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

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

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

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 three months ended May 29, 2009 decreased $1,446,000 or 32.9% to $2,947,000 as compared to $4,393,000 for the three months ended May 30, 2008. Revenues for the nine months ended May 29, 2009 decreased $6,304,000 or 39.2% to $9,781,000 as compared to $16,085,000 for the nine months ended May 30, 2008. Operating results for the three and nine month periods ended May 29, 2009, were a net loss of $(883,000) or $(0.07) per share and a net loss of $(2,067,000) or $(0.16) per share, respectively, compared to a net loss of $(775,000) or $(0.06) per share and a net loss of $(489,000) or $(0.04) per share for the same periods ended May 30, 2008.

During the first, second and third quarters of fiscal 2009 bookings were approximately $1.3, $1.7 and $1.1 million, respectively. Our fiscal 2009 bookings to date, as well as our fiscal 2008 bookings, particularly during the fourth quarter of fiscal 2008, were well below our expectations and internal forecast primarily as a result of customer delays in purchasing decisions, deferral of project expenditures, foreign exchange rate fluctuations, particularly with the Mexican peso, and general adverse economic and credit conditions.

Financial Position and Liquidity

Bookings and revenues during the first nine months of fiscal 2009, as well as bookings and revenues subsequent to May 29, 2009, were insufficient to provide adequate levels of cash flow from operations or adequate levels of collateral to support our estimates of required borrowings during the remainder of fiscal 2009 and into fiscal 2010. In addition, during the second quarter of fiscal 2009, our bank notified WCI of its intent not to renew our loan facility when it matures on September 30, 2009. As a result, we need to raise additional capital or obtain additional credit facilities during fiscal 2009 to continue as a going concern and to execute our business plan.

At May 29, 2009, we had line of credit borrowings outstanding of $3,335,000. Our bank loan facility is subject to availability advance formulas based on eligible accounts receivable, import letter of credit commitment balances and inventories. During the third quarter of fiscal 2009 the bank informally capped the loan facility at $4,000,000. At May 29, 2009, approximately $197,000 remained available to borrow under the advance formulas. At May 29, 2009, no letters of credit were outstanding. At June 26, 2009, approximately $185,000 was available to borrow under the advance formulas.

During the first nine months of fiscal 2009, our line of credit net outstanding borrowings increased $1,452,000 to $3,335,000 at May 29, 2009, from $1,883,000 at August 29, 2008. Operating activities used $642,000 of cash and investing activities used $804,000 of cash, which consisted of capitalized software additions of $785,000, equipment additions of $2,000, and $17,000 for legal fees related to the filing of applications for various patents and trademarks.

(See the Liquidity and Capital Resources section on page 21 for further discussion.)

RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED MAY 29, 2009 COMPARED TO THREE AND NINE MONTHS ENDED
MAY 30, 2008

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

                                          Three months ended            Nine months ended
                                        May 29,        May 30,        May 29,       May 30,
                                         2009            2008          2009           2008
Revenues                                   100.0 %        100.0 %        100.0 %       100.0 %
Cost of products sold                       70.2           63.6           68.9          61.4
Gross margin                                29.8           36.4           31.1          38.6
Selling, general, and administrative        41.3           33.6           34.9          25.8
Research & development                      17.4           19.5           16.3          15.1
Operating loss                             (28.9 )        (16.7 )        (20.1 )        (2.3 )
Interest expense                            (1.0 )         (0.9 )         (1.0 )        (0.7 )
Net loss                                   (29.9 )%       (17.6 )%       (21.1 )%       (3.0 )%

The operating results for the three and nine month periods ended May 29, 2009, were a net loss of $(883,000) or $(0.07) per share and a net loss of $(2,067,000) or $(0.16) per share, respectively, compared to a net loss of $(775,000) or $(0.06) per share and a net loss of $(489,000) or $(0.04) per share for the same periods ended May 30, 2008.

Revenues - Revenues for the three months ended May 29, 2009 decreased $1,446,000 or 32.9% to $2,947,000 as compared to $4,393,000 for the three months ended May 30, 2008. Revenues for the nine months ended May 29, 2009 decreased $6,304,000 or 39.2% to $9,781,000 as compared to $16,085,000 for the nine months ended May 30, 2008.

