10-K

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, 2008

¨ 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 in 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 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 $37,022,590 based on the closing price of $9.46 of the issuer’s common stock, par value $.01 per share, as reported by NASDAQ on September 30, 2007.

On June 15, 2008, there were 5,391,217 shares of the issuer’s common stock outstanding.

The Proxy Statement of the registrant to be filed on or before July 29, 2008 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	18
Item 3.	Legal Proceedings	18
Item 4.	Submission of Matters to a Vote of Security Holders	18
	Part II
Item 5.	Market for the Common Equity, Related Stockholder Matters, and Small Business Issuer Purchases of Equity Securities	19
Item 6.	Selected Financial Data	20
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 8.	Consolidated Financial Statements and Supplementary Data	27
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	28
Item 9A(T).	Controls and Procedures	28
Item 9B.	Other Information	28
	Part III
Item 10.	Directors, Executive Officers, and Corporate Governance	29
Item 11.	Executive Compensation	29
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	29
Item 13.	Certain Relationships and Related Transactions, and Director Independence	29
Item 14.	Principal Accountant Fees and Services	29
	Part IV
Item 15.	Exhibits and Financial Statement Schedules	30
Signatures		32

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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 “Description of 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.

In June 2007, we acquired all of the issued and outstanding capital stock of MICA Microwave Corporation (“MICA”), a California corporation located in Manteca, California. The acquisition of MICA was accounted for as a purchase, and the operating results of MICA have been included in the consolidated financial statements since the June 5, 2007 acquisition date. The purchase price has been allocated to the fair value of assets acquired and liabilities assumed based on their fair value at the date of acquisition.

In June 2005, we acquired all of the issued and outstanding capital stock of Stealth Microwave, Inc. (“Stealth”), a New Jersey corporation located in Trenton, New Jersey. The acquisition of Stealth was accounted for as a purchase, and the operating results of Stealth have been included in the consolidated financial statements since the June 10, 2005 acquisition date. The purchase price has been allocated to the fair value of assets acquired and liabilities assumed based on their fair value at the date of acquisition.

In January 2003, Microwave Concepts, Inc. “(Micro-Con”), a Delaware corporation and a wholly-owned subsidiary of Micronetics acquired substantially all of the assets of Microwave Concepts, Inc., a New Jersey corporation (“MCI”) located in Fairfield, New Jersey. The acquisition was recorded under the purchase method of accounting for financial statement purposes. The purchase price has been allocated to the fair value of assets acquired and liabilities assumed based on their fair value at the date of acquisition.

In March 2002, Enon Microwave, Inc., a Massachusetts corporation (“EMI”) located in Topsfield, MA, merged with and into Enon Microwave, Inc. (“Enon”), a Delaware corporation and wholly owned subsidiary of Micronetics. In September 2007, the Enon subsidiary was dissolved and its operations were merged with and into the Micronetics’ operations. In January 1999, Micronetics acquired Microwave & Video Systems, Inc. (“MVS”) and in February 1999, Micronetics acquired Vectronics Microwave Corporation (“Vectronics”).

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. It

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also manufactures and designs test equipment, subassemblies and components that are used to test the strength, durability and integrity of signals in communications equipment. Its products are embedded in a variety of radars, electronic warfare systems, guidance systems, wireless telecommunications and satellite equipment. Its 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, Micro-Con, MVS, Stealth and 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 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 measure 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.

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Micronetics designs and manufactures a broad selection of linearized and non linearized power amplifiers. 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.

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

Microwave Integrated Multifunction Subassemblies:

Micronetics designs and manufactures complex microwave integrated multifunction subassemblies, also know 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.

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After a decade of reduced spending, the defense procurement budget has been increasing in recent years. Driven by the need to modernize U.S. forces increased procurement spending is necessary. As a result, it appears that the current business, political and global security environments are creating new opportunities for mid-tier defense/aerospace manufacturers to develop strategic relationships with prime contractors and provide additional system development and production for the next generation platforms and weapons systems.

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. As the speed to market challenges increase, larger companies are relying increasingly on other companies to manufacture a 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 and sold to a customer. Micronetics has been seeking to capitalize on this trend by increasing its capability of manufacturing integrated subassemblies. Our goal is to leverage our high power and noise technology to continue to be the most reliable 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 (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 THE 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.

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• 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 prime contractor 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 sustain consistent growth. The defense marketplace provides stable growth opportunities with long-range visibility, while the commercial marketplace offers more aggressive growth opportunities. We believe this combined effort promotes stable growth.

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, Danbury, CT, Fairfield, NJ, Trenton, NJ, or Manteca, CA facilities. The production process for these products ranges from one to twenty-four weeks. We generally maintain inventory of the raw materials required for production of our products for a period of up to one year.

Micronetics’ Hudson, NH facility, Micro-Con Stealth and MICA 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.

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.

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

During Fiscal 2008 and Fiscal 2007, the approximate mix of sales was 69% and 66% respectively, for commercial applications and 31% and 34% respectively, for defense applications.

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, Aerosat Avionics, LLC and Nextwave/Jabil Circuit accounted for 9.2%, 8.1% and 8.0% of the consolidated sales in Fiscal 2008, respectively. We believe that replacing any of these customers could be difficult.

Other customers of Micronetics include Airspan, EDO/Benchmark, Comtech, Raytheon, Northrop Grumman Corporation, Pegasus GSS, LLC and Anaren Microwave. In addition, direct government customers include DFAS, Hill AFB, and NAVICP. 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 Herley Industries, Inc., Chelton, M/A Com, Filtronics, Spectrum Control, Crane Inc., DBM Microwave, Wireless Telecom Group, Mini-Circuits, Synergy, Teledyne, Aeroflex and Z-Comm.

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 the non-recurring engineering funding from defense programs to technology for commercial products and the large volume and price pressure on commercial products reduces manufacturing cost on 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 to expand our Company by increasing our resources to manufacture and design complex integrated subassemblies through acquisitions.

Research and Development

Micronetics maintained an engineering staff of 24 individuals as of March 31, 2008, whose duties include the improvement of existing products, modification of products to meet customer needs and the engineering, research and development of new products and applications. Expenses for research and development

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predominantly involve engineering for improvements and development of new products for commercial markets. Such expenditures include the cost of engineering services and engineering-support personnel. These expenses were $1,018,010 and $782,329 for Fiscal 2008 and Fiscal 2007, respectively. The increase in research and development expenses is due primarily to our development work on an inflight high-speed internet transceiver product.

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

Backlog

Micronetics’ backlog of firm orders was approximately $14.1 million and $12.9 million on March 31, 2008 and 2007, 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, 2008, we had 167 full-time employees including 27 engaged in management and administration, 24 in engineering, 111 in production and testing and 5 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 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.

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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 plant, 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. In the event of a successful suit against us, lack or insufficiency of insurance coverage could have a material adverse effect on our business.

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.

The significant slowdown in capital spending by certain of our customers, coupled with existing economic and geopolitical uncertainties and the potential impact on customer demand, has created uncertainty as to market demand. As a result, revenues and operating results for a particular period can be difficult to predict. In addition, there can be no certainty as to the severity or duration of the current industry adjustment. As a result of changes in industry and market conditions, many of our customers have significantly reduced their capital spending. Our revenues and operating results have been and may continue to be materially and adversely affected by reductions in capital spending by our customers.

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 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;

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• 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 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;

• 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.

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Economic conditions affecting the industry, which affect market conditions in the military and communication infrastructure industry in the United States, Europe and globally, affect our business.

Reduced capital spending and/or negative economic conditions in the United States, Europe as well as other areas of the world have resulted in, and could continue to result in, reduced demand for or increased pricing pressures on our 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.

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We depend on single manufacturing lines for 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. We have experienced manufacturing difficulties in the past, and 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 use a single or a limited number of suppliers. Any interruption in supply 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 as 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 in key senior management positions and in our key areas of potential growth. An important factor in attracting and retaining qualified employees is our ability to provide employees with the opportunity to participate in the potential growth of our business through programs such as stock option plans. We may also find it more 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,

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our ability to compete effectively may be adversely affected. If we are not successful in attracting, retaining or recruiting qualified employees, including members of senior management, 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 will be sufficient to fund our current business model, manage our investments 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.

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

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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.

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.

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

Our 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.

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.

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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, 2006 to March 31, 2008, the trading price of our common stock ranged from $22.81 to $6.07. 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.

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.

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

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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. Although we have not experienced any significant export licensing problems to date, such problems may arise in the future. 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 are subject to recently enacted environmental regulation, compliance with which may be costly.

In 2006 the European Union (“EU”) implemented two new directives known as the Restriction on Certain Hazardous Substances Directive (RoHS) and the Waste Electrical and Electronic Equipment Directive (WEEE). These directives place restrictions on the distribution within the EU of certain substances, and require a manufacturer to recycle products containing the restricted substances. We believe that the majority of our products are exempt from the directives because they are used for military purposes rather than by consumers. However, we may not be able to rely on such an exemption until regulators review documentation and issue a ruling on each product. We are redesigning our products that we believe may not be exempt from the directives in order to be able to continue to offer such products for sale in the EU. We may encounter unanticipated delays in the completion of the redesign or in the delivery of any products that are not exempt from the directives. In addition certain products that we maintain in inventory may be rendered obsolete if not in compliance with the directives and may have to be written off. Although we cannot predict the ultimate impact of the directives, they will likely result in additional costs or decreased revenue and could require that we redesign or change how we manufacture our products.

Changes in the securities laws and regulations have increased, and are likely to continue to increase, our costs, and may also adversely affect our ability to attract and retain qualified directors.

