UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
  FORM
10-Q
  (Mark
One)
 xQUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the
quarterly period ended February 27, 2009
  OR
  ̈TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the
transition period from
______________________________to_____________________________
  Commission
file No. 0-11003
 WEGENER
CORPORATION
 
 (Exact
name of registrant as specified in its charter)
 Delaware
                
                81–0371341(State
      or other jurisdiction
                
                (I.R.S.
      Employerof
      incorporation or organization)
                
                Identification
      No.)
 
 11350
      Technology Circle, 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:  YesxNo ̈
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of  “large accelerated filer,” “accelerated filer” and
“smaller reporting company”  in Rule 12b-2 of the Exchange
Act.  (Check one):
 Large
accelerated filer ̈Accelerated filer ̈Non-accelerated
filer ̈Smaller reporting
companyx
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes ̈Nox
  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
                
                12,647,051 SharesClass
                
                Outstanding
      at March 27, 2009
  
  WEGENER
CORPORATION
 Form
10-Q For the Quarter Ended February 27, 2009
 
 INDEX
 
 PART
      I.  Financial InformationItem
      1.
                  Financial
      StatementsIntroduction
                  
                  3Consolidated
      Statements of Operations (Unaudited) - Three and Six Months Ended February
      27, 2009 and February 29, 2008
                  
                  4Consolidated
      Balance Sheets – February 27, 2009 (Unaudited) and August 29,
      2008
                  
                  5Consolidated
      Statements of Shareholders' Equity (Unaudited) - Six Months Ended February
      27, 2009 and February 29, 2008
                  
                  6Consolidated
      Statements of Cash Flows (Unaudited) - Six Months Ended February 27, 2009
      and February 29, 2008
                  
                  7Notes
      to Consolidated Financial Statements (Unaudited)
                  
                  8Item
      2.
                  Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  
                  17Item
      3.
                  Quantitative
      and Qualitative Disclosures About Market Risk
                  
                  24Item
      4.
                  Controls
      and Procedures
                  
                  24Item
      4T.
                  Controls
      and Procedures
                  
                  24PART
      II. Other InformationItem
      1A.
                  Risk
      Factors
                  
                  24Item
      4.
                  Submission
      of Matters to a Vote of Security Holders
                  
                  25Item
      6.
                  Exhibits
                  
                  26Signatures
                  
                  27
  2
 
 PART I.  FINANCIAL
INFORMATION
 
 ITEM
1.  FINANCIAL STATEMENTS
  INTRODUCTION
- CONSOLIDATED FINANCIAL STATEMENTS
 
 The
consolidated financial statements of Wegenerä Corporation (the
“Company”, “we”, “our” or “us”) included herein have been prepared pursuant to
the rules and regulations of the Securities and Exchange
Commission.  The consolidated balance sheet as of February 27, 2009;
the consolidated statements of shareholders' equity as of February 27, 2009, and
February 29, 2008; the consolidated statements of operations for the three and
six months ended February 27, 2009, and February 29, 2008; and the consolidated
statements of cash flows for the six months ended February 27, 2009, and
February 29, 2008, have been prepared without audit.  The consolidated
balance sheet as of August 29, 2008 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 August 29, 2008, 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
                                        
                                        
                                        Six months endedFebruary 27,
                                          2009
                                        
                                        
                                        February 29,
                                          2008
                                        
                                        
                                        February 27,
                                          2009
                                        
                                        
                                        February 29,
                                          2008Revenues,
      net
                                        
                                        $
                                        4,511,124
                                        
                                        
                                        $
                                        6,666,420
                                        
                                        
                                        $
                                        6,833,902
                                        
                                        
                                        $
                                        11,692,349Operating
      costs and expensesCost
      of products sold
                                        
                                        
                                        2,973,682
                                        
                                        
                                        
                                        4,125,365
                                        
                                        
                                        
                                        4,672,097
                                        
                                        
                                        
                                        7,088,104Selling,
      general and administrative
                                        
                                        
                                        1,026,371
                                        
                                        
                                        
                                        1,405,225
                                        
                                        
                                        
                                        2,196,053
                                        
                                        
                                        
                                        2,668,742Research
      and development
                                        
                                        
                                        471,222
                                        
                                        
                                        
                                        769,546
                                        
                                        
                                        
                                        1,079,843
                                        
                                        
                                        
                                        1,578,583Operating
      costs and expenses
                                        
                                        
                                        4,471,275
                                        
                                        
                                        
                                        6,300,136
                                        
                                        
                                        
                                        7,947,993
                                        
                                        
                                        
                                        11,335,429Operating
      income (loss)Interest
      expense
                                        
                                        
                                        39,849
                                        
                                        
                                        
                                        366,284
                                        
                                        
                                        
                                        (1,114,091
                                        )
                                        
                                        
                                        356,920Interest
      income
                                        
                                        
                                        (31,602
                                        )
                                        
                                        
                                        (30,136
                                        )
                                        
                                        
                                        (70,400
                                        )
                                        
                                        
                                        (71,842
                                        )-
                                        
                                        
                                        
                                        177
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        740Net
      earnings (loss )
                                        
                                        $
                                        8,247
                                        
                                        
                                        $
                                        336,325
                                        
                                        
                                        $
                                        (1,184,491
                                        )
                                        
                                        $
                                        285,818Net
      earnings (loss) per share:Basic
                                        
                                        $
                                        0.00
                                        
                                        
                                        $
                                        0.03
                                        
                                        
                                        $
                                        (0.09
                                        )
                                        
                                        $
                                        0.02Diluted
                                        
                                        $
                                        0.00
                                        
                                        
                                        $
                                        0.03
                                        
                                        
                                        $
                                        (0.09
                                        )
                                        
                                        $
                                        0.02Shares
      used in per share calculationBasic
                                        
                                        
                                        12,647,051
                                        
                                        
                                        
                                        12,647,051
                                        
                                        
                                        
                                        12,647,051
                                        
                                        
                                        
                                        12,647,051Diluted
                                        
                                        
                                        12,647,051
                                        
                                        
                                        
                                        12,651,835
                                        
                                        
                                        
                                        12,647,051
                                        
                                        
                                        
                                        12,658,476
 
 See
accompanying notes to consolidated financial statements.
  4
 
 WEGENER
CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 
 February
      27,
                                                                2009
                                                                (Unaudited)
                                                              
                                                              
                                                              August
      29,
                                                                2008AssetsCurrent
      assetsCash
      and cash equivalents
                                                              
                                                              $
                                                              10,532
                                                              
                                                              
                                                              $
                                                              8,023Accounts
      receivable, net
                                                              
                                                              
                                                              2,401,235
                                                              
                                                              
                                                              
                                                              2,963,060Inventories,
      net
                                                              
                                                              
                                                              6,229,482
                                                              
                                                              
                                                              
                                                              6,295,476Other
                                                              
                                                              
                                                              297,262
                                                              
                                                              
                                                              
                                                              211,832Total
      current assets
                                                              
                                                              
                                                              8,938,511
                                                              
                                                              
                                                              
                                                              9,478,391Property
      and equipment, net
                                                              
                                                              
                                                              1,532,149
                                                              
                                                              
                                                              
                                                              1,709,250Capitalized
      software costs, net
                                                              
                                                              
                                                              1,255,563
                                                              
                                                              
                                                              
                                                              1,217,585Other
      assets
                                                              
                                                              
                                                              386,583
                                                              
                                                              
                                                              
                                                              454,050Land
      held for sale
                                                              
                                                              
                                                              353,712
                                                              
                                                              
                                                              
                                                              353,712Total
      assets
                                                              
                                                              $
                                                              12,466,518
                                                              
                                                              
                                                              $
                                                              13,212,988Liabilities
      and Shareholders’ EquityCurrent
      liabilitiesBank
      line of credit
                                                              
                                                              $
                                                              3,471,586
                                                              
                                                              
                                                              $
                                                              1,883,243Accounts
      payable
                                                              
                                                              
                                                              2,737,754
                                                              
                                                              
                                                              
                                                              1,971,379Accrued
      expenses
                                                              
                                                              
                                                              1,335,060
                                                              
                                                              
                                                              
                                                              1,871,887Deferred
      revenue
                                                              
                                                              
                                                              711,953
                                                              
                                                              
                                                              
                                                              771,521Customer
      deposits
                                                              
                                                              
                                                              607,265
                                                              
                                                              
                                                              
                                                              1,927,567Total
      current liabilities
                                                              
                                                              
                                                              8,863,618
                                                              
                                                              
                                                              
                                                              8,425,597Commitments
      and contingenciesShareholders’
      equityCommon
      stock, $.01 par value; 20,000,000 shares authorized; 12,647,051 shares
      issued and outstanding
                                                              
                                                              
                                                              126,471
                                                              
                                                              
                                                              
                                                              126,471Additional
      paid-in capital
                                                              
                                                              
                                                              20,006,702
                                                              
                                                              
                                                              
                                                              20,006,702Deficit
                                                              
                                                              
                                                              (16,530,273
                                                              )
                                                              
                                                              
                                                              (15,345,782
                                                              )Total
      shareholders’ equity
                                                              
                                                              
                                                              3,602,900
                                                              
                                                              
                                                              
                                                              4,787,391Total
      liabilities and shareholders’ equity
                                                              
                                                              $
                                                              12,466,518
                                                              
                                                              
                                                              $
                                                              13,212,988
 
 See
accompanying notes to consolidated financial statements.
  5
 
 WEGENER
CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
 (Unaudited)
  Common
      Stock
                                    
