**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 June 2, 2006




**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
                or other jurisdiction
            (I.R.S.
                Employerof
                incorporation or organization)
            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 a large accelerated filer, an
      accelerated filer, or a non-accelerated filer.


See
      definition of “accelerated filer and large accelerated filer” in Rule 12b-2
      of the Exchange Act. (Check one):




Large
      accelerated filer **o** **** Accelerated
      filer **o** **** Non
      accelerated filer **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
                at June 30, 2006













**WEGENER
      CORPORATION**


**Form
      10-Q For the Quarter Ended June 2, 2006**








**INDEX**





**PART
                I. Financial Information**Item
                1.
            Financial
                StatementsIntroduction
            3Consolidated
                Statements of Operations(Unaudited)
                - Three and Nine Months EndedJune
                2, 2006 and June 3, 2005
            4Consolidated
                Balance Sheets - June 2,2006
                (Unaudited) and September 2, 2005
            5Consolidated
                Statements of Shareholders' Equity(Unaudited)
                - Nine Months Ended June 2,2006
                and June 3, 2005
            6Consolidated
                Statements of Cash Flows(Unaudited)
                - Nine Months Ended June 2,2006
                and June 3, 2005
            7Notes
                to Consolidated FinancialStatements
                (Unaudited)
            8-15Item
                2.
            Management's
                Discussion and Analysis of FinancialCondition
                and Results of Operations
            16-22Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            23Item
                4.
            Controls
                and Procedures
            23**PART
                II. Other Information**Item
                6.
            Exhibits
            24Signatures
            25







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 June 2, 2006; the consolidated statements
      of
      shareholders' equity as of June 2, 2006, and June 3, 2005; the consolidated
      statements of operations for the three and nine months ended June 2, 2006,
      and
      June 3, 2005; and the consolidated statements of cash flows for the nine months
      ended June 2, 2006, and June 3, 2005; 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 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
                
                Nine
                    months ended**June
                      2,**
                
                June
                    3,
                
                **June
                    2,**
                
                June
                    3,**2006**
                
                2005
                
                **2006**
                
                2005Revenue
                
                **$**
                **6,607,740**
                
                $
                4,252,879
                
                **$**
                **16,171,931**
                
                $
                16,995,507Operating
                    costs and expensesCost
                    of products sold
                
                
                **4,197,714**
                
                
                2,785,289
                
                
                **10,608,076**
                
                
                10,711,256Selling,
                    general and administrative
                
                
                **1,496,556**
                
                
                1,595,302
                
                
                **4,890,172**
                
                
                4,443,611Research
                    and development
                
                
                **734,078**
                
                
                835,890
                
                
                **2,218,518**
                
                
                2,410,904Operating
                    costs and expenses
                
                
                **6,428,348**
                
                
                5,216,481
                
                
                **17,716,766**
                
                
                17,565,771Operating
                    income (loss)
                
                
                **179,392**
                
                
                (963,602
                )
                
                **(1,544,835**
                **)**
                
                (570,264
                )Interest
                    expense
                
                
                **(42,942**
                **)**
                
                (16,213
                )
                
                **(68,273**
                **)**
                
                (45,845
                )Interest
                    income
                
                
                **1,326**
                
                
                12,272
                
                
                **6,751**
                
                
                22,355Earnings
                    (loss) before income taxes
                
                
                **137,776**
                
                
                (967,543
                )
                
                **(1,606,357**
                **)**
                
                (593,754
                )Income
                    tax benefit
                
                
                -
                
                
                348,000
                
                
                **-**
                
                
                214,000Net
                    earnings (loss )
                
                **$**
                **137,776**
                
                $
                (619,543
                )
                **$**
                **(1,606,357**
                **)**
                $
                (379,754
                )Net
                    earnings (loss) per share:Basic
                
                **$**
                **.01**
                
                $
                (.05
                )
                $
                **(.13**
                **)**
                $
                (.03
                )Diluted
                
                **$**
                **.01**
                
                $
                (.05
                )
                $
                **(.13**
                **)**
                $
                (.03
                )Shares
                    used in per share calculationBasic
                
                
                **12,579,051**
                
                
                12,574,447
                
                
                **12,579,051**
                
                
                12,557,029Diluted
                
                
                **12,765,925**
                
                
                12,574,447
                
                
                **12,579,051**
                
                
                12,557,029





See
      accompanying notes to consolidated financial statements.




4





**WEGENER
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**





**June
                  2,**
              
              September
                  2,**2006**
              
              2005**Assets**
              
              **(Unaudited**)Current
                  assetsCash
                  and cash equivalents
              
              **$**
              **46,519**
              
              $
              1,106,872Accounts
                  receivable
              
              
              **4,409,986**
              
              
              2,309,108Inventories
              
              
              **4,372,815**
              
              
              3,956,422Other
              
              
              **425,045**
              
              
              231,180Total
                  current assets
              
              
              **9,254,365**
              
              
              7,603,582Property
                  and equipment, net
              
              
              **2,347,930**
              
              
              2,521,012Capitalized
                  software costs, net
              
              
              **1,416,720**
              
              
              1,766,380Other
                  assets
              
              
              **742,675**
              
              
              910,768**$**
              **13,761,690**
              
              $
              12,801,742**Liabilities
                  and Shareholders’ Equity**Current
                  liabilitiesBank
                  line of credit
              
              **$**
              **423,453**
              
              $
              -Accounts
                  payable
              
              
              **2,470,454**
              
              
              890,564Accrued
                  expenses
              
              
              **2,779,513**
              
              
              2,432,453Customer
                  deposits
              
              
              **1,739,729**
              
              
              1,553,760Total
                  current liabilities
              
              
              **7,413,149**
              
              
              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
              
              
              **19,922,415**
              
              
              19,892,482Deficit
              
              
              **(13,699,665**
              **)**
              
              (12,093,308
              )Total
                  shareholders’ equity
              
              
              **6,348,541**
              
              
              7,924,965**$**
              **13,761,690**
              
              $
              12,801,742











See
      accompanying notes to consolidated financial statements.




5







**WEGENER
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS’ EQUITY**


(Unaudited)


AdditionalCommon
                  Stock
              
              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
              
              
              49,000
              
              
              490
              
              
              69,723
              
              
              -Net
                  loss for the nine months
              
              
              -
              
              
              -
              
              
              -
              
              
              (379,754
              )BALANCE
                  at June 3, 2005
              
              
              12,575,051
              
              $
              125,751
              
              $
              19,889,272
              
              $
              (6,801,723
              )Balance
                  at September 2, 2005
              
              
              12,579,051
              
              $
              125,791
              
              $
              19,892,482
              
              $
              (12,093,308
              )Share-based
                  compensation
              
              
              -
              
              
              -
              
              
              29,933
              
              
              -Net
                  loss for the nine months
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,606,357
              )**BALANCE
                  at June 2, 2006**
              
              
              **12,579,051**
              
              **$**
              **125,791**
              
              **$**
              **19,922,415**
              
              **$**
              **(13,699,665**
              **)**











See
      accompanying notes to consolidated financial statements.




