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 May 29, 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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yes o  No
o




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(Do
      not check if a smaller reporting company)




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 June 30, 2009









WEGENER
CORPORATION


Form
10-Q For the Quarter Ended May 29, 2009





INDEX





PART
      I.  Financial InformationItem
      1.
                                  Financial
      Statements
                                  3Introduction
                                  3Consolidated
      Statements of Operations(Unaudited)
      - Three and Nine Months EndedMay
      29, 2009 and May 30, 2008
                                  4Consolidated
      Balance Sheets – May 29,2009
      (Unaudited) and August 29, 2008
                                  5Consolidated
      Statements of Shareholders' Equity(Unaudited)
      - Nine Months Ended May 29,2009
      and May 30, 2008
                                  6Consolidated
      Statements of Cash Flows(Unaudited)
      - Nine Months Ended May 29,2009
      and May 30, 2008
                                  7Notes
      to Consolidated FinancialStatements
      (Unaudited)
                                  8Item
      2.
                                  Management's
      Discussion and Analysis of FinancialCondition
      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
                                  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 May 29, 2009; the
consolidated statements of shareholders' equity as of May 29, 2009, and May 30,
2008; the consolidated statements of operations for the three and nine months
ended May 29, 2009, and May 30, 2008; and the consolidated statements of cash
flows for the nine months ended May 29, 2009, and May 30, 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
                  
                  
                  Nine months endedMay 29,
                  
                  
                  May 30,
                  
                  
                  May 29,
                  
                  
                  May 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Revenue,
      net
                  
                  $
                  2,946,898
                  
                  
                  $
                  4,392,919
                  
                  
                  $
                  9,780,799
                  
                  
                  $
                  16,085,268Operating
      costs and expensesCost
      of products sold
                  
                  
                  2,068,310
                  
                  
                  
                  2,794,068
                  
                  
                  
                  6,740,407
                  
                  
                  
                  9,882,172Selling,
      general and administrative
                  
                  
                  1,218,126
                  
                  
                  
                  1,475,383
                  
                  
                  
                  3,414,179
                  
                  
                  
                  4,144,125Research
      and development
                  
                  
                  513,835
                  
                  
                  
                  859,114
                  
                  
                  
                  1,593,677
                  
                  
                  
                  2,437,697Operating
      costs and expenses
                  
                  
                  3,800,271
                  
                  
                  
                  5,128,565
                  
                  
                  
                  11,748,263
                  
                  
                  
                  16,463,994Operating
      loss
                  
                  
                  (853,373
                  )
                  
                  
                  (735,646
                  )
                  
                  
                  (1,967,464
                  )
                  
                  
                  (378,726
                  )Interest
      expense
                  
                  
                  (29,429
                  )
                  
                  
                  (40,684
                  )
                  
                  
                  (99,829
                  )
                  
                  
                  (112,526
                  )Other
      income
                  
                  
                  -
                  
                  
                  
                  1,206
                  
                  
                  
                  -
                  
                  
                  
                  1,946Net
      loss
                  
                  $
                  (882,802
                  )
                  
                  $
                  (775,124
                  )
                  
                  $
                  (2,067,293
                  )
                  
                  $
                  (489,306
                  )Net
      loss per share:Basic
      and diluted
                  
                  $
                  (0.07
                  )
                  
                  $
                  (0.06
                  )
                  
                  $
                  (0.16
                  )
                  
                  $
                  (0.04
                  )Shares
      used in per share calculationBasic
      and diluted
                  
                  
                  12,647,051
                  
                  
                  
                  12,647,051
                  
                  
                  
                  12,647,051
                  
                  
                  
                  12,647,051
  See
accompanying notes to consolidated financial statements.


4


WEGENER
CORPORATION AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


(Unaudited)





May 29,
                  2009
                
                
                August 29,
                  2008AssetsCurrent
      assetsCash
                
                $
                13,257
                
                
                $
                8,023Accounts
      receivable, net
                
                
                1,903,962
                
                
                
                2,963,060Inventories,
      net
                
                
                5,334,662
                
                
                
                6,295,476Other
                
                
                217,118
                
                
                
                211,832Total
      current assets
                
                
                7,468,999
                
                
                
                9,478,391Property
      and equipment, net
                
                
                1,439,437
                
                
                
                1,709,250Capitalized
      software costs, net
                
                
                1,265,303
                
                
                
                1,217,585Other
      assets
                
                
                350,816
                
                
                
                454,050Land
      held for sale
                
                
                353,712
                
                
                
                353,712Total
      assets
                
                $
                10,878,267
                
                
                $
                13,212,988Liabilities
      and Shareholders’ EquityCurrent
      liabilitiesBank
      line of credit
                
                $
                3,334,676
                
                
                $
                1,883,243Accounts
      payable
                
                
                2,067,226
                
                
                
                1,971,379Accrued
      expenses
                
                
                1,580,672
                
                
                
                1,871,887Deferred
      revenue
                
                
                515,848
                
                
                
                771,521Customer
      deposits
                
                
                659,747
                
                
                
                1,927,567Total
      current liabilities
                
                
                8,158,169
                
                
                
                8,425,597Commitments
      and contingencies
                
                
                -
                
                
                
                -Shareholders’
      equityCommon
      stock, $.01 par value; 20,000,000 shares authorized; 12,647,051 shares
      outstanding, respectively
                
                
                126,471
                
                
                
                126,471Additional
      paid-in capital
                
                
                20,006,702
                
                
                
                20,006,702Deficit
                
                
                (17,413,075
                )
                
                
                (15,345,782
                )Total
      shareholders’ equity
                
                
                2,720,098
                
                
                
                4,787,391Total
      liabilities and shareholders’ equity
                
                $
                10,878,267
                
                
                $
                13,212,988





See
accompanying notes to consolidated financial statements.


5


WEGENER
CORPORATION AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY


(Unaudited)





AdditionalCommon Stock
                          
                          
                          Paid-inShares
                          
                          
                          Amount
                          
                          
                          Capital
                          
                          
                          DeficitBalance
      at August 31, 2007
                          
                          
                          12,647,051
                          
                          
                          $
                          126,471
                          
                          
                          $
                          19,999,022
                          
                          
                          $
                          (15,729,065
                          )Share-based
      compensation expense
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          7,680
                          
                          
                          
                          -Net
      loss for the nine months
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (489,306
                          )BALANCE
      at May 30, 2008
                          
                          
                          12,647,051
                          
                          
                          $
                          126,471
                          
                          
                          $
                          20,006,702
                          
                          
                          $
                          (16,218,371
                          )Balance
      at August 29, 2008
                          
                          
                          12,647,051
                          
                          
                          $
                          126,471
                          
                          
                          $
                          20,006,702
                          
                          
                          $
                          (15,345,782
                          )Net
      loss for the nine months
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (2,067,293
                          )BALANCE
      at May 29, 2009
                          
                          
                          12,647,051
                          
                          
                          $
                          126,471
                          
                          
                          $
                          20,006,702
                          
                          
                          $
                          (17,413,075
                          )





See
accompanying notes to consolidated financial statements.


