UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended March 31, ~~2011~~2012

¨	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No.: 0-17966

MICRONETICS, INC.

(Name of small business issuer in its charter)


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)

Issuer’s telephone number: (603) 883-2900

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, par value $.01 per share

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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

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 ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨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.

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨

(Do not check if a smaller reporting company)

Smaller reporting company x

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the issuer was approximately $1822,~~624~~373,~~128~~300 based on the closing price of $56.1214 of the issuer’s common stock, par value $.01 per share, as reported by NASDAQ on September 2430, ~~2010~~2011.

On ~~June~~May 125, ~~2011~~2012, there were 4,~~556~~575,~~135~~663 shares of the issuer’s common stock outstanding.

The definitive proxy statement of the registrant to be filed on or before July 29, ~~2011~~2012 is incorporated by reference to Part III herein.

TABLE OF CONTENTS

		Page
	Part I
Item 1.	Business		3
Item 1A.	Risk Factors		10
Item 1B.	Unresolved Staff Comments		18
Item 2.	Properties		1918
Item 3.	Legal Proceedings		1918
Item 4.	~~(Removed~~Mine ~~and~~Safety ~~Reserved)~~Disclosures		1918
	Part II
Item 5.	Market for the Common Equity, Related Stockholder Matters, and Small Business Issuer Purchases of Equity Securities		2019
Item 6.	Selected Financial Data		2120
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2120
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		2726
Item 8.	Financial Statements and Supplementary Data		2726
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		2827
Item 9A.	Controls and Procedures		2827
Item 9B.	Other Information		2827
	Part III
Item 10.	Directors, Executive Officers, and Corporate Governance		2928
Item 11.	Executive Compensation		2928
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		2928
Item 13.	Certain Relationships and Related Transactions, and Director Independence		2928
Item 14.	Principal Accountant Fees and Services		2928
	Part IV
Item 15.	Exhibits and Financial Statement Schedules		3029
Signatures			32

Part I

This Annual Report on Form 10-K contains statements which constitute forward-looking statements. These statements appear in a number of places in this Form 10-K and include statements regarding the intent, belief or current expectations of Micronetics, Inc. Forward-looking statements are merely our current predictions of future events. Investors are cautioned that any such forward-looking statements are inherently uncertain, are not guaranties of future performance and involve risks and uncertainties. Actual results may differ materially from our predictions. Important factors that could cause actual results to differ from our predictions include those discussed under “Risk Factors,” “Management’s Discussion and Analysis” and “Business.” Although we have sought to identify the most significant risks to our business, we cannot predict whether, or to what extent, any of such risks may be realized, nor can there be any assurance that we have identified all possible issues which we might face. We assume no obligation to update our forward-looking statements to reflect new information or developments. We urge readers to review carefully the risk factors described in this annual report and in the other documents that we file with the Securities and Exchange Commission. You can read these documents at www.sec.gov.

Where we say “we,” “us,” “our,” “Company” or “Micronetics” we mean Micronetics, Inc. and its subsidiaries.

ITEM 1. Business.

General

Micronetics was incorporated in New Jersey in 1975 and re-incorporated in Delaware in 1987.

Business of Issuer

Headquartered in Hudson, New Hampshire, Micronetics manufactures 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 that are 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.

Micronetics operates through its four wholly-owned subsidiaries, Microwave Concepts, Inc. (“Micro-Con”), Microwave & Video Systems, Inc. (“MVS”), Stealth Microwave, Inc. (“Stealth”) and MICA Microwave Corporation (“MICA”). These subsidiaries, along with Micronetics’ NH based facility, manufacture products in three major product categories: RF Microwave Components, Microwave Integrated Multifunction Subassemblies and Test Solutions.

Management has determined that we operate as a single integrated business and as such have one operating segment as a provider of RF and microwave components and sub-assemblies for defense and commercial customers worldwide. Our product groups have similar characteristics such as cost to design and manufacture, applications, types of customers, and sales channels.

The following are descriptions of Micronetics’ three major product categories:

RF Microwave Components:

Micronetics’ RF Microwave Component product family consists of high performance receiver components, noise components, voltage controlled oscillator components, linearized and non-linearized power amplifier

components and ~~Ferrite~~ferrite components. These components are designed and manufactured at our wholly-owned subsidiaries MVS, Micro-Con, Stealth, MICA and the Micronetics’ NH facility.

Our receiver components (switches, attenuators, phase shifters, detectors and mixers) are used widely in military ground-based, shipboard and airborne radar for tracking and simulation, phased array radar, electronic warfare systems, electronic intelligence and tactical/satellite communication systems. In addition, receiver components have commercial applications such as wireless communications, radar surveillance and test equipment to support systems. This category of products offers several competitive technical advantages, including a dedicated high power design and development facility, which manufactures receiver components in power levels up to 1200W CW (carrier wave). ~~We are only aware of a few companies with this expertise.~~ These designs are successfully embedded into applications such as radar measurement, airborne synthetic aperture radar polarization and receiver protection in radar and communications. In addition, Micronetics also offers high power testing services.

Micronetics’ noise components are employed in testing and measuring sophisticated communication systems to determine the quality of the reception and transmission of information. The widest application for our noise components is as a reference standard in test instruments that measures unwanted noise in devices and components. Our noise components are used in wireless communication systems as part of built-in test equipment to continuously monitor the quality of the receiver. The major application of the noise source components involves some function of detection, calibration, simulation, security and statistical analysis. The components apply impulses of noise to the receiver to measure the radar sensitivity, signal gain, and frequency bandwidth. Our components used in conjunction with other electronic components are an effective means of jamming, blocking and disturbing hostile radar and other communications, as well as insulating and protecting friendly communications. Micronetics’ noise source components are also used to test satellite communications and automated test equipment.

Micronetics’ voltage controlled oscillators (VCOs) provide a precise signal source within a given frequency range. These products generate sinusoidal signals in frequency ranges from 100MHz to over 7.5GHz, utilizing packaged silicon bipolar transistors that are controlled by an input voltage signal. Our VCOs are used in wireless applications including some military communications and satellite voice/messaging. We offer products in a series of narrow-band, wide-band and selective octave tuning bandwidths. Depending on the series, packaging configurations for MIL and commercial applications include PIN types, SMT, hermetic and miniature packages.

Micronetics designs and manufactures a broad selection of linearized and non-linearized power amplifiers including analog and digital pre-distortion products. Our specialized amplifiers are designed with a proprietary linearization capability that allows for smaller size amplifier solutions with a fraction of the power consumption. Our amplifier products are used in various commercial and military applications, and are currently in operation in applications such as base stations for commercial telecommunications standards to 3G and 4G standards, portable mobile video transmitters, MMDS transmitters, digital electronic news gathering equipment, RF test and measurement, multi-band military radio systems for man-pack, vehicular, and flight applications military countermeasures, jamming systems, and RF medical devices.

Micronetics designs and manufactures broadband mixers and ferrites. Our products offer exceptional performance for systems where spectral purity is important, including IED Jamming, TD-CDMA, WiMAX, COFDM, Radar, Electronic Warfare and Space applications.

Microwave Integrated Multifunction Subassemblies:

Micronetics designs and manufactures complex microwave integrated multifunction subassemblies, also known as microwave multifunction modules, which consist of sophisticated assemblies that perform many functions related to the switching of microwave signals. Micronetics’ integrated subassemblies are employed in several defense, commercial or aerospace electronics systems and programs. These subassemblies combine

microwave functions such as amplification, attenuation, switching of multiple signals, and phase and amplitude control. We also facilitate the assembly and testing services of high-end, customer-designed RF microwave assemblies, including all assembly, testing and environmental screening of customer-designed complex subassemblies.

The primary design and development of these subassemblies is performed at our Micro-Con facility, where the manufacturing capability extends across the 0.1GHz to 40GHz frequency range for both broadband multi-octave and narrowband applications. We have design proficiencies in over 125 unique designs that include such highly integrated multi-function modules as, low noise receivers, both up and down conversion modules, RF microwave distribution networks, transmit drivers, broadband frequency synthesizers and phase/amplitude control networks.

Test Solutions

Micronetics designs and manufactures several broadband test solution platforms specifically designed to serve the wireless telecommunications and satellite communication markets employing such application standards as TDMA, CDMA, GSM, PCS, HDTV and other markets employing cable modem transmission and other internet infrastructure applications. The test equipment is centered around the following four platforms: Carrier-to-Noise, Automated Noise Generators, bench-top Noise Generators and hand-held Power Meter instruments. These platforms perform a variety of tests, which are used in performance verification, and the emulation of impairments in cellular/PCN/PCS, satellite, television and cable modem communication systems.

Overview of Markets Served

Defense/Aerospace Marketplace

The defense/aerospace marketplace is in a period of transition, attempting to keep pace with a U.S. military strategy that has been evolving to respond to the decentralized, asymmetric threats that have emerged since the mid-1980s. Current U.S. defense strategy and force structure is moving towards lighter, smarter and more flexible weapons systems with an emphasis on intelligence, surveillance and reconnaissance.

The defense industry is currently dominated by a small number of large domestic prime contractors and a few large European defense companies with an increasing presence in U.S. markets. The large defense prime contractors have shifted their business strategies to focus on platforms and systems integration and consequently have subcontracted the development of many systems and subsystems.

The current business, political and global security environments continue to provide opportunities for mid-tier defense/aerospace manufacturers, like us, to develop strategic relationships with prime contractors. Retro-fits and upgrades of existing platforms continue to be funded even as major new programs are being deferred.

Commercial Marketplace

Wireless communication is the transmission of voice and data signals through the air, without a physical connection, such as metal wire or fiber-optic cable. Information transmitted through wireless communications equipment is transmitted by electromagnetic waves, also known as signals. Electromagnetic waves vary in length, or frequency, and intensity. The range of electromagnetic waves is called the spectrum, which encompasses sound near the low end and light toward the higher end. In between is the radio spectrum that is used in all wireless communications. RF indicates lower frequencies, while “microwave” refers to relatively higher frequencies in the spectrum.

Different types of wireless communications systems utilize different frequencies in the spectrum. Frequency is measured in cycles per second, or Hertz. The spectrum currently in use by all types of wireless communications equipment ranges from 1 kilohertz (1 thousand cycles per second) to 20 gigahertz (20 billion

cycles per second). The Federal Communications Commission (“FCC”) allocates portions of the spectrum for the various types of wireless communication systems. Wireless communications systems currently in use include cellular and PCS telephones and base stations, wireless cable, satellite communications, global positioning systems, direct broadcast satellites, local area networks, as well as radar systems. Non-wireless communications systems are also concerned whether there is unwanted noise in the line that could disrupt the integrity of the communicating signals. Our products are designed for use in wireless and non-wireless applications.

A key driver of demand for Micronetics’ 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. AsIn ~~the~~addition as speed to market ~~challenges~~requirements increase, larger companies are ~~relying~~ increasingly onoutsourcing ~~other~~the ~~companies to~~ manufacture aand ~~module or an integrated subassembly to perform such~~ testing. ~~This module or subassembly is then assembled by the larger company into an integrated piece~~ of ~~equipment~~components and ~~sold~~integrated subassemblies to ameet their customer. requirements. Micronetics has been seeking to capitalize on this trend by increasing its capability for manufacturing and testing integrated subassemblies. ~~Our~~and ~~goal~~leveraging isour ~~to leverage~~designs ~~our~~of high power, noise and ~~noise~~mixer ~~technology~~component technologies to continue to be ~~one~~a ~~of the most reliable~~ vital microwave subsystem supplier ~~in the marketplace~~.

Micronetics’ overall strategy in these markets is to:

• INCREASE VALUE THROUGH HIGHER LEVELS OF INTEGRATION AND BUILT-IN SELF TEST. Combining our ~~extensive expertise in both~~ microwave components and microwave subsystem ~~integration~~designs, ~~(with built-in test)~~ we are able to achieve significant cost reduction and improved reliability over subsystems based on components alone. This is an attractive solution for long-term high reliability programs.

•

REMAIN A LEADING SUPPLIER OF KEY TECHNOLOGIES. We are a leading supplier of certain key technologies in all our business segments. Our core competencies are our broadband noise sources, low noise amplifiers, low IMD switches and mixers, high power components and linearized power amplifiers. These areas provide a real lead into many microwave system applications.

•

STRENGTHEN OUR EXISTING RELATIONSHIPS WITH PRIME CONTRACTORS. Our history as a supplier of quality high reliability microwave components for airborne platforms has established us as a key supplier to many prime contractors. We continue to leverage off that legacy to support higher integration subsystems with those prime contractors.

•

CAPITALIZE ON OUTSOURCING DYNAMICS IN THE AEROSPACE AND DEFENSE INDUSTRY. As new platforms are becoming increasingly expensive and world threats are becoming less defined, key industries are facing an urgent need to upgrade existing platforms with new electronics. Government agencies are working with smaller companies as opposed to the large OEMs for these upgrades. Our ability to provide a timely, cost effective, and reliable design upgrade allows us to become a key provider in this area.

• PURSUE STRATEGIC ACQUISITIONS. We will continue to look for small profitable, entrepreneurial organizations with compatible technologies for potential acquisitions. We believe our philosophy of ~~leaving the operations intact,~~ adding some corporate structure, sharing sales and marketing intelligence and combining forces to win large microwave subsystems positions us for growth.

•

CONTROL COSTS THROUGH OUTSOURCING. We have controlled costs of goods sold through the use of manufacturing partners. These partnership arrangements allow us to focus on the quality, integrity and intelligence of our engineering designs, while maintaining tight control over costs, scheduling, quality, manufacturing and final test.

• MAINTAIN DIVERSITY IN THE DEFENSE AND COMMERCIAL MARKETPLACE. We balance business in defense with commercial marketplaces in order to diversify our customers. The defense marketplace provides stable growth opportunities with long-range visibility, while the commercial marketplace offers more aggressive growth opportunities and is more variable. We believe this dual focus maximizes our growth potential.

marketplace provides stable growth opportunities with long-range visibility, while the commercial marketplace offers more aggressive growth opportunities and is more variable. We believe this dual focus maximizes our growth potential.

Manufacturing

Our components that require automated assembly equipment are generally manufactured by third parties and tested by Micronetics for quality assurance. The production process for these products is usually completed within two to three weeks. Manufacturing of our other products, which involve less automated assembly equipment, takes place at our Hudson, NH, Monroe, CT, West Caldwell, NJ, Trenton, NJ, or Manteca, CA facilities. The production process for these products ranges from one to twenty-four weeks.

Micronetics, Micro-Con, ~~Stealth~~ and ~~MICA~~Stealth are ISO 9001: 2000 certified facilities. Independent ISO 9001 quality system registrars certified these facilities as compliant, following rigorous audits to assess our quality assurance systems against ISO certification requirements. To be in compliance with ISO standards, we had to demonstrate our use of well-documented and highly disciplined controls and processes to ensure consistency and reliability of product quality, interaction with our customers and a continuous effort to improve.

MICA is an AS9100C certified facility. AS9100 is the quality management system for the aviation, space and defense industries. AS9100 fully incorporates ISO 9001 while adding additional requirements specific to quality and safety for aerospace.

Suppliers

We have approximately 500 suppliers, a few of which are the sole source for some raw materials. During the past ten years, we have experienced limited supply problems and do not anticipate any material increase in these problems in the foreseeable future. We do not believe there would be any significant business disruption if we were to lose one of our sole suppliers because we generally have sufficient inventory to give us time to develop an alternative supplier.

Sales and Marketing

Our sales are made primarily through direct sales personnel or through independent sales representatives who promote and solicit orders for our products on a commission basis in exclusive marketing territories. We select our sales representatives on the basis of technical and marketing expertise, reputation within the industry and financial stability. These sales representatives represent other manufacturers with products complementary to, rather than competitive with Micronetics’ products.

We also promote our products through field visits to customers, telephone solicitation, direct mailing campaigns, advertising in trade journals, participation in trade shows and maintenance of a website.

~~During~~The ~~Fiscal~~mix ~~2011~~of ~~and~~sales for Fiscal ~~2010,~~2012 ~~the~~was ~~approximate~~78% ~~mix of~~for ~~sales~~defense ~~was~~applications ~~consistent~~and ~~at 23~~22% for commercial applications ~~and~~as compared to 77% defense and 23% commercial for ~~defense~~Fiscal ~~applications~~2011.

Customers

We sell primarily to original equipment manufacturers of communications equipment in either the commercial or the defense electronic marketplace. Many of those customers are prime contractors for defense work or larger Fortune 500 companies with world-wide operations. Our three largest customers, ITT ~~Electronic Warfare Systems~~Exelis, BAE Systems and ~~Raytheon~~Tecom Industries, Inc., accounted for 2236%, 1113% and 5% of the consolidated sales in Fiscal ~~2011~~2012, respectively. ~~We believe that replacing any of these customers could be difficult.~~

Other customers of Micronetics include Lockheed Martin Corporation, Raytheon Company, Richardson RFPD, Inc., Rockwell Collins, Cobham, Northrop Grumman Corporation, L3 Communications Corporation, ~~Cobham,~~ EADS Deutschland GMBH, Thales and the Department of Defense. ~~Our customers generally purchase our products on the basis of purchase orders, rather than long-term supply contracts.~~

Competition

We are subject to active competition in the sale of virtually all of our products. Many of our competitors, including divisions of major corporations, have significantly greater resources than those currently available to us. Additionally, some of our customers compete directly by manufacturing certain components themselves, rather than purchasing them from Micronetics.

Our primary competitors are AeroFlex, Crane, Cobham PLC, Comtech Telecommunications, Kratos, Smiths Interconnect, ~~Spectrum~~API ~~Control~~Technologies Corp., Teledyne Technologies and Mercury Computer.

Micronetics’ competitive position is supported by:

•

A HISTORY OF RELIABILITY ON AIRBORNE PROGRAMS. We have an excellent performance track record in airborne programs. Our experience has allowed us to deliver complex integrated subsystems to meet the exacting requirements of airborne in-flight satellite broadcasting.

•

DIVERSE PRODUCTS AND MARKET BASE. With a balanced combination of defense and commercial markets, we are able to leverage technology development for defense programs to commercial products and the volume on commercial applications reduces manufacturing cost for our defense products.

• SUCCESSFUL ACQUISITION TRACK RECORD. ~~We believe our acquisition strategy based on keeping the operations of acquired entities intact is key to successfully integrating and operating acquired entities.~~ Our ~~strategy allows for a smooth transition and maintains valuable resources. Our~~ goal is to ~~continue~~selectively to expand our company bythrough ~~increasing~~acquisitions ~~our~~which ~~resources~~increase tomanufacturing ~~manufacture~~capacity ~~and~~or design capabilities for complex integrated subassemblies ~~through acquisitions~~.