6







**WEGENER
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


(Unaudited)




Nine
                  months ended**June
                  2,**
              
              June
                  3,**2006**
              
              2005**Cash
                  flows from operating activities**Net
                  loss
              
              **$**
              **(1,606,357**
              **)**
              $
              (379,754
              )Adjustments
                  to reconcile net loss tocash
                  (used for) provided by operating activitiesDepreciation
                  and amortization
              
              
              **2,028,829**
              
              
              1,567,824Share-based
                  compensation expense
              
              
              **29,933**
              
              
              -Provision
                  for bad debts
              
              
              **(35,000**
              **)**
              
              50,000Provision
                  for inventory reserves
              
              
              **175,000**
              
              
              75,000Provision
                  for warranty reserves
              
              
              **110,000**
              
              
              70,000Benefit
                  from change in deferred income taxes
              
              
              **-**
              
              
              (214,000
              )Changes
                  in assets and liabilitiesAccounts
                  receivable
              
              
              **(2,065,878**
              **)**
              
              41,845Inventories
              
              
              **(591,393**
              **)**
              
              60,102Other
                  assets
              
              
              **(193,865**
              **)**
              
              (40,076
              )Accounts
                  payable and accrued expenses
              
              
              **1,816,950**
              
              
              152,515Customer
                  deposits
              
              
              **185,969**
              
              
              337,466Net
                  cash (used for) provided by operating activities
              
              
              **(145,812**
              **)**
              
              1,720,922**Cash
                  flows from investment activities**Property
                  and equipment expenditures
              
              
              **(179,539**
              **)**
              
              (315,491
              )Capitalized
                  software additions
              
              
              **(1,099,448**
              **)**
              
              (1,206,124
              )License
                  agreement, patent, and trademark expenditures
              
              
              **(59,007**
              **)**
              
              (119,456
              )Net
                  cash used for investing activities
              
              
              **(1,337,994**
              **)**
              
              (1,641,071
              )**Cash
                  flows from financing activities**Net
                  borrowings under revolving line of credit
              
              
              **423,453**
              
              
              -Proceeds
                  from stock options exercised
              
              
              **-**
              
              
              70,213Net
                  cash provided by financing activities
              
              
              **423,453**
              
              
              70,213(Decrease)
                  increase in cash and cash equivalents
              
              
              **(1,060,353**
              **)**
              
              150,064Cash
                  and cash equivalents, beginning of period
              
              
              **1,106,872**
              
              
              1,520,761Cash
                  and cash equivalents, end of period
              
              **$**
              **46,519**
              
              $
              1,670,825Supplemental
                  disclosure of cash flow information:Cash
                  paid during the nine months for:Interest
              
              **$**
              **68,273**
              
              $
              45,845





See
      accompanying notes to consolidated financial statements.




7








**WEGENER
      CORPORATION AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**Note
      1 Description of Business**




We
      design
      and manufacture equipment for receiving and transmitting of video, audio and
      data programming over satellite, cable, broadcast and terrestrial networks.
      Applications for our equipment include cable and broadcast television,
      high-definition television, business television, IP data delivery, business
      music, distance education, radio networks and financial information
      distribution.





The
      equipment we provide enables our customers to implement complex networks
      involving real time switching and control to help them achieve their business
      plans. Using our technologies, our customers can provide targeted programming
      and advertising capabilities to their clients.





We
      also
      make a complete line of signal processing equipment used by the cable television
      industry to provide off-air digital and high definition signals to their
      subscribers. This equipment receives the signals from local terrestrial
      broadcasters and processes them in ways that make these signals compatible
      with
      existing cable plant infrastructure in wide use today.





Our
      primary customers are major broadcast networks, operators of large private
      satellite broadcast networks, and major cable television systems
      operators.




Our
      principal sources of revenues are from the sales of 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. We operate in one business segment, the manufacture and sale of
      satellite communications equipment.





**Note
      2**  **Significant
      Accounting Policies**




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





**Revenue
      Recognition**





Our
      principal sources of revenues are from the sales of hardware products, network
      control software products, services and software and hardware maintenance
      contracts.





Our
      revenue recognition policies are in compliance with Staff Accounting Bulletin
      (SAB) No. 104, “Revenue Recognition”, SAB No. 101, “Revenue Recognition in
      Financial Statements”, SOP
      No. 97-2 , **** “Software
      Revenue Recognition,” as amended by SOP No. 98-9, “Software Revenue Recognition,
      with Respect to Certain Transactions” 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 when there are no significant future performance obligations.
      Service revenues are recognized at the time of performance. Maintenance
      contract revenues are recognized ratably over the maintenance contract term,
      which is typically one year. The unrecognized revenue portion of maintenance
      contracts invoiced is recorded as deferred revenue. 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 the buyer, 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 and
      nine months ended June 2, 2006, revenues in the amount of $1,741,000 and
      $3,029,000, respectively, were appropriately recorded prior to delivery as
      bill
      and hold transactions in accordance with the provisions of SAB 104. At June
      2,
      2006, accounts receivable for these revenues amounted to $1,316,000. Subsequent
      to June 2, 2006, payments in the amount of $297,000 were received on these
      accounts receivable.





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.




8





Embedded
      in our products is internally developed software of varying
      applications **.** We
      evaluate our products to assess whether software is more than incidental to
      a
      product. When we conclude that software is more than incidental to a product,
      we
      account for the product as a software product. Revenue on software products
      and
      software-related elements is recognized in accordance with SOP
      No. 97-2 . Significant
      judgment may be required in determining whether a product is a software or
      hardware product.





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





**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.





**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 for the three and nine months ended June 2, 2006, was an increase of $3,000
      and $30,000, respectively, to selling, general and administrative expenses.
      The
      weighted average fair value of options granted during the nine months ended
      June
      2, 2006  was
      $1.07
      with an aggregate total value of $34,000. As of June 2, 2006, $4,000 of
      unrecognized compensation costs related to non-vested stock options is expected
      to be recognized over the following five months.