6





WEGENER
CORPORATION AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)




Nine months endedMay 29,
                                          
                                          
                                          May 30,2009
                                          
                                          
                                          2008Cash
      flows from operating activitiesNet
      loss
                                          
                                          $
                                          (2,067,293
                                          )
                                          
                                          $
                                          (489,306
                                          )Adjustments
      to reconcile net loss to cash (used) provided  by operating
      activitiesDepreciation
      and amortization
                                          
                                          
                                          1,113,248
                                          
                                          
                                          
                                          1,405,726Share-based
      compensation expense
                                          
                                          
                                          -
                                          
                                          
                                          
                                          7,680Increase
      in provision for bad debts
                                          
                                          
                                          -
                                          
                                          
                                          
                                          35,000Increase
      in provision for inventory reserves
                                          
                                          
                                          330,000
                                          
                                          
                                          
                                          -Decrease
      in provision for warranty reserves
                                          
                                          
                                          (130,000
                                          )
                                          
                                          
                                          (160,000
                                          )Changes
      in assets and liabilitiesAccounts
      receivable
                                          
                                          
                                          1,059,098
                                          
                                          
                                          
                                          1,669,614Inventories
                                          
                                          
                                          630,814
                                          
                                          
                                          
                                          (2,344,990
                                          )Other
      assets
                                          
                                          
                                          10,633
                                          
                                          
                                          
                                          (113,046
                                          )Accounts
      payable
                                          
                                          
                                          95,847
                                          
                                          
                                          
                                          1,404,244Accrued
      expenses
                                          
                                          
                                          (161,215
                                          )
                                          
                                          
                                          (524,354
                                          )Deferred
      revenue
                                          
                                          
                                          (255,673
                                          )
                                          
                                          
                                          1,276,778Customer
      deposits
                                          
                                          
                                          (1,267,820
                                          )
                                          
                                          
                                          (936,852
                                          )Net
      cash (used) provided by operating activities
                                          
                                          
                                          (642,361
                                          )
                                          
                                          
                                          1,230,494Cash
      flows from investment activitiesProperty
      and equipment expenditures
                                          
                                          
                                          (1,742
                                          )
                                          
                                          
                                          (311,203
                                          )Capitalized
      software additions
                                          
                                          
                                          (785,366
                                          )
                                          
                                          
                                          (869,490
                                          )License
      agreement, patent, and trademark, expenditures
                                          
                                          
                                          (16,730
                                          )
                                          
                                          
                                          (35,596
                                          )Net
      cash used for investing activities
                                          
                                          
                                          (803,838
                                          )
                                          
                                          
                                          (1,216,289
                                          )Cash
      flows from financing activitiesNet
      change in revolving line of credit
                                          
                                          
                                          1,451,433
                                          
                                          
                                          
                                          (14,176
                                          )Net
      cash  provided (used) by financing activities
                                          
                                          
                                          1,451,433
                                          
                                          
                                          
                                          (14,176
                                          )Increase
      in cash and cash equivalents
                                          
                                          
                                          5,234
                                          
                                          
                                          
                                          29Cash,
      beginning of period
                                          
                                          
                                          8,023
                                          
                                          
                                          
                                          6,728Cash,
      end of period
                                          
                                          $
                                          13,257
                                          
                                          
                                          $
                                          6,757Supplemental
      disclosure of cash flow information:Cash
      paid during the nine months for:Interest
                                          
                                          $
                                          100,145
                                          
                                          
                                          $
                                          112,526




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 $5.0 million at May 29, 2009, compared to $8.5 million at
August 29, 2008, and $8.2 million at May 30, 2008.  The total
multi-year backlog at May 29, 2009, was approximately $8.2 million, compared to
$13.3 million at August 29, 2008 and $13.6 million at May 30,
2008.  Approximately $1.1 million of the May 29, 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 for the fourth quarter of fiscal 2009 and fiscal
2010.  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 May
29, 2009, our net inventory balances were $5,335,000 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 nine months of fiscal 2009, we made
reductions in headcount to bring the current number of employees to 63, and
reduced engineering consulting and other overhead expenses. Beginning in January
2009, we reduced paid working hours Company-wide by approximately 10%. Our low
level of revenues to date has been insufficient to generate positive cash flow
from operations. In addition, the resulting low levels of accounts receivable,
which serve as collateral under our line of credit, has limited our level of
borrowings during the second and third quarters and subsequent to May 29, 2009.
As a result, to stay within our borrowing availability limits, we negotiated
extended payment terms with our two offshore vendors and have been extending
other vendors beyond normal payment terms. Until such vendors are paid within
normal payment terms, no assurances can be given that required services and
materials needed to support operations will continue to be provided. Any
interruption of services or materials would likely have an adverse impact on our
operations.




During
the third quarter, 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.


8





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.





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





Our
revenue recognition policies are in compliance with Staff Accounting Bulletin
(SAB) No. 104, “Revenue Recognition”, SAB No. 101, “Revenue Recognition in
Financial Statements” and EITF Issue No. 00-21, "Revenue Arrangements with
Multiple Deliverables."  Revenue is recognized when persuasive
evidence of an agreement with the customer exists, products are shipped or title
passes pursuant to the terms of the agreement with the customer, the amount due
from the customer is fixed or determinable, collectibility is reasonably
assured, and when there are no significant future performance
obligations.  Service revenues are recognized at the time of
performance.  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 and the
fair value of future performance obligations are recorded as deferred
revenue.  In addition, invoices generated in excess of revenue
recognized are recorded as deferred revenue until the revenue recognition
criteria are met. At May 29, 2009, deferred extended service maintenance
revenues were $453,000 and deferred revenues related to future performance
obligations and invoices generated in excess of revenue recognized were $63,000
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 nine months ended May 29, 2009, revenues in the
amount of $1,113,000 were recorded as bill and hold transactions.  At
May 29, 2009, accounts receivable for these transactions amounted to
$325,000.





