**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-Q**




(Mark
      One)




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




For
      the
      quarterly period ended December 1, 2006




**OR**




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




For
      the
      transition period from __________________________ to
      __________________________




Commission
      file No. 0-11003




**WEGENER
      CORPORATION**


(Exact
      name of registrant as specified in its charter)




**Delaware**
            **81-0371341**(State
                or other jurisdiction of
                incorporation or organization)
            (I.R.S.
                Employer Identification
                No.)




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





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




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




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




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer.




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




Large
                accelerated filer  o
            Accelerated
                filer  o
            Non-accelerated
                filer  x


**** **** **** **** ****


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




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




Common
                Stock, $.01 par
                value
            12,579,051
                SharesClass
            Outstanding
                at December 29,
                2006










**WEGENER
      CORPORATION AND SUBSIDIARIES**


**Form
      10-Q For the Quarter Ended December 1, 2006**





**INDEX**


Page(s)PART
                  I.
              Financial
                  InformationItem
                  1.
              Financial
                  StatementsIntroduction
              
              3Consolidated
                  Statements of Operations (Unaudited) - Three Months Ended December
                  1, 2006
                  and December 2, 2005
              
              4Consolidated
                  Balance Sheets - December 1, 2006 (Unaudited) and September 1,
                  2006
              
              5Consolidated
                  Statements of Shareholders' Equity (Unaudited) - Three Months Ended
                  December 1, 2006 and December 2, 2005
              
              6Consolidated
                  Statements of Cash Flows (Unaudited) - Three Months Ended December
                  1,2006 and December 2, 2005
              
              7Notes
                  to Consolidated FinancialStatements (Unaudited)
              
              8-15Item
                  2.
              Management's
                  Discussion and Analysis of FinancialCondition and Results of Operations
              
              16-21Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              
              21Item
                  4.
              Controls
                  and Procedures
              
              21PART
                  II.
              Other
                  InformationItem
                  1.
              Legal
              
              22Item
                  2.
              NoneItem
                  3.
              NoneItem
                  4.
              NoneItem
                  5.
              NoneItem
                  6.
              Exhibits
              
              23Signatures
              
              24
  2


**PART
      I. FINANCIAL INFORMATION**




**Item
      1. Financial Statements**





**INTRODUCTION
      - CONSOLIDATED FINANCIAL STATEMENTS**





The
      consolidated financial statements included herein have been prepared pursuant
      to
      the rules and regulations of the Securities and Exchange Commission. The
      consolidated balance sheet as of December 1, 2006; the consolidated statements
      of shareholders' equity as of December 1, 2006 and December 2, 2005; the
      consolidated statements of operations for the three months ended December 1,
      2006 and December 2, 2005; and the consolidated statements of cash flows for
      the
      three months ended December 1, 2006 and December 2, 2005 have been prepared
      without audit. The consolidated balance sheet as of September 1, 2006 has been
      audited by independent registered public accountants. Certain information and
      footnote disclosures normally included in financial statements prepared in
      accordance with generally accepted accounting principles have been condensed
      or
      omitted pursuant to such rules and regulations, although the Company believes
      that the disclosures herein are adequate to make the information presented
      not
      misleading. It is suggested that these consolidated financial statements be
      read
      in conjunction with the financial statements and the notes thereto included
      in
      the Company's Annual Report on Form 10-K for the fiscal year ended September
      1,
      2006, File No. 0-11003.





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





3




**WEGENER
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(Unaudited)**


Three
                  months ended**December
                  1,**
              
              December
                  2,**2006**
              
              2005Revenue
              
              **$**
              **4,783,477**
              
              $
              4,984,633Operating
                  costs and expensesCost
                  of products sold
              
              
              **3,605,503**
              
              
              3,351,460Selling,
                  general, and administrative
              
              
              **1,298,518**
              
              
              1,553,713Research
                  and development
              
              
              **820,962**
              
              
              720,023Operating
                  costs and expenses
              
              
              **5,724,983**
              
              
              5,625,196Operating
                  loss
              
              
              **(941,506**
              **)**
              
              (640,563
              )Interest
                  expense
              
              
              **(25,764**
              **)**
              
              (5,792
              )Interest
                  income
              
              
              **5,320**
              
              
              3,853Loss
                  before income taxes
              
              
              **(961,950**
              **)**
              
              (642,502
              )Income
                  tax benefit
              
              
              **-**
              
              
              -Net
                  loss
              
              **$**
              **(961,950**
              **)**
              $
              (642,502
              )Net
                  loss per share:Basic
              
              **$**
              **(0.08**
              **)**
              $
              (0.05
              )Diluted
              
              **$**
              **(0.08**
              **)**
              $
              (0.05
              )Shares
                  used in per share calculationBasic
              
              
              **12,579,051**
              
              
              12,579,051Diluted
              
              
              **12,579,051**
              
              
              12,579,051





See
      accompanying notes to consolidated financial statements.





4




**WEGENER
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


**December
                  1,**
              
              September
                  1,**2006**
              
              2006**Assets**
              
              **(Unaudited)**Current
                  assetsCash
                  and cash equivalents
              
              **$**
              **1,569,003**
              
              $
              958,784Accounts
                  receivable
              
              
              **1,851,867**
              
              
              1,780,121Inventories
              
              
              **4,034,495**
              
              
              3,858,027Other
              
              
              **120,432**
              
              
              233,127Total
                  current assets
              
              
              **7,575,797**
              
              
              6,830,059Property
                  and equipment, net
              
              
              **2,261,135**
              
              
              2,288,148Capitalized
                  software costs, net
              
              
              **1,202,656**
              
              
              1,229,790Other
                  assets
              
              
              **727,797**
              
              
              779,968**$**
              **11,767,385**
              
              $
              11,127,965**Liabilities
                  and Shareholders’ Equity**Current
                  liabilitiesAccounts
                  payable
              
              **$**
              **2,656,388**
              
              $
              1,526,309Accrued
                  expenses
              
              
              **3,224,313**
              
              
              3,262,448Customer
                  deposits
              
              
              **1,772,564**
              
              
              1,264,805Total
                  current liabilities
              
              
              **7,653,265**
              
              
              6,053,562Commitments
                  and contingenciesShareholders’
                  equityCommon
                  stock, $.01 par value; 20,000,000 sharesauthorized;
                  12,579,051 and 12,579,051 sharesrespectively,
                  issued and outstanding
              
              
              **125,791**
              
              
              125,791Additional
                  paid-in capital
              
              
              **19,926,582**
              
              
              19,924,915Deficit
              
              
              **(15,938,253**
              **)**
              
              (14,976,303
              )Total
                  shareholders’ equity
              
              
              **4,114,120**
              
              
              5,074,403**$**
              **11,767,385**
              
              $
              11,127,965





See
      accompanying notes to consolidated financial statements.




