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, 2009

¨ 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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    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 $24,506,830 based on the closing price of $5.94 of the issuer’s common stock, par value $.01 per share, as reported by NASDAQ on September 27, 2008.

On June 19, 2009, there were 4,553,635 shares of the issuer’s common stock outstanding.

The Proxy Statement of the registrant to be filed on or before July 29, 2009 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	19
Item 3.	Legal Proceedings	19
Item 4.	Submission of Matters to a Vote of Security Holders	19
	Part II
Item 5.	Market for the Common Equity, Related Stockholder Matters, and Small Business Issuer Purchases of Equity Securities	20
Item 6.	Selected Financial Data	21
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 8.	Consolidated Financial Statements and Supplementary Data	30
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	31
Item 9A(T).	Controls and Procedures	31
Item 9B.	Other Information	32
	Part III
Item 10.	Directors, Executive Officers, and Corporate Governance	33
Item 11.	Executive Compensation	33
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	33
Item 13.	Certain Relationships and Related Transactions, and Director Independence	33
Item 14.	Principal Accountant Fees and Services	33
	Part IV
Item 15.	Exhibits and Financial Statement Schedules	34
Signatures		37

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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 March 2009, we acquired certain assets of M/A-COM RFID Inc. The acquisition of the radio frequency identification system product line (“RFID”) was accounted for as a purchase, and the operating results are included in the consolidated financial statements since the March 18, 2009 acquisition date. The purchase price has been allocated to the relative fair value of assets acquired and liabilities assumed based on their fair value at the date of acquisition.

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.

Business of Issuer

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

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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.

Micronetics designs and manufactures a broad selection of linearized and non linearized power amplifiers including analog and digital pre-distortion products. Our specialized amplifiers are designed with a proprietary linearization capability that allows for smaller size amplifier solutions with a fraction of the power consumption. Our amplifier products are used in various commercial and military applications, and are currently in operation in

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applications such as base stations for commercial telecommunications standards to 3G and 4G standards, portable mobile video transmitters, MMDS transmitters, digital electronic news gathering equipment, RF test and measurement, multi-band military radio systems for man-pack, vehicular, and flight applications military countermeasures, jamming systems, and RF medical devices.

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

Microwave Integrated Multifunction Subassemblies:

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

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

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

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

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

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

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

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

Manufacturing

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

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.

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

During Fiscal 2009 and Fiscal 2008, the approximate mix of sales was 31% and 69% respectively, for commercial applications and 69% and 31% respectively, for defense applications. During Fiscal 2009, we saw a significant shift to our sales mix with erosion in the commercial marketplace for high powered amplifiers offset by an increase in defense related components and integrated subassemblies.

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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, BAE Systems and Raytheon accounted for 22%, 5% and 5% of the consolidated sales in Fiscal 2009, respectively. We believe that replacing any of these customers could be difficult.

Other customers of Micronetics include Northrop Grumman Corporation, Aerosat Avionics LLC, L3 Communications Corporation, Thales, Boeing Company and Anritsu. In addition, direct government customers include DFAS, Hill AFB, Augusta Aerospace 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 Aeroflex, Inc., Aethercomm, Anaren Inc., Cobham, PLC, ComTech Telecommunications Corporation, Herley Industries, Inc., Spectrum Control, Inc., and Teledyne Technologies, Inc.

Micronetics’ competitive position is supported by:

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

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

• SUCCESSFUL ACQUISITION TRACK RECORD. We believe our acquisition strategy based on keeping the operations of acquired entities intact is key to successfully integrating and operating acquired entities. Our strategy allows for a smooth transition and maintains valuable resources. Our goal is to continue 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 29 individuals as of March 31, 2009, 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 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 $1,869,142 and $1,018,010 for Fiscal 2009 and Fiscal 2008, respectively. The increase was primarily due to development work for an in-flight high-speed transceiver product, high power products for defense applications and a new high power amplifier line for commercial telecom applications.

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

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Backlog

Micronetics’ backlog of firm orders was approximately $26 million and $14 million on March 31, 2009 and 2008, 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, 2009, we had 202 full-time employees including 39 engaged in management and administration, 29 in engineering, 129 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.

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.

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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.

Recent Changes in Economic Conditions May Adversely Affect Our Business.

Recent changes in domestic and global economic conditions could adversely affect our business. In response to such changes we may experience, insolvency of key suppliers resulting in product delays; customer insolvencies; decreased customer confidence; and decreased customer demand. Any of these events, or any other events caused by the recent changes in economic conditions, may have a material adverse effect on our business, operating results, and financial condition.

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;

• 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;

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• 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.

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.

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

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

These risks and uncertainties include:

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

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

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

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

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

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

• the potential loss of key employees of the acquired businesses;

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

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

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

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

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

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

• control higher inventory and working capital requirements; and

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

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

Relatively few customers have accounted for a substantial portion of our net sales. During Fiscal 2009 our top three customers collectively accounted for 32% of our total net sales. We may not continue to receive significant revenues from any of these or from other large customers. Because of our significant customer

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concentration, our net sales and operating income could fluctuate significantly due to the loss of, reduction of business with, or less favorable terms for any of our significant customers. A reduction or delay in orders from any of our significant customers, or a delay or default in payment by any significant customer could materially harm our results of operation and liquidity.

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

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

Our gross margins may be negatively affected 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.

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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, 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 and availability under our line of credit 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

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

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

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

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

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

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.

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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.

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, 2007 to March 31, 2009, the trading price of our common stock ranged from $10.43 to $1.57. Many factors may cause the market price of our common stock to fluctuate, including:

• variations in our quarterly results of operations;

• the introduction of new products by us or our competitors;

• the hiring or departure of key personnel;

• acquisitions or strategic alliances involving us or our competitors;

• changes in, or adoptions of, accounting principles; and

• market conditions in our industries.

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

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

Although our shares are traded on the Nasdaq Stock Market, our stock is thinly traded. As a result, its market price may fluctuate significantly more than the stock market as a whole or the stock prices of similar companies. Without a larger float, our common stock will be less liquid than the stock of companies with broader

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public ownership, and as a result, the trading prices for our common stock may be more volatile. Among other things, trading of a relatively small volume of common stock may have a greater impact on the trading price than would be the case if the public float were larger.

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

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

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 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.

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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.

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 to be included in our Annual Report on Form 10-K. 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. 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.

Our Financing Requirements May Increase and We Could Have Limited Access to Capital Markets.

The United States and worldwide capital and credit markets have recently experienced significant price volatility, dislocations and liquidity disruptions, which have caused market prices of many stocks to fluctuate substantially and the spreads on prospective debt financings to widen considerably. In addition, declining capital ratios of many lending institutions and the very weak commercial paper market have adversely impacted various lending institutions, which may adversely impact our ability to borrow under our existing lines of credit. While we believe that our current resources and access to capital markets are adequate to support operations over the near term and foreseeable future, we cannot assure you that these circumstances will remain unchanged. Our need for capital is dependent on operating results and may be greater than expected. Our ability to maintain our current sources of debt financing depends on our ability to remain in compliance with covenants contained in our financing agreements, including, among other requirements, maintaining minimum tangible net assets, a minimum current ratio, a minimum quarterly EBITDA and a minimum quarterly debt service ratio. If changes in capital markets restrict the availability of funds or increase the cost of funds, we may be required to modify, delay or abandon some of our planned expenditures, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

ITEM 1B. Unresolved Staff Comments.

None.

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ITEM 2. Properties.

Our principal manufacturing facility and corporate office is located in a 32,000 square foot building in Hudson, NH which we own. 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 was paid in full in February 2009.

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. In the second quarter of Fiscal 2010 we plan to move into a 23,000 square foot leased facility in West Caldwell, NJ replacing the current 9,600 square foot facility.

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

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 sale prices for the Common Stock for each fiscal quarter from April 1, 2007 until March 31, 2009 as reported by NASDAQ, were as follows:

Bid Prices

Quarter Ended	High	Low
Fiscal 2008
First Quarter	9.18	7.53
Second Quarter	10.43	8.04
Third Quarter	9.66	7.01
Fourth Quarter	8.94	6.54
Fiscal 2009
First Quarter	8.57	6.41
Second Quarter	8.49	5.54
Third Quarter	7.52	1.57
Fourth Quarter	3.65	1.88

The number of holders of record of the common stock as of June 19, 2009 was 218. 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 19, 2009, the last sale price of the common stock as reported by NASDAQ was $3.58 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.

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 approved by security holders	699,125	$	7.78	698,000
Equity compensation plans not approved by security holders	—		—	—
Total	699,125	$	7.78	698,000

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ITEM 6. Selected Financial Data (unaudited)

	Years ended March 31, (in thousands, except earnings per share)
	2009			2008			2007			2006			2005
Net sales	$	30,347		$	32,625		$	23,690		$	26,909		$	14,059
Gross profit	$	9,184		$	12,919		$	9,377		$	11,695		$	6,421
Gross profit		30	%		40	%		40	%		43	%		46	%
Net (loss) income	$	(9,564	)	$	1,662		$	1,041		$	2,540		$	1,275
(Loss) earnings per common share
—basic	$	(1.98	)	$	0.34		$	0.22		$	0.57		$	0.29
Basic weighted average shares		4,836			4,932			4,637			4,465			4,375
(Loss) earnings per common share
—diluted	$	(1.98	)	$	0.34		$	0.22		$	0.54		$	0.29
Diluted weighted average shares		4,836			4,951			4,789			4,697			4,452
Total assets	$	25,526		$	33,386		$	29,819		$	27,748		$	14,636
Total current liabilities	$	9,303		$	5,426		$	5,487		$	5,598		$	1,918
Long-term debt, net of current portion	$	3,085		$	4,226		$	5,633		$	5,328		$	734
Other long-term liabilities	$	908		$	1,325		$	722		$	963		$	170

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

The Provisions of SFAS 157, as issued, are effective for the fiscal years beginning after November 15, 2007. 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 in the process of analyzing the potential impact of SFAS No. 157 relating to its planned April 1, 2009 adoption of the remainder of the standard.

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 were effective beginning April 1, 2008. The adoption of EITF 07-03 did not have any effect on the Company’s financial statements

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(Revised), “Business Combinations” (“SFAS 141R”), which replaces Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS 141”). SFAS 141R requires the assets acquired, liabilities assumed, and any non-controlling interest to be measured at their fair values as of the acquisition date. SFAS 141R also requires expensing of acquisition related costs and restructuring costs, and re-measurement of earn out provisions

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at fair value. SFAS 141R is effective for any of the Company’s business combinations on or after April 1, 2009. SFAS 141R 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 Statement of Financial Accounting Standards No. 161, “Disclosures About Derivative Instruments and Hedging Activities, an Amendment of Statement No. 133” (“SFAS 161”). SFAS 161 expands the disclosure requirements in Statement 133 about an entity’s derivative instruments and hedging activities. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The Company is currently evaluating the effect that the adoption of SFAS 161 will have on its consolidated financial statements.

In April 2008, the FASB issued Staff Position No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142, Goodwill and Other Intangible Assets (“SFAS 142”). The intent of FSP FAS 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(Revised) and other applicable accounting literature. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the effect that the adoption of FSP FAS 142-3 will have on its consolidated results of operations and financial condition.

In November 2008, the FASB ratified Emerging Issues Task Force Issue No. 08-7, Accounting for Defensive Intangible Assets. EITF 08-7 clarifies the accounting for certain separately identifiable intangible assets which an acquirer does not intend to actively use but intends to hold to prevent its competitors from obtaining access to them. EITF 08-7 requires an acquirer in a business combination to account for a defensive intangible asset as a separate unit of accounting which should be amortized to expense over the period the asset diminishes in value. EITF 08-7 is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited.

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 (“US GAAP”). On an on-going basis, we evaluate our judgments and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Estimates and judgments include revenue recognition, assumptions used in stock option and goodwill valuations, reserves for accounts receivable and inventories, useful lives of property, plant and equipment, purchase price allocation, valuation of investments, intangibles, accrued liabilities, and deferred income taxes and various other assumptions that we believe are reasonable under the circumstances. These estimates and judgments are based on historical experience and various other assumptions that are believed to be reasonable under current business conditions and circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition And Product Warranties

We generate revenue from the sale of products, technology development, and licensing. Revenue is recognized when persuasive evidence of a sales arrangement exists, delivery of product has occurred or services

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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. During the year ended March 31, 2009, we entered into a contract for production of highly customized microwave and radio frequency components and integrated sub-assemblies. We record revenue for these types of contracts based upon the percentage of completion method in accordance with SOP 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type of Contracts.” For these types of contracts (assuming all other requirements for revenue recognition have been satisfied) we typically use labor hours to measure progress toward completion of the contract as this methodology best reflects the fundamentals of the contract. If estimates to complete the contract change materially from one period to the next, profit levels could significantly vary. Deferred revenue represents billings in excess of revenue recognized.

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

We sell our products using a direct sales force and sales representatives. Contracts 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 ensure the accuracy of its forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have an impact on the level of obsolete material in our inventories and operating results could be affected accordingly.

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.

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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.

We assess goodwill, by reporting unit, for impairment at least once each year by applying a direct value-based fair value test. Goodwill could be impaired due to market declines, reduced expected future cash flows, or other factors or events. Should the fair value of goodwill at the measurement date fall below its carrying value, a charge for impairment of goodwill would occur in that period. SFAS 142 requires a two-step impairment testing approach. We must first determine whether goodwill is impaired and if so, we must value that impairment based on the amount by which the book value exceeds the estimated fair value. We used discounted cash flows, sales and EBITDA multiples as the best evidence of fair value. In preparing the goodwill impairment test for this reporting unit we assumed operating margin performance consistent with historical performance and revenue growth between 3% and 5%. If actual results are significantly different than these assumptions, the associated goodwill may be subject to an impairment charge. As of December 27, 2008 we recorded a goodwill impairment charge of approximately $8.0 million. Please see “Impairment of Goodwill” under “Results of Operations” below for further description. At March 31, 2009, we updated our goodwill impairment assessment for the remaining approximately $1.1 million goodwill and determined that no further impairment charge was required.

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. As of December 27, 2008 we recorded a long-lived asset impairment charge of approximately $1.3 million. Please see “Impairment of Long-Lived Assets” under “Results of Operations” below for further description. At March 31, 2009 we determined that no new triggering events had occurred warranting a further impairment assessment of our long-lived assets.

Stock Compensation Expense

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, expected term, the volatility of our common stock price over the expected term, risk free interest rate and the number of options that will not vest. Changes in these assumptions could materially affect the estimate of fair value stock-based compensation and consequently, the related amount recognized on the consolidated statements of operations.

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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, 2009 and 2008 because we believe we have adequate carryback profit to fully utilize this deferred tax asset. If actual results are significantly different from our assumptions the deferred tax asset may be subject to a valuation allowance.

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 2009 versus Fiscal 2008

Net sales

Net sales for Fiscal 2009 were $30,347,285, a decrease of $2,277,661 or 7% as compared to net sales of $32,624,946 for Fiscal 2008. The decrease in net sales is primarily attributable to a decrease in net sales of high performance amplifiers for commercial WIMAX and public safety applications of approximately $6.8 million partially offset by an increase of $2.8 million in sales of integrated component sub-systems for jamming and electronic modernization. Other component sales increased by approximately $1.7 million of which approximately $0.8 million was the result of the MICA Microwave sales being included for the full period in Fiscal 2009 as compared to a partial period in Fiscal 2008. In Fiscal 2009 we experienced a decline in the commercial market for high performance amplifiers necessary for wireless applications, which had an adverse affect on our high performance amplifier sales. We are investing in a digital high power amplifier product and taking steps to shift our customer base to include large volume customers.

Foreign sales accounted for approximately $5,215,000 and $8,797,000 in Fiscal 2009 and Fiscal 2008, respectively. The decrease is primarily attributable to the decrease in foreign sales related to high performance power amplifiers.

Gross profit margin

Gross margin decreased to 30.3% for Fiscal 2009 as compared to 39.6% for Fiscal 2008. The decrease is due primarily to three factors of approximately equal weight: lower sales without a corresponding decrease in fixed costs primarily related to high power amplifiers; a change in mix of products sold to more products with higher average costs; and an increase in component inventory reserves. Of the inventory reserve increase approximately $185,000 was related to the decline in our high power amplifier business and was recorded in the third quarter. The remaining reserve of $638,000 was related to shifts in customer requirements for our other component products and was recorded in the fourth quarter of Fiscal 2009.

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Research and development

Research and development (“R&D”) expense increased by $851,132 to $1,869,142 and represented 6% of net sales for Fiscal 2009 as compared to $1,018,010 or 3% for Fiscal 2008. The increase was primarily due to development work on an in-flight high-speed internet transceiver product, high power products for defense applications and a new product line for commercial telecom applications.