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





Embedded
in our products is internally developed software of varying applications.We evaluate our
products to assess whether software is more than incidental to a
product.  When we conclude that software is more than incidental to a
product, we account for the product as a software product. Revenue on software
products and software-related elements is recognized in accordance with
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 in revenues all shipping and handling billings to customers,
and freight costs incurred for product shipments are included in cost of
products sold.


9





Earnings
Per Share


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





Share-Based
Compensation


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
123R).  SFAS 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 nine
months ended May 29, 2009, there was no stock-based compensation expense and no
options were granted.  For the nine months ended May 30, 2008,
share-based compensation expense included in selling, general and administrative
expenses amounted to approximately $8,000. The weighted average fair value of
options granted during the nine months ended May 30, 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
                      
                      
                      Nine months endedMay 29,
                        2009
                      
                      
                      May 30,
                        2008
                      
                      
                      May 29,
                        2009
                      
                      
                      May 30,
                        2008Risk
      free interest rate
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      3.45
                      %Expected
      term
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      5.0
      yearsVolatility
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      70
                      %Expected
      annual dividends
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      NoneForfeiture
      rate
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -





The
following table summarizes stock option transactions for the nine months ended
May 29, 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
                      
                      
                      (197,156
                      )
                      
                      
                      1.47 – 2.72
                      
                      
                      
                      2.03Outstanding
      at  May 29, 2009
                      
                      
                      731,375
                      
                      
                      $
                      .63 – 2.50
                      
                      
                      $
                      1.42Available
      for issue at May 29, 2009
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Options
      exercisable at
                        May 29,
    2009
                      
                      
                      731,375
                      
                      
                      $
                      .63 – 2.50
                      
                      
                      $
                      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 May 29, 2009, outstanding checks in the amounts
of $499,000 were included in accounts payable balances.




10





Use
of Estimates


The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period.  Actual results could vary from these estimates.





Fiscal
Year


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.





Note
3      Accounts Receivable


Accounts
receivable are summarized as follows:





(Unaudited)May 29,
                              2009
                            
                            
                            August 29,
                              2008Accounts
      receivable
                            
                            $
                            1,982,244
                            
                            
                            $
                            3,090,272Other
      receivables
                            
                            
                            78,889
                            
                            
                            
                            103,0212,061,133
                            
                            
                            
                            3,193,293Less
      allowance for doubtful accounts
                            
                            
                            (157,171
                            )
                            
                            
                            (230,233
                            )Accounts
      receivable, net
                            
                            $
                            1,903,962
                            
                            
                            $
                            2,963,060





Note
4      Inventories


Inventories
are summarized as follows:





(Unaudited)May 29,
                    2009
                  
                  
                  August 29,
                    2008Raw
      material
                  
                  $
                  4,652,661
                  
                  
                  $
                  5,312,531Work-in-process
                  
                  
                  1,034,094
                  
                  
                  
                  1,301,753Finished
      goods
                  
                  
                  4,037,262
                  
                  
                  
                  3,751,4979,724,017
                  
                  
                  
                  10,365,781Less
      inventory reserves
                  
                  
                  (4,389,355
                  )
                  
                  
                  (4,070,305
                  )Inventories,
      net
                  
                  $
                  5,334,662
                  
                  
                  $
                  6,295,476





Our
inventory reserve of approximately $4,389,000 at May 29, 2009 is to provide for
items that are potentially slow-moving, excess or obsolete.  During
the first nine months of fiscal 2009, inventory reserves were increased by
provisions of $330,000 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 May 29,
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 (unaudited)


Other
assets consisted of the following:





May 29, 2009Cost
                  
                  
                  Accumulated
                    Amortization
                  
                  
                  NetLicense
      agreements
                  
                  $
                  958,800
                  
                  
                  $
                  (946,384
                  )
                  
                  $
                  12,416Patents
      and patent applications
                  
                  
                  353,057
                  
                  
                  
                  (61,371
                  )
                  
                  
                  291,686Trademarks
                  
                  
                  82,820
                  
                  
                  
                  (51,328
                  )
                  
                  
                  31,492Loan
      facility fees
                  
                  
                  100,000
                  
                  
                  
                  (91,667
                  )
                  
                  
                  8,333Other
                  
                  
                  6,889
                  
                  
                  
                  -
                  
                  
                  
                  6,889$
                  1,501,566
                  
                  
                  $
                  (1,150,750
                  )
                  
                  $
                  350,816








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 nine months ended May 29, 2009,
amounted to $40,000 and $120,000, respectively.  Amortization expense
of other assets for the three and nine months ended May 30, 2008, amounted to
$50,000 and $169,000, respectively.





We
conduct an ongoing review of our intellectual property rights and potential
trademarks.  At May 29, 2009, the cost of registered patents and
trademarks amounted to $126,000 and $82,000,
respectively.  Additionally, as of May 29, 2009, we have cumulatively
incurred $228,000 of legal fees related to the filing of applications for
various patents not yet approved 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 a patent application will not be granted, we will write-off the deferred
cost at that time.  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 12 months.


12





Note
7      Accrued Expenses


Accrued
expenses consist of the following:





(Unaudited)May 29,
                    2009
                  
                  
                  August 29,
                    2008Vacation
                  
                  $
                  535,213
                  
                  
                  $
                  557,478Payroll
      and related expenses
                  
                  
                  244,910
                  
                  
                  
                  354,673Royalties
                  
                  
                  140,820
                  
                  
                  
                  159,115Warranty
                  
                  
                  98,882
                  
                  
                  
                  228,882Taxes
      and insurance
                  
                  
                  181,353
                  
                  
                  
                  150,318Commissions
                  
                  
                  31,516
                  
                  
                  
                  37,391Professional
      fees
                  
                  
                  245,151
                  
                  
                  
                  337,408Other
                  
                  
                  102,827
                  
                  
                  
                  46,622$
                  1,580,672
                  
                  
                  $
                  1,871,887





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 May 29, 2009.  For the nine months ended May 29, 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 the fair value of revenue related to future
performance obligations. Extended service maintenance contract revenues are
recognized ratably over the maintenance contract term, which is typically one
year.  At May 29, 2009, deferred extended service maintenance revenues
were $453,000 and deferred revenues related to future performance obligations
and invoices generated in excess of revenue recognized were $63,000 and are
expected to be recognized as revenue in varying amounts throughout fiscal 2009
and into fiscal 2010.





