over the estimated useful
lives of the assets on the straight-line method for financial reporting and
accelerated methods for income tax purposes. Substantial betterments to property
and equipment are capitalized, and repairs and maintenance are expensed as
incurred.




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




Revenue
Recognition.Our principal sources of revenue are from hardware products, network
control software products, services and software and hardware maintenance
contracts.Our revenue
recognition policies are in compliance with FASB Accounting Standards
Codification (ASC) Topic 605 “Revenue Recognition.” Revenue is recognized when
persuasive evidence of an agreement with the customer exists, delivery has
occurred or services have been provided, the sale price is fixed or
determinable, collectability is reasonably assured, and risk of loss and title
have transferred to the customer. Revenue from product sales is recognized when
risk of loss and title has transferred which is generally upon shipment or in
some cases upon delivery. Service revenues are recognized at the time of
performance. Provisions for returns, discounts and trade-ins, based on
historical experience, have not been material.




When
arrangements contain multiple elements, we evaluate all deliverables in the
arrangement at the outset of the arrangement based on applicable accounting
guidance on accounting for revenue arrangements with multiple deliverables. If
the undelivered elements qualify as separate units of accounting based on
applicable accounting guidance, which include that the delivered elements have
value to the customer on a stand-alone basis and that objective and reliable
evidence of fair value exists for undelivered elements, we allocate the
arrangement fee based on the relative fair value of the elements of the
arrangement. If a delivered element does not meet the criteria in the applicable
accounting guidance to be considered a separate unit of accounting, revenue is
deferred until the undelivered elements are fulfilled. We establish fair value
by reference to the price the customer is required to pay when an item is sold
separately using contractually stated, substantive renewal rates, where
applicable, or the average price of recently completed stand alone sales
transactions. Accordingly, the determination as to whether appropriate objective
and reliable evidence of fair value exists can impact the timing of revenue
recognition for an arrangement.




Embedded
in our hardware products is internally developed software of varying
applications. The embedded software is not sold separately, is not a significant
focus of the marketing effort and we do not provide post-contract customer
support specific to embedded software. The functionality that the software
provides is marketed as part of the overall product and is incidental to the
product as a whole.





Revenue
from our network control software products and software-related elements is
recognized in accordance with ASC Topic 985-605 “Software-Revenue Recognition.”
Software-related elements include all non-software deliverables for which a
software deliverable is essential to its functionality. When software
arrangements contain multiple elements and vendor specific objective evidence
(VSOE) of fair value exists for all undelivered elements, we account for the
delivered elements using the residual method. In arrangements where VSOE of fair
value is not available for all undelivered elements, we defer the recognition of
all revenue under an arrangement until all elements, except post contract
support, have been delivered. When post contract support remains the only
undelivered element for such contracts, revenue is then recognized using the
residual method. Fair value of software-related elements is based on separate
sales to other customers or upon renewal rates quoted in contracts when the
quoted renewal rates are deemed to be substantive. Software and hardware
maintenance contract revenues are recognized ratably over the term of the
arrangement, which is typically one year.





At
September 3, 2010, deferred extended service maintenance revenues were $519,000,
and deferred revenues related to the fair value of undelivered elements were
$10,000 and are expected to be recognized as revenue in varying amounts
throughout fiscal 2011.


42





Wegener
Corporation and subsidiary





We
recognize revenue in certain circumstances before delivery has occurred
(commonly referred to as “bill and hold” transactions). In such circumstances,
among other things, risk of ownership has passed to the buyer, the buyer has
made a written fixed commitment to purchase the finished goods, the buyer has
requested the finished goods be held for future delivery as scheduled and
designated by them, and no additional performance obligations by the Company
exist. For these transactions, the finished goods are segregated from inventory
and normal billing and credit terms are granted. For the year ended
September 3, 2010, no revenues were recorded as bill and hold transactions.
For the year ended August 28, 2009, revenues attributable to two customers in
the amount of $1,236,000 were recorded prior to delivery as bill and hold
transactions. At August 28, 2009, accounts receivable for these revenues were
paid in full.




We have
included all shipping and handling billings to customers in revenues, and
freight costs incurred for product shipments have been included in cost of
products sold.





Research
and Development/Capitalized Software Costs. We expense research and
development costs, including expenditures related to development of our software
products that do not qualify for capitalization. Software development costs are
capitalized subsequent to establishing technological feasibility. Capitalized
costs are amortized based on the larger of the amounts computed using (a) the
ratio that current gross revenues for each product bears to the total of current
and anticipated future gross revenues for that product or (b) the straight-line
method over the remaining estimated economic life of the product. This has
resulted in amortization periods ranging from two to three years. Expected
future revenues and estimated economic lives are subject to revisions due to
market conditions, technology changes and other factors resulting in shortfalls
of expected revenues or reduced economic lives. Software development costs
capitalized during fiscal 2010, 2009 and 2008, totaled $848,000, $997,000 and
$1,214,000, respectively. Amortization expense, included in cost of products
sold, was $850,000, $949,000 and $1,238,000 for the same periods, respectively.
Capitalized software costs, net of accumulated amortization, were $1,263,000 at
September 3, 2010 and $1,265,000 at August 28, 2009. Accumulated
amortization amounted to $7,629,000 at September 3, 2010 and $13,694,000 at
August 28, 2009. During fiscal 2010, approximately $6,915,000 of fully amortized
capitalized software cost associated with products no longer being sold or
supported was written off against the accumulated amortization balance. This had
no effect on net capitalized software cost at September 3, 2010 or fiscal 2010
cost of products sold.




Advertising
and Sales Promotion Expenses.Our
policy is to expense advertising and sales promotion costs as incurred.
Advertising and sales promotion expenses include media advertising, trade shows,
customer events, product literature and market research costs. These expenses
totaled $128,000, $178,000 and $258,000 for fiscal years 2010, 2009 and 2008,
respectively.





Long-Lived
Assets. Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If the sum of the expected future undiscounted cash flows is
less than the carrying amount of the asset, a loss is recognized for the
difference between the fair value and carrying value of the asset.




Share-Based
Compensation.We
account for share-based payments to employees, including grants of employee
stock options, in accordance with ASC Topic 718, “Compensation-Stock
Compensation” (ASC 718). ASC 718 requires that these awards be recognized as
compensation expense in the consolidated financial statements based on their
fair values. That expense will be recognized over the period during which an
employee is required to provide services in exchange for the award, known as the
requisite service period (usually the vesting period). For fiscal years 2010 and
2009 there was no share-based compensation expense. In fiscal 2008, share-based
compensation expense included in selling, general and administrative expenses
amounted to $8,000.




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





Year endedAugust 29, 2008Risk-free
      interest rate
                    
                    
                    3.45
                    %Expected
      term
                    
                    5.0
      yearsExpected
      volatility
                    
                    
                    70
                    %Expected
      annual dividends
                    
                    
                    -Forfeiture
      rate
                    
                    
                    -




43




Wegener
Corporation and subsidiary





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





Year
      endedAugust
      29,
                          2008Per
      share option value
                        
                        $
                        .51Aggregate
      total
                        
                        $
                        8,000





Income
Taxes.Income taxes are based on income (loss) for financial reporting
purposes and reflect a current tax liability (asset) for the estimated taxes
payable (recoverable) in the current year’s tax return and changes in deferred
taxes. Deferred tax assets or liabilities are recognized for the estimated tax
effects of temporary differences between financial reporting and taxable income
(loss) and for tax credit and loss carryforwards based on enacted tax laws and
rates. Valuation allowances are established to reduce deferred tax assets to
amounts that we expect are more likely than not to be realizable.
At September 3, 2010, net deferred tax assets were fully offset by a
valuation allowance of $7,450,000.





Earnings
Per Share.Basic and diluted net (loss) earnings per share were computed
in accordance with ASC Topic 260 “Earnings Per Share.” Basic net (loss) earnings
per share are computed by dividing net (loss) earnings available to common
shareholders (numerator) by the weighted average number of common shares
outstanding (denominator) during the period and exclude the dilutive effect of
stock options. Diluted net (loss) earnings per share gives effect to all
dilutive potential common shares outstanding during a period. In computing
diluted net (loss) earnings per share, the average stock price for the period is
used in determining the number of shares assumed to be reacquired under the
treasury stock method from the hypothetical exercise of stock
options.