9





For
      the
      three and nine months ended June 3, 2005, 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 ended
              
              Nine
                  months endedJune
                  3, 2005
              
              June
                  3,2005Net
                  lossAs
                  Reported
              
              $
              (619,543
              )
              $
              (379,754
              )Deduct:Compensation
                  cost usingthe
                  fair value method , netof
                  tax
              
              
              (20,536
              )
              
              (79,810
              )Pro
                  Forma
              
              $
              (640,079
              )
              $
              (459,564
              )Loss
                  per shareAs
                  ReportedBasic
              
              $
              (.05
              )
              $
              (.03
              )Diluted
              
              
              (.05
              )
              
              (.03
              )Pro
                  FormaBasic
              
              
              (.05
              )
              
              (.04
              )Diluted
              
              
              (.05
              )
              
              (.04
              )


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
              
              Nine
                  months ended**June
                  2,**
              
              June
                  3,
              
              **June
                  2,**
              
              June
                  3,**2006**
              
              2005
              
              **2006**
              
              2005Risk
                  free interest rate
              
              
              **-**
              
              
              4.00
              %
              
              **4.41**
              **%**
              
              4.00
              %Expected
                  term
              
              
              **-**
              
              
              2.8
                  years
              
              
              **5.6
                  years**
              
              
              2.8
                  yearsVolatility
              
              
              **-**
              
              
              90
              %
              
              **90**
              **%**
              
              90
              %Expected
                  annual dividends
              
              
              **-**
              
              
              none
              
              
              **none**
              
              
              none







The
      weighted average fair value of options granted during the nine months ended
      June
      3, 2005 was $ .81 with an aggregate total value of $8,140.





**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 revenues and expenses during the reporting period.
      Actual results could vary from these estimates.





**Fiscal
      Year**





The
      Company uses 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.




10





**Bank
      Overdrafts**





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 June 2, 2006 and
      September 2, 2005, outstanding checks in the amounts of $532,000 and $286,000,
      respectively, were included in accounts payable balances.





**Note
      3**  **Accounts
      Receivable**





Accounts
      receivable are summarized as follows:


**June
                  2,**
              
              September
                  2,**2006**
              
              2005**(Unaudited)**Accounts
                  receivable - trade
              
              **$**
              **4,663,889**
              
              $
              2,603,633Other
                  receivables
              
              
              **75,508**
              
              
              76,528**4,739,397**
              
              
              2,680,161Less
                  allowance fordoubtful
                  accounts
              
              
              **(329,411**
              **)**
              
              (371,053
              )**$**
              **4,409,986**
              
              $
              2,309,108


**Note
      4**  **Inventories**





Inventories
      are summarized as follows:




**June
                  2,**
              
              September
                  2,**2006**
              
              2005**(Unaudited)**Raw
                  material
              
              **$**
              **3,595,807**
              
              $
              3,361,530Work-in-process
              
              
              **1,049,216**
              
              
              1,089,084Finished
                  goods
              
              
              **3,395,105**
              
              
              2,998,121**8,040,128**
              
              
              7,448,735Less
                  inventory reserves
              
              
              **(3,667,313**
              **)**
              
              (3,492,313
              )**$**
              **4,372,815**
              
              $
              3,956,422





During
      the first nine months of fiscal 2006, inventory reserves were increased by
      provisions of $175,000. Our inventory reserve of approximately $3,667,000 at
      June 2, 2006 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.




11





**Note
      5**  **Other
      Assets**





Other
      assets consisted of the following:





**June
                2, 2006********(unaudited)****Cost**
            
            **Accumulated**
              **Amortization**
            
            **Net**License
                agreements
            
            **$**
            **748,800**
            
            **$**
            **(508,622**
            **)**
            **$**
            **240,178**Patent
                applications
            
            
            **416,965**
            
            
            **(563**
            **)**
            
            **416,402**Trademarks
            
            
            **89,736**
            
            
            **(13,655**
            **)**
            
            **76,081**Loan
                facility fees
            
            
            **37,500**
            
            
            **(34,375**
            **)**
            
            **3,125**Other
            
            
            **6,889**
            
            
            **-**
            
            
            **6,889****$**
            **1,299,890**
            
            **$**
            **(557,215**
            **)**
            **$**
            **742,675**








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 and nine months ended June 2, 2006,
      amounted to $138,000 and $227,000, respectively. Amortization expense for the
      three and nine months ended June 2, 2006 included $85,000 related to write-offs
      of remaining net balances of certain license agreements due to termination
      of
      the agreements. Amortization expense of other assets for the three and nine
      months ended June 3, 2005, amounted to $41,000 and $118,000,
      respectively.





We
      conduct an ongoing review of our intellectual property rights and potential
      trademarks. As of June 2, 2006, we incurred $417,000 and $90,000 of legal
      expenses related to the filing of applications for various patents and
      trademarks, respectively. Upon issuance, these costs will be amortized on a
      straight-line basis over the lesser of the legal life of the patents and
      trademarks or their estimated useful lives. If it becomes more likely than
      not
      that a patent application will not be granted, we will write-off the deferred
      cost at that time. At June 2, 2006, the cost of registered patents and
      trademarks amounted to $68,000 and $52,000, respectively. License agreements
      are
      amortized over their estimated useful life of 2 to 5 years. Loan facility fees
      are amortized over twelve months.





**Note
      6 Financing Agreements** **Revolving
      Line of Credit and Term Loan Facility**





Subsequent
      to June 2, 2006, WCI’s bank loan facility automatically renewed for a one year
      period effective July 1, 2006. The renewed facility provides a maximum available
      credit limit of $5,000,000 subject to availability advance formulas. The loan
      facility matures on June 30, 2007, 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. The interest on the renewed facility will remain at the bank’s prime
      rate (8.00% at June 2, 2006). The bank retained the right to adjust the interest
      rate, subject to subsequent financial performance of the Company.





The
      term
      loan facility provides for a maximum of $1,000,000 for advances of up to 80%
      of
      the cost of equipment acquisitions. Principal advances are payable monthly
      over
      60 months with a balloon payment due at maturity. The revolving line of credit
      is subject to availability advance formulas of 80% against eligible accounts
      receivable; 20% of eligible raw materials inventories; 20% of eligible work-in
      process kit inventories; 40% to 50% of eligible finished goods inventories;
      and
      50% of import letter of credit commitment balances. The loan is secured by
      a
      first lien on substantially all of WCI’s assets and guaranteed by Wegener
      Corporation. At June 2, 2006, balances outstanding on the revolving line of
      credit amounted to $423,000. No borrowings were outstanding under the equipment
      term loan portions of **** the
      loan
      facility. The loan facility is also used to support import letters of credit
      issued to offshore manufacturers, which at June 2, 2006 amounted to $2,782,000.
      At June 2, 2006, **** approximately
      $1,794,000, net of outstanding letters of credit, was available to borrow under
      the advance formulas.




12




Under
      the
      loan facility, 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 June 2, 2006, we were not in compliance
      with
      the tangible net worth covenant, for which the bank granted a
      waiver.