Research and Development

Research and development consist of development of new products and modifications to existing products usually in response to ~~customers~~ customers’ specific design requirements. Occasionally we will invest in new technology development without a customer specification if we believe the technology has significant potential to result in future business opportunities. Research and ~~development~~ development expenditures consist primarily of internal engineering time and materials. Occasionally we will outsource technology development. These expenses were $1,~~790~~454,~~803~~460 for Fiscal 2012 and $1,~~708~~790,~~532~~803 for Fiscal 2011 ~~and Fiscal 2010~~, respectively. Micronetics research and development expense varies to a certain degree based upon emerging technologies, shifts in product requirements and our assessment of future business opportunities.

Micronetics intends to continue our research and development activities and considers these efforts to be vital to its future growth and success.

Backlog

Micronetics’ backlog of firm orders was approximately $31 26 million and $30 31 million on March 31, ~~2011~~2012 and ~~2010~~2011, respectively.

Government Regulatory Matters

In many instances, we have been required to obtain export licenses before filling foreign orders. United States Export Administration regulations control high tech exports like our products for reasons of national security and compliance with foreign policy, to guarantee domestic reserves of products in short supply and, under certain circumstances, for the security of a destination country. Thus, any foreign sales of our products requiring export licenses must comply with these general policies. Although we have not experienced any significant export licensing problems to date, such problems may arise in the future, since many of our

products have military and other governmental applications. These regulations are subject to change, and any such change may require us to improve our technologies, incur expenses or both in order to comply with such regulations.

Employees

As of March 31, ~~2011~~2012, we had ~~188~~208 full-time employees including 2750 engaged in management and administration, 4337 in product development, ~~110~~115 in production and testing and 86 in sales. Management believes that relations with our employees are good.

Intellectual Property

Micronetics has been granted U.S. patents on certain of its designs, including the MicroCal test components and a VCO design. In the absence of patents, Micronetics relies upon trade secret laws and confidentiality procedures to protect its confidential and proprietary information.

Due to the rapid rate of technological change in our market, we believe the ability to innovate is of greater importance to our business than availability of patents and proprietary rights. We believe barriers to competitor entry into our markets include the time and expense necessary to design and manufacture components and the difficulty of selling to an established customer who has already designed our products into its equipment.

We have registered “Micronetics” ~~and “Innovation For the Future”~~ as ~~trademarks~~a trademark with the U.S. Patent and Trademark Office.

Warranty and Service

We generally provide one-year warranties on all of our products covering both parts and labor. Micronetics, at its option, repairs or replaces products that are defective during the warranty period if the proper preventative maintenance procedures have been followed by the customer. Repairs that are necessitated by misuse of such products or are required outside the warranty period are not covered by warranty.

In the case of defective products, the customer typically returns them to our facility. Micronetics’ service personnel replace or repair the defective items and ship them back to the customer. Generally, all servicing is done at our plants, and we charge our customers a fee for those service items that are not covered by warranty. We do not offer our customers any formal written service contracts.

Product Liability Coverage

The testing of electronic communications equipment and the accurate transmission of information entail a risk of product liability by customers and others. Claims may be asserted against Micronetics by end-users of any of our products. We maintain product liability insurance coverage with an aggregate annual liability coverage limit, regardless of the number of occurrences, of $2.0 million. There is no assurance that such insurance will continue to be available at a reasonable cost or sufficient to cover all possible liabilities.

Environmental Laws

The costs and effects of compliance with federal, state and local environmental laws were not material to our business.

Item 1A. Risk Factors.

An investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors in evaluating our business. 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.

We may be materially and adversely affected by reductions in spending by certain of our customers including the U.S. and foreign governments.

Our results of operations may be materially adversely affected by the conditions in the global economy and the impact of those conditions on U.S. and foreign government spending. Among the factors that could impact U.S. and foreign government spending are:

•

a significant decline in, or reapportioning of, defense budgets;

•

changes, delays or cancellations of U.S. or foreign government programs or requirements;

•

the adoption of new laws or regulations that affect companies that provide services to the U.S. or foreign government; and

•

government shutdowns or other delays in the government appropriations process.

In recent years, demand for our products has been favorably impacted by an upward trend in U.S. defense spending. Although the ultimate size of future defense budgets remains uncertain, current indications are that the total U.S. defense budget may decline over the next few years. Future defense budgets, however, may be impacted by numerous economic and political factors. In addition, the specific programs in which we participate, or in which we may seek to participate in the future, must compete with other programs for consideration during the budget formulation and appropriation processes. While we believe many of our products are used in high priority military/defense programs, one or more of the programs that we currently serve could be phased-out or terminated. Reductions in these existing programs, unless offset by other programs and opportunities, would adversely affect our future revenues and profitability.

Our operating results have historically been subject to yearly and quarterly fluctuations and are expected to continue to fluctuate.

Our operating results have historically been and are expected to continue to be subject to quarterly and yearly fluctuations as a result of a number of factors including:

• our reliance on a limited number of customers for a large portion of our revenues:;

•

our ability to successfully implement programs to stimulate sales by anticipating and offering the kinds of products and services customers will require in the future to increase the efficiency and profitability of their products;

•

our ability to successfully complete programs on a timely basis, to reduce our cost structure, including fixed costs, to streamline our operations and to reduce product costs;

•

our ability to focus our business on what we believe to be potentially higher growth, higher margin businesses and to dispose of or exit non-core businesses;

•

increased price and product competition in our markets;

•

the inherent uncertainties of using forecasts, estimates and assumptions for asset valuations and in determining the amounts of accrued liabilities and other items in our consolidated financial statements;

•

our ability to implement our work plan without negatively impacting our relationships with our customers, the delivery of products based on new and developing technologies, the delivery of high

~~• our ability to implement our work plan without negatively impacting our relationships with our customers, the delivery of products based on new and developing technologies, the delivery of high~~ quality products at competitive prices, the maintenance of technological leadership, the effectiveness of our internal processes and organizations and the retention of qualified personnel;

•

fluctuations in our gross margins;

•

the development, introduction and market acceptance of new technologies;

•

variations in sales channels, product costs and the mix of products sold;

•

the size and timing of customer orders and shipments;

•

our ability to maintain appropriate inventory levels;

•

the impact of acquired businesses and technologies;

•

the impact of our product development schedules, product quality variances, manufacturing capacity and lead times required to produce our products;

•

changes in legislation, regulation and/or accounting rules; the impact of higher insurance premiums and deductibles and greater limitations on insurance coverage; and

•

acts of terrorism or the outbreak of hostilities or armed conflict between countries.

There are a number of trends and factors which affect our markets, including economic conditions in the United States, Europe and globally, and are beyond our control. These trends and factors may result in reduced demand and pricing pressure on our products.

There are trends and factors affecting our markets that are beyond our control and may affect our operations. Such trends and factors include:

•

adverse changes in the public and private equity and debt markets and our ability, as well as the ability of our customers and suppliers, to obtain financing or to fund working capital and capital expenditures;

• reduced capital spending and/or negative economic conditions in the United States, Europe as well as other areas of the world:;

•

adverse changes in our current credit condition or the credit quality of our customers and suppliers;

•

adverse changes in the market conditions in our markets;

•

the trend towards the sale of integrated products;

•

visibility to, and the actual size and timing of, capital expenditures by our customers;

•

inventory practices, including the timing of product and service deployment, of our customers;

•

policies of our customers regarding utilization of single or multiple vendors for the products they purchase;

•

the overall trend toward industry consolidation and rationalization among our customers, competitors and suppliers;

•

conditions in the broader market for military and communications products;

•

governmental regulation or intervention affecting our products; and

•

the effects of war and acts of terrorism, such as disruptions in general global economic activity, changes in logistics and security arrangements and reduced customer demand for our products and services.

Our reliance on a limited number of customers for a large portion of our revenues could materially and adversely affect our results of operations and financial condition.

Relatively few customers have accounted for a substantial portion of our net sales. During Fiscal 2012 our top three customers collectively accounted for 54% of our total net sales. We may not continue to receive significant revenues from any of these or from other large customers. Because of our significant customer concentration, our net sales and operating income could fluctuate significantly due to the loss of, reduction of

~~Our~~ business ~~reliance~~with, onor aless ~~limited~~favorable ~~number~~terms for any of our significant customers. ~~for~~A areduction ~~large~~or ~~portion~~delay in orders from any of our ~~revenues~~significant ~~could~~customers, ~~materially~~or ~~and~~a delay or default in payment by any ~~adversely~~significant ~~affect~~customer could materially harm our results of ~~operations~~operation and ~~financial condition~~liquidity.

Relatively few customers have accounted for a substantial portion of our net sales. During Fiscal 2011 our top three customers collectively accounted for 38% of our total net sales. We may not continue to receive significant revenues from any of these or from other large customers. Because of our significant customer concentration, our net sales and operating income could fluctuate significantly due to the loss of, reduction of business with, or less favorable terms for any of our significant customers. A reduction or delay in orders from any of our significant customers, or a delay or default in payment by any significant customer could materially harm our results of operation and liquidity.

Federal government contracts may be terminated by the federal government at any time prior to their completion which could lead to unexpected loss of sales and reduction in backlog.

Under the terms of federal government contracts, the federal government may unilaterally:

•

terminate or modify existing contracts;

•

reduce the value of existing contracts through partial termination; and

•

delay the payment of our invoices by government payment offices.

The federal government can terminate or modify any of its contracts with us or its prime contractors either for its convenience, or if we or its prime contractors default, by failing to perform under the terms of the applicable contract. A termination arising out of our default could expose us to liability and have a material adverse effect on our ability to compete for future contracts and subcontracts. If the federal government or its prime contractors terminate and/or materially modify any of our contracts or if any applicable options are not exercised, our failure to replace sales generated from such contracts would result in lower sales and could adversely affect our earnings, which could have a material adverse effect on our business, results of operations and financial condition.

Our backlog as of March 31, ~~2011~~2012 was approximately $3126 million. Our backlog could be adversely affected if contracts are modified or terminated.

We depend on single manufacturing lines for certain of our products, and any significant disruption in production could impair our ability to deliver our products.

We currently manufacture and assemble our products at our various facilities using individual production lines for certain product categories. Any significant disruption to one of these production lines will require time either to reconfigure and equip an alternative production line or to restore the original line to full capacity. Some of our production processes are complex, and we may be unable to respond rapidly to the loss of the use of any production line. This could result in delayed shipments, which could result in customer dissatisfaction, loss of sales and damage to our reputation.

We depend on sole or limited source suppliers, and any disruption in supply could impair our ability to deliver our products on time or at expected cost.

We obtain many key components for our products from third-party suppliers, and in some cases we obtain raw materials from a single or a limited number of suppliers. Interruptions in supply of components or other products from third-party suppliers could impair our ability to deliver our products until we identify a new source of supply, which could take several weeks, months or longer and could increase our costs significantly. In general, we do not have written long-term supply agreements with our suppliers but instead purchase components through purchase orders, which expose us to potential price increases and termination of supply without notice or recourse. If we are required to use a new source of materials or components, it could also result in unexpected manufacturing difficulties and could affect product performance and reliability.

Our gross margins may be negatively affected, which in turn would negatively affect our operating results.

Our gross margins may be negatively affected asby a result of a number of factors, including:

•

increased price competition;

•

excess capacity or excess fixed assets;

•

customer and contract settlements;

•

higher product, material or labor costs;

•

increased inventory provisions or contract and customer settlement costs;

•

warranty costs;

•

obsolescence charges;

•

loss of cost savings on future inventory purchases as a result of high inventory levels;

•

introductions of new products and costs of entering new markets;

•

increased levels of customer services;

•

changes in distribution channels; and

•

changes in product and geographic mix.

Lower than expected gross margins would negatively affect our operating results.

We may not be able to attract or retain the specialized technical and managerial personnel necessary to achieve our business objectives.

Competition for certain key positions and specialized technical personnel in the high-technology industry is strong. We believe that our future success depends in part on our continued ability to hire, assimilate, and retain qualified personnel in a timely manner, particularly our Chief Executive Officer, other senior-executives and other key positions in our areas of potential growth. In addition, the loss of David Robbins, our Chief Executive Officer, or certain other senior executives, could harm our relations with our customers, our ability to respond to technological change and our business.

We may also find it difficult to attract or retain qualified employees because of our size. In addition, if we have not properly sized our workforce and retained those employees with the appropriate skills, our ability to compete effectively may be adversely affected. If we are not successful in attracting and retaining qualified employees, in the future, we may not have the necessary personnel to effectively compete in the highly dynamic, specialized and volatile industry in which we operate or to achieve our business objectives.

Future cash flow fluctuations may affect our ability to fund our working capital requirements or achieve our business objectives in a timely manner.

Our working capital requirements and cash flows historically have been, and are expected to continue to be, subject to quarterly and yearly fluctuations, depending on such factors as timing and size of capital expenditures, levels of sales, timing of deliveries and collection of receivables, inventory levels, customer payment terms and supplier terms and conditions. We believe our cash on hand and availability under our line of credit will be sufficient to fund our current business model, and meet our customer commitments for at least the next 12 months. However, a greater than expected slow down in capital spending by our customers may require us to adjust our current business model. As a result, our revenues and cash flows may be materially lower than we expect and we may be required to reduce our capital expenditures and investments or take other measures in order to meet our cash requirements. We may seek additional funds from liquidity-generating transactions and other conventional sources of external financing (which may include a variety of debt, convertible debt and/or equity financings). We cannot provide any assurance that our net cash requirements will be as we currently expect. Our inability to manage cash flow fluctuations resulting from the above factors could have a material adverse effect on our ability to fund our working capital requirements from operating cash flows and other sources of liquidity or to achieve our business objectives in a timely manner.

Our business may be materially and adversely affected by increased levels of debt.

~~other~~or ~~conventional~~convertible ~~sources~~debt ~~of external~~ financing, ~~(which~~in ~~may~~the ~~include~~future. aA ~~variety~~high level of debt, ~~convertible~~arduous ~~debt and/~~or ~~equity~~restrictive ~~financings).~~terms Weand ~~cannot~~conditions ~~provide~~relating ~~any~~to ~~assurance~~accessing ~~that~~certain ~~our~~sources ~~net~~of ~~cash~~funding, ~~requirements will~~failure beto asmeet wethe ~~currently~~financial and/or ~~expect.~~other ~~Our~~covenants ~~inability~~in toour ~~manage~~credit ~~cash~~and/or ~~flow~~support ~~fluctuations~~facilities ~~resulting~~and ~~from~~any ~~the~~significant ~~above~~reduction ~~factors~~in, ~~could~~or ~~have~~access ato, ~~material~~such ~~adverse~~facilities, ~~effect~~poor onbusiness ~~our~~performance ~~ability~~or tolower ~~fund~~than ~~our~~expected ~~working~~cash ~~capital~~inflows ~~requirements~~could ~~from~~have ~~operating~~adverse ~~cash~~consequences ~~flows~~on ~~and~~our ~~other~~ability ~~sources of liquidity or~~ to ~~achieve~~fund our business ~~objectives~~and inthe aoperation ~~timely~~of ~~manner~~our business.

Our business may be materially and adversely affected by increased levels of debt.

In order to finance our business or to finance possible acquisitions we may incur significant levels of debt compared to historical levels, and we may need to secure additional sources of funding, which may include debt or convertible debt financing, in the future. A high level of debt, arduous or restrictive terms and conditions relating to accessing certain sources of funding, failure to meet the financial and/or other covenants in our credit and/or support facilities and any significant reduction in, or access to, such facilities, poor business performance or lower than expected cash inflows could have adverse consequences on our ability to fund our business and the operation of our business.

Other effects of a high level of debt include the following:

•

we may have difficulty borrowing money in the future or accessing sources of funding;

•

we may need to use a large portion of our cash flow from operations to pay principal and interest on our indebtedness, which would reduce the amount of cash available to finance our operations and other business activities;

•

a high debt level, arduous or restrictive terms and conditions, or lower than expected cash flows would make us more vulnerable to economic downturns and adverse developments in our business; and

•

if operating cash flows are not sufficient to meet our operating expenses, capital expenditures and debt service requirements as they become due, we may be required, in order to meet our debt service obligations, to delay or reduce capital expenditures or the introduction of new products, sell assets and/or forego business opportunities including acquisitions, research and development projects or product design enhancements.

We operate in highly dynamic and volatile industries characterized by changing technologies, evolving industry standards, frequent new product introductions and relatively short product life cycles.

The markets for our products are characterized by rapidly changing technologies, evolving industry standards, frequent new product introductions and short product life cycles. We expect our success to depend, in substantial part, on the timely and successful introduction of high quality, new products and upgrades, as well as cost reductions on current products to address the operational speed, bandwidth, efficiency and cost requirements of our customers. Our success will also depend on our ability to comply with emerging industry standards, to operate with products of other suppliers, to address emerging market trends, to provide our customers with new revenue-generating opportunities and to compete with technological and product developments carried out by others. The development of new, technologically advanced products, is a complex and uncertain process requiring high levels of innovation, as well as the accurate anticipation of technological and market trends. Investments in such development may result in expenses growing at a faster rate than revenues, particularly since the initial investment to bring a product to market may be high. We may not be successful in targeting new market opportunities, in developing and commercializing new products in a timely manner or in achieving market acceptance for our new products.

The success of new or enhanced products depends on a number of other factors, including the timely introduction of such products, market acceptance of new technologies and industry standards, the quality and robustness of new or enhanced products, competing product offerings, the pricing and marketing of such products and the availability of funding for such networks. Products and technologies developed by our competitors may render our products obsolete. If we fail to respond in a timely and effective manner to unanticipated changes in one or more of the technologies affecting telecommunications or our new products or product enhancements fail to achieve market acceptance, our ability to compete effectively in our industry, and our sales, market share and customer relationships could be materially and adversely affected.

We face significant competition and may not be able to increase or maintain our market share and may suffer from competitive pricing practices.

~~competitors~~overall ~~may~~market ~~render our products obsolete~~growth. IfThese wefactors ~~fail~~could toresult ~~respond~~ in aaggressive ~~timely~~pricing practices and ~~effective~~growing ~~manner~~competition tofrom ~~unanticipated~~niche ~~changes~~companies, inestablished ~~one~~competitors, oras ~~more~~well ofas ~~the~~well-capitalized ~~technologies affecting telecommunications or~~companies, ~~our new products or product enhancements fail to achieve market acceptance~~which, ~~our ability to compete effectively~~ in ~~our industry~~turn, ~~and~~could ~~our~~have ~~sales,~~a ~~market~~material ~~share~~adverse ~~and~~effect ~~customer~~on ~~relationships~~our ~~could~~gross ~~be materially and adversely affected~~margins.

We face significant competition and may not be able to increase or maintain our market share and may suffer from competitive pricing practices.

We operate in an industry that is characterized by industry rationalization and consolidation, vigorous competition for market share and rapid technological development. Competition is heightened in periods of slow overall market growth. These factors could result in aggressive pricing practices and growing competition from niche companies, established competitors, as well as well-capitalized companies, which, in turn, could have a material adverse effect on our gross margins.