                                    
                                    Additional
                                      Paid-inShares
                                    
                                    
                                    Amount
                                    
                                    
                                    Capital
                                    
                                    
                                    DeficitBalance
      at August 31, 2007
                                    
                                    
                                    12,647,051
                                    
                                    
                                    $
                                    126,471
                                    
                                    
                                    $
                                    19,999,022
                                    
                                    
                                    $
                                    (15,729,065
                                    )Share-based
      compensation expense
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    7,680
                                    
                                    
                                    
                                    -Net
      earnings for the six months
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    285,818BALANCE
      at February 29, 2008
                                    
                                    
                                    12,647,051
                                    
                                    
                                    $
                                    126,471
                                    
                                    
                                    $
                                    20,006,702
                                    
                                    
                                    $
                                    (15,443,247
                                    )Balance
      at August 29, 2008
                                    
                                    
                                    12,647,051
                                    
                                    
                                    $
                                    126,471
                                    
                                    
                                    $
                                    20,006,702
                                    
                                    
                                    $
                                    (15,345,782
                                    )Net
      loss for the six months
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (1,184,491
                                    )BALANCE
      at February 27, 2009
                                    
                                    
                                    12,647,051
                                    
                                    
                                    $
                                    126,471
                                    
                                    
                                    $
                                    20,006,702
                                    
                                    
                                    $
                                    (16,530,273
                                    )
 
 See
accompanying notes to consolidated financial statements.
  6
 
 WEGENER
CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (Unaudited)
  Six
      months endedFebruary
      27,
                                                      2009
                                                    
                                                    
                                                    February
      29,
                                                      2008Cash
      flows from operating activitiesNet
      (loss) earnings
                                                    
                                                    $
                                                    (1,184,491
                                                    )
                                                    
                                                    $
                                                    285,818Adjustments
      to reconcile net (loss) earnings  to cash (used)
      provided  by operating activitiesDepreciation
      and amortization
                                                    
                                                    
                                                    758,366
                                                    
                                                    
                                                    
                                                    940,551Share-based
      compensation expense
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    7,680Increase
      in provision for bad debts
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    35,000Increase
      in provision for inventory reserves
                                                    
                                                    
                                                    230,000
                                                    
                                                    
                                                    
                                                    -(Decrease)
      in provision for warranty reserves
                                                    
                                                    
                                                    (130,000
                                                    )
                                                    
                                                    
                                                    -Changes
      in assets and liabilitiesAccounts
      receivable
                                                    
                                                    
                                                    561,825
                                                    
                                                    
                                                    
                                                    935,655Inventories
                                                    
                                                    
                                                    (164,006
                                                    )
                                                    
                                                    
                                                    (702,903
                                                    )Other
      assets
                                                    
                                                    
                                                    (85,430
                                                    )
                                                    
                                                    
                                                    (39,249
                                                    )Accounts
      payable
                                                    
                                                    
                                                    766,375
                                                    
                                                    
                                                    
                                                    691,804Accrued
      expenses
                                                    
                                                    
                                                    (406,827
                                                    )
                                                    
                                                    
                                                    (277,802
                                                    )Deferred
      revenue
                                                    
                                                    
                                                    (59,568
                                                    )
                                                    
                                                    
                                                    (75,148
                                                    )Customer
      deposits
                                                    
                                                    
                                                    (1,320,302
                                                    )
                                                    
                                                    
                                                    (756,997
                                                    )Net
      cash (used) provided  by operating activities
                                                    
                                                    
                                                    (1,034,058
                                                    )
                                                    
                                                    
                                                    1,044,409Cash
      flows from investment activitiesProperty
      and equipment expenditures
                                                    
                                                    
                                                    (642
                                                    )
                                                    
                                                    
                                                    (202,073
                                                    )Capitalized
      software additions
                                                    
                                                    
                                                    (538,895
                                                    )
                                                    
                                                    
                                                    (544,645
                                                    )License
      agreement, patent, and trademark expenditures
                                                    
                                                    
                                                    (12,239
                                                    )
                                                    
                                                    
                                                    (11,953
                                                    )Net
      cash used by investing activities
                                                    
                                                    
                                                    (551,776
                                                    )
                                                    
                                                    
                                                    (758,671
                                                    )Cash
      flows from financing activitiesNet
      change in revolving line of credit
                                                    
                                                    
                                                    1,588,343
                                                    
                                                    
                                                    
                                                    (287,611
                                                    )Net
      cash  provided (used) by financing activities
                                                    
                                                    
                                                    1,588,343
                                                    
                                                    
                                                    
                                                    (287,611
                                                    )Increase
      (decrease) in cash and cash equivalents
                                                    
                                                    
                                                    2,509
                                                    
                                                    
                                                    
                                                    (1,873
                                                    )Cash
      and cash equivalents, beginning of period
                                                    
                                                    
                                                    8,023
                                                    
                                                    
                                                    
                                                    6,728Cash
      and cash equivalents, end of period
                                                    
                                                    $
                                                    10,532
                                                    
                                                    
                                                    $
                                                    4,855Supplemental
      disclosure of cash flow information:Cash
      paid for Interest
                                                    
                                                    $
                                                    70,400
                                                    
                                                    
                                                    $
                                                    71,842
 
 See
accompanying notes to consolidated financial statements.
  7
  WEGENER
CORPORATION AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note  1  Going
Concern
 The
accompanying consolidated financial statements have been prepared on a going
concern basis which contemplates the realization of assets and liquidation of
liabilities in the normal course of business and do not include any adjustments
to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may result from
the possible inability of the Company to continue as a going
concern.
  Our
fiscal 2009 bookings to date, as well as our fiscal 2008 bookings, particularly
during the fourth quarter of fiscal 2008, were well below our expectations
primarily as a result of customer delays in purchasing decisions, deferral of
project expenditures, foreign exchange rate fluctuations, particularly with the
Mexican peso, and general adverse economic and credit
conditions.  WCI’s backlog scheduled to ship within eighteen months
was approximately $5.9 million at February 27, 2009, compared to $8.5 million at
August 29, 2008, and $9.8 million at February 29, 2008.  The total
multi-year backlog at February 27, 2009, was approximately $9.7 million,
compared to $13.3 million at August 29, 2008 and $15.7 million at February 29,
2008.  Approximately $2.6 million of the February 27, 2009 backlog is
scheduled to ship during the remainder of fiscal 2009.
  Significant
fiscal 2009 shippable bookings are currently required to meet our financial
projections in the third and fourth quarters of fiscal 2009.  Our
bookings and revenues to date have been insufficient to provide adequate levels
of cash flow from operations or adequate levels of collateral to support our
estimates of required borrowings during the remainder of fiscal 2009 and into
fiscal 2010.
  At
February 27, 2009, our net inventory balances were $6,229,000 compared to
$6,295,000 at August 29, 2008, and $3,380,000 at August 31, 2007.  The
increase in inventories during fiscal 2008 was primarily due to our new product
introductions of the iPump® 562
Enterprise Media Server, the Unity® 552
receiver and the Encompass-LE2 audio receiver. In addition, inventory levels
were increased for the iPump® 6400
Media Server and Nielsen Media Research products.  These inventory
purchases were made based on existing orders and expected future
bookings.
  During
the fourth quarter of fiscal 2008 and first six months of fiscal 2009, we made
reductions in headcount to bring the current number of employees to 81, and
reduced engineering consulting and other overhead expenses. Beginning in January
2009, we reduced paid working hours Company-wide by approximately
10%.  Subsequent to February 27, 2009, additional reductions to
headcount were made.  In order to stay within our borrowing
availability limits subsequent to February 27, 2009, we negotiated extended
payment terms with our offshore vendors and have been extending other vendors
beyond normal payment terms.  In addition, subsequent to February 27,
2009, we retained a second financial advisor to assist us in a possible
refinancing of our debt and our continuing efforts to raise capital and explore
possible strategic opportunities.  Should adequate capital or
financing not be available, and should increased revenues not materialize, we
are committed to further reducing operating costs to bring them in line with
reduced revenue levels.  No assurances can be given that operating
costs can be sufficiently reduced to allow us to continue as a going
concern.  If we are unable to continue as a going concern, we will
likely be forced to seek protection under the federal bankruptcy
laws.
  During
the second quarter of fiscal 2009, our bank notified WCI of its intent not to
renew our loan facility upon maturity (see Note 9 to theConsolidated
Financial Statements).  As a result, we need to raise additional
capital or obtain additional credit facilities during fiscal 2009 to
continue as a going concern and to execute our business plan. Although we
are in discussions with potential financing sources, there is no assurance that
such financing will be available or, if available, that we will be able to
complete financing on satisfactory terms.  Our ability to continue as
a going concern will depend upon our ability to obtain additional capital or
financing in the
very short term and subsequently to increase our bookings and revenues
in the longer
term to attain profitable operations.
 
 Note
2  Significant Accounting Policies
 The
significant accounting policies followed by the Company are set forth in Note 2
to the Company's audited consolidated financial statements included in the
annual report on Form 10-K for the year ended August 29, 2008.
  8
 
 On August
30, 2008, we adopted Statement of Financial Accounting Standards (SFAS) No. 157,
“Fair Value Measurements,” which defines fair value, provides a framework for
measuring fair value, and expands the disclosures required for fair value
measurements. In February 2008, the Financial Accounting Standards Board (FASB)
issued FASB Staff Position (FSP) No. FAS 157-2, “Effective Date of FASB
Statement No. 157”.  FSP 157-2 delays the effective date of SFAS No.
157 to fiscal years beginning after November 15, 2008 for all non-financial
assets and non-financial liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually) and will be adopted by the Company beginning in the first
quarter of fiscal 2010. The adoption of SFAS No. 157 had no impact on our
financial statements for fiscal 2009.
 