5





**WEGENER
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS’ EQUITY**


**(Unaudited)**


AdditionalCommon
                  Stock
              
              Paid-inShares
              
              Amount
              
              Capital
              
              DeficitBalance
                  at September 2, 2005
              
              
              12,579,051
              
              $
              125,791
              
              $
              19,892,482
              
              $
              (12,093,308
              )Share-based
                  compensation
              
              
              -
              
              
              -
              
              
              10,833
              
              
              -Net
                  loss for the three months
              
              
              -
              
              
              -
              
              
              -
              
              
              (642,502
              )BALANCE
                  at December 2, 2005
              
              
              12,579,051
              
              $
              125,791
              
              $
              19,903,315
              
              $
              (12,735,810
              )Balance
                  at September 1, 2006
              
              
              12,579,051
              
              $
              125,791
              
              $
              19,924,915
              
              $
              (14,976,303
              )Share-based
                  compensation
              
              
              -
              
              
              -
              
              
              1,667
              
              
              -Net
                  loss for the three months
              
              
              -
              
              
              -
              
              
              -
              
              
              (961,950
              )**BALANCE
                  at December 1, 2006**
              
              
              **12,579,051**
              
              **$**
              **125,791**
              
              **$**
              **19,926,582**
              
              **$**
              **(15,938,253**
              **)**


See
      accompanying notes to consolidated financial statements.




6




**WEGENER
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(Unaudited)**




Three
                  months ended**December
                  1,**
              
              December
                  2,**2006**
              
              2005**Cash
                  flows from operating activities**Net
                  loss
              
              **$**
              **(961,950**
              **)**
              $
              (642,502
              )Adjustments
                  to reconcile net loss tocash
                  provided by (used for) operating activitiesDepreciation
                  and amortization
              
              
              **566,632**
              
              
              599,190Share-based
                  compensation expense
              
              
              **1,667**
              
              
              10,833Provision
                  for inventory reserves
              
              
              **75,000**
              
              
              50,000Provision
                  for warranty reserves
              
              
              **100,000**
              
              
              10,000Changes
                  in assets and liabilitiesAccounts
                  receivable
              
              
              **(71,746**
              **)**
              
              (1,289,824
              )Inventories
              
              
              **(251,468**
              **)**
              
              (294,532
              )Other
                  assets
              
              
              **112,695**
              
              
              7,426Accounts
                  payable and accrued expenses
              
              
              **991,944**
              
              
              705,812Customer
                  deposits
              
              
              **507,759**
              
              
              391,838Net
                  cash provided by (used for) operating activities
              
              
              **1,070,533**
              
              
              (451,759
              )**Cash
                  flows from investment activities**Property
                  and equipment expenditures
              
              
              **(79,723**
              **)**
              
              (36,331
              )Capitalized
                  software additions
              
              
              **(375,727**
              **)**
              
              (400,655
              )License
                  agreement, patent, and trademarkexpenditures
              
              
              **(4,864**
              **)**
              
              (24,818
              )Net
                  cash used for investing activities
              
              
              **(460,314**
              **)**
              
              (461,804
              )Increase
                  (decrease) in cash and cash equivalents
              
              
              **610,219**
              
              
              (913,563
              )Cash
                  and cash equivalents, beginning of period
              
              
              **958,784**
              
              
              1,106,872Cash
                  and cash equivalents, end of period
              
              **$**
              **1,569,003**
              
              $
              193,309Supplemental
                  disclosure of cash flow information:Cash
                  paid during the three months for:Interest
              
              **$**
              **25,764**
              
              $
              5,792




See
      accompanying notes to consolidated financial statements.





7


**WEGENER
      CORPORATION AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**





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





The
      significant accounting policies followed by the Company are set forth in Note
      1
      to our audited consolidated financial statements included in the annual report
      on Form 10-K for the year ended September 1, 2006.





**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
      when there are no significant future performance obligations. Service revenues
      are recognized at the time of performance. Extended service maintenance contract
      revenues are recognized ratably over the maintenance contract term, which is
      typically one year. The unrecognized revenue portion of maintenance contracts
      invoiced is recorded as deferred revenue. At December 1, 2006, deferred extended
      service maintenance revenues were $362,000 and deferred revenues related to
      future performance obligations were $581,000 and are expected to be recognized
      as revenue in varying amounts throughout fiscal 2007 and into fiscal
      2008.





We
      have
      recognized 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 to be held for future delivery as scheduled and
      designated by them, and no additional performance obligations by the Company
      exist. For these transactions, the finished goods are segregated from inventory
      and normal billing and credit terms are granted. For the three months ended
      December 1, 2006, revenues to one customer in the amount of $1,125,000 were
      recorded prior to delivery as bill and hold transactions and were paid in full
      at December 1, 2006.





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
      no future performance obligations exist. These assessments are based on the
      terms of the agreement with the customer, past history and creditworthiness
      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 the Company’s 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.





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





**Earnings
      Per Share**





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





8


**Stock-Based
      Compensation**





In
      December 2004, the Financial Accounting Standards Board (FASB) issued Statement
      of Financial Accounting Standards (SFAS) No. 123 (Revised 2004), “Share-Based
      Payment” (SFAS 123R). SFAS 123R requires all share-based payments to employees,
      including grants of employee stock options, to be recognized as compensation
      expense in the consolidated financial statements based on their fair values.
      That expense will be recognized over the period during which an employee is
      required to provide services in exchange for the award, known as the requisite
      service period (usually the vesting period). We adopted SFAS 123R effective
      beginning September 3, 2005 using the Modified Prospective Application Method.
      Under this method, SFAS 123R applies to new awards and to awards modified,
      repurchased or cancelled after the effective date. For the three months ended
      December 1, 2006 and December 2, 2005, stock-based compensation expense included
      in selling, general and administrative expenses amounted to $1,700 and $11,000,
      respectively. No options were granted during the three months ended December
      1,
      2006. The weighted average fair value of options granted during the three months
      ended December 2, 2005 was $1.00 with an aggregate total value of $20,000.
      As of
      December 1, 2006, no compensation costs related to non-vested stock options
      remain to be recognized.