We expect that we will face additional competition from existing competitors and from a number of companies that have entered or may enter our existing and future markets. Some of our current and potential competitors have greater marketing, technical and financial resources, including access to capital markets and/or the ability to provide customer financing in connection with the sale of products. Many of our current and potential competitors have also established, or may in the future establish, relationships with our current and potential customers. Other competitive factors include the ability to provide new technologies and products, end-to-end solutions, and new product features, as well as conformance to industry standards. Increased competition could result in price reductions, negatively affecting our operating results, reducing profit margins and potentially leading to a loss of market share.

The testing of electronic communications equipment and the accurate transmission of information entail a risk of product liability claims by customers and others.

Product liability claims may be asserted against us by end-users of any of our products. We maintain product liability insurance coverage with an aggregate annual liability coverage limit, regardless of the number of occurrences, of $2.0 million. There is no assurance that such insurance will continue to be available at a reasonable cost or will be sufficient to cover all possible liabilities. In the event of a successful suit against us, lack or insufficiency of insurance coverage could result in substantial cost and could have a material adverse effect on our business.

Our products with military applications are subject to export regulations, which may be costly.

We are required to obtain export licenses before filling foreign orders for many of our products with military or other governmental applications. United States Export Administration regulations control high tech exports like our products for reasons of national security and compliance with foreign policy, to guarantee domestic reserves of products in short supply and, under certain circumstances, for the security of a destination country. Thus, any foreign sales of our products requiring export licenses must comply with these general policies. In addition, these regulations are subject to change, and any such change may require us to improve our technologies, incur expenses or both in order to comply with such regulations.

We design custom products to meet specific requirements of our customers. The uncertain nature of the development cycle for custom products can result in variability in the timing of our receipt of revenue from such products.

The design and sales cycle for our custom products, from initial contact by our sales force to the commencement of shipments of those products may be lengthy. In this process, our sales and application engineers work closely with the customer to analyze the customer’s system requirements and establish a technical specification for the custom product. We then select a process, evaluate components, and establish assembly and test procedures before manufacturing can begin. The length of this cycle is influenced by many factors, including the difficulty of the technical specification, the novelty and complexity of the design and the customer’s procurement processes. Our customers typically do not commit to purchase significant quantities of the custom product until they are ready to commence volume shipments of their own system or equipment. Our receipt of substantial revenue from sales of a custom product often depends on that customer’s commercial success in manufacturing and selling its system or equipment that incorporates our custom product. As a result, a significant period may elapse between our investment of time and resources in designing and developing a custom product and our receipt of substantial revenue from sales of that custom product.

~~factors,~~adversely ~~including~~affected ~~the~~if ~~difficulty~~a ofsignificant ~~the~~customer ~~technical specification~~curtails, ~~the~~reduces ~~novelty~~or ~~and~~delays ~~complexity~~orders ofduring ~~the~~our ~~design~~sales ~~and~~cycle, ~~the~~chooses ~~customer’s procurement processes. Our customers typically do~~ not ~~commit~~ to ~~purchase~~ ~~significant~~release ~~quantities~~its ~~of the custom product until they are ready to commence volume shipments of their own~~ system or equipment. ~~Our~~that ~~receipt~~contains ofour ~~substantial revenue from sales of a~~ custom ~~product~~products, ~~often~~or ~~depends~~is ~~on that customer’s~~not ~~commercial~~successful ~~success~~ in ~~manufacturing~~the sale and ~~selling~~marketing of its system or equipment that ~~incorporates~~contains our custom ~~product~~products. As a result, a significant period may elapse between our investment of time and resources in designing and developing a custom product and our receipt of substantial revenue from sales of that custom product.

The length of this process may increase the risk that a customer will decide to cancel or change its plans related to its system or equipment. Such a cancellation or change in plans by a customer could cause us to lose anticipated sales. In addition, our business, results of operations and financial condition could be materially adversely affected if a significant customer curtails, reduces or delays orders during our sales cycle, chooses not to release its system or equipment that contains our custom products, or is not successful in the sale and marketing of its system or equipment that contains our custom products.

We have made, and may continue to make, strategic acquisitions in order to enhance our business. If we are not successful in operating or integrating these acquisitions, our business, results of operations and financial condition may be materially and adversely affected.

In the past, we acquired companies to enhance the expansion of our business and products. We may consider additional acquisitions which could involve significant risks and uncertainties.

These risks and uncertainties include:

•

the risk that the industry may develop in a different direction than anticipated and that the technologies we acquire do not prove to be those we need to be successful in the industry;

•

the risk that future valuations of acquired businesses may decrease from the market price we paid for these acquisitions;

•

the generation of insufficient revenues by acquired businesses to offset increased operating expenses associated with these acquisitions;

•

the potential difficulties in completing in-process research and development projects and delivering high quality products to our customers;

•

the potential difficulties in integrating new products, businesses and operations in an efficient and effective manner;

•

the risk that our customers or customers of the acquired businesses may defer purchase decisions as they evaluate the impact of the acquisitions on our future product strategy;

•

the potential loss of key employees of the acquired businesses;

•

the risk that acquired businesses will divert the attention of our senior management from the operation of our business; and

•

the risks of entering new markets in which we have limited experience and where competitors may have a stronger market presence.

Our inability to successfully operate and integrate newly-acquired businesses appropriately, effectively and in a timely manner could have a material adverse effect on our ability to take advantage of further growth in demand for products in our marketplace, as well as on our revenues, gross margins and expenses.

If we cannot effectively manage our growth, our business may suffer.

We have previously expanded our operations through acquisitions in order to pursue existing and potential market opportunities. If we fail to manage our growth properly, we may incur unnecessary expenses and the efficiency of our operations may decline. To manage our growth effectively, we must, among other things:

•

successfully attract, train, motivate and manage a larger number of employees for production and testing, engineering and administration activities;

•

control higher inventory and working capital requirements; and

•

improve the efficiencies within our operating, administrative, financial and accounting systems, and our procedures and controls.

~~Our~~16 ~~business may suffer if we cannot protect our proprietary technology.~~

OurTable ability to compete depends significantly upon our patents and our other proprietary technology. The steps we have taken to protect our technology may be inadequate to prevent others from using what we regard as our technology to compete with us. Our patents could be challenged, invalidated or circumvented, and the rights we have under our patents could provide no competitive advantages. Existing trade secrets, copyright and trademark laws offer only limited protection. In addition, other companies could independently develop similar or superior technology without violating our intellectual property rights. Any misappropriation of our technology or the development of competing technology could seriously harm our competitive position, which could lead to a substantial reduction in net sales. Contents

If we resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome, disruptive and expensive, distract the attention of management, and there can be no assurance that we would prevail.

Claims by others that we infringe their intellectual property rights could harm our business and financial condition.

We cannot be certain that our products do not and will not infringe issued patents, patents that may be issued in the future, or other intellectual property rights of others. We do not conduct exhaustive patent searches to determine whether the technology used in our products infringes patents held by third parties.

Any claim of infringement could cause us to incur substantial costs defending against the claim, even if the claim is invalid, and could distract the attention of our management. If any of our products are found to violate third-party proprietary rights, we may be required to pay substantial damages. In addition, we may be required to re-engineer our products or obtain licenses from third parties to continue to offer our products. Any efforts to re-engineer our products or obtain licenses on commercially reasonable terms may not be successful, which would prevent us from selling our products, and, in any case, could substantially increase our costs and have a material adverse effect on our business, financial condition and results of operations.

The market price of our common stock may be volatile.

Our stock price has historically been volatile. From April 1, ~~2009~~ 2010 to March 31, ~~2011~~2012, the trading price of our common stock ranged from $53.4775 to $19.9119. Many factors may cause the market price of our common stock to fluctuate, including:

•

variations in our quarterly results of operations;

•

the introduction of new products by us or our competitors;

•

the hiring or departure of key personnel;

•

acquisitions or strategic alliances involving us or our competitors;

•

changes in, or adoptions of, accounting principles; and

•

market conditions in our industries.

In addition, the stock market can experience extreme price and volume fluctuations. These fluctuations, which are often unrelated to the operating performance of particular companies, may adversely affect the market price of our common stock.

Our common stock is thinly traded; therefore, our stock price may fluctuate more than the stock market as a whole.

Although our shares are traded on the Nasdaq Stock Market, our stock is thinly traded. As a result, its market price may fluctuate significantly more than the stock market as a whole or the stock prices of similar companies. Without a larger float, our common stock will be less liquid than the stock of companies with broader public ownership, and as a result, the trading prices for our common stock may be more volatile. Among other things, trading of a relatively small volume of common stock may have a greater impact on the trading price than would be the case if the public float were larger.

Declines in the market price of our common stock may negatively impact our ability to make future strategic acquisitions, raise capital, issue debt or retain employees.

The stock markets have experienced extreme price fluctuations that have affected the market price and trading volumes of many technology and telecommunications companies in particular, with potential consequential negative effects on the trading of securities of such companies. A major decline in the capital markets generally, or an adjustment in the market price or trading volumes of our common stock may negatively impact our ability to raise capital, issue debt, retain employees or make future strategic acquisitions. These factors, as well as general economic and political conditions, and continued negative events within the technology sector, may in turn have a material adverse effect on the market price of our common stock.

We are subject to environmental regulation and compliance which may be costly.

Certain of our products may be rendered obsolete due to environmental directives and could require that we redesign or change how we manufacture our products. This could result in additional costs and expense, shipment delays and possible inventory obsolescence.

ITEM 1B. Unresolved Staff Comments.

None.

ITEM 2. Properties.

Our principal manufacturing facility and corporate office is located in a 32,000 square foot building in Hudson, NH which we own. In addition, a small facility of 800 square feet is leased from an unaffiliated entity in Westminster, CO for product development.

MVS operates out of a 3,700 square foot facility located in Monroe, CT, which is leased from an unaffiliated entity.

Micro-Con operates out of a 23,000 square foot facility located in West Caldwell, NJ, which is leased from an unaffiliated entity.

Stealth operates out of a 21,000 square foot facility located in Trenton, NJ, which is leased from an entity whose owners include one executive of Micronetics.

MICA operates out of a 20,750 square foot facility located in Manteca, CA, and a 1,500 square foot facility in San Jose, CA. Both facilities are leased from unaffiliated entities.

We believe our facilities are adequate for our current and presently anticipated future needs.

ITEM 3. Legal Proceedings.

Micronetics is not a party to any pending legal proceedings.

ITEM 4. ~~Reserved~~Mine Safety Disclosures

19Not applicable.

Part II

ITEM 5. Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities.

The common stock is traded on the NASDAQ Capital Market under the symbol NOIZ.

The closing high and low sale prices for the Common Stock for each fiscal quarter from April 1, ~~2009~~2010 until March 31, ~~2011~~2012 as reported by NASDAQ were as follows:

Sales Prices

Fiscal Quarter	High		Low
Fiscal 2010
Fiscal 2012
First Quarter	$	35.9541	$	13.9196
Second Quarter		47.0042		24.5298
Third Quarter		38.6575		24.8199
Fourth Quarter		49.4919		27.4940
Fiscal 2011
First Quarter	$	4.98	$	3.75
Second Quarter		5.26		4.11
Third Quarter		5.47		4.30
Fourth Quarter		4.69		3.75

The number of holders of record of the common stock as of May 2625, ~~2011~~2012 was ~~187~~178. Micronetics believes that there are a substantially greater number of beneficial owners of shares of its common stock who maintain their shares in “street” name. On ~~June~~ May 125, ~~2011~~2012, the last sale price of the common stock as reported by NASDAQ was $47.8084 per share.

Micronetics has not paid any cash dividends during its two most recent fiscal years, nor during any subsequent interim period. Under its loan agreements, it is restricted from paying dividends without the consent of the lender.

Equity Compensation Plan Information

(a)

(b)

(c)

Plan category

Number of securitiesto be issued uponexercise ofoutstanding options,warrants and rights

Weighted-averageexercise price ofoutstandingoptions, warrantsand rights

Number of securitiesremaining availablefor future issuanceunder equitycompensation plans(excluding securitiesreflected in column (a))

Equity compensation plans approved by security holders

~~293~~467,000

56.4317

~~707~~511,000

Equity compensation plans not approved by security holders

—

Total

~~293~~467,000

56.4317

~~707~~511,000

2019

ITEM 6. Selected Financial Data (unaudited)

	Years ended March 31, (in thousands, except earnings per share)
	2011			2010			2009			2008			2007
	2012			2011			2010			2009			2008
Net sales	$	3545,~~297~~970		$	3435,~~868~~297		$	3034,~~347~~868		$	3230,~~625~~347		$	2332,~~690~~625
Gross margin	$	1114,~~552~~819		$	11,~~703~~552		$	911,~~184~~703		$	129,~~919~~184		$	912,~~377~~919
Gross margin %		3332	%		3433	%		3034	%		4030	%		40	%
Net income (loss)	$	13,~~518~~413		$	1,~~148~~518		$	(91,~~564~~148	)	$	1(9,~~662~~564	)	$	1,~~041~~662
Earnings (loss) per common share
Earnings (loss) per common share—basic	$	0.75		$	0.33		$	0.25		$	(1.98	)	$	0.34
—basic	$	0.33		$	0.25		$	(1.98	)	$	0.34		$	0.22
Basic weighted average shares		4,565			4,555			4,554			4,836			4,932
Basic weighted average shares		4,555			4,554			4,836			4,932			4,637
Earnings (loss) per common share—diluted	$	0.74		$	0.33		$	0.25		$	(1.98	)	$	0.34
Earnings (loss) per common share
Diluted weighted average shares		4,596			4,566			4,554			4,836			4,951
—diluted	$	0.33		$	0.25		$	(1.98	)	$	0.34		$	0.22
Total assets	$	29,569		$	29,548		$	26,965		$	25,526		$	33,386
Diluted weighted average shares		4,566			4,554			4,836			4,951			4,789
Total current liabilities	$	9,623		$	13,021		$	10,804		$	9,303		$	5,426
Total assets	$	29,548		$	26,965		$	25,526		$	33,386		$	29,819
Long-term debt, net of current portion	$	—		$	325		$	1,786		$	3,085		$	4,226
Total current liabilities	$	13,021		$	10,804		$	9,303		$	5,426		$	5,487
Other long-term liabilities	$	1,252		$	1,268		$	1,035		$	908		$	1,325
Long-term debt, net of current portion	$	325		$	1,786		$	3,085		$	4,226		$	5,633
Other long-term liabilities	$	1,268		$	1,035		$	908		$	1,325		$	722

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section should be read in combination with the accompanying audited consolidated financial statements and related notes prepared in accordance with accounting principles generally accepted in the United States of America. This section contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a variety of factors, including those discussed under the heading “Risk Factors” and elsewhere in this annual report.

Recent Accounting Pronouncements

For information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 1 of Notes to Consolidated Financial Statements.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and the results of operations are based on the Company’s consolidated financial statements and the data used to prepare them. Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). On an on-going basis, 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 and various other assumptions that we believe are reasonable under the circumstances. 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.

Revenue Recognition And Product Warranties

We generate revenue from the sale of products, technology development, and licensing. Revenue is recognized when persuasive evidence of an 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. Our products are primarily hardware components and to a lesser extent integrated

2120

~~services are required. Our products are primarily hardware components and integrated sub-~~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.

We occasionally enter into contracts for production of ~~highly~~ customized microwave and radio frequency components and integrated sub-assemblies which we record revenue based on the percentage of completion method (assuming all other requirements for revenue recognition have been satisfied) typically using labor hours to measure progress toward completion of the contract as we have determined this methodology best reflects the fundamentals of the contract. If estimates to complete the contract change materially from one period to the next, profit levels could significantly vary. ~~Unbilled~~We ~~revenue~~currently ~~represents~~have ~~revenue~~no ~~recognized~~such contracts in ~~excess~~process ofthat ~~billings~~require ~~and~~the ~~deferred~~percentage ~~revenue~~of ~~represents~~completion ~~billings~~method infor ~~excess of~~ revenue ~~recognized~~recognition.

Deferred revenue represents billings in excess of revenue recognized.

We record amounts for shipping and handling fees billed to customers as revenue. The cost of shipping and handling fees are recorded as a component of cost of sales.

We sell our products using a direct sales force and sales representatives. ~~Contracts~~Our ~~with customers~~standard terms of sale do not include product return rights or price protection. The estimated costs of product warranties are accrued based on historical experience at the time the revenue is recognized. Unless customers purchase an extended warranty, Micronetics typically offers a one-year warranty.

Accounts Receivable, Net of Allowance For Doubtful Accounts

Accounts receivable are customer obligations due under normal trade terms, carried at face value less an allowance for doubtful accounts. We regularly monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon the review of the aging of outstanding accounts, loss experiences, factors related to specific customers’ ability to pay, current economic trends and any specific customer collection issues that have been identified. While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that have been experienced in the past. We write off accounts receivable against the allowance in the period that a receivable is determined to be uncollectible.

Inventories

Inventories are valued at the lower of cost or market, based on the first in, first out method. Inventory items are reviewed regularly for excess and obsolescence based on an estimated forecast of product demand. Inventories that are in excess of future requirements are written down to their estimated value based upon projected demand. Demand for our products can be forecasted based on current backlog, customer options to reorder under existing contracts, and the need to retrofit older units and parts needed for general repairs. Although management makes every effort to ensure the accuracy of its forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have an impact on the level of obsolete material in our inventories and operating results could be affected accordingly.

Valuation Of Long-Lived Assets, Goodwill And Intangible Assets And Their Impairment

We assess the need to record impairment losses on definite long-lived assets, including fixed assets and other intangible assets, to be held and used in operations, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, we estimate the undiscounted future cash flows to result from the use of the asset and its ultimate disposition. If the sum of the undiscounted cash flows is less than the carrying value, we would recognize an impairment loss, measured as the amount by which the carrying value exceeds the fair value of the asset. Assets to be disposed of are carried at their lower of the carrying value or fair value less costs to sell.

2221

Goodwill and other indefinite lived intangible assets are tested annually for impairment or whenever a triggering event occurs. We assess goodwill, by reporting unit, for impairment at least once each year by applying a direct value-based fair value test. Goodwill could be impaired due to market declines, reduced expected future cash flows, or other factors or events. Should the fair value of goodwill at the measurement date fall below its carrying value, a charge for impairment of goodwill would occur in that period. A two-step impairment testing approach is required. We must first determine whether goodwill is impaired and if so, we must value that impairment based on the amount by which the book value exceeds the estimated fair value. We used discounted cash flows, sales and EBITDA multiples as the best evidence of fair value. In preparing the goodwill impairment test we assumed operating margin performance consistent with historical performance and revenue growth between 3% and 5%. If actual results are significantly different than these assumptions, the associated goodwill may be subject to an impairment charge. At March 31, 2011 and 2010, we performed our goodwill impairment assessment for the $1.1 million of goodwill and determined that the carrying value did not exceed its fair value.