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





Years
      endedSeptember
      3,
                                                    2010
                                                  
                                                  
                                                  August
      28,
                                                    2009
                                                  
                                                  
                                                  August
      29,
                                                    2008BasicNet
      (loss) earnings
                                                  
                                                  $
                                                  (2,313,380
                                                  )
                                                  
                                                  $
                                                  (2,605,699
                                                  )
                                                  
                                                  $
                                                  383,283Weighted
      average shares outstanding
                                                  
                                                  
                                                  12,647,051
                                                  
                                                  
                                                  
                                                  12,647,051
                                                  
                                                  
                                                  
                                                  12,647,051Net
      (loss) earnings per share
                                                  
                                                  $
                                                  (.18
                                                  )
                                                  
                                                  $
                                                  (.21
                                                  )
                                                  
                                                  $
                                                  .03DilutedNet
      (loss) earnings
                                                  
                                                  $
                                                  (2,313,380
                                                  )
                                                  
                                                  $
                                                  (2,605,699
                                                  )
                                                  
                                                  $
                                                  383,283Weighted
      average shares outstanding
                                                  
                                                  
                                                  12,647,051
                                                  
                                                  
                                                  
                                                  12,647,051
                                                  
                                                  
                                                  
                                                  12,647,051Effect
      of dilutive potential common shares:Stock
      options
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  12,363Total
                                                  
                                                  
                                                  12,647,051
                                                  
                                                  
                                                  
                                                  12,647,051
                                                  
                                                  
                                                  
                                                  12,659,414Net
      (loss) earnings per share
                                                  
                                                  $
                                                  (.18
                                                  )
                                                  
                                                  $
                                                  (.21
                                                  )
                                                  
                                                  $
                                                  .03




44





Wegener
Corporation and subsidiary





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





Years endedSeptember 3,
                          
                          
                          August 28,
                          
                          
                          August 29,2010
                          
                          
                          2009
                          
                          
                          2008Common
      stock options:Number
      of shares
                          
                          
                          665,375
                          
                          
                          
                          731,375
                          
                          
                          
                          839,531Range
      of exercise prices
                          
                          $
                          .63
      to $2.50
                          
                          
                          $
                          .63
      to $2.50
                          
                          
                          $
                          1.00
      to $2.72





Fair
Value Measurements.The Company uses a three-level fair value hierarchy
that prioritizes the inputs used to measure fair value. This hierarchy requires
entities to maximize the use of observable inputs and minimize the use of
unobservable inputs. The three levels of inputs used to measure fair value are
as follows:




•
            Level
      1 – Quoted prices in active markets for identical assets or
      liabilities.




•
            Level
      2 – Observable inputs, other than quoted prices included in Level 1, such
      as quoted prices for markets that are not active; or other inputs that are
      observable or can be corroborated by observable market
    data.




•
            Level
      3 – Unobservable inputs that are supported by little or no market activity
      and that are significant to the fair value of the assets or liabilities.
      This includes certain pricing models, discounted cash flow methodologies
      and similar techniques that use significant unobservable
      inputs.




Fair
Value of Financial Instruments. The carrying amount of cash and other
current assets and liabilities, such as accounts receivable and accounts payable
as presented in the consolidated financial statements, approximates fair value
based on the short-term nature of these instruments. We believe the carrying
amounts of our line of credit borrowings approximate fair value because the
interest rates at September 3, 2010, approximated market interest
rates.





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




Recently
Issued Or Adopted Accounting Standards. In June 2009, the FASB
Accounting Standards Codification (Codification) was issued to become the source
of authoritative U.S. generally accepted accounting principles (GAAP) to be
applied by non-governmental entities and supersede all then-existing
non-Securities and Exchange Commission (SEC) accounting and reporting standards.
Rules and interpretive releases of the SEC under authority of federal securities
laws are also sources of authoritative GAAP for SEC registrants. All other
non-grandfathered non-SEC accounting literature not included in the Codification
became non-authoritative. The Codification was effective for financial
statements issued for interim and annual periods ending after September 15,
2009. The Company adopted the provisions in the first quarter of fiscal 2010.
References made to FASB guidance throughout this document have been updated for
the codification. The adoption did not impact the Company’s financial position
or its results of operations.





In
June 2009, the FASB issued authoritative guidance that changed the
consolidation model for variable interest entities. The provisions are effective
for the first quarter of fiscal 2011. The adoption is not expected to have a
material impact on the Company’s financial position or its results of
operations.





In September 2006, FASB
issued authoritative
guidance for fair value measurements, which establishedthedefinition of fair value,
provideda framework for measuring fair value
and expandedthe disclosure requirements about fair
value measurements. This guidance didnot require any new fair value
measurements but rather applies to all other accounting pronouncements that
require or permit fair value measurements. In February 2008, the FASB issued
authoritative guidance which delayed by a year the effective date for certain
non-financial assets and liabilities. TheCompany adopted the provisions of the
guidance for financial assets and liabilities in the first quarter of fiscal
2009. The adoption did not have a material impact on theCompany’s financialposition or its results of
operations. TheCompany adopted the remaining provisions
in the first quarter of fiscal 2010 for non-financial assets and liabilities,
including goodwill and intangible assets. Thisadoption likewise did not have a
material impact on theCompany’s financialposition or its results of
operations.





45




Wegener
Corporation and subsidiary




In
September 2009, the Emerging Issues Task Force issued new guidance pertaining to
the accounting for revenue arrangements with multiple deliverables. The new
guidance addressed how to determine whether an arrangement involving multiple
deliverables contains more than one unit of accounting, and how the arrangement
consideration should be allocated among the separate units of accounting. The
new guidance is effective for fiscal years beginning after June 15, 2010
and may be applied retrospectively or prospectively for new or materially
modified arrangements. In addition, early adoption is permitted. The Company has
evaluated this new guidance and believes it will not have a material impact on
our financial position or our results of operations.




In
September 2009, the Emerging Issues Task Force issued new guidance that changed
the accounting model for revenue arrangements that include both tangible
products and software elements that are “essential to the functionality” and
removes these products from the scope of current software revenue guidance. The
new guidance shall be applied on a prospective basis for revenue arrangements
entered into or materially modified in fiscal years beginning on or after
June 15, 2010. Earlier application is permitted as of the beginning of a
Company’s fiscal year provided the Company has not previously issued financial
statements for any period within that year. An entity shall not elect early
application of this guidance unless it also elects early application of the new
rule pertaining to accounting for revenue arrangements with multiple
deliverables. The Company has evaluated this new guidance and believes it will
not have a material impact on our financial position or our results of
operations.





3.  
Accounts Receivable


Accounts
receivable are summarized as follows:





September 3,
                            2010
                          
                          
                          August 28,
                            2009Accounts
      receivable – trade
                          
                          $
                          1,743,411
                          
                          
                          $
                          1,649,047Other
      receivables
                          
                          
                          30,253
                          
                          
                          
                          78,8891,773,664
                          
                          
                          
                          1,727,936Less:
      allowance for doubtful accounts
                          
                          
                          (139,693
                          )
                          
                          
                          (146,010
                          )Accounts
      receivable, net
                          
                          $
                          1,633,971
                          
                          
                          $
                          1,581,926





4.  
Inventories


Inventories
are summarized as follows:




September 3,
                            2010
                          
                          
                          August 28,
                            2009Raw
      materials
                          
                          $
                          3,641,664
                          
                          
                          $
                          4,430,492Work-in-process
                          
                          
                          703,531
                          
                          
                          
                          958,658Finished
      goods
                          
                          
                          3,275,183
                          
                          
                          
                          3,763,7937,620,378
                          
                          
                          
                          9,152,943Less:
      inventory reserves
                          
                          
                          (4,475,288
                          )
                          
                          
                          (4,689,357
                          )Inventories,
      net
                          
                          $
                          3,145,090
                          
                          
                          $
                          4,463,586





We have
invested a significant amount of financial resources to acquire certain raw
materials, sub-assemblies and finished goods, to incur direct labor and to
contract to have specific outplant procedures performed on certain inventory in
process. We purchased this inventory based upon prior backlog and anticipated
future sales based upon our existing knowledge of the marketplace. Our inventory
reserve of approximately $4,630,000 at September 3, 2010, is to
provide for items that are potentially slow-moving, excess or obsolete. Changes
in market conditions, lower than expected customer demand and rapidly changing
technology could result in additional obsolete and slow-moving inventory that is
unsaleable or saleable at reduced prices. No estimate can be made of a range of
amounts of loss from obsolescence that is reasonably possible should our sales
efforts not be successful.




46




Wegener
Corporation and subsidiary





5. 
 Property and Equipment


Major
classes of property and equipment consisted of the following:





Estimated
                              Useful Lives
                              (Years)
                            
                            
                            September 3,
                              2010
                            
                            
                            August 28,
                              2009Land
                            
                            -
                            
                            
                            $
                            707,210
                            
                            
                            $
                            707,210Buildings
      and improvements
                            
                            3-30
                            
                            
                            
                            3,778,469
                            
                            
                            
                            3,751,290Machinery
      and equipment
                            
                            3-5
                            
                            
                            
                            10,447,085
                            
                            
                            
                            10,490,572Furniture
      and fixtures
                            
                            5
                            
                            
                            
                            587,136
                            
                            
                            
                            587,599Total
      property and equipment
                            
                            
                            
                            
                            
                            15,519,900
                            
                            
                            
                            15,536,671Less
      accumulated depreciation and amortization
                            
                            
                            
                            
                            
                            (13,901,885
                            )
                            
                            
                            (13,816,640
                            )Property
      and equipment, net
                            
                            
                            
                            
                            $
                            1,618,015
                            
                            
                            $
                            1,720,031





Depreciation
expense for fiscal 2010, 2009 and 2008, totaled approximately $141,000,
$329,000, and $404,000, respectively. Repair and maintenance expenses amounted
to $134,000, $154,000 and $205,000 during fiscal years 2010, 2009 and 2008,
respectively.





