UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

~~FORM 10-Q~~ _______________________________________

xFORM ~~QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~10-Q

~~For the quarterly period ended December~~_______________________________________ ~~31, 2011~~

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

¨For ~~TRANSITION~~the ~~REPORT~~quarterly ~~UNDER~~period ~~SECTION~~ended 13June OR30, ~~15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~2012

~~For the transition period from to~~ OR

~~Commission~~¨ ~~file~~TRANSITION ~~number~~REPORT ~~0-17966~~UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~MICRONETICS,~~For ~~INC.~~the transition period from to

~~(Exact~~Commission ~~name~~file ofnumber ~~registrant as specified in its charter)~~ 0-17966

Delaware		22-2063614
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
26 Hampshire Drive, Hudson NH		03051
(Address of principal executive offices)		(Zip Code)

_______________________________________

~~(603)~~MICRONETICS, ~~883-2900~~ INC.

(~~Issuer’s~~Exact ~~telephone~~name ~~number)~~of registrant as specified in its charter)

~~(Former name, former address and former fiscal year, if changed since last report)~~ _______________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 ¨



Delaware	22-2063614
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

26 Hampshire Drive, Hudson NH	03051
(Address of principal executive offices)	(Zip Code)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (~~§232.405 of this chapter~~603) ~~during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨~~ 883-2900

~~Indicate~~(Issuer’s bytelephone check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. number)

~~Large~~(Former ~~accelerated~~name, ~~filer~~former ¨address ~~Accelerated~~and ~~filer~~former ¨fiscal ~~Non-accelerated~~year, ~~filer ¨ (Do not check~~ if achanged ~~smaller~~since ~~reporting~~last ~~company~~report) ~~Smaller reporting company x~~

Indicate by check mark whether the registrant is(1) has afiled ~~shell~~all ~~company~~reports ~~(as~~required ~~defined~~to inbe ~~Rule~~filed ~~12b-2~~by Section 13 or 15(d) of the Exchange Act 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 ¨

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

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

AsLarge ofaccelerated ~~February 1,~~filer ~~2012,~~¨ ~~the~~Accelerated ~~issuer~~filer ~~had~~¨ ~~4,570,635~~Non-accelerated ~~shares~~filer of¨ ~~common~~(Do ~~stock,~~not ~~par value~~check ~~$.01~~if ~~per~~a ~~share,~~smaller ~~outstanding.~~reporting company) Smaller reporting company x

~~Table~~Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of ~~Contents~~the Exchange Act).

~~MICRONETICS, INC.~~ Yes ¨ No x

~~INDEX~~As of August 6, 2012, the issuer had 4,575,663 shares of common stock, par value $.01 per share, outstanding.

		Page No.
Part I.	Financial Information:
Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets – December 31, 2011 and March 31, 2011		3
	Consolidated Statements of Operations – Thirteen Weeks Ended December 31, 2011 and December 25, 2010		4
	Consolidated Statements of Operations – Thirty-Nine Weeks Ended December 31, 2011 and December 25, 2010		5
	Consolidated Statement of Shareholders’ Equity – Thirty-Nine Weeks Ended December 31, 2011		6
	Consolidated Statements of Cash Flows – Thirty-Nine Weeks Ended December 31, 2011 and December 25, 2010		7
	Notes to Consolidated Financial Statements		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		21
Item 4.	Controls and Procedures		21
Part II.	Other Information
Item 1.	Legal Proceedings		22
Item 1A	Risk Factors		22
Item 6.	Exhibits		23

Table of Contents

2MICRONETICS, INC.

~~Table of Contents~~INDEX

PART I. FINANCIAL INFORMATION



		Page No.
Part I.	Financial Information:
Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets – June 30, 2012 and March 31, 2012	3
	Consolidated Statements of Operations – Thirteen Weeks Ended June 30, 2012 and July 2, 2011	4
	Consolidated Statement of Shareholders’ Equity – Thirteen Weeks Ended June 30, 2012	5
	Consolidated Statements of Cash Flows – Thirteen Weeks Ended June 30, 2012 and July 2, 2011	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	19
Part II.	Other Information
Item 1.	Legal Proceedings	20
Item 1A	Risk Factors	21
Item 6.	Exhibits	22

~~Item 1. Financial Statements~~2

~~MICRONETICS,~~Table ~~INC.~~of ~~AND SUBSIDIARIES~~ Contents

~~CONSOLIDATED~~PART ~~BALANCE~~I. ~~SHEETS~~FINANCIAL INFORMATION

	December 31, 2011			March 31, 2011
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	723,446		$	745,116
Accounts receivable, net of allowance for doubtful accounts of $545,248 and $511,532 at December 31, 2011 and March 31, 2011, respectively		5,925,073			5,706,837
Inventories, net		14,197,247			13,998,539
Deferred tax asset		1,553,887			1,553,887
Prepaid income taxes		—			406,072
Prepaid expenses and other current assets		326,665			218,984
Total current assets		22,726,318			22,629,435
Property, plant and equipment, net		4,750,095			4,617,989
Other assets:
Security deposits		97,079			97,079
Other long term assets		4,122			10,304
Intangible assets, net		840,360			1,075,895
Goodwill		1,117,197			1,117,197
Total other assets		2,058,758			2,300,475
TOTAL ASSETS	$	29,535,171		$	29,547,899
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	664,902		$	1,468,733
Line of credit		4,241,883			6,714,319
Accounts payable		1,414,012			2,088,784
Accrued expenses and other current liabilities		3,732,546			2,718,329
Income tax payable		55,854			—
Deferred revenue		441,328			30,860
Total current liabilities		10,550,525			13,021,025
Long-term debt, net of current portion		—			325,000
Deferred tax liability		1,267,681			1,267,681
Total liabilities		11,818,206			14,613,706
Shareholders’ equity:
Preferred stock, $0.10 par value; 100,000 shares authorized; no shares issued or outstanding		—			—
Common stock, $0.01 par value; 10,000,000 shares authorized; 5,408,217 issued, 4,570,635 outstanding at December 31, 2011 and 5,393,717 issued, 4,556,135 outstanding at March 31, 2011		54,082			53,937
Additional paid-in capital		12,513,826			12,280,641
Retained earnings		8,129,570			5,580,128
		20,697,478			17,914,706
Treasury stock at cost, 837,582 shares at December 31, 2011 and March 31, 2011		(2,980,513	)		(2,980,513	)
Total shareholders’ equity		17,716,965			14,934,193
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	29,535,171		$	29,547,899



Item 1.	Financial Statements

~~The~~MICRONETICS, ~~accompanying notes are an integral part of these consolidated financial statements~~INC. AND SUBSIDIARIES

3CONSOLIDATED BALANCE SHEETS



	June 30, 2012			March 31, 2012
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	604,103		$	856,931
Accounts receivable, net of allowance for doubtful accounts of $533,929 and $540,766 at June 30, 2012 and March 31, 2012, respectively	5,521,624			6,901,681
Inventories, net	12,907,088			12,920,669
Deferred tax assets	1,860,106			1,860,106
Prepaid income taxes	672,640			23,713
Prepaid expenses and other current assets	300,084			299,930
Total current assets	21,865,645			22,863,030
Property, plant and equipment, net	4,848,496			4,746,162
Other assets:
Security deposits	79,226			79,226
Other long term assets	—			2,060
Intangible assets, net	706,729			761,848
Goodwill	1,117,197			1,117,197
Total other assets	1,903,152			1,960,331
TOTAL ASSETS	$	28,617,293		$	29,569,523
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	—		$	325,000
Line of credit	3,551,151			4,220,045
Accounts payable	1,397,514			1,132,013
Accrued expenses and other current liabilities	3,675,883			3,645,554
Deferred revenue	138,873			300,828
Total current liabilities	8,763,421			9,623,440
Deferred tax liabilities	1,252,157			1,252,157
Total liabilities	10,015,578			10,875,597
Shareholders’ equity:
Preferred stock, $0.10 par value; 100,000 shares authorized; no shares issued or outstanding	—			—
Common stock, $0.01 par value; 10,000,000 shares authorized; 5,413,217 issued, 4,575,663 outstanding at June 30, 2012 and March 31, 2012, respectively	54,014			54,014
Additional paid-in capital	12,704,344			12,627,614
Retained earnings	8,823,752			8,992,693
	21,582,110			21,674,321
Treasury stock at cost, 837,554 shares at June 30, 2012 and March 31, 2012	(2,980,395		)	(2,980,395		)
Total shareholders’ equity	18,601,715			18,693,926
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	28,617,293		$	29,569,523

~~MICRONETICS,~~The ~~INC.~~accompanying ~~AND~~notes ~~SUBSIDIARIES~~are an integral part of these consolidated financial statements.

~~CONSOLIDATED STATEMENTS OF OPERATIONS~~ 3

~~(Unaudited)~~Table of Contents

	Thirteen Weeks Ended
	December 31, 2011			December 25, 2010
Net sales	$	12,045,932		$	7,601,372
Cost of sales		8,336,172			5,265,794
Gross margin		3,709,760			2,335,578
Operating expenses:
Research and development		301,835			447,197
Selling, general and administrative		1,792,120			1,755,689
Gain on sale of asset		—			(10,000	)
Amortization of intangible assets		78,512			73,326
Total operating expenses		2,172,467			2,266,212
Income from operations		1,537,293			69,366
Other income (expense):
Interest income		965			258
Interest expense		(49,145	)		(84,222	)
Change in fair value of interest rate swap		12,617			27,084
Miscellaneous income		2,261			2,797
Total other expense		(33,302	)		(54,083	)
Income before provision for income taxes		1,503,991			15,283
Provision (benefit) for income taxes		601,596			(85,840	)
Net income	$	902,395		$	101,123
Earnings per common share
Basic	$	0.20		$	0.02
Diluted	$	0.20		$	0.02
Weighted average common shares outstanding
Basic		4,567,014			4,555,119
Diluted		4,612,500			4,568,344

MICRONETICS, INC. AND SUBSIDIARIES

~~The~~CONSOLIDATED ~~accompanying~~STATEMENTS ~~notes~~OF ~~are an integral part of these consolidated financial statements.~~ OPERATIONS

4 (Unaudited)



	Thirteen Weeks Ended
	June 30, 2012			July 2, 2011
Net sales	$	10,606,970		$	10,039,293
Cost of sales	7,440,324			6,859,064
Gross margin	3,166,646			3,180,229
Operating expenses:
Research and development	324,129			413,695
Selling, general and administrative	1,975,197			1,756,996
Merger-related expenses	1,150,171			—
Amortization of intangible assets	55,119			78,511
Total operating expenses	3,504,616			2,249,202
(Loss) income from operations	(337,970		)	931,027
Other income (expense):
Interest income	95			1,380
Interest expense	(20,392		)	(81,610		)
Change in fair value of interest rate swap	—			34,597
Miscellaneous income	1,399			3,149
Total other expense	(18,898		)	(42,484		)
(Loss) income before provision for income taxes	(356,868		)	888,543
(Benefit) provision for income taxes	(187,927		)	324,171
Net (loss) income	$	(168,941	)	$	564,372
(Loss) earnings per common share
Basic	$	(0.04	)	$	0.12
Diluted	$	(0.04	)	$	0.12
Weighted average common shares outstanding
Basic	4,575,663			4,558,447
Diluted	4,575,663			4,566,378

~~MICRONETICS,~~The ~~INC.~~accompanying ~~AND~~notes ~~SUBSIDIARIES~~are an integral part of these consolidated financial statements.

~~CONSOLIDATED STATEMENTS OF OPERATIONS~~ 4

~~(Unaudited)~~Table of Contents

	Thirty-Nine Weeks Ended
	December 31, 2011			December 25, 2010
Net sales	$	33,711,917		$	25,952,211
Cost of sales		22,583,390			17,141,061
Gross margin		11,128,527			8,811,150
Operating expenses:
Research and development		1,090,716			1,278,135
Selling, general and administrative		5,404,203			5,381,166
Net loss on disposal of asset		—			3,560
Amortization of intangible assets		235,535			247,374
Total operating expenses		6,730,454			6,910,235
Income from operations		4,398,073			1,900,915
Other income (expense):
Interest income		2,410			551
Interest expense		(203,716	)		(297,449	)
Change in fair value of interest rate swap		47,302			82,493
Miscellaneous income		7,084			15,615
Total other expense		(146,920	)		(198,790	)
Income before provision for income taxes		4,251,153			1,702,125
Provision for income taxes		1,701,711			628,435
Net income	$	2,549,442		$	1,073,690
Earnings per common share
Basic	$	0.56		$	0.24
Diluted	$	0.56		$	0.24
Weighted average common shares outstanding
Basic		4,562,522			4,554,137
Diluted		4,583,167			4,565,041

MICRONETICS, INC. AND SUBSIDIARIES

~~The~~CONSOLIDATED ~~accompanying~~STATEMENT ~~notes~~OF ~~are~~SHAREHOLDERS’ ~~an integral part of these consolidated financial statements.~~ EQUITY

5 (Unaudited)



	Common Stock			Additional Paid-In Capital		Retained Earnings			Treasury Stock			Total
	Shares Outstanding	Par Value
Balance at March 31, 2012	4,575,663	$	54,014	$	12,627,614	$	8,992,693		$	(2,980,395	)	$	18,693,926
Stock-based compensation	—	—		76,730		—			—			76,730
Net loss	—	—		—		(168,941		)	—			(168,941		)
Balance at June 30, 2012	4,575,663	$	54,014	$	12,704,344	$	8,823,752		$	(2,980,395	)	$	18,601,715

~~MICRONETICS,~~The ~~INC.~~accompanying ~~AND~~notes ~~SUBSIDIARIES~~are an integral part of these consolidated financial statements.

~~CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY~~ 5

~~(Unaudited)~~Table of Contents

	Common Stock				AdditionalPaid-InCapital		RetainedEarnings		TreasuryStock			Total
	SharesOutstanding		ParValue
Balance at March 31, 2011		4,556,135	$	53,937	$	12,280,641	$	5,580,128	$	(2,980,513	)	$	14,934,193
Stock-based compensation		—		—		193,355		—		—			193,355
Exercise of stock options		14,500		145		39,830		—		—			39,975
Net income		—		—		—		2,549,442		—			2,549,442
Balance at December 31, 2011		4,570,635	$	54,082	$	12,513,826	$	8,129,570	$	(2,980,513	)	$	17,716,965

MICRONETICS, INC. AND SUBSIDIARIES

~~The~~CONSOLIDATED ~~accompanying~~STATEMENTS ~~notes~~OF ~~are~~CASH ~~an integral part of these consolidated financial statements.~~ FLOWS

(Unaudited)



	Thirteen Weeks Ended,
	June 30, 2012			July 2, 2011
Cash flow from operating activities:
Net (loss) income	$	(168,941	)	$	564,372
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	367,295			384,063
Stock-based compensation	76,730			43,411
Change in fair value of interest rate swap	—			(34,597		)
Provision (credit) for doubtful accounts	(6,837		)	(23,283		)
Provision for inventory obsolescence and losses	81,519			66,530
Changes in operating assets and liabilities:
Accounts receivable	1,386,894			567,180
Inventories	(67,938		)	(1,647,287		)
Other long term assets	2,061			2,061
Prepaid income taxes	(648,927		)	272,449
Prepaid expenses, other current assets, and other assets	(154		)	(15,186		)
Accounts payable	265,500			(701,067		)
Accrued expenses	30,329			1,100,219
Deferred revenue	(161,955		)	255,442
Net cash provided by operating activities	1,155,576			834,307
Cash flows from investing activities:
Capital expenditures	(414,511		)	(237,761		)
Net cash used in investing activities	(414,511		)	(237,761		)
Cash flows from financing activities:
Net (payments) proceeds from line of credit	(668,893		)	316,326
Repayments on term loan	(325,000		)	(650,000		)
Repayments of capital leases	—			(55,089		)
Proceeds from exercise of stock options	—			11,250
Net cash used in financing activities	(993,893		)	(377,513		)
Net change in cash and cash equivalents	(252,828		)	219,033
Cash and cash equivalents at beginning of period	856,931			745,116
Cash and cash equivalents at end of period	$	604,103		$	964,149
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	24,528		$	109,558
Income taxes	$	461,000		$	55,000

~~Table~~The accompanying notes are an integral part of ~~Contents~~these consolidated financial statements.