Note  9   
 Financing Agreements


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.  During the third quarter of
fiscal 2009 the bank informally capped the loan facility at
$4,000,000.  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 May 29,
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; 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 May 29, 2009, balances outstanding on the revolving
line of credit amounted to approximately $3,335,000 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 May 29, 2009, no letters of credit
were outstanding.


13





At May
29, 2009, approximately $197,000 was available to borrow under the advance
formulas.  During the first nine months of fiscal 2009, the average
daily balance outstanding was $3,441,000 and the highest outstanding balance was
$4,077,000.  At June 26, 2009, approximately $185,000 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.  In addition, we are required to retain certain
executive officers, maintain certain financial ratios, and are precluded from
paying dividends.





At May
29, 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.  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 Duluth (Johns Creek), Georgia (see note 5 to the consolidated
financial statements).  Proceeds from the sale of the land would be
used to pay any balances outstanding on the revolving line of
credit.





Note
10    Income Taxes


For the
nine months ended May 29, 2009, no income tax benefit was recorded due to an
increase in the deferred tax asset valuation allowance.  The valuation
allowance increased $744,000 in the first nine months of fiscal
2009.  At May 29, 2009, net deferred tax assets of $6,622,000 were
fully reserved by a valuation allowance.





At May
29, 2009, we had a federal net operating loss carryforward of approximately
$11,389,000, 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 endedMay 29, 2009
                                  
                                  
                                  May 30, 2008Earnings
                                    (Numerator)
                                  
                                  
                                  Shares
                                    (Denominator)
                                  
                                  
                                  Per share
                                    amount
                                  
                                  
                                  Earnings
                                    (Numerator)
                                  
                                  
                                  Shares
                                    (Denominator)
                                  
                                  
                                  Per
                                    share
                                    amountNet
      loss
                                  
                                  $
                                  (882,802
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  (775,124
                                  )Basic
      loss per share:Net
      loss available to common shareholders
                                  
                                  $
                                  (882,802
                                  )
                                  
                                  
                                  12,647,051
                                  
                                  
                                  $
                                  (0.07
                                  )
                                  
                                  $
                                  (775,124
                                  )
                                  
                                  
                                  12,647,051
                                  
                                  
                                  $
                                  (0.06
                                  )Effect
      of dilutive potential common shares:Stock
      options
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Diluted
      loss per share:Net
      loss available to common shareholders
                                  
                                  $
                                  (882,802
                                  )
                                  
                                  
                                  12,647,051
                                  
                                  
                                  $
                                  (0.07
                                  )
                                  
                                  $
                                  (775,124
                                  )
                                  
                                  
                                  12,647,051
                                  
                                  
                                  $
                                  (0.06
                                  )


14




Nine months endedMay 29, 2009
                                            
                                            
                                            May 30, 2008Earnings
                                              (Numerator)
                                            
                                            
                                            Shares
                                              (Denominator)
                                            
                                            
                                            Per
                                              share
                                              amount
                                            
                                            
                                            Earnings
                                              (Numerator)
                                            
                                            
                                            Shares
                                              (Denominator)
                                            
                                            
                                            Per
                                              share
                                              amountNet
      loss
                                            
                                            $
                                            (2,067,293
                                            )
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            $
                                            (489,306
                                            )Basic
      loss per share:Net loss available to common
      shareholders
                                            
                                            $
                                            (2,067,293
                                            )
                                            
                                            
                                            12,647,051
                                            
                                            
                                            $
                                            (0.16
                                            )
                                            
                                            $
                                            (489,306
                                            )
                                            
                                            
                                            12,647,051
                                            
                                            
                                            $
                                            (0.04
                                            )Effect
      of dilutive potential common shares:Stock
      options
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Diluted
      loss per share:Net
      loss available to common shareholders
                                            
                                            $
                                            (2,067,293
                                            )
                                            
                                            
                                            12,647,051
                                            
                                            
                                            $
                                            (0.16
                                            )
                                            
                                            $
                                            (489,306
                                            )
                                            
                                            
                                            12,647,051
                                            
                                            
                                            $
                                            (0.04
                                            )
 
 Stock
options excluded from the diluted net loss per share calculation due to their
anti-dilutive effect are as follows:
 
 Three months ended
                                    
                                    
                                    Nine months endedMay 29,
                                      2009
                                    
                                    
                                    May 30,
                                      2008
                                    
                                    
                                    May 29,
                                      2009
                                    
                                    
                                    May 30,
                                      2008Common
      stock options:Number
      of shares
                                    
                                    731,375
                                    
                                    
                                    933,531
                                    
                                    
                                    731,375
                                    
                                    
                                    933,531Exercise
      price
                                    
                                    $.63 to $2.50
                                    
                                    
                                    $1.09 to $2.72
                                    
                                    
                                    $0.63 to $2.50
                                    
                                    
                                    $0.63 to $2.72
  Note
12    Segment Information and Significant Customers
(Unaudited)
 In
accordance with Statement of Financial Accounting Standards No. 131, “Disclosure
about Segments of an Enterprise and Related Information,” we operate within a
single reportable segment, the manufacture and sale of satellite communications
equipment.
 
 In this
single operating segment we have three sources of revenues as
follows:
 
 Three months ended
                    
                    
                    Nine months endedMay 29,
                      2009
                    
                    
                    May 30,
                      2008
                    
                    
                    May 29,
                      2009
                    
                    
                    May 30,
                      2008Product
      Line
                    
                    $
                    2,783,575
                    
                    
                    $
                    4,246,745
                    
                    
                    $
                    9,267,083
                    
                    
                    $
                    15,636,319Direct
      Broadcast Satellite
                    
                    
                    9,446
                    
                    
                    
                    4,170
                    
                    
                    
                    18,905
                    
                    
                    
                    20,193Analog
      and Custom Products
                    
                    
                    153,877
                    
                    
                    
                    142,004
                    
                    
                    
                    494,811
                    
                    
                    
                    428,756Service
                    
                    $
                    2,946,898
                    
                    
                    $
                    4,392,919
                    
                    
                    $
                    9,780,799
                    
                    
                    $
                    16,085,268
 
 Concentrations
of revenue are likely to occur in any one or more of our products in any of our
reporting periods. Product revenues are subject to fluctuations from quarter to
quarter and year to year as new products and technologies are introduced, new
product features and enhancements are added and as customers upgrade or expand
their network operations.
  15




Concentration
of products representing 10% or more of the respective periods’ revenues is as
follows:
 