 Revenue
Recognition
 Our
revenue recognition policies are in compliance with Staff Accounting Bulletin
(SAB) No. 104, “Revenue Recognition,” and SAB No. 101, “Revenue Recognition in
Financial Statements.”  Revenue is recognized when persuasive evidence
of an agreement with the customer exists, products are shipped or title passes
pursuant to the terms of the agreement with the customer, the amount due from
the customer is fixed or determinable, collectibility is reasonably assured, and
when there are no significant future performance obligations.  Service
revenues are recognized at the time of performance. Extended service maintenance
contract revenues are recognized ratably over the maintenance contract term,
which is typically one year. The unrecognized revenue portion of maintenance
contracts invoiced is recorded as deferred revenue.  At February 27,
2009, deferred extended service maintenance revenues were $638,000 and deferred
revenues related to the fair value of future performance obligations were
$74,000 and are expected to be recognized as revenue in varying amounts
throughout fiscal 2009 and into fiscal 2010.
 
 We
recognize revenue in certain circumstances before delivery has occurred
(commonly referred to as “bill and hold” transactions).  In such
circumstances, among other things, risk of ownership has passed to the buyer,
the buyer has made a written fixed commitment to purchase the finished goods,
the buyer has requested the finished goods be held for future delivery as
scheduled and designated by them, and no additional performance obligations
exist by the Company.  For these transactions, the finished goods are
segregated from inventory and normal billing and credit terms are
granted.  For the three and six months ended February 27, 2009,
revenues in the amount of $2,172,000 and $2,269,000 were recorded as bill and
hold transactions.  At February 27, 2009, accounts receivable for
these transactions amounted to $930,000, of which $112,000 was paid subsequent
to February 27, 2009.
 
 These
policies require management, at the time of the transaction, to assess whether
the amounts due are fixed or determinable, collection is reasonably assured, and
if future performance obligations exist.  These assessments are based
on the terms of the agreement with the customer, past history and credit
worthiness of the customer.  If management determines that collection
is not reasonably assured or future performance obligations exist, revenue
recognition is deferred until these conditions are satisfied.
 
 Our
principal sources of revenues are from the sales of various satellite
communications equipment.  Embedded in our products is internally
developed software of varying applications.  Historically, we have not
sold or marketed our software separately or otherwise licensed our software
apart from the related communications equipment.  Should we begin to
market or sell software whereby it is more than an incidental component of the
hardware, then we will recognize software license revenue in accordance with
Statement of Position (SOP) No. 97-2, “Software Revenue Recognition,” as amended
by SOP No. 98-9, “Software Revenue Recognition, with Respect to Certain
Transactions.”  Significant judgment may be required in determining
whether a product is a software or hardware product.
 
 In
accordance with 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.
  9
 
 Share-Based
Compensation
 We
account for share-based payments to employees, including grants of employee
stock options, in accordance with Statement of Financial Accounting
Standards (SFAS) No. 123 (Revised 2004), “Share-Based Payment” (SFAS No.
123R).  SFAS No. 123R requires that these awards be recognized as
compensation expense in the consolidated financial statements based on their
fair values. That expense will be recognized over the period during which an
employee is required to provide services in exchange for the award, known as the
requisite service period (usually the vesting period).  For the three
and six months ended February 27, 2009, there was no stock-based compensation
expense and no options were granted.  For the three and six months
ended February 29, 2008, share-based compensation expense included in selling,
general and administrative expenses amounted to approximately $8,000 and $8,000,
respectively. The weighted average fair value of options granted during the six
months ended February 29, 2008 was $.51 with an aggregate total value of
$8,000.
 
 The fair
value of each option was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average
assumptions:
 
 Three
      months ended
                            
                            
                            Six
      months endedFebruary
      27,
                              2009
                            
                            
                            February
      29,
                              2008
                            
                            
                            February
      27,
                              2009
                            
                            
                            February
      29,
                              2008Risk
      free interest rate
                            
                            
                            -
                            
                            
                            
                            3.45
                            %
                            
                            
                            -
                            
                            
                            
                            3.45
                            %Expected
      term
                            
                            
                            -
                            
                            
                            5.0
      years
                            
                            
                            
                            -
                            
                            
                            5.0
      yearsVolatility
                            
                            
                            -
                            
                            
                            
                            70
                            %
                            
                            
                            -
                            
                            
                            
                            70
                            %Expected
      annual dividends
                            
                            
                            -
                            
                            
                            None
                            
                            
                            
                            -
                            
                            
                            NoneForfeiture
      rate
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
 
 The
following table summarizes stock option transactions for the six months ended
February 27, 2009:
 
 Number
                          of
      Shares
                        
                        
                        Range
      of
                          Exercise
                          Prices
                        
                        
                        Weighted
                          Average
                          Exercise
      PriceOutstanding
      at August 29, 2008
                        
                        
                        928,531
                        
                        
                        $
                        .63
      – 2.72
                        
                        
                        $
                        1.55Forfeited
      or cancelled
                        
                        
                        (162,156
                        )
                        
                        
                        1.47
      – 2.72
                        
                        
                        
                        2.15Outstanding
      at February 27, 2009
                        
                        
                        766,375
                        
                        
                        $
                        .63
      – 2.31
                        
                        
                        $
                        1.42Available
      for issue at February 27, 2009
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Options
      exercisable atFebruary
      27, 2009
                        
                        
                        766,375
                        
                        
                        $
                        .63
      – 2.31
                        
                        
                        $
                        1.42August
      29, 2008
                        
                        
                        928,531
                        
                        
                        $
                        .63
      – 2.72
                        
                        
                        $
                        1.55
 
 The key
terms of the stock options granted under our incentive plans are included in the
Company's Annual Report on Form 10-K for the fiscal year ended August 29,
2008.
 
 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 February 27, 2009, outstanding checks in the
amounts of $445,000 were included in accounts payable balances.
 
 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.  Examples include valuation allowances for deferred tax
assets, provisions for bad debts, inventory obsolescence and
warranties.  Actual results could vary from these
estimates.
 
 Fiscal
Year
 We use a
fifty-two, fifty-three week year.  The fiscal year ends on the Friday
closest to August 31.  Fiscal years 2009 and 2008 contain fifty-two
weeks.
  10


Note
3  Accounts Receivable
 Accounts
receivable are summarized as follows:
 
 February 27,
                                        2009
                                      
                                      
                                      August 29,
                                        2008(Unaudited)Accounts receivable – trade
                                      
                                      $
                                      2,480,017
                                      
                                      
                                      $
                                      3,090,272Other receivables
                                      
                                      
                                      78,390
                                      
                                      
                                      
                                      103,0212,558,407
                                      
                                      
                                      
                                      3,193,293Less allowance for doubtful
      accounts
                                      
                                      
                                      (157,172
                                      )
                                      
                                      
                                      (230,233
                                      )Accounts receivable, net
                                      
                                      $
                                      2,401,235
                                      
                                      
                                      $
                                      2,963,060
 
 Note
4  Inventories
 Inventories
are summarized as follows:
 
 February
      27,
                        
                        
                        August
      29,2009
                        
                        
                        2008(Unaudited)Raw
      material
                        
                        $
                        4,918,777
                        
                        
                        $
                        5,312,531Work-in-process
                        
                        
                        1,092,477
                        
                        
                        
                        1,301,753Finished
      goods
                        
                        
                        4,507,585
                        
                        
                        
                        3,751,49710,518,839
                        
                        
                        
                        10,365,781Less
      inventory reserves
                        
                        
                        (4,289,357
                        )
                        
                        
                        (4,070,305
                        )Inventories,
      net
                        
                        $
                        6,229,482
                        
                        
                        $
                        6,295,476
 
 Our
inventory reserve of approximately $4,289,000 at February 27, 2009 is to provide
for items that are potentially slow-moving, excess or
obsolete.  During the first six months of fiscal 2009, inventory
reserves were increased by provisions of $230,000 and reduced by writeoffs of
approximately $11,000.  Changes in market conditions, lower than
expected customer demand and rapidly changing technology could result in
additional obsolete and slow-moving inventory that is unsaleable or saleable at
reduced prices.  No estimate can be made of a range of amounts of loss
from obsolescence that are reasonably possible should our sales efforts not be
successful.
 
 Note
5  Land Held for Sale
 During
the third quarter of fiscal 2007, the Company’s Board of Directors authorized
and approved the listing for sale of the 4.4 acres of undeveloped land located
adjacent to the Company’s headquarters facility in Johns Creek,
Georgia.  The Company evaluated the criteria of SFAS No. 144 (as
amended), “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS
No. 144), and concluded that these assets qualified as assets held for sale.
 In accordance with SFAS No. 144, the land is classified as land held for
sale at its historic carrying value of $354,000 (lower of carrying amount or
fair value less costs to sell) in the consolidated balance sheets as of February
27, 2009 and August 29, 2008.  The land was acquired in August 1989
and no impairment charges were recorded related to the
reclassification.  On November 26, 2008, we executed a contract to
sell the land for approximately $840,000, less applicable commissions and
closing costs. The contract contained various contingencies, including an
inspection period for determination of suitability for intended use and rezoning
of the property.    On March 23, 2009, pursuant to terms of
the contract, the buyer terminated the contract.  We intend to
continue to market the property for sale.
  11
 
 Note
6   Other Assets
 Other
assets consisted of the following:
 
 February 27, 2009 (unaudited)Cost
                            
                            
                            Accumulated
                              Amortization
                            
                            
                            NetLicense
      agreements
                            
                            $
                            958,800
                            
                            
                            $
                            (939,384
                            )
                            
                            $
                            19,416Patents
      and patent applications
                            
                            
                            348,566
                            
                            
                            
                            (55,944
                            )
                            
                            
                            292,622Trademarks
                            
                            
                            82,820
                            
                            
                            
                            (48,498
                            )
                            
                            
                            34,322Loan
      facility fees
                            
                            
                            100,000
                            
                            
                            
                            (66,666
                            )
                            
                            
                            33,334Other
                            
                            
                            6,889
                            
                            
                            
                            -
                            
                            
                            
                            6,889$
                            1,497,075
                            
                            
                            $
                            (1,110,492
                            )
                            
                            $
                            386,583
 
 August 29, 2008Cost
                            
                            
                            Accumulated
                              Amortization
                            
                            
                            NetLicense
      agreements
                            
                            $
                            958,800
                            
                            
                            $
                            (925,384
                            )
                            
                            $
                            33,416Patents
      and patent applications
                            
                            
                            336,328
                            
                            
                            
                            (47,725
                            )
                            
                            
                            288,603Trademarks
                            
                            
                            82,820
                            
                            
                            
                            (41,011
                            )
                            
                            
                            41,809Loan
      facility fees
                            
                            
                            100,000
                            
                            
                            
                            (16,667
                            )
                            
                            
                            83,333Other
                            
                            
                            6,889
                            
                            
                            
                            -
                            
                            
                            
                            6,889$
                            1,484,837
                            
                            
                            $
                            (1,030,787
                            )
                            
                            $
                            454,050
 
 Amortization
expense of other assets for the three and six months ended February 27, 2009,
amounted to $40,000 and $80,000, respectively.  Amortization expense
of other assets for the three and six months ended February 29, 2008, amounted
to $47,000 and $119,000, respectively.
 
