**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-Q**




(Mark
      One)




x
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES
                EXCHANGE ACT OF 1934**




For
      the
      quarterly period ended December 2, 2005




**OR**




**o**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**




For
      the
      transition period from _____________________________
      to______________________________




Commission
      file No. 0-11003


**WEGENER
      CORPORATION**





(Exact
      name of registrant as specified in its charter)


**Delaware**
              
              **81-0371341**(State of incorporation)
              
              (I.R.S.
                  Employer Identification No.)**11350
                  Technology Circle, Duluth, Georgia**
              **30097-1502**(Address
                  of principal executive offices)
              (Zip
                  Code)




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




**Registrant’s
      web site: HTTP://WWW.WEGENER.COM**




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




Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Act).  **Yes
      o** **No
      x**




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Act).  **Yes
      o **No
      x****




Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date:




Common
                  Stock, $.01 par value
              
              12,579,051
                  SharesClass
              
              Outstanding
                  December 30, 2005







**WEGENER
      CORPORATION AND SUBSIDIARIES**


**Form
      10-Q For the Quarter Ended December 2, 2005**





**INDEX**




Page(s)PART
                  I. Financial InformationItem
                  1. Financial StatementsIntroduction
              3Consolidated
                  Statements of Operations(Unaudited)
                  - Three Months EndedDecember
                  2, 2005 and December 3, 2004
              4Consolidated
                  Balance Sheets - December 2,2005
                  (Unaudited) and September 2, 2005
              5Consolidated
                  Statements of Shareholders' Equity(Unaudited)
                  - Three Months Ended December 2,2005
                  and December 3, 2004
              6Consolidated
                  Statements of Cash Flows(Unaudited)
                  - Three Months Ended December 2,2005
                  andDecember
                  3, 2004
              7Notes
                  to Consolidated FinancialStatements
                  (Unaudited)
              8-14Item
                  2. Management's Discussion and Analysis of FinancialCondition
                  and Results of Operations
              15-20Item
                  3. Quantitative and Qualitative Disclosures About Market
                  Risk
              20Item
                  4. Controls and Procedures
              20
  PART
                  II. Other InformationItem
                  1.
              NoneItem
                  2.
              NoneItem
                  3.
              NoneItem
                  4.
              NoneItem
                  5.
              NoneItem
                  6.
              Exhibits
              
              21Signatures
              
              22





2


**PART
      I. FINANCIAL INFORMATION**




**Item
      1. Financial Statements**





**INTRODUCTION
      - CONSOLIDATED FINANCIAL STATEMENTS**




The
      consolidated financial statements included herein have been prepared pursuant
      to
      the rules and regulations of the Securities and Exchange Commission. The
      consolidated balance sheet as of December 2, 2005; the consolidated statements
      of shareholders' equity as of December 2, 2005 and December 3, 2004; and the
      consolidated statements of operations for the three months ended December 2,
      2005 and December 3, 2004; and the consolidated statements of cash flows for
      the
      three months ended December 2, 2005 and December 3, 2004 have been prepared
      without audit. The consolidated balance sheet as of September 2, 2005 has been
      audited by independent registered public accountants. Certain information and
      footnote disclosures normally included in financial statements prepared in
      accordance with generally accepted accounting principles have been condensed
      or
      omitted pursuant to such rules and regulations, although the Company believes
      that the disclosures herein are adequate to make the information presented
      not
      misleading. It is suggested that these consolidated financial statements be
      read
      in conjunction with the financial statements and the notes thereto included
      in
      the Company's Annual Report on Form 10-K for the fiscal year ended September
      2,
      2005, File No. 0-11003.




In
      the
      opinion of management of the Company, the statements for the unaudited interim
      periods presented include all adjustments, which were of a normal recurring
      nature, necessary to present a fair statement of the results of such interim
      periods. The results of operations for the interim periods presented are not
      necessarily indicative of the results of operations for the entire
      year.




3
 **WEGENER
        CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(Unaudited)**




Three
                  months ended**December
                    2**,**2005**
              
              
              December
                    3,2004Revenue
              
              **$**
              **4,984,633**
              
              $
              6,406,071Operating
                  costs and expensesCost
                  of products sold
              
              
              **3,351,460**
              
              
              4,011,428Selling,
                  general, and administrative
              
              
              **1,553,713**
              
              
              1,405,373Research
                  and development
              
              
              **720,023**
              
              
              803,230Operating
                  costs and expenses
              
              
              **5,625,196**
              
              
              6,220,031Operating
                  (loss) income
              
              
              **(640,563**
              **)**
              
              186,040Interest
                  expense
              
              
              **(5,792**
              **)**
              
              (14,940
              )Interest
                  income
              
              
              **3,853**
              
              
              2,785(Loss)
                  earnings before income taxes
              
              
              **(642,502**
              **)**
              
              173,885Income
                  tax expense
              
              
              —
              
              
              62,000Net
                  (loss) earnings
              
              **$**
              **(642,502**
              **)**
              $
              111,885Net
                  (loss) earnings per share:Basic
              
              **$**
              **(0.05**
              **)**
              $
              0.01Diluted
              
              **$**
              **(0.05**
              **)**
              $
              0.01Shares
                  used in per share calculationBasic
              
              
              **12,579,051**
              
              
              12,536,381Diluted
              
              
              **12,579,051**
              
              
              12,703,306




See
        accompanying notes to consolidated financial statements.
 4


**WEGENER
        CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS**


**December
                    2,2005**
                
                September
                    2,2005**Assets**
                
                **(Unaudited)**Current
                    assetsCash
                    and cash equivalents
                
                **$**
                **193,309**
                
                $
                1,106,872Accounts
                    receivable
                
                
                **3,598,932**
                
                
                2,309,108Inventories
                
                
                **4,200,954**
                
                
                3,956,422Other
                
                
                **223,754**
                
                
                231,180Total
                    current assets
                
                
                **8,216,949**
                
                
                7,603,582Property
                    and equipment, net
                
                
                **2,424,462**
                
                
                2,521,012Capitalized
                    software costs, net
                
                
                **1,745,144**
                
                
                1,766,380Other
                    assets
                
                
                **891,168**
                
                
                910,768**$**
                **13,277,723**
                
                $
                12,801,742**Liabilities
                      and Shareholders' Equity**Current
                    liabilitiesAccounts
                    payable
                
