0001144204-08-039321.txt : 20080710 0001144204-08-039321.hdr.sgml : 20080710 20080710113442 ACCESSION NUMBER: 0001144204-08-039321 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20080530 FILED AS OF DATE: 20080710 DATE AS OF CHANGE: 20080710 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEGENER CORP CENTRAL INDEX KEY: 0000715073 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 810371341 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11003 FILM NUMBER: 08946437 BUSINESS ADDRESS: STREET 1: 11350 TECHNOLOGY CIRCLE CITY: DULUTH STATE: GA ZIP: 30136-1528 BUSINESS PHONE: 4046230096 MAIL ADDRESS: STREET 1: 11350 TECHNOLOGY CIRCLE CITY: DULUTH STATE: GA ZIP: 30136-1528 FORMER COMPANY: FORMER CONFORMED NAME: TELECRAFTER CORP DATE OF NAME CHANGE: 19890718 10-Q 1 v119473_10q.htm

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 May 30, 2008

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		(I.R.S. Employer
of incorporation or organization)		Identification No.)

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

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer o

Non-accelerated filer o	Smaller reporting company x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes 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		12,647,051 Shares
Class		Outstanding at June 30, 2008

WEGENER CORPORATION

Form 10-Q For the Quarter Ended May 30, 2008

INDEX

PART I. Financial Information

Item 1.	Financial Statements

	Introduction	3

	Consolidated Statements of Operations
	(Unaudited) - Three and Nine Months Ended
	May 30, 2008 and June 1, 2007	4

	Consolidated Balance Sheets - May 30,
	2008 (Unaudited) and August 31, 2007	5

	Consolidated Statements of Shareholders' Equity
	(Unaudited) - Nine Months Ended May 30,
	2008 and June 1, 2007	6

	Consolidated Statements of Cash Flows
	(Unaudited) - Nine Months Ended May 30,
	2008 and June 1, 2007	7

	Notes to Consolidated Financial
	Statements (Unaudited)	8

Item 2.	Management's Discussion and Analysis of Financial
	Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24

Item 4.	Controls and Procedures	24
Item 4T.	Controls and Procedures	24

PART II. Other Information

Item 6.	Exhibits	25
	Signatures	26

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INTRODUCTION - CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements of Wegener™Corporation (the “Company”, “we”, “our” or “us”) included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. The consolidated balance sheet as of May 30, 2008; the consolidated statements of shareholders' equity as of May 30, 2008, and June 1, 2007; the consolidated statements of operations for the three and nine months ended May 30, 2008, and June 1, 2007; and the consolidated statements of cash flows for the nine months ended May 30, 2008, and June 1, 2007; have been prepared without audit. The consolidated balance sheet as of August 31, 2007, has been audited by independent registered public accountants. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures herein are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2007, File No. 0-11003.

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

WEGENER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three months ended						Nine months ended
	May 30, 2008			June 1, 2007			May 30, 2008			June 1, 2007
Revenue, net	$	4,392,919		$	6,247,080		$	16,085,268		$	15,801,222

Operating costs and expenses
Cost of products sold		2,794,068			3,975,135			9,882,172			10,402,187
Selling, general and administrative		1,475,383			1,274,377			4,144,125			3,910,969
Research and development		859,114			707,445			2,437,697			2,301,613

Operating costs and expenses		5,128,565			5,956,957			16,463,994			16,614,769

Operating (loss) income		(735,646	)		290,123			(378,726	)		(813,547	)
Interest expense		(40,684	)		(39,923	)		(112,526	)		(90,448	)
Other income		1,206			502			1,946			9,473

Net (loss ) earnings	$	(775,124	)	$	250,702		$	(489,306	)	$	(894,522	)

Net (loss) earnings per share:
Basic	$	(0.06	)	$	0.02		$	(0.04	)	$	(0.07	)
Diluted	$	(0.06	)	$	0.02		$	(0.04	)	$	(0.07	)

Shares used in per share calculation
Basic		12,647,051			12,647,051			12,647,051			12,602,992
Diluted		12,647,051			12,691,220			12,647,051			12,602,992

See accompanying notes to consolidated financial statements.

WEGENER CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	May 30, 2008 (Unaudited)			August 31, 2007
Assets
Current assets
Cash and cash equivalents	$	6,757		$	6,728
Accounts receivable, net		3,467,734			5,172,348
Inventories, net		5,725,400			3,380,410
Other		307,892			194,847

Total current assets		9,507,783			8,754,333

Property and equipment, net		1,782,376			1,777,677
Capitalized software costs, net		1,181,007			1,241,577
Other assets		550,674			684,238
Land held for sale		353,712			353,712

Total assets	$	13,375,552		$	12,811,537

Liabilities and Shareholders’ Equity

Current liabilities
Bank line of credit	$	2,001,528		$	2,015,704
Accounts payable		2,549,570			1,145,327
Accrued expenses		1,924,868			2,609,222
Deferred revenue		2,050,961			774,183
Customer deposits		933,823			1,870,673

Total current liabilities		9,460,750			8,415,109

Commitments and contingencies		-			-

Shareholders’ equity
Common stock, $.01 par value; 20,000,000 shares authorized; 12,647,051 and 12,647,051 shares issued and outstanding, respectively		126,471			126,471
Additional paid-in capital		20,006,702			19,999,022
Deficit		(16,218,371	)		(15,729,065	)

Total shareholders’ equity		3,914,802			4,396,428

Total liabilities and shareholders’ equity	$	13,375,552		$	12,811,537

See accompanying notes to consolidated financial statements.

WEGENER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

					Additional
	Common Stock				Paid-in
	Shares		Amount		Capital		Deficit
Balance at September 1, 2006		12,579,051	$	125,791	$	19,924,915	$	(14,976,303	)

Share-based compensation expense		-		-		17,667		-
Common stock issued through stock options		68,000		680		56,440		-
Net loss for the nine months		-		-		-		(894,522	)
BALANCE at June 1, 2007		12,647,051	$	126,471	$	19,999,022	$	(15,870,825	)

Balance at August 31, 2007		12,647,051	$	126,471	$	19,999,022	$	(15,729,065	)

Share-based compensation expense		-		-		7,680		-
Net loss for the nine months		-		-		-		(489,306	)
BALANCE at May 30, 2008		12,647,051	$	126,471	$	20,006,702	$	(16,218,371	)

See accompanying notes to consolidated financial statements.

WEGENER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine months ended
	May 30, 2008			June 1, 2007
Cash flows from operating activities
Net loss	$	(489,306	)	$	(894,522	)
Adjustments to reconcile net loss to cash provided (used) by operating activities
Depreciation and amortization		1,405,726			1,772,258
Share-based compensation expense		7,680			17,667
Provision for bad debts		35,000			(50,000	)
Provision for inventory reserves		-			250,000
Provision for warranty reserves		(160,000	)		150,000
Changes in assets and liabilities		1,669,614			(2,463,368	)
Accounts receivable
Inventories		(2,344,990	)		(590,173	)
Other assets		(113,046	)		104,542
Accounts payable		1,404,244			407,922
Accrued expenses		(524,354	)		234,740
Deferred revenue		1,276,778			(284,397	)
Customer deposits		(936,852	)		(213,794	)

Net cash provided (used) by operating activities		1,230,494			(1,559,125	)

Cash flows from investment activities
Property and equipment expenditures		(311,203	)		(169,470	)
Capitalized software additions		(869,490	)		(1,157,567	)
License agreement, patent, and trademark, expenditures		(35,596	)		(152,739	)

Net cash used for investing activities		(1,216,289	)		(1,479,776	)

Cash flows from financing activities
Net change in revolving line of credit		(14,176	)		2,041,563
Proceeds from stock options exercised		-			57,120

Net cash (used) provided by financing activities		(14,176	)		2,098,683

Increase (decrease) in cash and cash equivalents		29			(940,218	)
Cash and cash equivalents, beginning of period		6,728			958,784

Cash and cash equivalents, end of period	$	6,757		$	18,566

Supplemental disclosure of cash flow information:
Cash paid during the nine months for:
Interest	$	112,526		$	90,448

See accompanying notes to consolidated financial statements.

WEGENER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 Description of Business

We design and manufacture equipment for the receiving and transmitting of video, audio and data programming over satellite, cable, broadcast and terrestrial networks. Applications for our equipment include IP data delivery, cable and broadcast television, radio networks, business television, digital signage, business music, distance education, and financial information distribution. COMPEL^®, our patented network control system, provides network flexibility to regionalize programming, commercials and file transfers.

The equipment we provide enables our customers to implement complex networks involving real time switching and control to help them achieve their business plans. Using our technologies, our customers can provide targeted programming and advertising capabilities to their clients.

We also make a complete line of signal processing equipment used by the cable television industry to provide off-air digital and high definition signals to its subscribers. This equipment receives the signals from local terrestrial broadcasters and processes them in ways that make these signals compatible with existing cable plant infrastructure in wide use today.

Our primary customers are major broadcast networks, operators of large private satellite broadcast networks, and major cable television systems operators.

Our principal sources of revenues are from the sales of 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. We operate in one business segment, the manufacture and sale of satellite communications equipment.

Note 2 Liquidity

We have two manufacturing and purchasing agreements for certain finished goods inventories. At May 30, 2008, outstanding purchase commitments under these agreements amounted to $2,738,000. Approximately $2,152,000 of the purchase commitments are scheduled for delivery in the fourth quarter of fiscal 2008. These purchase commitments were made based on existing orders and expected future bookings. Our third quarter bookings were below our expectations and our third quarter was adversely impacted by one customer delaying delivery of its order for our SMD 515 IPTV set top box (see Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, for further discussion). Significant fourth quarter fiscal 2008 shippable bookings are currently required to meet our financial projections. As a result, our fourth quarter fiscal 2008 and first quarter fiscal 2009 cash flows could be adversely affected depending on the timing of shipments of delayed orders, the booking of additional near term shippable orders and the timing of resulting cash collections. Our borrowings would increase to support any resulting shortfall in cash flows and we could require an increase to our line of credit limit of $5,000,000. While no assurances may be given, we believe that the bank would provide an increase to the credit limit subject to having sufficient collateral under the existing line of credit advance formulas. Should near term shippable bookings not materialize and additional bank credit not be available, we would not be able to achieve our financial projections and additional sources of capital would be required. No assurances may be given that additional sources of capital, if needed, would be available.

Note 3 Significant Accounting Policies

The significant accounting policies followed by the Company are set forth in Note 1 to the Company's audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended August 31, 2007.

Revenue Recognition

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

Our revenue recognition policies are in compliance with Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition”, SAB No. 101, “Revenue Recognition in Financial Statements” and EITF Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." Revenue is recognized when persuasive evidence of an agreement with the customer exists, products are shipped or title passes pursuant to the terms of the agreement with the customer, the amount due from the customer is fixed or determinable, collectibility is reasonably assured, and when there are no significant future performance obligations. Service revenues are recognized at the time of performance. Extended service maintenance contract revenues are recognized ratably over the maintenance contract term, which is typically one year. The unrecognized revenue portion of maintenance contracts invoiced and the fair value of future performance obligations are recorded as deferred revenue. In addition, invoices generated in excess of revenue recognized are recorded as deferred revenue until the revenue recognition criteria are met. At May 30, 2008, deferred extended service maintenance revenues were $645,000 and deferred revenues related to future performance obligations and invoices generated in excess of revenue recognized were $1,406,000 and are expected to be recognized as revenue in varying amounts throughout fiscal 2008 and into fiscal 2009.

We recognize revenue in certain circumstances before delivery has occurred (commonly referred to as “bill and hold” transactions). In such circumstances, among other things, risk of ownership has passed to the buyer, the buyer has made a written fixed commitment to purchase the finished goods, the buyer has requested the finished goods be held for future delivery as scheduled and designated by them, and no additional performance obligations exist by the Company. For these transactions, the finished goods are segregated from inventory and normal billing and credit terms are granted. For the nine months ended May 30, 2008, no revenues were recorded as bill and hold transactions.

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

Embedded in our products is internally developed software of varying applications. We evaluate our products to assess whether software is more than incidental to a product. When we conclude that software is more than incidental to a product, we account for the product as a software product. Revenue on software products and software-related elements is recognized in accordance with Statement of Position (SOP) No. 97-2, “Software Revenue Recognition,” as amended by SOP No. 98-9, “Software Revenue Recognition, with Respect to Certain Transactions.” Significant judgment may be required in determining whether a product is a software or hardware product.