 We
conduct an ongoing review of our intellectual property rights and potential
trademarks.  As of February 27, 2009, we have cumulatively incurred
$249,000 of legal fees related to the filing of applications for various patents
and $1,000 related to the filing of trademarks.  Upon issuance, these
legal costs will be amortized on a straight-line basis over the lesser of the
legal life or the estimated useful lives of the patent or
trademark.  If it becomes more likely than not that the patent
application will not be granted, we will write-off the deferred cost at that
time. At February 27, 2009, the cost of registered patents and trademarks
amounted to $99,000 and $82,000, respectively.  Patents and trademarks
are amortized over their estimated useful life of four to ten
years.  License agreements are amortized over their estimated useful
life of one to five years.  Loan facility fees are amortized over
twelve months.
 
 Note
7  Accrued Expenses
 Accrued
expenses consist of the following:
 
 February 27,
                                  2009
                                
                                
                                August 29,
                                  2008(Unaudited)Vacation
                                
                                $
                                495,189
                                
                                
                                $
                                557,478Payroll
      and related expenses
                                
                                
                                272,005
                                
                                
                                
                                354,673Royalties
                                
                                
                                125,438
                                
                                
                                
                                159,115Warranty
                                
                                
                                98,882
                                
                                
                                
                                228,882Taxes
      and insurance
                                
                                
                                101,700
                                
                                
                                
                                150,318Commissions
                                
                                
                                31,516
                                
                                
                                
                                37,391Professional
      fees
                                
                                
                                188,963
                                
                                
                                
                                337,408Other
                                
                                
                                21,367
                                
                                
                                
                                46,622$
                                1,335,060
                                
                                
                                $
                                1,871,887
  12
 
 Accrued  Warranty
 We
warrant our products for a 12 to 14 month period beginning at the date of
shipment.  The warranty provides for repair or replacement of
defective products returned during the warranty period at no cost to the
customer.  We expense costs for routine warranty repairs as
incurred.  Additional provisions are made for non-routine warranty
repairs based on estimated costs to repair at the point in time in which the
warranty claim is identified.  Accrued warranty liabilities amounted
to $99,000 at February 27, 2009.  For the six months ended February
27, 2009, the warranty provisions were reduced by $130,000 for previously
estimated provisions that were no longer required.
 
 Note
8  Deferred Revenue
 Deferred
revenue consists of the unrecognized revenue portion of extended service
maintenance contracts and fair value of revenue related to future performance
obligations. Extended service maintenance contract revenues are recognized
ratably over the maintenance contract term, which is typically one
year.  At February 27, 2009, deferred extended service maintenance
revenues were $638,000 and deferred revenues related to future performance
obligations were $74,000 and are expected to be recognized as revenue in varying
amounts throughout fiscal 2009 and into fiscal 2010.
 
 Note
9  Finance Arrangements
 Revolving
Line of Credit and Term Loan Facility
 
 WCI’s
bank loan facility provides a maximum available credit limit of $5,000,000
subject to availability advance formulas.  The loan facility matures
on September 30, 2009, or upon demand, and requires an annual facility fee of 2%
of the maximum credit limit.  The loan facility consists of a term
loan and a revolving line of credit bearing interest at the bank’s prime rate
(3.25% at February 27, 2009).  The bank retained the right to adjust
the interest rate, subject to the financial performance of the
Company.  During the second quarter of fiscal 2009, the bank notified
WCI of its intent not to renew the loan facility upon
maturity.  Although we are in discussions with potential financing
sources, there is no assurance that such financing will be available or, if
available, that we will be able to complete financing on satisfactory
terms.
 
 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.  In addition, the facility provides for advances in excess
of the availability formulas of up to $1,000,000 during the term of the
facility.  The loan is secured by a first lien on substantially all of
WCI’s assets, including land and buildings, and is guaranteed by Wegener
Corporation.  At February 27, 2009, balances outstanding on the
revolving line of credit amounted to $3,472,000 and 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. At February 27, 2009, no letters of credit were
outstanding.
 
 At
February 27, 2009, approximately $1,171,000 was available to borrow under the
advance formulas.  During the first six months of fiscal 2009, the
average daily balance outstanding was $3,390,000 and the highest outstanding
balance was $4,042,000.  At March 27, 2009, approximately $818,000 was
available to borrow under the advance formulas.
 
 Under the
loan facility, at the end of fiscal 2009 we are required to maintain a minimum
tangible net worth and a minimum fixed charge coverage ratio.  In
addition, we are required to retain certain executive officers, maintain certain
financial ratios, and are precluded from paying dividends.
 
 At
February 27, 2009, we had land and buildings with a cost basis of $4,457,000
(including land held for sale of $354,000).  Although land and
buildings are subject to a lien under the loan facility, they are not currently
used in the existing loan facility’s availability advance formulas and have no
mortgage balances outstanding.  We are pursuingways to utilize these assets to support additional overall borrowing
capacities.  During the third quarter of fiscal 2007, the Company’s
Board of Directors authorized and approved the listing for sale of the 4.4 acres
of undeveloped land located adjacent to the Company’s headquarters facility in
Johns Creek, Georgia (see note 5 to the consolidated financial
statements).  On November 26, 2008, we executed a contract to sell the
land for approximately $840,000, less applicable commissions and closing costs.
The contract contained various contingencies, including an inspection period for
determination of suitability for intended use and rezoning of the
property  On March 23, 2009, pursuant to terms of the contract, the
buyer terminated the contract .  We intend to continue to market the
property for sale. Proceeds from the sale of the land would be used to reduce
any balances outstanding on the revolving line of credit.
  13
 
 Note
10  Income Taxes
 For the
six months ended February 27, 2009, no income tax benefit was recorded due to an
increase in the deferred tax asset valuation allowance.  The valuation
allowance increased $427,000 in the first six months of fiscal
2009.  At February 27, 2009, net deferred tax assets of $6,305,000
were fully reserved by a valuation allowance.
 
 At
February 27, 2009, we had a federal net operating loss carryforward of
approximately $10,596,000, which expires beginning fiscal 2020 through fiscal
2028.  Additionally, we had an alternative minimum tax credit of
$134,000 and state income tax credits of $199,000 expiring in fiscal 2009, both
of which were fully offset by the valuation allowance.
  We
adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109” (FIN No. 48), as
of September 1, 2007, the first day of the first quarter of fiscal
2008.  The adoption of FIN No. 48 had no impact on our financial
position or results of operations for fiscal 2008.  We are subject to
U.S. federal income tax as well as income tax of numerous state jurisdictions.
We are subject to U.S. federal tax examinations by tax authorities for fiscal
years 2005 through 2008. Income tax examinations that we may be subject to from
the various state taxing authorities vary by jurisdiction. Our policy under FIN
No. 48 for penalties and interest is to include such amounts, if any, in income
tax expense.
 
 Note
11  Earnings Per Share
 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 endedFebruary
      27, 2009
                          
                          
                          February
      29, 2008Per
                          
                          
                          
                          
                          
                          
                          
                          
                          PerEarnings
                          
                          
                          Shares
                          
                          
                          share
                          
                          
                          Earnings
                          
                          
                          Shares
                          
                          
                          share(Numerator)
                          
                          
                          (Denominator)
                          
                          
                          amount
                          
                          
                          (Numerator)
                          
                          
                          (Denominator)
                          
                          
                          amountNet
      earnings
                          
                          $
                          8,247
                          
                          
                          
                          
                          
                          
                          
                          
                          $
                          336,325Basic earnings per
      share:Net  earnings
      available to common shareholders
                          
                          $
                          8,247
                          
                          
                          
                          12,647,051
                          
                          
                          $
                          0.00
                          
                          
                          $
                          336,325
                          
                          
                          
                          12,647,051
                          
                          
                          $
                          0.03Effect
      of dilutive potential common shares:Stock
      options
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          -
                          
                          
                          
                          4,784Diluted
      earnings  per share:Net  earnings
      available to common shareholders
                          
                          $
                          8,247
                          
                          
                          
                          12,647,051
                          
                          
                          $
                          0.00
                          
                          
                          $
                          336,325
                          
                          
                          
                          12,651,835
                          
                          
                          $
                          0.03
  14
 
 Six months endedFebruary 27, 2009
                            
                            
                            February 29, 2008Per
                            
                            
                            
                            
                            
                            
                            