                **$**
                **1,504,881**
                
                $
                890,564Accrued
                    expenses
                
                
                **2,533,948**
                
                
                2,432,453Customer
                    deposits
                
                
                **1,945,598**
                
                
                1,553,760Total
                    current liabilities
                
                
                **5,984,427**
                
                
                4,876,777Commitments
                    and contingenciesShareholders'
                    equityCommon
                    stock, $.01 par value; 20,000,000 sharesauthorized;
                    12,579,051 and 12,579,051 sharesrespectively,
                    issued and outstanding
                
                
                **125,791**
                
                
                125,791Additional
                    paid-in capital
                
                
                **19,903,315**
                
                
                19,892,482Deficit
                
                
                **(12,735,810**
                **)**
                
                (12,093,308
                )Total
                    shareholders' equity
                
                
                **7,293,296**
                
                
                7,924,965**$**
                **13,277,723**
                
                $
                12,801,742
  See
          accompanying notes to consolidated financial statements.
 5


**WEGENER
        CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF SHAREHOLDERS’ EQUITY**
 **(Unaudited)**


Common
                  Stock
              
              
              Additional
                  Paid-inShares
              
              
              Amount
              
              
              Capital
              
              
              DeficitBalance
                  at September 3, 2004
              
              
              12,526,051
              
              $
              125,261
              
              $
              19,819,549
              
              $
              (6,421,969
              )Common
                  stock issued throughstock
                  options
              
              
              20,000
              
              
              200
              
              
              28,550
              
              
              —Net
                  earnings for the three months
              
              
              —
              
              
              —
              
              
              —
              
              
              111,885BALANCE
                  at December 3, 2004
              
              
              12,546,051
              
              $
              125,461
              
              $
              19,848,099
              
              $
              (6,310,084
              )Balance
                  at September 2, 2005
              
              
              12,579,051
              
              $
              125,791
              
              $
              19,892,482
              
              $
              (12,093,308
              )Share-based
                  compensation
              
              
              —
              
              
              —
              
              
              10,833
              
              
              —Net
                  loss for the three months
              
              
              —
              
              
              —
              
              
              —
              
              
              (642,502
              )**BALANCE
                    at December2,
                    2005**
              
              
              **12,579,051**
              
              **$**
              **125,791**
              
              **$**
              **19,903,315**
              
              **$**
              **(12,735,810**
              **)**





See
      accompanying notes to consolidated financial statements.


6


**WEGENER
        CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **(Unaudited)** ****


Three
                months ended**December
                2,****2005**
            
            December
                3,2004**Cash
                flows from operating activities**Net
                (loss) earnings
            
            **$**
            **(642,502**
            **)**
            $
            111,885Adjustments
                to reconcile net (loss) earnings tocash
                used for operating activitiesDepreciation
                and amortization
            
            
            **599,190**
            
            
            486,287Share-based
                compensation expense
            
            
            **10,833**
            
            
            —Provision
                for inventory reserves
            
            
            **50,000**
            
            
            —Provision
                for warranty reserves
            
            
            **10,000**
            
            
            —Provision
                for deferred income taxes
            
            
            **—**
            
            
            62,000Changes
                in assets and liabilitiesAccounts
                receivable
            
            
            **(1,289,824**
            **)**
            
            (1,910,171
            )Inventories
            
            
            **(294,532**
            **)**
            
            55,743Other
                assets
            
            
            **7,426**
            
            
            23,033Accounts
                payable and accrued expenses
            
            
            **705,812**
            
            
            1,139,417Customer
                deposits
            
            
            **391,838**
            
            
            (93,682
            )Net
                cash used for operating activities
            
            
            **(451,759**
            **)**
            
            (125,488
            )**Cash
                flows from investment activities**Property
                and equipment expenditures
            
            
            **(36,331**
            **)**
            
            (21,016
            )Capitalized
                software additions
            
            
            **(400,655**
            **)**
            
            (405,568
            )License
                agreement, patent, and trademarkexpenditures
            
            
            **(24,818**
            **)**
            
            (41,222
            )Net
                cash used for investing activities
            
            
            **(461,804**
            **)**
            
            (467,806
            )**Cash
                flows from financing activities**Proceeds
                from stock options exercised
            
            
            **—**
            
            
            28,750Net
                cash provided by financing activities
            
            
            **—**
            
            
            28,750Decrease
                in cash and cash equivalents
            
            
            **(913,563**
            **)**
            
            (564,544
            )Cash
                and cash equivalents, beginning of period
            
            
            **1,106,872**
            
            
            1,520,761Cash
                and cash equivalents, end of period
            
            **$**
            **193,309**
            
            $
            956,217Supplemental
                disclosure of cash flow information:Cash
                paid during the three months for:Interest
            
            **$**
            **5,792**
            
            $
            14,940Income
                taxes
            
            
            **—**
            
            
            —




See
        accompanying notes to consolidated financial statements.
 7


**WEGENER
      CORPORATION AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**








**Note
      1**  **Significant
      Accounting Policies**





The
      significant accounting policies followed by the Company are set forth in Note
      1
      to our audited consolidated financial statements included in the annual report
      on Form 10-K for the year ended September 2, 2005.





**Revenue
      Recognition**





Our
      revenue recognition policies are in compliance with Staff Accounting Bulletin
      (SAB) No. 104, “Revenue Recognition”, SAB No. 101, “Revenue Recognition in
      Financial Statements” and EITF Issue No. 00-21, "Revenue Arrangements with
      Multiple Deliverables." Revenue is recognized when persuasive evidence of an
      agreement with the customer exists, products are shipped or title passes
      pursuant to the terms of the agreement with the customer, the amount due from
      the customer is fixed or determinable, collectibility is reasonably assured,
      and
      there are no significant future performance obligations. Service revenues are
      recognized at the time of performance. Revenues from separate service
      maintenance agreements are recognized ratably over the term of the agreements.
      We recognize revenue in certain circumstances before delivery has occurred
      (commonly referred to as “bill and hold” transactions). In such circumstances,
      among other things, risk of ownership has passed to the buyer, the buyer has
      made a written fixed commitment to purchase the finished goods, the buyer has
      requested the finished goods be held for future delivery as scheduled and
      designated by them, and no additional performance obligations exist by the
      Company. For these transactions, the finished goods are segregated from
      inventory and normal billing and credit terms are granted. For the three months
      ended December 2, 2005, revenues to one customer in the amount of $693,000
      were
      appropriately recorded prior to delivery as bill and hold transactions in
      accordance with the provisions of SAB 104. At December 2, 2005, accounts
      receivable for these revenues amounted to $693,000.