Selling, general and administrative

Selling, general and administrative (“SG&A”) expense increased by $309,363 to $7,898,753 or 26% of net sales in Fiscal 2009 as compared to $7,589,390 or 23% of net sales in Fiscal 2008. Approximately $200,000 of the increase was due to the inclusion of MICA’s SG&A expenses for a full period in Fiscal 2009. All other SG&A expenses increased by approximately $100,000. The percent increase is primarily due to the decrease in net sales in Fiscal 2009 as compared to Fiscal 2008.

Amortization of intangible assets

Amortization expense attributable to the intangible assets related to the acquisitions of Stealth and MICA was $565,503 in Fiscal 2009 as compared to $733,160 in Fiscal 2008. The decrease was due to an intangible asset impairment charge which we recorded in the third quarter. Please see “Impairment of Long-Lived Assets” below for further explanation.

Impairment of Goodwill

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, (SFAS No. 142) we test goodwill for impairment annually and when an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. Goodwill is tested for impairment using a two-step process. The first step is to determine if there is an impairment and the second step is to determine the amount of the impairment.

During the thirteen weeks ended December 27, 2008, we experienced a significant decline in our stock price and we experienced a decline in the commercial market for high performance analog amplifiers necessary for wireless applications, which is having an adverse affect on our high performance amplifier sales. Lastly, the recent dramatic downturn in the liquidity and economic outlook has caused us to re-evaluate our business outlook. We now believe we are in a one to two year period of slow growth which is driven by the global liquidity crisis and resultant economic decline. Accordingly, at December 27, 2008, we performed a step 1 assessment of goodwill for impairment. The results of our step 1 assessment indicated that a step 2 was required for two of our three reporting units. As a result of our step 2 analysis, the Company recorded a goodwill impairment charge of $4.9 million and $3.1 million for the high performance amplifier and mixer/ferrite reporting units, respectively. The impairment charge is the result of the assumptions described above. There remains approximately $1.1 million of goodwill associated with our power amplifier, noise module, phase shifter, switches and attenuator product group. The estimated fair value of this reporting unit exceeded its carry value as of March 31, 2009 and therefore no step 2 was required. In preparing the goodwill impairment test for this reporting unit we assumed operating margin performance consistent with historical performance and revenue growth of approximately between 3% and 5%. If actual results are significantly different than these assumptions, the associated goodwill may be subject to an impairment charge.

In performing our step 1 goodwill assessment, we used discounted cash flows, sales and EBITDA multiples as the best evidence of fair value. For purposes of testing impairment under SFAS No. 142, we have three separate reporting units with goodwill. Testing was performed separately for each of the three goodwill reporting units and an impairment charge was recorded at two of the goodwill reporting units (high power amplifier and mixer/ferrite product groups). Please see Footnote 3. Intangible Assets and Goodwill for further explanation.

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Impairment of Long-Lived Assets

In addition, in accordance with SFAS No, 144, Accounting for Impairment or Disposal of Long-Lived Assets, (“SFAS No. 144), in the third quarter of Fiscal 2009 we determined that the customer list intangible asset related to the high performance amplifier business was impaired and we recorded a charge of approximately $1.3 million. Please see Footnote 3. Intangible Assets and Goodwill for further explanation. In the fourth quarter of fiscal 2009 we determined that no further triggering event had occurred warranting a long-lived asset impairment review.

Interest expense

Interest expense decreased $105,033 or 22% to $380,323 for Fiscal 2009 as compared to $485,356 for Fiscal 2008 due primarily to lower average debt at lower average interest rates.

Interest rate swap

An unrealized gain of $215 was recorded for Fiscal 2009 as compared to an unrealized loss of $280,865 recorded in Fiscal 2008 to reflect the change in fair value of the mark to market valuation for the 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 11% for Fiscal 2009 as compared to 45% for Fiscal 2008. In Fiscal 2009 we recorded a discrete item of $2.7 million related to a goodwill impairment charge that is non-tax deductible. In addition, approximately $75,000 of uncertain tax benefits were recognized due to statute of limitations expiring for previously filed tax returns.

Financial Condition, Liquidity and Capital Resources

We finance our operating and investment requirements primarily through operating cash flows and borrowings. Cash equivalents and marketable securities was $620,259 and $3,563,415, respectively, at March 31, 2009 and March 31, 2008. Working capital defined as accounts receivable, inventory, prepaid expenses, other current assets net of accounts payable and accrued expenses was $11,549,933 and $8,491,849 at March 31, 2009 and March 31, 2008, respectively. Borrowings under our revolving line of credit were $3,502,620 and zero at March 31, 2009 and March 31, 2008, respectively.

Our current ratio was approximately 1.92 at March 31, 2009 as compared to 3.06 at March 31, 2008.

Net cash used in operating activities was $2,565,989 in Fiscal 2009 compared to cash provided by operating activities of $3,888,038 during Fiscal 2008. In Fiscal 2009 cash provided by net loss after adjusting for non-cash items including depreciation, amortization, stock-based compensation, changes in working capital reserves and goodwill and intangible asset impairment charges was approximately $3.2 million. Approximately $3.1 million was used for inventory related largely to contracts in anticipation of future sales. Approximately $1.2 million was used for prepaid income taxes. Approximately $1.3 million was used for deferred taxes.

In Fiscal 2008 cash provided by net income after adjusting for non-cash items including depreciation, amortization, stock-based compensation, changes in working capital reserves and goodwill and intangible asset impairment charges was approximately $4.7 million. Approximately $.3 million was used to fund receivables resulting from increased sales. Approximately $.8 million was used to fund increases in inventory and approximately $0.3 million was provided by all other largely accounts payable and accrued expenses.

Net cash used in investing activities was $762,623 during Fiscal 2009 as compared to $5,839,078 in Fiscal 2008. In Fiscal 2009 we purchased equipment of approximately $1.0 million, purchased the assets of a radio frequency identification system product line (“RFID”) for approximately $.4 million and sold investments of approximately $.6 million.

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In Fiscal 2008 we acquired MICA Microwave for approximately $3.1 million, made the final earnout payment to the former stockholders of Stealth Microwave of approximately $1.5 million and purchased capital equipment of approximately $1.1 million

Net cash provided by financing activities was $785,456 during Fiscal 2009 as compared to cash used in financing activities of $1,944,069 during Fiscal 2008.

In Fiscal 2009 we borrowed approximately $3.5 million from our line of credit, repaid mortgage and term debt obligations of approximately $1.4 million and repurchased shares of our common stock for approximately $1.2 million.

In Fiscal 2008 we repaid mortgage and term debt obligations of approximately $2.1 million and received proceeds from the issuance of common stock of approximately $.3 million and repurchased shares for approximately $.2 million.

In summary, during Fiscal 2009 we used cash of approximately $2.5 million and drew on our revolving line of credit for an additional approximately $3.5 million for a total use of approximately $6.0 million. We generated cash of approximately $3.2 million from net income after adjusting for non-cash items and approximately $0.7 million from the sale of investments. We used approximately $3.1 million to fund inventory largely for contracts, approximately $2.5 million for taxes, approximately $1.3 million to repurchase shares of our common stock, approximately $1.4 million to repay debt, approximately $1.0 million for capital expenditures and approximately $.4 million to acquire the RFID product line.

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

Term Loan and Revolver

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

We 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 we record the current fair value of the interest rate swap on the balance sheet. Any unrealized gain or loss on the swap is charged to earnings.

The term loan is guaranteed by our subsidiaries and secured by substantially all of our assets. The term loan is payable in quarterly principal installments of $325,000 plus accrued interest at the rate of 5.2% plus the applicable margin. The final payment for the term loan is in April 2012.

The revolving line of credit bears interest at the current prime rate, which at March 31, 2009 was 3.25%. We had $1.5 million available under the line at March 31, 2009. In December 2008 we extended our revolving line of credit by two years. The revolving line of credit now expires in March 2012.

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Under the terms of the term loan and the revolver, we are 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. We obtained an amendment to the term loan and revolver agreements to include the goodwill and intangible asset impairment charges as an add-back to the EBITDA covenants. We also obtained an Amendment and Waiver Agreement to the term loan and revolver agreements to waive our EBITDA covenants for the thirteen weeks ended March 31, 2009 and to substitute modified quarterly EBITDA covenants through March 31, 2010. Under the terms of our amendment, our interest rate will increase from a maximum of LIBOR plus 2.5% to a maximum of LIBOR plus 4.25% for our revolving line of credit and a maximum adjusted LIBOR plus 3.75% for our term loan. The rate decreases to a minimum of LIBOR plus 2.5% based upon performance. We do not anticipate the change in rate will have a material adverse affect on our cash flows for Fiscal 2010.

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 was paid in full in February 2009.

Mortgage payable, MA

In March 2003, in connection with the purchase of a portion of a commercial condominium housing Micronetics’ Enon Microwave 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 6.4% to 10.6% per annum, and are secured by the underlying assets. The assets are depreciated over their estimated useful lives.

Stock Repurchase Plan

In November 2008 our Board of Directors approved a stock repurchase plan. Pursuant to such plan, in November 2008 we re-purchased 454,107 shares of our common stock for $1,248,314. Bank approval for the plan expired on May 5, 2009. We have no plans at this time to make an additional repurchases under the plan.

Acquisition

On March 18, 2009, we purchased the assets of an RFID product line for approximately $.4 million. This product line includes forklift, wall and floor mount radio frequency identification systems for inventory management and other applications. It also adds antennas to our component product line.

On June 5, 2007, we 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 (248,135 shares). A post-closing adjustment of $20,522 was recorded during the thirteen weeks ended June 28, 2008 based upon MICA’s net worth on the closing date.

Off-Balance Sheet Arrangements

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

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ITEM 8. Financial Statements and Supplementary Data.

This information is contained on pages F-1 through F-27 hereof.

Financial Statements	Page
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets, March 31, 2009 and 2008	F-2
Consolidated Statements of Operations for the years ended March 31, 2009 and 2008	F-3
Consolidated Statement of Shareholders’ Equity for the years ended March 31, 2009 and 2008	F-4
Consolidated Statements of Cash Flows for the years ended March 31, 2009 and 2008	F-5
Notes to Consolidated Financial Statements	F-6 - F-27

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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, 2009, 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 (the “Exchange Act”)). Based upon that evaluation and as described below under “Management’s Report on Internal Control over Financial Reporting,” the Company’s Chief Executive Officer and Acting Chief Financial Officer have identified a material weakness in our internal control over financial reporting. Solely, as a result of this material weakness, the Company’s Chief Executive Officer and Acting Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2009, to provide reasonable assurance that material information relating to the Company required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Acting Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Notwithstanding the material weakness discussed below, our Chief Executive Officer and Acting Chief Financial Officer have concluded that the consolidated financial statements included in this Form 10-K present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America. In making this determination, management considered the material weaknesses in our internal control over financial reporting that existed as of March 31, 2009, as more fully described below.

Management’s report on internal control over financial reporting—Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Act of 1934, as amended. 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 these criteria, management has concluded that, as of March 31, 2009, the Company’s internal control over financial reporting is ineffective because of a material weakness in the Company’s accounting for income taxes. Specifically, the Company did not properly supervise and review the calculation of its income tax provision for the fiscal year ended March 31, 2009, which could have resulted in a material misstatement of annual or interim consolidated financial statement not being prevented or detected in a timely manner. As a result of this material weakness, management has concluded that as of March 31, 2009 its internal control over financial reporting was not effective. The Company has taken additional measures to ensure that the consolidated financial statements filed in this 10-K are complete and accurate.

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.

Plan for Remediation of Material Weakness—To remedy the material weakness described above, we have initiated a more rigorous review of our income tax provision calculations, including additional reviews by Company personnel as well as additional reviews by the 3rd party firm used to assist us in the preparation of our tax provision. These changes are in the process of being implemented.

Changes in internal control—There were no significant changes in the Company’s internal controls over financial reporting that occurred during the fourth quarter of Fiscal 2009 that have materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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ITEM 9B. Other Information.

On June 26, 2009 we entered into an Amendment and Waiver Agreement for our term loan and revolver agreements. Under the terms of the Amendment and Waiver Agreement, we and our bank agreed to waive our EBITDA covenants for the quarter ended March 31, 2009 and to substitute modified quarterly EBITDA covenants through March 31, 2010. As part of the terms of the waiver and amendment, our interest rate will increase from a maximum of LIBOR plus 2.5% to a maximum LIBOR plus 4.25% for our revolving line of credit and adjusted LIBOR plus 3.75% for our term loan. The rate decreases to a minimum of LIBOR plus 2.5% based upon performance. At March 31, 2009, we were in compliance with all financial debt covenants as amended.

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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, 2009.

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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).
2.6	Asset Purchase Agreement, by and among Micronetics, Inc., M/A-COM RFID Inc., solely for the purposes of Section 5.3 and Section 5.9, Cobham Defense Electronic Systems Corporation, and solely for the purposes of Section 5.10 and Article VI, Cobham Defense Electronic Systems – M/A-COM Inc., dated March 18, 2009.
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	2003 Stock Incentive Plan (incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed on September 24, 2003).*
10.2	2006 Equity Incentive Plan (incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement filed on July 31, 2006).*
10.3	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).*

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10.4	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).*
10.5	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).
10.6	Amendment to Commercial Loan Agreement and Loan Documents, by and between, Micronetics, Inc., Microwave & Video Systems, Inc., Microwave Concepts, Inc., Stealth Microwave, Inc., MICA Microwave Corporation and RBS Citizens National Association (successor by merger to Citizens Bank New Hampshire), dated December 12, 2008 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on December 15, 2008).
10.7	Amendment to Commercial Loan Agreement and Loan Documents, by and between, Micronetics, Inc., Microwave & Video Systems, Inc., Microwave Concepts, Inc., Stealth Microwave, Inc., MICA Microwave Corporation and RBS Citizens National Association (successor by merger to Citizens Bank New Hampshire), dated March 5, 2009 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on March 9, 2009).
10.8	Amendment and Waiver To Commercial Loan Agreement and Loan Documents, by and between, Micronetics, Inc., Microwave & Video Systems, Inc., Microwave Concepts, Inc., Stealth Microwave, Inc., MICA Microwave Corporation and RBS Citizens National Association (successor by merger to Citizens Bank New Hampshire), dated June 26, 2009.
10.9	Mortgage and Security Agreement, by and between, Micronetics, Inc., and RBS Citizens National Association (successor by merger to Citizens Bank New Hampshire), dated June 26, 2009.
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).*
10.17	Lease by and between Microwave Concepts, Inc. and SAI Property Management LLC, dated October 17, 2008 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on November 5, 2008.)

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10.18	Guaranty by Micronetics, Inc. to SAI Property Management LLC, dated October 17, 2008 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by the Company on November 5, 2008.)
10.19	Lease, dated September 4, 2008, by and between Micronetics, Inc. and SBJ Development, LLC (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by the Company on November 12, 2008.)
21	List of Subsidiaries of the Company.
23.1	Consent of Grant Thornton LLP dated June 29, 2009.
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Management contract or compensatory plan or arrangement

36

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 29, 2009	By:	/s/    DAVID ROBBINS
		David Robbins, Chief Executive Officer and Treasurer (Principal Executive Officer)
Dated: June 29, 2009	By:	/s/    CARL LUEDERS
		Carl Lueders, Acting Chief Financial Officer (Principal Financial and Accounting Officer)

registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/    DAVID ROBBINS         David Robbins	Chief Executive Officer and Treasurer (Principal Executive Officer)	June 29, 2009
/s/    DAVID SIEGEL         David Siegel	Director	June 29, 2009
/s/    DOROTHY ANNE HURD         Dorothy Anne Hurd	Director	June 29, 2009
/s/    GERALD HATTORI         Gerald Hattori	Director	June 29, 2009
/s/    STEPHEN BARTHELMES JR.         Stephen Barthelmes Jr.	Director	June 29, 2009

37

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

Micronetics, Inc.