6. 
Other Assets


Other
assets consisted of the following:




September 3, 2010Cost
                          
                          
                          Accumulated
                            Amortization
                          
                          
                          NetLicense
      agreements
                          
                          $
                          958,800
                          
                          
                          $
                          (958,800
                          )
                          
                          $
                          -Patents
      and patent applications
                          
                          
                          300,124
                          
                          
                          
                          (89,407
                          )
                          
                          
                          210,717Trademarks
      and trademark applications
                          
                          
                          82,820
                          
                          
                          
                          (65,482
                          )
                          
                          
                          17,338Other
                          
                          
                          6,889
                          
                          
                          
                          -
                          
                          
                          
                          6,889$
                          1,348,633
                          
                          
                          $
                          (1,113,689
                          )
                          
                          $
                          234,944




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





Amortization
expense of other assets amounted to $108,000, $160,000, and $212,000 for fiscal
years 2010, 2009 and 2008, respectively. Amortization expense for fiscal 2010
included $60,000 related to write-offs of two patent applications due to
rejection of the applications.





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




47





Wegener
Corporation and subsidiary




We
conduct an ongoing review of our intellectual property rights and potential
trademarks. As of September 3, 2010, we incurred legal fees of $109,000 related
to the filing of applications for various patents and $1,000 related to the
filing of trademarks. Upon issuance, these costs will be amortized on a
straight-line basis over the lesser of the legal life of the patents and
trademarks or their estimated useful lives of four to ten years. If it becomes
more likely than not that the patent application will not be granted, we will
write off the deferred cost at that time. At September 3, 2010, the cost of
registered patents and trademarks amounted to $161,000 and $82,000,
respectively.License agreements were
amortized over their estimated useful life of one to five years.




7. 
 Accrued Expenses


Accrued
expenses consisted of the following:




September 3,
                          2010
                        
                        
                        August 28,
                          2009Vacation
                        
                        $
                        538,268
                        
                        
                        $
                        530,652Interest
                        
                        
                        436,490
                        
                        
                        
                        -Payroll
      and related expenses
                        
                        
                        101,939
                        
                        
                        
                        223,319Royalties
                        
                        
                        99,212
                        
                        
                        
                        161,247Warranty
                        
                        
                        136,448
                        
                        
                        
                        98,882Taxes
      and insurance
                        
                        
                        97,810
                        
                        
                        
                        154,035Commissions
                        
                        
                        23,413
                        
                        
                        
                        31,516Professional
      fees
                        
                        
                        155,238
                        
                        
                        
                        290,072Other
                        
                        
                        142,704
                        
                        
                        
                        34,202$
                        1,731,522
                        
                        
                        $
                        1,523,925




Accrued
Warranty


We
warrant our products for a 12 to 14 month period beginning at the date of
shipment. The warranty provides for repair or replacement of defective products
returned during the warranty period at no cost to the customer. We expense costs
for routine warranty repairs as incurred. Based on historical claim rates,
provisions for routine warranty repairs are not material. Warranty provisions
are made for non-routine warranty claims based on estimated costs to be incurred
at the point in time in which the warranty claim is identified. For the fiscal
year ended September 3, 2010, warranty provisions were increased by $50,000 and
reduced by $12,000 for satisfied warranty claims. For the fiscal year ended
August 28, 2009, the warranty provisions were reduced by $130,000 for previously
estimated provisions that were no longer required. For the fiscal year
ended August 29, 2008, the warranty provision was increased by $50,000, reduced
by $45,000 for satisfied warranty claims and reduced by $310,000 for previously
estimated provisions that were no longer required.




8. 
 Deferred Revenue


Deferred
revenue consists of the unrecognized revenue portion of extended service
maintenance contracts and the fair value of revenue related to future
performance obligations. Extended service maintenance contract revenues are
recognized ratably over the maintenance contract term, which is typically one
year. At September 3, 2010, deferred extended service maintenance revenues were
$519,000, and deferred revenues related to future performance obligations were
$10,000 and are expected to be recognized as revenue in varying amounts
throughout fiscal 2011. At August 28, 2009, deferred extended service
maintenance revenues were $537,000, and deferred revenues related to future
performance obligations were $32,000.





9. 
 Financing Agreements


Revolving
Line of Credit and Term Loan Facilities





Effective
September 16, 2009, we entered into an Eleventh Amendment (“Amendment”) to the
Loan and Security Agreement (the “Loan Agreement”) with Bank of America, N.A.
(the “Bank”). The Amendment extended the maturity date of our revolving line of
credit and term loan facility (“loan facility”) with the Bank to November 30,
2009 (previously September 30, 2009), reduced the maximum available credit limit
to $4,000,000 (previously $5,000,000) and increased the interest rate to the
Bank’s prime rate plus two percent (previously the Bank’s prime
rate).




On
October 8, 2009, the Bank assigned its rights (the “Assignment”) under the Loan
Agreement to The David E. Chymiak Trust Dated December 15, 1999 (the “Trust”).
David E. Chymiak is a beneficial owner of 8.8% of our outstanding common stock.
The David E. Chymiak Trust Dated December 15, 1999, is controlled by Mr.
Chymiak. Immediately before becoming such assignee, the Trust entered into a
Twelfth amendment to the Loan Agreement, dated October 8, 2009 (the “Twelfth
Amendment”) which became effective immediately upon the consummation of the
Assignment. Accordingly, by virtue of the Assignment, the Trust succeeded to all
the rights and obligations of the Bank under the Loan Agreement, except as
otherwise provided in the Twelfth Amendment. Therefore, we no longer have a
lending relationship with the Bank.





48





Wegener
Corporation and subsidiary





WCI’s
loan facility, as provided by the Twelfth amendment, provided a maximum credit
limit of $4,000,000 excluding any accrued unpaid interest and bore interest at
the rate of twelve percent (12%) per annum. Effective September 3, 2010, the
maximum credit limit was increased to $4,250,000 and the annual interest rate
was reduced to eight percent (8.0%) per annum. The term of the amended loan
facility is eighteen (18) months beginning October 8, 2009 (“Original Term”), or
upon demand in the event of default as defined by the loan facility.The loan facility
automatically renews for successive twelve (12) month periods provided, however,
the Trust may terminate the loan facility by providing ninety (90) days’ prior
written notice of termination at any time beginning on or after ninety (90) days
prior to the expiration of the Original Term. Principal and interest shall be
payable upon the earlier of the maturity date (April 7, 2011), an event of
default, or 90 days following the date on which the Trust provides written
notice to terminate the agreement. All principal and interest shall be payable
in U.S. dollars or, upon mutual agreement of the parties decided in good faith
at the time payment is due, other good and valuable consideration.





The loan
is secured by a first lien on substantially all of WCI’s assets, including land
and buildings, and is guaranteed by Wegener Corporation. At September 3, 2010,
the outstanding balance on the revolving line of credit amounted to $3,850,000.
At November 1, 2010, the outstanding balance on the line of credit amounted to
$4,100,000.




The
amended loan facility required us to be in compliance with a solvency
representation provision on the last day of fiscal 2010 (September 3, 2010).
This representation required us to be able to pay our debts as they become due,
have sufficient capital to carry on our business and own property at a fair
saleable value greater than the amount required to pay our debts. The solvency
representation provision was subsequently extended to the last day of our second
quarter in fiscal 2011 (March 4, 2011). In addition, we are required to retain
certain executive officers and are precluded from paying dividends. The Twelfth
Amendment removed the minimum tangible net worth and minimum fixed coverage
ratio annual debt covenant provisions.




No
assurances may be given that upon maturity (April 7, 2011) our loan facility
will be renewed. In the event the loan facility is not renewed, we would need to
obtain additional credit facilities or raise additional capital to continue as a
going concern and to execute our business plan There is no assurance that such
financing would be available or, if available, that we would be able to complete
financing on satisfactory terms.




On
October 1, 2009, we entered into an unsecured promissory note with David E.
Chymiak in the amount of two hundred and fifty thousand dollars ($250,000). The
loan bore interest at the rate of eight percent (8.0%) per year with an initial
maturity date of October 31, 2009. The maturity date was subsequently extended
to September 10, 2010. Principal and interest on the unsecured promissory note
were paid in full during the fourth quarter of fiscal 2010.