 Three months ended
                    
                    
                    Nine months endedMay 29,
                      2009
                    
                    
                    May 30,
                      2008
                    
                    
                    May 29,
                      2009
                    
                    
                    May 30,
                      2008ProductiPump
      Media Servers
                    
                    
                    20.2
                    %
                    
                    
                    30.0
                    %
                    
                    
                    14.9
                    %
                    
                    
                    12.2
                    %Professional
      and broadcast receivers
                    
                    
                    12.0
                    %
                    
                    
                    14.7
                    %
                    
                    
                    17.4
                    %
                    
                    
                    32.4
                    %SMD
      515 IPTV set top boxes
                    
                    
                    (a)
                    
                    
                    16.5
                    %
                    
                    
                    (a)
                    
                    
                    10.3
                    %Enterprise
      media receivers
                    
                    
                    10.9
                    %
                    
                    
                    (a)
                    
                    
                    12.9
                    %
                    
                    
                    11.6
                    %Audio
      broadcast receivers
                    
                    
                    14.4
                    %
                    
                    
                    13.3
                    %
                    
                    
                    16.9
                    %
                    
                    
                    (a)Network
      control products
                    
                    
                    14.4
                    %
                    
                    
                    (a)
                    
                    
                    16.6
                    %
                    
                    
                    (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
                            
                            
                            Nine months endedMay 29,
                              2009
                            
                            
                            May 30,
                              2008
                            
                            
                            May 29,
                              2009
                            
                            
                            May 30,
                              2008Geographic
      AreaUnited
      States
                            
                            $
                            2,110,643
                            
                            
                            $
                            2,701,045
                            
                            
                            $
                            8,664,227
                            
                            
                            $
                            13,135,504Latin
      America
                            
                            
                            636,330
                            
                            
                            
                            1,308,898
                            
                            
                            
                            818,228
                            
                            
                            
                            2,138,250Canada
                            
                            
                            9,662
                            
                            
                            
                            42,951
                            
                            
                            
                            21,414
                            
                            
                            
                            343,166Europe
                            
                            
                            188,477
                            
                            
                            
                            326,706
                            
                            
                            
                            274,064
                            
                            
                            
                            422,623Other
                            
                            
                            1,786
                            
                            
                            
                            13,319
                            
                            
                            
                            2,866
                            
                            
                            
                            45,725$
                            2,946,898
                            
                            
                            $
                            4,392,919
                            
                            
                            $
                            9,780,799
                            
                            
                            $
                            16,085,268
 
 All of
our long-lived assets are located in the United States.
 
 Customers
representing 10% or more of the respective period’s revenues are as
follows:
 
 Three months ended
                                      
                                      
                                      Nine months endedMay 29,
                                        2009
                                      
                                      
                                      May 30,
                                        2008
                                      
                                      
                                      May 29,
                                        2009
                                      
                                      
                                      May 30,
                                        2008Customer
      1
                                      
                                      
                                      
                                      (a)
                                      
                                      
                                      28.4
                                      %
                                      
                                      
                                      
                                      (a)
                                      
                                      
                                      12.1
                                      %Customer
      2
                                      
                                      
                                      
                                      (a)
                                      
                                      
                                      
                                      (a)
                                      
                                      
                                      
                                      (a)
                                      
                                      
                                      19.2
                                      %Customer
      3
                                      
                                      
                                      
                                      (a)
                                      
                                      
                                      16.6
                                      %
                                      
                                      
                                      
                                      (a)
                                      
                                      
                                      
                                      (a)Customer
      4
                                      
                                      
                                      11.6
                                      %
                                      
                                      
                                      15.2
                                      %
                                      
                                      
                                      10.3
                                      %
                                      
                                      
                                      14.6
                                      %Customer
      5
                                      
                                      
                                      17.0
                                      %
                                      
                                      
                                      13.3
                                      %
                                      
                                      
                                      14.3
                                      %
                                      
                                      
                                      
                                      (a)Customer
      6
                                      
                                      
                                      
                                      (a)
                                      
                                      
                                      
                                      (a)
                                      
                                      
                                      
                                      (a)
                                      
                                      
                                      10.1
                                      %Customer 7
                                      
                                      
                                      12.9
                                      %
                                      
                                      
                                      
                                      (a)
                                      
                                      
                                      10.8
                                      %
                                      
                                      
                                      
                                      (a)Customer 8
                                      
                                      
                                      
                                      (a)
                                      
                                      
                                      
                                      (a)
                                      
                                      
                                      26.7
                                      %
                                      
                                      
                                      
                                      (a)Customer
      9
                                      
                                      
                                      18.2
                                      %
                                      
                                      
                                      
                                      (a)
                                      
                                      
                                      
                                      (a)
                                      
                                      
                                      
                                      (a)
  (a)
                Revenues
      for the period were less than 10% of total
  revenues.
  16
  Note
13    Commitments
 We have
two manufacturing and purchasing agreements for certain finished goods
inventories. At May 29, 2009, outstanding purchase commitments under these
agreements amounted to $357,000.
 
 Note
14    Guarantees and 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 May
29, 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.  During the
third quarter of fiscal 2009 the bank informally capped the loan facility at
$4,000,000.  At May 29, 2009, balances outstanding on the loan
facility were $3,335,000.
 
 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 the remainder of
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 nine 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 May 29, 2009 decreased $1,446,000 or 32.9% to
$2,947,000 as compared to $4,393,000 for the three months ended May 30,
2008.  Revenues for the nine months ended May 29, 2009 decreased
$6,304,000 or 39.2% to $9,781,000 as compared to $16,085,000 for the nine months
ended May 30, 2008.  Operating results for the three and nine month
periods ended May 29, 2009, were a net loss of $(883,000) or $(0.07) per share
and a net loss of $(2,067,000) or $(0.16) per share, respectively, compared to a
net loss of $(775,000) or $(0.06) per share and a net loss of $(489,000) or
$(0.04) per share for the same periods ended May 30, 2008.
  During
the first, second and third quarters of fiscal 2009 bookings were approximately
$1.3, $1.7 and $1.1 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 nine months of fiscal 2009, as well as bookings
and revenues subsequent to May 29, 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 of 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 May
29, 2009, we had line of credit borrowings outstanding of $3,335,000. Our bank
loan facility is subject to availability advance formulas based on eligible
accounts receivable, import letter of credit commitment balances and
inventories.  During the third quarter of fiscal 2009 the bank
informally capped the loan facility at $4,000,000.  At May 29,
2009,approximately
$197,000 remained available to borrow under the advance formulas.  At
May 29, 2009, no letters of credit were outstanding.  At June 26,
2009, approximately $185,000 was available to borrow under the advance
formulas.
 