We have audited the accompanying consolidated balance sheets of Micronetics, Inc. (a Delaware Corporation) and subsidiaries (collectively, the “Company”) as of March 31, 2009 and 2008 and the related statements of operations, 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, 2009 and 2008 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/    GRANT THORNTON LLP

Boston, Massachusetts

June 29, 2009

F-1

MICRONETICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31,
	2009			2008
ASSETS
Current assets:
Cash and cash equivalents	$	620,259		$	3,163,415
Short-term investment		—			400,000
Accounts receivable, net of allowance for doubtful accounts of $449,799 and $364,981 in March 31, 2009 and March 31, 2008, respectively		4,980,924			4,861,780
Inventories, net		9,436,210			7,316,246
Deferred tax asset		1,464,958			576,170
Prepaid income taxes		1,068,832			—
Prepaid expenses and other current assets		276,222			306,159
Total current assets		17,847,405			16,623,770
Property, plant and equipment, net		4,703,529			4,159,963
Other assets:
Security deposits		86,839			24,659
Long-term investment		—			250,000
Other long-term assets		26,791			35,034
Intangible assets, net		1,744,691			3,361,200
Goodwill		1,117,197			8,931,944
Total other assets		2,975,518			12,602,837
TOTAL ASSETS	$	25,526,452		$	33,386,570
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	1,588,175		$	1,434,193
Line of credit		3,502,620			—
Accounts payable		1,070,831			1,284,567
Accrued expenses		3,141,424			2,707,769
Total current liabilities		9,303,050			5,426,529
Long-term debt, net of current portion		3,085,290			4,226,342
Other long-term liability		6,200			80,000
Deferred tax liability		901,722			1,245,052
Total liabilities		13,296,262			10,977,923
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 issued, 4,553,635 and 5,007,742 shares outstanding at March 31, 2009 and March 31, 2008, respectively		53,912			53,912
Additional paid-in capital		12,242,320			11,608,536
Retained earnings		2,914,471			12,478,398
		15,210,703			24,140,846
Treasury stock at cost, 837,582 and 383,475 shares at March 31, 2009 and March 31, 2008, respectively		(2,980,513	)		(1,732,199	)
Total shareholders’ equity		12,230,190			22,408,647
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	25,526,452		$	33,386,570

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

F-2

MICRONETICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Fiscal Years Ended March 31,
	2009			2008
Net sales	$	30,347,285		$	32,624,946
Cost of sales		21,163,552			19,705,886
Gross profit		9,183,733			12,919,060
Operating expenses:
Research and development		1,869,142			1,018,010
Selling, general and administrative		7,898,753			7,589,390
Goodwill impairment charge		7,964,916			—
Intangible asset impairment charge		1,295,000			—
Amortization of intangible assets		565,503			733,160
Gain on sale of property and equipment		—			(90,352	)
Total operating expenses		19,593,314			9,250,208
(Loss) income from operations		(10,409,581	)		3,668,852
Other (expense) income
Interest income		33,285			106,684
Interest expense		(380,323	)		(485,356	)
Unrealized gain (loss) on interest rate swap		215			(280,865	)
Miscellaneous income		18,593			4,004
Total other expense		(328,230	)		(655,533	)
(Loss) income before provision for income taxes		(10,737,811	)		3,013,319
(Benefit) provision for income taxes		(1,173,884	)		1,350,936
Net (loss) income	$	(9,563,927	)	$	1,662,383
(Loss) earnings per common share
Basic	$	(1.98	)	$	0.34
Diluted	$	(1.98	)	$	0.34
Weighted average common shares outstanding
Basic		4,836,052			4,932,545
Diluted		4,836,052			4,951,195

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, 2007	4,666,916		$	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	(24,934	)		—		—		—			(205,185	)		(205,185	)
Stock based compensation	—			—		740,722		—			—			740,722
Net income	—			—		—		1,662,383			—			1,662,383
Balance at March 31, 2008	5,007,742		$	53,912	$	11,608,536	$	12,478,398		$	(1,732,199	)	$	22,408,647
Purchase of treasury stock	(454,107	)		—		—		—			(1,248,314	)		(1,248,314	)
Stock based compensation	—			—		633,784		—			—			633,784
Net loss	—			—		—		(9,563,927	)		—			(9,563,927	)
Balance at March 31, 2009	4,553,635		$	53,912	$	12,242,320	$	2,914,471		$	(2,980,513	)	$	12,230,190

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,
	2009			2008
Cash flows from operating activities
Net (loss) income	$	(9,563,927	)	$	1,662,383
Adjustments to reconcile net (loss) income to net cash provided by operating activities, net of acquisition:
Depreciation and amortization		1,665,862			1,731,919
Goodwill impairment charge		7,964,916			—
Intangible asset impairment charge		1,295,000			—
Stock-based compensation		633,784			740,722
Gain on sale of property and equipment		—			(90,352	)
Unrealized (gain) loss on interest rate swap		(215	)		280,865
Provision for allowances on accounts receivable		84,818			67,095
Provision for inventory obsolescence and losses		1,070,169			312,394
Deferred taxes		(1,316,017	)		(652,221	)
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable		(203,962	)		(320,938	)
Inventories		(3,143,697	)		(771,370	)
Other long term assets		8,243			103,458
Prepaid income taxes		(1,256,449	)		—
Prepaid expenses, other current assets, and other assets		(5,215	)		353,774
Accounts payable		(213,734	)		211,968
Accrued expenses and deferred revenue		414,435			258,341
Net cash (used in) provided by operating activities		(2,565,989	)		3,888,038
Cash flows from investing activities:
Purchase of investments		—			(650,000	)
Proceeds from sale of investments		650,000			—
Purchase of equipment		(1,033,145	)		(1,086,643	)
Proceeds from sale of property and equipment		—			518,398
RFID acquisition		(400,000	)		—
MICA acquisition, net of cash acquired		20,522			(3,120,833	)
Earnout payment related to Stealth acquisition		—			(1,500,000	)
Net cash used in investing activities		(762,623	)		(5,839,078	)
Cash flows from financing activities:
Proceeds from line of credit		3,502,620			728,528
Repayments on line of credit		—			(728,528	)
Repayments on mortgages and term loan		(1,430,837	)		(1,418,769	)
Repayment of the MICA debt		—			(646,820	)
Repayments of capital leases		(38,013	)		(3,524	)
Purchase of treasury shares		(1,248,314	)		—
Proceeds from the issuance of common stock		—			125,044
Net cash provided by (used in) financing activities		785,456			(1,944,069	)
Net change in cash and cash equivalents		(2,543,156	)		(3,895,109	)
Cash and cash equivalents at beginning of period		3,163,415			7,058,524
Cash and cash equivalents at end of period	$	620,259		$	3,163,415
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	375,586		$	435,312
Income taxes	$	1,459,000		$	2,704,899
Supplemental disclosure of non-cash financing activities:
Property and equipment acquired under capital leases	$	481,780		$	—
Treasury stock purchase from stock option exercise	$	—		$	205,185
Shares issued to MICA stockholders	$	—		$	1,999,968
Recognition of uncertain tax positions	$	—		$	96,443

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, 2009 AND 2008

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

The consolidated financial statements include the accounts of Micronetics, Inc. (“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 December 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, 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 at March 31, 2008 consisted of auction rate securities (“ARS”) with varying maturities. These ARS were redeemed in full during Fiscal 2009.

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

The Company enters into contracts for production of highly customized microwave and radio frequency components and integrated sub-assemblies which it accounts for in accordance with SOP 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type of Contracts.” For these types of contracts, the Company records revenue based on the percentage of completion method (assuming all other requirements for revenue recognition have been satisfied) typically using labor hours to measure progress toward completion of the contract as the Company has determined this methodology best reflects the fundamentals of the contract. If estimates to complete the contract change materially from one period to the next, profit levels could significantly vary. Deferred revenue represents billings in excess of revenue recognized.

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

F-6

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2009 AND 2008

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. As of March 31, 2009, substantially all the Company’s cash and cash equivalents consisted of money market investments guaranteed by the federal government under the Treasury Temporary Guarantee Program for Money Market Funds. This program expires on September 18, 2009.

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 funds that invest in securities of the U.S. government, and other 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 were 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, 2009, utilizing the notional amounts and the remaining terms of the swap agreement. The fair value of the swap was recorded as a liability in the amount of $280,650 and $280,865, at March 31, 2009 and March 31, 2008, respectively. 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, 2009 AND 2008

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. Goodwill is tested for impairment using a two step process. The first step is to determine if there is an impairment based on the fair value of the reporting units compared to the carrying value and the second step is to determine the amount of the 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 of December 27, 2008 the Company recorded a goodwill impairment charge of $8.0 million. Please see Footnote 3, Intangible Assets and Goodwill below for further description. At March 31, 2009 the Company updated its goodwill impairment assessment for the remaining $1.1 million of goodwill on its books and determined that no impairment charge was required at this date. There can be no assurance that goodwill will not become impaired in future periods.

On an on-going basis, the Company 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. The Company 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 the Company’s wholly-owned subsidiaries and investments. As of December 27, 2008 the Company recorded a long lived asset impairment charge of approximately $1.3 million. Please see Footnote 3. Intangible Assets and Goodwill below for further description. March 31, 2009 the Company determined that no new triggering events had occurred warranting a further impairment assessment of our long-lived assets.

F-8

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2009 AND 2008

Research and development—Research and development costs are charged to expense when incurred. Amounts expended for the years ended March 31, 2009 and 2008 were $1,869,142 and $1,018,010, respectively. R&D expenses consists of salaries, materials and third party costs.

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 operation. Advertising expense was $107,165 in Fiscal 2009 and $125,601 in Fiscal 2008.

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, 2009 and 2008.

Earnings per share—Basic earnings per share is computed by dividing net (loss) 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.

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 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 2009 and 2008 has been reduced for estimated forfeitures.

Recent accounting pronouncements—The Provisions of SFAS 157, as issued, are effective for the fiscal years beginning after November 15, 2007. 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 in the process of analyzing the potential impact of SFAS No. 157 relating to its planned April 1, 2009 adoption of the remainder of the standard.

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

F-9

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2009 AND 2008

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 were effective beginning April 1, 2008. The adoption of EITF 07-03 did not have any effect on the Company’s financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(Revised), “Business Combinations” (“SFAS 141R”), which replaces Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS 141”). SFAS 141R requires the assets acquired, liabilities assumed, and any non-controlling interest to be measured at their fair values as of the acquisition date. SFAS 141R also requires expensing of acquisition related costs and restructuring costs, and re-measurement of earn out provisions at fair value. SFAS 141R is effective for any of the Company’s business combinations on or after April 1, 2009. SFAS 141R 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 Statement of Financial Accounting Standards No. 161, “Disclosures About Derivative Instruments and Hedging Activities, an Amendment of Statement No. 133” (“SFAS 161”). SFAS 161 expands the disclosure requirements in Statement 133 about an entity’s derivative instruments and hedging activities. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The Company is currently evaluating the effect that the adoption of SFAS 161 will have on its consolidated financial statements.

In April 2008, the FASB issued Staff Position No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142, Goodwill and Other Intangible Assets (“SFAS 142”). The intent of FSP FAS 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(Revised) and other applicable accounting literature. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the effect that the adoption of FSP FAS 142-3 will have on its consolidated results of operations and financial condition.

In November 2008, the FASB ratified Emerging Issues Task Force Issue No. 08-7, Accounting for Defensive Intangible Assets. EITF 08-7 clarifies the accounting for certain separately identifiable intangible assets which an acquirer does not intend to actively use but intends to hold to prevent its competitors from obtaining access to them. EITF 08-7 requires an acquirer in a business combination to account for a defensive intangible asset as a separate unit of accounting which should be amortized to expense over the period the asset diminishes in value. EITF 08-7 is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited.

F-10

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2009 AND 2008

2. ACQUISITIONS

On March 18, 2009, the Company purchased the assets of a Radio Frequency Identification product line (“RFID”) for approximately $400,000, which has been accounted for as a business acquisition under SFAS No. 141 “Business Combination” (SFAS No. 141). This product line includes forklift, wall and floor mount radio frequency identification systems for inventory management and other applications. It also adds antennas to our component product line.

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

	(in thousands)
Inventory	$	47
Property, plant and equipment		129
Development technology drawings		123
Customer relationships		121
Accounts payable		(20	)
Net purchase price	$	400

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). A post-closing adjustment of $20,522 was recorded during the thirteen weeks ended June 28, 2008 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.

F-11

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2009 AND 2008

The following table summarizes the 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		2,930
Debt		(647	)
Deferred taxes		101
Deferred taxes on acquired intangible assets		(700	)
Income taxes payable		(137	)
Accounts payable and accrued expenses		(704	)
Subtotal		5,198
Less: cash assumed		(97	)
Net purchase price	$	5,101

The acquisition of MICA was accounted for as a purchase under SFAS No. 141. 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 June 28, 2008. The values and useful lives assigned to intangible assets were based on management estimates and guidance from an independent appraisal.

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

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

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

F-12

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2009 AND 2008

3. INTANGIBLE ASSETS AND GOODWILL

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, (SFAS No. 142) the Company tests goodwill for impairment annually and when an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.

During the thirteen weeks ended December 27, 2008, we experienced a significant decline in our stock price and we experienced a decline in the commercial market for high performance analog amplifiers necessary for wireless applications, which is having an adverse affect on our high performance amplifier sales. Lastly, the recent dramatic downturn in the liquidity and economic outlook has caused us to re-evaluate our business outlook. We now believe we are in a one to two year period of slow growth which is driven by the global liquidity crisis and resultant economic decline. Accordingly, at December 27, 2008, we performed a step 1 assessment of goodwill for impairment. The results of our step 1 assessment indicated that a step 2 was required for two of our three reporting units. As a result of our step 2 analysis, the Company recorded a goodwill impairment charge of $4.9 million and $3.1 million for the high performance amplifier and mixer/ferrite reporting units, respectively. The impairment charge is the result of the assumptions described above. There remains approximately $1.1 million of goodwill associated with our power amplifier, noise module, phase shifter, switches and attenuator reporting unit. The estimated fair value of this reporting unit exceeded its carry value as of March 31, 2009 and therefore no step 2 was required. In preparing the goodwill impairment test for this reporting unit we assumed operating margin performance consistent with historical performance and revenue growth between 3% and 5%. If actual results are significantly different than these assumptions, the associated goodwill may be subject to an impairment charge.

In connection with completing the goodwill impairment analysis, the Company reviewed its customer relationship intangible assets associated with the impaired reporting units and determined that triggering events had occurred related to this intangible asset under SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” as of December 27, 2008. The Company determined that the forecasted undiscounted cash flows related to the customer relationship intangible assets with the Company’s high performance amplifier business was less than its carrying value. As a result, the Company recorded an impairment charge of approximately $1.3 million to reduce the carrying value of the customer relationship to its estimated fair value, which is based on a discounted cash flow analysis. The forecasted undiscounted cash flows related to the customer relationship intangible assets with our mixer/ferrite business exceeded its carrying value and therefore this asset was not impaired. In the fourth quarter of Fiscal 2009 the Company determined that no triggering event had occurred to warrant an impairment assessment. No assurance can be given that the underlying estimates and assumptions utilized in our determination of an asset’s undiscounted future cash flows will materialize as anticipated.

F-13

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2009 AND 2008

The following table presents details of the Company’s finite-lived intangible assets as of March 31, 2009 and March 31, 2008 (in thousands):

Intangible Assets	March 31, 2009									March 31, 2008
	Useful Life (years)	Gross Value		Accumulated Amortization		Impairment Charge		Net Value		Gross Value		Accumulated Amortization		Net Value
Customer relationships (non-contractual)	3-10	$	4,251	$	1,728	$	1,295	$	1,228	$	4,130	$	1,282	$	2,848
Covenants not to compete	2		480		480				—		480		480		—
Order backlog	1		380		380				—		380		364		16
Trade Name	10		260		47				213		260		21		239
Developed technology-drawings	3-5		513		209				304		390		132		258
Total intangibles		$	5,884	$	2,844	$	1,295	$	1,745	$	5,640	$	2,279	$	3,361

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)
2010	$	348
2011		321
2012		314
2013		163
2014		144
Thereafter		455
Total	$	1,745

Changes in the carrying amount of goodwill at March 31, 2009 and March 31, 2008 are as follows:

	2009			2008
Balance at the beginning of the period	$	8,931,944		$	5,982,709
Acquisitions		—			2,949,235
Impairment charge		(7,964,916	)		—
Purchase accounting adjustments		150,169			—
Balance at the end of the period	$	1,117,197		$	8,931,944

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, 2009 and March 31, 2008.

Approximately $1.1 million of goodwill is deductible for income tax purposes at March 31, 2009 and March 31, 2008.

F-14

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2009 AND 2008

4. ACCOUNTS RECEIVABLE, NET

At March 31, 2009 and 2008 accounts receivable, net of allowances consisted of the following:

	2009			2008
Accounts receivable	$	5,430,723		$	5,226,761
Less allowances		(449,799	)		(364,981	)
	$	4,980,924		$	4,861,780

The activity related to the Company’s allowances for doubtful accounts on accounts receivable for Fiscal 2009 and Fiscal 2008 is as follows:

	2008		2008
Balance at beginning of period	$	364,981	$	297,886
Charged to costs and expenses		84,818		67,095
Deductions and write-offs		—		—
Balance at end of period	$	449,799	$	364,981

5. INVENTORIES, NET

At March 31, 2009 and 2008 inventories consisted of the following:

	2009			2008
Raw materials	$	6,222,709		$	4,549,171
Work in process		3,588,857			2,346,513
Finished goods		1,164,901			885,650
		10,976,467			7,781,334
Less:
allowance for obsolescence		(1,540,257	)		(465,088	)
	$	9,436,210		$	7,316,246

6. PROPERTY, PLANT AND EQUIPMENT

At March 31, 2009 and 2008, property, plant and equipment consisted of the following:

	2009			2008
Land	$	162,000		$	162,000
Buildings and leasehold improvements		1,317,657			1,105,745
Machinery and equipment		10,409,567			8,979,161
Furniture and fixtures, and other		244,171			242,563
		12,133,395			10,489,469
Less accumulated depreciation		(7,429,866	)		(6,329,506	)
	$	4,703,529		$	4,159,963

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

F-15

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2009 AND 2008

In May 2007, the Company sold commercial condominium housing Micronetics’ Enon division. The proceeds from the sale were $461,898. The Company recorded a gain on the sale of the building of $69,609.