10.
Income Taxes


No income
tax benefit was recorded for fiscal 2010 due to an increase in the deferred tax
asset valuation allowance. In fiscal 2010, the deferred tax asset increased
$833,000 primarily due to an increase in the net operating loss carryforward.
The increase in the deferred tax asset was offset by a corresponding increase in
the valuation allowance. No income tax benefit was recorded in fiscal 2009 due
to an increase in the deferred tax asset valuation allowance. In fiscal 2009,
the deferred tax asset increased $938,000 primarily due to an increase in the
net operating loss carryforward and a provision for inventory reserves, and
decreased $199,000 due to the expiration of state income tax credits. No income
tax expense was recorded for fiscal 2008 due to utilization of net operating
loss and alternative minimum tax credit carryforwards. In fiscal 2008, the
deferred tax asset decreased $141,000, which was offset by a decrease in the
valuation allowance by the same amount.




49




Wegener Corporation and
subsidiary




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





Years EndedSeptember 3,
                            2010
                          
                          
                          August 28,
                            2009
                          
                          
                          August 29,
                            2008Statutory
      U.S. income tax rate
                          
                          
                          34.0
                          %
                          
                          
                          34.0
                          %
                          
                          
                          (34.0
                          )%State
      taxes, net of federal  benefits
                          
                          
                          2.0
                          
                          
                          
                          2.0
                          
                          
                          
                          (2.1
                          )Expired
      state tax credit
                          
                          
                          -
                          
                          
                          
                          (7.6
                          )
                          
                          
                          -Valuation
      allowance
                          
                          
                          (36.0
                          )
                          
                          
                          (28.4
                          )
                          
                          
                          36.0Non-deductible
      expenses
                          
                          
                          (.1
                          )
                          
                          
                          (.1
                          )
                          
                          
                          (0.8
                          )Other,
      net
                          
                          
                          .1
                          
                          
                          
                          .1
                          
                          
                          
                          0.9Effective
      income tax rate
                          
                          
                          -
                          %
                          
                          
                          -
                          %
                          
                          
                          -
                          %





The
effective tax rate for fiscal 2010, 2009 and 2008 reflected the recording of a
full valuation allowance against net deferred
tax assets, as further discussed below.





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





September 3,
                                    2010
                                  
                                  
                                  August 28,
                                    2009Deferred
      tax assets (liabilities):Inventory
      reserves
                                  
                                  $
                                  2,290,000
                                  
                                  
                                  $
                                  2,301,000Accounts
      receivable allowance
                                  
                                  
                                  53,000
                                  
                                  
                                  
                                  56,000Accrued
      expenses
                                  
                                  
                                  256,000
                                  
                                  
                                  
                                  239,000Net
      operating loss carryforwards
                                  
                                  
                                  5,167,000
                                  
                                  
                                  
                                  4,352,000AMT
      credit carryovers
                                  
                                  
                                  134,000
                                  
                                  
                                  
                                  134,000Depreciation
                                  
                                  
                                  93,000
                                  
                                  
                                  
                                  137,000Capitalized
      software costs
                                  
                                  
                                  (480,000
                                  )
                                  
                                  
                                  (481,000
                                  )Other
                                  
                                  
                                  (63,000
                                  )
                                  
                                  
                                  (121,000
                                  )Deferred
      tax assets
                                  
                                  
                                  7,450,000
                                  
                                  
                                  
                                  6,617,000Valuation
      allowance
                                  
                                  
                                  (7,450,000
                                  )
                                  
                                  
                                  (6,617,000
                                  )Net
      deferred tax asset
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -Consolidated
      balance sheet classifications:Current
      deferred tax asset
                                  
                                  $
                                  2,610,000
                                  
                                  
                                  $
                                  2,548,000Noncurrent
      deferred tax asset
                                  
                                  
                                  4,840,000
                                  
                                  
                                  
                                  4,069,000Valuation
      allowance
                                  
                                  
                                  (7,450,000
                                  )
                                  
                                  
                                  (6,617,000
                                  )Net
      deferred tax asset
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -





A
valuation allowance is established when it is “more likely than not” that all or
a portion of a deferred tax asset will not be realized. A review of all
available positive and negative evidence was considered in judging the
likelihood of realizing tax benefits. Forming a conclusion that a valuation
allowance is not needed is difficult when there is negative evidence such as
cumulative losses in recent years. Cumulative losses are one of the most
difficult pieces of negative evidence to overcome in the absence of sufficient
existing orders and backlog (versus forecasted future orders) supporting a
return to profitability. Our assessment indicated that a full valuation
allowance for our net deferred tax assets was required as of September 3, 2010
and August 28, 2009. The valuation allowance increased $833,000 in fiscal
2010. At September 3, 2010, net deferred tax assets of $7,450,000 were
fully reserved by a valuation allowance.




At
September 3, 2010, we had a federal net operating loss carryforward of
$14,219,000, of which $1,438,000 expires in fiscal 2021, $1,296,000 in fiscal
2023, $3,396,000 in fiscal 2024, $1,454,000 in fiscal 2025, $1,755,000 in fiscal
2026, $265,000 in fiscal 2027, $2,221,000 in fiscal 2029 and $2,394,000 in
fiscal 2030. Additionally, we had an alternative minimum tax credit of $134,000
which was fully offset by the valuation allowance.





Effective
September 1, 2007, we adopted authoritative guidance on accounting for
uncertain income tax positions. Accordingly, assets and liabilities are
recognized for a tax position, based solely on its technical merits that is
believed to be more likely than not to be fully sustainable upon examination. As
of September 3, 2010 and August 28, 2009, there was no accrual for interest or
penalties related to uncertain tax positions. Our accounting policy for
penalties and interest is to include such amounts, if any, in income tax
expense.


50




Wegener Corporation and
subsidiary




We
reassess the validity of our conclusions regarding uncertain income tax
positions on a quarterly basis to determine if facts or circumstances have
arisen that might cause us to change our judgment regarding the likelihood of a
tax position’s sustainability under audit. As we believe that all such positions
are fully supportable by existing Federal law and related interpretations, there
are no uncertain positions to consider in accordance with ASC 740.




We are
subject to U.S. federal income tax as well as income tax of numerous state
jurisdictions. We are subject to U.S. federal tax examinations by tax
authorities for fiscal years 2007 through 2010. Income tax examinations that we
may be subject to from the various state taxing authorities vary by
jurisdiction.




11.Share-Based Compensation
Plans


2010 Incentive Plan.On
February 2, 2010, our stockholders approved the 2010 Incentive Plan (the “2010
Plan”). The effective date of the 2010 Plan was January 1, 2010 and the 2010
Plan has a ten-year term. The 2010 Plan provides for awards of up to an
aggregate of 1,250,000 shares of common stock which may be represented by (i)
incentive or nonqualified stock options, (ii) stock appreciation rights, (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. The maximum total number of shares of restricted stock, deferred
stock and/or performance units that may be granted at full value shall not
exceed 500,000 shares. Eligible participants include officers and other key
employees, non-employee directors, consultants and advisors to the Company. The
exercise price per share in the case of incentive stock options and any tandem
stock appreciation rights may not be less than 100% of the fair market value on
the date of grant or, in the case of an option granted to a 10% or greater
stockholder, 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 100% of the fair market value on the date of grant. The exercise period
for nonqualified stock options may not exceed ten years and one day from the
date of the grant, and the exercise period for incentive stock options or stock
appreciation rights shall not exceed ten years from the date of the grant (five
years for a 10% or greater stockholder). No awards have been granted under the
2010 Plan.





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




1989 Directors' Incentive Plan.On January 9, 1990, the stockholders approved the Wegener Corporation
1989 Directors' Incentive Plan (“1989 Plan”), permitting certain participating
directors of the Company to be eligible to receive incentive awards consisting
of common stock of the Company, performance units or stock appreciation rights
payable in stock or cash, or nonqualified stock options to purchase such stock,
or any combination of the foregoing, together with supplemental cash payments.
The aggregate number of shares of common stock that could be awarded under the
1989 plan was 300,000 shares. The exercise price per share for nonqualified
stock options or stock appreciation rights could not be less than 85% of fair
market value on the date the award is made or not more than nine trading days
immediately preceding such date. The expiration period for a nonqualified stock
option was ten years and one day from the date of the grant. The expiration
period for stock appreciation rights, including any extension, could not exceed
ten years from the date of grant. This plan terminated and expired effective
December 1, 1999. During fiscal 2009, options for 16,000 shares of common stock
expired. At August 28, 2009, no options remained outstanding under the 1989
Plan.