 During
the first nine months of fiscal 2009, our line of credit net outstanding
borrowings increased $1,452,000 to $3,335,000 at May 29, 2009, from $1,883,000
at August 29, 2008.  Operating activities used $642,000 of cash and
investing activities used $804,000 of cash, which consisted of capitalized
software additions of $785,000, equipment additions of $2,000, and $17,000 for
legal fees related to the filing of applications for various patents and
trademarks.
 
 (See the
Liquidity and Capital Resources section on page 21 for further
discussion.)
  18
 
 RESULTS
OF OPERATIONS
 THREE
AND NINE MONTHS ENDED MAY 29, 2009 COMPARED TO THREE AND NINE MONTHS ENDED MAY
30, 2008
 
 The
following table sets forth, for the periods indicated, the components of the
results of operations as a percentage of sales:
 
 Three
      months ended
                          
                          
                          Nine
      months endedMay
      29,
                            2009
                          
                          
                          May
      30,
                            2008
                          
                          
                          May
      29,
                            2009
                          
                          
                          May
      30,
                            2008Revenues
                          
                          
                          100.0
                          %
                          
                          
                          100.0
                          %
                          
                          
                          100.0
                          %
                          
                          
                          100.0
                          %Cost
      of products sold
                          
                          
                          70.2
                          
                          
                          
                          63.6
                          
                          
                          
                          68.9
                          
                          
                          
                          61.4Gross
      margin
                          
                          
                          29.8
                          
                          
                          
                          36.4
                          
                          
                          
                          31.1
                          
                          
                          
                          38.6Selling,
      general, and administrative
                          
                          
                          41.3
                          
                          
                          
                          33.6
                          
                          
                          
                          34.9
                          
                          
                          
                          25.8Research
      & development
                          
                          
                          17.4
                          
                          
                          
                          19.5
                          
                          
                          
                          16.3
                          
                          
                          
                          15.1Operating
      loss
                          
                          
                          (28.9
                          )
                          
                          
                          (16.7
                          )
                          
                          
                          (20.1
                          )
                          
                          
                          (2.3
                          )Interest
      expense
                          
                          
                          (1.0
                          )
                          
                          
                          (0.9
                          )
                          
                          
                          (1.0
                          )
                          
                          
                          (0.7
                          )Net
      loss
                          
                          
                          (29.9
                          )%
                          
                          
                          (17.6
                          )%
                          
                          
                          (21.1
                          )%
                          
                          
                          (3.0
                          )%
 
 The
operating results for the three and nine month periods ended May 29, 2009, were
a net loss of $(883,000) or $(0.07) per share and a net loss of $(2,067,000) or
$(0.16) per share, respectively, compared to a net loss of $(775,000) or $(0.06)
per share and a net loss of $(489,000) or $(0.04) per share for the same periods
ended May 30, 2008.
 
 Revenues
- Revenues for the three months ended May 29, 2009 decreased $1,446,000 or 32.9%
to $2,947,000 as compared to $4,393,000 for the three months ended May 30,
2008.  Revenues for the nine months ended May 29, 2009 decreased
$6,304,000 or 39.2% to $9,781,000 as compared to $16,085,000 for the nine months
ended May 30, 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
$1,452,000 or 33.1% in the third quarter of fiscal 2009 to $2,937,000 compared
to $4,389,000 in the same period of fiscal 2008.  For the nine months
ended May 29, 2009, DBS revenues decreased $6,303,000 or 39.2% to $9,762,000
compared to $16,065,000 for the nine months ended May 30,
2008.  Fiscal 2009 third quarter and first nine months revenues
included SpoTTrac®  and
NAVE IIc® encoders
used to encode Nielsen Media Research identification tags into media for Nielsen
program ratings; iPump®6420
media servers and Compel® network
control software for Comtelsat De Mexico’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.  In addition,
revenues for the first nine months of fiscal 2009 included iPump®6420
media servers and Compel® network
control software for Dial Global’s network expansion. The third quarter of
fiscal 2008 included revenues from partial 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 and shipments of our iPump® 562
enterprise media server to Satellite Store Link (SSL) for expansion of SSL’s
digital signage projects in Latin America  In addition, the first nine
months of fiscal 2008 benefited from completion of shipments of our Unity® 4600 to
the Big Ten Network, a new cable network distributed by Fox Cable
Networks.
 
 For the
three months ended May 29, 2009, four customers accounted for 18.2%, 17.0%,
12.9% and 11.6% of revenues, respectively.  For the nine months ended
May 29, 2009, three of these customers accounted for 14.3%, 10.8% and 10.3% of
revenues, respectively and one other customer accounted for 26.7% of
revenues.  For the three months ended May 30, 2008, four customers
accounted for 28.4%, 16.6%, 15.2% and 13.3% of revenues,
respectively.  For the nine months ended May 30, 2008, two of these
customers accounted for 14.6% and 12.1% of revenues, respectively and two other
customers accounted for 19.2% and 10.1% 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 the remainder of fiscal 2009 and beyond.
  19
 
 Concentrations
of revenue are likely to occur in any one or more of our products in any of our
reporting periods. Product revenues are subject to fluctuations from quarter to
quarter and year to year as new products and technologies are introduced, new
product features and enhancements are added and as customers upgrade or expand
their network operations (See note 12). Our
backlog is comprised of undelivered, firm customer orders, which are scheduled
to ship within 18 months.  WCI’s backlog was approximately $5.0
million at May 29, 2009, compared to $8.5 million at August 29, 2008, and $8.2
million at May 30, 2008. Four customers accounted for 62.4%, 14.5%, 5.5% and
4.0%, respectively, of the backlog at May 29, 2009. The total multi-year backlog
at May 29, 2009, was approximately $8.2 million compared to $13.3 million at
August 29, 2008 and $13.6 million at May 30, 2008.
 