                            
                            PerEarnings
                            
                            
                            Shares
                            
                            
                            share
                            
                            
                            Earnings
                            
                            
                            Shares
                            
                            
                            share(Numerator)
                            
                            
                            (Denominator)
                            
                            
                            amount
                            
                            
                            (Numerator)
                            
                            
                            (Denominator)
                            
                            
                            amountNet
      (loss) earnings
                            
                            $
                            (1,184,491
                            )
                            
                            
                            
                            
                            
                            
                            
                            $
                            285,818Basic
      (loss)  earnings  per share:Net
      (loss) earnings  available to common
shareholders
                            
                            $
                            (1,184,491
                            )
                            
                            
                            12,647,051
                            
                            
                            $
                            (0.09
                            )
                            
                            $
                            285,818
                            
                            
                            
                            12,647,051
                            
                            
                            $
                            0.02Effect
      of dilutive potential common shares:Stock
      options
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            
                            
                            
                            
                            -
                            
                            
                            
                            11,425Diluted
      (loss) earnings  per share:Net
      (loss) earnings available to common shareholders
                            
                            $
                            (1,184,491
                            )
                            
                            
                            12,647,051
                            
                            
                            $
                            (0.09
                            )
                            
                            $
                            285,818
                            
                            
                            
                            12,658,476
                            
                            
                            $
                            0.02
 
 Stock
options excluded from the diluted net earnings (loss) per share calculation due
to their anti-dilutive effect are as follows:
 
 Three months ended
                                        
                                        
                                        Six months endedFebruary 27,
                                        
                                        
                                        February 29,
                                        
                                        
                                        February 27,
                                        
                                        
                                        February 29,2009
                                        
                                        
                                        2008
                                        
                                        
                                        2009
                                        
                                        
                                        2008Common
      stock options:Number
      of shares
                                        
                                        766,375
                                        
                                        
                                        933,531
                                        
                                        
                                        766,375
                                        
                                        
                                        933,531Exercise
      price
                                        
                                        $.63 to $2.31
                                        
                                        
                                        $.63 to $2.72
                                        
                                        
                                        $.63 to $2.31
                                        
                                        
                                        $.63 to $2.72
  Note
12  Segment Information and Significant Customers
 In
accordance with Statement of Financial Accounting Standards No. 131, “Disclosure
about Segments of an Enterprise and Related Information,” the Company operates
within a single reportable segment, the manufacture and sale of satellite
communications equipment.
 
 In this
single operating segment the Company has three sources of revenues as
follows:
 
 Three
      months ended
                          
                          
                          Six
      months endedFebruary
      27,
                          
                          
                          February
      29,
                          
                          
                          February
      27,
                          
                          
                          February
      29,2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          
                          2008Product
      LineDirect
      Broadcast Satellite
                          
                          $
                          4,364,727
                          
                          
                          $
                          6,539,363
                          
                          
                          $
                          6,483,507
                          
                          
                          $
                          11,389,574Analog  and
      Custom Products
                          
                          
                          -
                          
                          
                          
                          4,350
                          
                          
                          
                          9,461
                          
                          
                          
                          16,023Service
                          
                          
                          146,397
                          
                          
                          
                          122,707
                          
                          
                          
                          340,934
                          
                          
                          
                          286,752$
                          4,511,124
                          
                          
                          $
                          6,666,420
                          
                          
                          $
                          6,833,902
                          
                          
                          $
                          11,692,349
  15


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





Three months ended
                                      
                                      
                                      Six months endedFebruary 27,
                                        2009
                                      
                                      
                                      February 29,
                                        2008
                                      
                                      
                                      February 27,
                                        2009
                                      
                                      
                                      February 29,
                                        2008ProductiPump
      Media Servers
                                      
                                      
                                      22.4
                                      %
                                      
                                      (a
                                      )
                                      
                                      
                                      20.9
                                      %
                                      
                                      (a
                                      )Professional
      and broadcast receivers
                                      
                                      
                                      (a
                                      )
                                      
                                      
                                      43.0
                                      %
                                      
                                      
                                      (a
                                      )
                                      
                                      
                                      39.9
                                      %Enterprise
      media receivers
                                      
                                      
                                      (a
                                      )
                                      
                                      
                                      19.0
                                      %
                                      
                                      
                                      (a
                                      )
                                      
                                      
                                      14.3
                                      %Network
      control products
                                      
                                      
                                      13.5
                                      %
                                      
                                      
                                      (a
                                      )
                                      
                                      
                                      (a
                                      )
                                      
                                      
                                      (a
                                      )Audio
      broadcast receivers
                                      
                                      
                                      13.3
                                      %
                                      
                                      
                                      (a
                                      )
                                      
                                      
                                      (a
                                      )
                                      
                                      
                                      (a
                                      )Nielsen
      encoders
                                      
                                      
                                      10.5
                                      %
                                      
                                      
                                      (a
                                      )
                                      
                                      
                                      (a
                                      )
                                      
                                      
                                      (a
                                      )





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




Products
representing 10% or more of annual revenues are subject to fluctuations from
quarter to quarter as new products and technologies are introduced, new product
features and enhancements are added and as customers upgrade or expand their
network operations.





Revenues by geographic area are as
follows:





Three months ended
                            
                            
                            Six months endedFebruary 27,
                              2009
                            
                            
                            February 29,
                              2008
                            
                            
                            February 27,
                              2009
                            
                            
                            February 29,
                              2008Geographic
      AreaUnited
      States
                            
                            $
                            4,335,784
                            
                            
                            $
                            6,585,772
                            
                            
                            $
                            6,553,584
                            
                            
                            $
                            10,434,459Latin
      America
                            
                            
                            88,788
                            
                            
                            
                            2,356
                            
                            
                            
                            181,897
                            
                            
                            
                            829,352Canada
                            
                            
                            1,870
                            
                            
                            
                            32,695
                            
                            
                            
                            11,752
                            
                            
                            
                            300,215Europe
                            
                            
                            83,932
                            
                            
                            
                            38,237
                            
                            
                            
                            85,586
                            
                            
                            
                            95,917Other
                            
                            
                            750
                            
                            
                            
                            7,360
                            
                            
                            
                            1,083
                            
                            
                            
                            32,406$
                            4,511,124
                            
                            
                            $
                            6,666,420
                            
                            
                            $
                            6,833,902
                            
                            
                            $
                            11,692,349





All of
the Company’s 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
                              
                              
                              Six months endedFebruary 27,
                                2009
                              
                              
                              February 29,
                                2008
                              
                              
                              February 27,
                                2009
                              
                              
                              February 29,
                                2008Customer
      1
                              
                              
                              47.6
                              %
                              
                              (a
                              )
                              
                              
                              37.2
                              %
                              
                              (a
                              )Customer
      2
                              
                              
                              11.6
                              %
                              
                              (a
                              )
                              
                              
                              (a
                              )
                              
                              (a
                              )Customer
      3
                              
                              
                              (a
                              )
                              
                              (a
                              )
                              
                              
                              13.2
                              %
                              
                              (a
                              )Customer
      4
                              
                              
                              (a
                              )
                              
                              
                              10.6
                              %
                              
                              
                              (a
                              )
                              
                              
                              14.4
                              %Customer
      5
                              
                              
                              (a
                              )
                              
                              
                              31.9
                              %
                              
                              
                              (a
                              )
                              
                              
                              26.4
                              %Customer
      6
                              
                              
                              (a
                              )
                              
                              
                              18.8
                              %
                              
                              
                              (a
                              )
                              
                              
                              13.8
                              %




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




Note
13    Commitments


We have
two manufacturing and purchasing agreements for certain finished goods
inventories. At February 27, 2009, outstanding purchase commitments under these
agreements amounted to $34,000.


16





Note
14    Guarantees and Indemnifications


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
February 27, 2009, we had no letters of credit outstanding.





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 February
27, 2009, $3,472,000 was outstanding on the loan facility.





Indemnification
Obligations


We are
obligated to indemnify our officers and the members of our Board of Directors
pursuant to our bylaws and contractual indemnity agreements. We routinely sell
products with a limited intellectual property indemnification included in the
terms of sale or in certain contractual arrangements. The scope of these
indemnities varies, but in some instances includes indemnification for damages
and expenses (including reasonable attorneys’ fees). Certain requests for
indemnification have been received by us pursuant to these arrangements (see
Part I, Item 3. Legal Proceedings, in our Annual Report on
Form    10-K for the year ended August 29, 2008 for further
discussion).





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 August 29, 2008 contained in the Company’s 2008 Annual Report on Form
10-K.





Certain
statements contained in this filing are “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995, and the Company
intends that such forward-looking statements are subject to the safe harbors
created thereby.  Forward-looking statements may be identified by words
such as "believes," "expects," "projects," "plans," "anticipates," and similar
expressions, and include, for example, statements relating to expectations
regarding  future sales, income and cash flows.  Forward-looking
statements are based upon the Company’s current expectations and assumptions,
which are subject to a number of risks and uncertainties including, but not
limited to:  customer acceptance and effectiveness of recently introduced
products; development of additional business for the Company’s digital video and
audio transmission product lines; effectiveness of the sales organization; the
successful development and introduction of new products in the future; delays in
the conversion by private and broadcast networks to next generation digital
broadcast equipment; acceptance by various networks of standards for digital
broadcasting; the Company’s liquidity position and capital resources; general
market and industry conditions which may not improve during fiscal year
2009  and beyond; and success of the Company’s research and development
efforts aimed at developing new products.  Additional potential risks
and uncertainties include, but are not limited to, economic conditions, customer
plans and commitments, product demand, government regulation, rapid
technological developments and changes, intellectual property disputes,
performance issues with key suppliers and subcontractors, delays in product
development and testing, availability of raw materials, new and existing
well-capitalized competitors, and other risks and uncertainties detailed from
time to time in the Company’s periodic Securities and Exchange Commission
filings, including the Company’s most recent Annual Report on Form
10-K.  Such forward-looking statements are subject to risks,
uncertainties and other factors and are subject to change at any time, which
could cause actual results to differ materially from future results expressed or
implied by such forward-looking statements.  Forward-looking
statements speak only as of the date the statement was made. The Company
does not undertake any obligation to update any forward-looking
statements.