51





Wegener
Corporation and subsidiary




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





Number
                                of Shares
                              
                              
                              Range of
                                Exercise Prices
                              
                              
                              Weighted
                                Average
                                Exercise PriceOutstanding
      at:August
      31, 2007
                              
                              
                              971,531
                              
                              
                              $
                              .63
      – 2.72
                              
                              
                              $
                              1.55Granted
                              
                              
                              15,000
                              
                              
                              
                              .85
                              
                              
                              
                              .85Forfeited
      or cancelled
                              
                              
                              (58,000
                              )
                              
                              
                              1.41
      – 2.21
                              
                              
                              
                              1.45Outstanding
      at:August
      29, 2008
                              
                              
                              928,531
                              
                              
                              $
                              .63
      – 2.72
                              
                              
                              $
                              1.55Forfeited
      or cancelled
                              
                              
                              (197,156
                              )
                              
                              
                              1.41
      – 2.21
                              
                              
                              
                              2.03Outstanding
      at:August
      28, 2009
                              
                              
                              731,375
                              
                              
                              $
                              .63
      – 2.50
                              
                              
                              $
                              1.42Forfeited
      or cancelled
                              
                              
                              (66,000
                              )
                              
                              
                              2.31
                              
                              
                              
                              2.31Outstanding
      at September 3, 2010
                              
                              
                              665,375
                              
                              
                              $
                              .63
      – 2.50
                              
                              
                              $
                              1.33Available
      for issue at September 3, 2010
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Options
      exercisable at:September
      3, 2010
                              
                              
                              665,375
                              
                              
                              $
                              .63
      – 2.50
                              
                              
                              $
                              1.33August
      28, 2009
                              
                              
                              731,375
                              
                              
                              $
                              63
      – 2.50
                              
                              
                              $
                              1.55.





The
weighted average remaining contractual life of options outstanding and
exercisable at September 3, 2010, was 3.0 years. There was no intrinsic value of
the options outstanding and exercisable at September 3, 2010. The weighted
average grant-date fair value of options granted during fiscal year 2008 was
$0.51.





12. 
Employee Benefit Plans


WCI has a
401(k) Profit SharingPlan and Trust (the
“Plan”) covering substantially all employees. Amounts to be contributed to the
Plan each year are subject to the approval of the Board of Directors. No profit
sharing contributions were declared for fiscal years 2010, 2009 and
2008.





Eligible
WCI employees are permitted to make contributions, up to certain regulatory
limits, to the Plan on a tax deferred basis under Section 401(k) of the Internal
Revenue Code. The Plan provides for a minimum company matching contribution on a
quarterly basis at the rate of 25% of employee contributions with a quarterly
discretionary match. During the fourth quarter of fiscal 2009 and for fiscal
2010, all matching contributions, including a discretionary matching
contribution of 25%, were suspended. In addition, the Plan was amended to make
all company matching contributions discretionary. During fiscal year 2008, an
additional discretionary matching contribution of 25% of employee contributions
was made for all quarters. All matching contributions are in the form of the
Company’s stock or cash at the discretion of the Board of Directors. During
fiscal 2009 and 2008, all matching contributions in the amount of $155,000 and
$298,000, respectively, were in the form of cash.




13. Segment Information and
Concentrations


ASC Topic
280 “Segment Reporting,” established standards for the way that public business
enterprises report information about operating segments in their financial
statements. The standard defines operating segments as components of an
enterprise for which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Based on these standards, we
have determined that we operate in a single operating segment: the manufacture
and sale of satellite communications equipment.




52


Wegener Corporation and
subsidiary




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





Years endedSeptember 3,
                              2010
                            
                            
                            August 28,
                              2009
                            
                            
                            August 29,
                              2008Direct
      Broadcast Satellite
                            
                            $
                            8,516,561
                            
                            
                            $
                            12,012,781
                            
                            
                            $
                            20,920,764Analog
      and Custom Products
                            
                            
                            16,875
                            
                            
                            
                            23,822
                            
                            
                            
                            29,335Service
                            
                            
                            387,983
                            
                            
                            
                            618,504
                            
                            
                            
                            544,394Revenues,
      net
                            
                            $
                            8,921,419
                            
                            
                            $
                            12,655,107
                            
                            
                            $
                            21,494,493





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





Years endedSeptember 3,
                        2010
                      
                      
                      August 28,
                        2009
                      
                      
                      August 29,
                        2008Products:Private
      network receivers
                      
                      
                      13.3
                      %
                      
                      (a
                      )
                      
                      (a
                      )iPump
      media servers
                      
                      (a
                      )
                      
                      
                      19.2
                      %
                      
                      
                      14.1
                      %Professional
      and broadcast receivers
                      
                      
                      11.9
                      %
                      
                      
                      12.4
                      %
                      
                      
                      27.4
                      %SMD
      515 set top boxes
                      
                      (a
                      )
                      
                      (a
                      )
                      
                      
                      12.8
                      %Audio
      broadcast receivers
                      
                      
                      28.0
                      %
                      
                      
                      18.1
                      %
                      
                      
                      10.0
                      %Network
      control products
                      
                      
                      11.4
                      %
                      
                      
                      13.7
                      %
                      
                      (a
                      )




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





Products
representing 10% or more of annual revenues are subject to fluctuations from
year to year as new products and technologies are introduced, new product
features and enhancements are added, and as customers upgrade or expand their
network operations. Fiscal 2010 product mix included Unity®550
private network receivers to a faith-based organization for network upgrades and
continued shipments of Unity® 201audio
broadcast receivers to background music providers. Fiscal 2009 and 2008 product
mix featured new iPump®media
server products for broadcast radio customers adopting store and forward
technologies in their network upgrades and a new customer for a digital signage
network. The Unity® 4600 and
4650 professional and broadcast receiver products in fiscal 2008 benefited from
a new cable network and expansion of high definition television distribution by
cable headends.


Revenues
by geographic areas are as follows:





Years endedSeptember 3,
                                2010
                              
                              
                              August 28,
                                2009
                              
                              
                              August 29,
                                2008Geographic
      Area:United
      States
                              
                              $
                              7,119,816
                              
                              
                              $
                              11,060,100
                              
                              
                              $
                              17,808,780Canada
                              
                              
                              48,650
                              
                              
                              
                              36,945
                              
                              
                              
                              359,881Europe
                              
                              
                              1,235,258
                              
                              
                              
                              479,501
                              
                              
                              
                              952,965Latin
      America and Mexico
                              
                              
                              336,850
                              
                              
                              
                              1,070,943
                              
                              
                              
                              2,288,407Other
                              
                              
                              180,845
                              
                              
                              
                              7,618
                              
                              
                              
                              84,460Revenues,
      net
                              
                              $
                              8,921,419
                              
                              
                              $
                              12,655,107
                              
                              
                              $
                              21,494,493





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





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




53




Wegener Corporation and
subsidiary




Years endedSeptember 3,
                            
                            
                            August 28,
                            
                            
                            August 29,2010
                            
                            
                            2009
                            
                            
                            2008Customer
      1
                            
                            
                            22.8
                            %
                            
                            
                            18.1
                            %
                            
                            (a
                            )Customer
      2
                            
                            
                            10.7
                            %
                            
                            (a
                            )
                            
                            (a
                            )Customer
      3
                            
                            (a
                            )
                            
                            
                            21.2
                            %
                            
                            (a
                            )Customer
      4
                            
                            (a
                            )
                            
                            
                            10.7
                            %
                            
                            
                            13.3
                            %Customer
      5
                            
                            (a
                            )
                            
                            (a
                            )
                            
                            
                            14.4
                            %Customer
      6
                            
                            (a
                            )
                            
                            (a
                            )
                            
                            
                            12.1
                            %


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





Sales to
a relatively small number of major customers have typically comprised a majority
of our revenues and that trend is expected to continue throughout fiscal 2011
and beyond. Future revenues are subject to the timing of significant orders from
customers and are difficult to forecast. As a result, future revenue levels may
fluctuate from quarter to quarter.





At
September 3, 2010, four customers accounted for approximately 24.2%, 18.1%,
14.1% and 10.7%, respectively, of our accounts receivable while at August 28,
2009, three customers accounted for approximately 22.8%, 15.4% and 11.8%,
respectively, of our accounts receivable. When deemed appropriate, we use
letters of credit and credit insurance to mitigate the credit risk associated
with foreign sales.





During
fiscal years 2010 and 2009, we used offshore manufacturers for a significant
amount of our finished goods or component inventories. An offshore manufacturer,
with facilities located in Taiwan and the Peoples Republic of China, accounted
for approximately 79% and 68% of inventory purchases in fiscal 2010 and
fiscal 2009, respectively. They have facilities located in Taiwan and the
Peoples Republic of China. If these suppliers are unable to meet the Company’s
needs, losses of potential customers could result, which could adversely
affect operating results.





14.
Commitments and Contingencies


Purchase
Commitments


We have
one manufacturing and purchasing agreement for certain finished goods
inventories. AtSeptember 3, 2010,
outstanding purchase commitments under this agreement amounted to
$274,000.




Operating Leases


We lease
certain office and manufacturing facilities and equipment under long-term
noncancelable operating leases that expire through fiscal 2013. Approximate
future minimum lease commitments are as follows: 2011-$67,000; 2012-$64,000;
2013-$27,000. Rent expense under all leases was approximately $101,000, $153,000
and $195,000 for fiscal years 2010, 2009 and 2008, respectively.