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

Direct Broadcast Satellite (DBS) revenues (including service revenues) decreased $1,452,000 or 33.1% in the third quarter of fiscal 2009 to $2,937,000 compared to $4,389,000 in the same period of fiscal 2008. For the nine months ended May 29, 2009, DBS revenues decreased $6,303,000 or 39.2% to $9,762,000 compared to $16,065,000 for the nine months ended May 30, 2008. Fiscal 2009 third quarter and first nine months revenues included SpoTTrac® and NAVE IIc® encoders used to encode Nielsen Media Research identification tags into media for Nielsen program ratings; iPump® 6420 media servers and Compel® network control software for Comtelsat De Mexico's network expansion; continued shipments of our new Encompass LE2, our next generation business music audio receiver, to business music provider, Muzak LLC. and shipments to MegaHertz for distribution of our products to the U.S. cable market. In addition, revenues for the first nine months of fiscal 2009 included iPump® 6420 media servers and Compel® network control software for Dial Global's network expansion. The third quarter of fiscal 2008 included revenues from partial shipments of our SMD 515 IPTV set top box to Conklin-Intracom for use in providing premium IPTV services by telco operators in North America and shipments of our iPump® 562 enterprise media server to Satellite Store Link (SSL) for expansion of SSL's digital signage projects in Latin America In addition, the first nine months of fiscal 2008 benefited from completion of shipments of our Unity® 4600 to the Big Ten Network, a new cable network distributed by Fox Cable Networks.

For the three months ended May 29, 2009, four customers accounted for 18.2%, 17.0%, 12.9% and 11.6% of revenues, respectively. For the nine months ended May 29, 2009, three of these customers accounted for 14.3%, 10.8% and 10.3% of revenues, respectively and one other customer accounted for 26.7% of revenues. For the three months ended May 30, 2008, four customers accounted for 28.4%, 16.6%, 15.2% and 13.3% of revenues, respectively. For the nine months ended May 30, 2008, two of these customers accounted for 14.6% and 12.1% of revenues, respectively and two other customers accounted for 19.2% and 10.1% of revenues, respectively. Sales to a relatively small number of major customers have typically comprised a majority of our revenues and that trend is expected to continue throughout the remainder of fiscal 2009 and beyond.

Concentrations of revenue are likely to occur in any one or more of our products in any of our reporting periods. Product revenues are subject to fluctuations from quarter to quarter and year to year as new products and technologies are introduced, new product features and enhancements are added and as customers upgrade or expand their network operations (See note 12). Our backlog is comprised of undelivered, firm customer orders, which are scheduled to ship within 18 months. WCI's backlog was approximately $5.0 million at May 29, 2009, compared to $8.5 million at August 29, 2008, and $8.2 million at May 30, 2008. Four customers accounted for 62.4%, 14.5%, 5.5% and 4.0%, respectively, of the backlog at May 29, 2009. The total multi-year backlog at May 29, 2009, was approximately $8.2 million compared to $13.3 million at August 29, 2008 and $13.6 million at May 30, 2008.

Gross Profit Margins - The Company's gross profit margin percentages were 29.8% and 31.1% for the three and nine months ended May 29, 2009, compared to 36.4% and 38.6% for the same periods ended May 30, 2008. Gross profit margin dollars decreased $720,000 or 45.0% and $3,163,000 or 51.0% for the three and nine month periods ended May 29, 2009, respectively, compared to the same periods ended May 30, 2008. The decreases in margin percentages and dollars for the three and nine months ended May 29, 2009 were mainly due to the decrease in revenues which resulted in higher unit fixed costs. Profit margins in the three and nine month periods of fiscal 2009 included capitalized software amortization expense of $237,000 and $738,000, respectively, compared to $310,000 and $930,000 for the same periods of fiscal 2008. Inventory reserve charges were $100,000 and $330,000 in the three and nine month periods of fiscal 2009, respectively, compared to none in the same periods of fiscal 2008. Severance costs included in three and nine month periods ended May 29, 2009, were $71,000 and $82,000, respectively. Profit margins in the nine month period of fiscal 2009 were favorably impacted by a reversal of an accrued warranty liability of $130,000 for previously estimated warranty provisions that were no longer required. Profit margins in the three and nine month periods of fiscal 2008 included a reversal of an accrued warranty liability of $210,000 for previously estimated warranty provisions that were no longer required. Warranty provision expenses were $50,000 in the three and nine month periods of fiscal 2008 compared to none in the same periods in fiscal 2009.