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


Three
                    months ended**December
                    1,**
                
                December
                    2,**2006**
                
                2005Risk
                    free interest rate
                
                
                -
                
                
                4.00
                %Expected
                    term
                
                
                -
                
                
                3.0
                    yearsVolatility
                
                
                -
                
                
                90
                %Expected
                    annual dividends
                
                
                -
                
                
                none


The
      following table summarizes stock option transactions for the three months ended
      December 1, 2006:


****
                
                **Weighted****Number**
                
                ******Range
                    of**
                
                **Average****of
                    Shares**
                
                ******ExercisePrices**
                
                **Exercise
                    Price**Outstanding
                  atSeptember
                    1, 2006
                
                
                1,282,531
                
                $
                .63
                    - 2.72
                
                $
                1.56Granted
                
                
                -
                
                
                -
                
                
                -Forfeited
                    or cancelled
                
                
                (122,000
                )
                
                .84
                    - 2.39
                
                
                2.31**Outstanding
                    at****December
                    1, 2006**
                
                
                **1,160,531**
                
                **$**
                **.63
                    - 2.72**
                
                **$**
                **1.48****Available
                    for issue at****December
                    1, 2006**
                
                
                **663,669**
                
                
                **-**
                
                
                **-****Options
                    exercisable at****December
                    1, 2006**
                
                
                **1,160,531**
                
                **$**
                **.63
                    - 2.72**
                
                **$**
                **1.48**September
                    1, 2006
                
                
                1,272,531
                
                $
                .63
                    - 2.72
                
                $
                1.56
 The
        key
        terms of the stock options granted under our stock plans are set forth included
        in the Company's Annual Report on Form 10-K for the fiscal year ended September
        1, 2006.





9




**Cash
      and Cash Equivalents**





Cash
      equivalents consist of highly liquid investments with original maturities of
      three months or less. Cash balances consist of checking account balances. At
      December 1, 2006, cash and cash equivalents consisted of bank commercial paper
      of $1,750,000, bank account balances of $64,000 offset by bank overdrafts,
      consisting of outstanding checks of $245,000.





**Use
      of Estimates**





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





**Fiscal
      Year**





We
      use a
      fifty-two, fifty-three week year. The fiscal year ends on the Friday closest
      to
      August 31. Fiscal years 2007 and 2006 contain fifty-two weeks.





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




Accounts
      receivable are summarized as follows:


**December
                  1,**
              
              September
                  1,**2006**
              
              2006**(Unaudited)**Accounts
                  receivable - trade
              
              **$**
              **2,076,910**
              
              $
              2,004,625Other
                  receivables
              
              
              **75,969**
              
              
              76,508**2,152,879**
              
              
              2,081,133Less
                    allowance fordoubtful accounts
              
              
              **(301,012**
              **)**
              
              (301,012
              )**$**
              **1,851,867**
              
              $
              1,780,121




**Note
      3**  **Inventories**





Inventories
      are summarized as follows:


**December
                  1,**
              
              September
                  1,**2006**
              
              2006**(Unaudited)**Raw
                  material
              
              **$**
              **4,283,670**
              
              $
              3,834,953Work-in-process
              
              
              **854,458**
              
              
              887,142Finished
                  goods
              
              
              **2,813,680**
              
              
              2,978,245**7,951,808**
              
              
              7,700,340Less
                  inventory reserves
              
              
              **(3,917,313**
              **)**
              
              (3,842,313
              )**$**
              **4,034,495**
              
              $
              3,858,027








10


During
      the first quarter of fiscal 2007, inventory reserves were increased by
      provisions of $75,000. Our inventory reserve of approximately $3,917,000 at
      December 1, 2006 is to provide for items that are potentially slow moving,
      excess, or obsolete. Changes in market conditions, lower than expected customer
      demand and rapidly changing technology could result in additional obsolete
      and
      slow-moving inventory that is unsaleable or saleable at reduced prices. No
      estimate can be made of a range of amounts of loss from obsolescence that are
      reasonably possible should our sales efforts not be successful.





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





Other
      assets consisted of the following:





**December
                1, 2006 (unaudited)****Cost**
            
            **Accumulated**
              **Amortization**
            
            **Net**License
                agreements
            
            **$**
            **798,800**
            
            **$**
            **(592,912**
            **)**
            **$**
            **205,888**Patents
                and patent applications
            
            
            **426,497**
            
            
            **(4,599**
            **)**
            
            **421,898**Trademarks
            
            
            **89,737**
            
            
            **(18,490**
            **)**
            
            **71,247**Loan
                facility fees
            
            
            **37,500**
            
            
            **(15,625**
            **)**
            
            **21,875**Other
            
            
            **6,889**
            
            
            **-**
            
            
            **6,889****$**
            **1,359,423**
            
            **$**
            **(631,626**
            **)**
            **$**
            **727,797**





September
                1, 2006Cost
            
            Accumulated
              Amortization
            
            NetLicense
                agreements
            
            $
            798,800
            
            $
            (550,037
            )
            $
            248,763Patents
                and patent applications
            
            
            421,633
            
            
            (2,252
            )
            
            419,381Trademarks
            
            
            89,736
            
            
            (16,051
            )
            
            73,685Loan
                facility fees
            
            
            37,500
            
            
            (6,250
            )
            
            31,250Other
            
            
            6,889
            
            
            -
            
            
            6,889$
            1,354,558
            
            $
            (574,590
            )
            $
            779,968




Amortization
      expense of other assets for the three months ended December 1, 2006 amounted
      to
      $57,000. Amortization expense of other assets for the three months ended
      December 2, 2005 amounted to $44,000.





We
      conduct an ongoing review of our intellectual property rights and potential
      trademarks. As of December
      1, 2006, we have cumulatively incurred $319,000 of legal fees related to the
      filing of applications for various patents and $36,000 related to the filing
      of
      trademarks. Upon issuance, these costs will be amortized on a straight-line
      basis over the lesser of the legal life or their estimated useful lives. If
      it
      becomes more likely than not that the patent application will not be granted,
      we
      will write-off the deferred cost at that time. At December 1, 2006, the cost
      of
      registered patents and trademarks amounted to $107,000 and $54,000,
      respectively. Patents and trademarks are amortized over their estimated useful
      life of four to ten years. License agreements are amortized over their estimated
      useful life of one to five years. Loan facility fees are amortized over twelve
      months.





**Note
      5    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. The loan facility matures on June
      30,
      2007, or upon demand and requires an annual facility fee of .75% of the maximum
      credit limit. The loan facility consists of a term loan and a revolving line
      of
      credit with a combined borrowing limit of $5,000,000, bearing interest at the
      bank’s prime rate (8.25% at December 1, 2006). The bank retained the right to
      adjust the interest rate, subject to financial performance of the
      Company.