7. ACCRUED EXPENSES

At March 31, 2009 and 2008 accrued expenses consisted of the following:

	2009		2008
Unbilled payables	$	1,125,365	$	570,187
Professional fees		7,607		30,000
Payroll, benefits and related taxes		1,373,688		1,453,369
Warranty		136,763		119,252
Unrealized loss on interest rate swap		280,650		280,865
Miscellaneous		217,351		254,096
	$	3,141,424	$	2,707,769

Included in accrued payroll are bonuses of $403,322 and $646,630 for Fiscal 2009 and Fiscal 2008, 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 2009 and Fiscal 2008 are as follows:

	2009			2008
Balance at beginning of period	$	119,252		$	100,178
Accruals for warranties		93,453			80,309
Charges to accrual for warranty costs		(75,942	)		(61,235	)
Balance at end of period	$	136,763		$	119,252

9. LONG-TERM DEBT

At March 31, 2009 and 2008 long-term debt consisted of the following:

	2009		2008
Term loan	$	4,225,000	$	5,525,000
Mortgage payable, NH		—		130,837
Capital leases		448,465		4,698
Total		4,673,465		5,660,535
Less current portion		1,588,175		1,434,193
Long-term debt net of current portion	$	3,085,290	$	4,226,342

F-16

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2009 AND 2008

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. In the third quarter of Fiscal 2009, the revolving line of credit was extended by two years and now expires in March 2012. 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 rate of 5.2% plus the applicable margin at March 31, 2009. The final payment for the term loan is in April 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. The interest rate swap was not designated as a hedging instrument at the initiation of the swap, and therefore the Company has not applied hedge accounting. As a result, at the end of each reporting period, the change in value of the interest rate swap is recorded on the consolidated balance sheet, with any related gains or losses charged to earnings. For the year ended March 31, 2009, the Company recorded an unrealized gain of $215 in the statement of operations to reflect the change in estimated fair value for the interest rate swap in the consolidated statement of operations. The net unrealized loss on the interest rate swap amounted to approximately $280,000 at March 31, 2009.

The revolving line of credit bears interest at the current prime rate, which at March 31, 2009 was 3.25%. The Company had $1.5 million available under the line at March 31, 2009. Under the terms of the term loan and the revolver, we are 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. We obtained an amendment to the term loan and revolver agreements to include the goodwill and intangible asset impairment charges as an add-back to its EBITDA covenants. The Company also obtained an Amendment and Waiver Agreement to the term loan and revolver agreements to waive the Company’s EBITDA covenants for the thirteen weeks ended March 31, 2009 and to substitute modified quarterly EBITDA covenants through March 31, 2010. Under the terms of the amendment, the Company’s interest rate will increase from a maximum of LIBOR plus 2.5% to a maximum of LIBOR plus 4.25% for the revolving line of credit and a maximum adjusted LIBOR plus 3.75% for the term loan. The rate decreases to a minimum of LIBOR plus 2.5% based upon the Company’s performance.

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 was paid in full in February 2009.

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 6.4% to 10.6% per annum, and are secured by the underlying assets. The assets are depreciated over their

F-17

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2009 AND 2008

estimated useful lives. Included in the current portion of long-term debt is $288,175 for capital lease obligations. Included in long-term debt net of current portion is $160,290 for capital lease obligations. Interest associated with our capital lease obligations amounts to approximately $33,000 over the lease terms.

Aggregate annual maturities of long-term debt, capital lease obligations and the line of credit, are as follows:

Fiscal year ending March 31,	Line of Credit		Capital Lease Obligation		Mortgages and notes payable		Total
2010	$	3,502,620	$	288,175	$	1,300,000	$	5,090,795
2011		—		77,450		1,300,000		1,377,450
2012		—		82,840		1,300,000		1,382,840
2013		—		—		325,000		325,000
2014		—		—		—		—
Thereafter		—		—		—		—
	$	3,502,620	$	448,465	$	4,225,000	$	8,176,085

10. STOCK OPTION PLANS AND STOCK-BASED COMPENSATION

At March 31, 2009, the Company had two stock option plans under which grants were outstanding. The stock options outstanding are for grants issued under the Company’s 2003 Stock Option Plan and the 2006 Equity Incentive 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 Stock Option 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, 2009, there were 397,125 options outstanding under the 2003 Plan.

The 2006 Equity Incentive Plan

During the fiscal year ended 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, 2009 there were 302,000 options outstanding under the 2006 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 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 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.

F-18

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2009 AND 2008

The following table sets forth the Company’s stock option activity during the year ended March 31, 2009:

	Shares Underlying options		Weighted Average Exercise     price		Weighted Average Remaining   Contractual    life	Aggregate Intrinsic value
Outstanding at March 31, 2008	755,825		$	7.75
Granted	21,000			7.44
Exercised	—			—
Canceled	(77,700	)		7.37
Outstanding at March 31, 2009	699,125		$	7.78	4.10	—
Exercisable at March 31, 2009	384,625		$	7.62	1.81	—

There was no aggregate intrinsic value for outstanding and exercisable options at March 31, 2009 based on the Company’s closing stock price of Common Stock on that date of $2.35.

The following table sets forth the status of the Company’s non-vested stock options as of March 31, 2009:

	Number of Options		Weighted-Average Grant-Date Fair Value
Non-vested as of March 31, 2008	433,475		$	4.30
Granted	21,000			3.89
Forfeited	(6,100	)		3.50
Vested	(133,875	)		3.56
Non-vested as of March 31, 2009	314,500		$	4.61

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 and the remaining options vested 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 options-pricing model. The Company recorded $32,150 in compensation expense for the year ended March 31, 2009 related to the non-employee options.

The following table summarizes information about stock options outstanding at March 31, 2009:

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	10,875	2.90 yrs	$	6.61	7,875	$	6.60
$ 6.90 – $ 8.61	668,250	4.20 yrs	$	7.77	361,750	$	7.59
$ 8.62 – $ 10.33	20,000	1.56 yrs	$	8.89	15,000	$	8.89
	699,125	4.10 yrs	$	7.78	384,625	$	7.62

F-19

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2009 AND 2008

Total stock-based compensation reported in the consolidated statements of operations for Fiscal 2009 and Fiscal 2008:

	2009		2008
Cost of sales	$	58,573	$	65,967
Selling, general and administrative		575,211		647,535
Research and development		—		27,220
Stock-based compensation	$	633,784	$	740,722

Unrecognized stock-based compensation expense related to the unvested options is approximately $.8 million, and will be recorded over the remaining vesting periods of 3.35 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 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 in Fiscal 2009.

During the fiscal year ended March 31, 2009, 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 2009 and 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 with a longer contractual term and did not have sufficient history of exercises under these terms.

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

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.

F-20

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2009 AND 2008

The fair value of options issued during Fiscal years 2009 and 2008 were estimated at the date of grant with the following weighted-average assumptions:

	2009		2008
Risk Free Interest Rate	2.93 – 3.55	%	3.89 – 4.98	%
Expected Life	6.13 years		6.75 – 7.57 years
Expected Volatility	57 – 60	%	55 – 60	%
Expected Dividend Yield	0	%	0	%

The per share weighted average fair value of stock options granted for the fiscal years ended March 31, 2009 and 2008 was $3.89 and $4.22, respectively.

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

In November 2008 in accordance with a stock repurchase plan approved by our Board of Directors the Company repurchased a total of 454,107 shares of our common stock for $1,248,314. Under the plan the Company may purchase up to 500,000 shares of the Company’s common stock. We have no plans at this time to make additional repurchases under the plan.

13. INCOME TAXES

The following sets forth the provision for income taxes at March 31, 2009 and 2008:

	2009			2008
Current:
Federal	$	(79,266	)	$	1,563,270
State		210,919			556,161
Deferred:
Federal		(891,142	)		(612,663	)
State		(414,395	)		(155,832	)
Provision for income tax	$	(1,173,884	)	$	1,350,936

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.

F-21

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2009 AND 2008

At March 31, 2009 and 2008 the difference between the income tax provision computed at the Federal statutory rate and the actual tax provision is accounted for as follows:

	2009			2008
Taxes computed at the federal statutory rate	$	(3,650,855	)	$	1,024,528
Goodwill impairment		2,708,071			—
State income tax (net of federal benefit)		(134,294	)		264,217
Effect of permanent differences		80,607			141,641
Research and development tax credits		(103,967	)		(63,007	)
FIN 48 Settlements		(73,446	)		(16,443	)
Income tax provision	$	(1,173,884	)	$	1,350,936

At March 31, 2009 and 2008 deferred tax assets (liabilities) are comprised of:

	2009			2008
Current deferred tax asset:
Accrued expenses	$	334,749		$	408,135
Inventory reserve		760,501			68,313
Bad debt reserve		150,215			39,526
Warranty reserve		56,394			47,629
Sales return reserve		35,260			34,152
UNICAP		136,473			—
Prepaid expenses		(8,634	)		(21,585	)
	$	1,464,958		$	576,170
Long term deferred tax liability:
Stock compensation	$	372,426		$	211,126
State operating loss carryforward		192,096			—
Intangible amortization		(44,957	)		(22,984	)
Depreciation		(606,274	)		(111,658	)
Purchase price adjustment		(597,207	)		(1,321,536	)
Section 481(a) adjustment		(217,806	)		—
	$	(901,722	)	$	(1,245,052	)

As of March 31, 2009, the Company has state net operating loss carryforwards of approximately $1,055,000 which will expire in 2016.

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 $77,583 of that deferred tax expense.

The Company’s effective tax rate was 11% and 45% for the year ended March 31, 2009 and 2008, respectively. In Fiscal 2009 the Company recorded a discrete item of $3.1 million related to a goodwill impairment charge that is non-tax deductible. In addition, approximately $75,000 of uncertain tax benefits were recognized due to statute of limitations expiring for previously filed tax returns.

F-22

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2009 AND 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.

The amount of uncertain tax benefits as of March 31, 2009 was $6,200, 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.

The change in uncertain tax benefits for the twelve months ended March 31, 2009 is as follows:

	2009
Balance at beginning of period	$	80,000
Change in tax positions related to prior years		1,000
Change in tax positions related to the current year		—
Settlements		(74,800	)
Reductions for expiration of statute of limitations		—
Balance at end of period	$	6,200

As of March 31, 2009, the Company is subject to tax in the U.S. and various state jurisdictions. The Company is open to examination for tax years March 31, 2006 through 2009.

During Fiscal 2008, the Company was under an IRS audit for its Fiscal 2006 tax returns. The IRS did not make any changes to the federal taxable income for Fiscal 2006. The Company is no longer under IRS examination for the Fiscal 2006 tax returns.

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, 2009, the Company has accrued interest and penalties for uncertain tax benefits in its statement of operations of $1,300.

14. EARNINGS PER SHARE

Basic (loss) earnings per share, or EPS, is computed based on the net loss or income for each period divided by the weighted average actual shares outstanding during the period. Diluted (loss) earnings per share is computed based on the net loss or income per period divided by the weighted average number of common shares and common equivalent shares outstanding during each period unless the effect would be anti-dilutive. Common stock equivalents represent the dilutive effect of the assumed exercise of certain outstanding stock options using the treasury stock method. The computations of basic and diluted earnings per share at March 31, 2009 and 2008 are:

	2009			2008
Net (loss) income	$	(9,563,927	)	$	1,662,383
Weighted average shares outstanding:		4,836,052			4,932,545
Basic (loss) earnings per share	$	(1.98	)	$	.34
Common stock equivalents		—			18,650
Weighted average common and common equivalent shares outstanding		4,836,052			4,951,195
Diluted (loss) earnings per share	$	(1.98	)	$	.34

F-23

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2009 AND 2008

15. COMMITMENTS AND CONTINGENCIES

Leases:

The Company is obligated under various non-cancelable operating leases for manufacturing facilities and equipment, which expire through January 2014.

The aggregate future minimum lease payments, are as follows:

	March 31,
2010	$	665,226
2011		614,633
2012		609,783
2013		595,308
2014		425,770
	$	2,910,720

Rental expense for the years ended March 31, 2009 and 2008 was $751,973 and $519,546 respectively.

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

16. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company adopted the provisions of SFAS 157 for financial assets and liabilities effective April 1, 2008. SFAS 157 clarifies the definition of fair value as an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, SFAS 157 establishes a three-tier value hierarchy, which prioritizes, in descending order, the inputs used in measuring fair value as follows:

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

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

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

F-24

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2009 AND 2008

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Assets and liabilities measured at fair value on a recurring basis, consistent with SFAS 157, include the following as of March 31, 2009.

	Fair Value Measurements at March 31, 2009 Using
	Quoted Prices in Active Markets (Level 1)	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)	Total Fair Value as of March 31, 2009
Money market fund	—	$	555,000	—	$	550,000
Interest rate swap	—	$	280,000	—	$	280,000

As of March 31, 2008, the Company’s short-term and long-terms investments consisted of $400,000 and $250,000, respectively of auction rate securities which were issued by a closed-end fund. Since March 31, 2008, the issuer of the auction rate securities redeemed 100% of the funds’ outstanding auction preferred shares that were held by the Company at cost.

17. RELATED PARTY TRANSACTION

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

Both Stephen N. Barthelmes, Jr., a director of Micronetics and President of Micronetics’ subsidiary Stealth Microwave, Inc., and Kevin Beals, President of Micronetics, are members of the Landlord. Mr. Barthelmes and Mr. Beals own twenty-one percent and sixteen percent, respectively, of the outstanding units of membership interest of the Landlord.

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

18. 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 22%, 5% and 5% of the Company’s consolidated sales in Fiscal 2009. For Fiscal 2008, the top three customers accounted for 9%, 8% and 8% of the Company’s consolidated sales.

19. 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-25

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2009 AND 2008

Exports accounted for 17% and 27% of the Company’s sales in the years ended March 31, 2009 and 2008, respectively. Sales representing shipments by geographical area are shown below (in thousands):

	March 31,
	2009		2008
United States and Canada	$	25,493	$	24,286
Europe		3,445		6,660
Asia		1,363		1,605
Central and South America/Other		46		74
	$	30,347	$	32,625

20. 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, 2009 and March 31, 2008 were $137,285 and $138,984, 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-26

MICRONETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MARCH 31, 2009 AND 2008

21. Unaudited Quarterly Financial Information (amounts in thousands)

FISCAL 2009	Q1 FY09			Q2 FY09			Q3 FY09			Q4 FY09
Net sales	$	7,087		$	6,545		$	8,398		$	8,317
Gross profit(1)	$	2,978		$	2,069		$	2,746		$	1,390	(1)
Gross profit %		42	%		32	%		33	%		17	%
Net income (loss)	$	158		$	(67	)	$	(9,384	)	$	(271	)
Earnings per common share
—Basic	$	0.03		$	(0.01	)	$	(1.96	)	$	(0.06	)
Basic weighted average shares		5,000			5,005			4,788			4,554
Earnings per common share
—Diluted	$	0.03		$	(0.01	)	$	(1.96	)	$	(0.06	)
Diluted weighted average shares		5,008			5,005			4,788			4,554
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

(1) Includes a $638,000 inventory reserve related to a shift in customer requirements.

F-27

EX-2.6

Exhibit 2.6

ASSET PURCHASE AGREEMENT

by and among

M/A-COM RFID INC.,

MICRONETICS, INC.,

SOLELY THE PURPOSES OF SECTION 5.10 AND ARTICLE VI

COBHAM DEFENSE ELECTRONIC SYSTEMS – M/A-COM INC.