The Sarbanes-Oxley Act has required changes in some of our corporate governance, securities disclosure and compliance practices. Pursuant to the requirements of that Act, the SEC and the Nasdaq Stock Market have promulgated rules and listing standards covering a variety of subjects. Compliance with these new rules and listing standards has increased our legal costs, and increased our accounting and auditing costs, and we expect these costs to continue to increase, and to materially impact our financial results. In particular, we have incurred and will continue to incur substantial expense in the on-going evaluation and testing of our internal control over financial reporting as we comply with Section 404 of the Sarbanes-Oxley Act. These changes in securities laws and regulations may make it more difficult and more expensive for us to obtain directors’ and officers’ liability insurance. Likewise, these developments may make it more difficult for us to attract and retain qualified members of our board of directors, particularly independent directors, or qualified executive officers.

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.

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If we or our independent registered public accounting firm are unable to affirm the effectiveness of our internal control over financial reporting in future years, the market value of our common stock could be adversely affected.

Our independent registered public accounting firm must audit and report on our internal controls over financial reporting as of March 31, 2010 and subsequent fiscal year end dates, respectively, and such report must be included in our Annual Report on Form 10-K for the year ending March 31, 2010, and in subsequent Annual Reports on Form 10-K for subsequent years, respectively. We cannot assure you that we or our independent registered public accounting firm will be able to report that our internal controls over financial reporting are effective as of March 31, 2010 and subsequent fiscal year end dates, respectively. In this event, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the market value of our Common Stock.

ITEM 1B. Unresolved Staff Comments.

None.

ITEM 2. Properties.

Our principal manufacturing facility and corporate office is located in 25,000 square feet of general office, warehouse and manufacturing space situated in a 32,000 square foot building that we own. This facility is located in an industrial park in Hudson, NH. Until May 31, 2007 we leased the remaining 7,000 square feet of this facility to an unaffiliated entity. In February 2004, we refinanced our mortgage on this facility, entering into a new five year mortgage payable for $630,000 with interest at 5.75%, payable in monthly installments of $12,107. This loan is secured by the land and the building.

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 9,600 square foot facility located in Fairfield, NJ, which is leased from an unaffiliated entity.

Stealth operates out of a 7,100 square foot facility located in Trenton, NJ, which is leased from an unaffiliated entity.

MICA operates out of a 20,750 square foot facility located in Manteca, CA, which is leased from an unaffiliated entity.

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. Submission of Matters to a Vote of Security Holders.

No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

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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 bid prices for the Common Stock for each fiscal quarter from April 1, 2006 until March 31, 2008 as reported by NASDAQ, were as follows:

Bid Prices

Quarter Ended	High	Low
Fiscal 2007
First Quarter	22.81	10.64
Second Quarter	17.74	7.26
Third Quarter	8.58	6.69
Fourth Quarter	9.25	6.90
Fiscal 2008
First Quarter	9.16	7.28
Second Quarter	10.39	7.80
Third Quarter	9.66	6.57
Fourth Quarter	8.97	6.07

The number of holders of record of the common stock as of June 16, 2008 was 231. 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 16, 2008, the last sale price of the common stock as reported by NASDAQ was $7.80 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 its bank.

Recent Sales of Unregistered Securities; Use of Proceeds From Registered Securities

The following summarizes sales of our unregistered securities during the fiscal year ended March 31, 2008. The securities referenced below were (i) issued without registration and (ii) were subject to restrictions under the Securities Act and the securities laws of certain states, in reliance on the private offering exemptions contained in Sections 4(2), 4(6) and/or 3(b) of the Securities Act and on Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws as a transaction not involving a public offering. No placement or underwriting fees were paid in connection with these transactions.

The acquisition of MICA Microwave Corporation closed on June 5, 2007. At that time, we issued 248,135 shares of our common stock to the stockholders of MICA as partial consideration in our acquisition.

The securities issued as consideration in our acquisition were issued to U.S. investors in reliance upon exemptions from the registration provisions of the Securities Act set forth in Section 4(2) thereof relative to sales by an issuer not involving any public offering, to the extent an exemption from such registration was required.

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Equity Compensation Plan Information

	(a)	(b)		(c)
Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
Equity compensation plans and warrants approved by security holders	755,825	$	7.75	694,000
Equity compensation plans not approved by security holders	—		—	—
Total	755,825	$	7.75	694,000

ITEM 6. Selected Financial Data

	Years ended March 31, (in thousands, except earnings per share)
	2008			2007			2006			2005			2004
Net sales	$	32,625		$	23,690		$	26,909		$	14,059		$	13,832
Gross profit	$	12,919		$	9,377		$	11,695		$	6,421		$	6,294
Gross profit		40	%		40	%		43	%		46	%		46	%
Net income	$	1,662		$	1,041		$	2,540		$	1,275		$	1,511
Earnings per common share
—basic	$	0.34		$	0.22		$	0.57		$	0.29		$	0.34
Basic weighted average shares		4,932			4,637			4,465			4,375			4,389
Earnings per common share
—diluted	$	0.34		$	0.22		$	0.54		$	0.29		$	0.34
Diluted weighted average shares		4,951			4,789			4,697			4,452			4,474
Total assets	$	33,386		$	29,819		$	27,748		$	14,636		$	12,964
Total current liabilities	$	5,426		$	5,487		$	5,598		$	1,918		$	2,051
Long-term debt, net of current portion	$	4,226		$	5,633		$	5,328		$	734		$	920
Other long-term liabilities	$	1,325		$	722		$	963		$	170		$	163

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

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109 (“FIN No. 48”).” FIN No. 48 provides guidance with respect to the recognition and measurement in the financial statements of uncertain tax positions taken or expected to be taken in a tax return, and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company adopted the provisions of FIN No. 48 in the first quarter of Fiscal 2008. The Company’s adoption of FIN No. 48 on April 1, 2007 resulted in the recognition of $96,443 of previously uncertain tax benefits which, in accordance with FIN No. 48, the cumulative amount was accounted for as an adjustment to the April 1, 2007 retained earnings balance in the first quarter of fiscal 2008.

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In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, (“SFAS No. 157”). SFAS 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under SFAS 157, fair value measurements would be separately disclosed by level within the fair value hierarchy. The Provisions of SFAS 157, as issued, are effective for the fiscal years beginning after November 15, 2007. However, in February 2008, the FASB issued FASB Staff Position No. 157-2, “Effective Date of FASB Statement No. 157”, (“FSP 157-2”) that amended SFAS 157 to delay the effective date for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually). FSP 157-2 defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope. We are currently evaluating the effect, if any, that the adoption of SFAS No. 157 may have on our financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted, provided the Company also elects to apply the provisions of SFAS 157. Although the Company has adopted SFAS 159 as of April 1, 2008, the Company has not yet elected the fair value option for any items permitted under SFAS 159.

In June 2007, the FASB ratified Emerging Issues Task Force (EITF) 07-03, “Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities” (“EITF 07-03”). EITF 07-03 requires companies to defer and capitalize prepaid nonrefundable advance payments for goods or services that will be used for future research and development activities over the period that the research and development activities are performed or the services are provided, subject to an assessment of recoverability. The provisions of EITF 07-3 are effective beginning April 1, 2008. The Company is currently evaluating the effect that the adoption of EITF 07-03 will have on its consolidated results of operations and financial condition.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(Revised), “Business Combinations” (“SFAS 141(Revised)”), which replaces Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS 141”). SFAS 141(Revised) requires the assets acquired, liabilities assumed, and any non-controlling interest to be measured at their fair values as of the acquisition date. SFAS 141(Revised) also requires expensing of acquisition related costs and restructuring costs, and re-measurement of earn out provisions at fair value. SFAS 141(Revised) is effective for any of the Company’s business combinations on or after April 1, 2009. SFAS 141(Revised) will have an impact on accounting for business combinations once adopted, but the effect is dependent upon acquisitions at the time.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 160”). SFAS 160 clarifies the accounting and reporting standards for the noncontrolling interest in a subsidiary, including classification as a component of equity. SFAS 160 is effective for the Company on April 1, 2009. The Company is currently evaluating the effect that the adoption of SFAS 160 will have on its consolidated results of operations and financial condition.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities”(“SFAS 161”). SFAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand the effects of the derivative instruments on an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for the Company on April 1, 2009. The Company is currently evaluating the effect that the adoption of SFAS 161 will have on its consolidated results of operations and financial condition.

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Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and the results of operations are based on our consolidated financial statements and the data used to prepare them. Our consolidated financial statements have been prepared based on accounting principles generally accepted in the United States of America. On an on-going basis, we evaluate our judgments and estimates including those related to allowances for doubtful accounts and sales returns, inventory valuation and obsolescence, long-lived assets, business combination purchase price allocation and goodwill impairment, stock-based compensation, warranty obligations, and the valuation allowance on our deferred tax asset. 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 a sales 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 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.

Advance payments received from customers prior to product shipment are recorded as deferred revenue.

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 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 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 obsolete inventory 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 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.

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Business Combinations

We are required to allocate the purchase price of an acquired company based on the estimated fair values of assets acquired and liabilities assumed, determined as of the date of acquisition. Micronetics employs independent valuation specialists to help determine the fair values of identifiable intangible assets in order to determine the portion of the purchase price allocable to these assets. The excess of the purchase price over the estimated fair value of the net assets acquired is recorded as goodwill.

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

We assess the need to record impairment losses on long-lived assets, including fixed assets, goodwill 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.

Goodwill and other indefinite lived intangible assets are tested for impairment in accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), which requires that goodwill and other intangible assets with indefinite useful lives no longer be amortized, but rather, be tested annually for impairment.

The Company assesses 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. SFAS 142 requires a two-step impairment testing approach. Companies must first determine whether goodwill is impaired and if so, they must value that impairment based on the amount by which the book value exceeds the estimated fair value. As a result of the annual impairment test performed as of March 31, 2008, the Company determined that the carrying amount of goodwill did not exceed its fair value and, accordingly, did not record a charge for impairment. There can be no assurance that goodwill will not become impaired in future periods.