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
      if future performance obligations exist. These assessments are based on the
      terms of the agreement with the customer, past history and credit worthiness
      of
      the customer. If management determines that collection is not reasonably assured
      or future performance obligations exist, revenue recognition is deferred until
      these conditions are satisfied.





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





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





**Earnings
      Per Share**





Basic
      and
      diluted net earnings per share were computed in accordance with Statement of
      Financial Accounting Standards No. 128, “Earnings Per Share.” Basic net earnings
      per share is computed by dividing net earnings available to common shareholders
      (numerator) by the weighted average number of common shares outstanding
      (denominator) during the period and excludes the dilutive effect of stock
      options. Diluted net earnings per share gives effect to all dilutive potential
      common shares outstanding during a period. In computing diluted net earnings
      per
      share, the average stock price for the period is used in determining the number
      of shares assumed to be reacquired under the treasury stock method from the
      exercise of stock options.





8


**Share-Based
      Compensation**





In
      December 2004, the Financial Accounting Standards Board (FASB) issued Statement
      of Financial Accounting Standards (SFAS) No. 123 (Revised 2004), “Share-Based
      Payment” (SFAS 123R). SFAS 123R requires all share-based payments to employees,
      including grants of employee stock options, to 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). We adopted SFAS 123R effective
      beginning September 3, 2005 using the Modified Prospective Application Method.
      Under this method, SFAS 123R applies to new awards and to awards modified,
      repurchased or cancelled after the effective date. The impact of adopting SFAS
      123R was an increase of $11,000 to selling, general and administrative expenses.
      The weighted average fair value of options granted during the three months
      ended
      December 2, 2005 was $1.00 with an aggregate total value of $20,000. As of
      December 2, 2005, $9,000 of unrecognized compensation costs related to
      non-vested stock options is expected to be recognized over the following eleven
      months.





For
      the
      three months ended December 3, 2004, the following table includes disclosures
      required by SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended
      by SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and
      Disclosure,” and illustrates the effect on net earnings and net earnings per
      share as if we had applied the fair value recognition provisions of SFAS No.
      123:


Three
                  months endedDecember
                  3,2004Net
                  earningsAs
                  Reported
              
              $
              111,885Deduct:Compensation
                  costusing
                  the fair valuemethod,
                  net of tax
              
              
              (38,737
              )Pro
                  Forma
              
              $
              73,148Earnings
                  per shareAs
                  ReportedBasic
              
              $
              .01Diluted
              
              
              .01Pro
                  FormaBasic
              
              
              .01Diluted
              
              
              .01
  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:




Three
                  months ended**December
                  2,**
                  **2005**
              
              
              December
                    3,
                    2004Risk
                  free interest rate
              
              
              **4.00**
              **%**
              
              4.00
              %Expected
                  term
              
              
              **3.0
                  years**
              
              
              2.8
                  yearsVolatility
              
              
              **90**
              **%**
              
              90
              %Expected
                  annual dividends
              
              
              **none**
              
              
              none





The
      weighted average fair value of options granted during the three months ended
      December 3, 2004 was $ .81 with an aggregate total value of $8,140.





9


**Use
      of Estimates**





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





**Fiscal
      Year**





We
      use a
      fifty-two, fifty-three week year. The fiscal year ends on the Friday closest
      to
      August 31. Fiscal years 2006 and 2005 contain fifty-two weeks.





**Note
      2**  **Accounts
      Receivable**





Accounts
      receivable are summarized as follows:




**December
                  2,**
                  **2005**
              
              
              September
                    2,
                  2005**(Unaudited)**Accounts
                  receivable - trade
              
              **$**
              **3,893,956**
              
              $
              2,603,633Other
                  receivables
              
              
              **75,928**
              
              
              76,528**3,969,884**
              
              
              2,680,161Less
                    allowance for
                  doubtful
                    accounts
              
              
              **(370,952**
              **)**
              
              (371,053
              )**$**
              **3,598,932**
              
              $
              2,309,108


**Note
      3**  **Inventories**





Inventories
      are summarized as follows:




**December
                  2,2005**
              
              
              September
                    2, 2005**(Unaudited)**Raw
                  material
              
              **$**
              **3,565,973**
              
              $
              3,361,530Work-in-process
              
              
              **922,781**
              
              
              1,089,084Finished
                  goods
              
              
              **3,254,513**
              
              
              2,998,121**7,743,267**
              
              
              7,448,735Less
                    inventory reserves
              
              
              **(3,542,313**
              **)**
              
              (3,492,313
              )**$**
              **4,200,954**
              
              $
              3,956,422


During
      the first quarter of fiscal 2006, inventory reserves were increased by
      provisions of $50,000. Our inventory reserve of approximately $3,542,000 at
      December 2, 2005 is to provide for items that are potentially slow moving,
      excess, or obsolete. Changes in market conditions, lower than expected customer
      demand and rapidly changing technology could result in additional obsolete
      and
      slow-moving inventory that is unsaleable or saleable at reduced prices. No
      estimate can be made of a range of amounts of loss from obsolescence that are
      reasonably possible should our sales efforts not be successful.