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

Earnings Per Share

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

Share-Based Compensation

We account for share-based payments to employees, including grants of employee stock options, in accordance with Statement of Financial Accounting Standards (SFAS) No. 123 (Revised 2004), “Share-Based Payment” (SFAS 123R). SFAS 123R requires that these awards be recognized as compensation expense in the consolidated financial statements based on their fair values. That expense will be recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). For the nine months ended May 30, 2008, share-based compensation expense included in selling, general and administrative expenses amounted to approximately $8,000 compared to approximately $18,000, for the same period ended June 1, 2007. The weighted average fair value of options granted during the nine months ended May 30, 2008 was $.51 with an aggregate total value of $8,000. The weighted average fair value of options granted during the nine months ended June 1, 2007 was $.90 with an aggregate total value of $16,000. As of May 30, 2008, 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				Nine months ended
	May 30,		June 1,		May 30,		June 1,
	2008		2007		2008		2007

Risk free interest rate		-		-		3.45%		4.70%
Expected term		-		-		5.0 years		10.0 years
Volatility		-		-		70%		90%
Expected annual dividends		-		-		None		None
Forfeiture rate		-		-		-		-

The following table summarizes stock option transactions for the nine months ended May 30, 2008:

				Range of		Weighted
	Number			Exercise		Average
	of Shares			Prices		Exercise Price
Outstanding at August 31, 2007		971,531		$	.63 – 2.72	$	1.55
Granted		15,000			.85		.85
Forfeited or cancelled		(53,000	)		1.41 – 2.21		1.43
Outstanding at May 30, 2008		933,531		$	.63 – 2.72	$	1.55
Available for issue at May 30, 2008		-			-		-
Options exercisable at May 30, 2008		933,531		$	.63 – 2.72	$	1.55
August 31, 2007		971,531		$	.63 – 2.72	$	1.56

The 1998 Incentive Plan expired and terminated effective December 31, 2007. The key terms of the stock options granted under our stock plans are included in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2007.

Bank Overdrafts

Bank overdrafts consist of outstanding checks that have not cleared our bank. Overdrafts are offset against cash balances to the extent that cash balances are available in the account on which the checks are issued. Remaining balances of overdrafts are included in our accounts payable balances. At May 30, 2008, outstanding checks in the amounts of $558,000 were included in accounts payable balances.

Use of Estimates

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

Fiscal Year

The Company uses a fifty-two, fifty-three week year. The fiscal year ends on the Friday closest to August 31. Fiscal years 2008 and 2007 contain fifty-two weeks.

Note 4 Accounts Receivable

Accounts receivable are summarized as follows:

	May 30, 2008			August 31, 2007
	(Unaudited)

Accounts receivable	$	3,661,663		$	5,345,196
Other receivables		75,864			78,468
		3,737,527			5,423,664
Less allowance for doubtful accounts		(269,793	)		(251,316	)
Accounts receivable, net	$	3,467,734		$	5,172,348

Note 5 Inventories

Inventories are summarized as follows:

	May 30,			August 31,
	2008			2007
	(Unaudited)

Raw material	$	4,499,483		$	3,482,396
Work-in-process		1,244,719			962,286
Finished goods		4,051,503			3,028,041
		9,795,705			7,472,723

Less inventory reserves		(4,070,305	)		(4,092,313	)

Inventories, net	$	5,725,400		$	3,380,410

Our inventory reserve of approximately $4,070,000 at May 30, 2008 is to provide for items that are potentially slow-moving, excess or obsolete. During the first nine months of fiscal 2008, inventory reserves were reduced by writeoffs of approximately $22,000. Changes in market conditions, lower than expected customer demand and rapidly changing technology could result in additional obsolete and slow-moving inventory that is unsaleable or saleable at reduced prices. No estimate can be made of a range of amounts of loss from obsolescence that is reasonably possible should our sales efforts not be successful.

Note 6 Land held for sale

During the third quarter of fiscal 2007, the Board of Directors of the Company authorized and approved listing for sale the 4.4 acres of undeveloped land located adjacent to its headquarters facility in Duluth (Johns Creek), Georgia. The Company evaluated the criteria of Statement of Financial Standards (SFAS) No. 144 (as amended), “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144) and concluded that these assets continue to qualify as assets held for sale. In accordance with SFAS No. 144, the land is classified as land held for sale at its historic carrying value of $353,712 (lower of carrying amount or fair value less costs to sell) in the consolidated balance sheet as of May 30, 2008. The land was acquired in August 1989 and no impairment charges were recorded related to the reclassification.

Note 7 Other Assets

Other assets consisted of the following:

	May 30, 2008 (unaudited)
	Cost		Accumulated Amortization			Net
License agreements	$	933,800	$	(918,384	)	$	15,416
Patents and patent applications		515,063		(40,842	)		474,221
Trademarks		82,820		(37,005	)		45,815
Loan facility fees		100,000		(91,667	)		8,333
Other		6,889		-			6,889
	$	1,638,572	$	(1,087,898	)	$	550,674

	August 31, 2007
	Cost		Accumulated Amortization			Net
License agreements	$	933,800	$	(862,198	)	$	71,602
Patents and patent applications		472,551		(14,006	)		458,545
Trademarks		89,736		(25,867	)		63,869
Loan facility fees		137,500		(54,167	)		83,333
Other		6,889		-			6,889
	$	1,640,476	$	(956,238	)	$	684,238

Amortization expense of other assets for the three and nine months ended May 30, 2008, amounted to $50,000 and $169,000, respectively. Amortization expense of other assets for the three and nine months ended June 1, 2007, amounted to $190,000 and $313,000, respectively. Amortization expense for the three and nine months ended June 1, 2007 included $111,000 related to write-offs of remaining net balances of certain license agreements due to termination of the agreements.

We conduct an ongoing review of our intellectual property rights and potential trademarks. At May 30, 2008, the cost of registered patents and trademarks amounted to $251,000 and $82,000, respectively. Additionally, as of May 30, 2008, we have cumulatively incurred $264,000 of legal fees related to the filing of applications for various patents not yet approved and $1,000 related to the filing of trademarks. Upon issuance, these legal costs will be amortized on a straight-line basis over the lesser of the legal life of the patents and trademarks or the estimated useful lives of the patent or trademark. If it becomes more likely than not that a patent application will not be granted, we will write-off the deferred cost at that time. Patents and trademarks are amortized over their estimated useful life of four to ten years. License agreements are amortized over their estimated useful life of one to five years. Loan facility fees are amortized over 12 months.

During the third quarter of fiscal 2008, we signed an agreement to sell selected patents and patent applications to EPAX Consulting Limited Liability Company for net proceeds of approximately $1,075,000, subject to customary closing conditions. The group of patents and patent applications sold relate to product distinction, system architecture and IP networking. We retain a worldwide, non-exclusive, royalty-free license under the patents for use in both existing and future products. The transaction was completed subsequent to May 30, 2008.

Note 8 Accrued Expenses

Accrued expenses consist of the following:

	May 30,		August 31,
	2008		2007
	(Unaudited)

Vacation	$	624,071	$	541,503
Payroll and related expenses		215,873		382,690
Royalties		138,056		76,989
Warranty		360,052		534,052
Taxes and insurance		94,236		61,935
Commissions		84,579		104,876
Professional fees		332,573		425,433
Other		75,428		481,744
	$	1,924,868	$	2,609,222

Accrued Warranty

We warrant our products for a 12 to 14 month period beginning at the date of shipment. The warranty provides for repair or replacement of defective products returned during the warranty period at no cost to the customer. We expense costs for routine warranty repairs as incurred. Additional provisions are made for non-routine warranty repairs based on estimated costs to repair at the point in time in which the warranty claim is identified. Accrued warranty liabilities amounted to $360,000 at May 30, 2008 and $534,000 at August 31, 2007. For the nine months ended May 30, 2008, the accrual was increased by $50,000 and reduced by $14,000 for satisfied warranty claims. Additionally, for the three and nine months ended May 30, 2008, the accrual was reduced by and cost of sales was credited for $210,000 for previously estimated provisions that were no longer required.

Note 9 Deferred Revenue

Deferred revenue consists of the unrecognized revenue portion of extended service maintenance contracts and the fair value of revenue related to future performance obligations. Extended service maintenance contract revenues are recognized ratably over the maintenance contract term, which is typically one year. In addition, invoices generated in excess of revenue recognized are recorded as deferred revenue until revenue recognition criteria are met. At May 30, 2008, deferred extended service maintenance revenues were $645,000 and deferred revenues related to future performance obligations and invoices generated in excess of revenue recognized were $1,406,000 and are expected to be recognized as revenue in varying amounts throughout fiscal 2008 and into fiscal 2009.

Note 10 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 September 30, 2008, or upon demand, and requires an annual facility fee of 2% of the maximum credit limit. The loan automatically renews from year to year unless the bank makes demand for repayment prior to maturity; provided, however, absent an event of default, the bank shall give at least 120 days notice of its intention to demand the loans’s repayment or to terminate the loan agreement. The loan facility consists of a term loan and a revolving line of credit bearing interest at the bank’s prime rate (5.00% at May 30, 2008). The bank retained the right to adjust the interest rate, subject to the 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 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 30, 2008, balances outstanding on the revolving line of credit amounted to approximately $2,002,000. During the first nine months of fiscal 2008, the line of credit average daily balance outstanding was $1,647,000 and the highest outstanding balance was $3,274,000. 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, which at May 30, 2008, amounted to $1,133,000. At May 30, 2008, approximately $1,865,000, net of outstanding letters of credit, was available to borrow under the advance formulas (see note 2 Liquidity and Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, for further discussion).

Under the loan facility, at the end of fiscal 2008 we are required to maintain a minimum tangible net worth. In addition, we are required to retain certain executive officers, maintain certain financial ratios, and are precluded from paying dividends.

At May 30, 2008, we had land and buildings with a cost basis of $4,457,000 (including land held for sale of $354,000). Although land and buildings are subject to a lien under the loan facility, they are not currently used in the existing loan facility’s availability advance formulas and have no mortgage balances outstanding. During the third quarter of fiscal 2007, the Company’s Board of Directors authorized and approved the listing for sale of the 4.4 acres of undeveloped land located adjacent to the Company’s headquarters facility in Duluth (Johns Creek), Georgia (see note 6 to the consolidated financial statements). Proceeds from the sale of the land would be used to pay any balances outstanding on the revolving line of credit.

Note 11 Income Taxes

There was no income tax benefit for the three and nine months ended May 30, 2008, as the Company incurred net losses of $(775,000) and $(489,000), respectively, and the increase in the deferred tax asset was offset by a corresponding increase in the valuation allowance due to the uncertainty as to the realization of the deferred tax asset. The valuation allowance increased $176,000 in the first nine months of fiscal 2008. At May 30, 2008, net deferred tax assets of $6,195,000 were fully reserved by a valuation allowance.

At May 30, 2008, we had a federal net operating loss carryforward of approximately $10,249,000, which expires beginning fiscal 2020 through fiscal 2028. 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.

We adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (FIN 48) as of September 1, 2007, the first day of the first quarter of fiscal 2008. The adoption of FIN 48 had no impact on our financial position or results of operations. We are subject to U.S. federal income tax as well as income tax of numerous state jurisdictions. We are subject to U.S. federal tax examinations by tax authorities for fiscal years 2004 through 2007. Income tax examinations that we may be subject to from the various state taxing authorities vary by jurisdiction. Our policy under FIN 48 for penalties and interest is to include such amounts, if any, in income tax expense.

Note 12 Earnings Per Share

The following tables represent required disclosure of the reconciliation of the numerators and denominators of the basic and diluted net earnings per share computations.