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.

Stock Compensation Expense

Effective April 1, 2006, we account for stock-based compensation in accordance with the fair value recognition provision of Statement of Financial Accounting Standards (“SFAS”) No. 123R, Share-Based Payment (“SFAS 123R”). We use 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, the volatility of our common stock price over the expected term 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 income.

23

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. No valuation allowance was required at March 31, 2008 and 2007.

Effective April 1, 2007, we adopted Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109” (FIN 48), which prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. In particular, the Interpretation requires that a tax benefit related to a given tax position be reflected in the financial statements only if it is more likely than not that it would be sustained on its technical merits in the event of a tax audit. The assessment of each tax position and the application of the measurement methodology of FIN 48 requires significant judgment. All tax positions are periodically analyzed and adjusted as a result of events, such as the resolution of tax audits or the expiration of statutes of limitations, which may result in charges or credits to the provision for income taxes. See Note 13 to the Consolidated Financial Statements included in this Form 10-K for further disclosure regarding FIN 48.

Results of Operations

Fiscal 2008 versus Fiscal 2007

The Consolidated Statement of Income for the twelve months ended March 31, 2008 include the operations of MICA from the acquisition date of June 5, 2007.

Net sales

Net sales for Fiscal 2008 were $32,624,946, an increase of $8,934,710 or 38% as compared to net sales of $23,690,236 for Fiscal 2007. The increase in net sales for the fiscal year is primarily attributable to $4.4 million in sales of high performance mixers and ferrites from MICA, an increase in net sales of high performance power amplifiers to the commercial market of $2.7 million, an increase in voltage controlled oscillators used in electronic jamming systems of $1.0 million and an increase in net sales of noise sources of $.8 million. Foreign sales accounted for approximately $8,797,497 and $5,225,943 in Fiscal 2008 and Fiscal 2007, respectively. The increase is primarily attributable to the increase in foreign sales related to high performance power amplifiers shipped to the United Kingdom.

Gross profit margin

Gross profit as a percent of sales is consistent at 40% for both Fiscal 2008 and Fiscal 2007.

Research and development

Research and development (“R&D”) expense was consistent at 3% of net sales in Fiscal 2008 and Fiscal 2007. However, R&D expenses increased $235,681, or 30% for Fiscal 2008 as compared to Fiscal 2007 primarily due to development work on an inflight high-speed internet transceiver product.

Selling, general and administrative

Selling, general and administrative (“SG&A”) expense decreased as a percent of net sales to 23% in Fiscal 2008 from 24% in Fiscal 2007, primarily due to the increase in net sales. However, SG&A expenses increased $1,905,225 or 33% to $7,589,390 for Fiscal 2008, as compared to $5,684,165 for Fiscal 2007. The overall

24

increase in spending was primarily attributable to the inclusion of MICA’s SG&A expenses of $944,000, an increase in salaries and benefit expense of $607,000 due to an increase in staffing, an increase in professional fees related to compliance with Section 404(a) of the Sarbanes-Oxley Act of $168,000, an increase in commission expense of $100,000 and a increase in stock-based compensation expense of $94,000 primarily related to a grant of restricted stock during Fiscal 2008.

Amortization of intangible assets

Amortization expense attributable to the intangible assets related to the acquisitions of Stealth and MICA was $733,160 in Fiscal 2008 as compared to $751,819 in Fiscal 2007.

Interest expense

Interest expense increased $56,368 or 13% to $485,356 for Fiscal 2008 as compared to $428,988 in Fiscal 2007. The increase in interest expense was primarily attributable to the increase in borrowings in March 2007 as a result of the $6.5 million term loan used to finance the MICA acquisition.

Unrealized loss on interest rate swap

An unrealized loss of $280,865 was recorded in Fiscal 2008 to reflect the fair value for an interest rate swap agreement entered into in April 2007 to mitigate the interest rate fluctuations on our term loan.

Provision for income taxes

Our effective tax rate was 45% for Fiscal 2008 as compared to 48% for Fiscal 2007. The decrease in the effective tax rate is primarily related to a larger credit for domestic production activities deduction in Fiscal 2008 as compared to Fiscal 2007.

Financial Condition, Liquidity and Capital Resources

We finance our operating and investment requirements primarily through operating cash flows and borrowings. We had cash and working capital at March 31, 2008 of $3,163,415 and $11,197,241, respectively, as compared with cash and working capital of $7,058,524 and $11,836,943, respectively at March 31, 2007. Our current ratio was approximately 3.08 to 1 at March 31, 2008, as compared to 3.16 to 1 at March 31, 2007.

Net cash provided by operating activities was $3,888,038 in Fiscal 2008 compared to $1,111,173 during Fiscal 2007. The increase in net cash provided by operating activities was primarily the result of an increase in net income of $621,663, unrealized loss on interest rate swap of $280,865 and a net increase in working capital of $2,287,712, offset by an increase in deferred tax assets of $411,079. The primary change in working capital was a reduction in prepaid expenses due to lower tax payments made during Fiscal 2008 as compared to Fiscal 2007 and an increase in accrual expenses in Fiscal 2008 as compared to Fiscal 2007.

Net cash used in investing activities was $5,839,078 during Fiscal 2008 as compared to $114,286 in Fiscal 2007 primarily as a result of the acquisition of MICA of $3,120,833 and the final earnout payment of $1.5 million to the former stockholders of Stealth in Fiscal 2008, and $1,086,643 in property and equipment purchases.

Net cash used in financing activities was $1,944,069 during Fiscal 2008 as compared to cash provided by financing activities of $795,057 during Fiscal 2007. In Fiscal 2008, $2,065,589 was used to repay mortgages, line of credit and term loan. In Fiscal 2007, proceeds from the new Citizens term loan of $6,500,000 was offset by payments against the TD Banknorth term loan, line of credit and mortgages of $6,090,935.

Term Loan and Revolver

In March 2007, the Company entered into a credit facility which consists of a $6.5 million five year secured term loan and a $5.0 million three year revolving line of credit, which replaced the then existing $6.0 million term loan entered into in June 2005.

25

The Company entered into an interest rate swap agreement in April 2007 to mitigate interest rate fluctuations on the term loan. At the end of each reporting period the Company records the current fair value of the interest rate swap on the balance sheet. Any unrealized gain or loss is charged to earnings.

The term loan is guaranteed by the Company’s subsidiaries and 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 a 3 month libor plus 1.8%, which at March 31, 2008 was 6.50%. The term loan expires in June 2012.

The revolving line of credit bears interest at the 1 month libor plus 1.8% rate, which at March 31, 2008 was 5.07%. The company had an entire line of $5.0 million available at March 31, 2008.

Under the terms of the term loan and the revolver, the Company is required to maintain certain financial covenants on a quarterly and annual basis, including total funded debt to EBITDA not exceeding 2.25:1, minimum debt service coverage of 1.25:1, and minimum tangible net worth of $7.5 million. At March 31, 2008 the Company was in compliance with all financial debt covenants.

Mortgage payable, NH

In February 2004, Micronetics refinanced the mortgage on its headquarters, entering into a new five-year mortgage payable for $630,000. The note bears interest at 5.75% per annum and is payable in monthly installments, including interest, of $12,107. This loan is secured by the land and building of Micronetics’ headquarters.

Mortgage payable, MA

In March 2003, in connection with the purchase of a portion of a commercial condominium housing Micronetics’ Enon division, Micronetics entered into a mortgage payable for $352,750. In May 2007, the commercial condominium was sold and the remaining mortgage was settled.

Capital leases

Commercial capital leases payable are reflected at their present value based upon interest rates that range from 8.67% to 8.88% per annum, and are secured by the underlying assets. The assets are depreciated over their estimated useful lives.

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.

Acquisition

On June 5, 2007, the Company acquired MICA Microwave, Inc. (“MICA”), a California corporation in a merger transaction pursuant to which MICA became a wholly-owned subsidiary of Micronetics, and the holders of MICA common stock were paid $3.0 million in cash and $2.0 million in shares of Micronetics’ common stock subject to a post-closing adjustment based upon MICA’s net worth on the closing date.

Off-Balance Sheet Arrangements

Micronetics has no off-balance sheet arrangements.

26

ITEM 8. Financial Statements and Supplementary Data.

This information is contained on pages F-1 through F-24 hereof.

Financial Statements	Page
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets, March 31, 2008 and 2007	F-2
Consolidated Statements of Income for the years ended March 31, 2008 and 2007	F-3
Consolidated Statement of Shareholders’ Equity for the years ended March 31, 2008 and 2007	F-4
Consolidated Statements of Cash Flows for the years ended March 31, 2008 and 2007	F-5
Notes to Consolidated Financial Statements	F-6 - F-24

27

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

None.

ITEM 9A(T). Controls and Procedures.

Evaluation of disclosure controls and procedures—As of March 31, 2008, the Company carried out an evaluation, under the supervision and with the Company’s management, including the Company’s Chief Executive Officer and Acting 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 Acting Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2008, to provide reasonable assurance that material information relating to the Company was made known to him 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 Acting 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, 2008.

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

Changes in internal control—There were no significant changes in the Company’s internal controls over financial reporting that occurred during the year ended March 31, 2008 that have materially affected, or is 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.

28

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, 2008.

29

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.