OnIn anSeptember ~~on-going basis~~2011, ~~management~~the ~~reviews~~FASB ~~the~~issued ~~value~~ASU ~~and~~2011-08, ~~period~~Intangibles, ofGoodwill ~~amortization~~and orOther ~~depreciation~~(Topic of350): ~~long-lived~~Testing ~~assets~~Goodwill for Impairment. ~~During~~The ~~this~~amendment ~~review,~~is weeffective ~~evaluate~~for ~~the~~annual ~~significant~~impairment ~~assumptions~~tests ~~used~~done infor ~~determining~~fiscal ~~the~~years ~~original~~that ~~cost~~start ofafter ~~long-lived~~December 15, ~~assets.~~2011 ~~Although~~though ~~the~~early ~~assumptions~~adoption ~~may~~is ~~vary~~permitted. ~~from~~The ~~transaction~~changes to ~~transaction,~~FASB ~~they~~ASC ~~generally~~350-20 ~~include~~permits ~~revenue~~an ~~growth,~~entity ~~operating~~to ~~results,~~make ~~cash~~a ~~flows~~qualitative assessment of whether it is ~~and~~more ~~other~~likely ~~indicators~~than ofnot ~~value.~~that ~~Management~~a ~~then~~reporting ~~determines~~unit’s ~~whether~~fair ~~there~~value ~~has~~is ~~been~~less anthan ~~impairment~~its ofcarrying ~~the~~amount ~~value~~before ofapplying ~~long~~the two-~~lived~~step ~~assets~~goodwill ~~based~~impairment ~~upon~~test. ~~events~~If oran ~~circumstances~~entity concludes that ~~have~~it ~~occurred~~is ~~since~~not more likely than not that the ~~acquisition.~~fair ~~The~~value ~~impairment~~of ~~policy~~a isreporting ~~consistently~~unit ~~applied~~is inless ~~evaluating~~than ~~impairment~~its ~~for~~carrying ~~each~~amount, ofit ~~our~~would ~~wholly~~not be required to perform the two-~~owned~~step ~~subsidiaries~~impairment ~~and~~test ~~investments~~for that reporting unit. AtDuring ~~March 31~~the fourth quarter of Fiscal 2012, we adopted ASU 2011-08 and ~~2010~~prepared wea ~~determined~~qualitative ~~that~~assessment noof ~~new~~our ~~triggering~~goodwill. ~~events~~As part ~~had~~of ~~occurred~~our ~~warranting~~qualitative aassessment, ~~further~~we ~~impairment~~evaluated ~~assessment~~a number of ~~our~~factors ~~long-lived~~including ~~assets~~industry conditions, economic conditions, competition, business strategy and positioning, cost factors, market capitalization and discounted cash flows. Based upon this analysis, we determined that there was no goodwill impairment.

On an on-going basis, management reviews the value and period of amortization or depreciation of long-lived assets. During this review, we evaluate the significant assumptions used in determining the original cost of long-lived assets. Although the assumptions may vary from transaction to transaction, they generally include revenue growth, operating results, cash flows and other indicators of value. Management then determines whether there has been an impairment of the value of long-lived assets based upon events or circumstances that have occurred since the acquisition. The impairment policy is consistently applied in evaluating impairment for each of our wholly-owned subsidiaries and investments. At March 31, 2012 and 2011, we determined that no new triggering events had occurred warranting a further impairment assessment of our long-lived assets.

Stock Compensation Expense

We measure compensation cost for stock-based compensation at fair value. We use the Black-Scholes option-pricing model, which requires the input of subjective assumptions. These assumptions include estimates of the expected term, the volatility of our common stock price over the expected term, risk free interest rate and the number of options that will not vest. Changes in these assumptions could materially affect the estimate of fair value stock-based compensation and consequently, the related amount recognized on the consolidated statements of operations.

Income Taxes and Valuation Allowances

We recognize income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are established for temporary differences. Temporary differences occur when income and expenses are recognized in different periods for financial reporting purposes and for purposes for computing income taxes currently payable. A valuation allowance is provided when it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. We ~~established~~had a valuation allowance of $103,230 at March 31, 2011 for the deferred tax asset relating to state net operating loss carryforwards due to the uncertainty of future utilization. At March 31, 2012, a valuation allowance of $88,472 remains.

Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. We evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on its technical merit in the event of a tax audit.

We22 adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions as well as related interest and penalties.

We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions as well as related interest and penalties.

Results of Operations

Fiscal ~~2011~~2012 versus Fiscal ~~2010~~2011

Net sales

Net sales for Fiscal ~~2011~~2012 were $3545,~~296~~970,~~705~~284, an increase of $~~428~~10,~~959~~673,579 or 130% as compared to net sales of $3435,~~867~~296,~~746~~705 for Fiscal ~~2010~~2011. ~~Sales of~~Component ~~integrated~~sales ~~components sub-systems for defense jamming and electronic system modernization applications~~ increased by approximately $6.96 million ~~and~~for ~~component~~defense ~~sales~~applications ~~increased~~and byintegrated ~~approximately~~sub-systems ~~$1.6~~sales ~~million.~~increased ~~These increases were offset~~ by ~~a decrease of~~ approximately $4.71 million ~~related to the beta test portion of a purchase agreement~~ for aboth ~~radio frequency identification system product line (“RFID”) application~~ defense and acommercial ~~decrease of approximately $1~~applications.4 ~~million related to a space based components application.~~

Foreign sales accounted for approximately $53,~~360~~457,000 and $35,~~734~~360,000 in Fiscal ~~2011~~2012 and Fiscal ~~2010,~~ 2011, respectively.

Gross margin

Gross margins were 32.72% for Fiscal ~~2011~~2012 as compared to 3332.57% for Fiscal ~~2010~~2011. Gross ~~margins~~margin ~~for~~decreased ~~integrated~~due ~~component~~to ~~sub~~start-~~systems~~up ~~adversely~~costs ~~affected gross margin by approximately 3%. This was offset by an increase in component gross margins of approximately 2%. The reduction in gross margin~~ associated with integrated ~~component~~ sub-systems ~~was due to a delay in shipments while we upgraded procedures in response to a customer’s request~~. ~~We have completed the upgrade of our procedures and are resuming full rate of production related to this matter in the first quarter of fiscal 2012.~~

Research and development

Research and development (“R&D”) expense for Fiscal ~~2011~~2012 was $1,~~790~~454,~~803~~460, ana ~~increase~~decrease of $82336,~~271~~343 or 519% as compared to $1,~~708~~790,~~532~~803 for Fiscal ~~2010~~2011. ~~Spending~~The ondecrease ais ~~high~~due ~~power~~to ~~digital~~lower ~~pre-distortion~~spending ~~amplifier~~on ~~product~~a ~~line~~defense ~~decreased~~sub-system program and ~~was~~lower ~~offset by an increase in~~ spending on ~~new applications for~~ commercial components. 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.

Selling, general and administrative

Selling, general and administrative expense for Fiscal ~~2011~~2012 was $67,~~899~~442,~~050~~404, aan ~~decrease~~increase of $~~351~~543,~~256~~354 or 58% as compared to $76,~~250~~899,~~306~~050 for Fiscal ~~2010~~2011. ~~Approximately~~ $~~266~~285,000 of the ~~decrease~~increase was ~~due~~payroll torelated ~~lower bad~~primarily ~~debt~~related ~~expense~~to ~~resulting from~~ the ~~partial~~addition ~~recovery~~ of asales ~~previously~~personnel. ~~reserved~~Approximately ~~receivable~~$130,000 ~~and~~was ~~strong~~due ~~collections~~to ~~during~~increased ~~Fiscal~~sales ~~2011~~commission expense. ~~Additionally~~Bad ~~payroll~~debt ~~related~~increased ~~expense decreased~~ by approximately $9583,000. ~~These~~in ~~decreases~~Fiscal ~~were~~2012 ~~offset~~as ~~by an increase~~bad debt in ~~stock~~Fiscal ~~compensation~~2011 ofwas ~~approximately~~reduced ~~$67,000~~ due to anthe ~~adjustment~~partial ~~recorded~~recovery inof ~~Fiscal~~a ~~2010~~previously ~~that~~reserved ~~reversed~~receivable. ~~stock~~All ~~compensation~~other ~~expense~~selling, ~~for~~general ~~options~~and ~~forfeited.~~administrative ~~All~~costs ~~other~~increased ~~net~~by ~~spending~~a ~~decreased~~net byof approximately $5745,000.

Amortization of intangible assets

Amortization expense attributable to our intangible assets related to previous acquisitions decreased to $~~320~~314,~~700~~047 for Fiscal ~~2011~~2012 as compared to $~~348~~320,~~093~~700 for Fiscal ~~2010~~2011. The decrease of $276,~~393~~653 is due to completing amortization of certain ~~intangible assets~~intangibles.

Interest expense

Interest expense for Fiscal ~~2011~~2012 was $~~365~~236,~~263~~593, or a decrease of $~~158~~128,~~011~~670 or 35% as compared to $~~523~~365,~~274~~263 for Fiscal ~~2010~~2011. The decrease is due primarily to lower average interest rates ~~offset~~and to ~~some~~lower ~~degree by higher~~ average debt in Fiscal ~~2011~~2012 as compared to Fiscal ~~2010~~2011.

2423

Interest rate swap

AnA ~~unrealized~~realized gain of $~~106~~58,~~085~~965 was recorded in Fiscal ~~2011~~2012 as compared to ana unrealized gain of $~~115~~106,~~600~~085 for Fiscal ~~2010~~2011 to reflect the change in fair value of the mark to market valuation for the ~~interest~~ interest rate swap agreement entered into in April 2007 to mitigate the interest rate fluctuations on our term loan. The interest rate swap expired on March 30, 2012 and therefore has no value as of March 31, 2012 and no remaining unrealized gains.

Provision for income taxes

Our effective tax rate was 3437.03% for Fiscal ~~2011~~2012 as compared to 4234.80% for Fiscal ~~2010~~2011. The ~~decrease~~increase in the effective tax rate relates primarily to ~~benefits~~a ~~for~~lower ~~domestic production activities deduction,~~ R&D ~~credits~~credit, ~~and~~a ~~2010~~higher ~~true-ups.~~average ~~This~~state ~~was~~tax ~~partially~~ rate offset byto ansome ~~increase~~degree inby ~~the~~reduced ~~rate~~tax ~~related~~expense toin ~~establishing~~ a ~~valuation~~number ~~allowance~~of ~~for~~areas including the ~~deferred~~domestic ~~tax~~production ~~benefit associated~~activity ~~with~~deduction ~~our~~and ~~state~~lower ~~net~~non-deductible ~~operating~~employee ~~loss~~stock ~~carryforward~~compensation expense.

Financial Condition, Liquidity and Capital Resources

We finance our operating and investment requirements primarily through operating cash flows and borrowings. Cash and cash equivalents ~~was~~ were $~~745~~856,~~116~~931 at March 31, ~~2011~~2012 as compared to $~~482~~745,~~442~~116, at March 31, ~~2010~~2011. Working capital, defined as accounts receivable, inventory, ~~unbilled revenue,~~ prepaid expenses, other current assets net of accounts payable, accrued expenses and deferred revenue was $15,~~086~~043,~~387~~885 at March 31, ~~2011~~2012 as compared to $1115,~~961~~086,~~963~~387 at March 31, ~~2010~~2011. Borrowings under our revolving line of credit were $64,~~714~~220,~~319~~045 at March 31, ~~2011~~2012 as compared to $46,~~234~~714,~~435~~319 at March 31, ~~2010~~2011 representing a 37% decrease.

Our current ratio was approximately 12.7437 at March 31, ~~2011~~2012 as compared to 1.8174 at March 31, ~~2010~~2011.

Net cash provided by operating activities was $~~192~~5,~~476~~362,940 in Fiscal ~~2011~~2012 as compared to $1192,~~702~~476 in Fiscal 2011. In Fiscal 2012,~~559~~ approximately $5.6 million was provided by net income after adjusting for non-cash items including depreciation, amortization, stock-based compensation, changes in working capital reserves and a realized gain on interest rate swap. Cash used for working capital needs was approximately $0.3 million. Net income in Fiscal 2012 ~~2010~~increased by approximately 125%.

In Fiscal 2011, net cash provided by net income after adjusting for non-cash items including depreciation, amortization, stock-based compensation, changes in working capital reserves and ana ~~unrealized~~realized gain on interest rate swap was approximately $3.3 million. Approximately $3.2 million was used to fund working capital needs. Of this amount, approximately $0.1 million was provided by receivables and unbilled/deferred revenue and approximately $3.3 million was used to fund inventory requirements. A portion of this increase is related to the delay in shipments while we upgraded procedures in response to a customer’s request. Approximately $0.1 million was used for a charge to a deferred tax asset related to the cancellation of non-qualified stock options.

In Fiscal ~~2010,~~2012 net cash ~~provided~~used ~~by net income after adjusting for non-cash items including depreciation, amortization, stock-based compensation, changes~~ in ~~working~~investing ~~capital~~activities ~~reserves and an unrealized gain on interest rate swap~~ was ~~approximately~~ $3.1 ~~million. Approximately $1.1 million was used to fund working capital needs. Of this amount~~,346,218 ~~approximately~~as ~~$0.8~~compared ~~million was used~~ to ~~fund receivables and unbilled/deferred revenue as a result of higher sales and approximately~~ $~~1.7~~957,542 ~~million~~in ~~was~~Fiscal ~~used to fund inventory requirements~~2011. AIn ~~tax~~Fiscal ~~refund~~2012 ~~net of tax payments provided approximately $0.6 million~~ and ~~increases in accounts payable and accrued expenses provided approximately $0.8 million.~~Fiscal ~~Approximately~~2011, ~~$0.2~~investing ~~million~~activities was ~~for~~primarily acomprised ~~charge to a deferred tax asset related to the cancellation~~ of ~~non-qualified~~capital ~~stock options~~expenditures.

In Fiscal ~~2011~~2012 net cash used in ~~investing~~ financing activities was $~~957~~3,~~542~~904,907 as compared to net cash provided by financing activities in Fiscal 2011 of $1,~~129~~027,~~853~~740. inIn Fiscal ~~2010~~2012 we repaid approximately $2.5 Inmillion ~~Fiscal~~to ~~2011~~our line of credit, repaid term debt of approximately $1.3 million and ~~Fiscal~~paid ~~2010,~~approximately ~~investing~~$0.2 ~~activities~~million ~~was~~for ~~primarily~~capital ~~comprised~~lease obligations offset by approximately $0.1 million of ~~capital~~proceeds ~~expenditures~~from stock option exercises.

In Fiscal 2011 ~~net cash provided by financing activities was $1,027,740 as compared to net cash used in financing activities in Fiscal 2010 of $710,523. In Fiscal 2011~~ we borrowed approximately $2.5 million from our line of credit, repaid term debt of approximately $1.3 million and paid approximately $.3 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.

25We believe that cash and cash 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. However, a decrease in our sales or demand for our products would likely adversely affect our working

In capital ~~Fiscal~~amounts. ~~2010,~~As wepart ~~borrowed~~of ~~approximately~~our ~~$0.7~~business ~~million~~strategy, ~~from~~we ~~our~~occasionally ~~line~~evaluate potential acquisitions of ~~credit~~businesses, ~~repaid~~products $1and technologies.~~3 million~~ Accordingly, a portion of our ~~term~~available ~~debt~~cash ~~and~~may ~~paid~~be used ~~approximately~~at ~~$.3~~any ~~million~~time for ~~capital~~the ~~lease~~acquisition ~~obligations~~of complementary products or businesses. InThese ~~addition~~potential transactions may require substantial capital resources, ~~approximately~~which, $0in turn, may require us to seek additional debt or equity financing.2 ~~million~~There ofare ano ~~deferred~~assurances that ~~tax~~we ~~asset~~will ~~related~~be able to ~~the~~consummate ~~cancellation~~any ofsuch ~~non-qualified~~transaction. ~~stock~~There ~~options~~are ~~was~~no ~~charged~~current plans to raise additional ~~paid~~debt in or equity capital, nor is there a projected need to raise any such capital.

We believe that cash and cash 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. However, 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 of complementary products or businesses. These potential transactions may require substantial capital resources, which, 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.

Term Loan and Revolver

In March 2007, we entered into a credit facility which ~~consisting~~consisted of a $6.5 million five year secured term loan and a $5.0 million three year revolving line of credit,. ~~which~~In ~~replaced~~Fiscal 2009, the ~~then~~revolving ~~existing~~line ~~$6.0~~of ~~million~~credit ~~term~~was ~~loan~~extended ~~entered~~by ~~into~~two inyears. ~~June~~On ~~2005.~~August 13, In2010, ~~December~~the ~~2008~~revolving weline ~~extended~~of ~~the~~credit ~~term~~was increased ofto ~~the~~$7.5 ~~revolving~~million ~~line~~and ofwas ~~credit~~extended ~~for~~until ~~two~~March 31, ~~years~~2013.

WeOn September 19, 2011, we entered into an amendment ~~interest~~to ~~rate~~the ~~swap~~term loan and revolving line of credit agreement inunder ~~April~~which ~~2007~~the revolving line of credit was increased to ~~mitigate~~$10 ~~interest~~million ~~rate~~and ~~fluctuations~~extended onuntil ~~the~~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. AtThe term loan is payable in quarterly principal installments of $325,000 plus accrued interest at the ~~end~~rate of ~~each~~5.2% plus the applicable margin. At March 31, 2012, the interest rate ~~reporting~~was ~~period~~7.45%. weThe ~~record~~final payment for the ~~current~~term ~~fair~~loan ~~value~~was made in April 2012. The revolving line of ~~the~~credit bears interest ~~rate~~at ~~swap~~LIBOR onplus the ~~balance~~applicable ~~sheet~~margin. ~~Any~~At ~~unrealized~~March 31, ~~gain~~2012, orthe ~~loss~~interest onrate was 2.49%. We had approximately $5.8 million available under the ~~swap~~line isof ~~charged~~credit toat ~~earnings~~March 31, 2012.

OnIn ~~August 13~~April 2007, ~~2010~~the weCompany entered into an ~~amended~~interest ~~term~~rate ~~loan~~swap ~~and~~agreement ~~revolving~~with an ~~line~~initial notional amount of ~~credit~~$6.5 ~~agreement~~million to mitigate the effect of interest rate fluctuations on the term loan. ~~Under~~The interest rate swap was not designated as a hedging instrument at the ~~terms~~initiation of the ~~amended~~swap, ~~revolving~~and ~~line~~therefore the Company has not applied hedge accounting. As a result, at the end of ~~credit~~each ~~agreement~~reporting period, the ~~revolving~~change ~~line~~in fair value of ~~credit~~the ~~was increased~~interest ~~from~~rate ~~$5.0~~swap ~~million~~is torecorded ~~$7.5~~on ~~million~~the ~~and~~consolidated ~~extended~~balance bysheet, ~~one~~with ~~year~~any related gains or losses included in earnings. The ~~revolving~~interest ~~line~~rate swap ofagreement ~~credit~~expired ~~now~~March 30, ~~expires~~2012 onand therefore has no value at March 31, ~~2013~~2012.