Selling, General and Administrative - Selling, general and administrative (SG&A) expenses decreased $257,000 or 17.4% to $1,218,000 for the three months ended May 29, 2009, compared to $1,475,000 for the same period of fiscal 2008. For the nine months ended May 29, 2009, SG&A expenses decreased $730,000 or 17.6% to $3,414,000 compared to $4,144,000 for the same period of fiscal 2008. Corporate SG&A expenses in the third quarter of fiscal 2009 decreased $8,000, or 2.5%, to $327,000 compared to $335,000 for the same period in fiscal 2008. For the nine months ended May 29, 2009, corporate SG&A expenses decreased $65,000, or 7.9%, to $762,000 compared to $827,000 in the same period in fiscal 2008. The corporate SG&A decrease for the nine months was mainly due to lower professional fees and director compensation. Director compensation expense included $8,000 of noncash share-based compensation expense in the nine months ended May 30, 2008, compared to none in the same period of fiscal 2009. WCI's SG&A expenses decreased $249,000, or 21.8%, to $891,000 from $1,140,000 and $665,000, or 20.0%, to $2,652,000 from $3,317,000 for the three and nine months ended May 29, 2009, compared to the same periods in fiscal 2008. The decrease in WCI's SG&A expenses for the three months ended May 29, 2009 was mainly due to decreases in salaries of $74,000, sales and marketing expenses of $95,000, general overhead costs of $41,000 and in-house commission expenses of $39,000. The decrease in WCI's SG&A expenses for the nine months ended May 29, 2009 was mainly due to decreases in salaries of $110,000, sales and marketing expenses of $212,000, general overhead costs of $190,000, in-house commission expenses of $118,000 and bad debt provisions of $35,000. The salary expense decreases in the three and nine month periods were offset by increased severance costs of $49,000 and $62,000, respectively. As a percentage of revenues, SG&A expenses were 41.3% and 34.9% for the three and nine month periods ended May 29, 2009, respectively, compared to 33.6% and 25.8% for the same periods in fiscal 2008.

Research and Development - Research and development (R&D) expenditures, including capitalized software development costs, were $760,000 or 25.8% of revenues, and $2,379,000 or 24.3% of revenues, for the three and nine month periods ended May 29, 2009, compared to $1,184,000 or 27.0% of revenues, and $3,307,000 or 20.6% of revenues, for the same periods of fiscal 2008. The decreases in expenditures in the three and nine months ended May 29, 2009, compared to the same periods of fiscal 2008, were mainly due to lower salaries, as a result of reduced head count and a reduction in Company-wide paid working hours, and lower consulting costs. The salary expense decreases in the three and nine month periods were offset by increased severance costs of $68,000. Capitalized software development costs amounted to $246,000 and $785,000 for the third quarter and first nine months of fiscal 2009 compared to $325,000 and $869,000 for the same periods of fiscal 2008. The decreases in capitalized software costs were related to completed projects and reductions in headcount and consulting costs. Research and development expenses, excluding capitalized software expenditures, were $514,000 or 17.4% of revenues, and $1,594,000 or 16.3% of revenues, for the three and nine months ended May 29, 2009, respectively, compared to $859,000 or 19.6% of revenues, and $2,438,000 or 15.2% of revenues, for the same periods of fiscal 2008. The decreases in expenses in the three and nine month periods of fiscal 2009 compared to the same periods in fiscal 2008 were due to the decrease in salaries and consulting costs discussed above.

Interest Expense - Interest expense decreased $11,000 to $30,000 for the three months ended May 29, 2009, compared to $41,000 for the three months ended May 30, 2008. For the nine months ended May 29, 2009, interest expense decreased $13,000 to $100,000 compared to $113,000 for the same period in fiscal 2008. For the three and nine months ended May 29, 2009, interest expense was favorably impacted by a lower average bank prime rate which was offset by an increase in the average outstanding line-of-credit balance.

Income Tax Expenses - For the nine months ended May 29, 2009, no income tax benefit was recorded due to an increase in the deferred tax asset valuation allowance. The valuation allowance increased $744,000 in the first nine months of fiscal 2009. At May 29, 2009, net deferred tax assets of $6,622,000 were fully reserved by a valuation allowance. At May 29, 2009, we had a federal net operating loss carryforward of approximately $11,389,000, which expires beginning fiscal 2020 through fiscal 2028. Additionally, we had an alternative minimum tax credit of $134,000 and state income tax credits of $199,000 expiring in fiscal 2009, both of which were fully offset by the valuation allowance.

LIQUIDITY AND CAPITAL RESOURCES
NINE MONTHS ENDED MAY 29, 2009

Our fiscal 2009 bookings in the first nine months of $4.1 million, as well as our fiscal 2008 bookings, particularly during the fourth quarter of fiscal 2008, were well below our expectations primarily as a result of customer delays in purchasing decisions, deferral of project expenditures, foreign exchange rate fluctuations, particularly with the Mexican peso, and general adverse economic and credit conditions. WCI's backlog scheduled to ship within eighteen months was approximately $5.0 million at May 29, 2009, compared to $8.5 million at August 29, 2008, and $8.2 million at May 30, 2008. The total multi-year backlog at May 29, 2009, was approximately $8.2 million, compared to $13.3 million at August 29, 2008 and $13.6 million at May 30, 2008. Approximately $1.1 million of the May 29, 2009 backlog is scheduled to ship during the remainder of fiscal 2009.