~~MICRONETICS, INC. AND SUBSIDIARIES~~ 6

~~CONSOLIDATED~~Table ~~STATEMENTS~~of ~~OF CASH FLOWS~~ Contents

~~(Unaudited)~~MICRONETICS, INC. AND SUBSIDIARIES

	Thirty-Nine Weeks Ended
	December 31, 2011			December 25, 2010
Cash flow from operating activities:
Net income	$	2,549,442		$	1,073,690
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,145,099			1,191,941
Stock-based compensation		193,355			145,032
Change in fair value of interest rate swap		(47,302	)		(82,493	)
Deferred taxes		—			179,837
Loss on disposal of assets		—			3,560
Provision for doubtful accounts		33,715			19,610
Provision for inventory obsolescence and losses		293,178			207,952
Deferred taxes related to non-qualified stock options		—			(116,660	)
Changes in operating assets and liabilities:
Accounts receivable		(251,953	)		1,538,411
Unbilled revenue		—			219,958
Inventories		(491,886	)		(1,944,981	)
Other long term assets		6,182			6,183
Prepaid income taxes		406,072			(189,502	)
Prepaid expenses, other current assets, and other assets		(107,679	)		(61,993	)
Accounts payable		(674,771	)		(1,221,444	)
Accrued expenses		1,061,519			73,408
Income tax payable		55,855			—
Deferred revenue		410,468			(170,582	)
Net cash provided by operating activities		4,581,294			871,927
Cash flows from investing activities:
Capital expenditures		(1,041,671	)		(690,067	)
Proceeds from sale of assets		—			10,000
Net cash used in investing activities		(1,041,671	)		(680,067	)
Cash flows from financing activities:
Net (payments) proceeds from line of credit		(2,472,436	)		1,436,970
Repayments on term loan		(975,000	)		(975,000	)
Repayments of capital leases		(153,832	)		(199,672	)
Proceeds from exercise of stock options		39,975			5,625
Additional paid-in capital charge related to cancellation of non-qualified stock options		—			116,660
Net cash (used in) provided by financing activities		(3,561,293	)		384,583
Net change in cash and cash equivalents		(21,670	)		576,443
Cash and cash equivalents at beginning of period		745,116			482,442
Cash and cash equivalents at end of period	$	723,446		$	1,058,885
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	220,565		$	303,100
Income taxes	$	1,240,000		$	638,100
Supplemental disclosure of non-cash financing activities:
Equipment acquired under capital leases	$	—		$	124,518

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~The~~1. ~~accompanying~~BASIS ~~notes~~OF ~~are an integral part of these consolidated financial statements.~~ PRESENTATION

7The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and the rules of the Securities and Exchange Commission ("SEC") for quarterly reports on Form 10-Q. It is suggested that these consolidated financial statements be read in conjunction with the Company’s Annual Report on Form 10-K for its fiscal year ended March 31, 2012. In the opinion of management, the statements contain all adjustments, including normal recurring adjustments necessary in order to present fairly the financial position as of June 30, 2012 and the results of operations for the thirteen weeks ended June 30, 2012 and July 2, 2011.

~~Table~~The results of ~~Contents~~operations for the thirteen weeks ended June 30, 2012 are not necessarily indicative of the results to be expected for the full year ending March 31, 2013.

~~MICRONETICS~~The Company reports its fiscal quarters for the 13-week period ending on the Saturday nearest June 30, September 30 ~~INC~~and December 31. ~~AND~~As ~~SUBSIDIARIES~~a result, the first and fourth quarter may be more or less than 13 weeks, by 1 to 6 days, which can affect comparability between periods. The first quarter of Fiscal 2013 reflects 91 days as compared to the first quarter of Fiscal 2012 which reflects 93 days. The Company’s current fiscal year end is March 31, 2013.

~~NOTES~~The TOCompany ~~CONSOLIDATED~~evaluated ~~FINANCIAL~~its ~~STATEMENTS~~June ~~(UNAUDITED)~~30, 2012 financial statements for subsequent events through the date the financial statements were issued. Other than the events described in footnote 16, the Company is not aware of any subsequent events which would require recognition or disclosure in its financial statements.

12. ~~BASIS~~PLAN OF ~~PRESENTATION~~MERGER

~~The~~On ~~accompanying~~June ~~unaudited~~8, ~~consolidated~~2012, ~~financial~~the ~~statements~~Company, ~~have~~Mercury ~~been~~Computer ~~prepared~~Systems, inInc., ~~accordance~~a ~~with~~Massachusetts ~~accounting principles~~corporation ~~generally~~("Mercury"), ~~accepted~~and inWildcat ~~the~~Merger ~~United~~Sub ~~States~~Inc., ofa ~~America~~Delaware ~~(“US~~corporation ~~GAAP”)~~and ~~for~~wholly-owned ~~interim~~subsidiary ~~financial~~of ~~information~~Mercury ~~and~~("Merger ~~the~~Sub"), ~~rules~~entered ofinto ~~the~~an ~~Securities~~Agreement and ~~Exchange~~Plan ~~Commission~~of ~~for~~Merger ~~quarterly~~(the ~~reports~~"Merger onAgreement"), ~~Form~~pursuant ~~10-Q.~~to Itwhich isMercury ~~suggested~~will ~~that~~acquire ~~these~~all ~~consolidated financial~~of ~~statements~~the beoutstanding ~~read~~shares inof ~~conjunction with~~ the Company’s ~~Annual Report on Form 10-K~~ for ~~its~~$14.80 ~~fiscal~~per ~~year~~share ~~ended~~in ~~March 31~~cash, ~~2011.~~without ~~In the opinion of management~~interest, ~~the~~and ~~statements~~pursuant ~~contain~~to ~~all~~which ~~adjustments,~~Merger ~~including~~Sub ~~normal~~will ~~recurring adjustments~~be ~~necessary~~merged inwith ~~order~~and tointo ~~present fairly~~ the ~~financial~~Company ~~position~~with ~~as of December 31, 2011 and~~ the ~~results~~Company ofcontinuing ~~operations~~as ~~for~~ the ~~thirteen~~surviving corporation and ~~thirty-nine~~a ~~weeks~~wholly ~~ended~~owned ~~December 31,~~subsidiary ~~2011~~of ~~and~~Mercury ~~December 25,~~(the ~~2010~~"Merger").

~~The~~On ~~results~~the terms and subject to the conditions set forth in the Merger Agreement, which has been unanimously approved by the Company's Board of ~~operations~~Directors, ~~for~~at the ~~thirteen~~effective ~~and~~time ~~thirty-nine~~of ~~weeks~~the ~~ended~~Merger ~~December 31~~(the "Effective Time"), ~~2011~~and ~~are~~as ~~not~~a ~~necessarily~~result ~~indicative~~thereof, each share of the ~~results~~ Company's common stock, par value $0.01 per share ("Micronetics Common Stock") that is issued and outstanding immediately prior to the Effective Time (other than Micronetics Common Stock owned directly or indirectly by Mercury or any subsidiary of the Company, which will be ~~expected~~canceled without payment of any consideration, and Micronetics Common Stock for which dissenters' rights have been validly exercised and not withdrawn) will be converted at the ~~full~~Effective ~~year~~Time ~~ending~~into ~~March 31~~the right to receive $14.80 in cash, ~~2012~~without interest (the "Merger Consideration"), subject to adjustment under certain conditions as described in the Merger Agreement. Each option to purchase Micronetics Common Stock that is vested and outstanding immediately prior to the Effective Time, including options which by their terms vest immediately prior to the Effective Time (each, a "Vested Option") shall be canceled at the Effective Time and, in exchange therefore, each former holder of any such canceled Vested Option shall be entitled to receive, in cash, the amount by which the Merger Consideration exceeds the exercise price of such Vested Option multiplied by the number of shares of Micronetics Common Stock subject to such Vested Option. Each option to purchase Micronetics Common Stock that is unvested and outstanding immediately prior to the Effective Time shall be assumed by Mercury.

~~The~~Consummation ~~Company~~of ~~reports~~the ~~its~~Merger ~~fiscal~~is ~~quarters~~subject ~~for~~to customary conditions, including (i) approval of the ~~13-week period~~holders ~~ending~~of ona majority of the ~~Saturday~~outstanding ~~nearest~~shares ~~June 30, September 30~~of ~~and~~Micronetics ~~December 31.~~Common AsStock a(the ~~result~~“ Stockholder Approval ”), (ii) the ~~first~~absence ~~and~~of ~~fourth~~any ~~quarter~~law ~~may~~or beorder ~~more~~prohibiting orthe ~~less~~consummation ~~than~~of 13the ~~weeks~~Merger, by(iii) 1expiration toor 6termination ~~days,~~of ~~which~~the ~~can~~applicable ~~affect~~waiting ~~comparability~~periods ~~between~~under ~~periods.~~the ~~The~~Hart-Scott-Rodino ~~third quarter~~Antitrust Improvements Act of ~~Fiscal~~1976, ~~2012~~if applicable, and ~~Fiscal~~(iv) ~~2011~~the ~~reflect~~absence 91of ~~days.~~a ~~The~~material adverse effect with respect to the Company’s. ~~current~~The ~~fiscal~~consummation ~~year~~of ~~end~~the Merger is ~~March 31,~~not ~~2012~~subject to a financing condition.

The Merger Agreement contains certain termination rights for both Mercury and the Company, ~~evaluated~~and ~~its~~further ~~December 31~~provides that, ~~2011~~upon ~~financial~~termination ~~statements~~of ~~for~~the ~~subsequent~~Merger ~~events~~Agreement ~~through~~in certain circumstances, including if the ~~date~~Merger Agreement is terminated by Mercury in the ~~financial~~event ~~statements were~~the ~~issued.~~Board ~~The~~of Directors of the Company iseffects ~~not~~certain ~~aware~~changes ofto ~~any~~its ~~subsequent~~recommendation ~~events~~regarding ~~which~~the Merger, the Company would ~~require~~be ~~recognition~~required orto ~~disclosure~~pay inMercury ~~its~~a ~~financial~~termination ~~statements.~~fee equal to $2,520,000.

2.A ~~PRINCIPAL~~Special ~~BUSINESS~~Meeting ~~ACTIVITY~~of ~~AND~~the ~~SUMMARY~~Shareholders OFis ~~SIGNIFICANT~~scheduled ~~ACCOUNTING~~for ~~POLICIES~~August 8, 2012 to consider and vote upon the Merger.

Summary of operations and basis of consolidation—Micronetics, Inc. and subsidiaries (collectively the “Company” or “Micronetics”) are engaged in the design, development, manufacturing and marketing of a broad range of high performance wireless components, test equipment and integrated multifunction subassemblies used in cellular, microwave, satellite, radar and communication systems around the world. 7

~~The~~Table ~~consolidated financial statements include the accounts~~ of Micronetics and its wholly-owned subsidiaries, Microwave & Video Systems, Inc. (“MVS”), Microwave Concepts, Inc. (“MicroCon”), Stealth Microwave, Inc. (“Stealth”) and MICA Microwave Corporation (“MICA”). All intercompany activity has been eliminated in consolidation. Contents

~~Use~~The offoregoing ~~estimates—The preparation~~description of ~~financial statements in conformity with accounting principles generally accepted in~~ the ~~United~~Merger ~~States~~Agreement ofis ~~America~~only ~~(“US~~a ~~GAAP”)~~summary, ~~requires~~does ~~management~~not purport to ~~make~~be ~~estimates~~complete and ~~assumptions~~is ~~that~~qualified ~~affect~~in ~~the~~its ~~reported~~entirety ~~amounts~~by ofreference ~~assets and~~to ~~liabilities and disclosure of contingent assets and liabilities at~~ the ~~date~~Merger ofAgreement, ~~the~~a ~~financial~~copy ~~statements and the reported amounts~~ of ~~revenue~~which ~~and~~was ~~expenses~~filed ~~during~~as ~~the~~Item ~~reporting period~~2.1 ~~Estimates~~to ~~and~~the ~~judgments~~Company's ~~include~~Current ~~revenue~~Report ~~recognition, assumptions~~on ~~used~~Form in8-K ~~stock~~filed ~~option~~with ~~and~~the ~~goodwill~~SEC ~~valuations,~~on ~~reserves~~June ~~for accounts receivable and inventories~~12, ~~useful lives of property, plant and equipment, intangibles, accrued liabilities, and deferred income taxes~~2012. ~~Actual results could differ from those estimates.~~

~~Revenue recognition—The Company generates revenue from the sale of products, technology development, and licensing~~3. ~~Revenue~~PRINCIPAL isBUSINESS ~~recognized~~ACTIVITY ~~when~~AND ~~persuasive~~SUMMARY ~~evidence~~OF ofSIGNIFICANT anACCOUNTING arrangement exists, delivery of product has occurred or services have been rendered, the price to the customer is fixed or determinable, collection is reasonably assured, and no future services are required. The Company’s products are primarily hardware components and to a lesser extent integrated assemblies which includes microwave hardware and embedded software, that are delivered to original equipment manufacturers (OEMs) of telecommunication and networking products who are considered to be end users. POLICIES

~~The~~Summary ~~Company occasionally~~of ~~enters~~operations ~~into~~and ~~contracts~~basis ~~for production~~ of ~~customized~~consolidation—Micronetics, ~~microwave~~Inc. and ~~radio~~subsidiaries ~~frequency~~(collectively ~~components and integrated sub-assemblies for which it records revenue based on~~ the ~~percentage~~“Company” ofor ~~completion method (assuming all other requirements for revenue recognition have been satisfied~~“Micronetics”) ~~typically~~are ~~using~~engaged ~~labor~~in ~~hours~~the todesign, ~~measure~~development, ~~progress~~manufacturing ~~toward~~and ~~completion~~marketing of ~~the~~a ~~contract~~broad asrange ~~the Company has determined this methodology best reflects the fundamentals~~ of ~~the~~high ~~contract.~~performance Ifwireless ~~estimates~~components, totest ~~complete~~equipment ~~the contract~~and ~~change~~integrated ~~materially~~multifunction ~~from~~subassemblies ~~one~~used ~~period~~in tocellular, ~~the~~microwave, ~~next~~satellite, ~~profit~~radar ~~levels~~and ~~could~~communication ~~significantly~~systems ~~vary.~~around ~~We currently have no such contracts in process that require~~ the ~~percentage of completion method for revenue recognition~~world.

~~Deferred~~The ~~revenue~~consolidated ~~represents~~financial ~~billings~~statements ininclude ~~excess~~the accounts of ~~revenue~~the ~~recognized~~Company and its wholly-owned subsidiaries, Microwave & Video Systems, Inc. (“MVS”), Microwave Concepts, Inc. (“MicroCon”), Stealth Microwave, Inc. (“Stealth”) and MICA Microwave Corporation (“MICA”). All intercompany activity has been eliminated in consolidation.

~~The~~Use ~~Company~~of ~~sells~~estimates—The ~~its~~preparation ~~products~~of ~~using~~financial astatements ~~direct~~in ~~sales~~conformity ~~force~~with ~~and~~accounting ~~sales~~principles ~~representatives.~~generally ~~The~~accepted ~~Company’s~~in ~~standard~~the ~~terms~~United States of ~~sale~~America do(“US ~~not include~~GAAP”) ~~product~~requires ~~return~~management ~~rights~~to ormake ~~price~~estimates ~~protection.~~and ~~The~~assumptions ~~estimated~~that ~~cost~~affect the reported amounts of ~~product~~assets ~~warranties~~and ~~are~~liabilities ~~accrued~~and ~~based~~disclosure onof ~~historical~~contingent ~~experience~~assets and liabilities at the ~~time~~date of the financial statements and the reported amounts of revenue isand ~~recognized~~expenses during the reporting period. ~~Unless~~Estimates ~~customers~~and ~~purchase~~judgments aninclude ~~extended~~revenue ~~warranty~~recognition, ~~Micronetics~~assumptions ~~typically offers~~used ain ~~one-year~~stock ~~warranty~~option and goodwill valuations, reserves for accounts receivable and inventories, useful lives of property, plant and equipment, intangibles, accrued liabilities, and deferred income taxes. Actual results could differ from those estimates.