10


**Note
      4**  **Other
      Assets**





Other
      assets consisted of the following:




**December
                  2, 2005 (unaudited)****Cost**
            
            
            **Accumulated**
                **Amortization**
            
            
            **Net**License
                agreements
            
            **$**
            **716,300**
            
            **$**
            **(350,045**
            **)**
            **$**
            **366,255**Patent
                applications
            
            
            **415,275**
            
            
            **—**
            
            
            **415,275**Trademarks
            
            
            **89,736**
            
            
            **(8,862**
            **)**
            
            **80,874**Loan
                facility fees
            
            
            **37,500**
            
            
            **(15,625**
            **)**
            
            **21,875**Other
            
            
            **6,889**
            
            
            **—**
            
            
            **6,889****$**
            **1,265,700**
            
            **$**
            **(374,532**
            **)**
            **$**
            **891,168**






September
                  2, 2005Cost
            
            
            Accumulated
                Amortization
            
            
            NetLicense
                agreements
            
            $
            686,300
            
            $
            (317,380
            )
            $
            368,920Patent
                applications
            
            
            420,457
            
            
            —
            
            
            420,457Trademarks
            
            
            89,736
            
            
            (6,484
            )
            
            83,252Loan
                facility fees
            
            
            37,500
            
            
            (6,250
            )
            
            31,250Other
            
            
            6,889
            
            
            —
            
            
            6,889$
            1,240,882
            
            $
            (330,114
            )
            $
            910,768






Amortization
      expense of other assets for the three months ended December
      2, 2005 amounted
      to $44,000. Amortization expense of other assets for the three months ended December
      3, 2004 amounted
      to $38,000.





We
      conduct an ongoing review of our intellectual property rights and potential
      trademarks. As of December 2, 2005, we incurred $415,000 and $39,000 of legal
      expenses related to the filing of applications for various patents and
      trademarks, respectively. Upon issuance, these costs will be amortized on a
      straight-line basis over the lesser of the legal life or their estimated useful
      lives. If it becomes more likely than not that the patent application will
      not
      be granted, we will write-off the deferred cost at that time. At December 2,
      2005, the cost of registered trademarks amounted to $52,000. License agreements
      are amortized over their estimated useful life of five years. Loan facility
      fees
      are amortized over twelve months.





**Note
      5**  **Income
      Taxes (unaudited)**




For
      the
      three months ended December 2, 2005, no income tax benefit was recorded due
      to
      an increase in the deferred tax asset valuation allowance. The valuation
      allowance increased $231,000 in the first quarter of fiscal 2006. At December
      2,
      2005 net deferred tax assets of $4,941,000, were fully reserved by a valuation
      allowance.




At
      December 2, 2005, we had a federal net operating loss carryforward of
      approximately $8,311,000, which expires beginning fiscal 2020 through fiscal
      2026. Additionally, we had an alternative minimum tax credit of $138,000 and
      state income tax credits of $199,000 expiring in fiscal 2009, both of which
      were
      fully offset by the valuation allowance.





11


**Note
      6**  **Earnings
      Per Share (Unaudited)**





The
      following table represents required disclosure of the reconciliation of the
      numerators and denominators of the basic and diluted net (loss) earnings per
      share computations. The calculation of earnings per share is subject to rounding
      differences.




Three
                  months ended**December
                  2, 2005**
            
            
            December
                  3, 2004**Earnings**
                **(Numerator)**
            
            
            **Shares**
                **(Denominator)**
            
            
            **Per**
                **share**
                **amount**
            
            
            Earnings
                (Numerator)
            
            
            Shares
                (Denominator)
            
            
            Per
                share
                amountNet
                (loss) earnings
            
            **$**
            **(642,502**
            **)**
            
            
            
            
            
            
            $
            111,885Basic
                (loss) earnings per share:Net
                (loss) earnings available
              to
                common shareholders
            
            **$**
            **(642,502**
            **)**
            
            **12,579,051**
            
            **$**
            **(0.05**
            **)**
            $
            111,885
            
            
            12,536,381
            
            $
            0.01Effect
                of dilutive potential
              common
                shares:Stock
                options
            
            
            **—**
            
            
            **—**
            
            
            
            
            
            —
            
            
            166,925Diluted
                (loss) earnings per share:Net
                (loss) earnings available
              to
                common shareholders
            
            **$**
            **(642,502**
            **)**
            
            **12,579,051**
            
            **$**
            **(0.05**
            **)**
            $
            111,885
            
            
            12,703,306
            
            $
            0.01




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




Three
                  months ended**December
                  2,2005**
              
              December
                  3,2004Common
                  stock options:Number
                  of shares
              
              
              **1,333,531**
              
              
              1,117,406Range
                  of exercise prices
              
              
              **$.63
                  to $2.72**
              
              
              $1.41
                  to $5.63
  **Note
      7**  **Segment
      Information and Significant Customers (Unaudited)**





In
      accordance with Statement of Financial Accounting Standards No. 131, “Disclosure
      about Segments of an Enterprise and Related Information,” we operate within a
      single reportable segment, the manufacture and sale of satellite communications
      equipment.




12


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




Three
                  months ended**December
                  2,2005**
              
              December
                  3,2004Product
                  LineDirect
                  Broadcast Satellite
              
              **$**
              **4,783,275**
              
              $
              6,113,687Telecom
                  and Custom Products
              
              
              **37,725**
              
              
              156,719Service
              
              
              **163,633**
              
              
              135,665**$**
              **4,984,633**
              
              $
              6,406,071


Revenues
      by geographic areas are as follows:




Three
                  months ended**December
                  2,**
                **2005**
              
              December
                  3,
                2004Geographic
                  AreaUnited
                  States
              
              **$**
              **4,724,272**
              
              $
              6,196,236Latin
                  America
              
              
              **81,049**
              
              
              25,645Canada
              
              
              **47,737**
              
              
              59,320Europe
              
              
              **128,465**
              
              
              101,885Other
              
              
              **3,110**
              
              
              22,985**$**
              **4,984,633**
              
              $
              6,406,071


All
      of
      our long-lived assets are located in the United States.





Customers
      representing 10% or more of the respective periods’ revenues are as
      follows:




Three
                  months ended**December
                  2,**
                **2005**
              
              December
                  3,
                2004Customer
                  1
              
              
              **20.2**
              **%**
              
              28.3
              %Customer
                  2
              
              
              **17.8**
              **%**
              
              (a
              )Customer
                  3
              
              
              **14.4**
              **%**
              
              (a
              )Customer
                  4
              
              
              **(a**
              **)**
              
              13.4
              %





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





**Note
      8 Commitments**





We
      have
      two manufacturing and purchasing agreements for certain finished goods
      inventories. At December 2, 2005, outstanding purchase commitments under these
      agreements amounted to $3,147,000. Pursuant to the above agreements, at December
      2, 2005, we had outstanding letters of credit in the amount of $106,000. In
      addition, at December 2, 2005, we had an outstanding commitment for engineering
      design and software development services in the amount of $787,000.