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


17




OVERVIEW




We design
and manufacture satellite communications equipment through Wegener
Communications, Inc. (WCI), a wholly-owned subsidiary. WCI is an international
provider of digital solutions for video, audio and IP data
networks.  Applications include IP data delivery, broadcast
television, cable television, radio networks, business television, distance
education, business music and financial information
distribution.  COMPELÒ,
our network control system, provides network flexibility to regionalize
programming, commercials and file transfers.




Revenues
for the three months ended February 27, 2009 decreased $2,155,000 or 32.3% to
$4,511,000 from $6,666,000 for the same period in fiscal
2008.  Revenues for the six months ended February 27, 2009 decreased
$4,858,000 or 41.5% to $6,834,000 from $11,692,000 for the same period in fiscal
2008. The operating results for the three and six months ended February 27,
2009 were net earnings of $8,000 or less than $0.01 per share and a net loss of
$(1,184,000) or $(0.09) per share, respectively, compared to net earnings of
$336,000 or $0.03 per share and $286,000 or $0.02 per share, respectively, for
the three and six months ended February 29, 2008.





During
the first and second quarters of fiscal 2009 bookings were approximately $1.3
and $1.7 million, respectively. Our fiscal 2009 bookings to date, as well as our
fiscal 2008 bookings, particularly during the fourth quarter of fiscal 2008,
were well below our expectations and internal forecast primarily as a result of
customer delays in purchasing decisions, deferral of project expenditures,
foreign exchange rate fluctuations, particularly with the Mexican peso, and
general adverse economic and credit conditions.





Financial
Position and Liquidity





Bookings
and revenues during the first six months of fiscal 2009, as well as bookings and
revenues subsequent to February 27, 2009, were insufficient to provide adequate
levels of cash flow from operations or adequate levels of collateral to support
our estimates of required borrowings during the remainder fiscal 2009 and into
fiscal 2010.   In addition, during the second quarter of fiscal
2009, our bank notified WCI of its intent not to renew our loan facility when it
matures on September 30, 2009.  As a result, we need to raise
additional capital or obtain additional credit facilities during fiscal 2009 to
continue as a going concern and to execute our business
plan.





At
February 27, 2009, we had line of credit borrowings outstanding of $3,472,000.
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.  At February 27, 2009,approximately $1,171,000
remained available to borrow under the advance formulas.  At February
27, 2009, no letters of credit were outstanding.  At March 27, 2009,
approximately $818,000 was available to borrow under the advance
formulas.





During
the first six months of fiscal 2009, our line of credit net outstanding
borrowings increased $1,589,000 to $3,472,000 at February 27, 2009, from
$1,883,000 at August 29, 2008.  Operating activities used $1,034,000
of cash and investing activities used $552,000 of cash, which consisted of
capitalized software additions of $539,000, equipment additions of $1,000, and
$12,000 for legal fees related to the filing of applications for various patents
and trademarks.





(See the
Liquidity and Capital Resources section on page 20 for further
discussion.)


18





RESULTS
OF OPERATIONS


THREE
AND SIX MONTHS ENDED FEBRUARY 27, 2009 COMPARED TO THREE AND SIX MONTHS ENDED
FEBRUARY 29, 2008


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





Three months ended
                    
                    
                    Six months endedFebruary 27,
                      2009
                    
                    
                    February 29,
                      2008
                    
                    
                    February 27,
                      2009
                    
                    
                    February 29,
                      2008Revenues
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %Cost
      of products sold
                    
                    
                    65.9
                    
                    
                    
                    61.9
                    
                    
                    
                    68.4
                    
                    
                    
                    60.6Gross
      margin
                    
                    
                    34.1
                    
                    
                    
                    38.1
                    
                    
                    
                    31.6
                    
                    
                    
                    39.4Selling,
      general, and administrative
                    
                    
                    22.8
                    
                    
                    
                    21.1
                    
                    
                    
                    32.1
                    
                    
                    
                    22.8Research
      & development
                    
                    
                    10.4
                    
                    
                    
                    11.5
                    
                    
                    
                    15.8
                    
                    
                    
                    13.5Operating  income
      (loss)
                    
                    
                    .9
                    
                    
                    
                    5.5
                    
                    
                    
                    (16.3
                    )
                    
                    
                    3.1Interest
      expense
                    
                    
                    (
      .7
                    )
                    
                    
                    (
      .5
                    )
                    
                    
                    (
      1.0
                    )
                    
                    
                    (
      .6
                    )Net
      earnings (loss)
                    
                    
                    .2
                    %
                    
                    
                    5.0
                    %
                    
                    
                    (17.3
                    )%
                    
                    
                    2.4
                    %





The
operating results for the three and six months ended February 27, 2009 were net
earnings of $8,000 or less than $0.01 per share and a net loss of $(1,184,000)
or $(0.09) per share, respectively, compared to net earnings of $336,000 or
$0.03 per share and $286,000 or $0.02 per share, respectively, for the three and
six months ended February 29, 2008.





Revenues
- Revenues for the three months ended February 27, 2009 decreased $2,155,000 or
32.3% to $4,511,000 from $6,666,000 for the same period in fiscal
2008.  Revenues for the six months ended February 27, 2009 decreased
$4,858,000 or 41.6% to $6,834,000 from $11,692,000 for the same period in fiscal
2008.





Our
fiscal 2009 revenues and bookings to date were adversely impacted by customer
delays in purchasing decisions, deferral of project expenditures, foreign
exchange rate fluctuations, particularly with the Mexican peso, and general
adverse economic and credit conditions.  Our revenues and bookings are
subject to the timing of significant orders from customers and new product
introductions, and as a result revenue levels may fluctuate from quarter to
quarter.





Direct
Broadcast Satellite (DBS) revenues (including service revenues) decreased
$2,151,000 or 32.3% in the second quarter of fiscal 2009 to $4,511,000 from
$6,662,000 in the same period of fiscal 2008.  For the six months
ended February 27, 2009, DBS revenues decreased $4,852,000 or 41.6% to
$6,824,000 from $11,676,000 for the six months ended February 29,
2008.  Fiscal 2009 second quarter and first six month
revenues  included iPump®6420
media servers and Compel® network
control software for Dial Global’s network expansion, continued shipments of our
new Encompass LE2, our next generation business music audio receiver, to
business music provider, Muzak LLC., and shipments to MegaHertz for distribution
of our products to the U.S. cable market. The second quarter and first six
months of fiscal 2008 benefited from completion of shipments of our Unity® 4600 to
the Big Ten Network for the new cable network being distributed by Fox Cable
Networks and shipments of our SMD 515 IPTV set top box to Conklin-Intracom for
use in providing premium IPTV services by telco operators in North
America.





For the
three months ended February 27, 2009, two customers accounted for 47.6% and
11.6% of revenues, respectively.  For the six months ended February
27, 2009, two customers accounted for 37.2% and 13.2% of revenues,
respectively.  For the three months ended February 29, 2008, three
customers accounted for 31.9%, 18.8% and 10.6% of revenues,
respectively.    For the six months ended February 29, 2008,
the same three customers accounted for 26.4%, 13.8% and 14.4% of revenues,
respectively.  Sales to a relatively small number of major customers
have typically comprised a majority of our revenues and that trend is expected
to continue throughout fiscal 2009 and beyond.





Our
backlog is comprised of undelivered, firm customer orders which are scheduled to
ship within eighteen months.  The backlog was approximately $5.9
million at February 27, 2009, compared to $8.5 million at August 29, 2008, and
$9.8 million at February 29, 2008.  Two customers accounted for 52.3%
and 18.6 %, respectively, of the backlog at February 29, 2008.  The
total multi-year backlog at February 27, 2009, was approximately $9.7 million
compared to $13.3 million at August 29, 2008 and $15.7 million at February 29,
2008.


19


Gross
Profit Margins - The Company's gross profit margin percentages were 34.1%
and 31.6 % for the three and six month periods ended February 27, 2009, compared
to 38.1% and 39.4 % for the three and six month periods ended February 29,
2008.  Gross profit margin dollars decreased $1,004,000 and
$2,442,000, respectively, for the three and six months ended February 27, 2009,
compared to the same periods in fiscal 2008.  The decreases in margin
percentages and dollars for the three and six months ended February 29, 2008
were mainly due to the decrease in revenues which resulted in higher unit fixed
costs. Profit margins in the second quarter of fiscal 2009 included an inventory
reserve charge of $215,000 and a reversal of an accrued warranty liability of
$130,000 for previously estimated provisions that were no longer required. In
addition, profit margins in the three and six month periods of fiscal 2009 were
favorably impacted by decreases in capitalized software amortization expense of
$79,000 and $119,000, respectively.