8Goodwill and intangible assets-Goodwill is recorded when the consideration paid for an acquisition exceeds the fair value of net tangible and identifiable intangible assets acquired.

~~Table~~Intangible assets consist of ~~Contents~~certain identifiable assets resulting from business combinations, including intellectual property, customer relationships and tradename. These assets are being amortized over their estimated useful lives.

~~Recently~~At ~~enacted~~June ~~accounting pronouncements— In October 2009~~30, ~~the~~2012 ~~FASB issued~~we ~~ASU~~determined ~~No. 2009-13,~~that ~~“Revenue~~no ~~Recognition~~new ~~(Topic~~triggering ~~605):~~events ~~Multiple-Deliverable~~had ~~Revenue~~occurred ~~Arrangements~~warranting ~~(a consensus of the FASB Emerging Issues Task Force),” which amends ASC 605-25, “Revenue Recognition: Multiple-Element Arrangements.” ASU No. 2009-13 addresses how to determine whether~~ an ~~arrangement~~impairment ~~involving~~assessment ~~multiple deliverables contains more than one unit~~ of accounting and how to allocate consideration to each unit of accounting in the arrangement. This ASU replaces all references to fair value as the measurement criteria with the term selling price and establishes a hierarchy for determining the selling price of a deliverable. ASU No. 2009-13 also eliminates the use of the residual value method for determining the allocation of arrangement consideration. Additionally, ASU No. 2009-13 requires expanded disclosures. This ASU became effective for us for revenue arrangements entered into or materially modified on or after April 1, 2011. Adoption of this guidance did not have a material impact on our ~~consolidated~~intangible ~~financial statements~~assets.

~~In October 2009, the FASB issued ASU No. 2009-14, “Software (Topic 985): Certain~~ Revenue ~~Arrangements~~recognition—The ~~That~~Company ~~Include~~generates ~~Software~~revenue ~~Elements~~from (athe ~~consensus~~sale of ~~the~~products, ~~FASB~~technology ~~Emerging~~development, ~~Issues~~and ~~Task Force)~~licensing.” ~~ASU~~Revenue ~~No. 2009-14~~is ~~amends~~recognized ~~ASC~~when ~~985-605, “Software:~~persuasive ~~Revenue~~evidence ~~Recognition,”~~of ~~such~~an ~~that~~arrangement ~~tangible products~~exists, ~~containing~~delivery ~~both~~of ~~software~~product ~~and~~has ~~non-software~~occurred ~~components~~or ~~that~~services ~~function~~have ~~together~~been ~~to deliver the tangible product’s essential functionality~~rendered, ~~are no longer within~~ the ~~scope~~price ofto ~~ASC 985-605. It also amends~~ the ~~determination~~customer ofis ~~how~~fixed ~~arrangement~~or ~~consideration~~determinable, ~~should~~collection beis ~~allocated~~reasonably toassured, ~~deliverables~~and inno afuture ~~multiple-deliverable~~services ~~revenue~~are ~~arrangement~~required. ~~This~~The ~~ASU~~Company’s ~~became~~products ~~effective~~are ~~for~~primarily ushardware ~~for~~components ~~revenue~~and ~~arrangements~~to ~~entered~~a ~~into~~lesser orextent ~~materially modified~~integrated onassemblies orwhich ~~after~~includes ~~April 1,~~microwave ~~2011.~~hardware ~~Adoption~~and ofembedded ~~this~~software, ~~guidance~~that ~~did~~are ~~not~~delivered ~~have~~to aoriginal ~~material~~equipment ~~impact~~manufacturers on(OEMs) ~~our~~of ~~consolidated~~telecommunication ~~financial statements. Both ASU No. 2009-13~~ and ~~ASU~~networking ~~No. 2009-14~~products ~~were~~who ~~adopted~~are inconsidered ~~the~~to ~~same~~be ~~period~~end ~~and use the same transition disclosures~~users.

~~Recently~~The ~~issued~~Company ~~accounting~~occasionally ~~pronouncements—~~enters Ininto ~~May~~contracts ~~2011,~~for ~~the~~production ~~FASB~~of ~~issued~~customized ~~ASU No. 2011-04,~~microwave ~~“Fair~~and ~~Value~~radio ~~Measurement~~frequency ~~(ASC~~components ~~Topic~~and ~~820)—Amendments~~integrated tosub-assemblies ~~Achieve~~for ~~Common~~which ~~Fair~~it ~~Value~~records ~~Measurement~~revenue ~~and~~based ~~Disclosure~~on ~~Requirements~~the inpercentage ~~U.S.~~of ~~GAAP~~completion ~~and~~method ~~IFRSs.”~~(assuming ~~ASU~~all ~~No. 2011-04~~other ~~amends~~requirements ~~current~~for ~~fair~~revenue ~~value~~recognition ~~measurement~~have ~~and disclosure~~been ~~guidance~~satisfied) totypically ~~include~~using ~~increased~~labor ~~transparency~~hours ~~around~~to ~~valuation~~measure ~~inputs~~progress ~~and~~toward ~~investment~~completion ~~categorization.~~of ~~The~~the ~~changes~~contract toas the ~~ASC~~Company ashas adetermined ~~result~~this methodology best reflects the fundamentals of ~~this~~the ~~update~~contract. ~~are~~If ~~effective~~estimates ~~prospectively~~to ~~for~~complete ~~interim~~the ~~and~~contract ~~annual~~change ~~periods~~materially ~~beginning~~from ~~after December 15~~one period to the next, ~~2011~~profit levels could significantly vary. We ~~are~~ currently ~~evaluating~~have ~~the~~no ~~impact~~such ofcontracts ~~this~~in ~~ASU~~process onthat ~~our~~require ~~consolidated~~the ~~financial~~percentage ~~statements.~~of completion method for revenue recognition.

InDeferred ~~June 2011,~~revenue ~~the~~represents ~~FASB~~billings issued ASU No. 2011-05, “Comprehensive Income.” This ASU intends to enhance comparability and transparency of other comprehensive income components. The guidance provides an option to present total comprehensive income, the components of net income and the components of other comprehensive income in aexcess ~~single continuous statement or two separate but consecutive statements. This ASU eliminates the option to present other comprehensive income components as part~~ of ~~the statement~~revenue ~~of changes in shareowners’ equity~~recognized. The provisions of this ASU will be applied retrospectively for interim and annual periods beginning after December 15, 2011. Early application is permitted. We are currently evaluating the impact of this new ASU on our consolidated financial statements.

InThe ~~September~~Company ~~2011,~~sells ~~the~~its ~~Financial~~products ~~Accounting~~using ~~Standards~~a ~~Board (FASB)~~direct ~~issued~~sales ~~Accounting~~force ~~Standards Update No. 2011-08, Intangibles—Goodwill~~ and ~~Other~~sales ~~(Topic 350)—Testing Goodwill for Impairment (ASU 2011-08), to allow entities to use a qualitative approach to test goodwill for impairment~~representatives. ~~Under~~ ~~the~~Contracts ~~new~~with ~~guidance,~~customers ando ~~entity has the option to first assess qualitative factors to determine whether it is more likely than~~ not ~~that~~include ~~the~~product ~~fair~~return ~~value~~rights ofor aprice ~~reporting unit is less than its carrying value~~protection. IfThe itestimated iscost ~~concluded~~of ~~that~~product ~~this~~warranties isare ~~the~~accrued ~~case, it~~based ison ~~necessary~~historical toexperience ~~perform~~at the ~~currently~~time ~~prescribed two-step goodwill impairment test. Otherwise,~~ the ~~two-step~~revenue ~~goodwill impairment test~~ is ~~not required~~recognized. ~~This~~Unless ~~guidance~~customers ispurchase ~~applicable~~an ~~for~~extended ~~annual and interim goodwill impairment tests for fiscal years beginning after December 15~~warranty, ~~2011.~~Micronetics Wetypically ~~are~~offers ~~currently~~a ~~evaluating~~one-year ~~the early adoption of this guidance in connection with its testing for goodwill impairment as of March 31, 2012~~warranty.

3Recently adopted accounting pronouncements— In May 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-04, ~~INVENTORIES~~“Fair Value Measurement (ASC Topic 820)-Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU No. 2011-04 amends current fair value measurement and disclosure guidance to include increased transparency around valuation inputs and investment categorization. The changes to the ASC as a result of this update are effective prospectively for interim and annual periods beginning after December 15, 2011. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

AtIn ~~December 31~~June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income.” This ASU intends to enhance comparability and ~~March 31,~~transparency ~~2011~~of other comprehensive income components. The guidance provides an option to present total comprehensive income, ~~inventories~~the ~~consisted~~components of net income and the ~~following:~~components of other comprehensive income in a single continuous statement or

	December 31, 2011			March 31, 2011
Raw materials	$	8,707,977		$	7,730,924
Work in process		5,674,907			6,319,860
Finished goods		1,605,728			1,445,941
		15,988,612			15,496,725
Less: allowance for obsolescence		(1,791,365	)		(1,498,186	)
	$	14,197,247		$	13,998,539

9Table of Contents

~~Table~~two separate but consecutive statements. This ASU eliminates the option to present other comprehensive income components as part of ~~Contents~~the statement of changes in shareholders' equity. The adoption of this provision did not have an impact on the Company's consolidated financial statements.

4. ~~PROPERTY, PLANT AND EQUIPMENT~~ INVENTORIES

At June 30, 2012 and March 31, 2012, inventories consisted of the following:

At December 31, 2011 and March 31, 2011, property, plant and equipment consisted of the following:



	June 30, 2012			March 31, 2012
Raw materials	$	8,492,146		$	8,343,760
Work in process	4,579,999			4,538,884
Finished goods	1,737,141			1,858,704
	14,809,286			14,741,348
Less: allowance for obsolescence	(1,902,198		)	(1,820,679		)
	$	12,907,088		$	12,920,669

	December 31, 2011			March 31, 2011
Land	$	162,000		$	162,000
Buildings and leasehold improvements		2,096,161			2,072,655
Machinery and equipment		12,860,341			11,865,186
Furniture, fixtures and other		236,521			213,511
		15,355,023			14,313,352
Less: accumulated depreciation		(10,604,928	)		(9,695,363	)
	$	4,570,095		$	4,617,989

5. PROPERTY, PLANT AND EQUIPMENT

5.At ~~INTANGIBLE~~June 30, ~~ASSETS~~2012 ~~AND~~and ~~GOODWILL~~March 31, 2012, property, plant and equipment consisted of the following:

The Company tests goodwill for impairment annually as of year end and when an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. No triggering events requiring an interim impairment test occurred in the thirty-nine week period ended December 31, 2011.



	June 30, 2012			March 31, 2012
Land	$	162,000		$	162,000
Buildings and leasehold improvements	2,128,202			2,106,444
Machinery and equipment	13,543,677			13,154,605
Furniture, fixtures and other	236,521			236,521
	16,070,400			15,659,570
Less: accumulated depreciation	(11,221,904		)	(10,913,408		)
	$	4,848,496		$	4,746,162

~~The~~Depreciation ~~following~~expense ~~table~~associated ~~presents~~with ~~details~~property, ofplant ~~the~~and ~~Company’s~~equipment ~~finite-lived~~was ~~intangible~~approximately ~~assets~~$309,000 asand of$306,000 ~~December 31~~for the thirteen weeks ended June 30, ~~2011~~2012 and ~~March 31~~July 2, 2011, ~~(in thousands):~~ respectively.

	UsefulLife(years)		December 31, 2011						March 31, 2011
Intangible Assets			GrossValue		AccumulatedAmortization		NetValue		GrossValue		AccumulatedAmortization		NetValue
Customer relationships (non-contractual)		3-10	$	2,956	$	2,286	$	670	$	2,956	$	2,134	$	822
Trade name		10		260		119		141		260		99		161
Developed technology-drawings		3-5		513		484		29		513		420		93
			$	3,729	$	2,889	$	840	$	3,729	$	2,653	$	1,076

6. INTANGIBLE ASSETS AND GOODWILL

The Company ~~amortizes~~tests ~~intangible~~goodwill ~~assets~~for ~~with~~impairment ~~finite~~annually ~~lives~~as ~~over~~of ~~the~~year-end ~~estimated~~and ~~useful~~when ~~lives~~an ofevent ~~the respective~~occurs ~~assets.~~or ~~The~~circumstances ~~following~~change isthat awould ~~summary~~more oflikely ~~estimated~~than ~~aggregate~~not ~~amortization~~reduce ~~expense~~the ~~for~~fair ~~each~~value of ~~the~~a ~~five~~reporting ~~succeeding~~unit ~~fiscal~~below ~~years~~its ~~and~~carrying ~~thereafter:~~value. No triggering events requiring an interim impairment test occurred in the thirteen week period ended June 30, 2012.

	(in thousands)
2012 (remainder of year)	$	78
2013		163
2014		144
2015		144
2016		144
Thereafter		167
Total	$	840

The following table presents details of the Company’s finite-lived intangible assets as of June 30, 2012 and March 31, 2012 (in thousands):

6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES



	Useful Life (years)	June 30, 2012						March 31, 2012
Intangible Assets	Useful Life (years)	Gross Value		Accumulated Amortization		Net Value		Gross Value		Accumulated Amortization		Net Value
Customer relationships (non-contractual)	3-10	$	2,956	$	2,377	$	579	$	2,956	$	2,337	$	619
Trade name	10	260		132		128		260		125		135
Developed technology-drawings	3-5	513		513		—		513		505		8
		$	3,729	$	3,022	$	707	$	3,729	$	2,967	$	762

AtThe ~~December 31,~~Company ~~2011~~amortizes ~~and~~intangible ~~March 31,~~assets ~~2011,~~with ~~accrued~~finite ~~expenses~~lives ~~and~~over ~~other~~the ~~current~~estimated ~~liabilities~~useful ~~consisted~~lives of the ~~following:~~ respective assets. The

	December 31, 2011		March 31, 2011
Unbilled payables	$	1,174,417	$	1,105,306
Payroll, benefits and related taxes		1,729,636		1,142,503
Warranty		228,974		255,538
Commissions		108,971		115,659
Customer deposits		462,894		9,215
Fair value of interest rate swap		11,663		58,965
Miscellaneous		15,991		31,143
	$	3,732,546	$	2,718,329

~~Included~~Table ~~in accrued payroll are bonuses~~ of ~~$717,425 and $500,000 at December 31, 2011 and March 31, 2011, respectively.~~ Contents

10following is a summary of estimated aggregate amortization expense for each of the five succeeding fiscal years and thereafter:



	(in thousands)
2013 (remainder of year)	$	108
2014	144
2015	144
2016	144
2017	144
Thereafter	23
Total	$	707

7. ~~DEBT~~ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

At June 30, 2012 and March 31, 2012, accrued expenses and other current liabilities consisted of the following:

At December 31, 2011 and March 31, 2011, long-term debt consisted of the following:



	June 30, 2012		March 31, 2012
Unbilled payables	$	1,679,133	$	1,186,273
Payroll, benefits and related taxes	1,286,448		1,554,186
Warranty	232,991		231,415
Commissions	114,537		231,328
Customer deposits	357,823		436,079
Miscellaneous	4,951		6,273
	$	3,675,883	$	3,645,554

	December 31, 2011			March 31, 2011
Term loan	$	650,000		$	1,625,000
Capital leases		14,902			168,733
		664,902			1,793,733
Less current portion		(664,902	)		(1,468,733	)
Long-term debt, net of current portion	$	—		$	325,000

Included in accrued payroll are bonuses of $169,590 and $771,387 at June 30, 2012 and March 31, 2012, respectively.