13


**Note
      9 Guarantees**





Warranty


We
      warrant our products for a 12 to 14 month period beginning at the date of
      shipment. The warranty provides for repair or replacement of defective products
      returned during the warranty period at no cost to the customer. We expense
      costs
      for routine warranty repairs as incurred. Additional provisions are made for
      non-routine warranty repairs based on estimated costs to repair at the point
      in
      time in which the warranty claim is identified. Accrued warranty provisions,
      which remained outstanding at December 2, 2005, amounted to $235,000. For the
      three month period ended December 2, 2005, the accrual was increased by $10,000.
      Warranty expense recognized during the three months ended December 2, 2005,
      amounted to $10,000.





Letters
      of Credit


We
      provide standby letters of credit in the ordinary course of business to certain
      suppliers pursuant to manufacturing and purchasing agreements. At December
      2,
      2005, outstanding letters of credit amounted to $106,000.





Financing
      Agreements


The
      Company guarantees the bank loan facility of WCI. The bank facility provides
      a
      maximum available credit limit of $5,000,000. At December 2, 2005, no balances
      were outstanding on the loan facility.




14


WEGENER
      CORPORATION AND SUBSIDIARIES




**ITEM** **2.** **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF FINANCIAL** **CONDITION
        AND RESULTS OF OPERATIONS**





This
      information should be read in conjunction with the consolidated financial
      statements and the notes thereto included in Item 1 of this Quarterly Report
      and
      the audited consolidated financial statements and notes thereto and Management’s
      Discussion and Analysis of Financial Condition and Results of Operations for
      the
      year ended September 2, 2005 contained in the Company’s 2005 Annual Report on
      Form 10-K.





Certain
      statements contained in this filing are forward-looking statements within the
      meaning of applicable securities laws, including the Private Securities
      Litigation Reform Act of 1995, and the Company intends that such forward-looking
      statements are subject to the safe harbors created thereby. Forward-looking
      statements may be identified by words such as "believes," "expects," "projects,"
      "plans," "anticipates," and similar expressions, and include, for example,
      statements relating to expectations regarding future sales, income and cash
      flows. Forward-looking statements are based upon the Company’s current
      expectations and assumptions, which are subject to a number of risks and
      uncertainties including, but not limited to: customer acceptance and
      effectiveness of recently introduced products, development of additional
      business for the Company’s digital video and audio transmission product lines,
      effectiveness of the sales organization, the successful development and
      introduction of new products in the future, delays in the conversion by private
      and broadcast networks to next generation digital broadcast equipment,
      acceptance by various networks of standards for digital broadcasting, general
      market conditions which may not improve during fiscal year 2006 and beyond,
      and
      success of the Company’s research and development efforts aimed at developing
      new products. Discussion of these and other risks and uncertainties are provided
      in detail in the Company’s periodic filings with the SEC, including the
      Company’s most recent Form 10-K. Since these statements involve risks and
      uncertainties and are subject to change at any time, the Company’s actual
      results could differ materially from expected results. Forward-looking
      statements speak only as of the date the statement was made. The Company does
      not undertake and specifically disclaims 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 a leading provider
      of digital solutions for video, audio and IP data networks. Applications include IP
      data
      delivery, broadcast television, cable television, radio networks, business
      television, distance education, business music and financial information
      distribution.




During
      the first quarter of fiscal 2006, approximately $9.0 million in new orders
      were
      booked. Four significant orders were received from two radio networks, a
      government agency and a private network. iPump ® systems
      accounted for more than 90% of these orders. Additionally, within this time
      frame, initial orders for the SMD 515 Streaming Media Decoder, our high
      definition MPEG-4/h.264 settop box, were received. The majority of the new
      backlog will be recognized as revenue toward the end of fiscal 2006 and into
      fiscal 2007.





We
      are
      investing in technologies for the next generation of industry purchases
      utilizing MPEG-4/H.264 video compression. MPEG-4/H.264 compression reduces
      bandwidth utilization by almost half, which allows present networks to cut
      recurring costs by up to 50% and allows the creation of new networks that were
      not possible with previous technologies. Alternately, our customers will be
      able
      to upgrade their video to high definition and significantly increase its quality
      while maintaining similar bandwidth utilization to their current MPEG-2 standard
      definition utilization. IPTV settops and DVB satellite receivers will be our
      first products with MPEG-4/H.264 technology as we continue to explore other
      potential applications for the technology. We expect the development of products
      utilizing MPEG-4/H.264 technology to continue throughout fiscal 2006. In
      addition to MPEG-4 product development, we are also investing in the
      diversification of the iPump ® Media
      Server for alternate markets utilizing store-forward technology. We expanded
      the
      functionality of the iPump ® for
      use
      in the broadcast television, radio and news markets, where we have traditionally
      been strong. We believe that the investments we are undertaking in technology
      will continue to generate increased backlog throughout the year as the products
      come closer to market release. As we have previously indicated, we continue
      to
      believe we will have an operating loss for the majority of fiscal 2006 while
      development of the new products continues.




15


**Financial
      Position and Liquidity**





We
      have
      no long-term debt or line of credit borrowings outstanding at December 2, 2005.
      Our cash and cash equivalents were $193,000 at December 2, 2005. Our $5,000,000
      bank loan facility, which is subject to availability advance formulas based
      on
      eligible accounts receivable, import letter of credit commitment balances and
      inventories, is currently being used to support import letters of credit issued
      to our offshore manufacturers, which at December 2, 2005 amounted to $106,000.
      At December 2, 2005, **** approximately
      $4,263,000 net of the outstanding letters of credit was available to borrow
      under the advance formulas. Beginning in the second quarter of fiscal 2006,
      we
      expect that we will use borrowings on the line of credit to support operations.
      If we achieve our revenue projections for the third and fourth quarters of
      fiscal 2006, we expect to exceed our line of credit limit of $5,000,000 during
      this period. An increase in the line of credit would be required to support
      anticipated increases in inventory, accounts receivable and letter of credit
      commitment balances beginning in the third quarter of fiscal 2006. No assurances
      can be given that the bank would grant an increase in the line of credit or
      that
      upon maturity (June 30, 2006) the line will be renewed or that additional
      sources of capital, if needed, would be available. Should anticipated future
      revenues not materialize, we are committed to reducing operating costs to bring
      them in line with revenue levels.