2.1	Stock Purchase Agreement among Micronetics, Inc., and the Stockholders of Stealth Microwave, Inc., dated June 10, 2005 (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by the Company on June 16, 2005.
2.2	Earnout Agreement, dated June 10, 2005, among Micronetics, Inc., Stealth Microwave, Inc., the Stockholders of Stealth Microwave, Inc. and Stephen N. Barthelmes Sr., Stephen N. Barthelmes Jr. and Brian E. Eggleston as the representatives of the stockholders (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed by the Company on June 16, 2005).
2.3	Amendment No. 1 to Earnout Agreement, dated as of February 9, 2006, among Micronetics, Inc., Stealth Microwave, Inc.; and Stephen N. Barthelmes Sr., Stephen N. Barthelmes Jr., and Brian E. Eggleston, as representatives of the Sellers (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-QSB filed by the Company on February 10, 2006).
2.4	Agreement of Merger and Plan of Reorganization among Micronetics, Inc., Del Merger Subsidiary, Inc., MICA Microwave Corporation, Frederick Mills, Individually, and Frederick Mills, As the Stockholders’ Representative, dated June 5, 2007 (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by the Company on June 5, 2007).
2.5	Company Stockholders’ Agreement, by and among Micronetics, Inc., MICA Microwave Corporation, Del Merger Subsidiary, Inc., the Stockholders of MICA Microwave Corporation listed on Exhibit A thereto, Frederick Mills, individually, and Frederick Mills as the Stockholders’ Representative, dated June 5, 2007 (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed by the Company on June 5, 2007).
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	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	First Amended and Restated 1996 Stock Option Plan (incorporated by reference to Exhibit 99.1 of Registration Statement No. 333-46646 filed on Form S-8 filed on September 26, 2000).*
10.2	2003 Stock Incentive Plan (incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed on September 24, 2003).*
10.3	2006 Equity Incentive Plan (incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement filed on July 31, 2006).*
10.4	Mortgage Note dated February 13, 2004 by the Company to Banknorth, N.A. (incorporated by reference to Exhibit 10.4 of the Company’s Annual Report on form 10-KSB for its fiscal year ended March 31, 2004 (“Fiscal 2004”)).
10.5	Mortgage Deed and Security Agreement dated February 13, 2004 between the Company and Banknorth, N.A. (incorporated by reference to Exhibit 10.5 of the Company’s Annual Report for Fiscal 2004).

30

10.6	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).*
10.7	Amended and Restated Employment Agreement, dated as of June 26, 2006, between Stealth Microwave, Inc. and Stephen N. Barthelmes, Jr. (incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-KSB filed by the Company on June 29, 2006).*
10.8	Amended and Restated Employment Agreement, dated as of June 26, 2006, between Stealth Microwave, Inc. and Brian E. Eggleston (incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-KSB filed by the Company on June 29, 2006).*
10.9	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).
10.10	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).
10.11	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).
10.12	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).
10.13	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).
10.14	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).
10.15	Employment Agreement between MICA Microwave Corporation and Frederick Mills dated June 5, 2007 (incorporated by reference to Exhibit 2.3 to the Current Report on Form 8-K filed by the Company on June 5, 2007).*
10.16	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).*
21	List of Subsidiaries of the Company.
23.1	Consent of Grant Thornton LLP dated June 30, 2008.
31.1	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.

* Management contract or compensatory plan or arrangement

31

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	MICRONETICS, INC.
Dated: June 30, 2008	By:	/s/    DAVID ROBBINS
		David Robbins, President and Chief Executive Officer Principal Executive Officer

In accordance with the Exchange Act this report has been signed below by the following person on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/    DAVID ROBBINS         David Robbins	President, Chief Executive Officer and Acting Chief Financial Officer (Principal Executive Officer and Principal Financial and Accounting Officer)	June 30, 2008
/s/    DAVID SIEGEL         David Siegel	Director	June 30, 2008
/s/    DOROTHY ANNE HURD         Dorothy Anne Hurd	Director	June 30, 2008
/s/    GERALD HATTORI Gerald Hattori	Director	June 30, 2008
/s/    STEPHEN BARTHELMES JR.         Stephen Barthelmes Jr.	Director	June 30, 2008

32

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. and subsidiaries (a Delaware Corporation) (collectively, the “Company”) as of March 31, 2008 and 2007 and the related statements of income, shareholders’ equity and cash flows for the years then ended. 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 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 the Company as of March 31, 2008 and 2007 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 14 to the consolidated financial statements, as of April 1, 2008, the Company adopted Financial Accounting Standard Board (FASB) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—An Interpretation of SFAS No. 109”.

/s/    GRANT THORNTON LLP

        Boston, Massachusetts

        June 30, 2008

F-1

MICRONETICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31,
	2008			2007
ASSETS
Current assets:
Cash and cash equivalents	$	3,163,415		$	7,058,524
Short-term investment		400,000			—
Accounts receivable, net of allowance for doubtful accounts of $364,981 and $297,886 in March 31, 2008 and March 31, 2007, respectively		4,861,780			3,932,029
Inventories, net		7,316,246			5,548,691
Deferred tax asset		576,170			—
Prepaid expenses and other current assets		306,159			784,649
Total current assets		16,623,770			17,323,893
Property, plant and equipment, net		4,159,963			4,017,465
Other assets:
Security deposits		24,659			12,302
Long-term investment		250,000			—
Other long term assets		35,034			138,493
Intangible assets, net		3,361,200			2,344,364
Goodwill		8,931,944			5,982,709
Total other assets		12,602,837			8,477,868
TOTAL ASSETS	$	33,386,570		$	29,819,226
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	1,434,193		$	1,449,443
Accounts payable		1,284,567			695,142
Accrued expenses		2,707,769			3,342,365
Total current liabilities		5,426,529			5,486,950
Long-term debt, net of current portion		4,226,342			5,633,386
Other long-term liability		80,000			—
Deferred tax liability		1,245,052			721,917
Total liabilities		10,977,923			11,842,253
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; 5,391,217 and 5,025,457 shares issued and outstanding at March 31, 2008 and March 31, 2007, respectively		53,912			50,255
Additional paid-in capital		11,608,536			8,541,274
Retained earnings		12,478,398			10,912,458
		24,140,846			19,503,987
Treasury stock at cost, 383,475 and 358,541 shares at March 31, 2008 and March 31, 2007, respectively		(1,732,199	)		(1,527,014	)
Total shareholders’ equity		22,408,647			17,976,973
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	33,386,570		$	29,819,226

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

F-2

MICRONETICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	Fiscal Years Ended March 31,
	2008			2007
Net sales	$	32,624,946		$	23,690,236
Cost of sales		19,705,886			14,313,091
Gross profit		12,919,060			9,377,145
Operating expenses:
Research and development		1,018,010			782,329
Selling, general and administrative		7,589,390			5,684,165
Amortization of intangible assets		733,160			751,819
Gain on sale of property and equipment		(90,352	)		—
Total operating expenses		9,250,208			7,218,313
Income from operations		3,668,852			2,158,832
Other (expense) income
Interest income		106,684			195,641
Interest expense		(485,356	)		(428,988	)
Rental income		5,572			33,425
Unrealized loss on interest rate swap		(280,865	)		—
Miscellaneous (expense) income		(1,568	)		43,679
Total other expense		(655,533	)		(156,243	)
Income before provision for income taxes		3,013,319			2,002,589
Provision for income taxes		1,350,936			961,869
Net income	$	1,662,383		$	1,040,720
Earnings per common share
Basic	$	0.34		$	0.22
Diluted	$	0.34		$	0.22
Weighted average common shares outstanding
Basic		4,932,545			4,637,528
Diluted		4,951,195			4,789,232

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

F-3

MICRONETICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

	Common shares	Stock par value		Additional paid-in capital		Retained earnings			Treasury stock			Total
Balance at March 31, 2006	4,955,582		49,556		7,464,691		9,871,738			(1,527,014	)		15,858,971
Exercise of stock options	69,875		699		350,448		—			—			351,147
Issuance of options for service	—		—		7,480		—			—			7,480
Tax benefit from the exercise of stock options	—		—		47,660		—			—			47,660
Stock based compensation	—		—		670,995		—			—			670,995
Net income	—		—		—		1,040,720			—			1,040,720
Balance at March 31, 2007	5,025,457	$	50,255	$	8,541,274	$	10,912,458		$	(1,527,014	)	$	17,976,973
Exercise of stock options	92,625		926		329,053		—			—			329,979
Issuance of common stock for MICA acquisition	248,135		2,481		1,997,487		—			—			1,999,968
Issuance of restricted stock	25,000		250		—		—			—			250
Cumulative effect of the recognition of uncertain income tax positions	—		—		—		(96,443	)		—			(96,443	)
Purchase of treasury stock	—		—		—		—			(205,185	)		(205,185	)
Stock based compensation	—		—		740,722		—			—			740,722
Net income	—		—		—		1,662,383			—			1,662,383
Balance at March 31, 2008	5,391,217	$	53,912	$	11,608,536	$	12,478,398		$	(1,732,199	)	$	22,408,647