AND

SOLELY FOR THE PURPOSES OF SECTION 5.3 AND SECTION 5.9

COBHAM DEFENSE ELECTRONIC SYSTEMS CORPORATION

DATED March 18, 2009

TABLE OF CONTENTS

		Page
ARTICLE I DEFINITIONS AND TERMS		3
Section 1.1	Definitions	3
Section 1.2	Construction	9
Section 1.3	Seller Disclosure Letter	9
Section 1.4	Knowledge	10
ARTICLE II PURCHASE AND SALE OF ASSETS		10
Section 2.1	Closing	10
Section 2.2	Purchase and Sale	10
Section 2.3	Assets to be Transferred	10
Section 2.4	Purchase Price for the Assets	11
Section 2.5	Manner of Payments	11
Section 2.6	Allocation of Purchase Price	11
Section 2.7	Assumption of Liabilities	11
Section 2.8	Excluded Assets	11
Section 2.9	Excluded Liabilities	12
Section 2.10	Related Agreements	12
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER		13
Section 3.1	Organization; Qualification and Capitalization	13
Section 3.2	Corporate Authority; Binding Effect	13
Section 3.3	Non-Contravention	14
Section 3.4	Permits	14
Section 3.5	No Litigation	14
Section 3.6	Compliance with Laws	14
Section 3.7	[Intentionally Omitted]	15
Section 3.8	Intellectual Property	15
Section 3.9	Labor Matters	15
Section 3.10	Benefit Plans	16
Section 3.11	Taxes	16
Section 3.12	Brokers	16
Section 3.13	Title to Assets	16
Section 3.14	Contracts	16
Section 3.15	Exclusivity of Representations	17
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER		17
Section 4.1	Organization and Qualification	17
Section 4.2	Corporate Authority	17
Section 4.3	Non-Contravention	18
Section 4.4	Permits and Third-Party Approvals	18
Section 4.5	Financial Capability	18
Section 4.6	Investigation by Purchaser; Seller’s Liability	18
Section 4.7	No Litigation	18
Section 4.8	Brokers	18
Section 4.9	Confidentiality Agreement	18
ARTICLE V COVENANTS		19
Section 5.1	Transferred Business Employees and Employee Benefits	19
Section 5.2	Post-Closing Information	21
Section 5.3	Purchaser Trademarks and Trade Names	21
Section 5.4	Novation and Assignment of Contracts	21
Section 5.5	Further Assurances	22
Section 5.6	Record Retention	22
Section 5.7	Noncompetition	22
Section 5.8	Performance of Warranty	24
Section 5.9	Grant of Licenses to Certain Intellectual Property	24
Section 5.10	Range Time Services	24
Section 5.11	Expenses	24
Section 5.12	Possession of Assets Post Closing	24
ARTICLE VI SURVIVAL; INDEMNIFICATION		25
Section 6.1	Survival of Representations and Warranties	25
Section 6.2	Indemnification by Seller and Shareholder	25
Section 6.3	Indemnification by Purchaser	25
Section 6.4	Limitation on Indemnification, Mitigation	26
Section 6.5	Indemnification Procedure	27
Section 6.6	Third-Party Claims	28
Section 6.7	Losses Net of Insurance, Etc.	28
Section 6.8	Sole Remedy/Waiver	29
Section 6A.1	Purchaser’s Closing Deliveries	29
Section 6A.2	Closing Deliveries of Seller, Shareholder and CDES	30
ARTICLE VII MISCELLANEOUS		30
Section 7.1	Notices	30
Section 7.2	Amendment; Waiver	32
Section 7.3	Assignment	32
Section 7.4	Entire Agreement	32
Section 7.5	Parties in Interest	32
Section 7.6	Public Disclosure	33
Section 7.7	[Intentionally Omitted]	33
Section 7.8	Governing Law; Jurisdiction; Waiver of Jury Trial	33
Section 7.9	Counterparts	34
Section 7.10	Headings	34
Section 7.11	No Strict Construction	34
Section 7.12	Severability	34
Section 7.13	Specific Performance	34

2

ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement (this “Agreement”) is made and entered into this 18^th day of March, 2009 by and among M/A-COM RFID Inc. (“Seller”), a Delaware corporation, solely for the purposes of Section 5.3 and Section 5.9, Cobham Defense Electronic Systems Corporation, a Massachusetts corporation (“CDES”), solely for the purposes of Section 5.10 and Article VI, Cobham Defense Electronic Systems—M/A-COM Inc. (“Shareholder”) and Micronetics, Inc. a, Delaware corporation (“Purchaser”). Seller, CDES, Shareholder and Purchaser are herein referred to individually as a “Party” and collectively as the “Parties.”

RECITALS:

The Seller is engaged in the development, design, manufacturing, marketing and sale of pedestal and forklift mounted radio frequency identification systems (the “Business”).

The Seller desires to sell and the Purchaser desires to purchase certain assets of the Business on the terms and conditions set forth in this Agreement. To induce the Purchaser to enter into this Agreement, the Seller, the Shareholder and CDES are willing to agree to certain covenants contained in this Agreement.

NOW THEREFORE, to effect the transactions contemplated hereby and in consideration of the mutual covenants, representations, warranties and agreements hereinafter set forth, and intending to be legally bound hereby, the Parties agree as follows:

ARTICLE I

DEFINITIONS AND TERMS

Section 1.1 Definitions. As used in this Agreement, the following terms shall have the meanings set forth below:

“Acquired Person” shall have the meaning set forth in Section 5.7(b)(iii).

“Accounts Receivable” shall have the meaning set forth in Section 2.3.

“Affiliate” shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, such Person; provided, that, for the purposes of this definition, “control” (including with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

“Agreed Claims” shall have the meaning set forth in Section 6.5(d).

“Agreed Formula” shall have the meaning set forth in Section 5.7(b)(iv).

3

“Agreement” shall have the meaning set forth in the preamble of this Agreement.

“Assets” shall have the meaning set forth in Section 2.3.

“Assignment and Assumption Agreement” shall have the meaning set forth in Section 2.10(a).

“Assumed Liabilities” shall have the meaning set forth in Section 2.7.

“Benefit Plan” shall mean each “employee benefit plan” as defined in Section 3(3) of ERISA and each other bonus, stock option, equity, severance, employment, change-in-control, fringe benefit, deferred compensation, perquisite, tuition reimbursement and incentive plan, agreement, program or policy, whether written or unwritten, contributed to or maintained with respect to Transferred Business Employees.

“Bidder Representative” shall mean any of Purchaser’s directors, officers, employees, advisors and agents to whom Evaluation Material (as defined in the Confidentiality Agreement) was disclosed under the Confidentiality Agreement.

“Bill of Sale and Assignment” shall have the meaning set forth in Section 2.10(b).

“Business” shall have the meaning set forth in the Recitals.

“Business Day” shall mean any day other than a Saturday, a Sunday or a day on which banks in New York City are authorized or obligated by Law or executive order to close.

“Business Intellectual Property” shall have the meaning set forth in Section 3.8.

“CDES” shall have the meaning set forth in the preamble of this Agreement.

“Claim Certificate” shall have the meaning set forth in Section 6.5(a).

“Closing” shall have the meaning set forth in Section 2.1.

“Closing Date” shall have the meaning set forth in Section 2.1.

“COBRA” shall have the meaning set forth in Section 5.1(b).

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

“Collateral Source” shall have the meaning set forth in Section 6.7.

“Confidentiality Agreement” shall mean the Confidentiality Agreement dated as of October 3, 2008 between Seller and Purchaser.

“Continuation Period” shall have the meaning set forth in Section 5.1(a).

4

“Contract Bids” shall have the meaning set forth in Section 2.3(f).

“Contracts” shall have the meaning set forth in Section 2.3(e).

“Divested Business” shall have the meaning set forth in Section 5.9.

“Dollars” and “$” shall each mean lawful money of the United States.

“Due Diligence Materials” shall mean any of the information made available to Purchaser, its Affiliates or the Bidder Representatives and set forth in materials contained in any “data room” (virtual or otherwise), in presentations by the management of the Company in “break-out” discussions with the management of the Company, in responses to questions submitted by or on behalf of Purchaser, its Affiliates or the Bidder Representatives, in materials prepared by or on behalf of Seller, or in any other written or oral form.

“Environmental Law” shall mean any Law, Order or other requirement of Law for the protection of the environment, or for the use, transport, treatment, storage, disposal, discharge, emission, release or threatened release of petroleum products, asbestos, urea formaldehyde insulation, polychlorinated biphenyls or any substance listed, classified or regulated as “hazardous” or “toxic” or any similar term under such Environmental Law (collectively, “Hazardous Substances”).

“Excluded Liabilities” shall have the meaning set forth in Section 2.9.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.

“GAAP” shall mean generally accepted accounting principles in the United States in effect as of the date hereof.

“Governmental Authority” shall mean any transnational, domestic or foreign federal, state or local, governmental authority, department, court, agency or official, including any political subdivision thereof.

“Hazardous Substance” shall have the meaning set forth in the definition of Environmental Law.

“Indemnified Party” shall have the meaning set forth in Section 6.5(a).

“Indemnifying Party” shall have the meaning set forth in Section 6.5(a).

“Intellectual Property” shall have the meaning set forth in Section 2.3(b).

“Intellectual Property Assignment” shall have the meaning set forth in Section 2.10(c).

“Inventory” shall have the meaning set forth in Section 2.3(c).

“IP License” shall have the meaning set forth in Section 5.9.

5

“IRS” shall mean the Internal Revenue Service of the United States of America.

“Knowledge of Seller” shall have the meaning set forth in Section 1.4.

“Law” shall mean any federal, state, territorial, foreign or local law, common law, statute or ordinance or any rule, regulation or code of any Governmental Authority.

“Liabilities” shall mean any and all debts, liabilities and obligations, whether accrued or fixed, known or unknown, absolute or contingent, matured or unmatured or determined or determinable.

“Licensed Mark” shall have the meaning set forth in Section 5.3.

“Liens” shall mean any lien, security interest, mortgage, encumbrance or charge of any kind.

“Litigation” shall have the meaning set forth in Section 3.5.

“Loss” or “Losses” shall mean any claims, actions, causes of action, judgments, awards, out-of-pocket losses and out-of-pocket costs or damages (including reasonable attorneys’ and consultants’ fees and expenses) but excluding incidental, consequential, punitive or exemplary damages and other similar damages and diminution in value.

“Material Adverse Effect” shall mean any circumstances, change or effect having a material adverse effect on the Company, its assets, or operations of its business; provided, however, that changes or effects relating to: (i) changes in economic or political conditions or the financing, banking, currency or capital markets in general; (ii) changes in Laws or Orders or interpretations thereof or changes in accounting requirements or principles (including GAAP); (iii) changes affecting industries, markets or geographical areas in which the Business operates; (iv) the announcement or pendency of the transactions contemplated by this Agreement or other communication by Purchaser or any of its Affiliates of its plans or intentions (including in respect of employees) with respect to the Assets or the Business or its operations, including losses or threatened losses of employees, customers, suppliers, distributors or others having relationships with the Business or the Seller; (v) the consummation of the transactions contemplated by this Agreement or any actions by Purchaser or Seller taken pursuant to this Agreement or in connection with the transactions contemplated hereby; (vi) any natural disaster or any acts of terrorism, sabotage, military action or war (whether or not declared) or any escalation or worsening thereof, whether or not occurring or commenced before, on or after the date of this Agreement; or (vii) any failure by the Business to meet any internal projections or forecasts and seasonal changes in the results of operations of the Business, in each case, shall be deemed to not constitute a “Material Adverse Effect” and shall not be considered in determining whether a “Material Adverse Effect” has occurred. Notwithstanding the foregoing, it is understood that the underlying cause or causes of any failure described in (vii) above may constitute a Material Adverse Effect.

“Order” shall mean any judgment, order, injunction, decree, writ, permit or license of any Governmental Authority or any arbiter.

6

“Parties” shall have the meaning set forth in the preamble of this Agreement.

“Party” shall have the meaning set forth in the preamble of this Agreement.

“Per-Claim Deductible” shall have the meaning set forth in Section 6.4(a).

“Permit” shall mean each permit, certificate, license, consent, approval or authorization of any Governmental Authority.

“Permitted Liens” shall mean: (i) Liens for Taxes, assessments and other governmental charges that are not yet due and payable; (ii) Liens arising under original purchase price conditional sales contracts and equipment leases with third parties; and (iii) Liens listed on Schedule 1.1(d) of the Seller Disclosure Letter.

“Person” shall mean an individual, a limited liability company, a joint venture, a corporation, a company, a partnership, an association, a trust, a division or operating group of any of the foregoing or any other entity or organization.

“Predecessor Cafeteria Plan” shall mean the cafeteria plans in which Transferred Business Employees are eligible to participate as of the Closing Date.

“Predecessor Savings Plan” shall mean the Tyco Electronics Retirement Savings and Investment Plan and if, by the relevant date, Seller has replaced such plan with another plan “Predecessor Savings Plan” shall also mean such other plan.

“Proceeding” shall have the meaning set forth in Section 7.8(b).

“Purchase Price” shall have the meaning set forth in Section 2.4.

“Purchaser” shall have the meaning set forth in the preamble of this Agreement.

“Purchaser Indemnitees” shall have the meaning set forth in Section 6.2.

“Purchaser Savings Plan” shall have the meaning set forth in Section 5.1(d).

“Range Time Services Agreement” shall have the meaning set forth in Section 5.10.

“Representatives” of any Person shall mean such Person’s directors, managers, members, officers, employees, agents, advisors and representatives (including attorneys, accountants, consultants, financial advisors, financing sources and any representatives of such advisors or financing sources).

“Restricted Business” shall have the meaning set forth is Section 5.7(a).

“Seller” shall have the meaning set forth in the preamble of this Agreement.

“Seller Disclosure Letter” shall have the meaning set forth in the preamble to Article III.

7

“Seller Indemnitees” shall have the meaning set forth in Section 6.3.

“Shareholder” shall have the meaning set forth in the preamble of this Agreement.

“Solvent” shall mean, with respect to any Person, that (i) the property of such Person, at a present fair saleable valuation, exceeds the sum of its Liabilities (including contingent and unliquidated Liabilities), (ii) the present fair saleable value of the property of such Person exceeds the amount that will be required to pay such Person’s probable Liabilities as they become absolute and matured, (iii) such Person has adequate capital to carry on its business and (iv) such Person does not intend to incur, or believe it will incur, Liabilities beyond its ability to pay as such Liabilities mature. In computing the amount of contingent or unliquidated Liabilities at any time, such Liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become actual or matured Liabilities.

“Tangible Assets” shall have the meaning set forth in Section 2.3(a).

“Tax Return” shall mean any report of Taxes due, any information return with respect to Taxes, or other similar report, statement, declaration or document required to be filed under the Code or other Laws in respect of Taxes, including the Foreign Investment in Real Property Tax Act, any amendment to any of the foregoing, any claim for refund of Taxes paid, and any attachments, amendments or supplements to any of the foregoing.

“Taxes” shall mean any federal, state, county, local, or foreign tax (including Transfer Taxes), charge, fee, levy, impost, duty, or other assessment, including income, gross receipts, excise, employment, sales, use, transfer, recording, license, payroll, franchise, severance, documentary, stamp, occupation, windfall profits, environmental, highway use, commercial rent, customs duty, capital stock, paid-up capital, profits, withholding, Social Security, single business, unemployment, disability, real property, personal property, registration, ad valorem, value added, alternative or add-on minimum, estimated, or other tax or governmental fee of any kind whatsoever, imposed or required to be withheld by any Governmental Authority, including any estimated payments relating thereto, any interest, penalties, and additions imposed thereon or with respect thereto.

“Taxing Authority” or “Taxing Authorities” shall mean any Governmental Authority or Authorities having jurisdiction over the assessment, determination, collection, or other imposition of any Taxes.

“Third-Party Claim” shall have the meaning set forth in Section 6.6(a).

“Transfer Taxes” means all stamp, transfer, real property transfer, recordation, grantee/grantor, documentary, sales and use, value added, registration, occupation, privilege, or other such similar taxes, fees and costs (including any penalties and interest) incurred in connection with the consummation of the transactions contemplated by this Agreement.

“Transferred Business Employee” shall mean and include, without limitation, each individual listed on Schedule 1.1(b) of the Seller Disclosure Letter.

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“Transition Period” shall have the meaning set forth in Section 5.12.

“Tyco” shall mean Tyco Electronics Group S.A., a company organized under the laws of Luxembourg.

“Warranty Costs” shall have the meaning set forth in Section 5.8.

Section 1.2 Construction. In this Agreement, unless the context otherwise requires:

(a) any reference in this Agreement to “writing” or comparable expressions includes a reference to facsimile transmission or comparable means of communication (but excluding e-mail communications);

(b) the phrases “delivered” or “made available”, when used in this Agreement, shall mean that the information referred to has been physically or electronically delivered to the relevant parties including, in the case of “made available” to Purchaser, material that has been posted in the “data room” (virtual or otherwise) established by Seller;

(c) words expressed in the singular number shall include the plural and vice versa, and words expressed in the masculine shall include the feminine and neuter genders and vice versa;

(d) references to Articles, Sections, Exhibits, Schedules and Recitals are references to articles, sections, exhibits, schedules and recitals of this Agreement;

(e) references to “day” or “days” are to calendar days;

(f) references to “the date hereof” shall mean as of the date of this Agreement;

(g) unless expressly indicated otherwise, the words “hereof”, “herein”, “hereto” and “hereunder”, and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any provision of this Agreement;

(h) references to this “Agreement” or any other agreement or document shall be construed as references to this Agreement or, as the case may be, such other agreement or document as the same may have been, or may from time to time be, amended, varied, novated or supplemented; and

(i) “include”, “includes”, and “including” are deemed to be followed by “without limitation” whether or not they are in fact followed by such words or words of similar import.

Section 1.3 Seller Disclosure Letter. The Seller Disclosure Letter is incorporated into and forms an integral part of this Agreement.