**Note
      7**  **Income
      Taxes**





For
      the
      nine months ended, June 2, 2006, no income tax benefit was recorded due to
      an
      increase in the deferred tax asset valuation allowance. The valuation allowance
      increased $578,000 in the first nine months of fiscal 2006. At June 2, 2006,
      net
      deferred tax assets of $5,288,000, were fully reserved by a valuation
      allowance.




At
      June
      2, 2006, we had a federal net operating loss carryforward of approximately
      $8,692,000, 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.





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





The
      following tables represent required disclosure of the reconciliation of the
      numerators and denominators of the basic and diluted net earnings per share
      computations.




Three
                  months ended**June
                  2, 2006**
              
              June
                  3, 2005**Per**
              
              
              
              
              
              Per**Earnings**
              
              **Shares**
              
              **share**
              
              Earnings
              
              Shares
              
              share**(Numerator)**
              
              **(****Denominator)**
              
              **amount**
              
              (Numerator)
              
              (Denominator)
              
              amountNet
                  earnings (loss)
              
              **$**
              **137,776**
              
              
              
              
              
              
              
              $
              (619,543
              )**Basic
                  earnings (loss) per share**:Net
                  earnings (loss) availableto
                  common shareholders
              
              **$**
              **137,776**
              
              
              **12,579,051**
              
              **$**
              **.01**
              
              $
              (619,543
              )
              
              12,574,447
              
              $
              (.05
              )Effect
                  of dilutive potentialcommon
                  shares:Stock
                  options
              
              
              -
              
              
              **186,874**
              
              
              
              
              
              -
              
              
              -**Diluted
                  earnings (loss) per****share:**Net
                  earnings (loss) available
              
              **$**
              **137,776**
              
              
              **12,765,925**
              
              **$**
              **.01**
              
              $
              (619,543
              )
              
              12,574,447
              
              $
              (.05
              )to
                  common shareholders





13




Nine
                    months ended**June
                    2, 2006**
                
                June
                    3, 2005**Per**
                
                
                
                
                
                Per**Earnings**
                
                **Shares**
                
                **share**
                
                Earnings
                
                Shares
                
                share**(Numerator)**
                
                **(****Denominator)**
                
                **amount**
                
                (Numerator)
                
                (Denominator)
                
                amountNet
                    loss
                
                **$**
                **(1,606,357**
                **)**
                
                
                
                
                
                
                $
                (379,754
                )**Basic
                    loss per share:**Net
                    loss availableto
                    common shareholders
                
                **$**
                **(1,606,357**
                **)**
                
                **12,579,051**
                
                **$**
                **(.13**
                **)**
                $
                (379,754
                )
                
                12,557,029
                
                $
                (.03
                )Effect
                    of dilutive potentialcommon
                    shares:Stock
                    options
                
                
                -
                
                
                **-**
                
                
                
                
                
                -
                
                
                -**Diluted
                    loss per share**:Net
                    loss availableto
                    common shareholders**$**
                **(1,606,357**
                **)**
                
                **12,579,051**
                
                **$**
                **(.13**
                **)**
                $
                (379,754
                )
                
                12,557,029
                
                $
                (.03
                )


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





Three
                  months ended
              
              Nine
                  months ended**June
                  2,**
              
              June
                  3,
              
              **June
                  2,**
              
              June
                  3,**2006**
              
              2005
              
              **2006**
              
              2005Common
                  stock options:Number
                  of shares
              
              
              **635,156**
              
              
              1,195,531
              
              
              **1,282,531**
              
              
              1,195,531Exercise
                  price
              
              $
              **1.41
                  to $2.72**
              
              $
              .63
                  to $2.72
              
              **$**
              **.63
                  to $2.72**
              
              $
              .63
                  to $2.72


**Note
      9 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.





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


Three
                  months ended
              
              Nine
                  months ended**June
                  2,**
              
              June
                  3,
              
              **June
                  2,**
              
              June
                  3,**2006**
              
              2005
              
              **2006**
              
              2005Product
                  LineDirect
                  Broadcast Satellite
              
              **$**
              **6,418,802**
              
              $
              4,027,104
              
              **$**
              **15,618,256**
              
              $
              16,309,343Analog
                  and Custom Products
              
              
              **74,641**
              
              
              50,875
              
              
              **121,723**
              
              
              237,922Service
              
              
              **114,297**
              
              
              174,900
              
              
              **431,952**
              
              
              448,242**$**
              **6,607,740**
              
              $
              4,252,879
              
              **$**
              **16,171,931**
              
              $
              16,995,507




14





Revenues
      by geographic area are as follows:





Three
                  months ended
              
              Nine
                  months ended**June
                  2,**
              
              June
                  3,
              
              **June
                  2,**
              
              June
                  3,**2006**
              
              2005
              
              **2006**
              
              2005Geographic
                  AreaUnited
                  States
              
              **$**
              **4,221,327**
              
              $
              4,139,116
              
              **$**
              **13,305,349**
              
              $
              16,593,929Latin
                  America
              
              
              **12,874**
              
              
              12,813
              
              
              **100,950**
              
              
              136,103Canada
              
              
              **55,703**
              
              
              27,977
              
              
              **136,821**
              
              
              61,508Europe
              
              
              **2,301,734**
              
              
              62,948
              
              
              **2,605,968**
              
              
              166,763Other
              
              
              **16,102**
              
              
              10,025
              
              
              **22,843**
              
              
              37,204**$**
              **6,607,740**
              
              $
              4,252,879
              
              **$**
              **16,171,931**
              
              $
              16,995,507





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
              
              Nine
                  months ended**June
                  2,**
              
              June
                  3,
              
              **June
                  2,**
              
              June
                  3,**2006**
              
              2005
              
              **2006**
              
              2005Customer
                  1
              
              
              **24.2**
              **%**
              
              (a
              )
              
              **10.3**
              **%**
              
              (a
              )Customer
                  2
              
              
              **(a**
              **)**
              
              24.0
              %
              
              **(a**
              **)**
              
              16.7
              %Customer
                  3
              
              
              **26.3**
              **%**
              
              19.0
              %
              
              **22.4**
              **%**
              
              24.6
              %Customer
                  4
              
              
              **(a**
              **)**
              
              18.4
              %
              
              **(a**
              **)**
              
              13.4
              %Customer
                  5
              
              
              **(a**
              **)**
              
              (a
              )
              
              **(a**
              **)**
              
              10.0
              %




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





**Note
      10 Commitments**





We
      have
      two manufacturing and purchasing agreements for certain finished goods
      inventories. At June 2, 2006, outstanding purchase commitments under these
      agreements amounted to $5,859,000. Pursuant to the above agreements, at June
      2,
      2006, we had outstanding letters of credit in the amount of $2,782,000. In
      addition, at June 2, 2006, we had an outstanding commitment for engineering
      design and software development services in the amount of $616,000.