	Three months ended
	May 30, 2008								June 1, 2007
	Earnings (Numerator)			Shares (Denominator)		Per share amount			Earnings (Numerator)		Shares (Denominator)		Per share amount
Net (loss) earnings	$	(775,124	)						$	250,702

Basic (loss) earnings per share:
Net (loss) earnings available to common shareholders	$	(775,124	)		12,647,051	$	(0.06	)	$	250,702		12,647,051	$	0.02

Effect of dilutive potential common shares:
Stock options		-			-					-		44,169

Diluted (loss) earnings per share:
Net (loss) earnings available to common shareholders	$	(775,124	)		12,647,051	$	(0.06	)	$	250,702		12,691,220	$	0.02

	Nine months ended
	May 30, 2008								June 1, 2007
	Earnings (Numerator)			Shares (Denominator)		Per share amount			Earnings (Numerator)			Shares (Denominator)		Per share amount
Net loss	$	(489,306	)						$	(894,522	)

Basic loss per share:
Net loss available to common shareholders	$	(489,306	)		12,647,051	$	(0.04	)	$	(894,522	)		12,602,992	$	(0.07	)

Effect of dilutive potential common shares:
Stock options		-			-					-			-

Diluted loss per share:
Net loss available to common shareholders	$	(489,306	)		12,647,051	$	(0.04	)	$	(894,522	)		12,602,992	$	(0.07	)

Stock options excluded from the diluted net earnings (loss) per share calculation due to their anti-dilutive effect are as follows:

Three months ended

Nine months ended

May 30,

2008

June 1,

2007

May 30,

2008

June 1,

2007

Common stock options:

Number of shares

933,531

692,156

933,531

1,012,531

Exercise price

$.63 to $2.72

$1.09 to $2.72

$0.63 to $2.72

$0.63 to $2.72

Note 13 Segment Information and Significant Customers (Unaudited)

In accordance with Statement of Financial Accounting Standards No. 131, “Disclosure about Segments of an Enterprise and Related Information,” we operate within a single reportable segment, the manufacture and sale of satellite communications equipment.

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

	Three months ended				Nine months ended
	May 30, 2008		June 1, 2007		May 30, 2008		June 1, 2007
Product Line
Direct Broadcast Satellite	$	4,246,745	$	6,037,788	$	15,636,319	$	15,250,041
Analog and Custom Products		4,170		63,204		20,193		125,789
Service		142,004		146,088		428,756		425,392
	$	4,392,919	$	6,247,080	$	16,085,268	$	15,801,222

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.

Concentration of products representing 10% or more of the respective period’s revenues is as follows:

Three months ended

Nine months ended

May 30,

2008

June 1,

2007

May 30,

2008

June 1,

2007

Product

iPump Media Servers

30.0

44.4

12.2

31.5

Professional and broadcast receivers

14.7

13.8

32.4

21.6

SMD 515 IPTV set top boxes

16.5

(a)

10.3

(a)

Enterprise media receivers

(a)

(a)

11.6

(a)

Audio broadcast receivers

13.3

(a)

(a)

(a)

Network control products

(a)

10.1

(a)

(a)

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

Concentration of products representing 10% or more of revenues in the prior three fiscal years is as follows:

	Year ended
Products	August 31, 2007			September 1, 2006			September 2, 2005
iPump Media Server		32.0	%			(a)		11.6	%
Professional and broadcast receivers		20.6	%		12.0	%		12.6	%
Audio broadcast receivers			(a)		17.5	%		18.6	%
Nielsen encoders			(a)		10.7	%			(a)
Uplink Equipment			(a)			(a)		12.0	%

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

Fiscal 2007 product mix featured new iPump^®Media Server products for broadcast radio customers adopting store and forward technologies in their network upgrades and a new customer for a digital signage network. The professional and broadcast receivers products benefited from a new cable network and expansion of high definition television distribution by cable headends. A new audio broadcast receiver for business music applications was developed during fiscal 2007 and began shipping in the first quarter of fiscal 2008.

Revenues by geographic area are as follows:

	Three months ended				Nine months ended
	May 30, 2008		June 1, 2007		May 30, 2008		June 1, 2007
Geographic Area
United States	$	2,701,045	$	4,022,462	$	13,135,504	$	12,377,705
Latin America		1,308,898		1,738,505		2,138,250		1,780,675
Canada		42,951		9,310		343,166		113,642
Europe		326,706		476,431		422,623		1,516,433
Other		13,319		372		45,725		12,767
	$	4,392,919	$	6,247,080	$	16,085,268	$	15,801,222

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

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

Three months ended

Nine months ended

May 30,

2008

June 1,

2007

May 30,

2008

June 1,

2007

Customer 1

28.4

26.4

12.1

10.4

Customer 2

(a)

(a)

19.2

(a)

Customer 3

16.6

(a)

(a)

(a)

Customer 4

15.2

(a)

14.6

(a)

Customer 5

13.3

(a)

(a)

(a)

Customer 6

(a)

(a)

10.1

(a)

Customer 7

(a)

21.3

(a)

19.4

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

Note 14 Commitments

We have two manufacturing and purchasing agreements for certain finished goods inventories. At May 30, 2008, outstanding purchase commitments under these agreements amounted to $2,738,000. Pursuant to the above agreements, at May 30, 2008, we had outstanding letters of credit in the amount of $1,133,000 (see Note 2 and Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources section for further discussion).

Note 15 Guarantees and Warranty Liability

Letters of Credit

We provide standby letters of credit in the ordinary course of business to certain suppliers pursuant to manufacturing and purchasing agreements. At May 30, 2008, outstanding letters of credit amounted to $1,133,000.

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 May 30, 2008, balances outstanding on the loan facility were $2,002,000.

Indemnification Obligations

We are obligated to indemnify our officers and the members of our Board of Directors pursuant to our bylaws and contractual indemnity agreements. We routinely sell products with a limited intellectual property indemnification included in the terms of sale or in certain contractual arrangements. The scope of these indemnities varies, but in some instances includes indemnification for damages and expenses (including reasonable attorneys’ fees). Certain requests for indemnification have been received by us pursuant to these arrangements (see Part II, Item 1. Legal Proceedings in our Quarterly report on Form 10-Q for the period ended November 30, 2007 for further discussion).

Note 16 Continued listing of shares on The Nasdaq Stock Market

On December 26, 2007, we received a notice from The Nasdaq Stock Market (“Nasdaq”) indicating that for the prior 30 consecutive business days, the bid price of our common stock closed below the minimum $1.00 per share requirement for continued inclusion under Marketplace Rule 4310(c)(4) (the “Rule”). The notice also stated that we have been provided with 180 calendar days, or until June 23, 2008, to regain compliance in accordance with Marketplace Rule 4310(c)(8)(D).

On May 5, 2008, we received a notice from Nasdaq stating that, because the closing bid price of our common stock had been at $1.00 per share or greater for at least 10 consecutive business days, we had regained compliance. If we fail to maintain compliance with the minimum bid price requirement and are delisted by Nasdaq, the trading market for our common stock would likely be adversely affected, as price quotations may not be as readily obtainable, which would likely have a material adverse effect on the market price of our common stock.

WEGENER CORPORATION AND SUBSIDIARIES

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This information should be read in conjunction with the consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report, and the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended August 31, 2007, contained in the Company’s 2007 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 2008 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 Internet Protocol (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 patented network control system, provides network flexibility to regionalize programming, commercials and file transfers.

During the third quarter of fiscal 2008, bookings, consisting primarily of add-on orders from existing customers, were $1,927,000. Customers deferred approximately $4.4 million of orders that we expected to record in the third quarter. In addition, during the third quarter WCI entered into an agreement to sell selected patents and patent applications to EPAX Consulting Limited Liability Company for net proceeds of approximately $1,075,000, subject to customary closing conditions. The group of patents and patent applications sold relate to product distinction, system architecture and IP networking. WCI retains a worldwide, non-exclusive, royalty-free license under the patents for use in both existing and future products. The transaction was completed subsequent to May 30, 2008. Proceeds from this transaction were used to reduce our line of credit borrowings.

We have two manufacturing and purchasing agreements for certain finished goods inventories. At May 30, 2008, outstanding purchase commitments under these agreements amounted to $2,738,000. Approximately $2,152,000 of the purchase commitments are scheduled for delivery in the fourth quarter of fiscal 2008. These purchase commitments were made based on existing orders and expected future bookings. As discussed above, third quarter bookings were below our expectations and our third quarter was adversely impacted by one customer delaying delivery of its order for our SMD 515 IPTV set top box. Significant fourth quarter fiscal 2008 shippable bookings are currently required to meet our financial projections. As a result, our fourth quarter fiscal 2008 and first quarter fiscal 2009 cash flows could be adversely affected depending on the timing of shipments of delayed orders, the booking of additional near term shippable orders and the resulting cash collections. Our borrowings would increase to support any resulting shortfall in cash flows and we could require an increase to our line of credit limit of $5,000,000. While no assurances may be given, we believe that the bank would provide an increase to the credit limit subject to having sufficient collateral under the existing line of credit advance formulas. Should near term shippable bookings not materialize and additional bank credit not be available, we would not be able to achieve our financial projections and additional sources of capital would be required. No assurances may be given that additional sources of capital, if needed, would be available.

During the second quarter of fiscal 2008, we recorded $5.8 million in new orders. These orders included approximately $1.4 million from one of our larger private network customers for our new Unity^® 552 Enterprise Media Receiver (Unity^® 552). The Unity^® 552 has bandwidth-efficient MPEG-4/h.264 video coding for both standard definition and high definition video, digital and analog outputs, as well as advanced DVB-S2 demodulation. With these new features, network operators can reduce their bandwidth utilization by approximately half, resulting in considerably lower operational costs. The order shipped in the second quarter of fiscal 2008, and is expected to be the first of a series of orders from the customer for a complete network upgrade to the Unity^® 552. We received orders totaling over $2.1 million for our SMD 515 IPTV(internet protocol television) set top box from Conklin-Intracom for use by multiple telco operators in North America to provide premium IPTV services including high definition programming, video on demand and integrated personal video recording. The SMD 515, supporting Conklin-Intracom’s fs/cdn^®solution, is currently being used in field trials by five telco operators in North America. Approximately $230,000 of this order shipped in the second quarter, approximately $655,000 shipped in the third quarter and $1,215,000 was invoiced and recorded as deferred revenue until the revenue recognition criteria are met. An order for $1.2 million was received for our new iPump^® 562 enterprise media server from Satellite Store Link (SSL) to support the expansion of SSL’s digital signage projects in Latin America and shipped in the third quarter of fiscal 2008. The iPump^®562 media server supports bandwidth-saving features, such as MPEG-4/h.264 video compression and file-based workflows. These features can be used in combination to create customized, high quality HD (high definition) and SD (standard definition) video channels for digital signage applications.

During the first quarter of fiscal 2008, bookings, consisting primarily of add-on orders from existing customers, were approximately $3.6 million.

Although significant shippable bookings are needed for the fourth quarter of fiscal 2008, we currently believe that fourth quarter revenues will increase compared to third quarter fiscal 2008 revenues. Assuming we achieve our shippable booking forecast for the fourth quarter, and together with the completed sale of patents and patent applications subsequent to May 30, 2008 (discussed above), we currently believe the fourth quarter and fiscal 2008 will be profitable.

Financial Position and Liquidity

At May 30, 2008, we had line of credit borrowings outstanding of $2,002,000. 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. The loan facility matures on September 30, 2008, or upon demand. At May 30, 2008, approximately $1,865,000, net of outstanding letters of credit in the amount of $1,133,000, remained available to borrow under the advance formulas.

During the first nine months of fiscal 2008, our line of credit net outstanding borrowings decreased $14,000 from $2,016,000 at August 31, 2007 to $2,002,000 at May 30, 2008. Operating activities provided $1,230,000 of cash and investing activities used $1,216,000 of cash, which consisted of capitalized software additions of $869,000, equipment additions of $311,000, and $36,000 for legal fees related to the filing of applications for various patents and trademarks.

(See the Liquidity and Capital Resources section on page 23 for further discussion.)

RESULTS OF OPERATIONS

THREE AND NINE MONTHS ENDED MAY 30, 2008 COMPARED TO THREE AND NINE MONTHS ENDED JUNE 1, 2007

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 30, 2008			June 1, 2007			May 30, 2008			June 1, 2007
Revenues		100.0	%		100.0	%		100.0	%		100.0	%
Cost of products sold		63.6			63.6			61.4			65.8
Gross margin		36.4			36.4			38.6			34.2
Selling, general, and administrative		33.6			20.4			25.8			24.7
Research & development		19.5			11.3			15.1			14.6
Operating (loss) income		(16.7	)		4.6			(2.3	)		(5.1	)
Interest expense		(0.9	)		(0.6	)		(0.7	)		(0.6	)
Interest income		-			-			-			-
Net (loss) earnings		(17.6	)%		4.0	%		(3.0	)%		(5.7	)%

The operating results for the three and nine month periods ended May 30, 2008, were a net loss of $(775,000) or $(0.06) per share and a net loss of $(489,000) or $(0.04) per share, respectively, compared to net earnings of $251,000 or $0.02 per share and a net loss of $(895,000) or $(0.07) per share for the same periods ended June 1, 2007.