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Section 1.4 Knowledge. References to the “Knowledge of Seller” or the “Seller’s Knowledge”, shall mean the actual knowledge of the individuals listed on Schedule 1.4 of the Seller Disclosure Letter after reasonable inquiry.

ARTICLE II

PURCHASE AND SALE OF ASSETS

Section 2.1 Closing. The consummation of the transactions contemplated hereby (the “Closing”) shall, unless the Parties agree to another date or place, take place at the offices of Jaeckle Fleischmann & Mugel, LLP in Buffalo, New York on March 18, 2009 or at such other time or place as the Parties may mutually agree (the “Closing Date”).

Section 2.2 Purchase and Sale. Subject to the terms and conditions of this Agreement, at the Closing the Seller shall sell and the Purchaser shall purchase the Assets (as defined in Section 2.3), free and clear of all liens, encumbrances and security interests, and the Purchaser shall pay to the Seller the consideration specified in Section 2.4.

Section 2.3 Assets to be Transferred. The following is an identification of the assets to be transferred to Purchaser at the Closing (the “Assets”):

(a) Tangible Assets. The tangible personal property of the Seller set forth on Schedule 2.3(a) of the Seller Disclosure Letter (the “Tangible Assets”);

(b) Intellectual Property. The intellectual property set forth on Schedule 2.3(b) of the Seller Disclosure Letter (the “Intellectual Property”);

(c) Inventory. The inventory including supplies, raw materials and work in process and finished goods set forth on Schedule 2.3(c) of the Seller Disclosure Letter (the “Inventory”);

(d) Accounts Receivable. The accounts receivable set forth on Schedule 2.3(d) of the Seller Disclosure Letter (the “Accounts Receivable”);

(e) Contracts. All right, title and interest of the Seller in, to and under the contracts and purchase and sales commitments and orders set forth on Schedule 2.3(e) of the Seller Disclosure Letter (the “Contracts”);

(f) Contract Bids. Pending contract bids and quotations of the Seller set forth on Schedule 2.3(f) of the Seller Disclosure Letter (the “Contract Bids”);

(g) Government Licenses, Permits and Authorizations. Subject to Section 3.3 and Section 3.4, the licenses, permits, approvals and other governmental or non-governmental authorizations or consents, set forth on Schedule 2.3(g) of the Seller Disclosure Letter (collectively the “Licenses” and each individually a “License”); and

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(h) Leased Personal Property. The personal property leased by the Seller set forth on Schedule 2.3(h) attached hereto.

Section 2.4 Purchase Price for the Assets. As consideration for the purchase of the Assets, the Purchaser shall pay to Seller Four Hundred Thousand and No/100 Dollars ($400,000.00) ( the “Purchase Price”) payable at the Closing.

Section 2.5 Manner of Payments. The payment of the Purchase Price required to be made hereunder shall be made by wire transfer to bank accounts designated by the Seller.

Section 2.6 Allocation of Purchase Price. The Purchase Price shall be allocated among the Assets, in a manner consistent with the requirements set forth in Section 1060 of the Code and the Treasury regulations promulgated thereunder, as mutually agreed by the Parties within sixty (60) days after the Closing. Notwithstanding the foregoing, cooperation shall be given to Seller to determine tentative allocations for purposes of any Transfer Taxes and relevant Tax Returns due prior to the sixty (60) days identified in the foregoing sentence. The Purchaser and the Seller will each report, on IRS Form 8594 (Asset Acquisition Statement) and any other corresponding state or local form, the federal, state and local income and other tax consequences of the purchase and sale contemplated hereby in a manner consistent with such allocation and neither the Purchaser nor the Seller shall take any position inconsistent with such allocation in any federal or state tax return, in any proceeding before any taxing authority or otherwise. In the event that the allocation is disputed by any Taxing Authority, the Party receiving notice of the dispute shall promptly notify the other Party hereto, and Seller and Purchaser agree to use their commercially reasonable efforts to defend such allocation in any audit or similar proceeding.

Section 2.7 Assumption of Liabilities. Except as hereinafter provided, the Purchaser is not assuming any liabilities of the Seller and the Purchaser shall not be obligated to pay for any obligations or liabilities of Seller unless such obligation or liability is listed below (the “Assumed Liabilities”):

(a) The Seller’s Liabilities which accrue after the Closing pursuant to any of the Contracts or Contract Bids included in the Assets (including but not limited to the personal property leases transferred pursuant to Section 2.3(h) and the Licenses which are transferred pursuant to 2.3(g));

(b) All Liabilities arising from or relating to claims relating to warranty obligations or services or claims of manufacturing or design defects with respect to any product shipped or service provided by Purchaser after the Closing; and

(c) All accounts payable relating to the Business set forth on Schedule 2.7(c) of the Seller Disclosure Letter.

Section 2.8 Excluded Assets. Expressly excluded from the purchase and sale contemplated hereby and from the definition of the term “Assets” are:

(a) The Seller’s cash and cash equivalents, including the Purchase Price;

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(b) The corporate seal, minute books, charter documents, corporate stock record books and other records that pertain to the organization, existence or share capitalization of the Seller and duplicate copies of those records included in the Assets that are necessary to enable the Seller to file its tax returns and reports as well as any of the records or materials relating to the Seller generally and not involving or relating to the Assets;

(c) The Benefit Plans of the Seller;

(d) All Tax refunds, Tax credits and Tax reductions of the Seller or to which the Seller has any claims;

(e) All assets of the Seller which are used in the businesses of the Seller other than the Business as defined herein;

(f) Accounts receivable of Seller not set forth in Section 2.3(d) of the Seller Disclosure Letter; and

(g) Inventory of Seller not set forth in Section 2.3(c) of the Seller Disclosure Letter.

Section 2.9 Excluded Liabilities. Expressly excluded from the definition of “Assumed Liabilities” are the following (the “Excluded Liabilities”):

(a) Any of the Seller’s indebtedness for borrowed money;

(b) Any of Seller’s Liabilities for any employee bonuses, vacation pay, sick pay, or other paid time off accrued prior to the Closing;

(c) Any of the Seller’s or the Shareholder’s or CDES’ Liabilities for expenses or fees incident to or arising out of the negotiation, preparation, approval or authorization of this Agreement or the consummation (or preparation for the consummation) of the transactions contemplated hereby, including attorneys’, accountants’ and financial advisory fees;

(d) Any Liability of the Seller with respect to any Taxes, (it being understood that the Purchaser shall not be deemed to be the Seller’s transferee with respect to any tax liability); and

(e) Liabilities, if any, arising as a result of transactions entered into in violation of this Agreement.

Section 2.10 Related Agreements. Simultaneously with the execution hereof, the respective parties referred to below will take the following actions:

(a) Seller, CDES and Purchaser shall enter into an Assignment and Assumption Agreement (the “Assignment and Assumption Agreement”) providing for the assignment of the Assets by Seller and CDES and the assumption of the Assumed Liabilities by Purchaser;

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(b) Seller and CDES will deliver to Purchaser a Bill of Sale and Assignment (the “Bill of Sale and Assignment”) relating to all items of tangible property and unregistered Intellectual Property included in the Assets; and

(c) Seller will deliver to Purchaser an Assignment of Intellectual Property from CDES which transfers the registered Intellectual Property set forth on Schedule 2.3(b) of the Seller Disclosure Letter (the “Intellectual Property Assignment”). Seller will hereafter cause CDES to execute and deliver to Purchaser such confirmatory documents as Purchaser may reasonably request for the purpose of perfecting Purchaser’s right in Intellectual Property transferred to Purchaser hereunder and/or the assignment and registration of registered Intellectual Property being acquired hereunder by Purchaser.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLER

Except as set forth in the letter (the “Seller Disclosure Letter”) delivered by Seller to Purchaser concurrently with the execution of this Agreement (it being understood that any matter disclosed on any Schedule of the Seller Disclosure Letter will be deemed to be disclosed on any other Schedule of the Seller Disclosure Letter to the extent that it is reasonably apparent from such disclosure that such disclosure is applicable to such other Schedule or Schedules, but shall expressly not be deemed to constitute an admission by Seller, or to otherwise imply, that any such matter is material for the purposes of this Agreement), Seller hereby represents and warrants to Purchaser as follows:

Section 3.1 Organization; Qualification and Capitalization. (a) Organization and Qualification. Seller is a corporation duly organized and validly existing under the Laws of Delaware. CDES is a corporation duly organized and validly existing under the Laws of the State of Massachusetts. Shareholder is a corporation duly organized and validly existing under the Laws of Delaware. Except as would not reasonably be expected to have a Material Adverse Effect, each of Seller, CDES and Shareholder is duly qualified and in good standing as a foreign corporation and is duly authorized to transact business in each jurisdiction where the character of the properties owned or leased by it or the nature of the activities conducted by it make such qualification and good standing necessary.

(b) Capitalization. Seller is a wholly-owned subsidiary of Shareholder.

Section 3.2 Corporate Authority; Binding Effect.

(a) Seller, CDES and Shareholder each has all requisite corporate power and authority to execute and deliver this Agreement and to perform their obligations hereunder. The execution and delivery by Seller, CDES and Shareholder of this Agreement and each other document, agreement or instrument to be executed and delivered by Seller, CDES or the Shareholder pursuant to this Agreement, and the performance by Seller, CDES and the Shareholder of their obligations hereunder, have been, or will have been at the Closing, duly authorized by all requisite corporate action on the part of Seller, CDES or the Shareholder, as the case may be.

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(b) This Agreement, assuming due execution and delivery hereof and thereof by Purchaser, constitutes a valid and binding obligation of each of Seller, CDES and Shareholder, enforceable against Seller, CDES and Shareholder in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar Laws affecting creditors’ rights generally or by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

(c) Except as described in Section 3.3, the execution, delivery and performance by Seller of this Agreement and each other document, agreement or instrument to be executed and delivered by Seller pursuant hereto, and the transactions contemplated hereby, does not require any consents, waivers, authorizations or approvals of, or filings with, any third Persons other than as set forth on Schedule 3.3.

Section 3.3 Non-Contravention. The execution, delivery and performance of this Agreement by Seller, and the consummation of the transactions contemplated hereby does not and will not: (i) violate any provision of the certificate of incorporation, bylaws or comparable organizational document of Seller; (ii) subject to obtaining the consents referred to in Schedule 3.3 of the Seller Disclosure Letter, conflict with, result in a breach of, constitute a default under, or result in the termination, cancellation or acceleration (whether after the giving of notice or the lapse of time or both) of any right or obligation of the Seller under, or to a loss of any benefit to which the Seller is entitled under, any Contract or Permit, and (iii) assuming the accuracy of Section 4.3, violate or result in a breach of or constitute a default under any Law or other restriction of any Governmental Authority to which the Seller is subject.

Section 3.4 Permits. Except as set forth on Schedule 3.4 of the Seller Disclosure Letter, the execution and delivery by Seller of this Agreement and each other document, agreement or instrument to be executed and delivered by Seller pursuant to this Agreement and, to the Seller’s Knowledge the operation by Seller of the Business, do not require any Permits, except where the failure to obtain such Permits would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. All Permits set forth on Schedule 3.4 of the Seller Disclosure Letter are valid and in full force and effect.

Section 3.5 No Litigation. Except as set forth on Schedule 3.5 of the Seller Disclosure Letter, there is no action, suit, litigation, legal proceeding or arbitration relating to the Business (collectively “Litigation”) pending, or to Seller’s Knowledge threatened against the Seller by or before any Governmental Authority or arbitrator.

Section 3.6 Compliance with Laws.

(a) Except as set forth on Schedule 3.6(a) of the Seller Disclosure Letter, to the Seller’s Knowledge the Business is in compliance with all Laws applicable to the Business; and

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(b) To the Seller’s Knowledge the Seller possesses all Permits necessary for the conduct of the Business as it is currently conducted, except where the failure to possess any such Permit would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

Section 3.7 [Intentionally Omitted].

Section 3.8 Intellectual Property. Seller will cause the Intellectual Property set forth on Schedule 2.3(b) to be transferred to Purchaser free and clear of any Liens on the Closing Date. Purchaser will be granted a license by CDES to use the Intellectual Property set forth on Schedule 5.9 of the Seller Disclosure Schedule. Collectively the Intellectual Property set forth on Schedule 2.3(b) of the Seller Disclosure Letter and Schedule 5.9 of the Seller Disclosure Letter are referred to as the “Business Intellectual Property”. No claim has been asserted in writing, or, to the Knowledge of Seller, threatened, by any person with respect to Seller’s use of the Business Intellectual Property or challenging or questioning the validity or effectiveness of any license or agreement with respect thereto, and, to Seller’s Knowledge, no basis for any such claim exists. To Seller’s Knowledge, the use of the Business Intellectual Property by Seller in the conduct of the Business does not infringe on any person’s intellectual property rights except for the rights of its Affiliate, CDES. To Seller’s Knowledge, the Business Intellectual Property has not been challenged in any judicial or administrative proceeding. To Seller’s Knowledge, no person or any such person’s business or products has infringed or misappropriated any Business Intellectual Property, or currently is infringing or misappropriating any Business Intellectual Property. CDES owns, free and clear of all Liens, all of the Business Intellectual Property and has the right to transfer the Intellectual Property set forth on Schedule 2.3(b) of the Seller Disclosure Letter to Purchaser and to license the Intellectual Property set forth on Schedule 5.9 of the Seller Disclosure Letter to Purchaser.

Section 3.9 Labor Matters. (a) To the Knowledge of Seller, except as set forth on Schedule 3.9(a) of the Seller Disclosure Letter, the Seller is in compliance with all Laws applicable to the operation of the Business respecting employment and employment practices, terms and conditions of employment and wages and hours, and is not engaged in any unfair labor practice.

(b) No unfair labor practice complaint against the Seller or any of its representatives or employees relating to the Business is pending or, to the Knowledge of Seller, has been threatened before the National Labor Relations Board.

(c) There is no labor strike, dispute, slowdown or stoppage actually pending, or to the Knowledge of Seller, threatened or reasonably anticipated, against the Seller relating to the Business.

(d) As of the date hereof, there are no collective bargaining and labor union agreements applicable to any Transferred Business Employee. No union is currently certified, and there is no union representation question and no union or other organizational activity that would be subject to the National Labor Relations Act (20 U.S.C. §151 et. seq.), or any similar law existing or, to the Knowledge of Seller, threatened with respect to the operations of the Business.

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(e) To the Knowledge of Seller, no grievance against the Seller relating to the Business exists or has been threatened and no arbitration proceeding arising out of or under any collective bargaining agreement of the Seller is pending or has been threatened. To the Knowledge of Seller, there are no actions, suits, claims, charges or pending matters relating to any employment, safety or discrimination matters involving any Transferred Business Employees.

(f) The representations and warranties in this Section 3.9 are the sole and exclusive representations and warranties of Seller concerning labor matters.

Section 3.10 Benefit Plans. (a) Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect: the form of each Benefit Plan that is maintained by Seller and that is intended to be “qualified” within the meaning of Section 401(a) of the Code is the subject of a favorable opinion letter from the IRS (or its sponsor has submitted, or is within the remedial amendment period for submitting, an application for an opinion letter with the IRS and is awaiting receipt of a response) and, to the Knowledge of Seller, no event has occurred and no condition exists as of the date of this Agreement that could reasonably be expected to result in the revocation of any such opinion.

(b) Schedule 3.10(b) of the Seller Disclosure Letter lists each material Benefit Plan.

(c) Other than as set forth in this Section 3.10, Seller does not make any representation or warranty with respect to employee benefits plan matters.

Section 3.11 Taxes. (a) (a) Except as set forth in Schedule 3.11 of the Seller Disclosure Letter, the Seller has timely filed or caused to be filed, or will file or cause to be filed, all Tax Returns required to be filed on or before the Closing Date (taking into account applicable extensions) with respect to the Seller and all such Tax Returns were (or will be when filed) true, correct and complete in all material respects. (b) The representations and warranties in this Section 3.11 are the sole and exclusive representations and warranties of Seller concerning tax matters.

Section 3.12 Brokers. Except for UBS Securities LLC, no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Seller. Seller is solely responsible for such fees and expenses of UBS Securities LLC.

Section 3.13 Title to Assets. (a) The Seller owns and has good title to all of the Assets free and clear of all Liens other than Permitted Liens.

(b) Except as set forth on Schedule 3.13 of the Seller Disclosure Letter, the Assets include all assets, properties, rights, interests and claims used exclusively in the conduct of the Business by Seller. The Assets are suitable for the uses for which they are presently used by Seller and are free from any material defects, ordinary wear and tear excepted.