(See
      the
      Liquidity and Capital Resources section on page 19 for further
      discussion.)





**RESULTS
      OF OPERATIONS**


**THREE
      MONTHS ENDED DECEMBER 2, 2005 COMPARED TO THREE MONTHS ENDED DECEMBER 3,
      2004**





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


Three
                months ended (unaudited)**December
                2,**
              **2005**
            
            December
                3,
              2004Revenue
            
            
            **100.0**
            **%**
            
            100.0
            %Cost
                of products sold
            
            
            **67.2**
            
            
            62.6Gross
                margin
            
            
            **32.8**
            
            
            37.4Selling,
                general, and administrative
            
            
            **31.2**
            
            
            21.9Research
                & development
            
            
            **14.4**
            
            
            12.5Operating
                (loss) income
            
            
            **(12.9**
            **)**
            
            2.9Interest
                expense
            
            
            **(
                .1**
            **)**
            
            (
                .2
            )Interest
                income
            
            
            **.1**
            
            
            —(Loss)
                earnings before income taxes
            
            
            **(12.9**
            **)**
            
            2.7Income
                tax expense
            
            
            **—**
            
            
            1.0Net
                (loss) earnings
            
            
            **(12.9**
            **)%**
            
            1.7
            %





The
      operating results for the three month period ended December 2, 2005, were a
      net
      loss of $(643,000) or $(0.05) per share compared to net earnings of $112,000
      or
      $0.01 per share for the three month period ended December 3, 2004.





**Revenues** -
      Revenues for the first quarter of fiscal 2006 decreased $1,421,000 or 22.2%
      to
      $4,985,000 from $6,406,000 for the same period in fiscal 2005.





Direct
      Broadcast Satellite (DBS) revenues (including service revenues) decreased
      $1,302,000 or 20.8% in the first quarter of fiscal 2006 to $4,947,000 from
      $6,249,000 for the same period in fiscal 2005. The decrease was due to lower
      than expected shippable orders for the quarter, especially for our
      iPump ® system,
      and a scheduled decrease in revenues to a business music network customer.
      The
      first quarter of fiscal 2005 benefited from shipments to a new radio broadcast
      customer as well as orders from existing customers for network expansion.
      Telecom and Custom Products Group revenues decreased $119,000 or 75.9% to
      $38,000 in the first quarter of fiscal 2006 from $157,000 in the first quarter
      of fiscal 2005. The decrease was mainly due to a continuing decline in orders
      for older analog products and cue and control equipment. Revenues and order
      backlog are subject to the timing of significant orders from customers and
      new
      product introductions, and as a result revenue levels may fluctuate from quarter
      to quarter. For the three months ended December 2, 2005, three customers
      accounted for 20.2%, 17.7% and 14.4% of revenues, respectively. For the three
      months ended December 3, 2004, two customers accounted for 28.3% and 13.4%
      of
      revenues, respectively. 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 2006.





16


Our
      backlog is comprised of undelivered, firm customer orders, which are scheduled
      to ship within eighteen months. WCI’s backlog scheduled to ship within eighteen
      months was approximately $15.4 million at December 2, 2005, compared to $10.1
      million at September 2, 2005, and $13.2 million at December 3, 2004. Three
      customers accounted for approximately 44.4%, 32.7% and 11.5%, respectively,
      of
      the backlog at December 2, 2005. The total multi-year backlog at December 2,
      2005 was approximately $28 . 3
      million, compared to $23.9 million at September 2, 2005 and $30.4 million at
      December 3, 2004.





**Gross
      Profit Margins** - The
      Company’s gross profit margin percentages were 32.8% for the three month period
      ended December 2, 2005, compared to 37.4% for the three month period ended
      December 3, 2004. Gross profit margin dollars decreased $761,000 for the three
      month period ended December 2, 2005 compared to the same period ended December
      3, 2004. The decrease in margin percentages and dollars was mainly due to lower
      revenues which resulted in higher unit fixed overhead costs. Profit margins
      in
      the first quarter of fiscal 2006 included inventory reserve charges of $50,000
      compared to none for the same period of fiscal 2005.





**Selling,
      General and Administrative** -
      Selling, general and administrative (SG&A) expenses increased $148,000, or
      10.6%, to $1,554,000 in the first quarter of fiscal 2006 from $1,405,000 in
      the
      first quarter of fiscal 2005. Corporate SG&A expenses in the first quarter
      of fiscal 2006 increased $92,000, or 36.4%, to $345,000 in the first quarter
      of
      fiscal 2006 from $253,000 in same period of fiscal 2005, mainly due to costs
      related to dissident shareholder issues. WCI’s SG&A expenses increased
      $56,000, or 4.9%, to $1,209,000 in the first quarter of fiscal 2006 from
      $1,152,000 in same period of fiscal 2005. The increase in WCI’s SG&A
      expenses was mainly due to increases in professional fees of $38,000, sales
      commissions of $46,000 primarily due to increased bookings, and increases in
      selling and marketing expenses of $19,000. These costs were offset by reductions
      in sales salaries of $42,000 due to a decrease in personnel and reductions
      in
      other administrative overhead costs of $20,000. WCI’s SG&A expenses included
      $11,000 of stock-based compensation in the first quarter of fiscal 2006 compared
      to none in the same period of fiscal 2005. As a percentage of revenues, SG&A
      expenses were 31.2% for the three month period ended December 2, 2005 compared
      to 21.9% for the same period ended December 3, 2004.





**Research
      and Development** -
      Research and development expenditures, including capitalized software
      development costs, were $1,121,000 or 22.5% of revenues in the first quarter
      of
      fiscal 2006 compared to $1,209,000 or 18.9% of revenues for the same period
      of
      fiscal 2005. The decrease in expenditures in the first quarter of fiscal 2006
      compared to the same period of fiscal 2005 was mainly due to lower engineering
      consulting expenses resulting from completed projects. Capitalized software
      development costs amounted to $401,000 in the first quarter of fiscal 2006
      compared to $406,000 in the first quarter of fiscal 2005. Research and
      development expenses, excluding capitalized software development costs, were
      $720,000 or 14.4% of revenues in the first quarter of fiscal 2006 compared
      to
      $803,000 or 12.5% of revenues in the same period of fiscal 2005. The decrease
      in
      expenses in the first quarter of fiscal 2006 compared to the same period of
      fiscal 2005 was mainly due to the decrease in engineering consulting expenses
      and a decrease in employee recruiting costs.