**Note
      11 Guarantees and Warranty Liability**





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 June 2, 2006, amounted to $335,000. For the nine
      months ended June 2, 2006, accrued warranty provisions were increased by
      $110,000 for additional estimated warranty claims.





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 June 2, 2006,
      outstanding letters of credit amounted to $2,782,000.





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 June 2, 2006, balances
      outstanding on the loan facility were $423,000.




15








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, **** the
      Company’s liquidity position and capital resources, general market conditions
      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**




The
      Company, through WegenerTM Communications,
      Inc. (WCI), its wholly-owned subsidiary, designs and manufactures communications
      transmission and receiving equipment for the business broadcast, data
      communications, cable and broadcast radio and television industries. WCI is
      a
      leading provider of digital solutions for video, audio and IP data networks,
      primarily via satellite delivery. Applications include broadcast and cable
      television, business television, IP data delivery, distance education, business
      music and radio networks. COMPEL Ò ,
      our
      patented network control system, provides network flexibility to regionalize
      programming, commercials and file transfers.




Revenues
      and operating results improved significantly in the third quarter of fiscal
      2006
      compared to the same period of fiscal 2005. The third quarter benefited from
      the
      increase in orders booked in the first half of fiscal 2006, which began shipping
      in the third quarter of fiscal 2006. Third quarter revenues included shipments
      on the new BBC World Services (BBC) order and a quarter-to-quarter comparable
      increase in revenues to a business music provider.




While
      third quarter fiscal 2006 bookings of approximately $2.7 million were lower
      than
      expected, several orders we had projected to close during the third quarter
      are
      now anticipated to book in the fourth quarter of fiscal 2007, including a new
      order from Nielsen Media Research, Inc .
      for the
      development and manufacture of the new WEGENER SpoTTracTM Encoder.
      The Nielsen SpoTTrac encoder product for this order is not an in-home set-top
      monitor device.




During
      the second quarter of fiscal 2006, we booked approximately $6.1 million in
      new
      orders, including a $3.6 million contract from BBC World Services (BBC)
      utilizing our iPump ® system
      for its international radio distribution network. The system allows the BBC
      to
      distribute audio to over 900 partners globally through advanced digital file
      store-forward technology, as well as traditional linear broadcasting.
      Approximately $1.6 million of the BBC order shipped in the third quarter of
      fiscal 2006, approximately $.6 million is expected to ship in the fourth quarter
      of fiscal 2006, and the remainder of the order will ship in fiscal
      2007.




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. Of these orders, approximately $1.8 million remains to ship in the
      fourth quarter of fiscal 2006 and approximately $1.9 million in fiscal
      2007.




16




Additionally,
      during the first nine months of fiscal 2006, initial orders for the SMD 515
      Streaming Media Decoder, our high definition MPEG-4/h.264 settop box for
      telecommunication customer applications, were received. Nominal shipments are
      scheduled to begin late in the fourth quarter of fiscal 2006. Our supplier
      of
      MPEG-4/h.264 chipsets has experienced additional delays in releasing final
      software code for the chipsets. The most recent information from the supplier
      is
      that it expects final code to be released in our fourth quarter of fiscal
      2006.




At
      June
      2, 2006, our eighteen-month backlog was approximately $12.1 million compared
      to
      $10.1 million at September 2, 2005 and $12.8 million at June 3, 2005. The total
      multi-year backlog at June 2, 2006, was approximately $21.3 million compared
      to
      $23.9 million at September 2, 2005 and $26.4 million at June 3,
      2005.





The
      June
      2, 2006 backlog reflects an amendment to an existing multi-year sales contract
      with a long-term business music customer. Under the terms of the amended
      agreement, beginning in our fourth quarter of fiscal 2006 and ending in the
      fourth quarter of fiscal 2007, product deliveries for varying periods will
      be
      curtailed. In consideration of the amendment, we will receive payments in lieu
      of product deliveries of approximately $1.9 million. Deliveries of a new lower
      cost product will resume in the fourth quarter of fiscal 2007 and continue
      into
      fiscal 2012. This amended agreement allows our long-term customer to bring
      product inventories in line with their revised utilization forecast and extends
      our multi-year sales contract from fiscal 2009 into fiscal 2012. The effect
      of
      the amendment was to reduce our eighteen-month backlog by $5.6 million and
      total
      multi-year backlog by $4.0 million.





We
      are
      continuing to invest in new technologies 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 the remainder of fiscal 2006 and into fiscal
      2007.





We
      believe that our SMD 515 settop product line for IPTV applications will open
      new
      markets for us and additional product offerings for new and existing customers.
      There are clearly higher risks present in this product line, which has a
      different business model with lower margin levels than our historical business,
      as well as significant competitors. We anticipate that it will take time to
      make
      this product line a profitable part of our business, but currently believe
      it is
      worth the investment risk with the potential for increased revenues and
      profitability in the future. In addition, the SMD 515, as it is currently
      designed, is directly applicable to IPTV applications within our current markets
      and provides the opportunity for new offerings to our existing customer base.





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.  Key
      new
      products, including our iPump ® 6420  for
      the
      radio broadcasting industry and the Unity ® 550 for
      business and private television network markets, are scheduled for release
      during the fourth quarter of fiscal 2006. We believe that these products should
      generate additional bookings and revenue in fiscal 2007.





**Financial
      Position and Liquidity**





At
      June
      2, 2006, we had line of credit borrowings outstanding of $423,000. Our
      $5,000,000 bank loan facility is subject to availability advance formulas based
      on eligible accounts receivable, import letter of credit commitment balances
      and
      inventories. Subsequent to June 2, 2006, WCI’s bank loan facility was renewed
      for a one year period effective July 1, 2006. The renewed loan facility matures
      on June 30, 2007, or upon demand. At June 2, 2006, **** approximately
      $1,794,000, net of outstanding letters of credit in the amount of $2,782,000,
      remained available to borrow under the advance formulas.





During
      the first nine months of fiscal 2006, our cash balances decreased by $1,060,000
      and line of credit net borrowings increased to the outstanding balance of
      $423,000. These funds were used to fund  operating
      activities  of
      $146,000 and investing activities consisting of capitalized software additions
      of $1,099,000, equipment additions of $179,000 and $59,000 for legal expenses
      related to the filing of applications for various patents and
      trademarks.