Selling,
General and Administrative - Selling, general and administrative
(SG&A) expenses decreased $379,000, or 27.0%, to $1,026,000 for the three
months ended February 27, 2009, from $1,405,000 for the three months ended
February 29, 2008.  For the six months ended February 27, 2009,
SG&A expenses decreased $473,000, or 17.7%, to $2,196,000 from $2,669,000
for the same period ended February 29, 2008.  Corporate SG&A
expenses in the second quarter of fiscal 2009 decreased $99,000, or 35.4%, to
$181,000 from $280,000 for the same period in fiscal 2008. For the six months
ended February 27, 2009, corporate SG&A expenses decreased $57,000, or
11.6%, to $435,000 from $492,000 in the same period in fiscal 2008. The
corporate SG&A decreases for the periods were mainly due to lower
professional fees.  WCI’s SG&A expenses for the three months ended
February 27, 2009 decreased $280,000, or 24.9%, to $845,000 from $1,125,000 and
for the six months ended February 27, 2009, decreased $416,000, or 19.1%, to
$1,761,000 from $2,177,000 compared to the same periods in fiscal
2008.  The decrease in WCI’s SG&A expenses for the three months
ended February 27, 2009 was mainly due to decreases in salaries of $86,000,
sales and marketing expenses of $95,000, general overhead costs of $79,000 and
bad debt provisions of $20,000.  The decrease in WCI’s SG&A
expenses for the six months ended February 27, 2009 was mainly due to decreases
in salaries of $42,000, sales and marketing expenses of $221,000, general
overhead costs of $118,000 and bad debt provisions of $35,000.





For the
three and six months ended February 27, 2009, there was no share-based
compensation expense compared to $8,000 and $8,000, respectively, for the same
periods in fiscal 2008.  As a percentage of revenues, SG&A
expenses were 22.8% and 32.1% for the three and six month periods ended February
27, 2009, compared to 21.1% and 22.8% in the same periods in fiscal
2008.





Research
and Development - Research and development (R&D) expenditures,
including capitalized software development costs, were $756,000, or 16.7% of
revenues, and $1,619,000, or 23.7% of revenues, for the three and six month
periods ended February 27, 2009, compared to $1,121,000, or 16.8% of revenues,
and $2,123,000, or 18.2%, of revenues, for the same periods in fiscal
2008.  The decreases in expenditures in the three and six months ended
February 27, 2009, compared to the same periods of fiscal 2008, were mainly due
to lower salaries, as a result of reduced head count and a reduction in
Company-wide paid working hours, and lower consulting
costs.  Capitalized software development costs amounted to $250,000
and $539,000 for the second quarter and first six months of fiscal 2009 compared
to $352,000 and $545,000 for the same periods in fiscal 2008.  The
decreases in capitalized software costs were related to completed
projects.  R&D expenses, excluding capitalized software
expenditures, were $770,000, or 10.4% of revenues, and $1,579,000, or 15.8% of
revenues, for the three and six months ended February 27, 2009, compared to
$770,000, or 11.5% of revenues, and $1,579,000, or 13.5%, of revenues, in the
same periods of fiscal 2008.  The decreases in expenses in the three
and six month periods of fiscal 2009 compared to the same periods in fiscal 2008
were mainly due to the decrease in salaries and consulting costs.





Interest
Expense - Interest expense increased $2,000 to $32,000 for the three
months ended February 27, 2009, from $30,000 for the three months ended February
29, 2008.  For the six months ended February 29, 2008, interest
expense decreased $1,000 to $71,000 from $72,000 for the same period ended
February 29, 2008.  During the six months ended February 27, 2009,
interest expense was favorably impacted by a lower average bank prime rate
which was offset by an increase in the average outstanding line-of-credit
balance.





Income
Tax Expenses-
For the six months ended February 27, 2009, no income tax benefit was recorded
due to an increase in the deferred tax asset valuation allowance.  The
valuation allowance increased $427,000 in the first six months of fiscal
2009.  At February 27, 2009, net deferred tax assets of $6,305,000
were fully reserved by the valuation allowance.  At February 27, 2009,
we had a federal net operating loss carryforward of approximately $10,596,000,
which expires beginning fiscal 2020 through fiscal
2028.  Additionally, we had an alternative minimum tax credit of
$134,000 and state income tax credits of $199,000 expiring in fiscal 2009, both
of which were fully offset by the valuation allowance.


20





LIQUIDITY
AND CAPITAL RESOURCES


SIX
MONTHS ENDED FEBRUARY 27, 2009




Our
fiscal 2009 bookings to date, as well as our fiscal 2008 bookings, particularly
during the fourth quarter of fiscal 2008, were well below our expectations
primarily as a result of customer delays in purchasing decisions, deferral of
project expenditures, foreign exchange rate fluctuations, particularly with the
Mexican peso, and general adverse economic and credit
conditions.  WCI’s backlog scheduled to ship within eighteen months
was approximately $5.9 million at February 27, 2009, compared to $8.5 million at
August 29, 2008, and $9.8 million at February 29, 2008.  The total
multi-year backlog at February 27, 2009, was approximately $9.7 million,
compared to $13.3 million at August 29, 2008 and $15.7 million at February 29,
2008.  Approximately $2.6 million of the February 27, 2009 backlog is
scheduled to ship during the remainder of fiscal 2009.




Significant
fiscal 2009 shippable bookings are currently required to meet our financial
projections in the third and fourth quarters of fiscal 2009.  Our
bookings and revenues to date have been insufficient to provide adequate levels
of cash flow from operations or adequate levels of collateral to support our
estimates of required borrowings during the remainder of fiscal 2009 and into
fiscal 2010.




At
February 27, 2009, our net inventory balances were $6,229,000 compared to
$6,295,000 at August 29, 2008, and $3,380,000 at August 31, 2007.  The
increase in inventories during fiscal 2008 was primarily due to our new product
introductions of the iPump® 562
Enterprise Media Server, the Unity® 552
receiver and the Encompass-LE2 audio receiver. In addition, inventory levels
were increased for the iPump® 6400
Media Server and Nielsen Media Research products.  These inventory
purchases were made based on existing orders and expected future
bookings.




During
the fourth quarter of fiscal 2008 and first six months of fiscal 2009, we made
reductions in headcount to bring the current number of employees to 81, and
reduced engineering consulting and other overhead expenses. Beginning in January
2009, we reduced paid working hours Company-wide by approximately
10%.  Subsequent to February 27, 2009, additional reductions to
headcount were made.  In order to stay within our borrowing
availability limits subsequent to February 27, 2009, we negotiated extended
payment terms with our offshore vendors and have been extending other vendors
beyond normal payment terms.  In addition, subsequent to February 27,
2009, we retained a second financial advisor to assist us in a possible
refinancing of our debt and our continuing efforts to raise capital and explore
possible strategic opportunities.  Should adequate capital or
financing not be available, and should increased revenues not materialize, we
are committed to further reducing operating costs to bring them in line with
reduced revenue levels.  No assurances can be given that operating
costs can be sufficiently reduced to allow us to continue as a going
concern.  If we are unable to continue as a going concern, we will
likely be forced to seek protection under the federal bankruptcy
laws.




During
the second quarter of fiscal 2009, our bank notified WCI of its intent not to
renew our loan facility upon maturity (see Financing Agreements
below).  As a result, we need to raise additional capital or obtain
additional credit facilities during fiscal 2009 to
continue as a going concern and to execute our business plan. Although we
are in discussions with potential financing sources, there is no assurance that
such financing will be available or, if available, that we will be able to
complete financing on satisfactory terms.  Our ability to continue as
a going concern will depend upon our ability to obtain additional capital or
financing in the
very short term and subsequently to increase our bookings and revenues
in the longer
term to attain profitable operations.




The
accompanying consolidated financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
possible inability of the Company to continue as a going
concern.  The audit report
relating to the consolidated financial statements for the year ended August 29,
2008, contained an explanatory paragraph regarding the Company’s ability to
continue as a going concern.





Financing
Agreements





At
February 29, 2008, 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. The loan facility consists of a term loan and a revolving line of
credit with a combined borrowing limit of $5,000,000, bearing interest at the
bank’s prime rate (3.25% at February 27, 2009).  The bank retained the
right to adjust the interest rate, subject to the financial performance of the
Company. The loan facility matures on September 30, 2009, or upon demand, and
requires an annual facility fee of 2% of the maximum credit
limit.  During the second quarter of fiscal 2009, the bank notified
WCI of its intent not to renew the loan facility upon
maturity.  Although we are in discussions with potential financing
sources, there is no assurance that such financing will be available or, if
available, that we will be able to complete financing on satisfactory
terms.


21


During
the first six months of fiscal 2009, our line of credit net outstanding
borrowings increased $1,589,000 to $3,472,000 at February 27, 2009, from
$1,883,000 at August 29, 2008.  During the first six months of fiscal
2009, the average daily balance outstanding was $3,390,000 and the highest
outstanding balance was $4,042,000.  At February 27, 2009,
approximately $1,171,000 was available to borrow under the advance
formulas.  At March 20, 2009, approximately $387,000 was available to
borrow under the advance formulas.





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; and 40% to 50% of eligible
finished goods inventories and 50% of import letter of credit commitment
balances.  In addition, the facility provides for advances in excess
of the availability formulas of up to $1,000,000 during the term of the
facility.  The loan is secured by a first lien on substantially all of
WCI’s assets, including land and buildings, and is guaranteed by Wegener
Corporation.  At February 27, 2009, 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. At February 27, 2009, no letters of credit were
outstanding.





Under the
loan facility, at the end of fiscal 2009 we are required to maintain a minimum
tangible net worth and a minimum fixed charge coverage ratio.  In
addition, we are required to retain certain executive officers, maintain certain
financial ratios, and are precluded from paying dividends.





At
February 27, 2009, we had land and buildings with a cost basis of $4,457,000
(including land held for sale of $354,000).  Although land and
buildings are subject to a lien under the loan facility, they are not currently
used in the existing loan facility’s availability advance formulas and have no
mortgage balances outstanding.  We are pursuingways to utilize these assets to support additional overall borrowing
capacities.  During the third quarter of fiscal 2007, the Company’s
Board of Directors authorized and approved the listing for sale of the 4.4 acres
of undeveloped land located adjacent to the Company’s headquarters facility in
Johns Creek, Georgia (see note 5 to the consolidated financial statements). On
November 26, 2008, we executed a contract to sell the land for approximately
$840,000, less applicable commissions and closing costs. The contract contained
various contingencies, including an inspection period for determination of
suitability for intended use and rezoning of the property.  On March
23, 2009, pursuant to terms of the contract, the buyer terminated the
contract.  We intend to continue to market the property for sale.
Proceeds from the sale of the land would be used to reduce any balances
outstanding on the revolving line of credit.