~~At March 31, 2011 we were in compliance with our bank covenants.~~ Under the terms of the amended term loan and the revolving line of credit agreement, wethe ~~are~~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.~~10,~~25:1 and a minimum current ratio of 1.25:1. ~~and~~At ~~minimum~~March 31, ~~tangible~~2012, ~~net~~we ~~worth~~are ofin ~~$9.2~~compliance ~~million~~with our bank covenants.

The term loan and revolving line of credit are guaranteed by our 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. At March 31, 2011 our interest rate was 7.95%. The final payment for the term loan is in April 2012.

The revolving line of credit bears interest at LIBOR plus the applicable margin. At March 31, 2011 our interest rate was 3.01%. We had approximately $0.8 million available under the line at March 31, 2011.

Capital leases

Commercial capital leases payable are reflected at their present value based upon interest rates of approximately 6.8% per annum, and are secured by the underlying assets. The assets are depreciated over their estimated useful lives. ~~Included~~There inare ~~the~~no ~~current~~outstanding ~~portion of long-term debt is $168,733 for~~ capital ~~lease~~leases ~~obligations.~~at ~~The remaining interest associated with our capital lease obligations amounts to approximately $5~~March 31,~~309~~ ~~over the lease terms~~2012.

Commercial capital leases payable are reflected at their present value based upon interest rates that approximate 6.8% per annum, and are secured by the underlying assets. The assets are depreciated over their estimated useful lives.

Off-Balance Sheet Arrangements

We 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.

26Contractual Obligations

The following table sets forth the Company’s future contractual obligations at March 31, 2012:


	Total		2013		2014
Line of credit (1)	$	4,220,045	$	4,220,045	$	—
Operating lease obligations		1,074,204		646,746		427,458
Current portion of long-term debt (2)		325,000		325,000		—

Total	$	5,619,249	$	5,191,791	$	427,458

(1)	Bears interest at LIBOR plus applicable margin (2.49% as of March 31, 2012)

(2)	Bears interest at 5.2% plus the applicable margin (7.45% as of March 31, 2012). The final payment was made in April 2012.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

ITEM 8. Financial Statements and Supplementary Data.

This information is contained on pages F-1 through F-2117 hereof.

Financial Statements		Page
Report of Independent Registered Public Accounting Firm		F-1
Consolidated Balance Sheets, March 31, 2011 and 2010		F-2
Consolidated Balance Sheets, March 31, 2012 and 2011		F-2
Consolidated Statements of Operations for the years ended March 31, 2011 and 2010		F-3
Consolidated Statements of Operations for the years ended March 31, 2012 and 2011		F-3
Consolidated Statements of Shareholders’ Equity for the years ended March 31, 2011 and 2010		F-4
Consolidated Statements of Shareholders’ Equity for the years ended March 31, 2012 and 2011		F-4
Consolidated Statements of Cash Flows for the years ended March 31, 2011 and 2010		F-5
Consolidated Statements of Cash Flows for the years ended March 31, 2012 and 2011		F-5
Notes to Consolidated Financial Statements		F-6 - F-2221

2726

ITEM 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

ITEM 9A. Controls and Procedures.

Evaluation of disclosure controls and procedures—As of March 31, ~~2011~~2012, 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). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, ~~2011~~2012, to provide reasonable assurance that material information relating to the Company was made known to our Chief Executive Officer and Chief Financial Officer by others within the Company.

Evaluation of internal control over financial reporting—Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Act of 1934. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting. In making its assessment of internal control over financial reporting, management used criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our evaluation under such framework, our management concluded that our internal control over financial reporting was effective as of March 31, ~~2011~~2012.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to a permanent exemption from the internal control audit requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002.

Changes in internal control—There were no significant changes in the Company’s internal control over financial reporting that occurred during the quarterly period ended March 31, ~~2011~~2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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 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.

Item 9B: Other Information.

None.

2827

PART III

The information to be contained in Items 10-14 herein is incorporated by reference to the Company’s proxy statement to be filed with the Securities and Exchange Commission on or before July 29, ~~2011~~2012.

2928

PART IV

ITEM 15. Exhibits and Financial Statement Schedules.

(a) Financial Statements, Schedules and Exhibits:

(1),(2) The consolidated financial statements and required schedules begin on page F-1.

(3) Exhibits.


	3.1			Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to Registration Statement No. 33-16453 (the “Registration Statement”)).

	3.2			Certificate of Amendment of Certificate of Incorporation of the Company, dated October 2, 1995 (incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K filed by the Company on June 21, 2010).

	3.3			Certificate of Amendment of Certificate of Incorporation of the Company, dated November 6, 2002 (incorporated by reference to Exhibit 3.3 to the Annual Report on Form 10-K filed by the Company on June 21, 2010).

	3.4			Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on October 19, 2007).

	4.1			Specimen certificate for common stock of Micronetics, Inc. (incorporated by reference to Exhibit 4.1 to the Registration Statement).

	10.1			2006 Equity Incentive Plan (incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement filed on July 31, 2006).*

	10.2			Amended and Restated 401(k) Plan (incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-KSB for its fiscal year ended March 31, 2005).*

	10.3			Commercial Loan Agreement, dated as of March 30, 2007, between Micronetics, Inc. and Citizens Bank New Hampshire (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on March 30, 2007).

	10.4			Amendment to Commercial Loan Agreement and Loan Documents, by and between, Micronetics, Inc., Microwave & Video Systems, Inc., Microwave Concepts, Inc., Stealth Microwave, Inc., MICA Microwave Corporation and RBS Citizens National Association (successor by merger to Citizens Bank New Hampshire), dated December 12, 2008 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on December 15, 2008).

	10.5			Amendment to Commercial Loan Agreement and Loan Documents, by and between, Micronetics, Inc., Microwave & Video Systems, Inc., Microwave Concepts, Inc., Stealth Microwave, Inc., MICA Microwave Corporation and RBS Citizens National Association (successor by merger to Citizens Bank New Hampshire), dated March 5, 2009 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on March 9, 2009).

	10.6			Amendment and Waiver To Commercial Loan Agreement and Loan Documents, by and between, Micronetics, Inc., Microwave & Video Systems, Inc., Microwave Concepts, Inc., Stealth Microwave, Inc., MICA Microwave Corporation and RBS Citizens National Association (successor by merger to Citizens Bank New Hampshire), dated June 26, 2009. (incorporated by reference to Exhibit 10.8 to the Annual Report on Form 10-K filed by the Company on June 29, 2009).

	10.7			Mortgage and Security Agreement, by and between, Micronetics, Inc., and RBS Citizens National Association (successor by merger to Citizens Bank New Hampshire), dated June 26, 2009. (incorporated by reference to Exhibit 10.9 to the Annual Report on Form 10-K filed by the Company on June 29, 2009).


10.8		Term Note, dated as of March 30, 2007, between Micronetics, Inc. and Citizens Bank New Hampshire (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by the Company on March 30, 2007).

10.9		Security Agreement, dated as of March 30, 2007, between Micronetics, Inc. and Citizens Bank New Hampshire (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed by the Company on March 30, 2007).

10.10		Security Agreement (Intellectual Property), dated as of March 30, 2007, between Micronetics, Inc. and Citizens Bank New Hampshire (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed by the Company on March 30, 2007).

10.11		Stock Pledge and Security Agreement, dated as of March 30, 2007, between Micronetics, Inc. and Citizens Bank New Hampshire (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed by the Company on March 30, 2007).

10.12		Amendment to Commercial Loan Agreement and Loan Documents, by and between, Micronetics, Inc., Microwave & Video Systems, Inc., Microwave Concepts, Inc., Stealth Microwave, Inc., MICA Microwave Corporation and RBS Citizens National Association (successor by merger to Citizens Bank New Hampshire), dated August 13, 2010 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on August 18, 2010).

10.13		Amendment to Commercial Loan Agreement and Loan Documents, by and between, Micronetics, Inc., Microwave & Video Systems, Inc., Microwave Concepts, Inc., Stealth Microwave, Inc., MICA Microwave Corporation and RBS Citizens National Association (successor by merger to Citizens Bank New Hampshire), dated September 19, 2011 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on September 22, 2011).

10.14		Amended and Restated Revolving Credit Note, dated September 19, 2011 issued by Micronetics, Inc. to RBS Citizens National Association (successor by merger to Citizens Bank New Hampshire) (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by the Company on September 22, 2011).

10.15		Employment Agreement between the Company and David Robbins dated July 17, 2007 (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by the Company on July 18, 2007).*

10.16		Severance Agreement between the Company and Carl Lueders dated August 29, 2011 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on August 31, 2011).*

10.17		Lease by and between Microwave Concepts, Inc. and SAI Property Management LLC, dated October 17, 2008 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on November 5, 2008.)

10.18		Guaranty by Micronetics, Inc. to SAI Property Management LLC, dated October 17, 2008 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by the Company on November 5, 2008.)

10.19		Lease, dated September 4, 2008, by and between Micronetics, Inc. and SBJ Development, LLC (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by the Company on November 12, 2008.)

21		List of Subsidiaries of the Company.

23.1		Consent of Grant Thornton LLP dated May 31, 2012.

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

	10.8		Revolving Credit Note, dated as of March 30, 2007, between Micronetics, Inc. and Citizens Bank New Hampshire (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by the Company on March 30, 2007).
31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	10.9		Term Note, dated as of March 30, 2007, between Micronetics, Inc. and Citizens Bank New Hampshire (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by the Company on March 30, 2007).
32.1		Certification pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	10.10		Security Agreement, dated as of March 30, 2007, between Micronetics, Inc. and Citizens Bank New Hampshire (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed by the Company on March 30, 2007).
32.2		Certification pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	10.11		Security Agreement (Intellectual Property), dated as of March 30, 2007, between Micronetics, Inc. and Citizens Bank New Hampshire (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed by the Company on March 30, 2007).
101.INS		XBRL Instance Document
	10.12		Stock Pledge and Security Agreement, dated as of March 30, 2007, between Micronetics, Inc. and Citizens Bank New Hampshire (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed by the Company on March 30, 2007).
101.SCH		XBRL Taxonomy Extension Schema Document
	10.13		Amendment to Commercial Loan Agreement and Loan Documents, by and between, Micronetics, Inc., Microwave & Video Systems, Inc., Microwave Concepts, Inc., Stealth Microwave, Inc., MICA Microwave Corporation and RBS Citizens National Association (successor by merger to Citizens Bank New Hampshire), dated August 13, 2010 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on August 18, 2010).
101.CAL		XBRL Taxonomy Calculation Linkbase Document
	10.14		Amended and Restated Revolving Credit Note, dated August 13, 2010 issued by Micronetics, Inc. to RBS Citizens National Association (successor by merger to Citizens Bank New Hampshire) (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by the Company on August 18, 2010).
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
	10.15		Employment Agreement between the Company and David Robbins dated July 17, 2007 (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by the Company on July 18, 2007).*
101.LAB		XBRL Taxonomy Label Linkbase Document
	10.16		Lease by and between Microwave Concepts, Inc. and SAI Property Management LLC, dated October 17, 2008 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on November 5, 2008.)
101.PRE		XBRL Taxonomy Presentation Linkbase Document
	10.17		Guaranty by Micronetics, Inc. to SAI Property Management LLC, dated October 17, 2008 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by the Company on November 5, 2008.)
	10.18		Lease, dated September 4, 2008, by and between Micronetics, Inc. and SBJ Development, LLC (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by the Company on November 12, 2008.)
	21		List of Subsidiaries of the Company.
	23.1		Consent of Grant Thornton LLP dated June 6, 2011.
	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 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2		Certification pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Management contract or compensatory plan or arrangement

SIGNATURES

In accordance with the requirements of Section 13 or 15(d) 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.

	MICRONETICS, INC.	~~MICRONETICS, INC.~~
Dated: June 6, 2011		By:	/s/ DAVID ROBBINS
Dated: May 31, 2012	By:	/s/ DAVID ROBBINS
		David Robbins, Chief Executive Officer and Treasurer (Principal Executive Officer)	~~David Robbins, Chief Executive Officer and Treasurer (Principal Executive Officer)~~
Dated: June 6, 2011		By:	/s/ CARL LUEDERS
Dated: May 31, 2012	By:	/s/ CARL LUEDERS
		Carl Lueders, Chief Financial Officer (Principal Financial and Accounting Officer)	~~Carl Lueders, Chief Financial Officer (Principal Financial and Accounting Officer)~~

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/S/ DAVID ROBBINS David Robbins	Chief Executive Officer and Treasurer (Principal Executive Officer)	~~June~~May 631, ~~2011~~2012
/S/ DAVID SIEGEL David Siegel	Director	~~June~~May 631, ~~2011~~2012
/S/ DOROTHY ANNE HURD Dorothy Anne Hurd	Director	~~June~~May 631, ~~2011~~2012
/S/ GERALD HATTORI Gerald Hattori	Director	~~June~~May 631, ~~2011~~2012

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

Micronetics, Inc.

We have audited the accompanying consolidated balance sheets of Micronetics, Inc. (a Delaware Corporation) and subsidiaries (~~collectively,~~ the “Company”) as of March 31, ~~2011~~2012 and ~~2010~~2011 and the related statements of operations, shareholders’ equity and cash flows for the years ~~then~~in the period ended March 31, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Micronetics, Inc. and subsidiaries as of March 31, ~~2011~~2012 and ~~2010~~ 2011 and the results of their operations and their cash flows for the years ~~then~~in the period ended March 31, 2012 in conformity with accounting principles generally accepted in the United States of America.

/s/ GRANT THORNTON LLP

Boston, Massachusetts

~~June~~May 631, ~~2011~~ 2012

F-1

MICRONETICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31,
	2011			2010
	2012			2011
ASSETS
Current assets:
Cash and cash equivalents	$	~~745~~856,~~116~~931		$	~~482~~745,~~442~~116
Accounts receivable, net of allowance for doubtful accounts of $511,532 and $570,782 at March 31, 2011 and 2010, respectively		5,706,837			5,691,334
Accounts receivable, net of allowance for doubtful accounts of $540,766 and $511,532 at March 31, 2012 and 2011, respectively		6,901,681			5,706,837
Inventories, net		1312,~~998~~920,~~539~~669			1013,~~943~~998,~~968~~539
Unbilled revenue		—			219,958
Deferred tax assets		1,860,106			1,553,887
Deferred tax asset		1,553,887			1,557,093
Prepaid income taxes		23,713			406,072
Prepaid income taxes		406,072			434,379
Prepaid expenses and other current assets		299,930			218,984
Prepaid expenses and other current assets		218,984			218,554
Total current assets		22,863,030			22,629,435
Total current assets		22,629,435			19,547,728
Property, plant and equipment, net		4,746,162			4,617,989
Property, plant and equipment, net		4,617,989			4,787,880
Other assets:
Security deposits		9779,~~079~~226			97,079
Other long-term assets		102,~~304~~060			1810,~~547~~304
Intangible assets, net		1761,~~075,895~~848			1,~~396~~075,~~595~~895
Goodwill		1,117,197			1,117,197
Total other assets		21,~~300~~960,~~475~~331			2,~~629~~300,~~418~~475
TOTAL ASSETS	$	29,~~547~~569,~~899~~523		$	2629,~~965~~547,~~026~~899
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	1325,~~468,733~~000		$	1,~~457~~468,~~267~~733
Line of credit		64,~~714~~220,~~319~~045			46,~~234~~714,~~435~~319
Accounts payable		21,~~088~~132,~~784~~013			2,~~179~~088,~~422~~784
Accrued expenses and other current liabilities		23,~~718~~645,~~329~~554			2,~~732~~718,~~429~~329
Deferred revenue		30300,~~860~~828			~~200~~30,~~000~~860
Total current liabilities		139,~~021~~623,~~025~~440			1013,~~803~~021,~~553~~025
Long-term debt, net of current portion		~~325,000~~—			1325,~~786,378~~000
Other long-term liability		—			1,740
Deferred tax liabilities		1,252,157			1,267,681
Deferred tax liability		1,267,681			1,033,531
Total liabilities		10,875,597			14,613,706
Total liabilities		14,613,706			13,625,202
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; 5,393,717 issued, 4,556,135 outstanding at March 31, 2011 and 5,391,217 issued, 4,553,635 outstanding at March 31, 2010		53,937			53,912
Common stock, $0.01 par value; 10,000,000 shares authorized; 5,413,217 issued, 4,575,663 outstanding at March 31, 2012 and 5,393,717 issued, 4,556,135 outstanding at March 31, 2011		54,014			53,937
Additional paid-in capital		12,~~280~~627,~~641~~614			12,~~204~~280,~~124~~641
Retained earnings		58,~~580~~992,~~128~~693			45,~~062~~580,~~301~~128
		17,914,706			16,320,337
		21,674,321			17,914,706
Treasury stock at cost, 837,582 shares at March 31, 2011 and 2010, respectively		(2,980,513	)		(2,980,513	)
Treasury stock at cost, 837,554 at March 31, 2012 and 837,582 shares at March 31, 2011, respectively		(2,980,395	)		(2,980,513	)
Total shareholders’ equity		1418,~~934~~693,~~193~~926			1314,~~339~~934,~~824~~193
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	29,~~547~~569,~~899~~523		$	2629,~~965~~547,~~026~~899

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

F-2

MICRONETICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Fiscal Years Ended March 31,
	2011			2010
	2012			2011
Net sales	$	3545,~~296~~970,~~705~~284		$	3435,~~867~~296,~~746~~705
Cost of sales		2331,~~745~~151,~~100~~673			23,~~165~~745,~~053~~100
Gross margin		1114,~~551~~818,~~605~~611			11,~~702~~551,~~693~~605
Operating expenses:
Research and development		1,~~790~~454,~~803~~460			1,~~708~~790,~~532~~803
Selling, general and administrative		67,~~899~~442,~~050~~404			76,~~250~~899,~~306~~050
Net loss on disposal of assets		~~3,560~~—			—3,560
Amortization of intangible assets		~~320~~314,~~700~~047			~~348~~320,~~093~~700
Total operating expenses		9,~~014~~210,~~113~~911			9,~~306~~014,~~931~~113
Income from operations		25,~~537~~607,~~492~~700			2,~~395~~537,~~762~~492
Other income (expense)
Interest income		2,~~574~~420			~~233~~2,574
Interest expense		(~~365~~236,~~263~~593	)		(~~523~~365,~~274~~263	)
Change in fair value of interest rate swap		~~106~~58,~~085~~965			~~115~~106,~~600~~085
Miscellaneous income		188,~~221~~992			1718,~~951~~221
Total other expense		(~~238~~166,~~383~~216	)		(~~389~~238,~~490~~383	)
Income before provision for income taxes		25,~~299~~441,~~109~~484			2,~~006~~299,~~272~~109
Provision for income taxes		~~781~~2,~~282~~028,919			~~858~~781,~~442~~282
Net income	$	13,~~517~~412,~~827~~565		$	1,~~147~~517,~~830~~827
Earnings per common share
Basic	$	0.3375		$	0.2533
Diluted	$	0.3374		$	0.2533
Weighted average common shares outstanding
Basic		4,~~554~~565,~~656~~222			4,~~553~~554,~~635~~656
Diluted		4,~~566~~596,~~389~~556			4,~~553~~566,~~851~~389