The
      term
      loan facility provides for a maximum of $1,000,000 for advances of up to 80%
      of
      the cost of equipment acquisitions. Principal advances are payable monthly
      over
      sixty months with a balloon payment due at maturity. The revolving line of
      credit is subject to availability advance formulas of 80% against eligible
      accounts receivable; 20% of eligible raw materials inventories; 20% of eligible
      work-in-process kit inventories; 40% to 50% of eligible finished goods
      inventories; and 50% of import letter of credit commitment balances. The loan
      is
      secured by a first lien on substantially all of WCI’s assets and guaranteed by
      Wegener Corporation. At December 1, 2006, no balances were outstanding on the
      revolving line of credit or the equipment term loan portions of **** the
      loan
      facility. However, the loan facility is currently being used to support import
      letters of credit issued to offshore manufacturers, which at December 1, 2006
      amounted to $3,188,000 compared to $106,000 at December 2, 2005. At December
      1,
      2006, **** approximately
      $659,000 net of the outstanding letters of credit was available to borrow under
      the advance formulas. The increase in outstanding letters of credit is primarily
      due to our new product introductions of the iPump ® 6420,
      Unity550 and SMD515 products, and for European orders requiring lead-free
      Unity4600 receivers. We have orders in our December 1, 2006, eighteen-month
      backlog which are scheduled to ship throughout the remainder of fiscal year
      2007
      and into fiscal 2008 for approximately $2,135,000, or 67% of the outstanding
      letters of credit balances. We expect to book and ship orders for the remainder
      of the outstanding balances in fiscal 2007. Currently our bank allows 50% of
      the
      value of letters of credit as collateral while reducing borrowing availability
      by the full amount of outstanding letter of credit balances. As a result, we
      may
      at various times during fiscal 2007 require overadvances to the bank’s
      collateral formula until the letter of credit inventory commitments convert
      to
      receivables, against which the bank will allow 80% as available collateral.
      There is no assurance the bank will grant overadvances in sufficient amounts
      and
      for the duration of time required to support operations until the inventory
      is
      sold. As a result we may need to obtain additional sources of financing. No
      assurances may be given that additional sources of capital, if needed, would
      be
      available. During the first quarter of fiscal 2007, we began to utilize
      borrowings on the line of credit for payments against outstanding letters of
      credit and to support operations. During first quarter of fiscal 2007, the
      average daily balance outstanding was $14,000 and the highest outstanding
      balance was $242,000. We expect average outstanding borrowings to increase
      in
      the second quarter of fiscal 2007.





11


Under
      the
      loan facility, we are required to maintain a minimum tangible net worth at
      the
      end of each fiscal 2007 quarter and maintain increased amounts annually at
      each
      fiscal year end commencing with fiscal year 2008. In addition, we are to retain
      certain key employees, maintain certain financial ratios, and are precluded
      from
      paying dividends. At December 1, 2006, we were in compliance with the covenants.





**Note
      6**  **Income
      Taxes**




For
      the
      three months ended December 1, 2006, no income tax benefit was recorded due
      to
      an increase in the deferred tax asset valuation allowance. The valuation
      allowance increased $346,000 in the first quarter of fiscal 2007. At December
      1,
      2006, net deferred tax assets of $6,094,000, were fully reserved by a valuation
      allowance.




At
      December 1, 2006, we had a federal net operating loss carryforward of
      approximately $10,265,000, which expires beginning fiscal 2020 through fiscal
      2027. Additionally, we had an alternative minimum tax credit of $138,000 and
      state income tax credits of $199,000 expiring in fiscal 2009, both of which
      were
      fully offset by the valuation allowance.





12




**Note
      7**  **Earnings
      Per Share**





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


Three
                    months ended**December
                    1, 2006**
                
                December
                    2, 2005**Per**
                
                
                
                
                
                Per**Earnings**
                
                **Shares**
                
                **share**
                
                Earnings
                
                Shares
                
                share**(Numerator)**
                
                **(Denominator)**
                
                **amount**
                
                (Numerator)
                
                (Denominator)
                
                amountNet
                    (loss) earnings
                
                **$**
                **(961,950**
                **)**
                
                
                
                
                
                
                $
                (642,502
                )Basic
                    (loss) earnings per share:Net
                    (loss) earnings availableto
                    common shareholders
                
                **$**
                (961,950
                )
                
                **12,579,051**
                
                **$**
                (0.08
                )
                $
                (642,502
                )
                
                12,579,051
                
                $
                (0.05
                )Effect
                    of dilutive potentialcommon
                    shares:Stock
                    options
                
                
                **-**
                
                
                **-**
                
                
                
                
                
                -
                
                
                -Diluted
                    (loss) earnings per share:Net
                    (loss) earnings availableto
                    common shareholders
                
                **$**
                (961,950
                )
                
                **12,579,051**
                
                **$**
                (0.08
                )
                $
                (642,502
                )
                
                12,579,051
                
                $
                (0.05
                )


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


Three
                  months ended**December
                  1,**
              
              December
                  2,**2006**
              
              2005Common
                  stock options:Number
                  of shares
              
              
              **1,160,531**
              
              
              1,333,531Range
                  of exercise prices
              
              
              **$.63
                    to $2.72**
              
              
              $.63
                    to $2.72


**Note
      8**  **Segment
      Information and Significant Customers**





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.




13




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


Three
                  months ended**December
                  1,**
              
              December
                  2,**2006**
              
              2005Product
                  LineDirect
                  Broadcast Satellite
              
              **$**
              **4,632,221**
              
              $
              4,783,275Telecom
                  and Custom Products
              
              
              **5,269**
              
              
              37,725Service
              
              
              **145,987**
              
              
              163,633**$**
              **4,783,477**
              
              $
              4,984,633





Revenues
      by geographic areas are as follows:


Three
                  months ended**December
                  1,**
              
              December
                  2,**2006**
              
              2005Geographic
                  AreaUnited
                  States
              
              **$**
              **4,430,637**
              
              $
              4,724,272Latin
                  America
              
              
              **36,520**
              
              
              81,049Canada
              
              
              **25,004**
              
              
              47,737Europe
              
              
              **287,036**
              
              
              128,465Other
              
              
              **4,280**
              
              
              3,110**$**
              **4,783,477**
              
              $
              4,984,633


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





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





Three
                  months ended**December
                  1,**
              
              December
                  2,**2006**
              
              2005Customer
                  1
              
              
              **30.4**
              **%**
              
              (a
              )Customer
                  2
              
              
              **12.3**
              **%**
              
              12.1
              %Customer
                  3
              
              
              **10.3**
              **%**
              
              20.2
              %Customer
                  4
              
              
              **(a**
              **)**
              
              14.4
              %





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




**Note
      9 Commitments**





We
      have
      two manufacturing and purchasing agreements for certain finished goods
      inventories. At December 1, 2006, outstanding purchase commitments under these
      agreements amounted to $4,597,000. Pursuant to the above agreements, at December
      1, 2006, we had outstanding letters of credit in the amount of $3,188,000.
      In
      addition, at December 1, 2006, we had an outstanding commitment for engineering
      design and software development services in the amount of $36,000.