Our
      current financial projections reflect an increase in revenues and improved
      operating results for the second half of fiscal 2006 compared to the first
      half
      of fiscal 2006 and for fiscal 2007 compared to fiscal 2006. If we achieve our
      revenue and operating projections for the fourth quarter of fiscal 2006 and
      for
      fiscal 2007, we expect our line of credit borrowings to increase. In addition,
      we could exceed our line of credit limit of $5,000,000 during fiscal 2007.
      The
      increase in borrowings and the increase in the line of credit would be required
      to support anticipated increases in inventory, accounts receivable and letter
      of
      credit commitment balances. No assurances can be given that the bank will grant
      an increase in the line of credit or that additional sources of capital, if
      needed, will be available. If adequate financing is not available, we will
      not
      be able to achieve our financial projections. Should anticipated future revenues
      and improved operating results not materialize, or if adequate financing is
      not
      available, we are committed to reducing operating costs and resulting operating
      losses to bring them in line with revenue levels.




17





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





**RESULTS
      OF OPERATIONS**


**THREE
      AND NINE MONTHS ENDED JUNE 2, 2006 COMPARED TO THREE AND NINE MONTHS ENDED
      JUNE
      3, 2005**





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








Three
                months ended
            
            Nine
                months ended**June
                2,**
              **2006**
            
            June
                3,
              2005
            
            **June
                2,**
              **2006**
            
            June3,
              2005Revenues
            
            
            **100.0**
            **%**
            
            100.0
            %
            
            **100.0**
            **%**
            
            100.0
            %Cost
                of products sold
            
            
            **63.5**
            
            
            65.5
            
            
            **65.6**
            
            
            63.0Gross
                margin
            
            
            **36.5**
            
            
            34.5
            
            
            **34.4**
            
            
            37.0Selling,
                general, and administrative
            
            
            **22.6**
            
            
            37.5
            
            
            **30.2**
            
            
            26.1Research
                & development
            
            
            **11.1**
            
            
            19.7
            
            
            **13.7**
            
            
            14.2Operating
                income (loss)
            
            
            **2.7**
            
            
            (22.7
            )
            
            **(9.6**
            **)**
            
            (3.4
            )Interest
                expense
            
            
            **(0.6**
            **)**
            
            (0.4
            )
            
            **(0.4**
            **)**
            
            (0.3
            )Interest
                income
            
            
            **-**
            
            
            0.3
            
            
            **0.4**
            
            
            0.1Earnings
                (loss) before income taxes
            
            
            **2.1**
            
            
            (22.8
            )
            
            **(9.9**
            **)**
            
            (3.5
            )Income
                tax benefit
            
            
            **-**
            
            
            8.2
            
            
            **-**
            
            
            1.3Net
                earnings (loss)
            
            
            **2.1**
            **%**
            
            (14.6
            )%
            
            **(9.9**
            **)%**
            
            (2.2
            )%








The
      operating results for the three and nine month periods ended June 2, 2006,
      were
      net earnings of $138,000 or $.01 per share and a net loss of $(1,606,000) or
      $(.13) per share, respectively, compared to net losses of $(620,000) or $(.05)
      per share and $(380,000) or $(.03) per share for the same periods ended June
      3,
      2005.





**Revenues** -
      Revenues for the three months ended June 2, 2006 increased $2,355,000 or 55.4%
      to $6,608,000 from $4,253,000 for the three months ended June 3, 2005. Revenues
      for the nine months ended June 2, 2006 decreased $824,000 or 4.8% to $16,172,000
      from $16,996,000 for the nine months ended June 3, 2005.




Direct
      Broadcast Satellite (DBS) revenues (including service revenues) increased
      $2,331,000 or 55.5% in the third quarter of fiscal 2006 to $6,533,000 from
      $4,202,000 in the same period of fiscal 2005. For the nine months ended June
      2,
      2006, DBS revenues decreased $707,000 or 4.2% to $16,050,000 from $16,757,000
      for the nine months ended June 3, 2005. The increase in fiscal 2006 third
      quarter revenues was mainly due to an increase in orders booked in the first
      half of fiscal 2006 which began shipping in the third quarter of fiscal 2006.
      Third quarter revenues included shipments of approximately $1,603,000 on the
      new
      BBC World Services (BBC) order. Additionally, third quarter revenues to an
      existing business music network customer increased approximately $934,000
      compared to the same period of fiscal 2005. As discussed above, beginning in
      the
      fourth quarter of fiscal 2006 and continuing into the fourth quarter of fiscal
      2007, product deliveries to this customer will be curtailed and we will receive
      payments in lieu of product deliveries aggregating approximately $1.9 million.
      This will result in reduced revenues from that customer during those periods.
      The decrease in fiscal 2006 nine month revenues reflects the timing of shippable
      bookings and resulting revenues from significant customer orders. Analog and
      Custom Products Group revenues (previously referred to as Telecom and Custom
      Products Group) increased $24,000 or 46.7% in the third quarter of fiscal 2006
      to $75,000 from $51,000 for the comparable period of fiscal 2005. For the nine
      months ended June 2, 2006, Analog and Custom Products Group revenues decreased
      $116,000 or 48.8% to $122,000 from $238,000 for the nine months ended June
      3,
      2005. The decrease in revenues for the nine month periods reflects a decline
      in
      orders for older analog and cue and control equipment. Revenues and order
      backlog are subject to the timing of significant orders from customers, and
      as a
      result revenue levels may fluctuate from quarter to quarter.




18





For
      the
      three months ended June 2, 2006, two customers accounted for 26.3% and 24.3%
      of
      revenues, respectively. For the three months ended June 3, 2005, three customers
      accounted for 24.0%, 19.0%, and 17.6% of revenues, respectively. For the nine
      months ended June 2, 2006, the same two customers accounted for 22.4% and 10.3%
      of revenues, respectively. For the nine months ended June 3, 2005, four
      customers accounted for 24.6%, 16.7%, 13.2% and 10.0% 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 and beyond. Our backlog is comprised of undelivered, firm customer
      orders, which are scheduled to ship within eighteen months. WCI’s backlog was
      approximately $12.1 million at June 2, 2006, compared to $10.1 million at
      September 2, 2005, and $12.8 million at June 3, 2005. Four customers accounted
      for 29.2%, 28.7%, 15.5% and 11.9%, respectively, of the backlog at June 2,
      2006.
      The total multi-year backlog at June 2, 2006, was approximately $21.3 million
      compared to $23.9 million at September 2, 2005 and $26.4 million at June 3,
      2005.





The
      June
      2, 2006 backlog reflects a fiscal 2006 second quarter amendment to an existing
      multi-year sales contract with a long-term business music customer. Under the
      terms of the amended agreement, beginning in our fourth quarter of fiscal 2006
      and ending in the fourth quarter of fiscal 2007, product deliveries for varying
      periods will be curtailed. In consideration of the amendment, we will receive
      payments in lieu of product deliveries of approximately $1.9 million. Deliveries
      of a new lower cost product will resume in the fourth quarter of fiscal 2007
      and
      continue into fiscal 2012. This amended agreement allows our long-term customer
      to bring product inventories in line with their revised utilization forecast
      and
      extends our multi-year sales contract from fiscal 2009 into fiscal 2012. The
      effect of the amendment was to reduce our eighteen month backlog by $5.6 million
      and total multi-year backlog by $4.0 million.