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,
	2008			2007
Cash flows from operating activities
Net income	$	1,662,383		$	1,040,720
Adjustments to reconcile net income to net cash provided by operating activities, net of acquisition:
Depreciation and amortization		1,731,919			1,655,856
Stock-based compensation		740,722			670,995
Gain on sale of property and equipment		(90,352	)		—
Unrealized loss on interest rate swap		280,865			—
Provision (reduction) for allowances on accounts receivable		67,095			(66,221	)
Provision for inventory obsolescence and losses		312,394			495,964
Non-cash charges for options issued for services		—			7,480
Deferred taxes		(652,221	)		(241,142	)
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable		(320,938	)		401,936
Inventories		(771,370	)		(316,065	)
Other long term assets		103,458			—
Income taxes payable		—			(1,008,901	)
Prepaid expenses, other current assets, and other assets		353,774			(836,129	)
Accounts payable		211,968			110,402
Accrued expenses and deferred revenue (see note 3)		258,341			(803,722	)
Net cash provided by operating activities		3,888,038			1,111,173
Cash flows from investing activities:
Purchase of investments		(650,000	)		—
Sale of investments		—			582,730
Purchase of equipment		(1,086,643	)		(604,561	)
Proceeds from sale of property and equipment		518,398			—
MICA acquisition, net of cash acquired		(3,120,833	)		—
Stealth acquisition, net of cash acquired (see note 3)		(1,500,000	)		(92,455	)
Net cash used in investing activities		(5,839,078	)		(114,286	)
Cash flows from provided by financing activities:
Proceeds from the term loan		—			6,500,000
Proceeds from line of credit		728,528			—
Repayment of the line of credit		(728,528	)		(475,972	)
Repayments on mortgages and term loan		(1,418,769	)		(5,614,964	)
Repayment of the MICA debt		(646,820	)		—
Repayments of capital leases		(3,524	)		(12,814	)
Tax benefit upon exercise of stock options		—			47,660
Proceeds from the exercise of stock options and issuance of restricted common stock		125,044			351,147
Net cash (used in) provided by financing activities		(1,944,069	)		795,057
Net change in cash and cash equivalents		(3,895,109	)		1,791,944
Cash and cash equivalents at beginning of period		7,058,524			5,266,580
Cash and cash equivalents at end of period	$	3,163,415		$	7,058,524
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	361,226		$	435,312
Income taxes	$	1,619,000		$	2,704,899
Supplemental disclosure of non-cash financing activities:
Treasury stock purchase from stock option exercise	$	205,185		$	—
Shares issued to MICA shareholders	$	1,999,968		$	—

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, 2008 AND 2007

Note 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 used in cellular, microwave, satellite, radar and communication systems around the world.

The consolidated financial statements include the accounts of Micronetics, Inc. (“Micronetics”) and its wholly-owned subsidiaries, Microwave & Video Systems, Inc. (“MVS”), Enon Microwave, Inc. (“Enon”), Microwave Concepts, Inc. (“MicroCon”), Stealth Microwave, Inc. (“Stealth”) and MICA Microwave Corporation (“MICA”). The operating results of MICA have been included in the Company’s consolidated financial statements since June 5, 2007, the date of acquisition (See Note 2). In September 2007, the Enon subsidiary was dissolved and its operations were merged with and into the Micronetics’ operations. All material intercompany balances and transactions have 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, purchase price allocation, valuation of investments, 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.

Investments—The Company’s investments consist of auction rate securities (“ARS”) with varying maturities. The Company’s ARS are issued by a closed-end fixed income investment fund that holds auctions every 28 days to reset the dividend rates for the next period.

The ARS market has experienced widespread failures, which could expose these securities to a failed auction. Although a failed auction results in a lack of liquidity in the securities it does not signify a default by the issuer.

Subsequent to year end, the Company redeemed $400,000 of its ARS at par and as a result, this amount has been classified as a short-term investment. The remaining $250,000 has not been redeemed and based on the lack of liquidity relating to these securities, the Company has classified them as a long-term investment. The Company believes that the carrying value of its ARS approximates fair value as of March 31, 2008. The investments are classified as “available for sale” and any unrealized holding gains or losses, if any, will be recorded as a separate component of other comprehensive income, net of tax.

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.

F-6

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2008 AND 2007

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. The Company offers a one-year warranty unless customers purchase an extended 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.

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.

Concentration of credit risk—Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, investments, interest rate swap and accounts receivable. The Company may invest in high-quality money market instruments, securities of the U.S. government, and high-quality corporate issues. 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 credit losses.

Fair value of financial instruments—The carrying amounts reported in the consolidated balance sheet for cash, investments, trade receivables, accounts payable, and accrued expenses approximate fair value because of the relatively short maturity of these instruments. ARS’s are valued based upon prices received from third parties. 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, 2008, utilizing the notional amounts and the remaining terms of the swap agreement. As of March 31, 2008, the fair value of the swap was recorded as a liability in the amount of $280,865. The fair 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 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 the company’s our inventories and operating results could be affected accordingly.

F-7

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2008 AND 2007

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—Intangible assets consist of certain identifiable assets resulting from business combinations, including intellectual property, customer relationships, backlog and non-compete covenants. These assets are being amortized over their estimated useful lives.

Goodwill is recorded when the consideration paid for an acquisition exceeds the fair value of net tangible and identifiable intangible assets acquired. In accordance with Statement of Financial Accounting Standards No. 142 (“SFAS 142”)“Goodwill and Other Intangible Assets”, goodwill is not amortized, but rather, is tested annually for impairment.

Impairment of long-lived assets— Goodwill and other indefinite lived intangible assets are tested for impairment in accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), which requires that goodwill and other intangible assets with indefinite useful lives no longer be amortized, but rather, be tested annually for impairment.

The Company assesses 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. SFAS 142 requires a two-step impairment testing approach. Companies must first determine whether goodwill is impaired and if so, they must value that impairment based on the amount by which the book value exceeds the estimated fair value. As a result of the annual impairment test performed as of March 31, 2008, the Company determined that the carrying amount of goodwill did not exceed its fair value and, accordingly, did not record a charge for impairment. There can be no assurance that goodwill will not become impaired in future periods.

Research and development—Research and development costs are accounted for in accordance with Statement of Financial Accounting Standards No. 2 (“SFAS 2”), “Accounting for Research and Development Costs”. As such, research and development costs are charged to expense when incurred. Amounts expended for the years ended March 31, 2008 and 2007 were $1,018,010 and $782,329, respectively.

Advertising costs—Advertising costs are expensed as incurred and are reported as a component of “Sales, general and administrative” expenses in the company’s consolidated statements of income. Advertising expenses were $125,601 in Fiscal 2008 and $64,026 in Fiscal 2007.

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. No valuation allowance was required at March 31, 2008 and 2007.

F-8

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2008 AND 2007

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.

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.

Comprehensive income (loss)—There are no items of other comprehensive income (loss) at March 31, 2008.

Off-balance sheet arrangements—The Company does not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purpose. As of March 31, 2008 and 2007, the Company was not involved in any unconsolidated SPE transactions.

Stock-based Compensation—The Company accounts for share-based compensation in accordance with Statement of Financial Accounting Standard No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”), and related interpretations. SFAS 123(R) requires the measurement and recognition of compensation expense based on estimated fair value for all share-based payment awards including stock options, employee stock purchases under employee stock purchase plans, non-vested share awards (restricted stock) and stock appreciation rights. The Company uses the Black-Scholes pricing model as the most appropriate method for determining the estimated fair value of all applicable awards. For share-based awards granted after April 1, 2006, the Company recognized compensation expense based on the estimated grant date fair value method required under SFAS 123(R). For all awards the Company has recognized compensation expense using the straight-line amortization method over the vesting period of the award. As SFAS 123(R) requires that share-based compensation expense be based on awards that ultimately vest, estimated share-based compensation for 2008 and 2007 has been reduced for estimated forfeitures.

The Company adopted the provisions of SFAS 123(R), using the modified prospective transition method, beginning April 1, 2006. Accordingly, the Company recorded share-based compensation expense during fiscal year 2007 for awards granted prior to but not yet vested as of April 1, 2006 as if the fair value method required for pro forma disclosure under SFAS 123 were in effect for expense recognition purposes. In accordance with that transition method, the Company has not restated prior periods for the effect of compensation expense calculated under SFAS 123(R).

Recent accounting pronouncements—In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109 (“FIN No. 48”).” FIN No. 48 provides guidance with respect to the recognition and measurement in the financial statements of uncertain tax positions taken or expected to be taken in a tax return, and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company adopted the provisions of FIN No. 48 in the first quarter of Fiscal 2008. The Company’s adoption of FIN No. 48 on April 1, 2007 resulted in the recognition of $96,443 of previously uncertain tax benefits which, in accordance with FIN No. 48, the cumulative amount was accounted for as an adjustment to the April 1, 2007 retained earnings balance in the first quarter of fiscal 2008.

F-9

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2008 AND 2007

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, (“SFAS No. 157”). SFAS 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under SFAS 157, fair value measurements would be separately disclosed by level within the fair value hierarchy. The Provisions of SFAS 157, as issued, are effective for the fiscal years beginning after November 15, 2007. However, in February 2008, the FASB issued FASB Staff Position No. 157-2, “Effective Date of FASB Statement No. 157”, (“FSP 157-2”) that amended SFAS 157 to delay the effective date for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually). FSP 157-2 defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope. The Company is currently evaluating the effect, if any, that the adoption of SFAS No. 157 may have on its financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted, provided the Company also elects to apply the provisions of SFAS 157. Although the Company has adopted SFAS 159 as of April 1, 2008, the Company has not yet elected the fair value option for any items permitted under SFAS 159.

In June 2007, the FASB ratified Emerging Issues Task Force (EITF) 07-03, “Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities” (“EITF 07-03”). EITF 07-03 requires companies to defer and capitalize prepaid nonrefundable advance payments for goods or services that will be used for future research and development activities over the period that the research and development activities are performed or the services are provided, subject to an assessment of recoverability. The provisions of EITF 07-3 are effective beginning April 1, 2008. The Company is currently evaluating the effect that the adoption of EITF 07-03 will have on its consolidated results of operations and financial condition.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (Revised), “Business Combinations” (“SFAS 141 (Revised)”), which replaces Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS 141”). SFAS 141 (Revised) requires the assets acquired, liabilities assumed, and any non-controlling interest to be measured at their fair values as of the acquisition date. SFAS 141 (Revised) also requires expensing of acquisition related costs and restructuring costs, and re-measurement of earn out provisions at fair value. SFAS 141 (Revised) is effective for any of the Company’s business combinations on or after April 1, 2009. SFAS 141 (Revised) will have an impact on accounting for business combinations once adopted but the effect is dependent upon acquisitions at the time.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 160”). SFAS 160 clarifies the accounting and reporting standards for the noncontrolling interest in a subsidiary, including classification as a component of equity. SFAS 160 is effective for the Company on April 1, 2009. The Company is currently evaluating the effect that the adoption of SFAS 160 will have on its consolidated results of operations and financial condition.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand the effects of the derivative instruments on an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for the Company on April 1, 2009. The Company is currently evaluating the effect that the adoption of SFAS 161 will have on its consolidated results of operations and financial condition.