Cash
Flows





During
the first six months of fiscal 2009, operating activities used $1,034,000 of
cash.  Net earnings adjusted for expense provisions and depreciation
and amortization (before working capital changes) used $326,000 of
cash.  Changes in accounts receivable and customer deposit balances
used $758,000 of cash, while changes in accounts payable and accrued
expenses, inventories, deferred revenue and other assets provided $50,000
of cash.  Cash used by investing activities was $552,000, which
consisted of capitalized software additions of $539,000, legal fees related to
the filing of applications for various patents and trademarks of $12,000 and
equipment additions of $1,000.  Financing activities provided
$1,588,000 of cash from net line of credit borrowings.





We have
two manufacturing and purchasing agreements for certain finished goods
inventories. At February 27, 2009, outstanding purchase commitments under these
agreements amounted to $34,000.





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


22


A summary
of the Company’s long-term contractual obligations as of February 27, 2009 consisted
of:




Payments Due by PeriodContractual
      Obligations
                    
                    Total
                    
                    
                    Fiscal
                      2009
                    
                    
                    Fiscal
                      2010-2011
                    
                    
                    Fiscal
                      2012-2013Operating
      leases
                    
                    $
                    106,000
                    
                    
                    $
                    82,000
                    
                    
                    $
                    24,000
                    
                    
                    $
                    -Bank
      line of credit
                    
                    
                    3,472,000
                    
                    
                    
                    3,472,000
                    
                    
                    
                    -
                    
                    
                    
                    -Purchase
      commitments
                    
                    
                    34,000
                    
                    
                    
                    34,000
                    
                    
                    
                    -
                    
                    
                    
                    -Total
                    
                    $
                    3,612,000
                    
                    
                    $
                    3,588,000
                    
                    
                    $
                    24,000
                    
                    
                    $
                    -





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,” and SAB No. 101,
“Revenue Recognition in Financial Statements."  Revenue is recognized
when persuasive evidence of an agreement with the customer exists, products are
shipped or title passes pursuant to the terms of the agreement with the
customer, the amount due from the customer is fixed or determinable,
collectibility is reasonably assured, and there are no significant future
performance obligations.  Service revenues are recognized at the time
of performance.  Extended service maintenance contract revenues are
recognized ratably over the maintenance contract term, which is typically one
year. The unrecognized revenue portion of maintenance contracts invoiced is
recorded as deferred revenue.  At February 27, 2009, deferred extended
service maintenance revenues were $638,000 and deferred revenues related to the
fair value of future performance obligations were $74,000 and are expected to be
recognized as revenue in varying amounts throughout fiscal 2009 and into fiscal
2010.





We
recognize revenue in certain circumstances before delivery has occurred
(commonly referred to as “bill and hold” transactions).  In such
circumstances, among other things, risk of ownership has passed to the buyer,
the buyer has made a written fixed commitment to purchase the finished goods,
the buyer has requested the finished goods be held for future delivery as
scheduled and designated by them, and no additional performance obligations
exist by the Company.  For these transactions, the finished goods are
segregated from inventory and normal billing and credit terms are
granted.  For the three and six months ended February 27, 2009,
revenues in the amount of $2,172,000 and $2,269,242 were recorded as bill and
hold transactions.  At February 27, 2009, accounts receivable for
these transactions amounted to $930,002, of which $112,000 was paid subsequent
to February 27, 2009.





These
policies require management, at the time of the transaction, to assess whether
the amounts due are fixed or determinable, collection is reasonably assured, and
if future performance obligations exist.  These assessments are based
on the terms of the agreement with the customer, past history and credit
worthiness of the customer.  If management determines that collection
is not reasonably assured or future performance obligations exist, revenue
recognition is deferred until these conditions are satisfied.





Our
principal sources of revenues are from the sales of various satellite
communications equipment.  Embedded in our products is internally
developed software of varying applications.We evaluate our
products to assess whether software is more than incidental to a
product.  When we conclude that software is more than incidental to a
product, we will account for the product as a software product. Revenue on
software products and software-related elements is recognized in accordance with
SOP No. 97-2, “Software Revenue Recognition” as amended by SOP No. 98-9,
“Software Revenue Recognition, with Respect to Certain
Transactions.”  Significant judgment may be required in determining
whether a product is a software or hardware product.


23





Inventory
Reserves-Inventories are valued at the lower of cost (at standard cost, 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 February 27, 2009, inventories, net of reserve
provisions, amounted to $6,229,000.





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 February 27, 2009, capitalized
software costs, net of accumulated amortization, amounted to
$1,256,000.





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.  AtFebruary 27, 2009,
deferred tax assets in the amount of $6,305,000 were fully reserved by a
valuation allowance. For the six months ended February 27, 2009, the valuation
allowance was increased by $427,000.





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 February 27, 2009,
accounts receivable, net of allowances for doubtful accounts, amounted to
$2,401,000.





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 (3.25% at February 27, 2009).  At February
27, 2009, line of credit outstanding borrowings amounted
to $3,472,000.





We do not
enter into derivative financial instruments.  All sales and purchases
are denominated in U.S. dollars.




ITEM 4.
            CONTROLS
      AND PROCEDURES




Not applicable





ITEM 4T.
            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 (February 27, 2009).  Based upon
that evaluation, the Company’s CEO and CFO have concluded that the Company’s
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
of the Securities Exchange Act of 1934, as amended) are effective. There has
been no change in the Company’s internal control over financial reporting during
our most recent fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial
reporting.





PART II.  OTHER
INFORMATION





ITEM 1A.
            RISK
      FACTORS





Our
operations and financial results are subject to various risks and uncertainties
that could adversely affect our business, financial condition, results of
operations, and the market price for our Common Stock. Part I,
Item 1A, “Risk Factors,” contained in our Annual Report on Form 10-K for
the year ended August 29, 2008, includes a detailed discussion of these factors
which have not changed materially from those included in the Form 10-K, other
than as set forth below.


24




We
may not have sufficient capital to continue as a going concern and our existing
lender has notified us that it will not renew our line of credit when the line matures on
September 30, 2009.




Bookings
and revenues to date were insufficient to provide adequate levels of cash flow
from operations or adequate levels of collateral to support our estimates of
required borrowings during fiscal 2009.  In addition, during the
second quarter of fiscal 2009, our bank notified WCI of its intent not to renew
our loan facility when it matures on September 30, 2009. As a result, we need to
raise additional capital or obtain additional credit facilities during fiscal 2009 to
continue as a going concern and to execute our business plan.Although we
are in discussions with potential financing sources, if we are unsuccessful in
securing additional capital during this period, through additional equity and/or
debt financing, we may not be able to continue as a going
concern.  See also Note 1 to the Consolidated Financial Statements and
“MD&A - Liquidity and Capital Resources,” contained in this
report.





ITEM 4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS




On
January 27, 2009, the Annual Meeting of Shareholders was held and the shares
present voted on the following matters:





(1.)
            The
      shareholders approved the election of the following nominees to the Board
      ofDirectors
      to serve for a term of three years expiring in
  2011:





Jeffrey
J. Haas (Class II Director)


10,406,932
votes FOR


1,911,102
votes WITHHELD





Robert A.
Placek  (Class II Director)


9,877,666
votes FOR


2,440,368
votes WITHHELD





The terms
of office of Phylis A. Eagle-Oldson and C. Troy Woodbury, Jr. as Class I
directors, and of Thomas G. Elliot, Stephen J. Lococo and Ned L. Mountain as
Class III directors, continued subsequent to the Annual Meeting.





(2.)
              The
      appointment of BDO Seidman, LLP as auditors for the Company for the fiscal
      year 2008 was approved with 11,891,044 votes FOR, 345,309 votes AGAINST,
      and 81,680 votes
ABSTAINING.


25





ITEM 6.
            EXHIBITS





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





Exhibit No.
                
                
                Description of Exhibit3.1
                *
                
                Certificate
      of Incorporation as amended through May 4, 1989. (1)3.1.1
                *
                
                Amendment
      to Certificate of Incorporation. (2)3.2
                *
                
                By-laws
      of the Company, as Amended and Restated May 17, 2006.
  (3)31.1
                
                
                Certification
      of the Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
                
                
                Certification
      of the Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
                
                
                Certification
      of the Chief Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
                
                
                Certification
      of the Chief Financial Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of
2002.





(1)
            Incorporated
      by reference to the Company's Annual Report on Form 10-K for the fiscal
      year ended September 1, 1989, as filed with the Commission on November 30,
      1989.+


(2)
            Incorporated
      by reference to the Company's Quarterly Report on Form 10-Q for the
      quarter ended May 30, 1997, as filed with the Commission on June 30,
      1997.+


(3)
            Incorporated
      by reference to the Company's Current Report on Form 8-K, dated May 17,
      2006, as filed with the Commission on May 22,
  2006.+


+
            SEC
      file No. 0-11003


26





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:  April
      13, 2009
                                          By
                                          :
                                          /s/ Robert A. PlacekRobert
      A. PlacekChairman
      of the Board, President andChief
      Executive Officer(Principal
      Executive Officer)Date:  April
      13, 2009
                                          By
                                          :
                                          /s/ C. Troy Woodbury,
Jr.C.
      Troy Woodbury, Jr.Treasurer
      and ChiefFinancial
      Officer(Principal
      Financial and Accounting
Officer)




27