**Gross
      Profit Margins** - The
      Company's gross profit margin percentages were 36.5% and 34.4% for the three
      and
      nine months ended June 2, 2006, compared to 34.5% and 37.0% for the same periods
      ended June 3, 2005. Gross profit margin dollars increased $75,000 or 5.4% and
      $2,419,000 or 62.6% for the three and nine month periods ended June 2, 2006,
      respectively, from the same periods ended June 3, 2005. The increase in margin
      percentages and dollars for the three months ended June 2, 2006 was mainly
      due
      to increased revenues, which resulted in lower fixed overhead unit costs. The
      decrease in margin percentages and dollars for the first nine months of fiscal
      2006 was mainly due to lower revenues. Profit margins in the three and nine
      month periods of fiscal 2006 were adversely impacted by increases in capitalized
      software amortization expenses of $172,000 and $388,000, respectively. In
      addition, profit margins in the three and nine month periods of fiscal 2006
      included inventory reserve charges of $75,000 and $175,000 compared to $50,000
      and $75,000, and warranty provisions of $50,000 and $110,000 compared to $70,000
      and $70,000, respectively, for the same periods of fiscal 2005. For the three
      and nine months ended June 3, 2005, gross margin dollars and percentages were
      favorably impacted by a one-time adjustment of accrued expenses of $218,000.





**Selling,
      General and Administrative** -
      Selling, general and administrative (SG&A) expenses decreased $99,000 or
      6.2% to $1,497,000 for the three months ended June 2, 2006, from $1,595,000
      for
      the same period of fiscal 2005. For the nine months ended June 2, 2006, SG&A
      expenses increased $446,000 or 10.1% to $4,890,000 from $4,444,000 for the
      same
      period of fiscal 2005. Corporate SG&A expenses in the third quarter and
      first nine months of fiscal 2006 increased $87,000 and $520,000, respectively,
      mainly due to costs related to corporate governance matters, a proxy contest
      and
      a shareholder lawsuit. Sarbanes-Oxley compliance costs for the three and nine
      months ended June 3, 2005 were $42,000 and $192,000, respectively, compared
      to
      none in fiscal 2006 . WCI’s
      SG&A expenses decreased $186,000, or 13.7%, and $73,000, or 2.0%, for the
      three and nine months ended June 2, 2006, compared to the same periods in fiscal
      2005.  Lower
      WCI SG&A expenses in the third quarter of fiscal 2006 were mainly due to
      lower consulting expenses and bad debt provisions. The decrease in WCI’s
      SG&A expenses in the first nine months of fiscal 2006 was mainly due to the
      lower consulting expenses and bad debt provisions which were offset by increases
      in professional fees and in-house and outside agent sales commissions. SG&A
      expenses included $3,000 and $30,000 of noncash share-based compensation in
      the
      three and nine months ended June 2, 2006 compared to none in the same periods
      of
      fiscal 2005. As a percentage of revenues, SG&A expenses were 22.6% and 30.2%
      for the three and nine month periods ended June 2, 2006, respectively, compared
      to 37.5% and 26.1% for the same periods of fiscal 2005.





**Research
      and Development** -
      Research and development (R&D) expenditures, including capitalized software
      development costs, were $1,066,000 or 16.1% of revenues, and $3,318,000 or
      20.5%
      of revenues, for the three and nine month periods ended June 2, 2006, compared
      to $1,223,000 or 28.8% of revenues, and $3,617,000 or 21.3% of revenues, for
      the
      same periods of fiscal 2005. The decreases in expenditures in the three and
      nine
      months ended June 2, 2006, were mainly due to lower engineering consulting
      expenses resulting from completed projects. Capitalized software development
      costs amounted to $332,000 and $1,099,000 for the third quarter and first nine
      months of fiscal 2006 compared to $387,000 and $1,206,000 for the same periods
      of fiscal 2005. The decreases in capitalized software costs in the three
      and  nine
      months of fiscal 2006 were due to decreased expenditures on the
      iPump Ò Media
      Server and Compel Ò products. Research and development expenses, excluding capitalized software
      expenditures, were $734,000 or 11.1% of revenues, and $2,219,000 or 13.7% of
      revenues, for the three and nine months ended June 2, 2006, respectively,
      compared to $836,000 or 19.7% of revenues, and $2,411,000 or 14.2% of revenues,
      for the same periods of fiscal 2005, respectively. The decreases in R&D
      expenses for the three and nine months ended June 2, 2006, were mainly due
      to
      decreases in engineering consulting expenses and the decreased amounts of
      capitalized software costs.




19





**Interest
      Expense** -
      Interest expense increased $27,000 to $43,000 for the three months ended June
      2,
      2006, from $16,000 for the three months ended June 3, 2005, due to
      line-of-credit borrowings in the second and third quarters of fiscal 2006.
      For
      the nine months ended June 2, 2006, interest expense increased $22,000 to
      $68,000 from $46,000 for the same period in fiscal 2005. The increase for the
      nine months in fiscal 2006 was primarily due to the increase in interest expense
      associated with line-of-credit borrowings in the second and third quarters,
      offset by a decrease in average outstanding letter of credit commitment
      balances.





**Interest
      Income** **-** Interest
      income was $1,000 and $7,000 for the three and nine month periods ended June
      2,
      2006, compared to $12,000 and $22,000 for the same periods ended June 3, 2005.
      The decreases for the three and nine months ended June 2, 2006 were mainly
      due
      to lower average  balances
      of cash and cash equivalents.





**Income
      Tax Expenses** **-** For the
      nine months ended June 2, 2006, no income tax benefit was recorded due to an
      increase in the deferred tax asset valuation allowance. The valuation allowance
      increased $578,000 in the first nine months of fiscal 2006. At June 2, 2006,
      net
      deferred tax assets of $5,288,000 were fully reserved by a valuation
      allowance.





**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”, SOP
      No. 97-2 , **** “Software
      Revenue Recognition,” as amended by SOP No. 98-9, “Software Revenue Recognition,
      with Respect to Certain Transactions” 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 when there are no significant future performance obligations.
      Service revenues are recognized at the time of performance. Maintenance
      contract revenues are recognized ratably over the maintenance contract term,
      which is typically one year. The unrecognized revenue portion of maintenance
      contracts invoiced is recorded as deferred revenue. 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 the buyer, 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 and
      nine months ended June 2, 2006, revenues in the amount of $1,741,000 and
      $3,029,000, respectively, were appropriately recorded prior to delivery as
      bill
      and hold transactions in accordance with the provisions of SAB 104. At June
      2,
      2006, accounts receivable for these revenues amounted to $1,316,000. Subsequent
      to June 2, 2006, payments in the amount of $297,000 were received on these
      accounts receivable.