F-10

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2008 AND 2007

2. ACQUISITIONS

On June 5, 2007, the Company entered into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) with MICA, a California corporation whereby MICA became a wholly-owned subsidiary of Micronetics. Pursuant to the terms and conditions of the Merger Agreement, the Company acquired all of the common stock of MICA for $3.0 million in cash and $2.0 million in shares of Micronetics’ common stock (248,135 shares), subject to a post-closing adjustment based upon MICA’s net worth on the closing date. The acquisition of MICA provides a broader range of RF/Microwave products, including high performance mixers and ferrites to the Company, and will provide the Company with further integrated microwave sub-systems and systems solutions.

The following table summarizes the preliminary fair value assigned to the assets acquired and liabilities assumed at the date of acquisition:

	(in thousands)
Cash and accounts receivable	$	773
Inventory		1,308
Property, plant and equipment		483
Other assets		41
Development technology drawings		220
Customer relationships		1,180
Order backlog		90
Trade name		260
Goodwill		2,950
Debt		(647	)
Deferred taxes		101
Deferred taxes on acquired intangible assets		(700	)
Income taxes payable		(137	)
Accounts payable and accrued expenses		(704	)
Subtotal		5,218
Less: cash assumed		(97	)
Net purchase price	$	5,121

The acquisition of MICA was accounted for as a purchase under Statement of Financial Accounting Standards No. 141 (“SFAS 141”), “Business Combinations”. Accordingly, the operating results of MICA have been included in the Company’s consolidated financial statements since the June 5, 2007 acquisition date. The Company estimated the useful lives of the acquired other intangible assets to be one to ten years and has included them in intangible assets, net, in the accompanying consolidated balance sheet as of March 31, 2008. The values and useful lives assigned to the intangible assets were based on management estimates and guidance from an independent appraisal. The allocation of the purchase price is preliminary and may be subject to adjustments. The Company expects the allocation of the purchase price to be finalized by Q1 Fiscal 2009 and does not anticipate any material adjustments.

F-11

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2008 AND 2007

The following table sets forth certain pro forma results for the year ended March 31, 2008 and 2007 if the acquisition of MICA had taken place on April 1, 2006 (unaudited):

	2008		2007
	(in thousands, except earnings per share)		(in thousands, except earnings per share)
Pro forma revenue	$	33,439	$	29,141
Pro forma net income (1)	$	1,698	$	997
Pro forma earnings per share:
Basic	$	0.34	$	0.20
Diluted	$	0.34	$	0.20

(1) Amortization costs of approximately $231,000 related to the purchase price in fiscal year 2008 were assessed to the fiscal year 2007 income. Management believes that including these adjustments in the above periods allow investors to better compare results in the future periods.

3. INTANGIBLE ASSETS AND GOODWILL

The following table presents details of the Company’s finite-lived intangible assets as of March 31, 2008 and March 31, 2007 (in thousands):

Intangible Assets	March 31, 2008							March 31, 2007
	Useful Life (years)	Gross Value		Accumulated Amortization		Net Value		Gross Value		Accumulated Amortization		Net Value
Customer relationships (non-contractual)	7-10	$	4,130	$	1,282	$	2,848	$	2,950	$	761	$	2,189
Covenants not to compete	2		480		480		—		480		433		47
Order backlog	1		380		364		16		290		290		—
Trade Name	10		260		21		239		—		—		—
Developed technology-drawings	5		390		132		258		170		62		108
Total intangibles		$	5,640	$	2,279	$	3,361	$	3,890	$	1,546	$	2,344

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)
2009	$	660
2010		643
2011		616
2012		609
2013		234
Thereafter		599
Total	$	3,361

F-12

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2008 AND 2007

Changes in the carrying amount of goodwill at March 31, 2008 and March 31, 2007 are as follows:

	2008		2007
Balance at the beginning of the period	$	5,982,709	$	4,390,254
Acquisitions		2,949,235		—
Earnout payment		—		1,500,000
Adjustments		—		92,455
Balance at the end of the period	$	8,931,944	$	5,982,709

The Company recorded as an adjustment to goodwill the final earnout payment of $1.5 million earned by the former stockholders of Stealth as of March 31, 2007, based on meeting certain financial targets as provided for under the acquisition documents. This amount was earned and accrued as of March 31, 2007, however payment was made in April 2007. The Company has revised its Fiscal 2007 Consolidated Statement of Cash Flows presented in this Annual Report. The Fiscal 2007 Consolidated Statement of Cash Flows previously reflected this payment being made in Fiscal 2007 rather than Fiscal 2008. The effect of this revision on the Fiscal 2007 Consolidated Statement of Cash Flows is to reduce the Net cash provided by operating activities and the Net cash used in investing activities by approximately $1.5 million. Management believes the impact of this revision is immaterial.

During Fiscal 2008, the Company determined to consolidate its Enon reporting unit located in Topsfield, MA into its Hudson, NH facility to provide operational and financial efficiencies. As a result, the assets and liabilities of the Enon reporting unit were combined and are being used in the consolidated entity and were used to determine the fair value of the combined new reporting unit in the testing of goodwill impairment at March 31, 2008.

Approximately $1.1 million of goodwill is deductible for income tax purposes and approximately $7.8 million is not deductible for income tax purposes. At March 31, 2008, $178,752 is recorded as a deferred income tax liability resulting from the acquisition.

4. ACCOUNTS RECEIVABLE, NET

At March 31, 2008 and 2007 accounts receivable, net of allowances consisted of the following:

	2008			2007
Accounts receivable	$	5,226,761		$	4,229,915
Less allowances		(364,981	)		(297,886	)
	$	4,861,780		$	3,932,029

The activity related to the Company’s allowances for doubtful accounts on accounts receivable for Fiscal 2008 and Fiscal 2007 is as follows:

	2008		2007
Balance at beginning of period	$	297,886	$	367,268
Charged to costs and expenses		67,095		(66,221	)
Deductions and write-offs		—		(3,161	)
Balance at end of period	$	364,981	$	297,886

F-13

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2008 AND 2007

5. INVENTORIES, NET

At March 31, 2008 and 2007 inventories consisted of the following:

	2008			2007
Raw materials	$	4,549,171		$	4,072,116
Work in process		2,346,513			1,339,160
Finished goods		885,650			717,534
		7,781,334			6,128,810
Less:
allowance for obsolescence		(465,088	)		(580,119	)
	$	7,316,246		$	5,548,691

6. PROPERTY, PLANT AND EQUIPMENT, NET

At March 31, 2008 and 2007, property, plant and equipment, net consisted of the following:

	2008			2007
Land	$	162,000		$	162,000
Buildings and leasehold improvements		1,105,745			1,555,106
Machinery and equipment		8,979,161			7,877,654
Furniture and fixtures, and other		242,563			286,516
		10,489,469			9,881,276
Less accumulated depreciation		(6,329,506	)		(5,863,811	)
	$	4,159,963		$	4,017,465

In May 2007, the commercial condominium housing Micronetics’ Enon division was sold.

7. ACCRUED EXPENSES

At March 31, 2008 and 2007 accrued expenses consisted of the following:

	2008		2007
Unbilled payables	$	370,541	$	169,755
Professional fees		310,865		261,372
Payroll, benefits and related taxes		1,453,369		1,195,273
Warranty		119,252		100,178
Due to former stockholders		—		1,500,000
Unrealized loss on interest rate swap		280,865		—
Miscellaneous		172,877		115,787
	$	2,707,769	$	3,342,365

F-14

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2008 AND 2007

Included in accrued payroll are bonuses of $646,630 and $572,951 for Fiscal 2008 and Fiscal 2007, respectively.

8. 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 2008 and Fiscal 2007 are as follows:

	2008			2007
Balance at beginning of period	$	100,178		$	128,401
Accruals for warranties		80,309			36,171
Charges to accrual for warranty costs		(61,235	)		(64,394	)
Balance at end of period	$	119,252		$	100,178

9. LONG-TERM DEBT

At March 31, 2008 and 2007 long-term debt consisted of the following:

	2008		2007
Term loan	$	5,525,000	$	6,500,000
Mortgage payable, NH		130,837		264,076
Mortgage payable, MA		—		310,531
Capital leases		4,698		8,222
Total		5,660,535		7,082,829
Less current portion		1,434,193		1,449,443
Long-term debt net of current portion	$	4,226,342	$	5,633,386

Term Loan and Revolver

In March 2007, the Company entered into a credit facility which consists of a $6.5 million five year secured term loan and a $5.0 million three year revolving line of credit. The term loan is guaranteed by the Company’s subsidiaries and 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 3 month libor rate plus 1.8%, which at March 31, 2008 was 6.50%. The term loan expires in June 2012.

The Company entered into an interest rate swap agreement with a notional amount of $6.5 million in April 2007 to mitigate the effect of interest rate fluctuations on the term loan. This 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 value of the interest rate swap is recorded as an accrued expense on the consolidated balance sheet, with any related gains or loses charged to earnings. As of March 31, 2008, the Company recorded a loss of $280,865 to reflect the estimated fair value for the interest rate swap in the consolidated income statement.

