This information should be read in conjunction with the consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report and the audited consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations for the year ended August 29, 2008 contained in the Company's 2008 Annual Report on Form 10-K.

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

These risks are exacerbated by the recent crisis in national and international financial markets and global economic downturn, and we are unable to predict with certainty what long-term effects these developments will continue to have on our Company. During 2008, the capital and credit markets experienced extended volatility and disruption. In the last 90 days, the volatility and disruption reached unprecedented levels. We believe that these unprecedented developments have adversely affected our business, financial condition and results of operations in the first quarter of fiscal 2009.

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 an international provider of digital solutions for video, audio and IP data networks. Applications include IP data delivery, broadcast television, cable television, radio networks, business television, distance education, business music and financial information distribution. COMPEL†, our network control system, provides network flexibility to regionalize programming, commercials and file transfers.

Revenues for the first quarter of fiscal 2009 decreased $2,703,000, or 53.8%, to $2,323,000 from $5,026,000 for the same period in fiscal 2008. The operating results for the three month period ended November 28, 2008, were a net loss of $(1,193,000) or $(0.09) per share, compared to a net loss of $(51,000) or less than $(0.01) per share, for the three month period ended November 30, 2007. During the first quarter of fiscal 2009, bookings, consisting primarily of add-on orders from existing customers, were approximately $1.3 million. Our fiscal 2009 bookings to date, as well as our fiscal 2008 bookings, particularly during the fourth quarter of fiscal 2008, were below our expectations and internal forecast primarily as a result of customer delays in purchasing decisions, deferral of project expenditures, foreign exchange rate fluctuations, particularly with the Mexican peso, and general adverse economic and credit conditions.

Fiscal 2009 first quarter bookings and revenues, as well as bookings and revenues subsequent to November 28, 2008, were insufficient to provide adequate levels of cash flow from operations or adequate levels of collateral to support required borrowings during fiscal 2009. In addition, subsequent to November 28, 2008, our bank notified WCI of its intent not to renew our loan facility when it matures on September 30, 2009. As a result, we need to raise additional capital or obtain additional credit facilities during fiscal 2009 to continue as a going concern and to execute our business plan.

At November 28, 2008, we had line of credit borrowings outstanding of $3,314,000. Our $5,000,000 bank loan facility is subject to availability advance formulas based on eligible accounts receivable, import letter of credit commitment balances and inventories. At November 28, 2008, approximately $462,000 remained available to borrow under the advance formulas. At November 28, 2008, no letters of credit were outstanding.

During the first three months of fiscal 2009, our line of credit net outstanding borrowings increased $1,431,000 to $3,314,000 at November 28, 2008, from $1,883,000 at August 29, 2008. Operating activities used $1,169,000 of cash and investing activities used $260,000 of cash, which consisted of capitalized software additions of $254,000 and legal fees related to the filing of applications for various patents and trademarks of $6,000.

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

RESULTS OF OPERATIONS

THREE MONTHS ENDED NOVEMBER 28, 2008 COMPARED TO THREE MONTHS ENDED NOVEMBER 30,
2007

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)
                                            November 28,          November 30,
                                                2008                  2007
     Revenue                                        100.0 %               100.0 %
     Cost of products sold                           73.1                  58.9
     Gross margin                                    26.9                  41.1
     Selling, general, and administrative            50.4                  25.1
     Research & development                          26.2                  16.1
     Operating loss                                 (49.7 )                 (.1 )
     Interest expense                                (1.7 )                 (.8 )
     Net loss                                       (51.4 )%               (0.9 )%

The operating results for the three month period ended November 28, 2008, were a net loss of $(1,193,000) or $(0.09) per share, compared to a net loss of $(51,000) or less than $(0.01) per share for the three month period ended November 30, 2007.

Revenues - Revenues for the first quarter of fiscal 2009 decreased $2,703,000, or 53.8%, to $2,323,000 from $5,026,000 for the same period in fiscal 2008.

Direct Broadcast Satellite (DBS) revenues (including service revenues) decreased $2,701,000, or 53.9%, in the first quarter of fiscal 2009 to $2,313,000 from $5,014,000 for the same period in fiscal 2008. First quarter revenues were adversely affected by lower than expected shippable bookings as discussed above. First quarter revenues included iPump® 6420 media servers and Compel® network control software for Dial Global's network expansion, continued shipments of our new Encompass LE2, our next generation business music audio receiver, to business music provider, Muzak LLC., and shipments to MegaHertz for distribution of our products to the U.S. cable market.

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 November 28, 2008, three customers accounted for 23.1%, 17.0% and 13.5% of revenues, respectively. For the three months ended November 30, 2007, three customers accounted for 19.6%, 19.2% and 13.8% of revenues, respectively. Sales to a relatively small number of major customers have typically comprised a majority of our revenues and that trend is expected to continue throughout fiscal 2009 and beyond.