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.





Embedded
      in our products is internally developed software of varying
      applications **.** We
      evaluate our products to assess whether software is more than incidental to
      a
      product. When we conclude that software is more than incidental to a product,
      we
      account for the product as a software product. Revenue on software products
      and
      software-related elements is recognized in accordance with SOP
      No. 97-2 . Significant
      judgment may be required in determining whether a product is a software or
      hardware product.




20


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





**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
      June 2, 2006, inventories, net of reserve provisions, amounted to $4,373,000.





**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 June 2, 2006,
      capitalized software costs, net of accumulated amortization, amounted to
      $1,418,000.





**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 **** June
      2,
      2006, deferred tax assets in the amount of $5,288,000 were fully reserved by
      a
      valuation allowance. For the nine months ended June 2, 2006, the valuation
      allowance was increased by $578,000.




**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
      June
      2, 2006, accounts receivable, net of allowances for doubtful accounts, amounted
      to $4,410,000.





**LIQUIDITY
      AND CAPITAL RESOURCES**


**NINE
      MONTHS ENDED JUNE 2, 2006**




At
      June
      2, 2006, our primary source of liquidity was a $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. At
      June
      2, 2006, we had line of credit borrowings outstanding of $423,000. At June
      2,
      2006, **** approximately
      $1,794,000, net of outstanding letters of credit in the amount of $2,782,000,
      was available to borrow under the advance formulas. Cash and cash equivalents
      decreased $1,060,000 during the first nine months of fiscal 2006.





During
      the first nine months of fiscal 2006, operating activities used $146,000 of
      cash. Net earnings adjusted for noncash expenses provided $702,000 of cash,
      while changes in accounts receivable and customer deposit balances used
      $1,880,000 of cash. Changes in inventories, accounts payable and accrued
      expenses, and other assets provided $1,032,000 of cash. Cash used by investing
      activities was $180,000 for property and equipment expenditures, $1,099,000
      for
      capitalized software additions and $59,000 for legal expenses related to the
      filing of applications for various patents and trademarks. Financing activities
      provided $423,000 of cash from the line-of-credit borrowings.





Subsequent
      to June 2, 2006, WCI’s bank loan facility automatically renewed for a one year
      period effective July 1, 2006. The renewed facility provides a maximum available
      credit limit of $5,000,000 with sublimits as defined. The loan facility matures
      on June 30, 2007, 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. The
      interest on the renewed facility will remain at the bank’s prime rate (8.00% at
      June 2, 2006). The bank retained the right to adjust the interest rate, subject
      to subsequent financial performance of the Company .





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 is guaranteed
      by Wegener Corporation. At June 2, 2006, balances outstanding on the revolving
      line of credit amounted to $423,000. No borrowings were outstanding under the
      equipment term loan portions of **** the
      loan
      facility. The loan facility is also used to support import letters of credit
      issued to offshore manufacturers, which at June 2, 2006, amounted to
      $1,521,000.




21





Our
      current financial projections reflect an increase in revenues and improved
      operating results for the second half of fiscal 2006 compared to the first
      half
      of fiscal 2006 and for fiscal 2007 compared to fiscal 2006. If we achieve our
      revenue and operating projections for the fourth quarter of fiscal 2006 and
      for
      fiscal 2007, we expect our line of credit borrowings to increase. In addition,
      we could exceed our line of credit limit of $5,000,000 during fiscal 2007.
      The
      increase in borrowings and the increase in the line of credit would be required
      to support anticipated increases in inventory, accounts receivable and letter
      of
      credit commitment balances. No assurances can be given that the bank will grant
      an increase in the line of credit or that additional sources of capital, if
      needed, will be available. If adequate financing is not available, we will
      not
      be able to achieve our financial projections. Should anticipated future revenues
      and improved operating results not materialize, or if adequate financing is
      not
      available, we are committed to reducing operating costs and resulting operating
      losses to bring them in line with revenue levels.





In
      addition, at June 2, 2006, 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.





Under
      the
      loan facility, 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 June 2, 2006,  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 June 2, 2006, outstanding purchase commitments under these
      agreements amounted to $5,859,000. Pursuant to the above agreements, at June
      2,
      2006, we had outstanding letters of credit in the amount of $1,521,000. In
      addition, at June 2, 2006, we had an outstanding commitment for engineering
      design and software development services in the amount of $616,000.





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




A
      summary
      of our long-term contractual obligations as of June 2, 2006 consisted
      of:







Payments
                Due by PeriodContractual
                Obligations
            
            Total
            
            Fiscal
              2006
            
            Fiscal
              2007-2008
            
            Fiscal
              2009-2010Operating
                leases
            
            $
            186,000
            
            $
            46,000
            
            $
            136,000
            
            $
            4,000Purchase
                commitments
            
            
            6,475,000
            
            
            2,688,000
            
            
            3,787,000
            
            
            -Total
            
            $
            6,661,000
            
            $
            2,734,000
            
            $
            3,923,000
            
            $
            4,000








22





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




Our
      exposure to market rate risk for changes in interest rates relates primarily
      to
      our revolving line of credit 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. At June 2, 2006, line of credit outstanding borrowings
      amounted to  $423,000.





We
      do 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 (June 2, 2006). 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 the most recent
      fiscal quarter that has materially affected, or is reasonably likely to
      materially affect, the Company’s internal control over financial
      reporting.




23




**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 exhibit there is shown the description of the actual filing. Exhibits
      which are not required for this report are omitted.





Exhibit
                Number
            Description
                of Document*3.1
            Certificate
                of Incorporation as amended through May 4, 1989, (1989 10-K, filed
                November 30, 1989, SEC file No. 0-11003, Exhibit 3.2).*3.2
            Amendment
                to Certificate of Incorporation (1997 10-Q, filed June 27, 1997,
                SEC file
                No. 0-11003, Exhibit 3.1).*3.3
            Amended
                and Restated By-laws effective May 17, 2006, (Form 8-K, dated May
                17, 2006
                and filed May 22, 2006, 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
                2002.32.1
            Certification
                of Chief Financial Officer Regarding Periodic Report Containing Financial
                Statements Pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.








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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:
              July 12, 2006
            By:
            /s/ Robert
              A.
              PlacekRobert
              A. PlacekChairman
                of the Board, President and
              Chief
                Executive Officer
              (Principal
                Executive Officer)





Date:
                July 12, 2006
              By:
              /s/ C.
                Troy
                Woodbury, Jr.C.
                Troy Woodbury, Jr.Treasurer
                    and Chief
                  Financial
                    Officer
                  (Principal
                    Financial and Accounting
                    Officer)


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