~~Term~~8. ~~Loan and Revolver~~ DEBT

At June 30, 2012 and March 31, 2012, long-term debt consisted of the following:

In March 2007, the Company entered into a credit facility which consisted of a $6.5 million five year secured term loan and a $5.0 million three year revolving line of credit. In fiscal 2009, the revolving line of credit was extended by two years. On August 13, 2010, the revolving line of credit was increased to $7.5 million and was extended until March 31, 2013.



	June 30, 2012		March 31, 2012
Term loan	$	—	$	325,000
Capital leases	—		—
	—		325,000
Less current portion	—		325,000
Long-term debt, net of current portion	$	—	$	—

OnTerm ~~September 19,~~Loan ~~2011, the Company entered into an amendment to the term loan~~ and revolving line of credit agreement under which the revolving line of credit was increased to $10 million and extended until September 30, 2015. The term loan and revolving line of credit are guaranteed by the Company and its subsidiaries and are secured by substantially all of the Company’s assets. The term loan is payable in quarterly principal installments of $325,000 plus accrued interest at the rate of 5.2% plus the applicable margin. At December 31, 2011, the interest rate was 7.95%. The final payment for the term loan is due in April 2012. The revolving line of credit bears interest at LIBOR plus the applicable margin. At December 31, 2011, the interest rate was 3.04%. The Company had approximately $5.7 million available under the line of credit at December 31, 2011. Revolver

In ~~April~~March 2007, the Company entered into ana ~~interest~~credit ~~rate~~facility ~~swap~~which ~~agreement~~consisted ~~with an initial notional amount~~ of a $6.5 million tofive ~~mitigate~~year ~~the~~secured ~~effect of interest rate fluctuations on the~~ term loan. ~~The~~and ~~interest rate swap was not designated as~~ a ~~hedging~~$5.0 ~~instrument~~million three atyear ~~the~~revolving ~~initiation~~line of ~~the swap, and therefore the Company has not applied hedge accounting~~credit. AsIn aFiscal ~~result~~2009, at the ~~end~~revolving ofline ~~each reporting period, the change in fair value~~ of ~~the~~credit ~~interest~~was ~~rate~~extended ~~swap~~by istwo ~~recorded~~years. onOn ~~the~~August 13, ~~consolidated balance sheet~~2010, ~~with~~the ~~any~~revolving ~~related~~line ~~gains~~of orcredit ~~losses~~was ~~included~~increased into ~~earnings~~$7.5 ~~The~~million ~~notional~~and ~~amount of this swap agreement~~ was ~~$650,000~~extended atuntil ~~December~~March 31, ~~2011~~2013.

~~The~~On September 19, 2011, the Company ~~was~~entered ininto ~~compliance~~an ~~with~~amendment ~~its~~to ~~bank~~the ~~covenants~~term atloan ~~December 31, 2011.~~and ~~Under~~revolving line of credit agreement under which the ~~terms~~revolving line of ~~the~~credit ~~amended~~was increased to $10 million and extended until September 30, 2015. The term loan and ~~the~~ revolving line of credit ~~agreement,~~are guaranteed by the Company's issubsidiaries ~~required~~and toare ~~maintain~~secured ~~certain~~by ~~financial~~substantially ~~covenants~~all onof athe Company’s assets. The term loan was payable in quarterly ~~and~~principal ~~annual~~installments ~~basis~~of $325,000 ~~including~~plus ~~total~~accrued ~~funded~~interest ~~debt~~at tothe ~~EBITDA~~rate ~~not~~of ~~exceeding~~ 5.2% plus the applicable margin.~~5:1, minimum~~ The ~~debt~~final ~~service~~payment ~~coverage~~for the term loan was made in April 2012. The revolving line of 1credit bears interest at LIBOR plus the applicable margin.~~25:1~~ ~~and~~At aJune 30, ~~minimum~~2012, ~~current~~the ~~ratio~~interest ofrate 1was 2.~~25:1~~49%. The Company had approximately $6.4 million available under the line of credit at June 30, 2012.

8In April 2007, the Company entered into an interest rate swap agreement with an initial notional amount of $6.5 ~~STOCK~~million ~~OPTION~~to ~~PLANS~~mitigate ~~AND~~the ~~STOCK-BASED~~effect ~~COMPENSATION~~of interest rate fluctuations on the term loan. The interest rate swap was not designated as a hedging

During fiscal 2007, the Company adopted a stock option plan entitled “The 2006 Equity Incentive Plan” (the “2006 Plan”) under which the Company may grant shares of restricted stock or stock options to purchase up to 1,000,000 shares of common stock. As of December 31, 2011 there were 511,000 options available for grant under the 2006 Plan. 10

~~The~~Table ~~2006 Plan is administered by the Board~~ of Directors or a Committee of the Board of Directors which has the authority to determine the persons to whom the options may be granted, the number of shares of common stock to be covered by each option grant, and the terms and provisions of each option grant. Options granted under the 2006 Plan may be incentive stock options or non-qualified options, and may be issued to employees, consultants, advisors and directors of the Company and its subsidiaries. The exercise price of options granted under the 2006 Plan may not be less than the fair market value of the Company’s common stock on the date of grant, and may not be granted more than ten years from the date of adoption of the plan or exercised more than ten years from the date of grant. Contents

11instrument at the initiation of the swap, and therefore the Company had not applied hedge accounting. As a result, at the end of each reporting period, the change in fair value of the interest rate swap was recorded on the consolidated balance sheet, with any related gains or losses included in earnings. The interest rate swap agreement expired March 30, 2012. Therefore, there was no change in fair value at June 30, 2012 as compared to $34,597 at July 2, 2011.

~~Table~~ Under the terms of ~~Contents~~the amended term loan and the revolving line of credit agreement, the Company is required to maintain certain financial covenants on a quarterly and annual basis, including total funded debt to EBITDA not exceeding 2.5:1, minimum debt service coverage of 1.25:1 and a minimum current ratio of 1.25:1. The Company was in compliance with its bank covenants at June 30, 2012.

~~The~~9. ~~following~~STOCK ~~table~~OPTION ~~sets~~PLANS ~~forth~~AND ~~the Company’s stock option activity during the thirty~~STOCK-~~nine~~BASED ~~weeks ended December 31, 2011:~~ COMPENSATION

	SharesUnderlyingoptions			WeightedAverageExerciseprice		WeightedAverageRemainingContractuallife (inyears)		AggregateIntrinsicValue
Outstanding at March 31, 2011		293,000		$	5.43			$	84,025
Granted		204,000			6.82				—
Exercised		(14,500	)		2.76				—
Expired		—			—				—
Forfeited		(10,500	)		4.13				—
Outstanding at December 31, 2011		472,000		$	6.14		8.05	$	854,415
Exercisable at December 31, 2011		158,250		$	6.79		6.04	$	173,500

During Fiscal 2007, the Company adopted a stock option plan entitled “The 2006 Equity Incentive Plan” (the “2006 Plan”) under which the Company may grant shares of restricted stock or stock options to purchase up to 1,000,000 shares of common stock. As of June 30, 2012, there were 521,000 options available for grant under the 2006 Plan.

The ~~following~~2006 ~~table~~Plan ~~sets~~is ~~forth~~administered by the ~~status~~Board of Directors or a Committee of the Board of Directors which has the authority to determine the persons to whom the options may be granted, the number of shares of common stock to be covered by each option grant, and the terms and provisions of each option grant. Options granted under the 2006 Plan may be incentive stock options or non-qualified options, and may be issued to employees, consultants, advisors and directors of the Company and its subsidiaries. The exercise price of options granted under the 2006 Plan may not be less than the fair market value of the Company’s ~~non-vested~~common stock ~~options~~on asthe date of ~~December 31~~ grant, ~~2011:~~and may not be granted more than ten years from the date of adoption of the plan or exercised more than ten years from the date of grant.

	Number ofOptions			Weighted- AverageGrant-Date FairValue
Non-vested as of March 31, 2011		153,875		$	2.70
Granted		204,000			4.26
Forfeited		(9,750	)		2.64
Vested		(34,375	)		3.13
Non-vested as of December 31, 2011		313,750		$	3.66

The following table sets forth the Company’s stock option activity during the thirteen weeks ended June 30, 2012:

The following table summarizes the effects of stock-based compensation for the thirteen weeks ended December 31, 2011 and December 25, 2010:



	Shares Underlying options		Weighted Average Exercise price		Weighted Average Remaining Contractual life (in years)	Aggregate Intrinsic Value
Outstanding at March 31, 2012	467,000		$	6.17		$	—
Granted	—		—			—
Exercised	—		—			—
Expired	—		—			—
Forfeited	(10,000	)	$	4.70		—
Outstanding at June 30, 2012	457,000		$	6.20	7.54	$	3,891,900
Exercisable at June 30, 2012	197,000		$	6.35	5.88	$	1,649,693

The following table sets forth the status of the Company’s non-vested stock options as of June 30, 2012:

		Thirteen Weeks Ended
	Number ofOptions			Weighted- AverageGrant-Date FairValue
		December 31, 2011				December 25, 2010
Non-vested as of March 31, 2012	289,375			$	3.75
Cost of sales		$	16,049			$	8,537
Granted	—			—
Selling, general and administrative			67,358				34,025
Forfeited	(10,000	)		2.93
Stock-based compensation effect on income before taxes		$	83,408			$	42,562
Vested	(19,375	)		2.93
Non-vested as of June 30, 2012	260,000			$	3.84

The following table summarizes the ~~effects~~classification of stock-based compensation for the ~~thirty-nine~~thirteen weeks ended ~~December~~June 3130, ~~2011~~ 2012 and ~~December~~July 252, ~~2010~~2011:

	Thirty-Nine Weeks Ended
	December 31, 2011		December 25, 2010
Cost of sales	$	42,034	$	30,369
Selling, general and administrative		151,321		114,663
Stock-based compensation effect on income before taxes	$	193,355	$	145,032

~~Unrecognized~~Table ~~stock-based compensation expense related to the unvested options is approximately $.9 million, and will be recorded over the remaining vesting period~~ of ~~4 years. This estimate is based on the number of unvested options currently outstanding and could change based on the number of options granted or forfeited in the future.~~ Contents

There were 9,000 options granted during the thirteen weeks ended December 31, 2011 and no options granted during the thirteen weeks ended December 25, 2010. The fair value of options issued was estimated at the date of grant using the following weighted-average assumptions for the thirty-nine weeks ended December 31, 2011 were as follows:



	Thirteen Weeks Ended
	June 30, 2012		July 2, 2011
Cost of sales	$	14,635	$	9,869
Selling, general and administrative	62,095		33,542
Stock-based compensation effect on income before taxes	$	76,730	$	43,411

Risk free interest rate	1.39	%
Expected life	6.25 years
Expected volatility	68.41	%
Forfeiture rate	2.92	%
Expected dividend yield	0	%

Unrecognized stock-based compensation expense related to the unvested options at June 30, 2012 is approximately $0.8 million million, and will be recorded over the remaining vesting period of 3.43 years. This estimate is based on the number of unvested options currently outstanding and could change based on the number of options granted or forfeited in the future.

~~The~~There ~~per~~were ~~share~~no options granted during the thirteen weeks ended June 30, 2012 and 20,000 options granted during the thirteen weeks ended July 2, 2011. The fair value of ~~stock~~ options ~~granted~~issued was estimated at the date of grant using the following weighted-average assumptions for the thirteen weeks ended ~~December~~July 312, 2011 ~~was $4.07.~~were as follows:



Risk free interest rate	2.05 - 2.52%
Expected life	6.25 years
Expected volatility	67.95 - 68.11%
Forfeiture rate	2.92	%
Expected dividend yield	—	%

~~Table~~The per share fair value of ~~Contents~~stock options granted for the thirteen weeks ended July 2, 2011 was $2.64.

910. INCOME TAXES

The Company’s effective tax rate was 4052.7% for the thirteen ~~and~~weeks ~~thirty-nine~~ended June 30, 2012. The effective tax rate for the thirteen weeks ended ~~December~~July 312, 2011~~. There~~ ~~were~~was no36.5%. The ~~significant~~effective ~~true-up~~tax ~~adjustments~~rate infor the thirteen weeks ended ~~December~~June 3130, ~~2011~~2012 ~~related~~is tobased on the ~~filing~~projected ofannual ~~our~~pre-tax income for fiscal ~~2011~~year ~~tax~~2013, ~~return~~including the impact of nondeductible merger-related expenses. The effective tax rate could change depending on the outcome of the Special Meeting of the Shareholders scheduled for August 8, 2012 to consider and vote upon the Merger.

~~Before~~The ~~considering~~Company ~~the~~is ~~effect~~subject ofto ~~discrete items, the effective~~ tax ~~rate~~in ~~for~~ the ~~thirteen and thirty-nine weeks ended December 25, 2010 was 39~~U.5%S. InFederal ~~the~~and ~~thirteen~~various ~~weeks~~state ~~ended~~jurisdictions. ~~December 25,~~The ~~2010, the~~ Company ~~recorded~~is ~~true-up~~open ~~adjustment credits totaling approximately $42,000 primarily related~~ to ~~the~~examination ~~filing~~for ~~of our fiscal 2010~~ tax ~~returns.~~years ~~In addition~~March 31, ~~the~~2009 ~~Company~~through ~~recognized uncertain tax benefits of $1,762 due to the statute of limitations expiration~~2012.

As of June 30, 2012, there are no uncertain tax benefits recognized. The Company’s policy is ~~subject~~ to ~~tax~~recognize ininterest ~~the~~and ~~U.S.~~penalties ~~Federal~~accrued ~~and~~on ~~various~~any ~~state~~uncertain ~~jurisdictions.~~tax ~~The~~position ~~Company~~as isa ~~open~~component ~~to examination~~of ~~for~~income tax ~~years March 31~~expense, ~~2009~~if ~~through 2011~~any.

~~As of December 31, 2011, there are no uncertain tax benefits recognized~~11. ~~The~~EARNINGS ~~Company’s~~PER ~~policy is to recognize interest and penalties accrued on any uncertain tax position as a component of income tax expense, if any.~~ SHARE

Basic earnings per share, or EPS, is computed based on the net income or loss for each period divided by the weighted average actual shares outstanding during the period. Diluted earnings per share is computed based on the net income or loss per period divided by the weighted average number of common shares and common equivalent shares outstanding during each period unless the effect would be anti-dilutive. Common stock equivalents represent the dilutive effect of the assumed exercise of certain outstanding stock options using the treasury stock method. The computations of basic and diluted EPS for the thirteen weeks ended June 30, 2012 and July 2, 2011 are:

10. EARNINGS PER SHARE



	Thirteen Weeks Ended
	June 30, 2012			July 2, 2011
Net (loss) income	$	(168,941	)	$	564,372
Weighted average shares outstanding	4,575,663			4,558,447
Basic (loss) earnings per share	$	(0.04	)	$	0.12
Common stock equivalents	—			7,931
Weighted average common and common equivalent shares outstanding	4,575,663			4,566,378
Diluted (loss) earnings per share	$	(0.04	)	$	0.12

Basic earnings per share, or EPS, is computed based on the net income for each period divided by the weighted average actual shares outstanding during the period. Diluted earnings per share is computed based on the net income or loss per period divided by the weighted average number of common shares and common equivalent shares outstanding during each period unless the effect would be anti-dilutive. Common stock equivalents represent the dilutive effect of the assumed exercise of certain outstanding stock options using the treasury stock method. The computations of basic and diluted EPS for the thirteen weeks ended December 31, 2011 and December 25, 2010 are: 12

	Thirteen Weeks Ended
	December 31, 2011		December 25, 2010
Net income	$	902,395	$	101,123
Weighted average shares outstanding		4,567,014		4,555,119
Basic earnings per share	$	0.20	$	0.02
Common stock equivalents		45,486		13,225
Weighted average common and common equivalent shares outstanding		4,612,500		4,568,344
Diluted earnings per share	$	0.20	$	0.02

Table of Contents

~~The~~At ~~computations~~June 30, of2012 ~~basic~~and July 2, 2011, 457,000 and ~~diluted~~126,000 ~~EPS~~stock ~~for~~options, respectively, were excluded from the ~~thirty-nine~~diluted ~~weeks~~earnings ~~ended~~per ~~December 31,~~share ~~2011~~calculation ~~and~~because ~~December 25, 2010~~the ~~are:~~effect would have been anti-dilutive.