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

F-3

MICRONETICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

	Commonshares		Stockparvalue			Additionalpaid-incapital			Retainedearnings		Treasurystock			Total
Balance at March 31, 2009		4,553,635	$	53,912		$	12,242,320		$	2,914,471	$	(2,980,513	)	$	12,230,190
Reduction of deferred tax asset related to cancellation of non-qualified stock options		—		—			(151,886	)		—		—			(151,886	)
Stock based compensation		—		—			113,690			—		—			113,690
Net income		—		—			—			1,147,830		—			1,147,830
Balance at March 31, 2010		4,553,635	$	53,912		$	12,204,124		$	4,062,301	$	(2,980,513	)	$	13,339,824
Reduction of deferred tax asset related to cancellation of non-qualified stock options		—		—			(116,660	)		—		—			(116,660	)
Exercise of stock option		2,500		25			5,600			—		—			5,625
Exercise of stock options		2,500		25			5,600			—		—			5,625
Stock based compensation		—		—			187,577			—		—			187,577
Net income		—		—			—			1,517,827		—			1,517,827
Balance at March 31, 2011		4,556,135	$	53,937		$	12,280,641		$	5,580,128	$	(2,980,513	)	$	14,934,193
Exercise of stock options		19,500		195			57,905			—		—			58,100
Other		28		(118	)		—			—		118			—
Tax benefit from exercise of stock options		—		—			13,519			—		—			13,519
Stock based compensation		—		—			275,549			—		—			275,549
Net income		—		—			—			3,412,565		—			3,412,565
Balance at March 31, 2012		4,575,663	$	54,014		$	12,627,614		$	8,992,693	$	(2,980,395	)	$	18,693,926

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

F-4

MICRONETICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Fiscal Years Ended March 31,
	2011			2010
	2012			2011
Cash flows from operating activities
Net income	$	13,~~517~~412,~~827~~565		$	1,~~147~~517,~~830~~827
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,~~569~~532,091			1,~~557~~569,~~999~~091
Stock-based compensation		~~187~~275,~~577~~549			~~113~~187,~~690~~577
Change in fair value of interest rate swap		(~~106~~58,~~085~~965	)		(~~115~~106,~~600~~085	)
Provision for allowances on accounts receivable		(59,250	)		120,983
Provision for doubtful accounts		29,234			(59,250	)
Provision for inventory obsolescence and losses		~~298~~442,~~519~~188			~~240~~298,~~992~~519
Deferred taxes related to non-qualified stock options		~~(116,660~~—	)		(~~151~~116,~~886~~660	)
Net loss on disposal of assets		3,560			—
Loss on disposal of assets		—			3,560
Deferred taxes		120,696			(112,211	)
Tax benefit from exercise of stock options		13,519			—
Deferred taxes		(321,743	)		120,696
Changes in operating assets and liabilities:
Accounts receivable		43(1,~~747~~224,078	)		~~(863~~43,~~313~~747	)
Unbilled revenue		~~219,958~~—			~~(188~~219,~~038~~958	)
Inventories		(3635,~~353,090~~683	)		(13,~~748~~353,~~750~~090	)
Other long term assets		8,243			8,243
Prepaid income taxes		26382,~~566~~358			~~629~~26,~~994~~566
Prepaid expenses, other current assets, and other assets		(~~430~~63,093	)		~~47,429~~(430	)
Accounts payable		(90956,~~638~~769	)		1(90,~~108,592~~638	)
Accrued expenses		91986,~~985~~190			~~(293~~91,~~395~~985	)
Deferred revenue		~~(169~~269,~~140~~968	)		~~200~~(169,~~000~~140	)
Net cash provided by operating activities		~~192~~5,~~476~~362,940			1192,~~702,559~~476
Cash flows from investing activities:
Capital expenditures		(~~967~~1,~~542~~346,218	)		(1967,~~129,853~~542	)
Proceeds from sale of assets		~~10,000~~—			—10,000
Net cash used in investing activities		(~~957~~1,~~542~~346,218	)		(1957,~~129,853~~542	)
Cash flows from financing activities:
Net proceeds from line of credit		2,479,884			731,815
Net (repayments of) proceeds from line of credit		(2,494,274	)		2,479,884
Repayments on term loan		(1,300,000	)		(1,300,000	)
Repayments of capital leases		(~~274~~168,~~429~~733	)		(~~294~~274,~~224~~429	)
Additional paid in capital charge related to cancellation of non-qualified stock options		~~116,660~~—			~~151~~116,~~886~~660
Proceeds from exercise of stock options		558,~~625~~100			—5,625
Net cash provided by (used in) financing activities		1,027,740			(710,523	)
Net cash (used in) provided by financing activities		(3,904,907	)		1,027,740
Net change in cash and cash equivalents		~~262~~111,~~674~~815			~~(137~~262,~~817~~674	)
Cash and cash equivalents at beginning of period		482,442			620,259
Cash and cash equivalents at beginning of year		745,116			482,442
Cash and cash equivalents at end of period	$	745,116		$	482,442
Cash and cash equivalents at end of year	$	856,931		$	745,116
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Cash paid during the year for:
Interest	$	~~398~~260,~~250~~497		$	~~492~~398,~~368~~250
Income taxes	$	~~634~~1,~~020~~955,000		$	~~340~~634,~~660~~020
Supplemental disclosure of non-cash financing activities:
Equipment acquired under capital leases	$	~~124,518~~—		$	~~164~~124,~~404~~518

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

F-5

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, ~~2011~~2012 AND ~~2010~~2011

1. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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, ~~and~~ test equipment and integrated multifunction subassemblies used in cellular, microwave, satellite, radar and communication systems around the world.

The consolidated financial statements include the accounts of ~~Micronetics,~~ ~~Inc.~~the ~~(“Micronetics”)~~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.

Use of estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates and judgments include revenue recognition, assumptions used in stock option and goodwill valuations, reserves for accounts receivable and inventories, useful lives of property, plant and equipment, intangibles, accrued liabilities, and deferred income taxes ~~and various other assumptions that it believes are reasonable under the circumstances~~. Actual results could differ from those estimates.

Revenue recognition—The Company generates revenue from the sale of products, technology development, and licensing. Revenue is recognized when persuasive evidence of an 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 assembly 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.

The Company occasionally enters into contracts for production of ~~highly~~ customized microwave and radio frequency components and integrated sub-assemblies for which it records revenue based on the percentage of completion method (assuming all other requirements for revenue recognition have been satisfied) typically using labor hours to measure progress toward completion of the contract as the Company has determined this methodology best reflects the fundamentals of the contract. If estimates to complete the contract change materially from one period to the next, profit levels could significantly vary. We currently have no contracts that require the percentage of completion method for revenue recognition.

Deferred revenue represents billings in excess of revenue recognized and unbilled revenue represents revenue recognized in excess of billings.

The Company sells its products using a direct sales force and sales representatives. Contracts with customers do not include product return rights or price protection. The estimated cost of product warranties are accrued based on historical experience at the time the revenue is recognized. Unless customers purchase an extended warranty, Micronetics typically offers a one-year warranty.

Shipping and handling fees—The Company records shipping and handling fees billed to customers as revenue. Shipping and handling costs are reported as a component of cost of sales.

F-6

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, ~~2011~~2012 AND ~~2010~~2011

Cash and cash equivalents—The Company considers certificates of deposit, money market funds, and highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. As of March 31, ~~2011~~2012, substantially all the Company’s cash and cash equivalents consisted of money market investments which the Company believes are subject to minimal credit and market risks.

Concentration of credit risk—Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, an interest rate swap and accounts receivable. The Company may invest in high-quality money market funds that invest in securities of the U.S. government, and other high-quality corporate ~~issues~~issuers. Accounts receivable are generally unsecured and are derived from the Company’s customers located around the world. The Company performs ongoing credit evaluations of its customers and maintains an allowance for ~~potential~~doubtful ~~credit losses~~accounts. The Company has ~~one~~two ~~customer~~customers that ~~accounts~~account for 2532% and 13% of its ~~accounts~~gross ~~receivable~~trade receivables, respectively, at March 31, ~~2011~~2012. The Company believes there is minimal risk associated with ~~this~~these ~~receivable~~receivables and ~~its~~their terms are comparable to other customers.

Fair value of financial instruments—The carrying amounts reported in the consolidated balance sheet for cash, trade receivables, accounts payable, and accrued expenses approximate fair value because of the relatively short maturity of these instruments. The interest rate swap is at fair value and is arrived at by discounting the present value of the difference between the contractual swap rate and the current market swap rates on March 31, ~~2011~~2012, utilizing the notional amounts and the remaining terms of the swap agreement. ~~The~~ At March 31, 2011, the fair value of the swap was recorded as a liability in the amount of $58,965. ~~and~~The ~~$165,050,~~interest atrate swap expired March 3130, ~~2011~~2012 and therefore has no value at March 31, ~~2010, respectively~~2012. The ~~fair~~ book value of the Company’s long- term debt approximates fair value as it bears interest at variable market rates.

Accounts receivable, net of allowance for doubtful accounts—Accounts receivable are customer obligations due under normal trade terms, carried at face value less an allowance for doubtful accounts. The Company regularly monitors collections and payments from their customers and maintains a provision for estimated credit losses based upon the review of the aging of outstanding accounts, loss experiences, factors related to specific customers’ ability to pay, current economic trends and any specific customer collection issues that have been identified. While such credit losses have historically been within our expectations and the provisions established, the Company cannot guarantee that it will continue to experience the same credit loss rates that have been experienced in the past. The Company writes off accounts receivable against the allowance in the period that a receivable is determined to be uncollectible. Recovery of amounts previously written off are recorded when received.

Inventories —Inventories are valued at the lower of cost or market (net realizable value), determined using the first-in, first-out method. Inventory items are reviewed regularly for excess and obsolete inventory based on an estimated forecast of product demand. Demand for the Company’s products can be forecasted based on current backlog, customer options to reorder under existing contracts, the need to retrofit older units and parts needed for general repairs. Inventories that are in excess of future requirements are written down to their estimated value based upon projected demand. Although management makes every effort to insure the accuracy of its forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have an impact on the level of obsolete material in our inventories and operating results could be affected accordingly.

F-7

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, ~~2011~~2012 AND ~~2010~~2011

Property, plant and equipment—Property, plant and equipment are stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets as follows:


Buildings and improvements		Up to 40 years
Machinery and equipment		3-10 years
Furniture and fixtures		7 years
Leasehold improvements		lesser of the lease term or useful life

Goodwill 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.

In September 2011, the FASB issued ASU 2011-08, Intangibles, Goodwill and Other (Topic 350): Testing Goodwill for Impairment. The ~~Company~~amendment ~~tests~~is ~~goodwill~~effective for annual impairment ~~annually~~tests ~~and~~done ~~when~~for fiscal years that start after December 15, 2011 though early adoption is permitted. The changes to FASB ASC 350-20 permits an ~~event~~entity ~~occurs~~to ormake ~~circumstances~~a ~~change~~qualitative ~~that~~assessment ~~would~~of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If an entity concludes that it is not more likely than not ~~reduce~~that the fair value of a reporting unit ~~below~~is less than its carrying ~~value.~~amount, ~~Goodwill~~it iswould ~~tested~~not ~~for~~be ~~impairment~~required ~~using~~to aperform the two-step ~~process.~~impairment ~~The~~test ~~first~~for ~~step~~that isreporting tounit. ~~determine~~During the iffourth ~~there~~quarter isof anFiscal ~~impairment~~2012, we adopted ASU 2011-08 and ~~the~~prepared ~~second~~a ~~step~~qualitative isassessment toof ~~determine~~our ~~the~~goodwill. ~~amount~~As part of ~~the~~our qualitative assessment, we evaluated a number of factors including industry conditions, economic conditions, competition, business strategy and positioning, cost factors, market capitalization and discounted cash flows. Based upon this analysis, we determined that there was no goodwill impairment at March 31, 2012.

At March 31, 2011 and 2010 we performed our goodwill impairment assessment for the $1.1 million of goodwill and determined that the carrying value did not exceed its fair value.

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

At March 31, ~~2011~~2012 and 2011 ~~2010~~ we determined that no new triggering events had occurred warranting an impairment assessment of our intangible assets.

Research and development—Research and development costs are charged to expense when incurred. Amounts expended for the years ended March 31, ~~2011~~2012 and ~~2010~~2011 were $1,~~790~~454,~~803~~460 and $1,~~708~~790,~~532~~803, respectively. R&D expenses consist of salaries, materials and third party costs.

Advertising costs—Advertising costs are expensed as incurred and are reported as a component of ~~“Selling~~selling, general and administrative” expenses in the ~~Company’s~~ consolidated statements of operation. Advertising expense was $466,~~818~~094 in Fiscal ~~2011~~2012 and $5546,~~039~~818 in Fiscal ~~2010~~2011.

Income taxes—The Company calculates its provision for federal and state income taxes based on current tax law and recognizes income taxes under the asset and liability method. Under this method deferred tax assets and liabilities are established for temporary differences. Temporary differences occur when income and expenses are recognized in different periods for financial reporting purposes and for purposes for computing income taxes currently payable. A valuation allowance is provided when it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. The Company established a valuation allowance of $103,230 at March 31, 2011 for the deferred tax asset relating to state net operating losses due to the uncertainty of future utilization. There were no valuation allowances at March 31, 2010.

Earnings per share—Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is determined by using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Potential dilutive common shares represent the dilutive effect of the assumed exercise of certain outstanding stock options.

F-8

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, ~~2011~~2012 AND ~~2010~~2011

using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Potential dilutive common shares represent the dilutive effect of the assumed exercise of certain outstanding stock options.

Restricted shares of common stock that vest based on the satisfaction of certain conditions are treated as contingently issuable shares until the conditions are satisfied. These shares are excluded from the basic earnings per share calculation and included in the diluted earnings per share calculation.

Stock-based compensation—The Company measures compensation cost for stock-based compensation at fair value. The Company uses the Black-Scholes option-pricing model, which requires the input of subjective assumptions. These assumptions include estimates of the length of time employees will retain their vested stock options before exercising them, expected term, the volatility of our common stock price over the expected term, ~~risk free interest rate~~ and the ~~number~~risk offree ~~options~~interest ~~that will not vest~~rate. Changes in these assumptions could materially affect the estimate of fair value stock-based compensation and consequently, the related amount recognized on the consolidated statements of operations. For all awards the Company has recognized compensation expense using the straight-line amortization method over the vesting period of the awards and this estimated expense for Fiscal ~~2011~~2012 and ~~2010~~2011 has been reduced for ~~estimated~~ forfeitures.

Subsequent events—The Company evaluated its March 31, ~~2011~~2012 financial statements for subsequent events through the date the financial statements were issued. The Company is not aware of any subsequent events which would require recognition or disclosure in the financial statements.

Recently ~~issued~~adopted accounting pronouncements— In ~~October 2009~~May 2011, the FASB issued Accounting Standards Update (“ASU”) No. ~~2009~~2011-1304, “~~Revenue~~Fair ~~Recognition~~Value Measurement (ASC Topic ~~605~~820):—Amendments ~~Multiple-Deliverable~~to ~~Revenue~~Achieve ~~Arrangements~~Common (aFair ~~consensus~~Value ofMeasurement ~~the~~and ~~FASB~~Disclosure ~~Emerging~~Requirements ~~Issues~~in ~~Task~~U.S. ~~Force),”~~GAAP ~~which~~and ~~amends ASC 605-25, “Revenue Recognition: Multiple-Element Arrangements~~IFRSs.” ASU No. ~~2009~~2011-1304 ~~addresses~~amends ~~how~~current tofair ~~determine~~value ~~whether~~measurement ~~an arrangement involving multiple deliverables contains more than one unit of accounting~~ and disclosure ~~how~~guidance to ~~allocate~~include ~~consideration~~increased totransparency ~~each~~around ~~unit~~valuation ofinputs ~~accounting~~and ininvestment ~~the arrangement~~categorization. ~~This~~The ~~ASU~~changes ~~replaces all references~~ to ~~fair~~the ~~value~~ASC as ~~the measurement criteria with the term selling price and establishes~~ a ~~hierarchy~~result ~~for determining the selling price~~ of athis ~~deliverable.~~update ~~ASU~~are 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 will become effective ~~for~~prospectively us for ~~revenue~~interim ~~arrangements~~and ~~entered~~annual ~~into~~periods orbeginning ~~materially modified on or~~ after ~~April~~ December 115, 2011. ~~Earlier~~The ~~application is permitted with required transition disclosures based on the period of~~ adoption. ~~We do not expect adoption~~ of this ~~guidance~~ASU todid not have a material impact on ~~our~~the Company’s consolidated financial statements.

In October 2009, the FASB issued ASU No. 2009-14, “Software (Topic 985): Certain Revenue Arrangements That Include Software Elements (a consensus of the FASB Emerging Issues Task Force).” ASU No. 2009-14 amends ASC 985-605, “Software: Revenue Recognition,” such that tangible products, containing both software and non-software components that function together to deliver the tangible product’s essential functionality, are no longer within the scope of ASC 985-605. It also amends the determination of how arrangement consideration should be allocated to deliverables in a multiple-deliverable revenue arrangement. This ASU will become effective for us for revenue arrangements entered into or materially modified on or after April 1, 2011. Earlier application is permitted with required transition disclosures based on the period of adoption. We do not expect adoption of this guidance to have a material impact on our consolidated financial statements. Both ASU No. 2009-13 and ASU No. 2009-14 must be adopted in the same period and must use the same transition disclosures.