Indemnification
Obligations


We are
obligated to indemnify our officers and the members of our Board of Directors
pursuant to our bylaws and contractual indemnity agreements. We routinely sell
products with limited intellectual property indemnification included in the
terms of sale or in certain contractual arrangements. The scope of these
indemnities varies, but in some instances includes indemnification for costs,
damages and expenses (including reasonable attorneys’ fees) finally awarded in
any suit by a third party against the purchaser to the extent based upon a
finding the design or manufacture of the purchased item infringes the
proprietary rights of such third party. Certain requests for indemnification
have been received by us pursuant to these arrangements.





On
June 1, 2006, a complaint was filed by Rembrandt Technologies, LP
(Rembrandt) against Charter Communications, Inc. (Charter), Cox Communications
Inc. (Cox), CSC Holdings, Inc. (CSC) and Cablevisions Systems Corp.
(Cablevision) in the United States District Court for the Eastern District of
Texas alleging patent infringement. The complaint alleges that products and
services sold by Charter infringe certain Rembrandt patents related to cable
modem, voice-over internet, and video technology and applications. The case may
be expensive to defend and there may be substantial monetary exposure if
Rembrandt is successful in its claim against Charter and then elects to pursue
other cable operators that use the allegedly infringing products. Wegener has
not been named a party in the suit. However, subsequent to December 1, 2006,
Charter has requested us to defend and indemnify Charter to the extent that the
Rembrandt allegations are premised upon Charter’s use of products that we have
sold to Charter. To date, we have not agreed to Charter’s
request.





54




Wegener
Corporation and subsidiary




On
June 1, 2006, a complaint substantially similar to the above described suit
was filed by Rembrandt against Time Warner Cable (TWC) in the United States
District Court for the Eastern District of Texas. Wegener has not been named a
party in the suit, but TWC has requested us (as well as other equipment
vendors) to contribute a portion of the defense costs related to this matter as
a result of the products that we and others have sold to TWC. To date, we have
not agreed to contribute to the payment of legal costs related to this
case.





In
addition, Cisco Systems, Inc. (Scientific Atlanta) has made indemnity demands
against us, related to the fact that a number of Cisco’s customers that are
defendants in the Rembrandt lawsuit have made indemnity demands against Cisco.
Cisco’s demands are based upon allegations that Wegener sold devices to these
companies that are implicated by the patent infringement claims in the Rembrandt
lawsuit. To date, we have not agreed to Cisco’s demands.





These
actions have been consolidated into a multi-district action pending in the
United States District Court for the District of Delaware. On October 23, 2009,
the Delaware District Court issued an Order dismissing eight of the substantive
patent claims embodied in the consolidated action, as well as all counterclaims.
The parties also have agreed to summary judgment of non-infringement on a
remaining patent claim, but the grounds for such summary judgment have not yet
been finalized. The Court subsequently asked each of the parties to the
consolidated lawsuits to submit any motions for fees and costs with respect to
one another by November 16, 2009. Parties have submitted briefs on that issue,
which has yet to be decided by the Court.





On
October 4, 2010, a Second Amended Complaint was filed by Multimedia Patent Trust
(“MPT”) against Fox News Networks, LLC (“Fox News”) and other parties in the
United States District Court for the Southern District of California for patent
infringement. (The initial Complaint was filed on January 19, 2010). The Second
Amended Complaint asserts that Fox News has infringed upon certain MPT patents
relating to video compression, encoding and decoding. This litigation may be
very expensive to defend and there could be significant financial exposure if
MPT is successful in its claims. On November 3, 2010, however, Fox News wrote to
Wegener, asking Wegener to fully indemnify, hold harmless and defend Fox News in
connection with the litigation. In its letter, Fox News states that it has
identified Wegener as a vendor that provided Fox News with products and/or
services relating to video compression. Fox News states further that it believes
that MPT’s claims give rise to indemnity obligations and other obligations for
Wegener products obtained from Wegener by Fox News. The November 3, 2010 letter
asks Wegener to acknowledge such tender on or before November 24, 2010. Wegener
has not agreed to do so, nor has Wegener acknowledged or agreed that the
specific claims against Fox by MPT give rise to such obligations on the part of
Wegener. At this point, we are unable to assess the impact of this litigation,
if any, on Wegener.





To date,
there have been no findings related to the above matters that our products
and/or services have infringed upon the proprietary rights of others. Although
it is reasonably possible a liability may be incurred in the future related to
these indemnification claims, at this point, any possible range of loss cannot
be reasonably estimated.





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





On June 3, 2010, the Audit Committee of
the Board of Directors of Wegener Corporation (the “Company”) dismissed BDO
USA, LLP, formerly known as BDO Seidman, LLP (“BDO USA”) as the Company’s
independent registered public accounting firm, effective on that
date.




The
reports of BDO USA on the financial statements of the Company for the fiscal
years ended August 28, 2009 and August 29, 2008 did not contain an adverse
opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope, or accounting principles, except BDO USA’s audit
reports were modified for an uncertainty regarding the Company’s ability to
continue as a going concern. In the Annual Reports on Form 10-K filed by
the Company for the fiscal years ended August 28, 2009 and August 29, 2008, BDO
USA’s audit reports stated that the Company had suffered recurring losses from
operations and had a net capital deficiency that raised substantial doubt about
the Company’s ability to continue as a going concern. During the fiscal
years ended August 28, 2009 and August 29, 2008 and through June 3, 2010, there
were no disagreements between the Company and BDO USA on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to the satisfaction of BDO USA would
have caused them to make reference thereto in their reports on the
financial statements for such fiscal years.  During the period
described in the preceding sentence, there were no “reportable events,” as such
term is defined in Item 304(a)(1)(v) of Regulation S-K.





55




Wegener
Corporation and subsidiary





The
Company provided BDO USA with a copy of this disclosure and requested that BDO
USA furnish it with a letter addressed to the United States Securities and
Exchange Commission stating whether it agrees with the above statements. A copy
of BDO USA’s letter, dated June 8, 2010, was attached as Exhibit 16.1 to our
Form 8-K filed on June 8, 2010.





On June
3, 2010, the Audit Committee of the Board of Directors of the Company appointed
Habif, Arogeti & Wynne, LLP (“Habif, Arogeti & Wynne”) as the Company’s
independent registered public accounting firm for fiscal year
2010.  During the fiscal years ended August 28, 2009 and August 29,
2008 and through the date of the appointment of Habif, Arogeti & Wynne,
neither the Company nor anyone on the Company’s behalf consulted with Habif,
Arogeti & Wynne with respect to (i) the application of accounting principles
to a specified transaction, either completed or proposed, (ii) the type of audit
opinion that might be rendered on the Company’s financial statements, or (iii)
any matter that was either the subject of a disagreement (as defined in Item
304(a)(1)(iv) of Regulation S-K) or a reportable event (as defined in Item
304(a)(1)(v) of Regulation S-K).





ITEM
9A. CONTROLS AND PROCEDURES





Evaluation
of Disclosure Controls and Procedures





Management
has evaluated, with the participation of our Chief Executive Officer (CEO) and
our Chief Financial Officer (CFO), the effectiveness of the design and operation
of the Company’s disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as
of the end of the period covered by this report (September 3, 2010). Based upon
that evaluation, our CEO and CFO have concluded that the Company’s disclosure
controls and procedures were effective to ensure that the information required
to be disclosed in our reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported, within the
time periods specified  in the Commission’s rules and forms, including
to ensure that information required to be disclosed by us in the reports filed
or submitted under the Securities Exchange Act of 1934 is accumulated and
communicated to our management, including our principal executive and principal
financial officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.




Report
of Management on Internal Control over Financial Reporting





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





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





The
Company’s management assessed the effectiveness of its internal control over
financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, using
the criteria for effective internal control over financial reporting described
in “Internal Control – Integrated Framework” issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this assessment,
management concluded that, as of September 3, 2010, the Company’s internal
control over financial reporting was effective.





This
annual report does not include an attestation report of the Company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's registered
public accounting firm pursuant to the exemption provided to issuers that are
not “large accelerated filers” nor “accelerated filers” under the Dodd-Frank
Wall Street Reform and Consumer Protection Act.




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





ITEM
9B. OTHER INFORMATION


None




56




Wegener
Corporation and subsidiary




PART
III





ITEM
10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE





Information contained in the Proxy
Statement pertaining to the 2011 Annual Meeting of Stockholders (“Proxy
Statement”) is incorporated herein by reference in partial response to this
item. See also Item 1. “Business - Executive Officers of the Registrant” on page
11 of this Report.





ITEM
11.  EXECUTIVE COMPENSATION





Information contained in the Proxy
Statement is incorporated herein by reference in response to this item. See also
exhibit 10.8 which is incorporated herein by reference.





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





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





ITEM13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE





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





ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES





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




57




Wegener
Corporation and subsidiary




PART
IV





ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES




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





Report of
Independent Registered Public Accounting Firm (Habif, Arogeti & Wynne,
LLP).