	Thirty-Nine Weeks Ended
	December 31, 2011		December 25, 2010
Net income	$	2,549,442	$	1,073,690
Weighted average shares outstanding		4,562,522		4,554,137
Basic earnings per share	$	0.56	$	0.24
Common stock equivalents		20,645		10,904
Weighted average common and common equivalent shares outstanding		4,583,167		4,565,041
Diluted earnings per share	$	0.56	$	0.24

12. FAIR VALUE MEASUREMENTS

AtThe ~~December 31,~~Company ~~2011~~assesses ~~and~~fair ~~December 25,~~value ~~2010,~~as ~~81,000~~an ~~and~~exit ~~129,000~~price ~~stock~~representing ~~options,~~the ~~respectively~~amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, ~~were~~ ~~excluded~~fair ~~from~~value ~~the~~is ~~diluted~~a ~~earnings~~market-based ~~per~~measurement ~~share~~that ~~calculation~~should ~~because~~be ~~the~~determined ~~effect~~based on assumptions that market participants would ~~have~~use ~~been~~in ~~anti-dilutive~~pricing an asset or liability. As a basis for considering such assumptions, this standard establishes a three-tier value hierarchy, which prioritizes, in descending order, the inputs used in measuring fair value as follows:

13Level 1 — Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date.

~~Table~~Level 2 — Inputs used to measure fair value, other than quoted prices included in Level 1, are either directly or indirectly observable as of ~~Contents~~the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.

11Level 3 — Inputs used to measure fair value are unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. ~~FAIR~~These ~~VALUE~~values ~~MEASUREMENTS~~are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

~~The~~This ~~Company~~hierarchy ~~assesses~~requires ~~fair value as an exit price representing~~ the ~~amount~~Company ~~that~~to ~~would~~use beobservable ~~received~~market todata, ~~sell~~when anavailable, ~~asset~~and ~~or paid~~ to ~~transfer~~minimize athe ~~liability~~use inof anunobservable ~~orderly~~inputs ~~transaction~~when ~~between~~determining ~~market participants. As such,~~ fair value. isAssets aand ~~market-based~~liabilities ~~measurement~~measured ~~that~~at ~~should~~fair bevalue ~~determined based~~ on ~~assumptions that market participants would use in pricing an asset or liability. As~~ a ~~basis~~recurring ~~for considering such assumptions~~basis, ~~this~~include ~~standard~~the ~~establishes~~following aas ~~three-tier~~of ~~value hierarchy~~June 30, ~~which~~2012 ~~prioritizes,~~and ~~in descending order~~March 31, ~~the inputs used in measuring fair value as follows~~2012:

Level 1 — Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date.



June 30, 2012	Quoted Prices in Active Markets (Level 1)	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)	Total Fair Value as of June 30, 2012
Assets:
Money market fund (included in cash and cash equivalents)	—	$	599,000	—	$	599,000
Total assets at fair value	—	$	599,000	—	$	599,000

Level 2 — Inputs used to measure fair value, other than quoted prices included in Level 1, are either directly or indirectly observable as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.



March 31, 2012	Quoted Prices in Active Markets (Level 1)	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)	Total Fair Value as of March 31, 2012
Assets:
Money market fund (included in cash and cash equivalents)	—	$	840,000	—	$	840,000
Total assets at fair value	—	$	840,000	—	$	840,000

~~Level 3 — Inputs used to measure fair value are unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment~~13. ~~These~~RELATED ~~values~~PARTY ~~are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.~~ TRANSACTION

~~This~~On ~~hierarchy~~December 4, ~~requires~~2008, ~~the~~Micronetics, ~~Company~~Inc. toentered ~~use~~into ~~observable~~a ~~market~~lease ~~data~~with SBJ Development, ~~when~~LLC ~~available~~(the “Landlord”) for a new headquarters for Stealth Microwave, ~~and~~Inc., toits ~~minimize~~subsidiary. The property is located in the ~~use~~Township of ~~unobservable~~Ewing, ~~inputs~~New ~~when~~Jersey. ~~determining~~The ~~fair~~lease ~~value.~~has ~~Assets~~an initial term of five years and ~~liabilities~~contains ~~measured~~three atoptions ~~fair~~to ~~value on~~extend the lease, each for a ~~recurring~~term ~~basis,~~of ~~include~~five years. The annual rent for the ~~following~~initial asterm of ~~December 31,~~the ~~2011~~lease ~~and~~is ~~March 31~~$225, ~~2011~~600.

	Fair Value Measurements at December 31, 2011Using
	Quoted Pricesin ActiveMarkets(Level 1)		SignificantOtherObservableInputs(Level 2)		SignificantUnobservableInputs(Level 3)		Total FairValue as ofDecember 31, 2011
Assets:
Money market fund (included in cash and cash equivalents)		—	$	718,000		—	$	718,000
Total assets at fair value		—	$	718,000		—	$	718,000
Liabilities:
Interest rate swap (included in accrued expenses and other current liabilities)		—	$	12,000		—	$	12,000
Total liabilities at fair value		—	$	12,000		—	$	12,000

Kevin Beals, President of Micronetics, is a member of the Landlord. Mr. Beals owns sixteen percent of the outstanding units of membership interest of the Landlord.

	Fair Value Measurements at March 31, 2011Using
	Quoted Pricesin ActiveMarkets(Level 1)		SignificantOtherObservableInputs(Level 2)		SignificantUnobservableInputs(Level 3)		Total FairValue as ofMarch 31, 2011
Assets:
Money market fund (included in cash and cash equivalents)		—	$	740,000		—	$	740,000
Total assets at fair value		—	$	740,000		—	$	740,000
Liabilities:
Interest rate swap (included in accrued expenses and other current liabilities)		—	$	59,000		—	$	59,000
Total liabilities at fair value		—	$	59,000		—	$	59,000

The Audit Committee of the Board of Directors of Micronetics reviewed and approved the terms of the lease prior to its execution.

14 13

Table of Contents

~~The~~14. ~~following~~MAJOR ~~provides a summary of the change in fair value for the interest rate swap for the thirty-nine weeks ended December 31, 2011:~~ CUSTOMER

Balance at March 31, 2011	$	59,000
Change in fair value		(47,000	)
Balance at December 31, 2011	$	12,000

The Company sells primarily to original equipment manufacturers of communications equipment in either the commercial or the defense electronics marketplace. Many of those customers are prime contractors for defense work or Fortune 500 companies with world-wide operations. One customer, ITT Exelis, accounted for 33% of the Company’s consolidated sales for the thirteen weeks ended June 30, 2012 and 33% for the thirteen weeks ended July 2, 2011. This same customer accounted for 31% of the Company’s accounts receivable at June 30, 2012 and 32% of the Company’s accounts receivable at March 31, 2012.

~~The fair value of the money market fund was determined based on pricing provided by a large investment bank~~15. Since the valuation was not observable, the Company has classified this asset as level 2. The fair value of the interest rate swap was determined by using a market driven valuation model using the LIBOR rate forecast applied to common intervals for the remaining term of the interest rate swap. LITIGATION

On June 15, 2012, a purported class action lawsuit was filed in the Court of Chancery of the State of Delaware, by Jason Katz, an alleged stockholder of the Company (Katz v. Micronetics, Inc. et al., C.A. No. 7626-VCP). The lawsuit alleges: (i) that the members of our board of directors breached fiduciary duties they allegedly owed in negotiating and approving the Merger Agreement, that the merger consideration negotiated in the Merger Agreement improperly values the Company, ~~estimates~~that the Company's stockholders will not likely receive adequate or fair value for their Company common stock in the Merger, and that the terms of the ~~term~~Merger ~~loan~~Agreement atimpose ~~$681~~improper deal protection devices that will preclude competing offers and (ii) that Mercury and Merger Sub aided and abetted the purported breaches of fiduciary duty. The lawsuit seeks,~~663 as~~ among other things, an injunction against the consummation of ~~December 31~~the Merger and rescission in the event that the Merger has already been consummated prior to the entry of the court's final judgment and an award of damages and costs and expenses, ~~2011~~including attorneys' and experts' fees and expenses. On June 29, 2012, a substantially identical purported class action lawsuit was filed in the Court of Chancery by Kambiz Abbassi, another alleged stockholder of the Company (Abbassi v. D'Anne Hurd, et al., C.A. No. 7665-VCP). In addition to similar allegations regarding our board of directors' alleged breaches of fiduciary duties relating to negotiation and approval of the Merger, the Abbassi complaint also alleges that the Company and the board of directors made materially false and misleading disclosures in the preliminary proxy statement. On July 3, 2012, the Court of Chancery entered an order consolidating the Katz and Abbassi actions as In re Micronetics, Inc. Shareholder Litigation, Consol. C.A. No. 7626-VCP, and appointing co-lead counsel.

12On June 20, 2012, another substantially identical purported class action lawsuit was filed in the Superior Court of the State of New Hampshire, Hillsborough County, by Paul Constantinescu, an alleged stockholder of the Company (Constantinescu v. ~~RELATED~~Micronetics, ~~PARTY~~Inc. ~~TRANSACTION~~et al., Docket No. 226-2012-00-440). On July 13, 2012, the Constantinescu action was stayed in favor of the consolidated Delaware action.

On ~~December 4,~~July ~~2008~~26, ~~Micronetics~~2012, ~~Inc.~~a ~~entered~~purported ~~into~~class aaction ~~lease~~lawsuit ~~with~~was ~~SBJ~~filed ~~Development,~~in ~~LLC (~~the ~~“Landlord”) for~~United aStates ~~new~~District ~~headquarters~~Court for ~~Stealth~~the ~~Microwave,~~District ~~Inc,~~of ~~its~~New ~~subsidiary.~~Hampshire ~~The~~by ~~property~~Bhanwar isJoshi, ~~located~~an inalleged stockholder of the ~~Township~~company of(Joshi ~~Ewing~~v. Micronetics, ~~New~~Inc., ~~Jersey~~No. 1:12-cv-00285). The ~~lease~~lawsuit ~~has~~is ansubstantially ~~initial~~identical ~~term~~to ofthe ~~five~~other ~~years~~lawsuits ~~and~~relating ~~contains~~to ~~three~~the ~~options~~Merger, tobut ~~extend~~in ~~the~~addition ~~lease,~~asserts ~~each~~claims ~~for~~under Section 14(a) ~~term~~ of ~~five years.~~the ~~The~~Securities ~~annual~~Exchange ~~rent~~Act ~~for~~of 1934 that the ~~initial~~definitive ~~term~~proxy ofstatement disseminated in connection with the ~~lease~~Merger iscontained ~~$225,600.~~material misstatements and/or omissions.

~~Kevin~~On ~~Beals~~July 30, ~~President~~2012, solely to avoid the costs, risks and uncertainties inherent in litigation, and without admitting any liability or wrongdoing, the Company agreed to settle the litigation pending in the Delaware Court of ~~Micronetics~~Chancery and the United States District Court. The settlement provides, isamong other things, that the parties will seek to enter into a ~~member~~stipulation of settlement which provides for the ~~Landlord~~conditional certification of the consolidated Delaware action as a non opt-out class action pursuant to Court of Chancery Rule 23 on behalf of a class consisting of all record and beneficial owners of Company common stock during the period beginning on June 10, 2012, through the date of the consummation of the Merger, including any and all of their respective successors in interest, predecessors, representatives, and the release of all asserted claims. MrPursuant to the settlement, the Company agreed to additional disclosure related to continued employment provisions for senior management included in the various offers made for the Company and the extension of exclusivity to Mercury. ~~Beals~~ This ~~owns~~additional ~~sixteen~~disclosure ~~percent~~was provided in the form of a press release issued on July 30, 2012 and filed pursuant to Form 8-K on such date. There are no other provisions related to the ~~outstanding~~settlement. The ~~units~~asserted claims will not be released until such stipulation of ~~membership~~settlement ~~interest~~is approved by the court, and such release, if approved by the court, would encompass all claims alleged in the lawsuit pending in the Superior Court of the ~~Landlord~~State of New Hampshire. There can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the court will approve such settlement even if the parties were to enter into such stipulation. The settlement will not affect the merger consideration to be received by the Company's stockholders.

~~The~~In ~~Audit Committee~~connection ofwith this settlement, the ~~Board~~Company ofmay ~~Directors~~be liable for the plaintiff's attorney fees; however, as of ~~Micronetics~~this ~~reviewed~~time any such fee award is uncertain and ~~approved~~no ~~the~~reasonable ~~terms~~estimate can be made. The Company carries a director and officer insurance policy which may cover some or all of the ~~lease~~cost ~~prior~~of this matter subject to ~~its~~a ~~execution.~~$150,000 retention.

~~13. MAJOR CUSTOMER~~ 14

~~The~~Table ~~Company sells primarily to original equipment manufacturers~~ of communications equipment in either the commercial or the defense electronics marketplace. Many of those customers are prime contractors for defense work or Fortune 500 companies with world-wide operations. One customer, ITT Exelis, accounted for 34% of the Company’s consolidated sales for the thirty-nine weeks ended December 31, 2011 and 24% for the thirty-nine weeks ended December 25, 2010. This same customer accounted for 32% of the Company’s accounts receivable at December 31, 2011 and 35% of the Company’s accounts receivable at March 31, 2011. Contents

1516. SUBSEQUENT EVENTS

~~Table~~Subsequent to June 30, 2012 the Company incurred approximately $600,000 in expenses related to the pending Merger of ~~Contents~~the Company.



Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.

~~Forward~~Proposed ~~Looking~~Merger ~~Statements~~of the Company

~~Certain~~On ~~statements~~June ~~in this report contain words such as “could~~8,” ~~“expects~~2012,” ~~“may~~Micronetics,” ~~“anticipates~~Inc.,” ~~“believes,”~~a ~~“intends,”~~Delaware ~~“estimates,” “plans,”~~corporation ~~“envisions~~("Micronetics"),” ~~and~~Mercury ~~other~~Computer ~~similar~~Systems, ~~language and are considered forward-looking statements~~Inc., ~~These~~a ~~statements~~Delaware ~~are~~corporation ~~based on our expectations~~("Mercury"), ~~estimates, forecasts~~ and ~~projections~~Wildcat ~~about~~Merger ~~the~~Sub ~~operating environment~~Inc., ~~economies~~a ~~and markets~~Delaware incorporation ~~which we operate~~ and ~~are~~wholly-owned ~~merely~~subsidiary ~~our current predictions~~ of ~~future~~Mercury ~~events.~~("Merger ~~In addition~~Sub"), ~~other~~entered ~~written~~into oran ~~oral~~Agreement ~~statements~~and ~~which~~Plan ~~are~~of ~~considered~~Merger ~~forward-looking~~(the ~~may~~"Merger beAgreement"), ~~made~~pursuant ~~by us or others on our behalf. These statements are subject~~ to ~~important~~ ~~risks, uncertainties and assumptions,~~ which ~~are~~Mercury ~~difficult~~will toacquire ~~predict~~all ~~and~~of the ~~actual~~outstanding ~~outcome~~shares ~~may~~of beMicronetics ~~materially~~for ~~different~~$14.80 ~~Some~~per ofshare ~~the~~in ~~factors~~cash, ~~which~~without ~~could~~interest, ~~cause~~and ~~results~~pursuant ~~or events~~ to ~~differ~~which ~~from~~Merger ~~current~~Sub ~~expectations~~will ~~include,~~be ~~but~~merged ~~are~~with ~~not limited~~and ~~to,~~into ~~the~~Micronetics ~~factors~~with ~~described~~Micronetics ~~here,~~continuing inas ~~our Annual Report on Form 10-K for~~ the ~~fiscal~~surviving ~~year~~corporation ~~ended March 31, 2011,~~ and ina ~~the~~wholly ~~other~~owned ~~documents~~subsidiary ~~that~~of weMercury ~~file with~~ (the ~~Securities and Exchange Commission~~"Merger"). ~~We assume no obligation to update our forward-looking statements to reflect new information or developments.~~