**Note
      10 Guarantees and Indemnifications**





Warranty


We
      warrant our products for a 12 to 14 month period beginning at the date of
      shipment. The warranty provides for repair or replacement of defective products
      returned during the warranty period at no cost to the customer. We expense
      costs
      for routine warranty repairs as incurred. Additional provisions are made for
      non-routine warranty repairs based on estimated costs to repair at the point
      in
      time in which the warranty claim is identified. Accrued warranty provisions,
      which remained outstanding at December 1, 2006, amounted to $435,000. For the
      three month period ended December 1, 2006, the accrual was increased by
      $100,000. Warranty expense recognized during the three months ended December
      1,
      2006, amounted to $100,000.





14




Letters
      of Credit




We
      provide standby letters of credit in the ordinary course of business to certain
      suppliers pursuant to manufacturing and purchasing agreements. At December
      1,
      2006, outstanding letters of credit amounted to $3,188,000.





Financing
      Agreements




The
      Company guarantees the bank loan facility of WCI. The bank facility provides
      a
      maximum available credit limit of $5,000,000. At December 1, 2006, no balances
      were outstanding on the loan facility.





Indemnification
      Obligations




We
      are
      obligated to indemnify our officers and the members of our Board of Directors
      pursuant to our bylaws and contractual indemnity agreements. We routinely sell
      products with a limited intellectual property indemnification included in the
      terms of sale or in certain contractual arrangements. The scope of these
      indemnities varies, but in some instances, includes indemnification for damages
      and expenses (including reasonable attorneys’ fees). Certain requests for
      indemnification have been received by us pursuant to these arrangements (see
      Part II Item 1. Legal, for further discussion). At December 1, 2006 and
      September 1, 2006, $60,000 remained accrued in respect to the indemnification
      provisions.




15




WEGENER
      CORPORATION AND SUBSIDIARIES





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





This
      information should be read in conjunction with the consolidated financial
      statements and the notes thereto included in Item 1 of this Quarterly Report
      and
      the audited consolidated financial statements and notes thereto and Management’s
      Discussion and Analysis of Financial Condition and Results of Operations for
      the
      year ended September 1, 2006 contained in the Company’s 2006 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 conditions which may not improve during fiscal year 2007  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
      uncertainties detailed from time to time in the Company’s periodic Securities
      and Exchange Commission filings, including the Company’s most recent 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.


**OVERVIEW**




We
      design
      and manufacture satellite communications equipment through Wegener
      Communications, Inc. (WCI), a wholly-owned subsidiary. WCI is a leading provider
      of digital solutions for video, audio and IP data networks. Applications include IP
      data
      delivery, broadcast television, cable television, radio networks, business
      television, distance education, business music and financial information
      distribution.




During
      the first quarter of fiscal 2007, approximately $4.8 million in new orders
      were
      booked. New orders included a new
      agreement with Mega Hertz granting them exclusive distributor status for
      products sold to domestic cable operators. The order is for our digital DTV
      signal processing equipment which  provides
      digital video processing of local HDTV signals and ASI transport streams and
      for
      our Unity ® 4600
      satellite receivers. This
      order is scheduled to ship throughout fiscal 2007, 2008 and into fiscal 2009.
      In
      addition, we received an order from Horizon Christian Fellowship’s Horizon
      Broadcast Network for file-based radio distribution equipment which includes
      Compel® Network Control, MediaPlan® Content Management and iPump®6420
      Professional Audio Servers. The equipment will be used to support the launch
      of
      a new radio network aimed at serving an initial target domestic audience
      estimated at 17 million. Other bookings included add-on orders from existing
      customers for Unity®4600 and Unity®550 satellite receivers.





We
      are
      continuing to invest in new technologies utilizing MPEG-4/H.264 video
      compression and DVB-S2 satellite modulation combined. MPEG-4/H.264 compression
      and DVB-S2 modulation reduce bandwidth utilization by about half, which allows
      present networks to cut recurring costs by up to 50% and allows the creation
      of
      new networks that were not possible with previous technologies. Alternately,
      our
      customers will be able to upgrade their video to high definition and increase
      its quality significantly while maintaining similar bandwidth utilization to
      their current MPEG-2 standard definition offering. The SMD515 IPTV settop and
      the Unity ® 550
      version 2 satellite receiver will be our first products with MPEG-4/H.264
      technology, and we continue to explore other potential applications for the
      technology. We expect the development of products utilizing MPEG-4/H.264
      technology to continue throughout fiscal 2007. We believe that market demand
      for
      MPEG-4 technology is very strong. However, the conversion of new business
      opportunities into firm orders depends on the availability of next generation
      products with MPEG-4 and DVB S2 technologies. We are extremely focused on
      completion of these products for an expected market release in the second half
      of fiscal 2007. While orders booked in the first quarter of fiscal 2007 were
      improved over the fourth quarter of fiscal 2006, an increased order rate is
      required to return to profitability. As previously disclosed,  we
      continue to expect an operating loss for the second quarter of fiscal
      2007.




16





**Financial
      Position and Liquidity**





Our
      cash
      and cash equivalents balances were $1,569,000 at December 1, 2006. We have
      no
      long-term debt or line of credit borrowings outstanding at December 1, 2006.
      However, our $5,000,000 bank loan facility, which is subject to availability
      advance formulas based on eligible accounts receivable, import letter of credit
      commitment balances and inventories, is currently being used to support import
      letters of credit issued to our offshore manufacturers, which at December
      1, 2006 amounted to $ 3, 188,000
      compared to $106,000 at December 2, 2005. At December 1, 2006, **** approximately
      $659,000 net of the outstanding letters of credit was available to borrow under
      the advance formulas. The increase in outstanding letters of credit is primarily
      due to our new product introductions of the iPump ® 6420,
      Unity ® 550
      and
      SMD515 products, and for European orders requiring lead-free Unity ® 4600
      receivers. We
      have
      orders in our December 1, 2006, eighteen-month backlog which are scheduled
      to
      ship throughout the remainder of fiscal year 2007 and into fiscal 2008 for
      approximately $2,135,000, or 67% of the outstanding letters of credit
      balances. We
      expect to book and ship orders for the remainder of the outstanding balances
      in
      fiscal 2007. Currently
      our bank allows 50% of the value of letters of credit as collateral while
      reducing borrowing availability by the full amount of outstanding letter of
      credit balances. As a result, we may at various times during fiscal 2007 require
      overadvances to the bank’s collateral formula until the letter of credit
      inventory commitments convert to receivables, against which the bank will allow
      80% as available collateral. There is no assurance the bank will grant
      overadvances in sufficient amounts and for the duration of time required to
      support operations until the inventory is sold. As a
      result we may need to obtain additional sources of financing. No
      assurances may be given that additional sources of capital, if needed, would
      be
      available. During
      the first quarter of fiscal 2007, we began to utilize borrowings on the line
      of
      credit for payments against outstanding letters of credit and to support
      operations. During first quarter of fiscal 2007, the average daily balance
      outstanding was $14,000 and the highest outstanding balance was $242,000. We
      expect average outstanding borrowings to increase in the second quarter of
      fiscal 2007.