**Interest
      Expense** **** -
      Interest expense decreased $9,000 to $6,000 in the first quarter of fiscal
      2006
      from $15,000 in the same period in fiscal 2005. The decrease was primarily
      due
      to a decrease in average outstanding letter of credit commitment balances.





**Interest
      Income** **** -
      Interest income was $4,000 for the three months ended December 2, 2005 compared
      to $3,000 for the same period ended December 3, 2004. The increase was primarily
      due to higher investment yields.





**Income
      Tax Expense** - For
      the three months ended December 2, 2005, no income tax benefit was recorded
      due
      to an increase in the deferred tax asset valuation allowance. The valuation
      allowance increased $231,000 in the first quarter of fiscal 2006. At December
      2,
      2005 net deferred tax assets of $4,941,000, were fully reserved by a valuation
      allowance.





17


**CRITICAL
      ACCOUNTING POLICIES**





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





**Revenue
      Recognition** - Our
      revenue recognition policies are in compliance with Staff Accounting Bulletin
      (SAB) No. 104, “Revenue Recognition”, SAB No. 101, “Revenue Recognition in
      Financial Statements” and EITF Issue No. 00-21, "Revenue Arrangements with
      Multiple Deliverables." Revenue is recognized when persuasive evidence of an
      agreement with the customer exists, products are shipped or title passes
      pursuant to the terms of the agreement with the customer, the amount due from
      the customer is fixed or determinable, collectibility is reasonably assured,
      and
      there are no significant future performance obligations. Service revenues are
      recognized at the time of performance. Revenues from separate service
      maintenance agreements are recognized ratably over the term of the agreements.
      We recognize revenue in certain circumstances before delivery has occurred
      (commonly referred to as “bill and hold” transactions). In such circumstances,
      among other things, risk of ownership has passed to the buyer, the buyer has
      made a written fixed commitment to purchase the finished goods, the buyer has
      requested the finished goods be held for future delivery as scheduled and
      designated by them, and no additional performance obligations exist by us.
      For
      these transactions, the finished goods are segregated from inventory and normal
      billing and credit terms are granted. For the three months ended December 2,
      2005, revenues to one customer in the amount of $693,000 were appropriately
      recorded prior to delivery as bill and hold transactions in accordance with
      the
      provisions of SAB 104. At December 2, 2005, accounts receivable for these
      revenues amounted to $693,000.




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
      if future performance obligations exist. These assessments are based on the
      terms of the agreement with the customer, past history and credit worthiness
      of
      the customer. If management determines that collection is not reasonably assured
      or future performance obligations exist, revenue recognition is deferred until
      these conditions are satisfied.





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





**Inventory
      Reserves** **-** Inventories
      are valued at the lower of cost (at standard, which approximates actual cost
      on
      a first-in, first-out basis) or market. Inventories include the cost of raw
      materials, labor and manufacturing overhead. We make inventory reserve
      provisions for obsolete or slow-moving inventories as necessary to properly
      reflect inventory value. 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
      December 2, 2005, inventories, net of reserve provisions, amounted to
      $4,201,000.





**Capitalized
      Software Costs** **-** Software
      development costs are capitalized subsequent to establishing technological
      feasibility. Capitalized costs are amortized based on the larger of the amounts
      computed using (a) the ratio that current gross revenues for each product bears
      to the total of current and anticipated future gross revenues for that product
      or (b) the straight-line method over the remaining estimated economic life
      of
      the product. Expected future revenues and estimated economic lives are subject
      to revisions due to market conditions, technology changes and other factors
      resulting in shortfalls of expected revenues or reduced economic lives, which
      could result in additional amortization expense or write-offs. At December
      2,
      2005, capitalized software costs, net of accumulated amortization, amounted
      to
      $1,745,000.





**Deferred
      Tax Asset Valuation Allowance** -
      Deferred tax assets are recognized for deductible temporary differences, net
      operating loss carryforwards, and credit carryforwards if it is more likely
      than
      not that the tax benefits will be realized. Realization of our deferred tax
      assets depends on generating sufficient future taxable income prior to the
      expiration of the loss and credit carryforwards. At December 2, 2005, deferred
      tax assets in the amount of $4,941,000 were fully reserved by a valuation
      allowance. For the three months ended December 2, 2005, the valuation allowance
      was increased by $231,000.





**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 would be required. At
      December 2, 2005, accounts receivable, net of allowances for doubtful accounts,
      amounted to $3,599,000.





18


**LIQUIDITY
      AND CAPITAL RESOURCES**


**THREE
      MONTHS ENDED DEC** **EMBER** **2, 2005**





At
      December 2, 2005, our primary sources of liquidity were cash and cash
      equivalents of $193,000 and a $5,000,000 bank loan facility. Cash and cash
      equivalents decreased $914,000 during the first quarter of fiscal 2006.





During
      the first quarter of fiscal 2006, operating activities used $452,000 of cash.
      Net loss adjusted for non-cash expenses provided $27,000 of cash, while changes
      in accounts receivable and customer deposit balances used $898,000 of cash.
      Changes in accounts payable and accrued expenses, inventories and other assets
      provided $419,000 of cash. Cash used by investing activities was $36,000 for
      property and equipment expenditures, $401,000 for capitalized software additions
      and $25,000 for legal expenses related to the filing of applications for various
      patents and trademarks.





WCI’s
      bank loan facility provides a maximum available credit limit of $5,000,000
      subject to availability advance formulas. The loan facility matures on June
      30,
      2006, or upon demand and requires an annual facility fee of .75% of the maximum
      credit limit. The loan facility consists of a term loan and a revolving line
      of
      credit with a combined borrowing limit of $5,000,000, bearing interest at the
      bank’s prime rate (7.00% at December 2, 2005).