Report of
Independent Registered Public Accounting Firm (BDO USA, LLP, formerly known as
BDO Seidman, LLP).





Consolidated
Balance Sheets – September 3, 2010 and August 28, 2009.





Consolidated
Statements of Operations - Years ended September 3, 2010, August 28, 2009, and
August 29, 2008.





Consolidated
Statements of (Capital Deficit) Shareholders' Equity - Years ended September 3,
2010, August 28, 2009, and August 29, 2008.





Consolidated
Statements of Cash Flows - Years ended September 3, 2010, August 28, 2009, and
August 29, 2008.





Notes to
Consolidated Financial Statements.





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





(a)
      (2)
              The
      following consolidated financial statements schedule for Wegener
      Corporation and subsidiary is included herein:Schedule
      II-Valuation and Qualifying AccountsYears
      ended September 3, 2010, August 28, 2009 and August 29,
    2008.(a)
      (3)
              The
      exhibits filed in response to Item 601 of Regulation S-K are listed in the
      Exhibit Index below.(b)
              See
      Part IV, Item 15(a) (3).(c)
              See
      Part IV, item 15(a) (2).




58




Wegener
Corporation and subsidiary




REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board of
Directors and Shareholders of Wegener Corporation


Johns
Creek, Georgia





The audit referred to in our
report dated November 15, 2010, relating to the consolidated financial
statements of Wegener Corporation and subsidiary, which is contained in Item 8
of this Form 10-K also included the audit of the financial statement schedule
listed in the accompanying index. The financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statement schedule based on our audit.





In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.




Habif,
Arogeti & Wynne, LLP.





Atlanta,
Georgia




November
15, 2010




59




Wegener
Corporation and subsidiary





REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board of
Directors and Shareholders of Wegener Corporation


Johns
Creek, Georgia





The audits referred to in our
report dated November 25, 2009, relating to the consolidated financial
statements of Wegener Corporation and subsidiary, which is contained in Item 8
of this Form 10-K also included the audit of the financial statement schedule
listed in the accompanying index. The financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statement schedule based on our audits.





In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.




BDO USA,
LLP (formerly known as BDO Seidman, LLP)


Atlanta,
Georgia


November
25, 2009




60





Wegener
Corporation and subsidiary





SCHEDULE
II


WEGENER
CORPORATION AND SUBSIDIARY


VALUATION
AND QUALIFYING ACCOUNTS





Balance at
                  Beginning
                  of Period
                
                
                Charged to
                  Costs and
                  Expenses
                
                
                Write-offs
                
                
                Recoveries
                
                
                Balance at
                  End of
                  PeriodAllowance
      for doubtful accounts receivable:Year
      ended September 3, 2010
                
                $
                146,010
                
                
                $
                80,000
                
                
                $
                (86,317
                )
                
                $
                -
                
                
                $
                139,693Year
      ended August 28, 2009
                
                $
                230,233
                
                
                $
                -
                
                
                $
                (84,223
                )
                
                $
                -
                
                
                $
                146,010Year
      ended August 29, 2008
                
                $
                251,316
                
                
                $
                -
                
                
                $
                (21,083
                )
                
                $
                -
                
                
                $
                230,233Inventory
      Reserves:Year
      ended September 3, 2010
                
                $
                4,689,357
                
                
                $
                90,000
                
                
                $
                (304,069
                )
                
                $
                -
                
                
                $
                4,475,288Year
      ended August 28, 2009
                
                $
                4,070,305
                
                
                $
                630,000
                
                
                $
                (10,948
                )
                
                $
                -
                
                
                $
                4,689,357Year
      ended August 29, 2008
                
                $
                4,092,313
                
                
                $
                -
                
                
                $
                (22,008
                )
                
                $
                -
                
                
                $
                4,070,305Accrued
      Warranty:Year
      ended September 3, 2010
                
                $
                98,882
                
                
                $
                50,000
                
                
                $
                (12,434
                )
                
                $
                -
                
                
                $
                136,448Year
      ended August 28, 2009
                
                $
                228,882
                
                
                $
                -
                
                
                $
                -
                
                
                $
                (130,000
                )
                
                $
                98,882Year
      ended August 29, 2008
                
                $
                534,052
                
                
                $
                50,000
                
                
                $
                (45,170
                )
                
                $
                (310,000
                )
                
                $
                228,882




61





Wegener
Corporation and subsidiary





EXHIBIT
INDEX





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





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





62





Wegener
Corporation and subsidiary





Exhibit No.
            
            
            Description of Exhibit4.2.8
            
            
            Loan
      and Security Agreement – Ninth Amendment dated June 28, 2007, by and
      between Wegener Communications, Inc. and LaSalle National Bank respecting
      $5,000,000 combined revolving credit note and term note.
    (21)4.2.9
            
            
            Loan
      and Security Agreement – Tenth Amendment dated September 8, 2008, by and
      between Wegener Communications, Inc. and LaSalle National Bank respecting
      $5,000,000 combined revolving credit note and term
note.4.2.10
            
            
            Loan
      and Security Agreement – Eleventh Amendment dated September 14, 2009, by
      and between Wegener Communications, Inc. and LaSalle National Bank
      respecting $4,000,000 combined revolving credit note and term note.
      (23)4.2.11
            
            
            Loan
      and Security Agreement –Twelfth Amendment dated October 8, 2009, by and
      between Wegener Communications, Inc. and The David E. Chymiak Trust Dated
      December 15, 1999, as assignee of the Bank of America, N.A.,successor
      interest by merger to LaSalle Bank National Association, respecting
      $4,000,000 combined revolving credit note and term note.
    (24)4.2.12
            
            
            Loan
      and Security Agreement –Thirteenth Amendment dated June 11, 2010, by and
      between Wegener Communications, Inc. and The David E. Chymiak Trust Dated
      December 15, 1999, as assignee of the Bank of America, N.A.,successor
      interest by merger to LaSalle Bank National Association, respecting
      $4,000,000 combined revolving credit note and term note.
    (25)4.2.13
            
            
            Loan
      and Security Agreement –Fourteenth Amendment dated September 3, 2010, by
      and between Wegener Communications, Inc. and The David E. Chymiak Trust
      Dated December 15, 1999, as assignee of the Bank of America, N.A.,successor
      interest by merger to LaSalle Bank National Association, respecting
      $4,250,000 combined revolving credit note and term note.
    (27)4.2.14
            
            
            Loan
      and Security Agreement –Fiftteenth Amendment dated November 8, 2010, by
      and between Wegener Communications, Inc. and The David E. Chymiak Trust
      Dated December 15, 1999, as assignee of the Bank of America, N.A.,successor
      interest by merger to LaSalle Bank National Association, respecting
      $4,250,000 combined revolving credit note and term note.
    (28)4.3
            
            
            Stockholder
      Rights Agreement. (3)4.3.1
            
            
            Amendment
      No. 1, dated as of September 29, 2006, to the Company's Stockholder Rights
      Agreement. (4)10.1
            
            
            License
      Agreement, Distributorship and Supply Agreement, and Purchase Pooling and
      Warehouse Agreement dated May 28, 1994, by and between Wegener
      Communications, Inc. and Cross Technologies, Inc. (11)10.2
            
            
            Wegener
      Communications, Inc. 401(k) Profit Sharing Plan and Trust dated January 1,
      1982, amended and restated as of January 1, 1984. (12)10.3
            
            
            1989
      Directors' Incentive Plan. (13)10.3.1
            
            
            Amendment
      to 1989 Directors’ Incentive Plan effective February 1, 1995.
      (14)10.4
            
            
            1998
      Incentive Plan. (15)10.5
            
            
            Form
      of Agreement between Wegener Corporation and Robert A. Placek, Ned L.
      Mountain, and C. Troy Woodbury, Jr. respecting severance payments in the
      event of a change of control. (16)




63




Wegener Corporation and
subsidiary




Exhibit No.
            
            
            Description of Exhibit10.6
            
            
            Director
      Compensation Plan for 2004. (17)10.7
            
            
            Agreement,
      dated September 29, 2006, by and among Wegener Corporation, Henry
      Partners, L.P., Matthew Partners, L.P., Henry Investment Trust, L.P., and
      David W. Wright. (4)10.8
            *
            
            Executive
      Compensation for the fiscal year ended September 3,
  2010.10.9
            
            
            Patent
      Purchase Agreement effective as of May 22, 2008, by and between Wegener
      Communications, Inc. and EPAX Consulting Limited Liability
      Company.(22)10.10
            
            
            Amendments
      to Agreement between Wegener Corporation and Ned L. Mountain, and C. Troy
      Woodbury, Jr., respectively, respecting severance payments in the event of
      a change of control.10.11
            
            
            Agreement
      between Wegener Corporation and Robert A. Placek respecting payments in
      the event of termination of employment.10.12
            
            
            2010
      Incentive Plan (26)14.1
            
            
            Wegener
      Corporation Code of Business Conduct and Ethics. (18)21.1
            
            
            Subsidiary
      of the Registrant. (17)23.1
            *
            
            Consent
      of Habif, Arogeti & Wynne, LLP.23.2
            *
            
            Consent
      of BDO USA, LLP, formerly known as BDO Seidman, LLP.31.1
            *
            
            Certification
      of the Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
            *
            
            Certification
      of the Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
            *
            
            Certification
      of the Chief Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
            *
            
            Certification
      of the Chief Financial Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.