Gross Profit Margins - The Company's gross profit margin percentages were 26.9% for the three month period ended November 28, 2008, compared to 41.1% for the three month period ended November 30, 2007. Gross profit margin dollars decreased $1,439,000 for the three month period ended November 28, 2008 compared to the same period ended November 30, 2007. The decreases in margin percentages and dollars were mainly due to the decrease in revenues.

Selling, General and Administrative - Selling, general and administrative (SG&A) expenses decreased $94,000, or 7.4%, to $1,170,000 in the first quarter of fiscal 2009 from $1,264,000 in the first quarter of fiscal 2008. Corporate SG&A expenses in the first quarter of fiscal 2009 increased $42,000, or 19.9%, to $254,000 from $212,000 in same period of fiscal 2008, mainly due to an increase in professional fees. WCI's SG&A expenses decreased $136,000, or 12.9%, to $916,000 in the first quarter of fiscal 2009 from $1,052,000 in same period of fiscal 2008. The decrease in WCI's SG&A expenses in the first quarter of fiscal 2009 was mainly due to decreases in (i) sales and marketing expenses of $65,000,
(ii) in-house commissions of $45,000, (iii) employee placement fees and related training of $22,000, and (iv) allowance for bad debts of $15,000. As a percentage of revenues, SG&A expenses were 50.4% for the three month period ended November 28, 2008, compared to 25.1% for the same period ended November 30, 2007.

Research and Development - Research and development expenditures, including capitalized software development costs, were $863,000 or 37.1% of revenues in the first quarter of fiscal 2009, compared to $1,002,000 or 19.9% of revenues for the same period of fiscal 2008. The decrease in expenditures in the first quarter of fiscal 2009 compared to the same period of fiscal 2008 was mainly due to lower consulting costs and recruiting costs related to new hires. Capitalized software development costs amounted to $254,000 in the first quarter of fiscal 2009 compared to $193,000 in the first quarter of fiscal 2008. The increase in capitalized software costs was related to Compel® network control projects. Research and development expenses, excluding capitalized software development costs, were $609,000 or 26.2% of revenues in the first quarter of fiscal 2009 compared to $809,000 or 16.1% of revenues in the same period of fiscal 2008. The increase in expenses in the first quarter of fiscal 2009 was due to the decrease in consulting costs and increase in capitalized software costs.

Interest Expense - Interest expense decreased $3,000 to $39,000 in the first quarter of fiscal 2009 from $42,000 in the same period in fiscal 2008. The decrease was primarily due to a lower average bank prime rate which was offset by an increase in the average outstanding line of credit balance.

Income Tax Expense - For the three months ended November 28, 2008, no income tax benefit was recorded due to an increase in the deferred tax asset valuation allowance. The valuation allowance increased $430,000 in the first quarter of fiscal 2009. At November 28, 2008, net deferred tax assets of $6,308,000 were fully reserved by a valuation allowance. At November 28, 2008, we had a federal net operating loss carryforward of approximately $10,815,000, which expires beginning fiscal 2020 through fiscal 2028. Additionally, we had an alternative minimum tax credit of $134,000 and state income tax credits of $199,000 expiring in fiscal 2009, both of which were fully offset by the valuation allowance.

LIQUIDITY AND CAPITAL RESOURCES

THREE MONTHS ENDED NOVEMBER 28, 2008

At November 28, 2008, our net inventory balances were $6,397,000 compared to $6,295,000 at August 29, 2008, and $3,380,000 at August 31, 2007. The increase in inventories during fiscal 2008 was primarily due to our new fiscal 2008 product introductions of the iPump® 562 Enterprise Media Server, the Unity® 552 receiver and the Encompass-LE2 audio receiver. In addition, inventory levels were increased for the iPump® 6400 Media Server and Nielsen Media Research products. At November 28, 2008, outstanding inventory purchase commitments amounted to $1,879,000. These inventory purchases and purchase commitments were made based on existing orders and expected future bookings.

Subsequent to November 28, 2008, our bank notified WCI of its intent not to renew our loan facility when it matures on September 30, 2009 (see Financing Agreements below). In addition, significant fiscal 2009 shippable bookings are currently required to meet our financial projections in the second quarter of fiscal 2009 and for each subsequent quarter. Bookings and revenues to date have been insufficient to provide adequate levels of cash flow from operations or adequate levels of collateral to support required borrowings during fiscal 2009. As a result, we need to raise additional capital or obtain additional credit facilities during fiscal 2009 to continue as a going concern and to execute our business plan. Although we are in discussions with potential financing sources, there is no assurance that such financing will be available or, if available, that we will be able to complete financing on satisfactory terms. Our ability to continue as a going concern will depend upon our ability to obtain additional capital or financing in the very short term and subsequently to increase our bookings and revenues in the longer term to attain profitable operations. During the fourth quarter of fiscal 2008 and first quarter of fiscal 2009, we made reductions in headcount to bring the current number of employees to 84, and reduced engineering consulting and other overhead expenses. Beginning in January 2009, we will reduce Company wide paid working hours by approximately 10%. Should adequate capital or financing not be available, and should increased revenues not materialize, we are committed to further reducing operating costs to bring them in line with reduced revenue levels. No assurances can be given that operating costs can be sufficiently reduced to allow us to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern. The audit report relating to the consolidated financial statements for the year ended August 29, 2008, contains an explanatory paragraph regarding the Company's ability to continue as a going concern.