Revenues - Revenues for the three months ended May 30, 2008 decreased $1,854,000 or 29.7% to $4,393,000 as compared to $6,247,000 for the three months ended June 1, 2007. Revenues for the nine months ended May 30, 2008 increased $284,000 or 1.8% to $16,085,000 as compared to $15,801,000 for the nine months ended June 1, 2007.

Direct Broadcast Satellite (DBS) revenues (including service revenues) decreased $1,795,000 or 29.0% in the third quarter of fiscal 2008 to $4,389,000 compared to $6,184,000 in the same period of fiscal 2007. For the nine months ended May 30, 2008, DBS revenues increased $390,000 or 2.5% to $16,065,000 compared to $15,675,000 for the nine months ended June 1, 2007. Revenues for the third quarter of fiscal 2008 were adversely impacted by one customer delaying delivery of its order for our SMD 515 IPTV set top box which was scheduled for complete shipment in the third quarter. Approximately $1,215,000 was invoiced and recorded as deferred revenue until the revenue recognition criteria are met. In addition, approximately $456,000 of product did not ship in the third quarter due to delays in customer acceptance and software releases. The third quarter of fiscal 2008 included revenues from partial shipments of this order to Conklin-Intracom for use in providing premium IPTV services by telco operators in North America and shipments of our new iPump^® 562 enterprise media server to Satellite Store Link (SSL) for expansion of SSL’s digital signage projects in Latin America. Shipments continued in the third quarter and first nine months of fiscal 2008 to MegaHertz for distribution of our products to the U.S. cable market and to business music provider Muzak LLC, of our new Encompass LE2, our next generation business music audio receiver. In addition, the first nine months included completion of shipments of our Unity^® 4600 to the Big Ten Network for the new cable network being distributed by Fox Cable Networks. 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 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. For the three months ended June 1, 2007, two customers accounted for 21.3% and 26.4% of revenues, respectively. For the nine months ended June 1, 2007, these same customers accounted for 19.4% and 10.4% of revenues, respectively. Sales to a relatively small number of major customers have typically comprised a majority of our revenues and that trend is expected to continue throughout fiscal 2008 and beyond.

Our backlog is comprised of undelivered, firm customer orders, which are scheduled to ship within 18 months. WCI’s backlog was approximately $8.2 million at May 30, 2008, compared to $10.2 million at August 31, 2007, and $7.7 million at June 1, 2007. Four customers accounted for 36.9%, 14.8%, 13.5% and 10.2%, respectively, of the backlog at May 30, 2008. The total multi-year backlog at May 30, 2008, was approximately $13.6 million compared to $17.1 million at August 31, 2007 and $15.3 million at June 1, 2007.

Gross Profit Margins - The Company's gross profit margin percentages were 36.4% and 38.6% for the three and nine months ended May 30, 2008, compared to 36.4% and 34.2% for the same periods ended June 1, 2007. Gross profit margin dollars decreased $673,000 or 29.6% and increased $804,000 or 14.9% for the three and nine month periods ended May 30, 2008, respectively, compared to the same periods ended June 1, 2007. Profit margins in the three and nine month periods of fiscal 2008 included capitalized software amortization expenses of $310,000 and $930,000, respectively, compared to $373,000 and $1,144,000 for the same periods of fiscal 2007. In addition, profit margins in the three and nine month periods of fiscal 2008 were favorably impacted by the 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 $50,000 and $150,000 in the same periods in fiscal 2007, respectively. Inventory reserve charges were $175,000 and $250,000 in the three and nine month periods of fiscal 2007, respectively, compared to none in the same periods of fiscal 2008. Margin dollars for the three months ended May 30, 2008, were adversely affected by the lower revenues, which increased unit fixed overhead costs, and a product mix of higher variable costs which were partially offset by the lower amortization expenses, inventory reserve charges and the warranty liability reversal.

Selling, General and Administrative - Selling, general and administrative (SG&A) expenses increased $201,000 or 15.8% to $1,475,000 for the three months ended May 30, 2008, compared to $1,274,000 for the same period of fiscal 2007. For the nine months ended May 30, 2008, SG&A expenses increased $233,000 or 6.0% to $4,144,000 compared to $3,911,000 for the same period of fiscal 2007. Corporate SG&A expenses in the third quarter of fiscal 2008 increased $74,000, or 28.4%, to $335,000 compared to $261,000 for the same period in fiscal 2007. For the nine months ended May 30, 2008, corporate SG&A expenses decreased $3,000, or 0.4%, to $827,000 compared to $830,000 in the same period in fiscal 2007. The increase for the three months was mainly due to increased professional fees and director compensation. WCI’s SG&A expenses increased $127,000, or 12.5%, to $1,140,000 from $1,013,000 and $236,000, or 7.7%, to $3,317,000 from $3,081,000 for the three and nine months ended May 30, 2008, compared to the same periods in fiscal 2007. The increase in WCI’s SG&A expenses for the three months ended May 30, 2008 was mainly due to increases in salaries and related payroll costs of $78,000, marketing expenses of $34,000, general overhead costs of $29,000 and professional fees of $17,000, which were offset by lower in house commissions of $29,000. The increase in WCI’s SG&A expenses for the nine months ended May 30, 2008 was mainly due to increases in salaries and related payroll costs of $36,000, in house commissions of $31,000, employee placement fees of $19,000, general overhead costs of $65,000 and professional fees of $33,000, which were offset by lower sales and marketing expenses of $34,000. WCI’s SG&A expenses in the first nine months of fiscal 2008 included a bad debt provision expense of $35,000 compared to a benefit of $50,000 from the reversal of bad debt provisions in the same period in fiscal 2007. SG&A expenses included $8,000 of noncash share-based compensation expense in the nine months ended May 30, 2008, compared to $17,700 in the same period of fiscal 2007. As a percentage of revenues, SG&A expenses were 33.6% and 25.8% for the three and nine month periods ended May 30, 2008, respectively, compared to 20.4% and 24.8% for the same periods in fiscal 2007.

Research and Development - Research and development (R&D) expenditures, including capitalized software development costs, were $1,184,000 or 27.0% of revenues, and $3,307,000 or 20.6% of revenues, for the three and nine month periods ended May 30, 2008, compared to $1,090,000 or 17.4% of revenues, and $3,459,000 or 21.9% of revenues, for the same periods of fiscal 2007. The increase in expenditures in the three months ended May 30, 2008, was mainly due to salary increases, a higher headcount and increased recruiting costs related to new hires, which were partially offset by lower consulting costs. The decrease in expenditures in the nine months ended May 30, 2008, was mainly due to lower consulting costs, which were partially offset by the increased salaries, headcount and increased recruiting costs related to new hires. Capitalized software development costs amounted to $325,000 and $869,000 for the third quarter and first nine months of fiscal 2008 compared to $383,000 and $1,158,000 for the same periods of fiscal 2007. The decreases in capitalized software costs were related to completed projects. Research and development expenses, excluding capitalized software expenditures, were $859,000 or 19.6% of revenues, and $2,438,000 or 15.2% of revenues, for the three and nine months ended May 30, 2008, respectively, compared to $707,000 or 11.3% of revenues, and $2,302,000 or 14.6% of revenues, for the same periods of fiscal 2007. The increases in expenses in the three and nine month periods of fiscal 2008 compared to the same periods in fiscal 2007 were due to the increases in expenditures discussed above and the reductions in capitalized software development costs.

Interest Expense - Interest expense increased $1,000 to $41,000 for the three months ended May 30, 2008, compared to $40,000 for the three months ended June 1, 2007. For the nine months ended May 30, 2008, interest expense increased $23,000 to $113,000 compared to $90,000 for the same period in fiscal 2007. The increase for the three and nine months in fiscal 2008 was primarily due to an increase in average line-of-credit borrowings which was partially offset by declines in the bank’s prime interest rate.

Other Income– Other income was $1,000 and $2,000 for the three and nine month periods ended May 30, 2008, compared to $500 and $9,000 for the same periods ended June 1, 2007.

Income Tax Expenses – For the nine months ended May 30, 2008, no income tax benefit was recorded due to an increase in the deferred tax asset valuation allowance. The valuation allowance increased $176,000 in the first nine months of fiscal 2008. At May 30, 2008, net deferred tax assets of $6,195,000 were fully reserved by the valuation allowance. At May 30, 2008, we had a federal net operating loss carryforward of approximately $10,249,000, which expires beginning fiscal 2020 through fiscal 2028. 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 there are no significant future performance obligations. Service revenues are recognized at the time of performance. Extended service maintenance contract revenues are recognized ratably over the maintenance contract term, which is typically one year. The unrecognized revenue portion of maintenance contracts invoiced and the fair value of future performance obligations are recorded as deferred revenue. In addition, invoices generated in excess of revenue recognized are recorded as deferred revenue until the revenue recognition criteria are met. At May 30, 2008, deferred extended service maintenance revenues were $645,000 and deferred revenues related to future performance obligations and invoices generated in excess of revenue recognized were $1,406,000 and are expected to be recognized as revenue in varying amounts throughout fiscal 2008 and into fiscal 2009.

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

Inventory Reserves - Inventories are valued at the lower of cost (at standard, which approximates actual cost on a first-in, first-out basis) or market. Inventories include the cost of raw materials, labor and manufacturing overhead. We make inventory reserve provisions for obsolete or slow-moving inventories as necessary to properly reflect inventory value. These reserves are to provide for items that are potentially slow-moving, excess or obsolete. Changes in market conditions, lower than expected customer demand and rapidly changing technology could result in additional obsolete and slow-moving inventory that is unsaleable or saleable at reduced prices, which could require additional inventory reserve provisions. At May 30, 2008, inventories, net of reserve provisions, amounted to $5,725,000.

Capitalized Software Costs - Software development costs are capitalized subsequent to establishing technological feasibility. Capitalized costs are amortized based on the larger of the amounts computed using (a) the ratio that current gross revenues for each product bears to the total of current and anticipated future gross revenues for that product, or (b) the straight-line method over the remaining estimated economic life of the product. Expected future revenues and estimated economic lives are subject to revisions due to market conditions, technology changes and other factors resulting in shortfalls of expected revenues or reduced economic lives, which could result in additional amortization expense or write-offs. At May 30, 2008, capitalized software costs, net of accumulated amortization, amounted to $1,181,000.

Deferred Tax Asset Valuation Allowance– Deferred tax assets are recognized for deductible temporary differences, net operating loss carryforwards, and credit carryforwards if it is more likely than not that the tax benefits will be realized. Realization of our deferred tax assets depends on generating sufficient future taxable income prior to the expiration of the loss and credit carryforwards. At May 30, 2008, deferred tax assets in the amount of $6,195,000 were fully reserved by a valuation allowance. The valuation allowance increased $176,000 in the first nine months of fiscal 2008.

Accounts Receivable Valuation– We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances would be required. At May 30, 2008, accounts receivable, net of allowances for doubtful accounts, amounted to $3,468,000.

LIQUIDITY AND CAPITAL RESOURCES

NINE MONTHS ENDED MAY 30, 2008

At May 30, 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 (5.0% at May 30, 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, 2008, or upon demand, and requires an annual facility fee of 2% of the maximum credit limit. The loan automatically renews from year to year unless the bank makes demand for repayment prior to maturity; provided, however, absent an event of default, the bank shall give at least 120 days notice of its intention to demand the loan’s repayment or to terminate the loan agreement. During the first nine months of fiscal 2008, our line of credit net outstanding borrowings decreased $14,000 to $2,002,000 at May 30, 2008 from $2,016,000 at August 31, 2007. During the first nine months of fiscal 2008, the line of credit average daily balance outstanding was $1,647,000 and the highest outstanding balance was $3,274,000. At May 30, 2008, approximately $1,865,000, net of outstanding letters of credit in the amount of $1,133,000, 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; 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 30, 2008, balances outstanding on the revolving line of credit amounted to $2,002,000. 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, which at May 30, 2008, amounted to $1,133,000.

During the first nine months of fiscal 2008, operating activities provided $1,230,000 of cash. Net earnings adjusted for expense provisions and depreciation and amortization (before working capital changes) provided $799,000 of cash, while changes in accounts receivable and customer deposit balances provided $732,000 of cash. Changes in accounts payable and accrued expenses, inventories, deferred revenue and other assets used $301,000 of cash. Cash used by investing activities was $311,000 for property and equipment expenditures, $869,000 for capitalized software additions and $36,000 for legal fees related to the filing of applications for various patents and trademarks. Financing activities used $14,000 of cash for net line-of-credit repayments.