The
      term
      loan facility provides for a maximum of $1,000,000 for advances of up to 80%
      of
      the cost of equipment acquisitions. Principal advances are payable monthly
      over
      sixty months with a balloon payment due at maturity. The revolving line of
      credit is subject to availability advance formulas of 80% against eligible
      accounts receivable; 20% of eligible raw materials inventories; 20% of eligible
      work-in-process kit inventories; and 40% to 50% of eligible finished goods
      inventories and 50% of import letter of credit commitment balances. The loan
      is
      secured by a first lien on substantially all of WCI’s assets and guaranteed by
      Wegener Corporation. At December 2, 2005, no balances were outstanding on the
      revolving line of credit or the equipment term loan portions of **** the
      loan
      facility. The loan facility is currently being used to support import letters
      of
      credit issued to offshore manufacturers, which at December 2, 2005 amounted
      to
      $106,000. At December 2, 2005, **** approximately
      $4,263,000, net of outstanding letters of credit, was available to borrow under
      the advance formulas. We expect to utilize borrowings on the line of credit
      beginning in the second quarter of fiscal 2006 to support operations. If we
      achieve our revenue projections for the third and fourth quarters of fiscal
      2006, we expect to exceed our line of credit limit of $5,000,000 during this
      period. An increase in the line of credit would be required to support
      anticipated increases in inventory, accounts receivable and letter of credit
      commitment balances beginning in the third quarter of fiscal 2006. No assurances
      can be given that the bank would grant an increase in the line of credit or
      that
      upon maturity the line will be renewed or that additional sources of capital,
      if
      needed, would be available. Should anticipated future revenues not materialize,
      we are committed to reducing operating costs to bring them in line with revenue
      levels.





In
      addition, at December 2, 2005, we had land and buildings and improvements with
      a
      cost basis of $4,454,000 which had no mortgage balances outstanding. Land and
      buildings are not currently used in the existing loan facility’s availability
      advance formulas; however, we believe these assets could be used to support
      additional borrowing capacities either with our existing bank or from other
      sources.





We
      are
      required to maintain a minimum tangible net worth with annual increases at
      each
      fiscal year end commencing with fiscal year 2005, retain certain key employees,
      maintain certain financial ratios, and are precluded from paying dividends.
      At
      December 2, 2005, we were not in compliance with the tangible net worth
      covenant, for which the bank granted a waiver.





We
      have
      two manufacturing and purchasing agreements for certain finished goods
      inventories. At December 2, 2005, outstanding purchase commitments under these
      agreements amounted to $3,146,000. Pursuant to the above agreements, at December
      2, 2005, we had outstanding letters of credit in the amount of $106,000. In
      addition, at December 2, 2005, we had an outstanding commitment for engineering
      design and software development services in the amount of $787,000.




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






19




A
        summary
        of the Company’s long-term contractual obligations as of December 2, 2005
        consisted of:


Payments
                Due by PeriodContractual
                Obligations
            
            Total
            
            Fiscal
              2006
            
            Fiscal
              2007-2008
            
            Fiscal
              2009-2010Operating
                leases
            
            $
            279,000
            
            $
            139,000
            
            $
            136,000
            
            $
            4,000Purchase
                commitments
            
            
            3,933,000
            
            
            3,454,000
            
            
            479,000
            
            
            —Total
            
            $
            4,212,000
            
            $
            3,593,000
            
            $
            615,000
            
            $
            4,000







**ITEM
      3.**  **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





The
      Company’s exposure to market rate risk for changes in interest rates relates
      primarily to its revolving line of credit and cash equivalents. The interest
      rate on certain advances under the line of credit and term loan facility
      fluctuates with the bank’s prime rate. There were no borrowings outstanding at
      December 2, 2005 subject to variable interest rate fluctuations.





At
      December 2, 2005, cash and cash equivalents consisted of bank account balances
      of $193,000.





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





**ITEM
      4.**  **CONTROLS
      AND PROCEDURES**




The
      Company carried out an evaluation, under the supervision and with the
      participation of the Company’s management, including the Chief Executive Officer
      (CEO) and the Chief Financial Officer (CFO), of the effectiveness of the design
      and operation of the Company’s disclosure controls and procedures as of the end
      of the period covered by this report (December 2, 2005). Based upon that
      evaluation, the Company’s CEO and CFO have concluded that the Company’s
      disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
      of the Securities Exchange Act of 1934, as amended) are effective. There has
      been no change in the Company’s internal control over financial reporting during
      our most recent fiscal quarter that has materially affected, or is reasonably
      likely to materially affect, the Company’s internal control over financial
      reporting.





20


PART
      II. OTHER INFORMATION








**I** **TEM** **6.** **EXHIBITS**





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




Exhibit
                  Number
              
              Description
                  of Document*3.1
              
              By-Laws
                  (Reg. No. 2-81795, Exhibits 3(a) and 3(b)).*3.2
              
              Certificate
                  of Incorporation as amended through May 4, 1989, (1989 10-K, filed
                  November 30, 1989, SEC file No. 0-11003, Exhibit 3.2).*3.3
              
              Amendment
                  to Certificate of Incorporation (1997 10-Q, filed June 27, 1997,
                  SEC file
                  No. 0-11003, Exhibit 3.1).*3.4
              
              Amended
                  and Restated By-laws (Form 8-K, dated as of May 1, 2003 and filed
                  May 6,
                  2003, Exhibit 3.1).31.1
              
              Certification
                  of Chief Executive Officer Regarding Periodic Report Containing
                  Financial
                  Statements Pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.31.2
              
              Certification
                  of Chief Financial Officer Regarding Periodic Report Containing
                  Financial
                  Statements Pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.32.1
              
              Certification
                  of Chief Executive Officer Regarding Periodic Report Containing
                  Financial
                  Statements Pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002.32.2
              
              Certification
                  of Chief Financial Officer Regarding Periodic Report Containing
                  Financial
                  Statements Pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002.


21


SIGNATURES





Pursuant
      to the requirements of the Securities and Exchange Act of 1934, the Registrant
      has duly caused this Report to be signed on its behalf by the undersigned
      thereunto duly authorized.


WEGENER
                  CORPORATION(Registrant)Date:
                January 17, 2006
              By:
              /s/ Robert
                A. PlacekRobert
                A. PlacekPresident(Principal
                Executive Officer)
 Date:
                January 17, 2006
              By:
              /s/ C.
                Troy Woodbury, Jr.C.
                  Troy Woodbury, Jr.
                Treasurer
                  and ChiefFinancial
                  Officer
                (Principal
                  Financial and Accounting
                  Officer)






22