F-15

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2008 AND 2007

The revolving line of credit bears interest at the 1 month libor plus 1.8% rate, which at March 31, 2008 was 5.07%. The company had an entire line of $5.0 million available at March 31, 2008.

Under the terms of the term loan and the revolver, the Company is required to maintain certain financial covenants on a quarterly and annual basis, including total funded debt to EBITDA not exceeding 2.25:1, minimum debt service coverage of 1.25:1, and minimum tangible net worth of $7.5 million. At March 31, 2008, the Company was in compliance with all financial debt covenants.

Mortgage payable, NH

In February 2004, Micronetics refinanced the mortgage on its headquarters by entering into a new five-year mortgage payable for $630,000. The note bears interest at 5.75% per annum and is payable in monthly installments, including interest, of $12,107. This loan is secured by the land and building of Micronetics’ headquarters.

Mortgage payable, MA

In March 2003, in connection with the purchase of a portion of a commercial condominium housing Micronetics’ Enon division, Micronetics entered into a mortgage payable for $352,750. In May 2007, the commercial condominium was sold and the remaining mortgage was settled.

Capital leases

Commercial capital leases payable are reflected at their present value based upon interest rates that range from 8.67% to 8.88% per annum, and are secured by the underlying assets. The assets are depreciated over their estimated useful lives.

Aggregate annual maturities of long-term debt, including capital leases and line of credit, are as follows:

Fiscal year ending March 31,	Capital lease Obligations		Mortgages and notes payable		Total
2009	$	3,356	$	1,430,837	$	1,434,193
2010		1,342		1,300,000		1,301,342
2011		—		1,300,000		1,300,000
2012		—		1,300,000		1,300,000
2013		—		325,000		325,000
Thereafter		—		—		—
	$	4,698	$	5,655,837	$	5,660,535

10. STOCK OPTION PLANS AND STOCK- BASED COMPENSATION

At March 31, 2008, the Company had three stock option plans under which grants were outstanding. The stock options outstanding are for grants issued under the Company’s 1996 Stock Option Plan, the 2003 Stock Option Plan and the 2006 Equity Incentive Plan.

F-16

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2008 AND 2007

The 1996 Stock Option Plan

During the fiscal year ended March 31, 1997, the Company adopted a stock option plan, entitled the “1996 Stock Option Plan” (the “1996 Plan”), under which the Company may grant options to purchase up to 300,000 shares of common stock. During the fiscal year ended March 31, 2002, the Board of Directors amended the 1996 Plan to increase the number of shares of common stock that may be granted under the Plan to 900,000. As of March 31, 2008, there were 2,500 options outstanding under the 1996 Plan. In 2003, the Board of Directors determined that it would not issue any new option awards under the 1996 Plan.

The 2003 Stock Incentive Plan

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 Plan. In July 2006 the Board of Directors determined that it would not issue any new option awards under the 2003 Plan. As of March 31, 2008, there were 472,325 options outstanding under the 2003 Plan.

The 2006 Equity Incentive Plan

During the fiscal year ending March 31, 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, 2008 there were 281,000 options and 25,000 shares of restricted stock outstanding under the 2006 Plan.

The 1996 Plan, the 2003 Plan and the 2006 Plan are 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 1996 Plan, the 2003 Plan and the 2006 Plan may be incentive stock options or non-qualified options, and may be issued to employees, consultants, advisors and directors of the Company and its subsidiaries. The exercise price of options granted under the 1996 Plan, the 2003 Plan and the 2006 Plan may not be less than the 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 adoption of each respective plan 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, 2008:

	Shares Underlying options		Weighted Average Exercise     price		Weighted Average Remaining   Contractual   life	Aggregate Intrinsic value
Outstanding at March 31, 2007	796,825		$	7.29
Granted	248,000			7.91
Exercised	(92,625	)		3.51
Canceled	(196,375	)		8.08
Outstanding at March 31, 2008	755,825		$	7.75	4.54	—
Exercisable at March 31, 2008	322,350		$	7.52	2.11	—

F-17

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2008 AND 2007

The following table sets forth the status of the Company’s non-vested stock options as of March 31, 2008:

	Number of Options		Weighted-Average Grant-Date Fair Value
Non-vested as of March 31, 2007	481,025		$	3.42
Granted	248,000			4.22
Forfeited	(112,750	)		3.70
Vested	(182,800	)		3.43
Non-vested as of March 31, 2008	433,475		$	3.87

During the year ended March 31, 2004, the Company granted options to purchase an aggregate of 8,000 shares of common stock to consultants for services to be provided. These options are exercisable at $7.12 per share, and vest 25% per year on each anniversary date, with an expiration of five years from the date of grant for all options. The Company has valued these at their fair value on the date of grant using the Black-Scholes option-pricing model. The consultants have since ceased performance of services.

During the year ended March 31, 2008, the Company granted options to purchase 10,000 shares of common stock with an exercise price of $8.40 to a former employee. In the fourth quarter of Fiscal 2008, 5,000 options vested with the remaining options vesting on July 31, 2008. The options have a contractual life of 10 years. The Company valued the options under SFAS 123(R) at the fair value on the date of grant using the Black-Scholes option-pricing model. The Company recorded $32,185 in compensation expense through March 2008 related to the non-employee options, and will re-measure compensation expense related to the unvested options at each reporting date until fully vested.

The following table summarizes information about stock options outstanding at March 31, 2008:

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
$ 5.18 – $ 6.89	8,875	1.36 yrs	$	6.60	6,375	$	6.60
$ 6.90 – $ 8.61	722,550	4.64 yrs	$	7.72	303,775	$	7.49
$ 8.62 – $ 10.33	24,400	2.52 yrs	$	8.87	12,200	$	8.87
	755,825	4.54 yrs	$	7.75	322,350	$	7.52

The following table summarizes the effects of stock-based compensation resulting from the application of SFAS No. 123(R) for Fiscal 2008 and Fiscal 2007:

	2008		2007
Cost of sales	$	65,967	$	104,318
Selling, general and administrative		647,535		462,136
Research and development		27,220		104,541
Stock-based compensation effect on income before taxes	$	740,722	$	670,995

F-18

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2008 AND 2007

Unrecognized stock-based compensation expense related to the unvested options is approximately $1.5 million, and will be recorded over the remaining vesting periods of 4.54 years. This estimate is based on the number of unvested options currently outstanding and could change based on the number of options granted or forfeited in the future.

The Company granted 25,000 shares of restricted stock to an employee under the 2006 Equity Incentive Plan on November 14, 2007. The shares were issued at a purchase price of $.01 per share. The fair value of the restricted stock was determined based on the fair value of the Company’s common stock on the grant date. Upon issuance of the restricted stock 10,000 shares were vested, with the remaining 15,000 shares to vest twenty percent upon the completion of each quarterly period thereafter. The stock will be fully vested on August 14, 2008. As a result of the issuance of the restricted stock, the Company recognized $197,500 of stock compensation costs, $138,250 of which was expensed in Fiscal 2008 and $59,250 remaining in unearned compensation cost as of March 31, 2008, to be recognized during the first two quarters of Fiscal 2009.

During the fiscal year ended March 31, 2008, 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.

The expected term of options granted was determined based on the historical exercise behavior of similar peer groups. For Fiscal 2008 the expected term was calculated based upon the simplified method as permitted by the Securities Exchange Commission Staff Accounting Bulletin (“SAB”) 107, Share-Based Payments as the Company issued options in 2008 with a longer contractual term.

The Company has never declared or paid a cash dividend, and has no current plans to pay a cash dividend in the future.

SFAS 123(R) also requires that the Company recognize compensation expense for only the portions that are expected to vest. Therefore, the Company has estimated expected forfeitures of stock options with the adoption of SFAS 123(R). 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 after April 1, 2006 were estimated at the date of grant with the following weighted-average assumptions for the fiscal years ended March 31, 2008 and 2007:

	2008		2007
Risk Free Interest Rate	3.89 – 4.98	%	3.63 – 4.60	%
Expected Life	6.75 – 7.57 years		2 - 4.86 years
Expected Volatility	55 – 60	%	64 – 75	%
Expected Dividend Yield	0	%	0	%

The per share weighted average fair value of stock options granted for the fiscal years ended March 31, 2008 and 2007 was $4.22 and $4.28, respectively.

F-19

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2008 AND 2007

11. 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.

12. SHAREHOLDERS’ EQUITY

During the years ended March 31, 2008 and 2007, the Company issued a total of 92,625 and 69,875 shares, respectively, for net proceeds of $329,979 and $351,147, respectively, upon the exercise of stock options granted under the Company’s various option plans.

13. INCOME TAXES

The following sets forth the provision for income taxes at March 31, 2008 and 2007:

	2008			2007
Current:
Federal	$	1,563,270		$	918,096
State		556,161			284,916
Deferred:
Federal		(612,663	)		(186,804	)
State		(155,832	)		(54,339	)
Provision for income tax	$	1,350,936		$	961,869

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 benefit exceeds stock compensation recorded for book purposes.