We have two manufacturing and purchasing agreements for certain finished goods inventories. At May 30, 2008, outstanding purchase commitments under these agreements amounted to $2,738,000. Approximately $2,152,000 of the purchase commitments are scheduled for delivery in the fourth quarter of fiscal 2008. These purchase commitments were made based on existing orders and expected future bookings. As discussed above, third quarter bookings were below our expectations and our third quarter was adversely impacted by one customer delaying deliveries of their order for our SMD 515 IPTV set top box. Significant fourth quarter fiscal 2008 shippable bookings are currently required to meet our financial projections. As a result, our fourth quarter fiscal 2008 and first quarter fiscal 2009 cash flows could be adversely affected depending on the timing of shipments of delayed orders, the booking of additional near term shippable orders and the resulting cash collections. Our borrowings would increase to support any resulting shortfall in cash flows and we could require an increase to our line of credit limit of $5,000,000. While no assurances may be given, we believe that the bank would grant an increase to the credit limit subject to having sufficient collateral under the existing line of credit advance formulas. Should near term shippable bookings not materialize and additional bank credit not be available we would not be able to achieve our financial projections and additional sources of capital would be required. No assurances may be given that additional sources of capital, if needed, would be available.

At May 30, 2008, 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. While no assurances may be given, we believe these assets could be used to support additional overall borrowing capacities either with our existing bank or from other sources. During the third quarter of fiscal 2007, the Company’s Board of Directors authorized and approved the listing for sale of the 4.4 acres of undeveloped land located adjacent to the Company’s headquarters facility in Duluth (Johns Creek), Georgia (see note 6 to the consolidated financial statements). Proceeds from the sale of the land would be used to pay any balances outstanding on the revolving line of credit.

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 May 30, 2008 consisted of:

	Payments Due by Period
Contractual Obligations	Total		Fiscal 2008		Fiscal 2009-2010		Fiscal 2011-2012
Operating leases	$	114,000	$	45,000	$	69,000	$	-
Bank line of credit		2,002,000		-		2,002,000		-
Purchase commitments		2,738,000		2,152,000		586,000		-
Total	$	4,854,000	$	2,197,000	$	2,657,000	$	-

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market rate risk for changes in interest rates relates primarily to our revolving line of credit and cash equivalents. The interest rate on certain advances under the line of credit and term loan facility fluctuates with the bank’s prime rate. At May 30, 2008, line of credit outstanding borrowings amounted to $2,002,000.

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

ITEM 4. CONTROLS AND PROCEDURES

Not applicable

ITEM 4T. CONTROLS AND PROCEDURES

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report (May 30, 2008). Based upon that evaluation, the Company’s CEO and CFO have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) are effective. There has been no change in the Company’s internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS

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

Exhibit No.		Description of 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)

10.1		Patent Purchase Agreement effective as of May 22, 2008, by and between Wegener Communications, Inc. and EPAX Consulting Limited Liability Company.

31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1)			Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended September 1, 1989, as filed with the Commission on November 30, 1989.+
(2)			Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended May 30, 1997, as filed with the Commission on June 30, 1997.+
(3)			Incorporated by reference to the Company's Current Report on Form 8-K, dated May 17, 2006, as filed with the Commission on May 22, 2006.+
+			SEC file No. 0-11003

SIGNATURES

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

	WEGENER CORPORATION
		(Registrant)

Date: July 10, 2008	By:	/s/ Robert A. Placek
		Robert A. Placek
		Chairman of the Board, President and
		Chief Executive Officer
		(Principal Executive Officer)

Date: July 10, 2008	By:	/s/ C. Troy Woodbury, Jr.
		C. Troy Woodbury, Jr.
		Treasurer and Chief
		Financial Officer
		(Principal Financial and Accounting Officer)

EX-10.1 2 v119473_ex10-1.htm

Exhibit 10.1

PATENT PURCHASE AGREEMENT

This PATENT PURCHASE AGREEMENT (this “Agreement”) is entered into, as of the Effective Date (defined below), by and between Wegener Communications, Inc., a Delaware corporation, with an office at 11350 Technology Circle, Duluth, GA 30097 (“Seller”) and EPAX Consulting Limited Liability Company, a Delaware limited liability company, with an address at 2711 Centerville Road, Suite 400, Wilmington, DE 19808 (“Purchaser”). The parties hereby agree as follows:

1. Background

1.1 Seller owns certain provisional patent applications, patent applications, patents, and/or related foreign patents and applications.

1.2 Seller wishes to sell to Purchaser all right, title, and interest in such patents and applications and the causes of action to sue for infringement thereof and other enforcement rights.

1.3 Purchaser wishes to purchase from Seller all right, title, and interest in the Assigned Patent Rights (defined below), free and clear of any restrictions, liens, claims, and encumbrances.

2. Definitions

“Abandoned Assets” means those specific provisional patent applications, patent applications, patents and other governmental grants or issuances listed on Exhibit C (as such list may be updated based on Purchaser’s review pursuant to paragraph 3.1).

“Assigned Patent Rights” means the Patents and the additional rights set forth in paragraph 4.2.

“Assignment Agreements” means the agreements assigning ownership of the Assigned Patent Rights and the Abandoned Assets from the inventors and/or prior owners to Seller.

“Common Interest Agreement” means an agreement, in the form set forth on Exhibit E, setting forth the terms under which Seller and Purchaser will protect certain information relating to the Patents under the common interest privilege.

“Docket” means Seller’s or its agents’ list or other means of tracking information relating to the prosecution or maintenance of the Patents throughout the world, including, without limitation, the names, addresses, email addresses, and phone numbers of prosecution counsel and agents, and information relating to deadlines, payments, and filings, which list or other means of tracking information is current as of the Effective Date.

“Effective Date” means the date set forth as the Effective Date on the signature page of this Agreement.

“Executed Assignments” means both the executed and notarized Assignment of Patent Rights in Exhibit B, the executed Assignment of Rights in Certain Assets in Exhibit C, each as signed by a duly authorized representative of Seller, and the additional documents Seller may be required to execute and deliver under paragraph 5.3.

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“Live Assets” means the provisional patent applications, patent applications, and patents listed on Exhibits A and/or B (as such lists may be updated based on Purchaser’s review pursuant to paragraph 3.1).

“Patents” means, excluding the Abandoned Assets, all (a) Live Assets; (b) patents or patent applications (i) to which any of the Live Assets directly or indirectly claims priority, (ii) for which any of the Live Assets directly or indirectly forms a basis for priority, and/or (iii) that were co-owned applications that incorporate by reference, or are incorporated by reference into, the Live Assets (excluding patent [XXXX]*); (c) reissues, reexaminations, extensions, continuations, continuations in part, continuing prosecution applications, requests for continuing examinations, divisions, and registrations of any item in any of the foregoing categories (a) and (b); (d) foreign patents, patent applications and counterparts relating to any item in any of the foregoing categories (a) through (c), including, without limitation, certificates of invention, utility models, industrial design protection, design patent protection, and other governmental grants or issuances; and (e) any items in any of the foregoing categories (b) through (d) whether or not expressly listed as Live Assets and whether or not claims in any of the foregoing have been rejected, withdrawn, cancelled, or the like.

“Primary Warranties” means, collectively, the representations and warranties of Seller set forth in paragraphs 6.1, 6.2, 6.3, 6.4, and 6.5 hereof.

“Prosecution History Files” means all files, documents and tangible things, as those terms have been interpreted pursuant to rules and laws governing the production of documents and things, constituting, comprising or relating to the investigation, evaluation, preparation, prosecution, maintenance, defense, filing, issuance, registration, assertion or enforcement of the Patents.

“Transmitted Copy” has the meaning set forth in paragraph 8.12.

3. Transmittal, Review, Closing Conditions and Payment

3.1 Transmittal. Within twenty (20) calendar days following the later of the Effective Date or the date Purchaser receives a Transmitted Copy of this Agreement executed by Seller, Seller will send to Purchaser, or its legal counsel, the items identified on Exhibit D (the “Initial Deliverables”); provided, however, the Common Interest Agreement will not be required to be executed on behalf of the Seller if there are no pending patent applications included in the Patents. Seller acknowledges and agrees that Purchaser may request, and Seller will promptly deliver to Purchaser or its legal counsel, as directed by Purchaser, additional documents based on Purchaser’s review of the Initial Deliverables (such additional documents and the Initial Deliverables are, collectively, the “Deliverables”), and that as a result of Purchaser’s review, the lists of Live Assets on Exhibits A and B and the list of Abandoned Assets on Exhibit C, may be revised by Purchaser, with mutual agreement of Seller (evidenced by one or more Executed Assignments), both before and after the Closing to conform these lists to the definition of Patents (and these revisions may therefore require the inclusion of additional provisional patent applications, patent applications, and patents on Exhibit A and B or Exhibit C). To the extent any of the Live Assets are removed for any reason, the payment in paragraph 3.4 may be reduced by mutual agreement of the parties. If originals of the Deliverables are not available and delivered to Purchaser prior to Closing, Seller will cause (i) such originals of the Deliverables to be sent to Purchaser or Purchaser’s representative promptly if and after such originals are located and (ii) Seller will deliver to Purchaser a declaration, executed under penalty of perjury, detailing Seller’s efforts to locate such unavailable original documents and details regarding how delivered copies were obtained.

*Filed under an application for confidential treatment.

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3.2 Closing. The closing of the sale of the Assigned Patent Rights and the assignment of the Abandoned Assets hereunder will occur when all conditions set forth in paragraph 3.3 have been satisfied or waived and the payment set forth in paragraph 3.4 is made (the “Closing”). Purchaser and Seller will use reasonable efforts to carry out the Closing within sixty (60) calendar days following the later of the Effective Date or the date on which the last of the Deliverables was received by Purchaser.

3.3 Closing Conditions. The following are conditions precedent to Purchaser’s obligation to make the payment in paragraph 3.4.

(a)

Signature by Seller. Seller timely executed this Agreement and delivered a Transmitted Copy of this Agreement to Purchaser’s representatives by not later than May 28, 2008 at 5:00 p.m., Pacific time and promptly delivered two (2) executed originals of this Agreement to Purchaser’s representatives.

(b)

Transmittal of Documents. Seller delivered to Purchaser all the Deliverables.

(c)

Compliance With Agreement. Seller performed and complied in all respects with all of the obligations under this Agreement that are to be performed or complied with by it on or prior to the Closing.

(d)

Representations and Warranties True. Purchaser is satisfied that, as of the Effective Date and as of the Closing, the representations and warranties of Seller contained in Section 6 are true and correct.

(e)

Patents Not Abandoned. Purchaser is satisfied that, as of the Effective Date and as of the Closing, none of the assets that are included in the Patents have expired, lapsed, been abandoned, or deemed withdrawn.

(f)

Delivery of Executed Assignments. Seller caused the Executed Assignments to be delivered to Purchaser’s representatives.

3.4 Payment. At Closing, Purchaser will pay to Seller the amount of One Million Seventy Five Thousand U.S. Dollars (US $1,075,000) by wire transfer. Prior to Closing, Seller will furnish Purchaser with all necessary information to make a wire transfer to a designated bank account of Seller. Purchaser may record the Executed Assignments with the applicable patent offices only on or after Closing.

3.5 Termination and Survival. In the event all conditions to Closing set forth in paragraph 3.3 are not met within ninety (90) days following the Effective Date, Purchaser will have the right to terminate this Agreement by written notice to Seller. Upon termination, Purchaser will return all documents delivered to Purchaser under this Section 3 to Seller. The provisions of Section 8 will survive any termination.

4. Transfer of Patents and Additional Rights

4.1 Assignment of Patents. Upon the Closing, Seller hereby sells, assigns, transfers, and conveys to Purchaser all right, title, and interest in and to the Assigned Patent Rights. Seller understands and acknowledges that, if any of the Patents are assigned to Seller’s affiliates or subsidiaries, Seller may be required prior to the Closing to perform certain actions to establish that Seller is the assignee and to record such assignments. On or before Closing, Seller will execute and deliver to Purchaser the Assignment of Patent Rights in the form set forth in Exhibit B (as may be updated based on Purchaser’s review pursuant to paragraph 3.1).