 Gross
Profit Margins - The Company's gross profit margin percentages were 29.8%
and 31.1% for the three and nine months ended May 29, 2009, compared to 36.4%
and 38.6% for the same periods ended May 30, 2008. Gross profit margin dollars
decreased $720,000 or 45.0% and $3,163,000 or 51.0% for the three and nine month
periods ended May 29, 2009, respectively, compared to the same periods ended May
30, 2008.  The decreases in margin percentages and dollars for the
three and nine months ended May 29, 2009 were mainly due to the decrease in
revenues which resulted in higher unit fixed costs.  Profit margins in
the three and nine month periods of fiscal 2009 included capitalized software
amortization expense of $237,000 and $738,000, respectively, compared to
$310,000 and $930,000 for the same periods of fiscal 2008. Inventory reserve
charges were $100,000 and $330,000 in the three and nine month periods of fiscal
2009, respectively, compared to none in the same periods of fiscal
2008.  Severance costs included in three and nine month periods ended
May 29, 2009, were $71,000 and $82,000, respectively.  Profit margins
in the nine month period of fiscal 2009 were favorably impacted by a reversal of
an accrued warranty liability of $130,000 for previously estimated warranty
provisions that were no longer required.  Profit margins in the three
and nine month periods of fiscal 2008 included a reversal of an accrued warranty
liability of $210,000 for previously estimated warranty provisions that were no
longer required.  Warranty provision expenses were $50,000 in the
three and nine month periods of fiscal 2008 compared to none in the same periods
in fiscal 2009.
 
 Selling,
General and Administrative - Selling, general and administrative
(SG&A) expenses decreased $257,000 or 17.4% to $1,218,000 for the three
months ended May 29, 2009, compared to $1,475,000 for the same period of fiscal
2008. For the nine months ended May 29, 2009, SG&A expenses decreased
$730,000 or 17.6% to $3,414,000 compared to $4,144,000 for the same period of
fiscal 2008. Corporate SG&A expenses in the third quarter of fiscal 2009
decreased $8,000, or 2.5%, to $327,000 compared to $335,000 for the same period
in fiscal 2008. For the nine months ended May 29, 2009, corporate SG&A
expenses decreased $65,000, or 7.9%, to $762,000 compared to $827,000 in the
same period in fiscal 2008. The corporate SG&A decrease for the nine months
was mainly due to lower professional fees and director compensation. Director
compensation expense included $8,000 of noncash share-based compensation expense
in the nine months ended May 30, 2008, compared to none in the same period of
fiscal 2009.  WCI’s SG&A expenses decreased $249,000, or 21.8%, to
$891,000 from $1,140,000 and $665,000, or 20.0%, to $2,652,000 from $3,317,000
for the three and nine months ended May 29, 2009, compared to the same periods
in fiscal 2008.  The decrease in WCI’s SG&A expenses for the three
months ended May 29, 2009 was mainly due to decreases in salaries of $74,000,
sales and marketing expenses of $95,000, general overhead costs of $41,000 and
in-house commission expenses of $39,000.  The decrease in WCI’s
SG&A expenses for the nine months ended May 29, 2009 was mainly due to
decreases in salaries of $110,000, sales and marketing expenses of $212,000,
general overhead costs of $190,000, in-house commission expenses of $118,000 and
bad debt provisions of $35,000.  The salary expense decreases in the
three and nine month periods were offset by increased severance costs of $49,000
and $62,000, respectively.  As a percentage of revenues, SG&A
expenses were 41.3% and 34.9% for the three and nine month periods ended May 29,
2009, respectively, compared to 33.6% and 25.8% for the same periods in fiscal
2008.
 
 Research
and Development - Research and development (R&D) expenditures,
including capitalized software development costs, were $760,000 or 25.8% of
revenues, and $2,379,000 or 24.3% of revenues, for the three and nine month
periods ended May 29, 2009, compared to $1,184,000 or 27.0% of revenues, and
$3,307,000 or 20.6% of revenues, for the same periods of fiscal
2008.  The decreases in expenditures in the three and nine months
ended May 29, 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. The salary expense
decreases in the three and nine month periods were offset by increased severance
costs of $68,000.  Capitalized software development costs amounted to
$246,000 and $785,000 for the third quarter and first nine months of fiscal 2009
compared to $325,000 and $869,000 for the same periods of fiscal
2008.  The decreases in capitalized software costs were related to
completed projects and reductions in headcount and consulting
costs.  Research and development expenses, excluding capitalized
software expenditures, were $514,000 or 17.4% of revenues, and $1,594,000 or
16.3% of revenues, for the three and nine months ended May 29, 2009,
respectively, compared to $859,000 or 19.6% of revenues, and $2,438,000 or 15.2%
of revenues, for the same periods of fiscal 2008.  The decreases in
expenses in the three and nine month periods of fiscal 2009 compared to the same
periods in fiscal 2008 were due to the decrease in salaries and consulting costs
discussed above.
 
 Interest
Expense - Interest expense decreased $11,000 to $30,000 for the three
months ended May 29, 2009, compared to $41,000 for the three months ended May
30, 2008.  For the nine months ended May 29, 2009, interest expense
decreased $13,000 to $100,000 compared to $113,000 for the same period in fiscal
2008. For the three and nine months ended May 29, 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.
  20




Income
Tax Expenses–
For the nine months ended May 29, 2009, no income tax benefit was recorded due
to an increase in the deferred tax asset valuation allowance. The valuation
allowance increased $744,000 in the first nine months of fiscal
2009.  At May 29, 2009, net deferred tax assets of $6,622,000 were
fully reserved by a valuation allowance.  At May 29, 2009, we had a
federal net operating loss carryforward of approximately $11,389,000, 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.
 
 LIQUIDITY
AND CAPITAL RESOURCES
 NINE
MONTHS ENDED MAY 29, 2009
  Our
fiscal 2009 bookings in the first nine months of $4.1 million, 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 $5.0 million at May 29, 2009, compared to $8.5
million at August 29, 2008, and $8.2 million at May 30, 2008.  The
total multi-year backlog at May 29, 2009, was approximately $8.2 million,
compared to $13.3 million at August 29, 2008 and $13.6 million at May 30,
2008.  Approximately $1.1 million of the May 29, 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 for the fourth quarter of fiscal 2009 and fiscal
2010.  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 May
29, 2009, our net inventory balances were $5,335,000 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 nine months of fiscal 2009, we made
reductions in headcount to bring the current number of employees to 63, and
reduced engineering consulting and other overhead expenses. Beginning in January
2009, we reduced paid working hours Company-wide by approximately 10%. Our low
level of revenues to date has been insufficient to generate positive cash flow
from operations. In addition, the resulting low levels of accounts receivable,
which serve as collateral under our line of credit, has limited our level of
borrowings during the second and third quarters and subsequent to May 29, 2009.
As a result, to stay within our borrowing availability limits, we negotiated
extended payment terms with our two offshore vendors and have been extending
other vendors beyond normal payment terms. Until such vendors are paid within
normal payment terms, no assurances can be given that required services and
materials needed to support operations will continue to be provided. Any
interruption of services or materials would likely have an adverse impact on our
operations.
  During
the third quarter, 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.
  21
 
 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 May
29, 2009, 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.  During the third quarter of fiscal 2009 the bank
informally capped the loan facility at $4,000,000. 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 May 29,
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.
 