AnOn ~~investment~~the terms and subject to the conditions set forth in ~~our~~the ~~common~~Merger ~~stock~~Agreement, ~~involves~~which ahas ~~high degree~~been unanimously approved by the Board of ~~risk.~~Directors Weof ~~urge~~Micronetics, ~~readers~~at tothe ~~review~~effective ~~carefully~~time of the ~~risk~~Merger ~~factors~~(the ~~described~~"Effective ~~herein~~Time"), inand ~~our~~as ~~Annual~~a ~~Report~~result onthereof, ~~Form~~each ~~10-K~~share ~~for~~of ~~the~~common ~~fiscal~~stock, ~~year~~par ~~ended~~value ~~March 31,~~$0.01 ~~2011~~per share, of Micronetics ("Micronetics Common Stock") that is issued and inoutstanding immediately prior to the Effective Time (other ~~documents~~than ~~that~~Micronetics weCommon ~~file~~Stock ~~with~~owned ~~the~~directly ~~Securities~~or indirectly by Mercury or any subsidiary of Micronetics, which will be canceled without payment of any consideration, and ~~Exchange Commission.~~Micronetics ~~You~~Common ~~can~~Stock ~~read~~for ~~these~~which ~~documents~~dissenters' rights have been validly exercised and not withdrawn) will be converted at ~~www~~the Effective Time into the right to receive $14.~~sec.gov.~~80 Ifin ~~any~~cash, ofwithout ~~these~~interest ~~risks~~(the "Merger Consideration"), orsubject ~~other~~to ~~risks~~adjustment ~~not~~under ~~presently~~certain ~~known~~conditions as described in the Merger Agreement. Each option to uspurchase orMicronetics Common Stock that weis ~~currently~~vested ~~believe~~and ~~are~~outstanding ~~not~~immediately ~~significant~~prior to the Effective Time, ~~develops~~including ~~into~~options anwhich ~~actual~~by ~~event,~~their ~~then~~terms ~~our~~vest ~~business~~immediately prior to the Effective Time (each, ~~financial~~a ~~condition~~"Vested Option") shall be canceled at the Effective Time and ~~results~~, in exchange therefor, each former holder of ~~operations~~any ~~could~~such canceled Vested Option shall be ~~adversely~~entitled ~~affected.~~to Ifreceive, ~~that~~in ~~happens~~cash, the ~~market~~amount by which the Merger Consideration exceeds the exercise price of ~~our~~such ~~common~~Vested ~~stock~~Option ~~could~~multiplied ~~decline~~by the number of shares of Micronetics Common Stock subject to such Vested Option. Each option to purchase Micronetics Common Stock that is unvested and outstanding immediately prior to the Effective Time shall be assumed by Mercury.

~~Critical~~Consummation ~~Accounting~~of ~~Policies~~the Merger is subject to customary conditions, including (i) approval of the holders of a majority of the outstanding shares of Micronetics Common Stock (the “ Stockholder Approval ”), (ii) the absence of any law or order prohibiting the consummation of the Merger, (iii) expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, if applicable, and ~~Estimates~~(iv) the absence of a material adverse effect with respect to Micronetics. The consummation of the Merger is not subject to a financing condition.

The ~~discussion~~Merger ~~and~~Agreement ~~analysis~~contains ofcertain ~~our~~termination ~~financial~~rights ~~condition~~for ~~and~~both ~~the~~Mercury ~~results~~and ofMicronetics, ~~operations~~and ~~are~~further ~~based~~provides onthat, ~~our~~upon ~~consolidated~~termination ~~financial~~of ~~statements and~~ the ~~data~~Merger ~~used~~Agreement ~~to prepare them. Our consolidated financial statements have been prepared based on accounting principles generally accepted~~ in ~~the~~certain ~~United States of America. On an on-going basis~~circumstances, weincluding ~~evaluate~~if ~~our judgments and estimates that affect~~ the ~~reported~~Merger ~~amounts~~Agreement ofis ~~assets~~terminated ~~and~~by ~~liabilities~~Mercury ~~and~~in ~~disclosure of contingent assets and liabilities at~~ the ~~date~~event of the ~~financial~~Micronetics ~~statements~~Board ~~and~~effects ~~reported~~a ~~amounts~~Change of ~~revenue~~Company ~~and~~Board ~~expenses during the reporting period. Estimates and judgments include revenue recognition~~Recommendation, ~~assumptions~~Micronetics ~~used~~would inbe ~~stock~~required ~~option~~to ~~and~~pay ~~goodwill valuations,~~Mercury ~~reserves~~the ~~for~~Termination ~~accounts~~Fee ~~receivable~~equal ~~and~~to ~~inventories~~$2, ~~useful lives of long lived assets~~520, ~~accrued liabilities, and deferred income taxes~~000. These estimates and judgments are based on historical experience and various other assumptions that are believed to be reasonable under current business conditions and circumstances. Actual results may differ from these estimates under different assumptions or conditions.

~~There~~A ~~have~~Special ~~been~~Meeting noof ~~changes~~the toShareholders ~~our~~is ~~critical~~scheduled ~~accounting~~for ~~policies~~August ~~from~~8, ~~those~~2012 ~~described~~to inconsider ~~our~~and ~~Annual~~vote ~~Report~~upon ~~on Form 10-K for~~ the ~~fiscal year ended March 31, 2011~~Merger.

~~Recent~~The ~~Accounting~~foregoing ~~Pronouncements~~description of the Merger Agreement is only a summary, does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, a copy of which is filed as Item 1.01 to the Company's Current Report on Form 8-K filed with the SEC on June 12, 2012.

WeSubsequent ~~discuss recently issued accounting standards in Item 1. Notes to Consolidated Financial Statements – Note 2.~~ Events

~~Overview~~Subsequent to June 30, 2012 we incurred approximately $600,000 in expenses related to the pending Merger of the Company.

Micronetics designs and manufactures high performance microwave and radio frequency (RF) components and integrated multifunction subassemblies used in a variety of commercial wireless, defense and aerospace products, including satellite communications, electronic warfare and electronic counter-measures. We also manufacture and design test equipment, subassemblies and components used to test the strength, durability and integrity of signals in communications equipment. Our products are embedded in a variety of radars, electronic warfare systems, guidance systems, wireless telecommunications and satellite equipment. Our microwave devices are used on subassemblies and integrated systems in addition to being sold on a component basis. 15

WeTable ~~sell our products primarily to original equipment manufacturers~~ of communications equipment in either the commercial or the defense electronics marketplace. Many of our customers are prime contractors for defense applications and/or Fortune 500 companies with world-wide operations. Contents

AForward ~~key~~Looking driver of demand for our products is the pervasive transformation of information from the analog domain to the digital domain. Because digital technologies require greater degrees of precision and rely more on miniature circuits than analog technologies, testing is critical for the rapid commercialization of reliable products necessitated by broadband and wireless communication technologies. As the speed to market challenges increase, larger companies are relying increasingly on other companies to manufacture a module or an integrated subassembly. This module or subassembly is then integrated by the larger company into a piece of equipment and sold to a customer. Micronetics has been seeking to capitalize on this trend by increasing its capability to manufacture integrated subsystems. Our goal is to leverage our high power and noise technology to continue to be a highly reliable supplier of integrated microwave subsystems. Statements

16Certain statements in this report contain words such as “could,” “expects,” “may,” “anticipates,” “believes,” “intends,” “estimates,” “plans,” “envisions,” and other similar language and are considered forward-looking statements. These statements are based on our expectations, estimates, forecasts and projections about the operating environment, economies and markets in which we operate and are merely our current predictions of future events. In addition, other written or oral statements which are considered forward-looking may be made by us or others on our behalf. These statements are subject to important risks, uncertainties and assumptions, which are difficult to predict and the actual outcome may be materially different. Some of the factors which could cause results or events to differ from current expectations include, but are not limited to, the factors described here, in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012, and in the other documents that we file with the Securities and Exchange Commission. We assume no obligation to update our forward-looking statements to reflect new information or developments.

~~Table~~An investment in our common stock involves a high degree of ~~Contents~~risk. We urge readers to review carefully the risk factors described herein, in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012, and in the other documents that we file with the Securities and Exchange Commission. You can read these documents at www.sec.gov. If any of these risks, or other risks not presently known to us or that we currently believe are not significant, develops into an actual event, then our business, financial condition and results of operations could be adversely affected. If that happens, the market price of our common stock could decline.

~~Results~~Critical ofAccounting ~~Operations~~Policies and Estimates

~~Thirteen~~The ~~Weeks~~discussion ~~Ended~~and ~~December 31,~~analysis ~~2011~~of ~~compared~~our financial condition and the results of operations are based on our consolidated financial statements and the data used to ~~December 25~~prepare them. Our consolidated financial statements have been prepared based on accounting principles generally accepted in the United States of America. On an on-going basis, ~~2010~~we evaluate our judgments and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Estimates and judgments include revenue recognition, assumptions used in stock option and goodwill valuations, reserves for accounts receivable and inventories, useful lives of long lived assets, accrued liabilities, and deferred income taxes. These estimates and judgments are based on historical experience and various other assumptions that are believed to be reasonable under current business conditions and circumstances. Actual results may differ from these estimates under different assumptions or conditions.

~~Net~~There ~~sales~~have been no changes to our critical accounting policies from those described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012.

~~Net~~Recent ~~sales~~Accounting for the thirteen weeks ended December 31, 2011 (“Q3 FY 12”) were $12,045,932, an increase of $4,444,560, or 58% as compared to $7,601,372 for the thirteen weeks ended December 25, 2010 (“Q3 FY 11”). The increase in sales was due to a combination of increased integrated component subsystems sales and returning to a normal shipping level as Q3 FY 11 was lower than normal while we implemented new operating procedures. Pronouncements

~~Gross~~We ~~margin~~discuss recently adopted accounting standards in Item 1. Notes to Consolidated Financial Statements – Note 3.

Gross margin for Q3 FY 12 was approximately 31% which was unchanged from gross margin of 31% for Q3 FY 11. Q3 FY 12 gross margin percentage was adversely affected by development costs associated with a defense sub-system contract and start-up costs associated with a commercial sub-system contract. Q3 FY 11 gross margin percentage was adversely affected by a delay in shipments while we implemented new operating procedures. Overview

~~Research~~Micronetics designs and ~~development~~manufactures high performance microwave and radio frequency (RF) components and integrated multifunction subassemblies used in a variety of commercial wireless, defense and aerospace products, including satellite communications, electronic warfare and electronic counter-measures. We also manufacture and design test equipment, subassemblies and components used to test the strength, durability and integrity of signals in communications equipment. Our products are embedded in a variety of radars, electronic warfare systems, guidance systems, wireless telecommunications and satellite equipment. Our microwave devices are used on subassemblies and integrated systems in addition to being sold on a component basis.

~~Research~~We ~~and~~sell ~~development~~our ~~expense~~products ~~for~~primarily ~~Q3 FY 12 was $301,835 as compared~~ to ~~$447,197~~original ~~for~~equipment Q3manufacturers ~~FY 11, a decrease~~ of ~~$145,362~~communications orequipment ~~33%.~~in ~~There~~either ~~were~~the nocommercial ~~material~~or ~~activities~~the ~~associated~~defense ~~with~~electronics ~~this decrease~~marketplace. ~~Our research~~Many ~~and~~of ~~development~~our ~~expense~~customers ~~varies~~are toprime acontractors ~~certain~~for ~~degree~~defense ~~based~~applications ~~upon emerging technologies, shifts in product requirements~~ and/or ~~our~~Fortune ~~assessment~~500 ofcompanies ~~future~~with ~~business~~world-wide ~~opportunities~~operations.

~~Selling~~A key driver of demand for our products is the pervasive transformation of information from the analog domain to the digital domain. Because digital technologies require greater degrees of precision and rely more on miniature circuits than analog technologies, ~~general~~testing is critical for the rapid commercialization of reliable products necessitated by broadband and ~~administrative~~wireless communication technologies. As the speed to market challenges increase, larger companies are relying increasingly on other companies to manufacture a module or an integrated subassembly. This module or subassembly is then integrated by the larger company into a piece of equipment and sold to a customer. Micronetics has been seeking to capitalize on this trend by increasing its capability to manufacture integrated subsystems. Our goal is to leverage our high power and noise technology to continue to be a highly reliable supplier of integrated microwave subsystems.

~~Selling,~~Results ~~general and administrative expense for Q3 FY 12 was $1,792,120 as compared to $1,755,689 for Q3 FY 11, representing an increase~~ of ~~$36,431 or 2%. There were no material items associated with this change.~~ Operations

~~Amortization~~Thirteen ofWeeks ~~intangible~~Ended ~~assets~~June 30, 2012 compared to July 2, 2011

~~Amortization~~Net ~~expense attributable to our intangible assets related to previous acquisitions was $78,512 in Q3 FY 12 as compared to $73,326 in Q3 FY 11.~~ sales

~~Interest~~Net ~~expense~~sales for the thirteen weeks ended June 30, 2012 (“Q1 FY 13”) were $10,606,970, an increase of $567,677, or 6% as compared to $10,039,293 for the thirteen weeks ended July 2, 2011 (“Q1 FY 12”). The increase in sales was due to an increase in integrated component sub-systems.

~~Interest~~Gross expense for Q3 FY 12 was $49,145 as compared to $84,222 for Q3 FY 11, a decrease of $35,077 or 42%. The decrease was due to a combination of lower average interest rates and lower average debt in Q3 FY 12 as compared to Q3 FY 11. margin

~~Interest~~Gross ~~rate~~margin ~~swap~~for Q1 FY 13 was approximately 30% which declined from 32% gross margin for Q1 FY 12. The decrease was primarily due to components product mix.

AResearch ~~positive~~and change in fair value of $12,617 was recorded for Q3 FY 12 as compared to positive change in fair value of $27,084 recorded in Q3 FY 11 on the interest rate swap agreement entered into in April 2007 to mitigate interest rate fluctuations on our term loan. development

~~Provision~~Research ~~(benefit)~~and development expense for ~~income~~Q1 ~~taxes~~FY 13 was $324,129 as compared to $413,695 for Q1 FY 12, a decrease of $89,566 or 22%. There were no material activities associated with this decrease. Our research and development expense varies to a certain degree based upon emerging technologies, shifts in product requirements and our assessment of future business opportunities.

~~Our~~Selling, ~~effective~~general ~~tax~~and ~~rate was 40% for Q3 FY 12. There were no significant true-up adjustments in Q3 FY 12 related to the filing of our fiscal 2011 tax return.~~ administrative

~~Before~~Selling, ~~considering~~general ~~the~~and ~~effect~~administrative ofexpense ~~discrete~~for ~~items,~~Q1 ~~our~~FY ~~effective~~13 ~~tax~~was ~~rate~~$1,975,197 ~~for~~as Q3compared FYto 11$1,756,996 ~~was~~for ~~39.5%.~~Q1 InFY ~~the~~12, ~~thirteen~~representing ~~weeks~~an ~~ended~~increase ~~December~~of 25$218, ~~2010,~~201 weor ~~recorded~~12%. ~~true-up~~Payroll ~~adjustment~~related ~~credits~~expenses ~~totaling~~increased approximately $4262,000 ~~primarily~~due ~~related~~ to the ~~filing~~addition of ~~our~~sales ~~fiscal~~personnel. Third ~~2010~~party ~~tax~~commission ~~return~~expense ~~and~~increased approximately $146,~~762~~000, ofstock ~~uncertain~~compensation ~~tax~~expense ~~benefits~~increased ~~recognized~~by ~~due~~approximately to$27,000 ~~the~~and ~~statute~~all other selling, general and administrative costs increased by a net of ~~limitations~~approximately ~~expiration~~$83,000.

~~Thirty~~Merger-~~nine Weeks Ended December 31, 2011 compared to December 25, 2010~~ related

~~Net~~Merger-related ~~sales~~expense for Q1 FY 13 was $1,150,171 relating to the pending Merger of the Company.