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





**RESULTS
      OF OPERATIONS**


**THREE
      MONTHS ENDED DECEMBER 1, 2006 COMPARED TO THREE MONTHS ENDED DECEMBER 2,
      2005**





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




Three
                months ended (unaudited)
            ********
            ****
            **December
                1,**
              **2006**
            ****
            December
                2,
              2005Revenue
            
            
            **100.0**
            **%**
            
            100.0
            %Cost
                of products sold
            
            
            **75.4**
            
            
            67.2Gross
                margin
            
            
            **24.6**
            
            
            32.8Selling,
                general, and administrative
            
            
            **27.1**
            
            
            31.2Research
                & development
            
            
            **17.2**
            
            
            14.4Operating
                (loss) income
            
            
            **(19.7**
            **)**
            
            (12.9
            )Interest
                expense
            
            
            **(
                .5**
            **)**
            
            (
                .1
            )Interest
                income
            
            
            **.1**
            
            
            .1(Loss)
                earnings before income taxes
            
            
            **(20.1**
            **)**
            
            (12.9
            )Income
                tax expense
            
            
            **-**
            
            
            -Net
                (loss) earnings
            
            
            **(20.1**
            **)%**
            
            (12.9
            )%




17





The
      operating results for the three month period ended December 1, 2006, were a
      net
      loss of $(962,000) or $(0.08) per share compared to a net loss of $(643,000)
      or
      $(0.05) per share for the three month period ended December 2,
      2005.





**Revenues** -
      Revenues for the first quarter of fiscal 2007 decreased $202,000 or 4.0% to
      $4,783,000 from $4,985,000 for the same period in fiscal 2006.





Direct
      Broadcast Satellite (DBS) revenues (including service revenues) decreased
      $169,000 or 3.4% in the first quarter of fiscal 2007 to $4,778,000 from
      $4,947,000 for the same period in fiscal 2006. The decrease was due to lower
      than expected shippable orders for the quarter, especially for our
      iPump ® system,
      and a scheduled decrease in revenues to a business music network customer.
      The
      first quarter of fiscal 2007 benefited from resolution of engineering
      development delays of the iPump ® 6420,
      resulting in revenues from Jones Radio Networks, which was scheduled to begin
      shipping in the fourth quarter of fiscal 2006.




Revenues
      and order backlog are subject to the timing of significant orders from customers
      and new product introductions, and as a result revenue levels may fluctuate
      from
      quarter to quarter. For the three months ended December 1, 2006, three customers
      accounted for 30.4%, 12.3% and 10.3% of revenues, respectively. For the three
      months ended December 2, 2005, three customers accounted for 20.2%, 14.4% and
      12.1% 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 fiscal 2007.





Our
      backlog is comprised of undelivered, firm customer orders, which are scheduled
      to ship within eighteen months. WCI’s backlog scheduled to ship within eighteen
      months was approximately $11.2 million at December 1, 2006, compared to $10.7
      million at September 1, 2006, and $15.4 million at December 2, 2005. Three
      customers accounted for approximately 26.6%, 18.6% and 12.2%, respectively,
      of
      the backlog at December 1, 2006. The total multi-year backlog at December 1,
      2006 was approximately $19.9 million, compared to $19.4 million at September
      1,
      2006 and $28.3 million at December 2, 2005.





**Gross
      Profit Margins** - The
      Company’s gross profit margin percentages were 24.6% for the three month period
      ended December 1, 2006, compared to 32.8% for the three month period ended
      December 2, 2005. Gross profit margin dollars decreased $455,000 for the three
      month period ended December 1, 2006 compared to the same period ended December
      2, 2005. The decrease in margin percentages and dollars was mainly due to higher
      than expected new product production costs associated with the iPump ® 6420
      and
      lower revenues which resulted in higher unit fixed overhead costs. Profit
      margins in the first quarter of fiscal 2007 were adversely affected by inventory
      reserve charges of $75,000 compared to $50,000, and warranty provisions of
      $100,000 compared to $10,000, for the same period of fiscal 2006.





**Selling,
      General and Administrative** -
      Selling, general and administrative (SG&A) expenses decreased $255,000, or
      16.4%, to $1,299,000 in the first quarter of fiscal 2007 from $1,554,000 in
      the
      first quarter of fiscal 2006. Corporate SG&A expenses in the first quarter
      of fiscal 2007 decreased $92,000, or 26.9%, to $252,000 from $345,000 in same
      period of fiscal 2006, mainly due to a reduction in costs related to dissident
      shareholder issues. WCI’s SG&A expenses decreased $163,000, or 13.4%, to
      $1,046,000 in the first quarter of fiscal 2007 from $1,209,000 in same period
      of
      fiscal 2006. The decrease in WCI’s SG&A expenses was mainly due to decreases
      in professional fees of $32,000, sales commissions of $68,000 primarily due
      to
      lower bookings, consulting fees of $18,000, salaries of $24,000 due to lower
      headcount and selling and marketing expenses of $28,000. These costs were offset
      by increased administrative overhead costs of $10,000. WCI’s SG&A expenses
      included $2,000 of stock-based compensation in the first quarter of fiscal
      2007
      compared to $11,000 in the same period of fiscal 2006. As a percentage of
      revenues, SG&A expenses were 27.1% for the three month period ended December
      1, 2006 compared to 31.2% for the same period ended December 2,
      2005.





**Research
      and Development** -
      Research and development expenditures, including capitalized software
      development costs, were $1,197,000 or 25.2% of revenues in the first quarter
      of
      fiscal 2007 compared to $1,121,000 or 22.5% of revenues for the same period
      of
      fiscal 2006. The increase in expenditures in the first quarter of fiscal 2007
      compared to the same period of fiscal 2006 was mainly due to increased salaries
      due to increases in compensation and headcount. Capitalized software development
      costs amounted to $376,000 in the first quarter of fiscal 2007 compared to
      $401,000 in the first quarter of fiscal 2006. Research and development expenses,
      excluding capitalized software development costs, were $821,000 or 17.2% of
      revenues in the first quarter of fiscal 2007 compared to $720,000 or 14.4%
      of
      revenues in the same period of fiscal 2006. The increase in expenses in the
      first quarter of fiscal 2007 compared to the same period of fiscal 2006 was
      mainly due to the increase in salaries.