 During
the first nine months of fiscal 2009, our line of credit net outstanding
borrowings increased $1,452,000 to $3,335,000 at May 29, 2009, from $1,883,000
at August 29, 2008.  During the first nine months of fiscal 2009, the
average daily balance outstanding was $3,441,000 and the highest outstanding
balance was $4,077,000.  At May 29, 2009, approximately $197,000 was
available to borrow under the advance formulas.  At June 26, 2009,
approximately $185,000 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 May 29, 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
May 29, 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 May
29, 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 nine months of fiscal 2009, operating activities used $642,000 of
cash.  Net loss adjusted for expense provisions and depreciation and
amortization (before working capital changes) used $754,000 of
cash.  Changes in accounts receivable and customer deposit balances
used $209,000 of cash, while changes in accounts payable and accrued
expenses, inventories, deferred revenue and other assets provided $321,000 of
cash.  Cash used by investing activities was $804,000, which consisted
of capitalized software additions of $785,000, legal fees related to the filing
of applications for various patents and trademarks of $17,000 and equipment
additions of $2,000.  Financing activities provided $1,451,000 of cash
from net line of credit borrowings.
  22
 
 We have
two manufacturing and purchasing agreements for certain finished goods
inventories. At May 29, 2009, outstanding purchase commitments under these
agreements amounted to $357,000.
 
 The
Company has never paid cash dividends on its common stock and does not intend to
pay cash dividends in the foreseeable future.
  A summary
of the Company’s long-term contractual obligations as of May29, 2009 consisted
of:
 
 Payments Due by PeriodContractual Obligations
                    
                    Total
                    
                    
                    Fiscal
                      2009
                    
                    
                    Fiscal
                      2010-2011
                    
                    
                    Fiscal
                      2012-2013Operating
      leases
                    
                    $
                    369,000
                    
                    
                    $
                    23,000
                    
                    
                    $
                    251,000
                    
                    
                    $
                    95,000Bank
      line of credit
                    
                    
                    3,335,000
                    
                    
                    
                    3,335,000
                    
                    
                    
                    -
                    
                    
                    
                    -Purchase
      commitments
                    
                    
                    357,000
                    
                    
                    
                    357,000
                    
                    
                    
                    -
                    
                    
                    
                    -Total
                    
                    $
                    4,061,000
                    
                    
                    $
                    3,715,000
                    
                    
                    $
                    251,000
                    
                    
                    $
                    95,000
 
 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”, SAB No. 101,
“Revenue Recognition in Financial Statements” and EITF Issue No. 00-21, "Revenue
Arrangements with Multiple Deliverables."  Revenue is recognized when
persuasive evidence of an agreement with the customer exists, products are
shipped or title passes pursuant to the terms of the agreement with the
customer, the amount due from the customer is fixed or determinable,
collectibility is reasonably assured, and there are no significant future
performance obligations.  Service revenues are recognized at the time
of performance.  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 and the
fair value of future performance obligations are recorded as deferred
revenue.  At May 29, 2009, deferred extended service maintenance
revenues were $453,000 and deferred revenues related to future performance
obligations and invoices generated in excess of revenue recognized were $63,000
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 nine months ended May 29, 2009, revenues in the
amount of $1,113,000 were recorded as bill and hold transactions.  At
May 29, 2009, accounts receivable for these transactions amounted to
$325,000.
 
 These
policies require management, at the time of the transaction, to assess whether
the amounts due are fixed or determinable, collection is reasonably assured, and
if future performance obligations exist.  These assessments are based
on the terms of the agreement with the customer, past history and credit
worthiness of the customer.  If management determines that collection
is not reasonably assured or future performance obligations exist, revenue
recognition is deferred until these conditions are satisfied.
 
 Our
principal sources of revenues are from the sales of various satellite
communications equipment.  Embedded in our products is internally
developed software of varying applications.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, 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 May 29, 2009, inventories, net of reserve provisions,
amounted to $5,335,000.
 
 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 May 29, 2009, capitalized
software costs, net of accumulated amortization, amounted to
$1,265,000.
 
 Deferred
Tax Asset Valuation Allowance – Deferred tax assets are recognized for
deductible temporary differences, net operating loss carryforwards, and credit
carryforwards if it is more likely than not that the tax benefits will be
realized.  Realization of our deferred tax assets depends on
generating sufficient future taxable income prior to the expiration of the loss
and credit carryforwards.  At May 29, 2009, net deferred tax assets of
$6,622,000 were fully reserved by a valuation allowance.  The
valuation allowance increased $744,000 in the first nine months of fiscal
2009.
 
 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 May 29, 2009, accounts
receivable, net of allowances for doubtful accounts, amounted to
$1,904,000.
  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.  At May 29, 2009, line of credit
outstanding borrowings amounted to $3,335,000.
 
 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 (May 29, 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.
  24
  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.
  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.
 
 Our
inability to pay vendors within normal trade payment terms could adversely
impact our operations.
 
 Our low
level of revenues to date has been insufficient to generate positive cash flow
from operations. In addition, the resulting low levels of accounts receivable,
which serve as collateral under our line of credit, has limited our level of
borrowings during the second and third quarters and subsequent to May 29, 2009.
As a result, to stay within our borrowing availability limits we negotiated
extended payment terms with our two offshore vendors and have been extending
other vendors beyond normal payment terms. Until such vendors are paid within
normal payment terms, no assurances can be given that required services and
materials needed to support operations will continue to be provided. Any
interruption of services or materials would likely have an adverse impact on our
operations.
  See also
Note 1 to the Consolidated Financial Statements and “MD&A - Liquidity and
Capital Resources,” contained in this report.
  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:  July
      13, 2009
                      By:
                      /s/ Robert A. PlacekRobert
      A. PlacekChairman
      of the Board, President andChief
      Executive Officer(Principal
      Executive
Officer)
 
 Date:
      July 13, 2009
                  By:
                  /s/ C. Troy Woodbury,
Jr.C.
      Troy Woodbury, Jr.Treasurer
      and ChiefFinancial
      Officer(Principal
      Financial and Accounting
Officer)
  27