~~Net~~Amortization ~~sales for the thirty-nine weeks ended December 31, 2011 were $33,711,917, an increase~~ of ~~$7,759,706,~~intangible or 30% as compared to $25,952,211 for the thirty-nine weeks ended December 25, 2010. The increase in sales was due to a combination of increased integrated component subsystems sales, increased component sales and returning to a normal shipping level as Q3 FY 11 was lower than normal while we implemented new operating procedures. assets

~~Gross~~Amortization ~~margin~~expense attributable to our intangible assets related to previous acquisitions was $55,119 in Q1 FY 13 as compared to $78,511 in Q1 FY 12 due to completing amortization of certain tangibles.

~~Gross~~Interest margin for the thirty-nine weeks ended December 31, 2011 was approximately 33% as compared to 34% for the thirty-nine weeks ended December 25, 2010. The decrease in gross margin was a result of increases in our manufacturing cost base to support converting our current backlog into sales combined with start-up costs associated with new contract shipments and development costs associated with a defense sub-system contract. expense

17Interest expense for Q1 FY 13 was $20,392 as compared to $81,610 for Q1 FY 12, a decrease of $61,218 or 75%. The decrease was due to the final payment made on the term loan in April 2012 and a lower line of credit outstanding during Q1 FY13 as compared to Q1 FY12.

~~Table~~(Benefit) ofprovision ~~Contents~~for income taxes

~~Research~~Our effective tax rate was 52.7% for Q1 FY 13 and ~~development~~36.5% for Q1 FY12. The effective tax rate for Q1 FY13 is based on the projected annual pre-tax income for fiscal year 2013, including the impact of nondeductible merger-related expenses. The effective tax rate could change depending on the outcome of the Special Meeting of the Shareholders scheduled for August 8, 2012 to consider and vote upon the Merger.

Research and development expense for the thirty-nine weeks ended December 31, 2011 was $1,090,716 as compared to $1,278,135 for the thirty-nine weeks ended December 25, 2010, a decrease of $187,419 or 15%. There were no material activities associated with this decrease. Our research and development expense varies to a certain degree based upon emerging technologies, shifts in product requirements and our assessment of future business opportunities. Backlog

~~Selling~~Our backlog was approximately $23 million as of June 30, ~~general~~2012 and ~~administrative~~ $31 million at July 2, 2011.

~~Selling~~Financial Condition, ~~general~~Liquidity and ~~administrative~~Capital expense for the thirty-nine weeks ended December 31, 2011 was $5,404,203 as compared to $5,381,166 for the thirty-nine weeks ended December 25, 2010, an increase of $23,037 or less than 1%. There were no material items associated with this change. Resources

~~Amortization~~We offinance ~~intangible~~our operating and investment requirements primarily through operating cash flows and borrowings. Cash and cash equivalents were $604,103 and $856,931, respectively, at June 30, 2012 and March 31, 2012. Working capital, defined as accounts receivable, inventory, prepaid expenses, other current assets net of accounts payable, accrued expenses and deferred

Amortization expense attributable to our intangible assets related to previous acquisitions was $235,535 in the thirty-nine weeks ended December 31, 2011 as compared to $247,374 in the thirty-nine weeks ended December 25, 2010. The decrease of $11,839 was due to completing amortization of certain intangible assets. 16

~~Interest~~Table ~~expense~~of Contents

~~Interest~~revenue, ~~expense~~was ~~for~~$13,516,526 ~~the~~and ~~thirty-nine weeks ended December 31~~$15,043,885 ~~2011~~at ~~was~~June ~~$203~~30,~~716~~ as2012 ~~compared~~and toMarch ~~$297~~31,~~449~~ ~~for~~2012, ~~the~~respectively. ~~thirty-nine~~Borrowings ~~weeks~~under ~~ended~~our ~~December 25,~~revolving ~~2010,~~line aof ~~decrease~~credit ofwere $933,~~733~~551,151 orand ~~32%.~~$4,220,045 ~~The decrease~~at ~~was~~June ~~primarily~~30, ~~due~~2012 toand ~~lower~~March ~~average~~31, ~~interest~~2012, ~~rates~~respectively.

~~Interest~~Our ~~rate~~current ~~swap~~ratio was approximately 2.47 at June 30, 2012 and 2.37 at March 31, 2012, respectively.

AIn ~~positive change in fair value of $47,302 was recorded for~~ the ~~thirty-nine~~thirteen weeks ended ~~December 31~~June 30, ~~2011~~2012 asnet ~~compared~~cash toprovided ~~positive change~~by inoperating ~~fair~~activities ~~value~~was of $821,~~493 recorded in the thirty-nine weeks ended December 25~~155,576 ~~2010~~as oncompared ~~the interest rate swap agreement entered into in April 2007~~ to ~~mitigate interest rate fluctuations on our term loan.~~ $11834,~~663~~307 ~~remains~~for ~~to be amortized related to~~ the ~~interest~~thirteen ~~rate~~weeks ~~swap.~~ended ~~This~~July ~~amount will be amortized into income in the fourth quarter of FY 2012 and the term loan will be fully paid on April 1~~2, ~~2012~~2011.

~~Provision~~In the thirteen weeks ended June 30, 2012, cash provided by net loss after adjusting for ~~income~~non-cash ~~taxes~~items including depreciation, amortization, stock-based compensation and changes in working capital reserves was approximately $.3 million. Approximately $0.8 million was provided by working capital needs. Of this amount, approximately $1.4 million was provided by receivables offset by $0.6 million used for prepaid tax assets.

~~Our~~In ~~effective~~the ~~tax~~thirteen ~~rate~~weeks ended July 2, 2011, cash provided by net income after adjusting for ~~the thirty~~non-~~nine~~cash ~~weeks~~items ~~ended~~including ~~December 31~~depreciation, ~~2011~~amortization, stock-based compensation, changes in working capital reserves and an unrealized gain on interest rate swap was ~~40%~~approximately as$1.0 ~~compared~~million. toApproximately 39$0.5%2 million was used for ~~the~~working ~~thirty-nine~~capital ~~weeks~~needs. ~~ended~~Of ~~December 25~~this amount, ~~2010~~approximately $0.8 million was provided by receivables and deferred revenue, approximately $1.7 million was used to fund inventory requirements, approximately $0.4 million was provided by accounts payable and accrued expenses and $0.3 million was provided by a reduction in prepaid tax assets.

~~Backlog~~Net cash used in investing activities was $414,511 during the thirteen weeks ended June 30, 2012 as compared to $237,761 in the thirteen weeks ended July 2, 2011. In the thirteen weeks ended June 30, 2012 and July 2, 2011, investing activities was solely comprised of capital expenditures.

~~Our~~Net ~~backlog~~cash ~~was~~used ~~approximately~~for financing activities was $26993,893 ~~million~~during the thirteen weeks ended June 30, 2012 as compared to cash used for financing activities of ~~December 31~~ $377,513 ~~2011~~during ~~and~~the ~~$27~~thirteen ~~million~~weeks atended ~~December 25~~July 2, ~~2010~~2011.

~~Financial~~In ~~Condition~~the thirteen weeks ended June 30, ~~Liquidity~~2012, we repaid approximately $0.7 million towards our line of credit and ~~Capital~~repaid ~~Resources~~ term debt of approximately $0.3 million.

WeIn ~~finance~~the ~~our~~thirteen ~~operating~~weeks ~~and~~ended ~~investment~~July ~~requirements~~2, ~~primarily~~2011, ~~through~~we ~~operating~~borrowed ~~cash~~approximately ~~flows and borrowings~~$0.3 ~~Cash~~million ~~and cash~~from ~~equivalents~~our ~~were~~line ~~$723,446~~of ~~and $745~~credit,~~116,~~ ~~respectively,~~repaid atterm ~~December 31,~~debt ~~2011~~of ~~and~~approximately ~~March 31, 2011~~$0.6 ~~Working~~million ~~capital,~~and ~~defined~~paid asapproximately ~~accounts~~$0.1 ~~receivable,~~million ~~unbilled~~for ~~revenue,~~capital ~~inventory,~~lease ~~prepaid~~obligations. ~~expenses,~~Due ~~other~~to ~~current~~the ~~assets~~timing ~~net~~ of ~~accounts payable,~~the ~~accrued~~quarter ~~expenses~~ and ~~deferred~~the ~~revenue,~~calendar ~~was~~quarter ~~$14,861,099~~ and ~~$15,086,387~~due atto ~~December 31,~~two ~~2011~~payments ~~and~~on ~~March 31,~~our ~~2011~~term loan, ~~respectively.~~an ~~Borrowings~~additional ~~under~~$0.3 ~~our~~million ~~revolving~~of ~~line~~debt ofpayments ~~credit~~occurred ~~were~~in ~~$4,241,883~~the ~~and~~thirteen ~~$6,714,319~~week atperiod ~~December 31,~~ended ~~2011 and~~July ~~March 31~~2, 2011~~, respectively~~.

~~Our~~We ~~current~~believe ~~ratio~~that ~~was~~cash ~~approximately~~and 2cash equivalents on hand, anticipated future cash receipts, and borrowings available under our line of credit will be sufficient to meet our obligations as they become due for the next twelve months.15 atHowever, ~~December 31~~a decrease in our sales or demand for our products would likely adversely affect our working capital amounts. As part of our business strategy, ~~2011~~we occasionally evaluate potential acquisitions of businesses, products and 1technologies.74 Accordingly, a portion of our available cash may be used at ~~March 31~~ any time for the acquisition of complementary products or businesses. These potential transactions may require substantial capital resources, ~~2011~~which, ~~respectively~~in turn, may require us to seek additional debt or equity financing. There are no assurances that we will be able to consummate any such transaction. There are no current plans to raise additional debt or equity capital, nor is there a projected need to raise any such capital.

InTerm ~~the~~Loan ~~thirty-nine~~and ~~weeks ended December 31, 2011 net cash provided by operating activities was $4,581,294 as compared to $871,927 for the thirty-nine weeks ended December 25, 2010.~~ Revolver

In ~~the~~March ~~thirty-nine weeks ended December 31~~2007, ~~2011,~~we ~~cash~~entered ~~provided~~into bya ~~net~~credit ~~income~~facility ~~after~~which ~~adjusting~~consisted ~~for~~of ~~non-cash~~a ~~items~~$6.5 ~~including~~million ~~depreciation,~~five ~~amortization,~~year ~~stock-based~~secured ~~compensation,~~term ~~changes~~loan ~~in working capital reserves~~ and a ~~change in the fair value of an interest rate swap was approximately~~ $45.20 million. ~~Approximately~~three ~~$.4~~year ~~million~~revolving ~~was~~line ~~provided~~of ~~by working capital needs~~credit. OfIn ~~this~~Fiscal ~~amount~~2009, ~~approximately~~the ~~$.5 million~~revolving ~~was~~line ~~used~~of tocredit ~~fund inventory requirements, approximately $0.1 million~~ was ~~provided~~extended by ~~receivables~~two ~~and unbilled/deferred revenue and approximately $0~~years.4 ~~million~~On ~~was~~August 13, ~~provided~~2010, bythe anrevolving ~~increase~~line inof ~~accounts~~credit ~~payable~~was ~~and~~increased ~~accrued~~to ~~expenses. In addition~~ $07.45 million and was ~~provided~~extended byuntil aMarch 31, ~~reduction in prepaid tax assets~~2013.

18On September 19, 2011, we entered into an amendment to the term loan and revolving line of credit agreement under which the revolving line of credit was increased to $10 million and extended until September 30, 2015. The term loan and revolving line of credit are guaranteed by our subsidiaries and are secured by substantially all of our assets. The term loan was payable in quarterly principal installments of $325,000 plus accrued interest at the rate of 5.2% plus the applicable margin. The final payment for the term loan was made in April 2012. The revolving line of credit bears interest at LIBOR plus the applicable margin. At June 30, 2012, the interest rate was 2.49%. We had approximately $6.4 million available under the line of credit at June 30, 2012.

~~Table~~In April 2007, the Company entered into an interest rate swap agreement with an initial notional amount of ~~Contents~~$6.5 million to mitigate the effect of interest rate fluctuations on the term loan. The interest rate swap was not designated as a hedging instrument at the initiation of the swap, and therefore the Company had not applied hedge accounting. As a result, at the end of each reporting period, the change in fair value of the interest rate swap was recorded on the consolidated balance sheet, with any related gains or losses included in earnings. The interest rate swap agreement expired March 30, 2012. Therefore, there

In the thirty-nine weeks ended December 25, 2010, cash provided by net income after adjusting for non-cash items including depreciation, amortization, stock-based compensation, changes in working capital reserves and an unrealized gain on interest rate swap was approximately $2.4 million. Approximately $1.7 million was used for working capital needs. Of this amount, approximately $1.6 million was provided by receivables and unbilled/deferred revenue, approximately $2.0 million was used to fund inventory requirements, approximately $1.1 million was used to fund accounts payable and accrued expenses, approximately $0.1 million was used to fund prepaid expenses and approximately $0.2 million was used for prepaid tax assets. In addition an approximate $0.1 million use was the result of a non-cash charge related to a deferred tax asset associated with the expiration of non-qualified stock options. There is an offset to this amount in additional paid in capital. The increase in inventory was due in part to the delay in shipments in Q3 FY 2011 of integrated component sub-systems for defense jamming and electronic system modernization applications. The increase in inventory was also due in part to support product shipment requirements associated with our existing backlog. 17

~~Net~~Table cash used in investing activities was $1,041,671 during the thirty-nine weeks ended December 31, 2011 as compared to $680,067 in the thirty-nine weeks ended December 25, 2010. In the thirty-nine weeks ended December 31, 2011 and December 25, 2010, investing activities was solely comprised of ~~capital expenditures.~~ Contents

~~Net cash used for financing activities~~ was ~~$3,561,293~~no ~~during~~change ~~the~~in ~~thirty-nine~~fair ~~weeks~~value ~~ended~~at ~~December 31~~June 30, ~~2011~~2012 as compared to ~~cash provided by financing activities of~~ $~~384~~34,~~583~~597 ~~during~~at ~~the~~July ~~thirty-nine weeks ended December 25~~2, ~~2010~~2011.

InUnder the ~~thirty-nine weeks~~terms ~~ended~~of ~~December 31~~the amended term loan and the revolving line of credit agreement, ~~2011~~the Company is required to maintain certain financial covenants on a quarterly and annual basis, weincluding ~~repaid~~total ~~approximately~~funded $debt to EBITDA not exceeding 2.5:1, ~~million~~minimum ~~towards~~debt ~~our~~service ~~line~~coverage of ~~credit,~~1.25:1 ~~repaid~~and ~~term~~a ~~debt~~minimum ofcurrent ~~approximately~~ratio $of 1.025:1. ~~million~~At ~~and~~June ~~paid~~30, ~~approximately~~2012, ~~$0.1~~we ~~million~~are ~~for~~in ~~capital~~compliance ~~lease~~with ~~obligations~~our bank covenants.

~~In the thirty~~Off-~~nine~~Balance ~~weeks~~Sheet ended December 25, 2010, we borrowed approximately $1.4 million from our line of credit, repaid term debt of approximately $1.0 million and paid approximately $0.2 million for capital lease obligations. In addition, approximately $0.1 million of a deferred tax asset related to the cancellation of non-qualified stock options was charged to additional paid in capital. Arrangements

We ~~believe~~did ~~that~~not ~~cash~~have ~~and~~any ~~cash~~off-balance ~~equivalents~~sheet ~~on hand~~arrangements, ~~anticipated~~other ~~future~~than ~~cash~~operating ~~receipts,~~leases ~~and~~that ~~borrowings available~~have ~~under~~or ~~our line of credit will be sufficient to meet our obligations as they become due for the next twelve months. However~~are, ~~a decrease~~ in our sales or demand for our products would likely adversely affect our working capital amounts. As part of our business strategy, we occasionally evaluate potential acquisitions of businesses, products and technologies. Accordingly, a portion of our available cash may be used at any time for the ~~acquisition~~opinion of ~~complementary products or businesses. These potential transactions may require substantial capital resources~~management, ~~which,~~likely ~~in turn, may require us~~ to ~~seek~~have ~~additional~~a ~~debt or equity financing. There are no assurances that we will be able to consummate any such transaction. There are no~~ current ~~plans to raise additional debt~~ or ~~equity~~future ~~capital,~~material ~~nor~~effect ison ~~there~~our afinancial ~~projected need to raise any such capital~~statements.