At March 31, 2008 and 2007 the difference between the income tax provision computed at the Federal statutory rate and the actual tax provision is accounted for as follows:

	2008			2007
Taxes computed at the federal statutory rate	$	1,024,528		$	680,880
State income tax (net of federal benefit)		264,217			152,181
Effect of permanent differences		141,641			147,308
Research and development tax credits		(63,007	)		(18,500	)
FIN 48 Settlements		(16,443	)		—
Income tax provision	$	1,350,936		$	961,869

F-20

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2008 AND 2007

At March 31, 2008 and 2007 deferred tax assets (liabilities) are comprised of:

	2008			2007
Current deferred tax asset (liability):
Accrued expenses	$	408,135		$	320,584
Inventory reserve		68,313			44,668
Bad debt reserve		39,526			43,047
Warranty reserve		47,629			40,011
Sales return reserve		34,152			19,688
Prepaid expenses		(21,585	)		(36,601	)
	$	576,170		$	431,397
Long term deferred tax (liability):
Stock compensation	$	211,126		$	111,731
Intangible amortization		(22,984	)		(148,737	)
Depreciation		(111,658	)		(369,178	)
Purchase price adjustment		(1,321,536	)		(747,130	)
	$	(1,245,052	)	$	(1,153,314	)

In June 2005, the Company acquired Stealth Microwave, Inc. In conjunction with this acquisition, the Company recorded certain intangible assets which have an associated deferred tax liability of $1,357,960. These intangibles are being amortized for book purposes over various lives. The current year deferred tax benefit includes the current year recognition of $200,534 and a 2007 recognition of $293,770 of that deferred tax expense. Additionally, there was a book to tax difference relating to the property, plant & equipment that equated to a deferred tax liability of $150,143 that is a change in the balance of deferred tax liability but does not effect current year activity.

In June 2007, the Company acquired MICA Microwave, Inc. as noted in Note 2. In conjunction with this acquisition, the company recorded certain intangible assets which have an associated deferred tax liability of $700,000. These intangibles are being amortized for book purposes over various lives. The current year deferred tax benefit includes the current year recognition of $92,290 of that deferred tax expense

The Company’s effective tax rate was 45% and 48% for the twelve months ended March 31, 2008 and 2007, respectively. The decrease in the effective tax rate is primarily related to a larger credit for domestic production activities deduction in Fiscal 2008 as compared to Fiscal 2007.

The Company’s adoption of FIN No. 48 on April 1, 2007 resulted in the recognition of $96,443 of previously uncertain tax benefits which, in accordance with FIN No. 48, the cumulative amount was accounted for as an adjustment to the April 1, 2007 retained earnings balance in the first quarter of Fiscal 2008.

The amount of uncertain tax benefits as of March 31, 2008 was $80,000, which, if ultimately recognized, will reduce the Company’s annual effective tax rate. The Company does not expect any material change in uncertain tax benefits within the next twelve months.

F-21

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2008 AND 2007

The change in uncertain tax benefits for the twelve months ended March 31, 2008 is as follows:

	2008
Balance at beginning of period	$	96,443
Change in tax positions related to prior years		—
Change in tax positions related to the current year		20,000
Settlements		(36,443	)
Reductions for expiration of statute of limitations		—
Balance at end of period	$	80,000

As of March 31, 2008, the Company is subject to tax in the U.S. Federal and various state jurisdictions. The Company is open to examination for tax years March 31, 2005 through 2008.

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. As of March 31, 2008, the Company has accrued interest and penalties for uncertain tax benefits in its statement of operations of $13,000.

14. EARNINGS PER SHARE

Basic earnings per share is computed based on the net income for each period divided by the weighted average actual shares outstanding during the period. Diluted earnings per share is computed based on the net income per period divided by the weighted average number of common shares and common equivalent shares outstanding during each period. Common stock equivalents represent the dilutive effect of the assumed exercise of certain outstanding stock options. The computations of basic and diluted earnings per share at March 31, 2008 and 2007 are:

	2008		2007
Net income	$	1,662,383	$	1,040,720
Weighted average shares outstanding:		4,932,545		4,637,528
Basic earnings per share	$	.34	$	.22
Common stock equivalents		18,650		151,704
Weighted average common and common equivalent shares outstanding		4,951,195		4,789,232
Diluted earnings per share	$	.34	$	.22

15. COMMITMENTS AND CONTINGENCIES

Leases:

The Company is obligated under various non-cancelable operating leases for manufacturing facilities and equipment, which expire through January 2011.

F-22

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2008 AND 2007

The aggregate future minimum lease payments, are as follows:

	Fiscal year ending March 31,
2009	$	203,879
2010		44,783
2011		20,733
2012		16,165
2013		2,549
	$	288,109

Rental expense for the years ended March 31, 2008 and 2007 was $519,546 and $224,206 respectively.

Rental income for the years ended March 31, 2008 and 2007 was $5,572 and $33,425, respectively. The sub-lease on this facility expired in May 2007.

Stealth Employment Agreements

Stealth entered into employment agreements with two key employees (one of whom is also a director of the Company) in June 2005. Under the terms of the employment agreements, each key employee is provided with salary and benefits, including stock options and additional incentive compensation based on meeting certain pre-established financial targets, should their employment with the Company be terminated other than for cause or their disability or death, or they resign for good reason as defined in the agreements. The employment agreements expired on June 11, 2007.

Stealth Earnout Agreement

The Company entered into an agreement at the time of the Stealth acquisition that provides for earnout payments in the amounts of $1.8 million in the first earnout period ended March 31, 2006 and $1.5 million in the second earnout period ending March 31, 2007, provided certain financial targets are met, as defined in the agreement. The first earnout payment of $1.8 million was made in the fourth quarter of fiscal 2006 and the second earnout payment of $1.5 million was made in April 2007. Both payments were recorded as an adjustment to goodwill as of March 31, 2007.

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 9.2%, 8.1% and 8.0% of the Company’s consolidated sales in Fiscal 2008. For Fiscal 2007, the top three customers accounted for 15.5%, 7.1% and 5.3% of the Company’s consolidated sales.

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 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. The Company continues to break out revenues between its commercial and defense applications.

F-23

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2008 AND 2007

Exports accounted for 27% and 32% of the Company’s sales in the years ended March 31, 2008 and 2007, respectively. Sales representing shipments by geographical area are shown below (in thousands):

	March 31,
	2008		2007
United States and Canada	$	24,286	$	18,659
Europe		6,660		4,093
Asia		1,605		912
Central and South America/Other		74		26
	$	32,625	$	23,690

18. EMPLOYEE BENEFIT PLANS

The Company has in effect 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. Effective December 31, 2004, the Company merged the existing 401K Plans of its wholly-owned subsidiaries Microwave & Video Systems, Inc., MVS Applications 401(k) and Savings Plan (the “MVS Plan”) with and into the Micronetics’ Plan, with the Micronetics’ Plan the surviving plan. Effective January 1, 2007, the Company merged the SIMPLE retirement plan of its wholly-owned subsidiary Stealth Microwave into the Micronetics’ Plan.

Company contributions to the plan for the years ended March 31, 2008 and March 31, 2007 were $138,984 and $109,556, respectively.

MICA maintains a defined contribution plan under section 401 (k) of the Internal Revenue Code under which employees may elect to contribute an amount of their eligible compensation to the plan, subject to the annual limits as defined in the plan. MICA does not provide matching contributions.

F-24

19. Unaudited Quarterly Financial Information (amounts in thousands)

FISCAL 2008	Q1 FY08			Q2 FY08			Q3 FY08			Q4 FY08
Net sales	$	6,310		$	9,763		$	8,828		$	7,724
Gross profit	$	2,393		$	3,652		$	3,625		$	3,249
Gross profit %		38	%		37	%		41	%		42	%
Net income	$	185		$	618		$	556		$	303
Earnings per common share
—Basic	$	0.04		$	0.12		$	0.11		$	0.06
Basic weighted average shares		4,727			4,975			4,987			4,995
Earnings per common share
—Diluted	$	0.04		$	0.12		$	0.11		$	0.06
Diluted weighted average shares		4,758			5,012			4,993			5,013
FISCAL 2007	Q1 FY07			Q2 FY07			Q3 FY07			Q4 FY07
Net sales	$	6,806		$	5,061		$	5,510		$	6,313
Gross profit	$	3,036		$	1,748		$	2,137		$	2,456
Gross profit %		45	%		35	%		39	%		39	%
Net income	$	548		$	41		$	111		$	341
Earnings per common share
—Basic	$	0.12		$	0.01		$	0.02		$	0.07
Basic weighted average shares		4,611			4,642			4,642			4,655
Earnings per common share
—Diluted	$	0.11		$	0.01		$	0.02		$	0.07
Diluted weighted average shares		4,936			4,808			4,715			4,723

F-25

EX-21

Exhibit 21

Subsidiaries of the Company

Name	State of Incorporation
1. Microwave and Video Systems, Inc.	Connecticut
2. Microwave Concepts, Inc.	Delaware
3. Stealth Microwave, Inc.	Delaware
4. MICA Microwave Corporation	Delaware

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our report dated June 30, 2008, with respect to the consolidated financial statements included in the Annual Report of Micronetics, Inc. and subsidiaries on Form 10-K for the year ended March 31, 2008. We hereby consent to the incorporation by reference of said report in the Registration Statements of Micronetics, Inc. and subsidiaries on Form S-8 (File No. 333-48087, effective March 17, 2008, File No. 333-128223, effective September 9, 2005, File No. 333-46646, effective September 26, 2000 and File No. 333-138956, effective November 27, 2006).

/s/ Grant Thornton LLP

Boston, Massachusetts

June 30, 2008

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David Robbins, certify that:

1. I have reviewed this Annual Report on Form 10-K of Micronetics, Inc.;

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

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

4. The Company‘s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

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

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

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

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

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

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: June 30, 2008

	/s/    DAVID ROBBINS
Name:	David Robbins
Title:	President, Chief Executive Officer and Acting Chief Financial Officer
	(Principal Executive Officer and Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Micronetics, Inc. (the “Company”) on Form 10-K for the period ended March 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), David Robbins, President, Chief Executive Officer and Acting Chief Financial Officer of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

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

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

June 30, 2008		/s/    DAVID ROBBINS
	Name:	David Robbins
	Title:	President, Chief Executive Officer and Acting Chief Financial Officer
		(Principal Executive Officer and Principal Financial and Accounting Officer)

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.