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

At May 29, 2009, our net inventory balances were $5,335,000 compared to $6,295,000 at August 29, 2008, and $3,380,000 at August 31, 2007. The increase in inventories during fiscal 2008 was primarily due to our new product introductions of the iPump® 562 Enterprise Media Server, the Unity® 552 receiver and the Encompass-LE2 audio receiver. In addition, inventory levels were increased for the iPump® 6400 Media Server and Nielsen Media Research products. These inventory purchases were made based on existing orders and expected future bookings.

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

During the third quarter, we retained a second financial advisor to assist us in a possible refinancing of our debt and our continuing efforts to raise capital and explore possible strategic opportunities. Should adequate capital or financing not be available, and should increased revenues not materialize, we are committed to further reducing operating costs to bring them in line with reduced revenue levels. No assurances can be given that operating costs can be sufficiently reduced to allow us to continue as a going concern. If we are unable to continue as a going concern, we will likely be forced to seek protection under the federal bankruptcy laws.

During the second quarter of fiscal 2009, our bank notified WCI of its intent not to renew our loan facility upon maturity (see Note 9 to the Consolidated Financial Statements). As a result, we need to raise additional capital or obtain additional credit facilities during fiscal 2009 to continue as a going concern and to execute our business plan. Although we are in discussions with potential financing sources, there is no assurance that such financing will be available or, if available, that we will be able to complete financing on satisfactory terms. Our ability to continue as a going concern will depend upon our ability to obtain additional capital or financing in the very short term and subsequently to increase our bookings and revenues in the longer term to attain profitable operations.

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

Financing Agreements

At May 29, 2009, our primary source of liquidity was a $5,000,000 bank loan facility, which is subject to availability advance formulas based on eligible accounts receivable, import letter of credit commitment balances and inventories. During the third quarter of fiscal 2009 the bank informally capped the loan facility at $4,000,000. The loan facility consists of a term loan and a revolving line of credit with a combined borrowing limit of $5,000,000, bearing interest at the bank's prime rate (3.25% at May 29, 2009). The bank retained the right to adjust the interest rate, subject to the financial performance of the Company. The loan facility matures on September 30, 2009, or upon demand, and requires an annual facility fee of 2% of the maximum credit limit. During the second quarter of fiscal 2009, the bank notified WCI of its intent not to renew the loan facility upon maturity. Although we are in discussions with potential financing sources, there is no assurance that such financing will be available or, if available, that we will be able to complete financing on satisfactory terms.

During the first nine months of fiscal 2009, our line of credit net outstanding borrowings increased $1,452,000 to $3,335,000 at May 29, 2009, from $1,883,000 at August 29, 2008. During the first nine months of fiscal 2009, the average daily balance outstanding was $3,441,000 and the highest outstanding balance was $4,077,000. At May 29, 2009, approximately $197,000 was available to borrow under the advance formulas. At June 26, 2009, approximately $185,000 was available to borrow under the advance formulas.

The term loan facility provides for a maximum of $1,000,000 for advances of up to 80% of the cost of equipment acquisitions. Principal advances are payable monthly over 60 months with a balloon payment due at maturity. The revolving line of credit is subject to availability advance formulas of 80% against eligible accounts receivable; 20% of eligible raw materials inventories; 20% of eligible work-in-process kit inventories; and 40% to 50% of eligible finished goods inventories and 50% of import letter of credit commitment balances. In addition, the facility provides for advances in excess of the availability formulas of up to $1,000,000 during the term of the facility. The loan is secured by a first lien on substantially all of WCI's assets, including land and buildings, and is guaranteed by Wegener Corporation. At May 29, 2009, no borrowings were outstanding under the equipment term loan portions of the loan facility. The loan facility is also used to support import letters of credit issued to offshore manufacturers. At May 29, 2009, no letters of credit were outstanding.

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

At May 29, 2009, we had land and buildings with a cost basis of $4,457,000 (including land held for sale of $354,000). Although land and buildings are subject to a lien under the loan facility, they are not currently used in the existing loan facility's availability advance formulas and have no mortgage balances outstanding. We are pursuing ways to utilize these assets to support additional overall borrowing capacities. During the third quarter of fiscal 2007, the Company's Board of Directors authorized and approved the listing for sale of the 4.4 acres of undeveloped land located adjacent to the Company's headquarters facility in Johns Creek, Georgia (see note 5 to the consolidated financial statements). On November 26, 2008, we executed a contract to sell the . . .