~~Term Loan and Revolver~~ 18

InTable ~~March 2007, we entered into a credit facility consisting~~ of a $6.5 million five year secured term loan and a $5.0 million three year revolving line of credit, which replaced the then existing $6.0 million term loan entered into in June 2005. In the third quarter of fiscal 2009 we extended the term of the revolving line of credit for two years. On August 13, 2010, the revolving line of credit was increased to $7.5 million and was extended until March 31, 2013. Contents

~~On September~~Item ~~19,~~3. Quantitative ~~2011 we entered into an amendment to the term loan~~ and ~~revolving~~Qualitative ~~line~~Disclosures ~~of credit~~about ~~agreement~~Market ~~pursuant to which the revolving line of credit was increased to $10 million and extended until September 30, 2015.~~ Risk

We ~~entered~~are ~~into~~exposed ~~an interest rate swap agreement in April 2007~~ to ~~mitigate~~a ~~interest~~variety ~~rate fluctuations on the term loan. At the end~~ of ~~each~~market ~~reporting~~risks, ~~period~~including wechanges ~~record~~in ~~the current fair value of the~~ interest ~~rate~~ ~~swap~~rates onprimarily ~~the~~as ~~balance~~a ~~sheet.~~result ~~Any~~of ~~unrealized~~our ~~gain~~borrowing orand ~~loss~~investing ~~on the swap is included in earnings~~activities.

AtWe ~~December 31,~~conduct ~~2011~~our ~~we were~~transactions inwith ~~compliance~~foreign ~~with~~customers ~~our~~in ~~bank~~U.S. ~~covenants~~dollars. ~~Under~~Although ~~the~~we ~~terms~~are ofnot ~~the~~subject ~~amended~~to ~~term~~the ~~loan~~risks ~~and~~of ~~revolving~~foreign ~~line~~currency offluctuations ~~credit~~directly, ~~agreement~~demand wefrom ~~are~~foreign ~~required~~customers tomay ~~maintain~~be ~~certain~~affected ~~financial~~by ~~covenants~~the onrelative achange ~~quarterly~~in ~~and~~value ~~annual~~of ~~basis,~~the ~~including~~customer’s ~~total~~currency ~~funded~~to ~~debt~~the ~~to EBITDA~~value ~~not~~of ~~exceeding~~the 2U.~~5:1,~~S. ~~minimum~~dollar. ~~debt~~Changes ~~service~~in ~~coverage~~the relative value of 1the U.25S. ~~and~~dollar amay ~~minimum~~also ~~current~~change ~~ratio~~our prices relative to the prices of ~~1.25:1.~~our foreign competitors.

~~The~~Item 4. Controls ~~term loan~~ and ~~revolving~~ line of credit are guaranteed by the Company and its subsidiaries and secured by substantially all of our assets. The term loan is payable in quarterly principal installments of $325,000 plus accrued interest at the rate of 5.2% plus the applicable margin. The final payment for the term loan is due in April 2012. Procedures

~~The~~Evaluation ~~revolving~~of ~~line~~disclosure controls and procedures—As of ~~credit~~June ~~bears~~30, ~~interest~~2012, ~~at LIBOR~~the ~~plus~~Company carried out an evaluation, under the ~~applicable~~supervision ~~margin.~~and Atwith ~~December 31~~the Company’s management, ~~2011~~including the Company’s Chief Executive Officer and Chief Financial Officer, weof ~~had~~the ~~approximately~~effectiveness ~~$5.7~~of ~~million~~the ~~available~~design ~~under~~and operation of the ~~line~~Company’s disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d- 15(e) of ~~credit~~the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2012 to provide reasonable assurance that material information relating to the Company required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

19Changes in internal control—There were no changes in the Company’s internal controls over financial reporting that occurred during the first quarter of Fiscal 2013 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~Table~~Important considerations—The effectiveness of ~~Contents~~our disclosure controls and procedures is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Because of these limitations, there can be no assurance that any system of disclosure controls and procedures will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.

~~Off-Balance Sheet Arrangements~~ 19

WeTable ~~did not have any off-balance sheet arrangements, other than operating leases that have or are, in the opinion~~ of ~~management, likely to have a current or future material effect on our financial statements.~~ Contents

20PART II. OTHER INFORMATION

~~Table~~Item 1. Legal ~~of Contents~~Proceedings.

~~Item~~On 3June 15, 2012, a purported class action lawsuit was filed in the Court of Chancery of the State of Delaware, by Jason Katz, an alleged stockholder of the Company (Katz v. ~~Quantitative~~Micronetics, Inc. et al., C.A. No. 7626-VCP). The lawsuit alleges: (i) that the members of our board of directors breached fiduciary duties they allegedly owed in negotiating and ~~Qualitative~~approving ~~Disclosures~~the ~~about~~Merger ~~Market~~Agreement, ~~Risk~~that the merger consideration negotiated in the Merger Agreement improperly values the Company, that the Company's stockholders will not likely receive adequate or fair value for their Company common stock in the Merger, and that the terms of the Merger Agreement impose improper deal protection devices that will preclude competing offers and (ii) that Mercury and Merger Sub aided and abetted the purported breaches of fiduciary duty. The lawsuit seeks, among other things, an injunction against the consummation of the Merger and rescission in the event that the Merger has already been consummated prior to the entry of the court's final judgment and an award of damages and costs and expenses, including attorneys' and experts' fees and expenses. On June 29, 2012, a substantially identical purported class action lawsuit was filed in the Court of Chancery by Kambiz Abbassi, another alleged stockholder of the Company (Abbassi v. D'Anne Hurd, et al., C.A. No. 7665-VCP). In addition to similar allegations regarding our board of directors' alleged breaches of fiduciary duties relating to negotiation and approval of the Merger, the Abbassi complaint also alleges that the Company and the board of directors made materially false and misleading disclosures in the preliminary proxy statement. On July 3, 2012, the Court of Chancery entered an order consolidating the Katz and Abbassi actions as In re Micronetics, Inc. Shareholder Litigation, Consol. C.A. No. 7626-VCP, and appointing co-lead counsel.

WeOn ~~are~~June ~~exposed~~20, to2012, aanother ~~variety~~substantially ofidentical ~~market~~purported ~~risks,~~class ~~including~~action ~~changes~~lawsuit was filed in ~~interest~~the ~~rates~~Superior ~~primarily~~Court asof athe ~~result~~State of ~~our~~New ~~borrowing~~Hampshire, ~~and~~Hillsborough ~~investing~~County, ~~activities~~by Paul Constantinescu, an alleged stockholder of the Company (Constantinescu v. Micronetics, Inc. et al., Docket No. 226-2012-00-440). On July 13, 2012, the Constantinescu action was stayed in favor of the consolidated Delaware action.

WeOn ~~are~~July ~~subject~~26, to2012, ~~interest~~a ~~rate~~purported ~~exposure~~class onaction ~~our~~lawsuit ~~revolving~~was ~~line~~filed ofin ~~credit.~~the ~~Our~~United ~~revolving~~States ~~line~~District Court for the District of ~~credit~~New ~~interest~~Hampshire ~~rate~~by isBhanwar ~~tied~~Joshi, toan ~~LIBOR~~alleged stockholder of the company (Joshi v. ~~We have~~Micronetics, ~~entered~~Inc., ~~into~~No. an1:12-cv-00285). The ~~interest~~lawsuit ~~rate~~is ~~swap~~substantially ~~agreement~~identical to ~~minimize~~the ~~our~~other ~~exposure~~lawsuits relating to ~~interest~~the ~~rate~~Merger, ~~fluctuations~~but onin ~~our~~addition ~~term~~asserts ~~debt.~~claims ~~Our~~under ~~interest~~Section ~~rate~~14(a) ~~swap~~of ~~has~~the ~~not~~Securities ~~been~~Exchange ~~designated~~Act asof a1934 ~~hedging~~that ~~instrument,~~the ~~therefore~~definitive ~~changes~~proxy statement disseminated in ~~fair~~connection ~~value~~with ~~are~~the ~~recognized currently~~Merger incontained ~~earnings.~~material misstatements and/or omissions.

WeOn ~~conduct~~July ~~our~~30, ~~transactions~~2012, ~~with~~solely ~~foreign~~to ~~customers~~avoid the costs, risks and uncertainties inherent in ~~U.S.~~litigation, ~~dollars~~and without admitting any liability or wrongdoing, the Company agreed to settle the litigation pending in the Delaware Court of Chancery and the United States District Court. The ~~Although~~settlement weprovides, ~~are~~among ~~not~~other ~~subject~~things, that the parties will seek to enter into a stipulation of settlement which provides for the ~~risks~~ conditional certification of ~~foreign~~the ~~currency~~consolidated ~~fluctuations~~Delaware ~~directly~~action as a non opt-out class action pursuant to Court of Chancery Rule 23 on behalf of a class consisting of all record and beneficial owners of Company common stock during the period beginning on June 10, ~~demand~~2012, ~~from~~through ~~foreign~~the ~~customers~~date ~~may~~of bethe ~~affected~~consummation byof the ~~relative~~Merger, ~~change~~including any and all of their respective successors in ~~value~~interest, predecessors, representatives, and the release of all asserted claims. Pursuant to the ~~customer’s~~settlement, ~~currency~~the Company agreed to additional disclosure related to continued employment provisions for senior management included in the ~~value~~various ofoffers made for the UCompany and the extension of exclusivity to Mercury.S. This ~~dollar~~additional disclosure was provided in the form of a press release issued on July 30, 2012 and filed pursuant to Form 8-K on such date. The ~~Changes~~asserted claims will not be released until such stipulation of settlement is approved by the court, and such release, if approved by the court, would encompass all claims alleged in the ~~relative~~lawsuit ~~value~~pending in the Superior Court of the ~~U.S.~~State ~~dollar~~of ~~may~~New ~~also change~~Hampshire. ~~our~~There ~~prices~~can ~~relative~~be tono assurance that the ~~prices~~parties will ultimately enter into a stipulation of ~~our~~settlement ~~foreign~~or ~~competitors~~that the court will approve such settlement even if the parties were to enter into such stipulation. The settlement will not affect the merger consideration to be received by the Company's stockholders.

~~Item~~In 4connection with this settlement, the Company may be liable for the plaintiff's attorney fees; however, as of this time any such fee award is uncertain and no reasonable estimate can be made. The ~~Controls~~Company carries a director and ~~Procedures~~officer insurance policy which may cover some or all of the cost of this matter subject to a $150,000 retention.

Evaluation of disclosure controls and procedures—As of December 31, 2011, the Company carried out an evaluation, under the supervision and with the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of 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 (the “Exchange Act”)). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2011 to provide reasonable assurance that material information relating to the Company required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. 20

~~Changes~~Table ~~in internal control—There were no changes in the Company’s internal controls over financial reporting that occurred during the third quarter~~ of ~~fiscal 2012 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.~~ Contents

Important considerations—The effectiveness of our disclosure controls and procedures is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraudItem 1A. Risk Because of these limitations, there can be no assurance that any system of disclosure controls and procedures will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of managementFactors.

21This report contains forward-looking statements that involve risks and uncertainties, such as statements of our objectives, expectations and intentions. You should consider carefully all of the material risks described herein, in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012, and in our other documents filed with the Securities and Exchange Commission, as well as the cautionary statements made elsewhere in the Annual Report and in this report, before making a decision to invest in our securities. Such cautionary statements are applicable to all forward-looking statements wherever they appear in this report. If any of the events described therein occur, our business, financial conditions and results of operations may be materially adversely affected. In that event, the trading price of our securities could decline, and you could lose all or part of your investment.

~~Table~~Other ofthan ~~Contents~~set forth below, there have been no material changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2012.

~~PART~~A ~~II.~~significant ~~OTHER~~delay ~~INFORMATION~~in consummating or a failure to consummate the proposed merger of the Company could have a material adverse effect on our stock price and operating results.

~~Item~~If 1the proposed merger of the Company with Mercury is not completed, it could have a material adverse effect on our stock price. ~~Legal~~In ~~Proceedings~~addition, any significant delay in consummating the merger of the Company could have a material adverse effect on our operating results, adversely affect our supplier and customer relationships and would likely lead to a significant diversion of management and employee attention and potential employee attrition.

~~The~~ Expenses related to the proposed merger of the Company isare ~~not~~significant aand ~~party~~will toadversely ~~any~~affect ~~material~~our ~~pending~~operating ~~legal~~results ~~proceedings.~~in Fiscal 2013.

~~Item~~We 1Ahave incurred and expect to incur significant expenses in connection with the proposed merger of the Company, including legal and investment banker fees and retention bonus expenses. ~~Risk~~We ~~Factors~~expect these costs to have an adverse effect on our operating results in Fiscal 2013. In addition, if the merger is not consummated under certain circumstances, we may be required to pay to Mercury a termination fee of $2,520,000.

~~This~~Restrictions report contains forward-looking statements that involve risks and uncertainties, such as statements of our objectives, expectations and intentions. You should consider carefully all of the material risks described herein, in our Annual Report on ~~Form 10-K for~~ the ~~fiscal~~conduct ~~year~~of ~~ended March 31, 2011, and in~~ our ~~other~~business ~~documents~~prior ~~filed~~to ~~with~~ the ~~Securities~~completion ~~and~~of ~~Exchange Commission, as well as~~ the ~~cautionary~~proposed ~~statements~~merger ~~made~~of ~~elsewhere in~~ the ~~Annual Report~~Company ~~and~~may inhave ~~this report, before making~~ a ~~decision~~negative toimpact ~~invest~~on in our ~~securities.~~operating ~~Such cautionary statements are applicable to all forward-looking statements wherever they appear in this report. If any of the events described therein occur, our business, financial conditions and~~ results ~~of operations may be materially adversely affected~~. ~~In that event, the trading price of our securities could decline, and you could lose all or part of your investment.~~

~~There~~We have ~~been~~agreed noto ~~material~~certain ~~changes~~restrictions toon the ~~risk~~conduct ~~factors~~of ~~previously~~our ~~disclosed~~business in connection with the proposed merger of the Company’s ~~Annual~~that ~~Report~~require onus ~~Form~~to ~~10-K~~conduct ~~for~~our ~~the fiscal~~business ~~year~~only ~~ended~~in ~~March 31~~the ordinary course, ~~2011~~subject to specific limitations. These restrictions may delay or prevent us from undertaking business opportunities that may arise pending completion of the transaction.

22 21

Table of Contents

Item 6. Exhibits.



Item 6.		Exhibits.
2.1		Agreement and Plan of Merger, dated as of June 8, 2012, by and among Mercury Computer Systems, Inc., Wildcat Merger Sub Inc. and Micronetics, Inc. (incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed June 11, 2012).
2.2		Form of Voting Agreement, dated as of June 8, 2012, by and between Mercury Computer Systems, Inc. and each of the directors, executive officers and a certain stockholder of Micronetics, Inc. (incorporated herein by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K filed June 11, 2012).
10.1		Letter Agreement re: Retention Bonus, dated as of June 8, 2012, by and between Micronetics, Inc. and Carl Lueders (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed June 11, 2012).*
31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Label Linkbase Document
101.PRE		XBRL Taxonomy Presentation Linkbase Document

31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Label Linkbase Document
101.PRE		XBRL Taxonomy Presentation Linkbase Document

*Management compensatory plan or arrangement.

23 22

Table of Contents

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

24 23

MICRONETICS, INC.

~~MICRONETICS, INC.~~

Dated: February 2, 2012

/s/ DAVID ROBBINS

Dated: August 7, 2012

/s/ DAVID ROBBINS

David Robbins

~~David Robbins~~

Chief Executive Officer and Treasurer (Principal Executive Officer)

Chief Executive Officer and Treasurer(Principal Executive Officer)

Filing Compare · MICRONETICS INC