**Interest
      Expense** **** -
      Interest expense increased $20,000 to $26,000 in the first quarter of fiscal
      2007 from $6,000 in the same period in fiscal 2006. The increase was primarily
      due to the increase in average outstanding letter of credit commitment balances.




18





**Interest
      Income** **** -
      Interest income was $5,000 for the three months ended December 1, 2006 compared
      to $4,000 for the same period ended December 2, 2005.





**Income
      Tax Expense** - For
      the three months ended December 1, 2006, no income tax benefit was recorded
      due
      to an increase in the deferred tax asset valuation allowance. The valuation
      allowance increased $346,000 in the first quarter of fiscal 2007. At December
      1,
      2006 net deferred tax assets of $6,094,000, were fully reserved by a valuation
      allowance. At December 1, 2006, we had a federal net operating loss carryforward
      of approximately $10,265,000, which expires beginning fiscal 2020 through fiscal
      2027. Additionally, we had an alternative minimum tax credit of $138,000 and
      state income tax credits of $199,000 expiring in fiscal 2009, both of which
      were
      fully offset by the valuation allowance.





**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
      when there are no significant future performance obligations. Service revenues
      are recognized at the time of performance. Extended service maintenance contract
      revenues are recognized ratably over the maintenance contract term, which is
      typically one year. The unrecognized revenue portion of maintenance contracts
      invoiced is recorded as deferred revenue. At December 1, 2006, deferred extended
      service maintenance revenues were $362,000 and deferred revenues related to
      future performance obligations were $581,000 and are expected to be recognized
      as revenue in varying amounts throughout fiscal 2007 and into fiscal
      2008.




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





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





**Inventory
      Reserves** **-** Inventories
      are valued at the lower of cost (at standard, which approximates actual cost
      on
      a first-in, first-out basis) or market. Inventories include the cost of raw
      materials, labor and manufacturing overhead. We make inventory reserve
      provisions for obsolete or slow-moving inventories as necessary to properly
      reflect inventory value. These reserves are to provide for items that are
      potentially slow-moving, excess or obsolete. Changes in market conditions,
      lower
      than expected customer demand and rapidly changing technology could result
      in
      additional obsolete and slow-moving inventory that is unsaleable or saleable
      at
      reduced prices, which could require additional inventory reserve provisions.
      At
      December 1, 2006, inventories, net of reserve provisions, amounted to
      $4,034,000.





**Capitalized
      Software Costs** **-** Software
      development costs are capitalized subsequent to establishing technological
      feasibility. Capitalized costs are amortized based on the larger of the amounts
      computed using (a) the ratio that current gross revenues for each product bears
      to the total of current and anticipated future gross revenues for that product
      or (b) the straight-line method over the remaining estimated economic life
      of
      the product. Expected future revenues and estimated economic lives are subject
      to revisions due to market conditions, technology changes and other factors
      resulting in shortfalls of expected revenues or reduced economic lives, which
      could result in additional amortization expense or write-offs. At December
      1,
      2006, capitalized software costs, net of accumulated amortization, amounted
      to
      $1,203,000.




19





**Deferred
      Tax Asset Valuation Allowance** -
      Deferred tax assets are recognized for deductible temporary differences, net
      operating loss carryforwards, and credit carryforwards if it is more likely
      than
      not that the tax benefits will be realized. Realization of our deferred tax
      assets depends on generating sufficient future taxable income prior to the
      expiration of the loss and credit carryforwards. At December 1, 2006, deferred
      tax assets in the amount of $6,094,000 were fully reserved by a valuation
      allowance. For the three months ended December 1, 2006, the valuation allowance
      was increased by $346,000.





**Accounts
      Receivable Valuation** - We
      maintain allowances for doubtful accounts for estimated losses resulting from
      the inability of our customers to make required payments. If the financial
      condition of our customers were to deteriorate, resulting in an impairment
      of
      their ability to make payments, additional allowances would be required. At
      December 1, 2006, accounts receivable, net of allowances for doubtful accounts,
      amounted to $1,852,000.




**LIQUIDITY
      AND CAPITAL RESOURCES**


**THREE
      MONTHS ENDED DECEMBER 1, 2006**





At
      December 1, 2006, our primary sources of liquidity were cash and cash
      equivalents of $1,569,000 and a $5,000,000 bank loan facility. Cash and cash
      equivalents increased $610,000 during the first quarter of fiscal 2007.




Our
      bank
      loan facility, which is subject to availability advance formulas based on
      eligible accounts receivable, import letter of credit commitment balances and
      inventories, is currently being used to support import letters of credit issued
      to our offshore manufacturers, which at December 1, 2006 amounted to
      $3,188,000 compared to $106,000 at December 2, 2005. At December 1,
      2006, **** approximately
      $659,000 net of the outstanding letters of credit was available to borrow under
      the advance formulas. The increase in outstanding letters of credit is primarily
      due to our new product introductions of the iPump ® 6420,
      Unity ® 550
      and
      SMD515 products, and for European orders requiring lead-free Unity ® 4600
      receivers. We have orders in our December 1, 2006, eighteen-month backlog which
      are scheduled to ship throughout the remainder of fiscal year 2007 and into
      fiscal 2008 for approximately $2,135,000, or 67% of the outstanding letters
      of
      credit balances. We expect to book and ship orders for the remainder of the
      outstanding balances in fiscal 2007. Currently our bank allows 50% of the value
      of letters of credit as collateral while reducing borrowing availability by
      the
      full amount of outstanding letter of credit balances. As a result, we may at
      various times during fiscal 2007 require overadvances to the bank’s collateral
      formula until the letter of credit inventory commitments convert to receivables,
      against which the bank will allow 80% as available collateral. There is no
      assurance the bank will grant overadvances in sufficient amounts and for the
      duration of time required to support operations until the inventory is sold.
      As
      a result we may need to obtain additional sources of financing. No assurances
      may be given that additional sources of capital, if needed, would be available.
      During the first quarter of fiscal 2007, we began to utilize borrowings on
      the
      line of credit for payments against outstanding letters of credit and to support
      operations. During first quarter of fiscal 2007 the average daily balance
      outstanding was $14,000 and the highest outstanding balance was $242,000. We
      expect average outstanding borrowings to increase in the second quarter of
      fiscal 2007.