F-9

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, ~~2011~~2012 AND ~~2010~~2011

2. INTANGIBLE ASSETS AND GOODWILL

The ~~Company~~following ~~tests~~table ~~goodwill~~presents ~~for~~details ~~impairment~~of ~~annually~~the ~~and~~Company’s ~~when~~finite-lived anintangible ~~event~~assets ~~occurs~~as orof ~~circumstances~~March 31, ~~change~~2012 ~~that would more likely than not reduce~~and ~~the~~March 31, ~~fair~~2011 ~~value~~(in ofthousands): ~~a reporting unit below its carrying value.~~

The following table presents details of the Company’s finite-lived intangible assets as of March 31, 2011 and March 31, 2010 (in thousands):


	Useful Life (years)		March 31, 2012						March 31, 2011
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	$	2,337	$	619	$	2,956	$	2,134	$	822
Trade name		10		260		125		135		260		99		161
Developed technology-drawings		5		513		505		8		513		420		93

Total intangibles			$	3,729	$	2,967	$	762	$	3,729	$	2,653	$	1,076

	UsefulLife(years)		March 31, 2011						March 31, 2010
Intangible Assets			GrossValue		AccumulatedAmortization		NetValue		GrossValue		AccumulatedAmortization		NetValue
Customer relationships(non-contractual)		3-10	$	2,956	$	2,134	$	822	$	2,956	$	1,931	$	1,025
Trade name		10		260		99		161		260		73		187
Developed technology-drawings		5		513		420		93		513		328		185
Total intangibles			$	3,729	$	2,653	$	1,076	$	3,729	$	2,332	$	1,397

The Company amortizes intangible assets with finite lives over the estimated useful lives of the respective assets. The following is a summary of estimated aggregate amortization expense for each of the five succeeding fiscal years:

	(in thousands)
2012	$	314
2013	$	163
2013		163
2014		144
2015		144
2016		144
Thereafter		167
2017		144
Total	$	1,076
Thereafter		23
Total	$	762

Goodwill
Balance as of March 31, 2011	$	9,082,113
Gross value at acquisition	$	9,082,113
Accumulated impairment charges		(7,964,916	)
	$	1,117,197
Balance as of March 31, 2012	$	1,117,197

~~There~~The ~~were~~Company noperforms ~~changes~~an assessment of goodwill for impairment annually to determine whether is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill inimpairment ~~Fiscal~~test. ~~2011~~As part of the qualitative assessment, a number of factors were analyzed including industry conditions, economic conditions, competition, business strategy and positioning, cost factors, market capitalization and discounted cash flows. Based upon this analysis, the Company determined that there was no goodwill impairment at March 31, 2012.

~~The~~Goodwill ~~$1.1 million of goodwill~~ is deductible for income tax purposes ~~at March 31, 2011 and March 31, 2010~~.

F-10

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, ~~2011~~2012 AND ~~2010~~2011

3. ACCOUNTS RECEIVABLE, NET

At March 31, ~~2011~~2012 and ~~2010~~2011 accounts receivable, net of allowances consisted of the following:

	2011			2010
	2012			2011
Accounts receivable	$	67,~~218~~442,~~369~~447		$	6,~~262~~218,~~116~~369
Less allowances		(~~511~~540,~~532~~766	)		(~~570~~511,~~782~~532	)
	$	56,~~706~~901,~~837~~681		$	5,~~691~~706,~~334~~837

The activity related to the Company’s ~~allowances~~allowance for doubtful accounts on accounts receivable for Fiscal ~~2011~~2012 and Fiscal ~~2010~~2011 is as follows:

	2011			2010
	2012			2011
Balance at beginning of period	$	~~570~~511,~~782~~532		$	~~449~~570,~~799~~782
Charges (credits)		~~(59~~29,~~250~~234	)		~~120~~(59,~~983~~250	)
Balance at end of period	$	~~511~~540,~~532~~766		$	~~570~~511,~~782~~532

4. INVENTORIES, NET

At March 31, ~~2011~~2012 and ~~2010~~2011 inventories consisted of the following:

	2011			2010
	2012			2011
Raw materials	$	78,~~730~~343,~~924~~760		$	7,~~170~~730,~~056~~924
Work in process		64,~~319~~538,~~860~~884			36,~~941~~319,~~829~~860
Finished goods		1,~~445~~858,~~941~~704			1,~~368~~445,~~591~~941
		15,496,725			12,480,476
		14,741,348			15,496,725
Less: allowance for obsolescence		(1,~~498~~820,~~186~~679	)		(1,~~536~~498,~~508~~186	)
	$	1312,~~998~~920,~~539~~669		$	1013,~~943~~998,~~968~~539

5. PROPERTY, PLANT AND EQUIPMENT

At March 31, ~~2011~~2012 and ~~2010~~2011, property, plant and equipment consisted of the following:

	2011			2010
	2012			2011
Land	$	162,000		$	162,000
Buildings and leasehold improvements		2,~~072~~106,~~655~~444			2,~~170~~072,~~278~~655
Machinery and equipment		1113,~~865~~154,~~186~~605			1011,~~833~~865,~~486~~186
Furniture and fixtures, and other		~~213~~236,~~511~~521			~~244~~213,~~171~~511
		14,313,352			13,409,935
		15,659,570			14,313,352
Less accumulated depreciation		(910,~~695~~913,~~363~~408	)		(89,~~622~~695,~~055~~363	)
	$	4,~~617~~746,~~989~~162		$	4,~~787~~617,~~880~~989

Assets held under capital leases are classified as property, plant and equipment and amortized over their useful lives. Lease amortization is included in depreciation expense.

F-11

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, ~~2011~~2012 AND ~~2010~~2011

6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

At March 31, ~~2011~~2012 and ~~2010~~2011 accrued expenses and other current liabilities consisted of the following:

	2011		2010
	2012		2011
Unbilled payables	$	1,~~105~~186,~~306~~273	$	~~837~~1,~~603~~105,306
Professional fees		—		15,750
Payroll, benefits and related taxes		1,554,186		1,142,503
Payroll, benefits and related taxes		1,142,503		1,142,532
Warranty		231,415		255,538
Warranty		255,538		211,240
Commissions		231,328		115,659
Commissions		115,659		185,967
Customer deposits		436,079		9,215
Customer deposits		9,215		71,348
Fair value of interest rate swap		—		58,965
Unrealized loss on interest rate swap		58,965		165,050
Miscellaneous		6,273		31,143
Miscellaneous		31,143		102,939
	$	3,645,554	$	2,718,329
	$	2,718,329	$	2,732,429

Included in accrued payroll are bonuses of $~~500~~771,~~000~~387 and $~~600~~500,000 for Fiscal ~~2011~~2012 and Fiscal ~~2010~~2011, respectively.

7. ACCRUED WARRANTY

The Company provides one-year warranties on all of its products covering both parts and labor. Micronetics, at its option, repairs or replaces products that are defective during the warranty period if the proper preventative maintenance procedures have been followed by the customer.

Product warranty activity in Fiscal ~~2011~~2012 and Fiscal ~~2010~~2011 ~~are~~is as follows:

	2011			2010
	2012			2011
Balance at beginning of period	$	~~211~~255,~~240~~538		$	~~136~~211,~~763~~240
Accruals for warranties		~~278~~259,~~083~~714			~~266~~278,~~799~~083
Charges to accrual for warranty costs		(~~233~~283,~~785~~837	)		(~~192~~233,~~322~~785	)
Balance at end of period	$	~~255~~231,~~538~~415		$	~~211~~255,~~240~~538

8. LONG-TERM DEBT AND LINE OF CREDIT

At March 31, ~~2011~~2012 and ~~2010~~2011 long-term debt consisted of the following:

	2011		2010
	2012		2011
Term loan	$	1325,~~625,~~000	$	21,~~925~~625,000
Capital leases		~~168,733~~—		~~318~~168,~~645~~733
Total		1325,~~793,733~~000		31,~~243~~793,~~645~~733
Less current portion		1325,~~468,733~~000		1,~~457~~468,~~267~~733
Long-term debt net of current portion	$	~~325,000~~—	$	1325,~~786,378~~000

F-12

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, ~~2011~~2012 AND ~~2010~~2011

Term Loan and Revolver

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

On ~~August~~September 1319, ~~2010~~2011, the Company entered into an ~~amended~~ amendment to the term loan and revolving line of credit agreement under which the revolving line of credit was increased to $~~7.5~~10 million and extended byuntil ~~one additional year and now expires on March~~September 3130, ~~2013~~2015. The ~~outstanding balance on the line of credit at March 31, 2011 was $6,714,319. The~~ term loan and ~~the~~revolving line of credit are guaranteed by the Company’s 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 March 31, ~~2011~~2012, the interest rate was 7.9545%. The final payment for the term loan iswas made in April 2012. The revolving line of credit bears interest at LIBOR plus the applicable margin. At March 31, ~~2011~~2012, the interest rate was 32.0149%. The Company had approximately $~~786,000~~5.8 million available under the line atof credit at March 31, ~~2011~~2012.

In April 2007, the Company entered into an interest rate swap agreement with an ~~original~~initial notional amount of $6.5 million ~~in April 2007~~ 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 has not applied hedge accounting. As a result, at the end of each reporting period, the change in fair value of the interest rate swap is recorded on the consolidated balance sheet, with any related gains or losses included in earnings. The ~~notional~~interest ~~amount~~rate ~~of this~~ swap agreement expired March 30, 2012 therefore there was ~~$1,625,000~~no value at March 31, ~~2011~~2012.

~~The Company was in compliance with its bank covenants at March 31, 2011.~~ Under the terms of the amended term loan and the ~~revolving~~ 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 1.125:1. ~~and~~The ~~minimum~~Company ~~tangible~~was ~~net~~in ~~worth~~compliance ofwith ~~$9.2~~its ~~million~~bank covenants at March 31, 2012.

~~Capital~~9. ~~leases~~STOCK OPTION PLANS AND STOCK-BASED COMPENSATION

~~Commercial~~During ~~capital~~Fiscal ~~leases~~2007, ~~payable~~the ~~are~~Company ~~reflected~~adopted ata ~~their~~stock ~~present~~option ~~value~~plan ~~based~~entitled ~~upon~~“The ~~interest~~2006 ~~rates~~Equity ~~that~~Incentive ~~approximates~~Plan” ~~6.8% per annum,~~(the ~~and~~“2006 ~~are~~Plan”) ~~secured~~under bywhich the ~~underlying~~Company ~~assets.~~may ~~The~~grant ~~assets~~shares ~~are~~of ~~depreciated~~restricted ~~over~~stock ~~their~~or ~~estimated~~stock ~~useful~~options ~~lives.~~to ~~Included~~purchase inup ~~the~~to ~~current~~1,000,000 ~~portion~~shares of ~~long-term~~common ~~debt is $168,733 for capital lease obligations~~stock. ~~There~~As ~~are no capital lease obligations included in long-term debt net~~ of ~~current~~March 31, ~~portion.~~2012 ~~The~~there ~~remaining~~were ~~interest~~511,000 ~~associated~~options ~~with~~available ~~the~~for ~~Company’s~~grant ~~capital~~under ~~lease obligations amounts to approximately $5,309 over~~ the ~~lease~~2006 ~~terms~~Plan.

~~Aggregate~~The ~~annual~~2006 ~~maturities~~Plan is administered by the Board of ~~long~~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-~~term~~qualified ~~debt~~options, ~~are~~and asmay ~~follows:~~be issued to employees, consultants, advisors and directors of the Company. 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.

Fiscal year ending March 31,	CapitalLeaseObligation		Term Note		Total
2012	$	168,733	$	1,300,000	$	1,468,733
2013		—		325,000		325,000
Thereafter		—		—		—
	$	168,733	$	1,625,000	$	1,793,733

F-13

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, ~~2011~~2012 AND ~~2010~~2011

9.The ~~STOCK~~following ~~OPTION~~table ~~PLANS~~sets ~~AND~~forth ~~STOCK-BASED~~the ~~COMPENSATION~~Company’s stock option activity during the year ended March 31, 2012:

At March 31, 2011, the Company had one stock option plan under which grants were outstanding, the 2006 Equity Incentive Plan.


	Shares Underlying Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding at March 31, 2011		293,000		$	5.43
Granted		204,000			6.82
Exercised		(19,500	)		2.98
Forfeited		(10,500	)		4.13

Outstanding at March 31, 2012		467,000		$	6.17		7.80	$	926,460

Exercisable at March 31, 2012		177,625		$	6.52		6.06	$	291,380

The ~~2003~~following ~~Stock~~table ~~Incentive~~sets ~~Plan~~forth the status of the Company’s non-vested stock options as of March 31, 2012:

During the fiscal year ended March 31, 2004, the Company adopted a stock option plan entitled “The 2003 Stock Incentive Plan” (the “2003 Plan”) under which the Company may grant options to purchase up to 900,000 shares of common stock plus any shares of common stock remaining available for issuance as of July 22, 2003 under the 1996 Stock Option Plan. In July 2006 the Board of Directors determined that it would not issue any new option awards under the 2003 Plan. During the third quarter of fiscal 2011, all remaining outstanding options under the 2003 Stock Option Plan expired.


	Number of Options			Weighted-Average Grant-Date Fair Value
Non-vested as of March 31, 2011		153,875		$	2.70
Granted		204,000			4.26
Forfeited		(9,750	)		2.64
Vested		(58,750	)		2.96

Non-vested as of March 31, 2012		289,375		$	3.75

The ~~2006~~following ~~Equity~~table ~~Incentive~~summarizes ~~Plan~~information about stock options outstanding at March 31, 2012:

During 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 options to purchase up to 1,000,000 shares of common stock. As of March 31, 2011 there were 293,000 options outstanding under the 2006 Plan.


Range of exercise prices	Options outstanding		Weighted average remaining contractual life		Weighted average exercise price of options outstanding		Options exercisable		Weighted average exercise price of options exercisable
$ 1.72 – $ 3.44		52,000		7.23 yrs	$	3.02		18,750	$	3.20
$ 3.44 – $ 5.17		105,000		8.41 yrs	$	4.06		39,375	$	4.04
$ 5.17 – $ 6.89		5,000		9.56 yrs	$	6.09		—	$	—
$ 6.89 – $ 8.61		305,000		7.65 yrs	$	7.44		119,500	$	7.86

		467,000		7.80 yrs	$	6.17		177,625	$	6.52

~~The~~Total 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~~based ~~options,~~compensation ~~and~~reported ~~may~~in ~~be issued to employees, consultants, advisors and directors of~~ the ~~Company~~consolidated ~~and~~statements ~~its subsidiaries. The exercise price~~ of ~~options~~operations ~~granted~~for ~~under~~Fiscal ~~the~~2012 ~~2006 Plan~~and ~~may~~Fiscal ~~not~~2011 bewas ~~less~~classified ~~than~~as ~~the~~follows: ~~fair market value of the shares of common stock on the date of grant, and may not be granted more than ten years from the date of its adoption or exercised more than ten years from the date of grant.~~

The following table sets forth the Company’s stock option activity during the year ended March 31, 2011:


	2012		2011
Cost of sales	$	60,073	$	50,292
Selling, general and administrative		215,476		137,285

Stock-based compensation	$	275,549	$	187,577

	SharesUnderlyingoptions			WeightedAverageExerciseprice		WeightedAverageRemainingContractual life		AggregateIntrinsicvalue
Outstanding at March 31, 2010		511,100		$	6.79
Granted		42,500			4.11
Exercised		(2,500	)		2.25
Expired		(244,350	)		8.11
Forfeited		(13,750	)		4.66
Outstanding at March 31, 2011		293,000		$	5.43		7.74	$	84,025
Exercisable at March 31, 2011		139,125		$	6.80		6.74	$	21,306

F-14

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, ~~2011~~2012 AND ~~2010~~2011

~~The~~Unrecognized ~~following~~stock-based ~~table~~compensation ~~sets~~expense, ~~forth~~net of estimated forfeitures, related to the ~~status~~unvested options is approximately $0.9 million, and will be recorded over the remaining service period of 3.12 years. This estimate is based on the ~~Company’s~~number ~~non-vested~~of ~~stock~~ unvested options ascurrently outstanding and could change based on the number of ~~March 31,~~options granted ~~2011:~~or forfeited in the future.

	Number ofOptions			Weighted-AverageGrant-DateFair Value
Non-vested as of March 31, 2010		191,750		$	2.95
Granted		42,500			2.61
Forfeited		(13,750	)		2.67
Vested		(66,625	)		3.39
Non-vested as of March 31, 2011		153,875		$	2.70

The following table summarizes information about stock options outstanding at March 31, 2011:

Range of exercise prices	Optionsoutstanding		Weightedaverageremainingcontractuallife		Weightedaverageexerciseprice ofoptionsoutstanding		Optionsexercisable		Weightedaverageexerciseprice ofoptionsexercisable
$ 1.72 – $ 3.44		66,500		8.24 yrs	$	2.92		16,625	$	2.92
$ 3.44 – $ 5.17		100,500		9.34 yrs	$	4.05		18,250	$	4.00
$ 5.17 – $ 8.61		126,000		6.19 yrs	$	7.86		104,250	$	7.90
		293,000		7.74 yrs	$	5.43		139,125	$	6.80

Total stock-based compensation reported in the consolidated statements of operations for Fiscal 2011 and Fiscal 2010 was classified as follows:

	2011		2010
Cost of sales	$	50,292	$	43,883
Selling, general and administrative		137,285		69,807
Stock-based compensation	$	187,577	$	113,690

Unrecognized stock-based compensation expense, net of estimated forfeitures, related to the unvested options is approximately $0.3 million, and will be recorded over the remaining service period of 2.72 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.

During the fiscal year ended March 31, 2011, the Company used the Black-Scholes option-pricing model to value option grants and to determine the related compensation expense. The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates.

The Company based its expected volatility on the historical volatility of the Company’s stock price with consideration given to the expected life of the award. The Company intends to continue to consistently use its historical stock price to determine volatility in the future.

The risk-free interest rate used for each grant is equal to the U.S. Treasury yield in effect at the time of grant for instruments with a similar expected life.

For Fiscal 2012 and 2011 the expected term was calculated based upon the simplified method.

The Company has not declared or paid a cash dividend, and has no current plans to pay a cash dividend in the future.

The Company recognizes compensation expense for only those options that are expected to vest. Therefore, the Company has estimated expected forfeitures of stock options. In developing a forfeiture rate estimate, the Company considered its historical experience. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods.

The fair value of options issued during Fiscal 2012 and 2011 were estimated at the date of grant with the following weighted-average assumptions:


	2012			2011
Risk Free Interest Rate		1.39	%		2.40	%
Expected Life		6.25 years			6.25 years
Expected Volatility		68	%		68	%
Expected Dividend Yield		0	%		0	%

The per share weighted average fair value of stock options granted in Fiscal 2012 and 2011 was $4.26 and $2.61, respectively.

The total fair value of options that vested in Fiscal 2012 and 2011 was $173,334 and $228,098, respectively.

The total intrinsic value of options exercised during Fiscal 2012 and 2011 was $71,925 and $6,500, respectively.

10. PREFERRED STOCK

Pursuant to the Company’s Certificate of Incorporation, the Board of Directors has the authority, without further action by the stockholders, to issue up to 100,000 shares of preferred stock, par value $.10 per share, in one or more series and to fix the designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights of the common stock.