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4.2 Assignment of Additional Rights. Upon the Closing, Seller hereby also sells, assigns, transfers, and conveys to Purchaser all right, title and interest in and to all

(a)

inventions, invention disclosures, and discoveries described in any of the Patents or Abandoned Assets that (i) are included in any claim in the Patents or Abandoned Assets, (ii) are subject matter capable of being reduced to a patent claim in a reissue or reexamination proceedings brought on any of the Patents or Abandoned Assets, and/or (iii) could have been included as a claim in any of the Patents or Abandoned Assets;

(b)

rights to apply in any or all countries of the world for patents, certificates of invention, utility models, industrial design protections, design patent protections, or other governmental grants or issuances of any type related to any of the Patents and the inventions, invention disclosures, and discoveries therein;

(c)

causes of action (whether known or unknown or whether currently pending, filed, or otherwise) and other enforcement rights under, or on account of, any of the Patents and/or the rights described in subparagraph 4.2(b), including, without limitation, all causes of action and other enforcement rights for (i) damages, (ii) injunctive relief, and (iii) any other remedies of any kind for past, current and future infringement; and

(d)

rights to collect royalties or other payments under or on account of any of the Patents and/or any of the foregoing.

4.3 Assignment of Rights in Certain Assets. Upon the Closing, Seller hereby sells, assigns, transfers, and conveys to Purchaser all of Seller’s right, title, and interest in and to the Abandoned Assets. On or before Closing, Seller will execute and deliver to Purchaser the Assignment of Certain Rights in the form set forth in Exhibit C (as may be updated based on Purchaser’s review pursuant to paragraph 3.1).

4.4 License Back to Seller under Patents. Upon the Closing, Purchaser hereby grants to Seller, under the Patents, and for the lives thereof, a royalty-free, non-exclusive, non-sublicensable, right and license (“Seller License”) to practice the methods and to make, have made, use, distribute, lease, sell, offer for sale, import, export, develop and otherwise dispose of and exploit any Seller products covered by the Patents (“Covered Products”). The Seller License shall apply to the reproduction and subsequent distribution of Covered Products under Seller’s trademarks and brands, in substantially identical form as they are distributed by the Seller, by authorized agents of the Seller such as a distributor, replicator, VAR or OEM. The Seller acknowledges and agrees that the Seller License is not intended to cover foundry or contract manufacturing activities that the Seller may undertake on behalf of any person that is not the Seller. As a result, Covered Products shall exclude any products or services manufactured, produced or provided by the Seller on behalf of any person that is not the Seller (a) from designs received in substantially completed form from a source other than the Seller and (b) for resale to such person that is not the Seller (or to customers of, or as directed by, any person that is not the Seller) on essentially an exclusive basis.

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5. Additional Obligations

5.1 Further Cooperation.

(a) At the reasonable request of Purchaser, Seller will execute and deliver such other instruments and do and perform such other acts and things as may be necessary or desirable for effecting completely the consummation of the transactions contemplated hereby, including, without limitation, execution, acknowledgment, and recordation of other such papers, and using commercially reasonable efforts to obtain the same from the respective inventors, as necessary or desirable for fully perfecting and conveying unto Purchaser the benefit of the transactions contemplated hereby.

(b) To the extent any attorney-client privilege or the attorney work-product doctrine applies to any portion of the Prosecution History Files and that is retained after Closing under Seller or Seller’s representatives normal document retention policy, Seller will ensure that, if any such portion of the Prosecution History File remains under Seller’s possession or control after Closing, it is not disclosed to any third party unless (a) disclosure is ordered by a court of competent jurisdiction, after all appropriate appeals to prevent disclosure have been exhausted, and (b) Seller gave Purchaser prompt notice upon learning that any third party sought or intended to seek a court order requiring the disclosure of any such portion of the Prosecution History File. In addition, Seller will continue to prosecute, maintain, and defend the Patents at its sole expense until the Closing.

(c) Seller will also, at the reasonable request of Purchaser after Closing, assist Purchaser in providing, and obtaining, from the respective inventors, prompt production of pertinent facts and documents, otherwise giving of testimony, execution of petitions, oaths, powers of attorney, specifications, declarations or other papers and other assistance reasonably necessary for filing patent applications, enforcement or other actions and proceedings respect to the claims under the Patents. Purchaser shall compensate Seller for any reasonable, documented disbursements and time incurred after Closing in connection with providing assistance under this subparagraph 5.1(c) in connection with any enforcement or other infringement action regarding the Patents, under a standard billable hour rate of Seller; provided that Seller shall have furnished Purchaser an advance, written estimate of the fees and costs for such assistance and Purchaser shall have agreed in writing to pay such fees and costs.

5.2 Payment of Fees. Seller will pay any maintenance fees, annuities, and the like due or payable on the Patents until the Closing. For the avoidance of doubt, Seller shall pay any maintenance fees for which the fee is payable (e.g., the fee payment window opens) on or prior to the Closing even if the surcharge date or final deadline for payment of such fee would be after the Closing. Seller hereby gives Purchaser power-of-attorney to (a) execute documents in the name of Seller in order to effectuate the recordation of the transfers of any portion of the Patents in an governmental filing office in the world and (b) instruct legal counsel to take steps to pay maintenance fees and annuities that Seller declines to pay and to make filings on behalf of Seller prior to Closing and otherwise preserve the assets through Closing.

5.3 Foreign Assignments. To the extent the Patents include non-United States patents and patent applications, Seller will deliver to Purchaser’s representatives executed documents in a form as may be required in the non-U.S jurisdiction in order to perfect the assignment to Purchaser of the non-U.S. patents and patent applications.

Page 5

6. Representations and Warranties of Seller

Seller hereby represents and warrants to Purchaser as follows that, as of the Effective Date and as of the Closing:

6.1 Authority. Seller is a company duly formed, validly existing, and in good standing under the laws of the jurisdiction of its formation. Seller has the full power and authority and has obtained all third party consents, approvals, and/or other authorizations required to enter into this Agreement and to carry out its obligations hereunder, including, without limitation, the assignment of the Assigned Patent Rights to Purchaser.

6.2 Title and Contest. Seller owns all right, title, and interest to the Assigned Patent Rights, including, without limitation, all right, title, and interest to sue for infringement of the Patents. Seller has obtained and properly recorded previously executed assignments for the Patents as necessary to fully perfect its rights and title therein in accordance with governing law and regulations in each respective jurisdiction. The Assigned Patent Rights are free and clear of all liens, claims, mortgages, security interests or other encumbrances, and restrictions. There are no actions, suits, investigations, claims, or proceedings threatened, pending, or in progress relating in any way to the Assigned Patent Rights. There are no existing contracts, agreements, options, commitments, proposals, bids, offers, or rights with, to, or in any person to acquire any of the Assigned Patent Rights.

6.3 Existing Licenses and Obligations. There is no obligation imposed by a standards-setting organization to license any of the Patents on particular terms or conditions. No licenses under the Patents have been granted or retained by Seller, any prior owners, or inventors. After Closing, none of Seller, any prior owner, or any inventor retain any rights or interest in the Assigned Patent Rights as of Closing.

6.4 Restrictions on Rights. Purchaser will not be subject to any covenant not to sue or similar restrictions on its enforcement or enjoyment of the Assigned Patent Rights or the Abandoned Assets as a result of any prior transaction related to the Assigned Patent Rights or the Abandoned Assets.

6.5 Validity and Enforceability. None of the Patents or the Abandoned Assets (other than Abandoned Assets for which abandonment resulted solely from unpaid fees and/or annuities) has ever been found invalid, unpatentable, or unenforceable for any reason in any administrative, arbitration, judicial or other proceeding, and, with the exception of publicly available documents in the applicable patent office recorded with respect to Patents, Seller does not know of and has not received any notice or information of any kind from any source suggesting that the Patents may be invalid, unpatentable, or unenforceable. If any of the Patents are terminally disclaimed to another patent or patent application, all patents and patent applications subject to such terminal disclaimer are included in this transaction. To the extent “small entity” fees were paid to the United States Patent and Trademark Office for any Patent, such reduced fees were then appropriate because the payor qualified to pay “small entity” fees at the time of such payment and specifically had not licensed rights in the any Patent to an entity that was not a “small entity.”

6.6 Conduct. None of Seller, prior owner or their respective agents or representatives have engaged in any conduct, or omitted to perform any necessary act, the result of which would invalidate any of the Patents or hinder their enforcement, including, without limitation, misrepresenting the Patents to a standard-setting organization.

Page 6

6.7 Enforcement. Seller has not put a third party on notice of actual or potential infringement of any of the Patents or the Abandoned Assets. Seller has not invited any third party to enter into a license under any of the Patents or the Abandoned Assets. Seller has not initiated any enforcement action with respect to any of the Patents or the Abandoned Assets.

6.8 Patent Office Proceedings. None of the Patents or the Abandoned Assets has been or is currently involved in any reexamination, reissue, interference proceeding, or any similar proceeding, and no such proceedings are pending or threatened.

6.9 Fees. All maintenance fees, annuities, and the like due or payable on the Patents have been timely paid. For the avoidance of doubt, such timely payment includes payment of any maintenance fees for which the fee is payable (e.g., the fee payment window opens) even if the surcharge date or final deadline for payment of such fee would be in the future.

6.10 Abandoned Assets. According to each applicable patent office, each of the Abandoned Assets has expired, lapsed, or been abandoned or deemed withdrawn.

7. Representations and Warranties of Purchaser

Purchaser hereby represents and warrants to Seller as follows that, as of the Effective Date and as of the Closing:

7.1 Purchaser is a limited liability company duly formed, validly existing, and in good standing under the laws of the jurisdiction of its formation.

7.2 Purchaser has all requisite power and authority to (i) enter into, execute, and deliver this Agreement and (ii) perform fully its obligations hereunder.

8. Miscellaneous

8.1 Limitation of Liability. EXCEPT IN THE EVENT OF BREACH OF ANY OF THE PRIMARY WARRANTIES BY SELLER OR SELLER’S INTENTIONAL MISREPRESENTATION, SELLER’S TOTAL LIABILITY UNDER THIS AGREEMENT WILL NOT EXCEED THE PURCHASE PRICE SET FORTH IN PARAGRAPH 3.4 OF THIS AGREEMENT. PURCHASER’S TOTAL LIABILITY UNDER THIS AGREEMENT WILL NOT EXCEED THE PURCHASE PRICE SET FORTH IN PARAGRAPH 3.4 OF THIS AGREEMENT. THE PARTIES ACKNOWLEDGE THAT THE LIMITATIONS ON POTENTIAL LIABILITIES SET FORTH IN THIS PARAGRAPH 8.1 WERE AN ESSENTIAL ELEMENT IN SETTING CONSIDERATION UNDER THIS AGREEMENT.

8.2 Limitation on Consequential Damages. EXCEPT IN THE EVENT OF SELLER’S INTENTIONAL MISREPRESENTATION, NEITHER PARTY WILL HAVE ANY OBLIGATION OR LIABILITY (WHETHER IN CONTRACT, WARRANTY, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, AND NOTWITHSTANDING ANY FAULT, NEGLIGENCE (WHETHER ACTIVE, PASSIVE OR IMPUTED), REPRESENTATION, STRICT LIABILITY OR PRODUCT LIABILITY), FOR COVER OR FOR ANY INCIDENTAL, INDIRECT OR CONSEQUENTIAL, MULTIPLIED, PUNITIVE, SPECIAL, OR EXEMPLARY DAMAGES OR LOSS OF REVENUE, PROFIT, SAVINGS OR BUSINESS ARISING FROM OR OTHERWISE RELATED TO THIS AGREEMENT, EVEN IF A PARTY OR ITS REPRESENTATIVES HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE PARTIES ACKNOWLEDGE THAT THESE EXCLUSIONS OF POTENTIAL DAMAGES WERE AN ESSENTIAL ELEMENT IN SETTING CONSIDERATION UNDER THIS AGREEMENT.

Page 7

8.3 Compliance With Laws. Notwithstanding anything contained in this Agreement to the contrary, the obligations of the parties with respect to the consummation of the transactions contemplated by this Agreement shall be subject to all laws, present and future, of any government having jurisdiction over the parties and this transaction, and to orders, regulations, directions or requests of any such government.