During
      the first quarter of fiscal 2007, operating activities provided $1,071,000
      of
      cash. Net loss adjusted for non-cash expenses used $219,000 of cash, while
      changes in accounts receivable and customer deposit balances provided $436,000
      of cash. Changes in accounts payable and accrued expenses, inventories and
      other
      assets provided $853,000 of cash. Cash used by investing activities was $80,000
      for property and equipment expenditures, $376,000 for capitalized software
      additions and $5,000 for legal fees related to the filing of applications for
      various patents and trademarks.





WCI’s
      bank loan facility provides a maximum available credit limit of $5,000,000
      subject to availability advance formulas. The loan facility matures on June
      30,
      2007, or upon demand and requires an annual facility fee of .75% of the maximum
      credit limit. The loan facility consists of a term loan and a revolving line
      of
      credit with a combined borrowing limit of $5,000,000, bearing interest at the
      bank’s prime rate (8.25% at December 1, 2006). The bank retained the right to
      adjust the interest rate, subject to financial performance of the
      Company.




The
      term
      loan facility provides for a maximum of $1,000,000 for advances of up to 80%
      of
      the cost of equipment acquisitions. Principal advances are payable monthly
      over
      sixty months with a balloon payment due at maturity. The revolving line of
      credit is subject to availability advance formulas of 80% against eligible
      accounts receivable; 20% of eligible raw materials inventories; 20% of eligible
      work-in-process kit inventories; 40% to 50% of eligible finished goods
      inventories; and 50% of import letter of credit commitment balances. The loan
      is
      secured by a first lien on substantially all of WCI’s assets and guaranteed by
      Wegener Corporation. At December 1, 2006, no balances were outstanding on the
      revolving line of credit or the equipment term loan portions of **** the
      loan
      facility. However, the loan facility is currently being used to support import
      letters of credit issued to offshore manufacturers, which at December 1, 2006
      amounted to $3,188,000. At December 1, 2006, **** approximately
      $659,000, net of outstanding letters of credit, was available to borrow under
      the advance formulas.




20





In
      addition, at December 1, 2006, we had land and buildings and improvements with
      a
      cost basis of $4,454,000 which had no mortgage balances outstanding. Land and
      buildings are not currently used in the existing loan facility’s availability
      advance formulas; however, we believe these assets could be used to support
      additional borrowing capacities either with our existing bank or from other
      sources.





We
      are
      required to maintain a minimum tangible net worth at the end of each fiscal
      2007
      quarter and maintain increased amounts annually at each fiscal year end
      commencing with fiscal year 2008. In addition, we are to retain certain key
      employees, maintain certain financial ratios, and are precluded from paying
      dividends. At December 1, 2006, we were in compliance with the covenants.





We
      have
      two manufacturing and purchasing agreements for certain finished goods
      inventories. At December 1, 2006, outstanding purchase commitments under these
      agreements amounted to $5,457,000. Pursuant to the above agreements, at December
      1, 2006, we had outstanding letters of credit in the amount of $3,188,000.
      In
      addition, at December 1, 2006, we had an outstanding commitment for engineering
      design and software development services in the amount of $36,000.




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 December 1, 2006
      consisted of:




Payments
                  Due by PeriodContractual
                  Obligations
              
              Total
              
              Fiscal
                2007
              
              Fiscal
                2008-2009
              
              Fiscal
                20010-2011Operating
                  leases
              
              $
              101,000
              
              $
              55,000
              
              $
              42,000
              
              $
              4,000Purchase
                  commitments
              
              
              4,633,000
              
              
              4,633,000
              
              
              -
              
              
              -Total
              
              $
              4,734,000
              
              $
              4,688,000
              
              $
              42,000
              
              $
              4,000




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





The
      Company’s exposure to market rate risk for changes in interest rates relates
      primarily to its revolving line of credit and cash equivalents. The interest
      rate on certain advances under the line of credit and term loan facility
      fluctuates with the bank’s prime rate (8.25% at December 1, 2006). There were no
      borrowings outstanding at December 1, 2006 subject to variable interest rate
      fluctuations.





At
      December 1, 2006, cash and cash equivalents consisted of bank commercial paper
      of $1,750,000, bank account balances of $64,000 offset by bank overdrafts,
      consisting of outstanding checks of $245,000.





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





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




The
      Company carried out an evaluation, under the supervision and with the
      participation of the Company’s management, including the Chief Executive Officer
      (CEO) and the Chief Financial Officer (CFO), of the effectiveness of the design
      and operation of the Company’s disclosure controls and procedures as of the end
      of the period covered by this report (December 1, 2006). Based upon that
      evaluation, the Company’s CEO and CFO have concluded that the Company’s
      disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
      of the Securities Exchange Act of 1934, as amended) are effective. There has
      been no change in the Company’s internal control over financial reporting during
      our most recent fiscal quarter that has materially affected, or is reasonably
      likely to materially affect, the Company’s internal control over financial
      reporting.




21





**PART
      II. OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**





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





On
      June 1, 2006, a complaint substantially similar to the above described suit
      was filed by Rembrandt against Time
      Warner Cable (TWC) in the
      United States District Court for the Eastern District of Texas. Wegener
      has not been named a party in the suit, but TWC has requested us (as well as
      other equipment vendors) to contribute 2% of the defense costs related to this
      matter as a result of the products that we and others have sold to TWC. To
      date,
      we have not agreed to contribute to the payment of legal costs related to this
      case. Trial date of this matter is not known at this time. At this point, the
      outcome is uncertain and we are presently unable to assess the impact, if any,
      of this litigation on Wegener.





On
      September 16, 2005, a complaint substantially similar to the foregoing was
      filed by Rembrandt against Comcast Corporation (Comcast) in the United States
      District Court for the Eastern District of Texas. Wegener has not been named
      a
      party in the suit, but we have received a subpoena for documents and a
      deposition related to the products we sold to Comcast. We are complying with
      the
      subpoena.




22




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





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





**Exhibit
                No.**
            
            
            **Description
                of Exhibit**3.1
            *
            
            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)3.2.1
            *
            
            Amendments
                to Article III, Section 3.2 and Article XII of the By-laws of the
                Company,
                effective as of September 29, 2006. (4)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.+(4)
            
            Incorporated
                by reference to the Company’s Current Report on Form 8-K, dated September
                29, 2006, as filed with the Commission on October 3, 2006.++
            
            SEC
                file No. 0-11003




23




SIGNATURES








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




WEGENER
                CORPORATION(Registrant)Date:
                  January 16, 2007
              
              By:
              /s/ Robert
                A. PlacekRobert
                  A. PlacekPresident(Principal Executive
                  Officer)




Date:
                    January 16, 2007
                
                By:
                /s/ C.
                  Troy Woodbury, Jr.C.
                    Troy Woodbury, Jr.
                  Treasurer
                    and Chief
                  Financial
                    Officer
                  (Principal
                    Financial and Accounting
                    Officer)
  24