Section 3.14 Contracts. Except as set forth in Schedule 3.3 of the Seller Disclosure Letter, each Contract set forth on Schedule 2.3(d) of the Seller Disclosure Letter is

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valid and subsisting and is in full force and effect and there have been no amendments, modifications, or supplements to any such Contracts. Except as specifically set forth in Schedule 3.14 of the Seller Disclosure Letter, there is no default or claim of default by Seller under any such Contract and no event has occurred, or to Seller’s Knowledge will occur as a result of the Closing that, with the passage of time or the giving of notice or both, would reasonably be expected to constitute a default by Seller or, to the Knowledge of Seller, any other party thereto under any such Contract, or would reasonably be expected to permit modification, acceleration, or termination of any such Contract, or result in the creation of any Lien on any of the Assets.

Section 3.15 Exclusivity of Representations. The representations and warranties made by Seller in this Article III are the exclusive representations and warranties with respect to the Seller, CDES, Shareholder, the Assets and the Business. Seller hereby disclaims any other express or implied representations or warranties with respect to the Seller, its Affiliates, the Assets and the Business. It is understood and agreed that any Due Diligence Materials made available to Purchaser or its Affiliates or their respective representatives, do not, directly or indirectly, and shall not be deemed to, directly or indirectly, contain representations or warranties of Seller or any of its Affiliates.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser hereby represents and warrants to Seller as follows:

Section 4.1 Organization and Qualification. Purchaser is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware. Except as would not reasonably be expected to have a Material Adverse Effect, Purchaser is duly qualified and in good standing as a foreign corporation and is duly authorized to transact business in each jurisdiction where the character of the properties owned or leased by it or the nature of the activities conducted by it make such qualification and good standing necessary.

Section 4.2 Corporate Authority. (a) Purchaser has all requisite corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery by Purchaser of this Agreement and each other document, agreement or instrument to be executed and delivered by Purchaser pursuant hereto, and the performance by Purchaser of its obligations hereunder and thereunder, have been, or will have been at the Closing, duly authorized by all requisite corporate action on the part of Purchaser.

(b) This Agreement, assuming due execution and delivery hereof and thereof by Seller, CDES and Shareholder constitutes a valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar Laws affecting creditors’ rights generally or by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

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Section 4.3 Non-Contravention. The execution, delivery and performance by Purchaser of this Agreement and the consummation of the transactions contemplated hereby, do not and will not (i) violate any provision of the certificate of incorporation or bylaws of Purchaser; (ii) conflict with, or result in a breach of, constitute a default under, result in the termination, cancellation or acceleration (whether after the giving of notice or the lapse of time or both) of any right or obligation of Purchaser under, or to a loss of any benefit of Purchaser to which Purchaser is entitled under, any contract to which Purchaser is a party and (iii) assuming the accuracy of Section 3.3, violate or result in a breach of or constitute a default under any Law or other restriction of any Governmental Authority to which Purchaser is subject.

Section 4.4 Permits and Third-Party Approvals. The execution, delivery and performance by Purchaser of this Agreement and each other document, agreement or instrument to be executed and delivered by Purchaser pursuant hereto, and the transactions contemplated hereby, does not require any Permits, consents, waivers, authorizations or approvals of, or filings with, any third Persons which have not been obtained or effected by Purchaser.

Section 4.5 Financial Capability. Purchaser has sufficient funds to pay the Purchase Price and to perform and discharge all of its other obligations hereunder, on the terms and conditions provided in or contemplated by this Agreement.

Section 4.6 Investigation by Purchaser; Seller’s Liability. Purchaser acknowledges and agrees that neither Seller, nor any of its Affiliates or Representatives shall have any liability or responsibility whatsoever to Purchaser, its Affiliates, or the Bidder Representatives on any basis (including in contract or tort, under federal or state securities Laws or otherwise) based upon any Due Diligence Materials delivered or made available to Purchaser, its Affiliates, or the Bidder Representatives, except that the limitations of this Section 4.6 shall not apply to Seller insofar as Seller makes the specific representations and warranties set forth in Article III.

Section 4.7 No Litigation. There is no action, Order outstanding, suit, litigation, legal proceeding or arbitration pending or, to the knowledge of Purchaser, threatened in writing, against Purchaser or any of its Affiliates by or before any Governmental Authority or arbitrator which could delay or prevent the consummation of the transactions contemplated by this Agreement.

Section 4.8 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee, commission or expenses in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Purchaser.

Section 4.9 Confidentiality Agreement. Purchaser and its Affiliates that are subject to the terms of the Confidentiality Agreement and the Bidder Representatives have complied in all material respects with the terms of the Confidentiality Agreement including the restrictions on contacting other potential acquirers of the shares or assets of Seller and the restriction on limiting Purchaser’s financing sources from providing financing to, or arranging financing for, any other potential acquirer of the shares or the assets of the Seller.

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ARTICLE V

COVENANTS

Section 5.1 Transferred Business Employees and Employee Benefits. (a) Terms and Conditions of Employment. Purchaser shall employ each of the Transferred Business Employees, commencing as of the Closing Date, in Hudson, New Hampshire, in a similar job or position as in effect immediately prior to the Closing Date, provided, however, that the Transferred Business Employees may be assigned duties that are different than those performed on the date hereof as long as such new duties do not cause a material diminution in the authority, duties or responsibilities of the Transferred Business Employees and (x) at a rate of pay at least equal to or greater than, (y) with severance entitlements not less favorable than, and (z) with other employee benefits, perquisites and terms and conditions of employment (including benefits pursuant to qualified and non-qualified retirement and savings plans, medical, life insurance, disability, dental and pharmaceutical plans and programs, deferred compensation arrangements and incentive compensation plans) not substantially less favorable in the aggregate than, the rate of pay, severance entitlements and other employee benefits, perquisites and terms and conditions of employment provided to the Transferred Business Employee (regardless of whether provided by the Seller, Tyco, or an Affiliate of any of them), immediately prior to the Closing Date. For purposes of this Section 5.1, (i) “pay” shall include base salary or wages plus any commission, variable pay target bonus, incentive compensation, premium pay, overtime and shift differentials, but not stock options or other equity-based compensation; (ii) in determining whether benefits, perquisites, and other terms and conditions of employment provided by Purchaser are not substantially less favorable in the aggregate than those provided prior to the Closing Date, there shall be taken into account such cash payment provided by Purchaser in addition to pay (as defined above) to supplement benefits, perquisites, and other terms and conditions of employment; and (iii) there shall be no breach of this Section 5.1(a) if Purchaser does not grant stock options and other equity-based compensation and does not provide post-retirement health and post-retirement life insurance benefits to Transferred Business Employees; provided, however, that, if and to the extent stock options or other equity-based compensation are provided to similarly situated employees of Purchaser and its Affiliates, Purchaser shall grant (or shall cause to be granted) stock options and other equity-based compensation to Transferred Business Employees (or other long-term incentive compensation, to the extent Purchaser cannot grant such stock options or other equity-based compensation to a Transferred Business Employee pursuant to Law). Purchaser acknowledges that Purchaser shall employ all Transferred Business Employees commencing as of the Closing Date. For a period extending from the Closing Date at least through September 26, 2009 (the “Continuation Period”), Purchaser covenants and agrees to, or to cause its Affiliates to, continue to provide each Transferred Business Employee with the pay, severance, benefits, perquisites and terms and conditions of employment described in this Section 5.1(a), unless the Transferred Business Employee’s employment is sooner terminated. No provision in this Agreement shall give any Transferred Business Employee any right to continued employment with the Purchaser or impair in any way the right of the Purchaser to terminate the employment of any employee.

(b) Provision of Health Benefits. Purchaser shall provide or cause to be provided, effective commencing on the Closing Date, (i) coverage to all Transferred Business Employees and their respective spouses and dependents, under a group health plan sponsored by

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the Purchaser or its Affiliates, which plan shall have no pre-existing condition limitations or exclusions with respect to any such employee, spouse or dependant. Purchaser shall be solely responsible for compliance with the requirements of Section 4980B of the Code and part 6 of subtitle B of Title I of ERISA (“COBRA”), including the provision of continuation coverage, with respect to all such Transferred Business Employees, and their spouses and dependents, for whom a qualifying event occurs on or after the Closing Date. For purposes of this Section 5.1(b), the terms “group health plan,” “continuation coverage” and “qualifying event” shall have the meanings ascribed to them in COBRA.

(c) Severance; Retention. Without limiting the generality of the foregoing Purchaser shall, or shall cause its Affiliates to, have in effect for the Continuation Period severance and retention plans, practices and policies applicable to each Transferred Business Employee on the Closing Date that are not less favorable than such policies in effect immediately prior to the Closing Date with respect to such employee (whether provided by the Seller, Tyco, or an Affiliate of any of them), and Purchaser shall indemnify, in accordance with Article VI hereof, and hold harmless Seller and its Affiliates from any severance Liabilities with respect to Transferred Business Employees.

(d) Tax-Qualified Plans. Each Transferred Business Employee who is a participant in the Predecessor Savings Plan shall cease to be an active participant under such plan effective as of the Closing Date. Effective as of the Closing Date, Purchaser shall have in effect a defined contribution plan that is qualified under Section 401(a) of the Code and that includes a qualified cash or deferred arrangement within the meaning of Section 401(k) of the Code (the “Purchaser Savings Plan”) in which Transferred Business Employees shall be eligible to participate effective as of the Closing Date.

(e) Certain Welfare Plan Matters. Following the Closing Date, Purchaser shall use its best efforts (i) to ensure that no waiting periods, exclusions or limitations with respect to any pre-existing conditions, evidence of insurability or good health or actively-at-work exclusions are applicable to any Transferred Business Employees or their dependents or beneficiaries under any welfare benefit plans in which such Transferred Business Employees may be eligible to participate.

(f) Credited Service. With respect to each employee benefit plan, policy or practice, including severance, vacation and paid time-off plans, policies or practices, sponsored or maintained by the Purchaser or its Affiliates, there shall be recognized, for all Transferred Business Employees from and after the Closing Date, credit for all service with the Seller and its respective predecessors (including, without limitation, Tyco and its Affiliates), prior to the Closing Date for all purposes (including eligibility to participate, vesting credit, eligibility to commence benefits, benefit accrual, early retirement subsidies and severance).

(g) No Third Party Beneficiaries. This Agreement shall inure exclusively to the benefit of and be binding upon the parties hereto and their respective successors, assigns, executors and legal representatives. Without limiting the generality of Section 7.5, nothing in this Section 5.1(g), express or implied, is intended to constitute an amendment to any Benefit Plan or confer on any person other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or Liabilities under or by reason of this Agreement.

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Section 5.2 Post-Closing Information. For a period of seven (7) years following the Closing, upon written request delivered to Purchaser, Purchaser shall, and Purchaser shall cause its Affiliates to afford to Seller, its Affiliates and their Representatives reasonable access during regular normal business hours, upon reasonable advance notice subject to entering into reasonable confidentiality agreements under applicable Law, to the properties, books and records and employees of Purchaser and the Affiliates of Purchaser with respect to the Assets and the Business to the extent necessary to prepare or defend any judicial or administrative proceeding related to the Assets or the Business or to enable Seller, its Affiliates and their Representatives to satisfy any of their financial reporting and Tax planning, preparation and reporting obligations.

Section 5.3 Purchaser Trademarks and Trade Names. Following the Closing, CDES hereby grants to Purchaser a nine (9) month, non-exclusive, worldwide, fully-paid and royalty-free license to use the “M/A-COM” name only when used in connection with the word ‘RFID’ (the “Licensed Mark”) in connection with written materials that existed prior to the Closing Date relating to products manufactured by or on behalf of Seller.

Section 5.4 Novation and Assignment of Contracts.

(a) Purchaser and Seller shall cooperate in seeking the transfer (by novation or assignment) of all of the Contracts from Seller to Purchaser, effective as of or as soon as practicable after the Closing Date. Seller will appoint an individual who has experience in contract management to assist Purchaser in the novation and assignment process. For each Contract, Seller and Purchaser shall use commercially reasonable efforts to obtain all required consents and approvals of the other party or parties to novate such Contracts, and if such novation cannot be obtained, Seller and Purchaser shall use commercially reasonable efforts to obtain all required consents and approvals of the other party or parties to such other Contracts for the assignment of such other Contracts, it being understood that neither Seller nor any of its Affiliates shall be required to expend money, commence any litigation or offer or grant any accommodation (financial or otherwise) to any third party to obtain such consents and approvals. Nothing in this Agreement shall be deemed to constitute a novation or assignment of any Contract if the attempted novation or assignment thereof without the consent of the other party or parties thereto would constitute a breach thereof, would be ineffective with respect to any party or parties to such Contract or affect the rights of the Seller thereunder.

(b) In the event that the transfer of one or more Contracts as described in this Section 5.4 cannot be made, or if such attempted novation or assignment would give rise to any right of termination, or would otherwise adversely affect the rights of the Seller or Purchaser under such Contract, or would not novate or assign all of the Seller’s rights thereunder at the Closing, from and after the Closing, Seller and Purchaser shall continue to cooperate and use commercially reasonable efforts to obtain all consents and approvals required to provide Purchaser with all such rights. To the extent that any such consents and waivers are not obtained, or until the impediments to such novation or assignment are resolved, to the extent permitted by applicable Law and the terms of such Contract, Seller shall use commercially reasonable efforts (but without any obligation to expend money, commence any litigation or offer or grant any accommodation (financial or otherwise)) to (i) provide to Purchaser, at the request of Purchaser, the benefits of any such Contract, including entering into a subcontract

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with Purchaser for the performance of such Contract until such Contract is transferred in accordance with Section 5.4(a); (ii) cooperate in any lawful arrangement designed to provide such benefits to Purchaser and take all necessary steps and actions to provide Purchaser with the benefits of such Contract and to relieve Seller of the performance and other obligations thereunder; and (iii) enforce, at the request of and for the account of Purchaser, any rights of Seller arising from any such Contract against any third party (including any Governmental Authority) including the right to elect to terminate in accordance with the terms thereof upon the advice of Purchaser. To the extent that Purchaser is provided the benefits of any Contract referred to in this Section 5.4 (whether from Seller or otherwise), Purchaser shall perform on behalf of the Seller and for the benefit of any third party (including any Governmental Authority) the obligations of Seller thereunder. Purchaser agrees to pay, perform and discharge, and defend and indemnify Seller and its Affiliates against and hold Seller and its Affiliates harmless from, all Liabilities of Seller and its Affiliates relating to such performance or failure to perform, and in the event of a failure of such indemnity, Seller and its Affiliates shall cease to be obligated under this Agreement with respect to the Contract that is the subject of such failure. The provisions of this Section 5.4 shall also apply to any Licenses transferred pursuant to Section 2.3(g).

Section 5.5 Further Assurances. Each Party shall cooperate with the others and execute and deliver, or cause to be executed and delivered, all such other instruments, including instruments of conveyance, assignment and transfer, and take all such other actions as may reasonably be requested by the other Party from time to time, consistent with the terms of this Agreement, in order to effectuate the provisions and purposes of this Agreement.

Section 5.6 Record Retention. The Purchaser shall preserve and keep the books and records of the Seller, Shareholder and CDES that the Purchaser obtains pursuant to the transactions contemplated hereby, and the Seller shall preserve and keep any such books and records it may retain with respect to the Business or the Assets, for a period of five (5) years from and after the Closing Date or for any longer period: (a) as may be required by any federal, state, local or other governmental body or agency or any contract or agreement; (b) as may be reasonably necessary in respect of the prosecution or defense of any suit, action, litigation or administrative, arbitration or other proceeding or investigation that is then pending or threatened; or (c) that is equivalent to the period established by any applicable statute of limitations (or any extension or waiver thereof) with respect to matters pertaining to Taxes. If any Party wishes to destroy any records referred to herein after that time, it shall first give forty-five (45) days’ prior written notice to the other Parties, and the other Parties shall have the option, upon written notice given to the Party providing the initial notice within such forty-five (45)-day period to take possession of such records within thirty (30) days after the date of its notice requesting the same.

Section 5.7 Noncompetition.

(a) For a period of three (3) years after the Closing Date, neither Seller nor its Affiliates shall, anywhere in the world, directly or indirectly invest in, own, manage or operate any Person engaged in or planning to become engaged in the business of designing, manufacturing, marketing, selling or distributing any portals or forklift systems for commercial applications (the “Restricted Business”).

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(b) Notwithstanding anything to the contrary contained herein, nothing in this Section 5.7 will:

(i) Prohibit or restrict the ownership, by Seller or any of its Affiliates, solely for investment purposes of less than five percent (5%) of the common stock of a publicly-held corporation that engages in the Restricted Business;

(ii) Prohibit or restrict any Person that is not an Affiliate of Seller on the Closing Date and that becomes an Affiliate of Seller following the Closing Date, by way of a bona fide third-party acquisition of Seller or its Affiliates (by way of merger, asset sale or other combination or otherwise not intended to be a device for the purpose of avoiding this Section 5.7) from engaging in the Restricted Business; or

(iii) Prohibit or restrict Seller or any of its Affiliates from acquiring equity interests in, or assets of a Person (an “Acquired Person”) engaged in the Restricted Business, provided if the gross revenues of such Acquired Person from the Restricted Business in the last twelve (12) full months prior to consummation of such acquisition exceeds ten percent (10%) of the total sales revenues of the Acquired Person during such period, then Seller will or will cause such Acquired Person to offer to sell to Purchaser the portion of the business of such Acquired Person consisting of the Restricted Business at a purchase price in cash (without any representations and warranties other than related to the title to and valid transfer thereof) calculated in accordance with the Agreed Formula (defined in Section 5.7(b)(iv) below) (which if accepted by Purchaser, must be completed within sixty (60) days thereafter, subject to any regulatory review, or which if not accepted or so completed may be retained and operated free of any restrictions herein).