8.4 Confidentiality of Terms. The parties hereto will keep the terms and existence of this Agreement and the identities of the parties hereto and their affiliates confidential and will not now or hereafter divulge any of this information to any third party except (a) with the prior written consent of the other party; (b) as otherwise may be required by law or legal process; (c) during the course of litigation, so long as the disclosure of such terms and conditions is restricted in the same manner as is the confidential information of other litigating parties; (d) in confidence to its legal counsel, accountants, banks, and financing sources and their advisors solely in connection with complying with or administering its obligations with respect to this Agreement; (e) by Purchaser, to potential purchasers or licensees of the Assigned Patent Rights or the Abandoned Assets; (f) in order to perfect Purchaser’s interest in the Assigned Patent Rights or the Abandoned Assets with any governmental patent office (including, without limitation, recording the Executed Assignments in any governmental patent office); or (f) to enforce Purchaser’s right, title, and interest in and to the Assigned Patent Rights or the Abandoned Assets; provided that, in (b) and (c) above, (i) to the extent permitted by law, the disclosing party will use all legitimate and legal means available to minimize the disclosure to third parties, including, without limitation, seeking a confidential treatment request or protective order whenever appropriate or available; and (ii) the disclosing party will provide the other party with at least ten (10) days’ prior written notice of such disclosure. Without limiting the foregoing, Seller will cause its agents involved in this transaction to abide by the terms of this paragraph, including, without limitation, ensuring that such agents do not disclose or otherwise publicize the existence of this transaction with actual or potential clients in marketing materials, or industry conferences.

8.5 Governing Law; Venue/Jurisdiction. This Agreement will be interpreted, construed, and enforced in all respects in accordance with the laws of the State of Delaware, without reference to its choice of law principles to the contrary. Seller will not commence or prosecute any action, suit, proceeding or claim arising under or by reason of this Agreement other than in the state or federal courts located in Delaware. Seller irrevocably consents to the jurisdiction and venue of the courts identified in the preceding sentence in connection with any action, suit, proceeding, or claim arising under or by reason of this Agreement.

8.6 Notices. All notices given hereunder will be given in writing (in English or with an English translation), will refer to Purchaser and to this Agreement and will be delivered to the address set forth below by (i) personal delivery, (ii) delivery postage prepaid by an internationally-recognized express courier service:

If to Purchaser		If to Seller
EPAX Consulting Limited Liability		Wegener Communications, Inc.
Company		11350 Technology Circle
2711 Centerville Road, Suite 400		Duluth, GA 30097
Wilmington, DE 19808
Attn: Managing Director		Attn: Robert A. Placek

Notices are deemed given on (a) the date of receipt if delivered personally or by express courier or (b) if delivery is refused, the date of refusal. Notice given in any other manner will be deemed to have been given only if and when received at the address of the person to be notified. Either party may from time to time change its address for notices under this Agreement by giving the other party written notice of such change in accordance with this paragraph.

Page 8

8.7 Relationship of Parties. The parties hereto are independent contractors. Nothing in this Agreement will be construed to create a partnership, joint venture, franchise, fiduciary, employment or agency relationship between the parties. Neither party has any express or implied authority to assume or create any obligations on behalf of the other or to bind the other to any contract, agreement or undertaking with any third party.

8.8. Equitable Relief. Seller acknowledges and agrees that damages alone would be insufficient to compensate Purchaser for a breach by Seller of this Agreement and that irreparable harm would result from a breach of this Agreement. Seller hereby consents to the entering of an order for injunctive relief to prevent a breach or further breach, and the entering of an order for specific performance to compel performance of any obligations under this Agreement.

8.9 Severability. If any provision of this Agreement is found to be invalid or unenforceable, then the remainder of this Agreement will have full force and effect, and the invalid provision will be modified, or partially enforced, to the maximum extent permitted to effectuate the original objective.

8.10 Waiver. Failure by either party to enforce any term of this Agreement will not be deemed a waiver of future enforcement of that or any other term in this Agreement or any other agreement that may be in place between the parties.

8.11 Miscellaneous. This Agreement, including its exhibits and related letter agreements, constitutes the entire agreement between the parties with respect to the subject matter hereof and merges and supersedes all prior and contemporaneous agreements, understandings, negotiations, and discussions. Neither of the parties will be bound by any conditions, definitions, warranties, understandings, or representations with respect to the subject matter hereof other than as expressly provided herein. The section headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement. This Agreement is not intended to confer any right or benefit on any third party (including, but not limited to, any employee or beneficiary of any party), and no action may be commenced or prosecuted against a party by any third party claiming as a third-party beneficiary of this Agreement or any of the transactions contemplated by this Agreement. No oral explanation or oral information by either party hereto will alter the meaning or interpretation of this Agreement. No amendments or modifications will be effective unless in a writing signed by authorized representatives of both parties. The terms and conditions of this Agreement will prevail notwithstanding any different, conflicting or additional terms and conditions that may appear on any letter, email or other communication or other writing not expressly incorporated into this Agreement. The following exhibits are attached hereto and incorporated herein: Exhibit A (entitled “Patents to be Assigned”); Exhibit B (entitled “Assignment of Patent Rights”); Exhibit C (entitled “Assignment of Rights in Certain Assets”); Exhibit D (entitled “List of Initial Deliverables”); Exhibit E (entitled “Common Interest Agreement”); and Exhibit F (entitled “Press Release”).

8.12 Counterparts; Electronic Signature; Delivery Mechanics. This Agreement may be executed in counterparts, each of which will be deemed an original, and all of which together constitute one and the same instrument. Each party will execute and promptly deliver to the other parties a copy of this Agreement bearing the original signature. Prior to such delivery, in order to expedite the process of entering into this Agreement, the parties acknowledge that a Transmitted Copy of this Agreement will be deemed an original document. “Transmitted Copy” means a copy bearing a signature of a party that is reproduced or transmitted via email of a pdf file, photocopy, facsimile, or other process of complete and accurate reproduction and transmission.

Page 9

8.13 Publicity and SEC Reporting. Seller may make one public announcement contemporaneously with the Closing, which announcements will be substantially of the form set forth in Exhibit F. Seller shall submit any such proposed announcement to Purchaser at least three (3) business days prior to its making such an announcement for Purchaser’s review and approval, which approval shall not be unreasonably withheld by Purchaser so long as such proposed announcement substantially conforms to Exhibit F. After the Effective Date, Seller shall have the right to file the statement set forth on Exhibit F with Seller’s Form 8-K filing with the Securities Exchange Commission (“SEC”). In any required filing with the SEC, Seller will include only those portions of this Agreement that are required to be filed with the SEC pursuant to applicable laws and regulations. In witness whereof, intending to be legally bound, the parties have executed this Patent Purchase Agreement as of the Effective Date.

SELLER:		PURCHASER:

WEGENER CORPORATION		EPAX Consulting Limited Liability
		Company

By:	/s/ Robert A. Placek	By:	/s/ Melissa Coleman
Name:	Robert A. Placek	Name:	Melissa Coleman
Title:	Chief Executive Officer	Title:	Authorized Agent

Effective Date: May 22, 2008

Page 10

Exhibit A

PATENTS TO BE ASSIGNED

Patent or Application			Title of Patent and First
No.	Country	Filing Date	Named Inventor

[XXXX]*	US	[XXXX]*	[XXXX]*

[XXXX]*	US	[XXXX]*	[XXXX]*

[XXXX]*	US	[XXXX]*	[XXXX]*

[XXXX]*	US	[XXXX]*	[XXXX]*

[XXXX]*	US	[XXXX]*	[XXXX]*

[XXXX]*	US	[XXXX]*	[XXXX]*

[XXXX]*	US	[XXXX]*	[XXXX]*

*Filed under an application for confidential treatment.

Exhibit B

ASSIGNMENT OF PATENT RIGHTS

For good and valuable consideration, the receipt of which is hereby acknowledged, Wegener Communications, Inc., a Delaware corporation, with an office at 11350 Technology Circle, Duluth, GA 30097 (“Assignor”), does hereby sell, assign, transfer, and convey unto EPAX Consulting Limited Liability Company, a Delaware limited liability company, having an address at 2711 Centerville Road, Suite 400, Wilmington, DE 19808 (“Assignee”), or its designees, all right, title, and interest that exist today and may exist in the future in and to any and all of the following (collectively, the “Patent Rights”):

(a) the provisional patent applications, patent applications and patents listed in the table below (the “Patents”);

(b) all patents and patent applications (i) to which any of the Patents directly or indirectly claims priority, and/or (ii) for which any of the Patents directly or indirectly forms a basis for priority, and/or (iii) that were co-owned applications that incorporate by reference, or are incorporated by reference into, the Patents (excluding patent [XXXX]*).

(c) all reissues, reexaminations, extensions, continuations, continuations in part, continuing prosecution applications, requests for continuing examinations, divisions, registrations of any item in any of the foregoing categories (a) and (b);

(d) all foreign patents, patent applications, and counterparts relating to any item in any of the foregoing categories (a) through (c), including, without limitation, certificates of invention, utility models, industrial design protection, design patent protection, and other governmental grants or issuances;

(e) all items in any of the foregoing in categories (b) through (d), whether or not expressly listed as Patents below and whether or not claims in any of the foregoing have been rejected, withdrawn, cancelled, or the like;

(f) inventions, invention disclosures, and discoveries described in any of the Patents and/or any item in the foregoing categories (b) through (e) that (i) are included in any claim in the Patents and/or any item in the foregoing categories (b) through (e), (ii) are subject matter capable of being reduced to a patent claim in a reissue or reexamination proceedings brought on any of the Patents and/or any item in the foregoing categories (b) through (e), and/or (iii) could have been included as a claim in any of the Patents and/or any item in the foregoing categories (b) through (e);

(g) all rights to apply in any or all countries of the world for patents, certificates of invention, utility models, industrial design protections, design patent protections, or other governmental grants or issuances of any type related to any item in any of the foregoing categories (a) through (f), including, without limitation, under the Paris Convention for the Protection of Industrial Property, the International Patent Cooperation Treaty, or any other convention, treaty, agreement, or understanding;

(h) all causes of action (whether known or unknown or whether currently pending, filed, or otherwise) and other enforcement rights under, or on account of, any of the Patents and/or any item in any of the foregoing categories (b) through (g), including, without limitation, all causes of action and other enforcement rights for

*Filed under an application for confidential treatment.

(1) damages,

(2) injunctive relief, and

(3) any other remedies of any kind

for past, current, and future infringement; and

(i) all rights to collect royalties and other payments under or on account of any of the Patents and/or any item in any of the foregoing categories (b) through (h).

Patent or Application			Title of Patent and First
No.	Country	Filing Date	Named Inventor

[XXXX]*	US	[XXXX]*	[XXXX]*

[XXXX]*	US	[XXXX]*	[XXXX]*

[XXXX]*	US	[XXXX]*	[XXXX]*

[XXXX]*	US	[XXXX]*	[XXXX]*

[XXXX]*	US	[XXXX]*	[XXXX]*

[XXXX]*	US	[XXXX]*	[XXXX]*

[XXXX]*	US	[XXXX]*	[XXXX]*

*Filed under an application for confidential treatment.

Assignor represents, warrants and covenants that:

(1) Assignor has the full power and authority, and has obtained all third party consents, approvals and/or other authorizations required to enter into this Agreement and to carry out its obligations hereunder, including the assignment of the Patent Rights to Assignee; and

(2) Assignor owns, and by this document assigns to Assignee, all right, title, and interest to the Patent Rights, including, without limitation, all right, title, and interest to sue for infringement of the Patent Rights. Assignor has obtained and properly recorded previously executed assignments for the Patent Rights as necessary to fully perfect its rights and title therein in accordance with governing law and regulations in each respective jurisdiction. The Patent Rights are free and clear of all liens, claims, mortgages, security interests or other encumbrances, and restrictions. There are no actions, suits, investigations, claims or proceedings threatened, pending or in progress relating in any way to the Patent Rights. There are no existing contracts, agreements, options, commitments, proposals, bids, offers, or rights with, to, or in any person to acquire any of the Patent Rights.

Assignor hereby authorizes the respective patent office or governmental agency in each jurisdiction to issue any and all patents, certificates of invention, utility models or other governmental grants or issuances that may be granted upon any of the Patent Rights in the name of Assignee, as the assignee to the entire interest therein.

Assignor will, at the reasonable request of Assignee and without demanding any further consideration therefore, do all things necessary, proper, or advisable, including without limitation, the execution, acknowledgment, and recordation of specific assignments, oaths, declarations, and other documents on a country-by-country basis, to assist Assignee in obtaining, perfecting, sustaining, and/or enforcing the Patent Rights. The terms and conditions of this Assignment of Patent Rights will inure to the benefit of Assignee, its successors, assigns, and other legal representatives and will be binding upon Assignor, its successors, assigns, and other legal representatives.