Financing Agreements

At November 28, 2008, our primary source of liquidity was a $5,000,000 bank loan facility, which is subject to availability advance formulas based on eligible accounts receivable, import letter of credit commitment balances and inventories. The loan facility consists of a term loan and a revolving line of credit with a combined borrowing limit of $5,000,000, bearing interest at the bank's prime rate (4.0% at November 28, 2008). The bank retained the right to adjust the interest rate, subject to the financial performance of the Company. The loan facility matures on September 30, 2009, or upon demand, and requires an annual facility fee of 2% of the maximum credit limit. Subsequent to November 28, 2008, the bank notified WCI of its intent not to renew the loan facility upon maturity. Although we are in discussions with potential financing sources, there is no assurance that such financing will be available or, if available, that we will be able to complete financing on satisfactory terms.

During the first three months of fiscal 2009, our line of credit net outstanding borrowings increased $1,431,000 to $3,314,000 at November 28, 2008 from $1,883,000 at August 29, 2008. During the first quarter of fiscal 2009, the average daily balance outstanding was $3,262,000 and the highest outstanding balance was $3,694,000. At November 28, 2008, approximately $462,000 remained available to borrow under the advance formulas.

The term loan facility provides for a maximum of $1,000,000 for advances of up to 80% of the cost of equipment acquisitions. Principal advances are payable monthly over 60 months with a balloon payment due at maturity. The revolving line of credit is subject to availability advance formulas of 80% against eligible accounts receivable; 20% of eligible raw materials inventories; 20% of eligible work-in-process kit inventories; 40% to 50% of eligible finished goods inventories and 50% of import letter of credit commitment balances. In addition, the facility provides for advances in excess of the availability formulas of up to $1,000,000 during the term of the facility. The loan is secured by a first lien on substantially all of WCI's assets, including land and buildings, and is guaranteed by Wegener Corporation. At November 28, 2008, no borrowings were outstanding under the equipment term loan portions of the loan facility. The loan facility is also used to support import letters of credit issued to offshore manufacturers. At November 28, 2008, no letters of credit were outstanding.

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

Cash Flows

During the first quarter of fiscal 2009, operating activities used $1,169,000 of cash. Net loss adjusted for expense provisions and depreciation and amortization (before working capital changes) used cash of $796,000, while changes in accounts receivable and customer deposit balances provided $979,000 of cash. Changes in accounts payable and accrued expenses, inventories, deferred revenue and other assets used $1,352,000 of cash. Cash used by investing activities was $260,000, which consisted of capitalized software additions of $254,000 and legal fees related to the filing of applications for various patents and trademarks of $6,000. Financing activities provided $1,431,000 of cash from net line of credit borrowings.

Contractual Obligations

We have two manufacturing and purchasing agreements for certain finished goods
inventories. At November 28, 2008, outstanding purchase commitments under these
agreements amounted to $1,879,000.

The Company's long-term contractual obligations as of November 28,
2008 consisted of:


                                                Payments Due by Period
                                                Fiscal          Fiscal          Fiscal
    Contractual Obligations      Total           2009          2010-2011       2012-2013

    Operating leases          $   147,000     $   123,000     $    24,000     $         -

    Bank line of credit         3,314,000       3,314,000               -               -

    Purchase commitments        1,879,000       1,879,000               -               -

    Total                     $ 5,340,000     $ 5,316,000     $    24,000     $         -

CRITICAL ACCOUNTING POLICIES

Certain accounting policies are very important to the portrayal of our financial condition and results of operations and require management's most subjective or difficult judgments. 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." 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 November 28, 2008, deferred extended service maintenance revenues were $524,000, and deferred revenues related to future performance obligations were $21,000 and are expected to be recognized as revenue in varying amounts throughout fiscal 2009 and into fiscal 2010. We recognize revenue in certain circumstances before delivery has occurred (commonly referred to as "bill and hold" transactions). In such circumstances, among other things, risk of ownership has passed to the buyer, the buyer has made a written fixed commitment to purchase the finished goods, the buyer has requested the finished goods to be held for future delivery as scheduled and designated by the buyer, 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 November 28, 2008, revenues in the amount of $96,000 were recorded as bill and hold transactions.

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 November 28, 2008, inventories, net of reserve provisions, amounted to $6,397,000.

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 November 28, 2008, capitalized software . . .