(1)
            
            Incorporated
      by reference to the Company's Annual Report on Form 10-K for the fiscal
      year ended September 1, 1989, as filed with the Commission on November 30,
      1989.+(2)
            
            Incorporated
      by reference to the Company's Quarterly Report on Form 10-Q for the
      quarter ended May 30, 1997, as filed with the Commission on June 30,
      1997.+(3)
            
            Incorporated
      by reference to the Company's Current Report on Form 8-K, dated May 1,
      2003, as filed with the Commission on May 6, 2003.+(4)
            
            Incorporated
      by reference to the Company's Current Report on Form 8-K, dated September
      29, 2006, as filed with the Commission on October 3,
  2006.+(5)
            
            Incorporated
      by reference to the Company's Annual Report on Form 10-K for the fiscal
      year ended August 30, 1996, as filed with the Commission on November 27,
      1996.+(6)
            
            Incorporated
      by reference to the Company's Annual Report on Form 10-K for the fiscal
      year ended August 28, 1998, as filed with the Commission on November 10,
      1998.+(7)
            
            Incorporated
      by reference to the Company's Quarterly Report on Form 10-Q for the
      quarter ended March 2, 2001, as filed with the Commission on April 16,
      2001.+(8)
            
            Incorporated
      by reference to the Company's Quarterly Report on Form 10-Q for the
      quarter ended May 31, 2002, as filed with the Commission on Jun e 28,
      2002.+(9)
            
            Incorporated
      by reference to the Company's Quarterly Report on Form 10-Q for the
      quarter ended May 30, 2003, as filed with the Commission on July 9,
      2003.+(10)
            
            Incorporated
      by reference to the Company's Quarterly Report on Form 10-Q for the
      quarter ended May 28, 2004, as filed with the Commission on July 12,
      2004.+





64





Wegener
Corporation and subsidiary





(11)
            
            Incorporated
      by reference to the Company's Annual Report on Form 10-K for the fiscal
      year ended September 2, 1994, as filed with the Commission on December 16,
      1994.+(12)
            
            Incorporated
      by reference to the Company's Annual Report on Form 10-K/A for the fiscal
      year ended September 2, 2005, as filed with the Commission on January 10,
      2006.+(13)
            
            Incorporated
      by reference to the Company's Annual Report on Form 10-K for the fiscal
      year ended August 31, 1990, as filed with the Commission on November 29,
      1990.+(14)
            
            Incorporated
      by reference to the Company's Annual Report on Form 10-K for the fiscal
      year ended September 1, 1995, as filed with the Commission on December 14,
      1995.+(15)
            
            Incorporated
      by reference to the Company's Registration Statement on Form S-8 (No.
      333-51205), as filed with the Commission on April 28,
  1998.(16)
            
            Incorporated
      by reference to the Company's Schedule 14D-9, as filed with the Commission
      on May 6, 2003.+(17)
            
            Incorporated
      by reference to the Company's Annual Report on Form 10-K for the fiscal
      year ended September 3, 2004, as filed with the Commission on December 2,
      2004.+(18)
            
            Incorporated
      by reference to the Company's Annual Report on Form 10-K for the fiscal
      year ended August 29, 2003, as filed with the Commission on November 26,
      2003.+(19)
            
            Incorporated
      by reference to the Company's Current Report on Form 8-K, dated May 17,
      2006, as filed with the Commission on May 22, 2006.+(20)
            
            Incorporated
      by reference to the Company's Annual Report on Form 10-K for the fiscal
      year ended September 1, 2006, as filed with the Commission on November 30,
      2006.+(21)
            
            Incorporated
      by reference to the Company's Quarterly Report on Form 10-Q for the
      quarter ended June 1, 2007, as filed with the Commission on July 16,
      2007.+(22)
            
            Incorporated
      by reference to the Company's Quarterly Report on Form 10-Q for the
      quarter ended May 30, 2008, as filed with the Commission on July 10,
      2008.+(23)
            
            Incorporated
      by reference to the Company's Current Report on Form 8-K, dated September
      13, 2009, as filed with the Commission on September 17,
    2009.+(24)
            
            Incorporated
      by reference to the Company's Current Report on Form 8-K, dated October 8,
      2009, as filed with the Commission on October 14,
2009.+(25)
            
            Incorporated
      by reference to the Company's Current Report on Form 8-K, dated June 11,
      2010, as filed with the Commission on June 14, 2010.+(26)
            
            Incorporated
      by reference to the Company's Quarterly Report on Form 10-Q for the
      quarter ended February 26,
      2010, as filed with the Commission on April 12,
    2010.+(27)
            
            Incorporated
      by reference to the Company's Current Report on Form 8-K, dated September
      3, 2010, as filed
      with the Commission on September 7,
2010.+(28)
            
            Incorporated
      by reference to the Company's Current Report on Form 8-K, dated November
      8, 2010, as filed
      with the Commission on November 9,
2010.++
            
            SEC
      file No. 0-11003


65





Wegener
Corporation and subsidiary





SIGNATURES





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





WEGENER
      CORPORATIONDate:
      November 15, 2010
            By
            /s/ C. Troy Woodbury,
Jr.C.
      Troy Woodbury, Jr.President
      and Chief Executive Officer





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated on this 15th day of November 2010.





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




66





Wegener
Corporation and subsidiary


DIRECTORS
 Robert A.
Placek
 Chairman
of the Board
 
 Phylis
Eagle-Oldson
 President
and Chief Executive
 Officer
of Emma L. Bowen
 Foundation
 
 Thomas G.
Elliot
 Principal
 TGE &
Associates
 
 Jeffrey
J. Haas
 Professor
of Law
 New York
Law School
 
 Stephen
J. Lococo
 President
and Portfolio
 Manager
of Footprints Asset
 Management
& Research
 
 C. Troy
Woodbury, Jr.
 President
and Chief
 Executive
Officer
 Wegener
Corporation and Wegener Communications, Inc.
 
 OFFICERS
 C. Troy
Woodbury, Jr.
 President
and Chief
 Executive
Officer
 
 James
Traicoff
 Treasurer
and Chief
 Financial
Officer
 
 INDEPENDENT
REGISTERED
 PUBLIC
ACCOUNTING FIRM
 Habif,
Arogeti &Wynne, LLP
 5
Concourse Parkway
 Suite
1000
 Atlanta,
Georgia 30328
 
 TRANSFER
AGENT
 Securities
Transfer Corporation
 2591
Dallas Parkway
 Suite
102
 Frisco,
Texas 75034
 
 CORPORATE
 HEADQUARTERS
 11350
Technology Circle
 Johns
Creek /Atlanta, Georgia 30097-1502
 
 ANNUAL
MEETING
 The
annual meeting of stockholders will be held on January 25, 2011 at 9:00 a.m. at
the Corporate Headquarters.
 
 COMMON
STOCK
 OTCQB
Symbol: WGNR.PK
 
 FORM
10-K REPORT
 Wegener
Corporation's Annual Report on Form 10-K, filed with the Securities and Exchange
Commission, is available free of charge by written request to:
 
 James
Traicoff
 Investor
Relations
 Wegener
Corporation
 11350
Technology Circle
 Johns
Creek, Georgia
 30097-1502
 
 WEB
SITE
 HTTP://WWW.WEGENER.COM
 
 QUARTERLY
COMMON
 STOCK
PRICES
 The
Company’s common stock is traded over-the-counter.
 The
quarterly ranges of high and low sale prices for fiscal 2010 and 2009 were as
follows:





High
                            
                            
                            LowFiscal
      Year Ended September 3, 2010First
      Quarter
                            
                            $
                            .38
                            
                            
                            $
                            .20Second
      Quarter
                            
                            
                            .29
                            
                            
                            
                            .08Third
      Quarter
                            
                            
                            .30
                            
                            
                            
                            .10Fourth
      Quarter
                            
                            
                            .15
                            
                            
                            
                            .07Fiscal
      Year Ended August 28, 2009First
      Quarter
                            
                            $
                            1.10
                            
                            
                            $
                            .
      32Second
      Quarter
                            
                            
                            .54
                            
                            
                            
                            .10Third
      Quarter
                            
                            
                            .45
                            
                            
                            
                            .15Fourth
      Quarter
                            
                            
                            .38
                            
                            
                            
                            .10





The
Company had approximately 333* shareholders of record at November 1, 2010. 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).




67