IN WITNESS WHEREOF this Assignment of Patent Rights is executed at Duluth, GA on May 27, 2008.

ASSIGNOR:

Wegener Communications, Inc.

By:	/s/ Robert A. Placek
Name:	Robert A. Placek
Title:	Chief Executive Officer

(Signature MUST be notarized)

STATE OF GEORGIA )

) ss.

COUNTY OF FORSYTH )

On May 27, 2008, before me, Barbara H. Sloth, Notary Public in and for said State, personally appeared Robert A. Placek, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

WITNESS my hand and official seal.

Signature

/s/ Barbara H. Sloth (SEAL)

Exhibit C

ASSIGNMENT OF RIGHTS IN CERTAIN ASSETS

For good and valuable consideration, the receipt of which is hereby acknowledged, Wegener Communications, Inc., a Delaware corporation, with an office at 11350 Technology Circle, Duluth, GA 30097 (“Assignor”), does hereby sell, assign, transfer, and convey unto EPAX Consulting Limited Liability Company, a Delaware limited liability company, having an address at 2711 Centerville Road, Suite 400, Wilmington, DE 19808 (“Assignee”), or its designees, the right, title, and interest in and to any and all of the following provisional patent applications, patent applications, patents, and other governmental grants or issuances of any kind (the “Certain Assets”):

Patent or Application			Title of Patent and First
No.	Country	Filing Date	Named Inventor

[XXXX]*	US	[XXXX]*	[XXXX]*

[XXXX]*	US	[XXXX]*	[XXXX]*

[XXXX]*	WO	[XXXX]*	[XXXX]*

[XXXX]*	WO	[XXXX]*	[XXXX]*

[XXXX]*	WO	[XXXX]*	[XXXX]*

[XXXX]*	WO	[XXXX]*	[XXXX]*

Assignor assigns to Assignee all rights to the inventions, invention disclosures, and discoveries in the assets listed above, together, with the rights, if any, to revive prosecution of claims under such assets and to sue or otherwise enforce any claims under such assets for past, present or future infringement.

*Filed under an application for confidential treatment.

Assignor hereby authorizes the respective patent office or governmental agency in each jurisdiction to make available to Assignee all records regarding the Certain Assets.

The terms and conditions of this Assignment of Rights in Certain Assets will inure to the benefit of Assignee, its successors, assigns, and other legal representatives and will be binding upon Assignor, its successors, assigns, and other legal representatives.

DATED this 27 day of May 2008.

ASSIGNOR:

Wegener Communications, Inc.

By:	/s/ Robert A. Placek
Name:	Robert A. Placek
Title:	Chief Executive Officer

Exhibit D

LIST OF INITIAL DELIVERABLES

Seller will cause the following to be delivered to Purchaser, or Purchaser’s representative, within the time provided in paragraph 3.1 of the attached Patent Purchase Agreement:

(a) U.S. Patents. For each item of the Patents that is an issued United States patent, and for each Abandoned Asset that forms the basis for priority for such issued U.S. patent (whether a patent or similar protection has been issued or granted),

(i) the original

(A) ribbon copy issued by the United States Patent and Trademark Office,

(B) Assignment Agreement(s),

(ii) a copy of

(A) the Docket,

(B) each relevant license and security agreement;

(b) Non-U.S. for each Live Asset for which a non-United States patent or similar protection has been issued or granted,

(i)

the original ribbon copy or certificate issued by the applicable government, if available

(ii)

copy of each pending foreign application

(iii)

the Docket,

(iv)

the original Assignment Agreement(s),

(v)

a copy of applicant name change, if necessary, and

(vi)

a copy of each relevant license and security agreement

(i)

a copy of the patent application, as filed,

(ii)

if unpublished, a copy of the filing receipt and the non-publication request, if available,

(iii)

the original Assignment Agreement(s),

(iv)

the Docket,

(v)

all available conception and reduction to practice materials,

(vi)

evidence of foreign filing license (or denial thereof),

(vii)

a copy of each relevant license and security agreement, and

(viii)

the Prosecution History Files;

(d) Common Interest Agreement. Seller will deliver any Initial Deliverables to be delivered by Seller under paragraph (c) above to Purchaser’s legal counsel, together with two (2) executed originals of the Common Interest Agreement.

(e) Thorough Search/Declaration. If originals of the Initial Deliverables are not available and delivered to Purchaser prior to Closing, Seller will cause (i) such originals of the Initial Deliverables to be sent to Purchaser or Purchaser’s representative promptly if and after such originals are located and (ii) an appropriate executive officer of Seller to deliver to Purchaser an declaration, executed by such officer under penalty of perjury, detailing Seller’s efforts to locate such unavailable original documents and details regarding how delivered copies were obtained; and

Capitalized terms used in this Exhibit D are defined in the Patent Purchase Agreement to which this Exhibit D is attached.

Exhibit E

COMMON INTEREST AGREEMENT

THIS COMMON INTEREST AGREEMENT (“Agreement”) is entered into between the undersigned legal counsel (“Counsel”), for themselves and on behalf of the parties they represent (as indicated below).

1. Background.

1.1 EPAX Consulting Limited Liability Company, a Delaware limited liability company (“Purchaser”) and Wegener Communications, Inc., a Delaware company (“Seller”) (Purchaser and Seller are sometimes hereafter referred to herein as a “party” or the “parties”), have entered into an agreement under which Purchaser will acquire all substantial rights of Seller in certain patent applications filed or to be filed throughout the world (the “Patent Matters”).

1.2 The parties have a common interest in the Patent Matters and have agreed to treat their communications and those of their Counsel relating to the Patent Matters as protected by the common interest privilege. Furtherance of the Patent Matters requires the exchange of proprietary documents and information, the joint development of legal strategies and the exchange of attorney work product developed by the parties and their respective Counsel.

2. Common Interest.

2.1 The parties have a common, joint and mutual legal interest in cooperating with each other, to the extent permitted by law, to share information protected by the attorney-client privilege and by the work product doctrine with respect to the Patent Matters. Any counsel or consultant retained by a party or their Counsel to assist in the Patent Matters shall be bound by, and entitled to the benefits of, this Agreement.

2.2 In order to further their common interest, the parties and their Counsel shall exchange privileged and work product information, orally and in writing, including, without limitation, factual analyses, mental impressions, legal memoranda, source materials, draft legal documents, prosecution history files and other information (hereinafter “Common Interest Materials”). The sole purpose for the exchange of the Common Interest Materials is to support the parties’ common interest with respect to the prosecution and enforcement of the Patent Matters. Any Common Interest Materials exchanged shall continue to be protected under all applicable privileges and no such exchange shall constitute a waiver of any applicable privilege or protection.

3. Nondisclosure.

3.1 The parties and their Counsel shall use the Common Interest Materials solely in connection with the Patent Matters and shall take appropriate steps to protect the privileged and confidential nature of the Common Interest Materials. Neither client nor their respective Counsel shall produce privileged documents or information unless or until directed to do so by a final order of a court of competent jurisdiction, or upon the prior written consent of the other party. No privilege or objection shall be waived by a party hereunder without the prior written consent of the other party. The obligations under this paragraph will not apply either to Purchaser after closing of the acquisition of the Patent Matters or to Seller with respect to any dispute with Purchaser related to such potential acquisition.

3.2 Except as herein provided, in the event that either party or their Counsel is requested or required in the context of a, litigation, governmental, judicial or regulatory investigation or other similar proceedings (by oral questions, interrogatories, requests for information or documents, subpoenas, civil investigative demands or similar process) to disclose any Common Interest Materials, the party or their Counsel shall immediately inform the other party and their Counsel and shall assert all applicable privileges, including, without limitation, the common interest doctrine, the joint prosecution privilege.

4. Relationship; Additions; Termination.

4.1 This Agreement does not create any agency or similar relationship among the parties. Through the Closing (as defined in the Patent Purchase Agreement executed by Purchaser and Seller), neither party nor their respective Counsel has the authority to waive any applicable privilege or doctrine on behalf of any other party.

4.2 Nothing in this Agreement affects the separate and independent representation of each party by its respective Counsel or creates an attorney client relationship between the Counsel for a party and the other party to this Agreement.

4.3 This Agreement shall continue until terminated upon the written request of either party. Upon termination, each party and their respective Counsel shall return any Common Interest Materials furnished by the other party. Notwithstanding termination, this Agreement shall continue to protect all Common Interest Materials disclosed prior to termination. Sections 3 and 5 shall survive termination of this Agreement.

5. General Terms.

5.1 This Agreement is governed by the laws of the State of Delaware, without regard to its choice of law principles to the contrary. In the event any provision of this Agreement is held by any court of competent jurisdiction to be illegal, void or unenforceable, the remaining terms shall remain in effect. Failure of either party to enforce any provision of this Agreement shall not be deemed a waiver

of future enforcement of that or any other provision.

5.2 The parties agree that a breach of this Agreement would result in irreparable injury, that money damages would not be a sufficient remedy and that the disclosing party shall be entitled to equitable relief, including injunctive relief, as a non-exclusive remedy for any such breach.

5.3 Notices given under this Agreement shall be given in writing and delivered by messenger or overnight delivery service to a party and their respective Counsel at their last known address, and shall be deemed to have been given on the day received.

5.4 This Agreement is effective and binding upon each party as of the date it is signed by or on behalf of a party and may be amended only by a writing signed by or on behalf of each party. This Agreement may be executed in counterparts. Any signature reproduced or transmitted via email of a pdf file, photocopy, facsimile or other process of complete and accurate reproduction and transmission shall be considered an original for purposes of this Agreement.

This Agreement is being executed by each of the undersigned Counsel with the fully informed authority and consent of the respective party it represents.

Counsel for EPAX Consulting Limited Liability		Counsel for Wegener Communications, Inc.
Company

By:			By:

Date:			Date:

Exhibit F

PRESS RELEASE

After execution by both parties:

[City, State], [Date]/PRNewswire-FirstCall/ — Wegener Communications, Inc. announced today that it has signed an agreement to sell selected patents and patent applications to EPAX Consulting Limited Liability Company for net proceeds of approximately $1,075,000, subject to customary closing conditions. The patents and patent applications sold relate to Wegener Communications, Inc.’s Wegener Communications, Inc. retains a non-exclusive license under the patents for the

At Closing:

[City, State], [Date]/PRNewswire-FirstCall/ — Wegener Communications, Inc. announced today that it has completed the sale of selected patents and patent applications to EPAX Consulting Limited Liability Company for net proceeds of approximately $1,075,000. The patents and patent applications sold relate to Wegener Communications, Inc.’s Wegener Communications, Inc. retains a non-exclusive license under the patents for the .

EX-31.1 3 v119473_ex31-1.htm

EXHIBIT 31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Robert A. Placek, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Wegener Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

	Date: July 10, 2008

	/s/ Robert A. Placek

	Name:	Robert A. Placek
	Title:	Chairman of the Board, President and
		Chief Executive Officer

EX-31.2 4 v119473_ex31-2.htm

EXHIBIT 31.2

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, C. Troy Woodbury, Jr., certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Wegener Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

(b)

(c)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

		Date: July 10, 2008

		/s/ C. Troy Woodbury, Jr.

		Name: C. Troy Woodbury, Jr.
		Title: Treasurer and Chief Financial Officer

EX-32.1 5 v119473_ex32-1.htm

EXHIBIT 32.1

Certification of Chief Executive Officer Regarding Periodic Report Containing

Financial Statements Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Robert A. Placek, the Chief Executive Officer of Wegener Corporation (the “Company”), in compliance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that, to the best of my knowledge, the Company’s Quarterly Report on Form 10-Q for the quarter ended May 30, 2008 (the “Report”) filed with the Securities and Exchange Commission:

•

fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

•

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ Robert A. Placek

	Name:	Robert A. Placek
	Title:	Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)
	Date:	July 10, 2008

EX-32.2 6 v119473_ex32-2.htm

EXHIBIT 32.2

Certification of Chief Financial Officer Regarding Periodic Report Containing

Financial Statements Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, C. Troy Woodbury, Jr., the Chief Financial Officer of Wegener Corporation (the “Company”), in compliance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that, to the best of my knowledge, the Company’s Quarterly Report on Form 10-Q for the quarter ended May 30, 2008 (the “Report”) filed with the Securities and Exchange Commission:

•

fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

•

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

		/s/ C. Troy Woodbury, Jr.

	Name:	C. Troy Woodbury, Jr.
	Title:	Treasurer and Chief Financial Officer (Principal Financial Officer)
	Date:	July 10, 2008