F-15

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, ~~2011~~2012 AND ~~2010~~2011

For Fiscal 2011 and Fiscal 2010 the expected term was calculated based upon the simplified method as the Company issued options with a longer contractual term beginning in Fiscal 2007 and does not have a sufficient history of exercises under these terms.

The Company has not declared or paid a cash dividend, and has no current plans to pay a cash dividend in the future.

The Company recognizes compensation expense for only the portions that are expected to vest. Therefore, the Company has estimated expected forfeitures of stock options. In developing a forfeiture rate estimate, the Company considered its historical experience. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods.

The fair value of options issued during Fiscal years 2011 and 2010 were estimated at the date of grant with the following weighted-average assumptions:

	2011			2010
Risk Free Interest Rate		2.40	%		2.49 – 3.01	%
Expected Life		6.25 years			6.25 years
Expected Volatility		68	%		69 – 70	%
Expected Dividend Yield		0	%		0	%

The per share weighted average fair value of stock options granted in fiscal 2011 and 2010 was $2.61 and $2.20, respectively.

10. PREFERRED STOCK

11. INCOME TAXES

The following sets forth the provision for income taxes for ~~fiscal~~Fiscal ~~2011~~2012 and ~~2010~~2011:

	2011			2010
	2012			2011
Current:
Federal	$	~~521~~1,~~773~~730,242		$	~~679~~521,~~619~~773
State		~~138~~620,~~826~~421			~~291~~138,~~037~~826
Deferred:
Federal		~~101~~(221,~~023~~159	)		~~(71~~101,~~905~~023	)
State		19(100,~~660~~585	)		~~(40~~19,~~309~~660	)
Provision for income tax	$	~~781~~2,~~282~~028,919		$	~~858~~781,~~442~~282

The Company and its subsidiaries file a consolidated federal income tax return. Tax benefits from the early disposition of stock by optionees under incentive stock options and from exercises of non-qualified options are credited to additional paid-in capital, to the extent that the tax deduction exceeds stock compensation recorded for book purposes. The Company recorded $13,519 in tax benefits from early stock dispositions in Fiscal 2012. There were no tax benefits recorded in Fiscal 2011. Tax deficiencies related to the cancellation of non-qualified stock options is charged to additional paid in capital to the extent there are amounts available to absorb such tax deficiencies.

For Fiscal 2012 and 2011 the difference between the income tax provision computed at the Federal statutory rate of 34% and the actual tax provision is accounted for as follows:


	2012			2011
Taxes computed at the federal statutory rate	$	1,850,105		$	781,696
State income taxes (net of federal benefit)		357,850			1,370
Valuation allowance		(14,758	)		103,230
Effect of permanent differences		(107,444	)		7,494
Research and development tax credits		(56,834	)		(110,768	)
Settlements/reductions in uncertain tax positions		—			(1,740	)

Income tax provision	$	2,028,919		$	781,282

F-16

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, ~~2011~~2012 AND ~~2010~~2011

~~The~~At ~~Company~~March 31, ~~and~~2012 ~~its subsidiaries file a consolidated federal income tax return. Tax benefits from the early disposition of stock by optionees under incentive stock options~~ and ~~from~~2011 ~~exercises~~deferred ~~of non-qualified options are credited to additional paid-in capital, to the extent that the~~ tax ~~deduction~~assets ~~exceeds~~(liabilities) ~~stock compensation recorded for book purposes. Tax deficiencies related to the cancellation of non-qualified stock options is charged to additional paid in capital to the extent there~~ are ~~amounts~~comprised ~~available to absorb such tax deficiencies.~~ of:

For fiscal 2011 and 2010 the difference between the income tax provision computed at the Federal statutory rate of 34% and the actual tax provision is accounted for as follows:


	2012			2011
Net current deferred tax assets:
Accrued expenses	$	531,025		$	371,368
Inventory reserve		783,391			651,786
Bad debt reserve		220,750			208,830
Warranty reserve		94,468			104,322
UNICAP		245,660			229,151
Prepaid expenses		(15,188	)		(11,570	)

	$	1,860,106		$	1,553,887

Net long term deferred tax liabilities:
Stock compensation	$	113,285		$	96,012
State operating loss carryforward		88,472			127,310
State credits		—			3,541
Intangible amortization		(193,288	)		(143,705	)
Depreciation		(940,836	)		(894,711	)
Purchase price adjustment		(231,318	)		(352,898	)

		(1,163,685	)		(1,164,451	)
Valuation allowance		(88,472	)		(103,230	)

	$	(1,252,157	)	$	(1,267,681	)

	2011			2010
Taxes computed at the federal statutory rate	$	781,696		$	682,133
State income taxes (net of federal benefit)		1,370			165,481
Valuation allowance		103,230			—
Effect of permanent differences		7,494			83,427
Research and development tax credits		(110,768	)		(68,139	)
Settlements/reductions in uncertain tax positions		(1,740	)		(4,460	)
Income tax provision	$	781,282		$	858,442

As of March 31, 2012, the Company has state net operating loss carryforwards of approximately $1,297,000 of which $731,000 will expire in 2016, $121,000 in 2029 and $445,000 in 2030. A valuation allowance of $88,000 has been provided for the deferred tax asset relating to state net operating losses due to the uncertainty of future utilization. The Company’s effective tax rate was 37.3% and 34.0% for the years ended March 31, 2012 and 2011, respectively.

AtThe amount of uncertain tax benefits in Fiscal 2011 of $1,740 was recognized due to statute of limitations expiring. The Company’s policy is to recognize interest and penalties accrued on any uncertain tax positions as a component of income tax expense, if any. There were no interest and penalties accrued for the years ended March 31, ~~2011~~2012 and ~~2010~~2011 ~~deferred~~due to the uncertain tax ~~assets~~benefit ~~(liabilities)~~being ~~are~~recognized ~~comprised~~during ~~of:~~the year.

	2011			2010
Net current deferred tax asset:
Accrued expenses	$	371,368		$	418,279
Inventory reserve		651,786			668,144
Bad debt reserve		208,830			233,005
Warranty reserve		104,322			86,233
UNICAP		229,151			161,944
Prepaid expenses		(11,570	)		(10,512	)
	$	1,553,887		$	1,557,093
Net long term deferred tax liability:
Stock compensation	$	96,012		$	192,690
State operating loss carryforward		127,310			135,074
State credits		3,541			1,538
Intangible amortization		(143,705	)		(94,106	)
Depreciation		(894,711	)		(680,282	)
Purchase price adjustment		(352,898	)		(480,633	)
Section 481(a) adjustment		—			(107,812	)
		(1,164,451	)		(1,033,531	)
Valuation allowance		(103,230	)		—
	$	(1,267,681	)	$	(1,033,531	)

As of March 31, 2012, the Company is subject to tax in the U.S. and various state jurisdictions. The Company is open to examination for tax years March 31, 2009 through 2012.

AsThe ~~of March 31, 2011, the~~ Company ~~has~~finalized ~~state~~an ~~net~~IRS ~~operating~~audit ~~loss carryforwards of approximately $1,512,000 of which $967,000 will expire in 2016, $121,000 in 2029 and $424,000 in 2030. A valuation allowance of $103,230 has been provided~~ for aits ~~substantial~~Fiscal ~~amount~~2008 ~~of the deferred~~ tax ~~asset~~returns ~~relating~~in ~~to state net operating losses due to the~~Fiscal ~~uncertainty of future utilization. The Company’s effective tax rate was 34.0% and 42.8% for the year ended March 31,~~ 2011 ~~and~~with ~~2010,~~no ~~respectively~~findings.

The amount of uncertain tax benefits as of March 31, 2010 of $1,740 was recognized in Fiscal 2011 due to statute of limitations expiring.

F-17

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, ~~2011~~2012 AND ~~2010~~2011

The change in uncertain tax benefits for fiscal 2011 and 2010 is as follows:

	2011			2010
Balance at beginning of period	$	1,740		$	6,200
Changes in tax positions related to prior years:		—			—
Changes in tax positions related to the current year		—			205
Settlements		—			—
Reductions for expiration of statute of limitations		(1,740	)		(4,665	)
Balance at end of period	$	—		$	1,740

As of March 31, 2011, the Company is subject to tax in the U.S. and various state jurisdictions. The Company is open to examination for tax years March 31, 2008 through 2011.

The Company finalized an IRS audit for its Fiscal 2008 tax returns with no findings.

The Company’s policy is to recognize interest and penalties accrued on any uncertain tax positions as a component of income tax expense, if any. There were no interest and penalties accrued for the year ended March 31, 2011 due to the uncertain tax benefit being recognized during the year.

12. EARNINGS PER 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 earnings per share at for the years ended March 31, ~~2011~~2012 and ~~2010~~2011 are as follows:

	2011		2010
	2012		2011
Net income	$	13,~~517~~412,~~827~~565	$	1,~~147~~517,~~830~~827
Weighted average shares outstanding:		4,554,656		4,553,635
Weighted average shares outstanding		4,565,222		4,554,656
Basic earnings per share	$	0.3375	$	0.2533
Common stock equivalents		1131,~~733~~334		—11,733
Weighted average common and common equivalent shares outstanding		4,~~566~~596,~~389~~556		4,~~553~~566,~~851~~389
Diluted earnings per share	$	0.3374	$	0.2533

At March 31, ~~2011~~ 2012 and ~~2010~~2011, ~~126~~10,000 and ~~376~~126,~~600~~000 stock options, respectively, were excluded from the diluted earnings per share calculation because they would have been anti-dilutive.

13. COMMITMENTS AND CONTINGENCIES

The Company is obligated under various non-cancelable operating leases for manufacturing facilities and equipment, which expire ~~through~~in ~~January~~December ~~2014~~2013. The Company has options to extend leases in its leased facilities. The Company pays building operating costs in its leased facilities.

F-18

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2011 AND 2010

The aggregate future minimum lease payments, are as follows:

Fiscal Year Ending March 31,
2012	$	625,799
2013	$	646,746
2013		602,149
2014		427,458
2014		422,477
	$	1,074,204
	$	1,650,425

Rental expense for the years ended March 31, ~~2011~~2012 and ~~2010~~2011 was $~~766~~741,~~134~~998 and $~~889~~766,~~613~~134, respectively.

14. FAIR VALUE MEASUREMENTS

The Company assesses fair value as an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in 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:

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.

~~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,~~F-18 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.

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. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

F-19

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, ~~2011~~2012 AND ~~2010~~2011

~~This~~Level ~~hierarchy~~2—Inputs ~~requires~~used ~~the~~to ~~Company~~measure tofair ~~use~~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, ~~when~~including ~~available,~~quoted prices for similar assets and to ~~minimize~~liabilities ~~the~~in ~~use~~active ofmarkets ~~unobservable~~and ~~inputs~~quoted ~~when~~prices ~~determining~~in ~~fair~~markets ~~value~~that are not active. ~~Assets~~Level 2 also includes assets and liabilities ~~measured~~that atare ~~fair~~valued ~~value~~using onmodels aor ~~recurring~~other ~~basis,~~pricing ~~include~~methodologies that do not require significant judgment since the ~~following~~input asassumptions ofused ~~March 31~~in the models, ~~2011~~such as interest rates and ~~2010~~volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.

	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
	Fair Value Measurements at March 31, 2010Using
	Quoted Pricesin ActiveMarkets(Level 1)		SignificantOtherObservableInputs(Level 2)		SignificantUnobservableInputs(Level 3)		Total FairValue as ofMarch 31, 2010
Assets:
Money market fund (included in cash and cash equivalents)		—	$	419,000		—	$	419,000
Total assets at fair value		—	$	419,000		—	$	419,000
Liabilities:
Interest rate swap (included in accrued expenses and other current liabilities)		—	$	165,000		—	$	165,000
Total liabilities at fair value		—	$	165,000		—	$	165,000

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. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

~~The~~This ~~following~~hierarchy ~~provides~~requires athe ~~summary~~Company ofto use observable market data, when available, and to minimize the ~~change~~use inof unobservable inputs when determining fair value. ~~for~~Assets ~~the~~and ~~interest~~liabilities ~~rate~~measured ~~swap~~at fair value on a recurring basis, include the following as of March 31, 2012 and 2011:.

Balance at March 31, 2010	$	165,000
	Fair Value Measurements at March 31, 2012Using
Unrealized gain		(106,000	)
	Quoted Pricesin ActiveMarkets(Level 1)			SignificantOtherObservableInputs(Level 2)		SignificantUnobservableInputs(Level 3)		Total FairValue as ofMarch 31, 2012
Balance at March 31, 2011	$	59,000
Assets:
Money market fund (included in cash and cash equivalents)		—		$	840,000		—	$	840,000
Total assets at fair value		—		$	840,000		—	$	840,000
	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 fair value of the money market fund was determined based on pricing provided by a large investment bank.~~F-19 Since the valuation was not observable, the Company has classified these as level 2 securities. There has been no change in the per share fair value of the money market fund since March 31, 2011. 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.

F-20

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, ~~2011~~2012 AND ~~2010~~2011

The fair value of the money market fund was determined based on pricing provided by a large investment bank. Since the valuation was not observable, the Company has classified it as level 2 securities. There has been no change in the per share fair value of the money market fund since March 31, 2011. The interest rate swap agreement expired March 30, 2012 therefore there was no value at March 31, 2012.

15. RELATED PARTY TRANSACTION

On ~~September~~December 4, 2008, Micronetics, Inc. entered into a lease with SBJ Development, LLC (the “Landlord”) for a new headquarters for ~~its subsidiary~~ Stealth Microwave, Inc, its subsidiary. The property is located in the Township of Ewing, New Jersey. The lease has an initial term of five years and contains three options to extend the lease, each for a term of five years. The annual rent for the initial term of the lease is $225,600.

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.

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

16. MAJOR CUSTOMERS

The Company sells primarily to original equipment manufacturers of communications equipment in either the commercial or the defense electronic marketplace. Many of those customers are prime contractors for defense work or Fortune 500 companies with world-wide operations. The top three customers accounted for 2236%, 1113% and 5% of the Company’s consolidated sales in Fiscal ~~fiscal 2011~~2012. For ~~fiscal~~Fiscal ~~2010~~2011, the top three customers accounted for 2522%, 711% and 5% of the Company’s consolidated sales. The top customer also accounts for 2532% of the Company’s accounts receivable at March 31, ~~2011~~ 2012 and 3725% of the account receivable at March 31, ~~2010~~2011.

17. INDUSTRY SEGMENT INFORMATION

The Company’s product groups have similar characteristics such as cost to design and manufacture, applications, types of customers, and sales channels. Accordingly, ~~Management~~management has determined that the Company operates as a single integrated business and as such has one operating segment as a provider of RF and microwave components and subassemblies for defense and commercial customers worldwide.

Exports accounted for 158% and 1115% of the Company’s net sales in the years ended March 31, ~~2011~~2012 and ~~2010~~ 2011, respectively. ~~Sales~~Net sales representing shipments by geographical area of customers are shown below (in thousands):

	March 31,
	2011		2010
	2012		2011
United States and Canada	$	30,467	$	31,387
United States	$	42,514	$	29,937
Europe		4,290		3,043
Canada		297		530
Asia		472		410
Europe		2,475		4,290
Central and South America/Other		68		28
Asia		608		472
	$	35,297	$	34,868
Other		76		68
	$	45,970	$	35,297

~~18. EMPLOYEE BENEFIT PLANS~~ F-20

The Company sponsors a defined contribution plan under Section 401(k) of the Internal Revenue Code under which it provides matching contributions of 50% up to 6% of the participant’s annual salary.

Company contributions to the plan for fiscal 2011 and 2010 were $199,756 and $167,894, respectively.

F-21

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, ~~2011~~2012 AND ~~2010~~2011

2018. ~~Unaudited~~EMPLOYEE ~~Quarterly~~BENEFIT ~~Financial~~PLANS ~~Information (amounts in thousands, except per share amounts)~~

FISCAL 2011	Q1 FY11			Q2 FY11			Q3 FY11			Q4 FY11
Net sales	$	9,367		$	8,984		$	7,601		$	9,345
Gross profit	$	3,399		$	3,076		$	2,336		$	2,741
Gross profit %		36	%		34	%		31	%		29	%
Net income	$	500		$	473		$	101		$	444
Earnings per common share
—Basic	$	0.11		$	0.10		$	0.02		$	0.10
Basic weighted average shares		4,554			4,554			4,555			4,556
Earnings per common share
—Diluted	$	0.11		$	0.10		$	0.02		$	0.10
Diluted weighted average shares		4,562			4,565			4,568			4,565
FISCAL 2010	Q1 FY10			Q2 FY10			Q3 FY10			Q4 FY10
Net sales	$	7,913		$	8,820		$	9,009		$	9,126
Gross profit	$	2,476		$	2,882		$	3,307		$	3,038
Gross profit %		31	%		33	%		37	%		33	%
Net (loss) income	$	(12	)	$	186		$	504		$	470
Earnings per common share
—Basic	$	0.00		$	0.04		$	0.11		$	0.10
Basic weighted average shares		4,554			4,554			4,554			4,554
Earnings per common share
—Diluted	$	0.00		$	0.04		$	0.11		$	0.10
Diluted weighted average shares		4,554			4,554			4,554			4,557

The Company sponsors a defined contribution plan under Section 401(k) of the Internal Revenue Code under which it provides matching contributions of 50% on up to 6% of the participant’s annual salary.

~~F-22~~Company contributions to the plan for Fiscal 2012 and 2011 were $231,606 and $199,756, respectively.

19. UNAUDITED QUARTERLY FINANCIAL INFORMATION (amounts in thousands, except per share amounts)


FISCAL 2012	Q1 FY12			Q2 FY12			Q3 FY12			Q4 FY12
Net sales	$	10,039		$	11,627		$	12,046		$	12,258
Gross margin	$	3,180		$	4,238		$	3,711		$	3,690
Gross margin %		32	%		36	%		31	%		30	%
Net income	$	564		$	1,083		$	903		$	863
Earnings per common share—Basic	$	0.12		$	0.24		$	0.20		$	0.19
Basic weighted average shares		4,558			4,562			4,567			4,573
Earnings per common share—Diluted	$	0.12		$	0.24		$	0.20		$	0.18
Diluted weighted average shares		4,566			4,585			4,612			4,642

FISCAL 2011	Q1 FY11			Q2 FY11			Q3 FY11			Q4 FY11
Net sales	$	9,367		$	8,984		$	7,601		$	9,345
Gross margin	$	3,399		$	3,076		$	2,336		$	2,741
Gross margin %		36	%		34	%		31	%		29	%
Net income	$	500		$	473		$	101		$	444
Earnings per common share—Basic	$	0.11		$	0.10		$	0.02		$	0.10
Basic weighted average shares		4,554			4,554			4,555			4,556
Earnings per common share—Diluted	$	0.11		$	0.10		$	0.02		$	0.10
Diluted weighted average shares		4,562			4,565			4,568			4,565

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Filing Compare · MICRONETICS INC