(iv) “Agreed Formula” shall mean (i) the total consideration paid for the Acquired Person divided by the Acquired Person’s earnings before interest and taxes for the trailing twelve (12) month period ended prior to Seller or one of its Affiliates agreeing to acquire the Acquired Person and (ii) multiplied by the earnings before interest and taxes of the Restricted Business of the Acquired Person for the same trailing twelve (12) month period.

(c) Notwithstanding anything to the contrary contained herein, nothing in this Section 5.7 will prohibit or restrict the ownership, by Seller or any of its Affiliates, solely for investment purposes of less than five percent (5%) of the common stock of a publicly-held corporation that engages in the Restricted Business.

(d) The restrictive covenants contained in this Section 5.7 are covenants independent of any other provision of this Agreement and the existence of any claim that Seller may allege against Purchaser, whether based on this Agreement or otherwise, shall not prevent the enforcement of these covenants. Seller agrees that Purchaser’s remedies at law for any breach or threat of breach by Seller of the provisions of this Section 5.7 may be inadequate, and Purchaser shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Section 5.7 and to enforce specifically the terms and provisions hereof, in addition to any other remedy to which Purchaser may be entitled at law or equity. In the event of litigation regarding the covenants contained in this Section 5.7, the prevailing party in such litigation shall, in addition to any other remedies the prevailing party may obtain in such litigation, be entitled to

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recover from the other party its reasonable legal fees and out of pocket costs incurred by such party in enforcing or defending its rights hereunder. Should any provision of this Section 5.7 be adjudged to any extent invalid by any competent tribunal, such provision shall be deemed modified to the minimum extent necessary to make it enforceable.

Section 5.8 Performance of Warranty. Notwithstanding the terms set forth in this Agreement, after the Closing Purchaser shall provide all warranty claim coverage and product repairs relating to products included in the Business and shipped by Seller prior to the Closing. Seller shall reimburse Purchaser for the costs of such warranty claims including labor costs, material costs and manufacturing costs (“Warranty Costs”) upon receipt of Purchaser’s statement for such Warranty Costs.

Section 5.9 Grant of Licenses to Certain Intellectual Property. CDES hereby grants to Purchaser a perpetual, worldwide, nonexclusive, nontransferable (except as set forth herein), royalty-free, fully paid-up license under the Intellectual Property set forth on Schedule 5.9 of the Seller Disclosure Letter to make, have made, use, sell, offer for sale and import, reproduce, perform, display or distribute any product of the Business as of the Closing Date (the “IP License”). The IP License shall be exclusive with respect to use in connection with the operation of the Business for a period of five (5) years following the Closing Date, however, nothing provided herein shall prohibit CDES from taking the following actions at any time after the Closing Date: (i) allowing its Affiliates to use the IP License in connection with applications other than those relating to the Business; or (ii) licensing the Intellectual Property subject to the IP License to any other party for applications other than the Business. In the event that a third party acquires from Purchaser or any of its Affiliates, whether by a stock sale, an asset sale, or a merger or consolidation, a business unit or product line included in the Business of (a “Divested Business”), Purchaser upon written notice to CDES, shall have the right to grant a sublicense to such third party under the License but such sublicense shall be limited solely to the extent necessary for such third party to conduct the Divested Business.

Section 5.10 Range Time Services. Shareholder shall enter into a Range Time Services Agreement with Purchaser (the “Range Time Services Agreement”) at the Closing.

Section 5.11 Expenses. The Purchaser, the Seller and the Shareholder shall each bear their respective fees, commissions and other expenses incurred by them in connection with the negotiation and preparation of this Agreement and in preparing to consummate the transactions contemplated hereby, including the fees and expenses of their respective counsel, accountants and consultants. The Purchaser shall be solely responsible for the payment of all Transfer Taxes.

Section 5.12 Possession of Assets Post Closing. Although title to the Assets and risk of loss relating thereto shall transfer to Purchaser immediately after the Closing, the Parties hereby agree that the Assets may remain at Seller’s facilities at 1001 Pawtucket Boulevard, Lowell, Massachusetts for up to three weeks after Closing while Purchaser makes arrangements for the Assets to be transferred to its facilities (the “Transition Period”). Purchaser shall bear all costs with respect to the Assets and the Transferred Business Employees during the Transition Period and shall obtain insurance covering the Assets and the Transferred Business Employees. During the Transition Period Seller: (i) shall not be obligated to take any action with

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respect to the Assets or the Transferred Business Employees; (ii) shall have no Liability relating to the Assets, the Transferred Business Employees or to the operation of the Business, other than Liability for damages caused by Seller’s malicious or willful actions; and (iii) shall be indemnified and held harmless by Purchaser for any Liability incurred relating to the Assets, the Transferred Business Employees or the operation of the Business. During the Transition Period Purchaser shall keep in place insurance covering the Assets, the Transferred Business Employees and the operations of the Business. Purchaser shall bear all costs of packing the Assets and moving them to its facilities.

ARTICLE VI

SURVIVAL; INDEMNIFICATION

Section 6.1 Survival of Representations and Warranties. (a) The respective representations and warranties of Seller and Purchaser contained in Articles III and IV shall survive the Closing until the date that is eighteen (18) months from the Closing Date; provided, however, that the representations and warranties set forth in Section 3.1 (Organization; Qualification and Capitalization), Section 3.2 (Corporate Authority; Binding Effect), Section 3.13(a) (Title to Assets), Section 4.1 (Organization and Qualification) and Section 4.2 (Corporate Authority and Binding Effect), shall survive for twenty four (24) months after the Closing Date and that the representations and warranties set forth in Section 3.11 (Taxes) shall survive for the applicable statute of limitations. The covenants of the Parties contained in this Agreement shall survive until fully performed or fulfilled.

(b) No Party shall have any liability whatsoever with respect to any representation and warranty unless a claim is made hereunder prior to the expiration of the applicable survival period for such representation and warranty, in which case such representation and warranty shall survive as to such claim until such claim has been finally resolved.

Section 6.2 Indemnification by Seller and Shareholder. Subject to the limitations set forth in this Article VI, after the Closing, Seller and Shareholder agree to jointly and severally defend and indemnify Purchaser and each of its officers and directors (the “Purchaser Indemnitees”) and save and hold each of them harmless against any Losses incurred by them as a result of: (i) any failure of a representation or warranty made by Seller contained in Article III to be true and correct on and as of the Closing Date (or, with respect to those representations and warranties as of a specified date, as of such date); (ii) any material breach of any covenant or agreement by Seller contained in this Agreement; (iii) the Warranty Costs incurred by the Purchaser after the Closing under the warranties that the Seller has extended for products shipped prior to the Closing; (iv) any Liability for products shipped or services provided by Seller prior to the Closing; and (v) any failure by Seller to satisfy, perform, pay, discharge or resolve any liabilities and obligations of, or claims against, Seller not included within the Assumed Liabilities.

Section 6.3 Indemnification by Purchaser. Subject to the limitations set forth in this Article VI, after the Closing, Purchaser agrees to defend and indemnify Seller and Shareholder and their Affiliates and each of their respective officers and directors (“Seller

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Indemnitees”) and save and hold each of them harmless against any Losses incurred by them as a result of: (i) any failure of any representation or warranty made by Purchaser contained in Article IV to be true and correct on and as of the Closing Date; (ii) any material breach of any covenant or agreement by Purchaser contained in this Agreement; (iii) any Liability for products shipped or services provided by Purchaser after the Closing; (iv) Liabilities for events occurring on or after the Closing Date in connection with the operation of the Business or the ownership of the Assets by Purchaser; (v) any failure by Purchaser to satisfy, perform, pay, discharge or resolve any Assumed Liabilities; and (vi) Liabilities arising under Section 5.1 (Transferred Business Employees and Employee Benefits), Section 5.4 (Novation and Assignment of Contracts), or Section 5.12 (Possession of Assets Post Closing).

Section 6.4 Limitation on Indemnification, Mitigation. (a) Notwithstanding anything to the contrary contained in this Agreement, neither Seller and the Shareholder nor Purchaser shall be liable for claims for indemnification pursuant to Section 6.2(i) or Section 6.3(i), as the case may be, for any individual item where the Loss relating thereto is less than or equal to Five Thousand Dollars ($5,000) (the “Per-Claim Deductible”) in which case Seller and the Shareholder or Purchaser, as the case may be, shall be liable only for the amount of the Losses related to an individual item that are in excess of the Per-Claim Deductible.

(b) The provisions of Section 6.4(a) shall not apply to indemnifiable Losses resulting from, arising out of, or based upon any fraud or intentional misrepresentation by any party.

(c) Purchaser acknowledges and agrees that neither Seller nor the Shareholder shall have any liability under any provision of this Agreement for any Loss to the extent that such Loss relates to any action taken by Purchaser or any other Person (other than Seller in breach of this Agreement) after the Closing Date. Purchaser shall take and shall cause its Affiliates to take all commercially reasonable steps to mitigate any Loss upon becoming aware of any event which would reasonably be expected to, or does, give rise thereto, including incurring costs only to the minimum extent necessary to remedy the breach which gives rise to the Loss.

(d) Seller and the Shareholder acknowledge and agree that Purchaser shall have no liability under any provision of this Agreement for any Loss to the extent that such Loss relates to any action taken by Seller after the Closing Date. Seller shall take and shall cause its Affiliates to take all commercially reasonable steps to mitigate any Loss upon becoming aware of any event which would reasonably be expected to, or does, give rise thereto, including incurring costs only to the minimum extent necessary to remedy the breach which gives rise to the Loss; provided, however, that this Section 6.4(d) shall not be applicable to events arising from Section 5.12 (Possession of Assets Post Closing).

(e) Except as provided in this Section 6.4(e), notwithstanding anything in this Agreement to the contrary, (i) the aggregate liability of Seller and the Shareholder under this Agreement with respect to Losses for indemnification with respect to this Agreement shall not be in excess of Four Hundred Thousand Dollars ($400,000) and (ii) the liability of Purchaser under this Agreement with respect to Losses for indemnification with respect to this Agreement shall not be in excess of Four Hundred Thousand Dollars ($400,000); provided, however, that

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Liabilities arising under Section 5.1 (Transferred Business Employees and Employee Benefits), Section 5.4 (Novation and Assignment of Contracts) and Section 5.12 (Possession of Assets Post Closing) of this Agreement shall not be limited by this Section 6.4(e).

Section 6.5 Indemnification Procedure. (a) Promptly after the incurrence of any Losses by any Person entitled to indemnification pursuant to Sections 5.1 (Business Employees and Employee Benefits), 5.4 (Novation and Assignment of Contracts), 5.12 (Possession of Assets Post Closing), 6.2 (Indemnification by Seller and Shareholder) or 6.3 (Indemnification by Purchaser) hereof (an “Indemnified Party”), including any claim by a third party described in Section 6.6, which might give rise to indemnification hereunder, the Indemnified Party shall deliver to the Party from which indemnification is sought (the “Indemnifying Party”) a certificate (the “Claim Certificate”), which Claim Certificate shall:

(i) state that the Indemnified Party has paid or anticipates it will incur liability for Losses for which such Indemnified Party is entitled to indemnification pursuant to this Agreement; and

(ii) specify in reasonable detail (and have annexed thereto all supporting documentation, including any correspondence in connection with any Third-Party Claim and paid invoices for claimed Losses) each individual item of Loss included in the amount so stated, the date such item was paid or accrued, the basis for any anticipated liability and the nature of the misrepresentation, breach of warranty, breach of covenant or claim to which each such item is related and the computation of the amount to which such Indemnified Party claims to be entitled hereunder. The failure of an Indemnified Party to give reasonably prompt notice of any claim or claims shall not release, waive or otherwise affect the Indemnifying Party’s obligations with respect thereto except to the extent that the Indemnifying Party is materially prejudiced as a result of such failure.

(b) In the event that the Indemnifying Party shall object to the indemnification of an Indemnified Party in respect of any claim or claims specified in any Claim Certificate, the Indemnifying Party shall, within forty-five (45) days after receipt by the Indemnifying Party of such Claim Certificate, deliver to the Indemnified Party a notice of objection to such effect, specifying in reasonable detail the basis for such objection, and the Indemnifying Party and the Indemnified Party shall, within the sixty (60) day period beginning on the date of receipt by the Indemnified Party of such objection, attempt in good faith to agree upon the rights of the respective parties with respect to each of such claims to which the Indemnifying Party shall have so objected. If the Indemnified Party and the Indemnifying Party shall succeed in reaching agreement on their respective rights with respect to any of such claims, the Indemnified Party and the Indemnifying Party shall promptly prepare and sign a memorandum setting forth such agreement. Should the Indemnified Party and the Indemnifying Party be unable to agree as to any particular item or items or amount or amounts within such time period, then the Indemnified Party shall be permitted to submit such dispute to a court of competent jurisdiction as set forth in Section 7.8(b).

(c) Claims for Losses covered by a memorandum of agreement of the nature described in Section 6.5(b) and claims for Losses the validity and amount of which have been the subject of judicial determination as described in Section 6.5(b) or shall have been settled with the

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consent of the Indemnifying Party, as described in Section 6.6 are hereinafter referred to, collectively, as “Agreed Claims.” Within ten (10) Business Days of the determination of the amount of any of the Agreed Claims, the Indemnifying Party shall pay to the Indemnified Party an amount equal to the Agreed Claim by wire transfer in immediately available funds to the bank account or accounts designated by the Indemnified Party in a notice to the Indemnifying Party not less than two (2) Business Days prior to such payment.

Section 6.6 Third-Party Claims. (a) If a claim by a third-party is made against any Indemnified Party with respect to which the Indemnified Party intends to seek indemnification hereunder for any Loss under this Article VI, the Indemnified Party shall promptly notify the Indemnifying Party of such claim. The Indemnifying Party shall have the right, but not the obligation, to conduct and control, through counsel of its choosing, any third party claim, action, suit or proceeding (a “Third-Party Claim”). If the Indemnifying Party elects to conduct and control any Third-Party Claim, it shall, within thirty (30) days of receipt of notice of such Third-Party Claim, notify the Indemnified Party of its intent to do so. If the Indemnifying Party elects not to conduct and control any Third Party Claim, the Indemnified Party may conduct and control any Third-Party Claim. The Indemnifying Party shall permit the Indemnified Party to participate in, but not control, the defense of any such action or suit which the Indemnifying Party has elected to assume the defense of through counsel chosen by the Indemnified Party; provided, however, that the fees and expenses of such counsel shall be borne by the Indemnified Party. If the Indemnifying Party elects not to control or conduct the defense or prosecution of a Third-Party Claim, the Indemnifying Party nevertheless shall have the right to participate in the defense or prosecution of any Third-Party Claim and, at its own expense, to employ counsel of its own choosing for such purpose. Notwithstanding anything in this Section 6.6(a) to the contrary, the Indemnifying Party shall not, without the written consent of the Indemnified Party, which consent shall not be unreasonably withheld, delayed or conditioned, settle or compromise any Third-Party Claim unless the settlement or compromise involves only the payment of monetary damages. Notwithstanding anything in this Section 6.6(a) to the contrary, the Indemnified Party shall not, without the written consent of the Indemnifying Party, settle or compromise any Third-Party Claim.

(b) The Parties shall cooperate in the defense or prosecution of any Third-Party Claim, with such cooperation to include (i) the retention and the provision of the Indemnifying Party records and information that are reasonably relevant to such Third-Party Claim and (ii) the making available of employees on a mutually convenient basis for providing additional information and explanation of any material provided hereunder.

Section 6.7 Losses Net of Insurance, Etc. The amount of any Loss for which indemnification is provided under this Agreement shall be net of (i) any amounts recovered by the Indemnified Party pursuant to any indemnification by, or indemnification agreement with, any third party, (ii) any insurance proceeds or other cash receipts or sources of reimbursement received as an offset against such Loss (each Person named in clauses (i) and (ii), a “Collateral Source”), and (iii) an amount equal to the present value of the Tax benefit, if any, attributable to such Loss. Purchaser agrees to use commercially reasonable efforts to seek recovery from all Collateral Sources. The Indemnifying Party may require an Indemnified Party to assign the rights to seek recovery pursuant to the preceding sentence; provided, however, that the Indemnifying Party will then be responsible for pursuing such claim at its own expense. If the

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amount to be netted hereunder in connection with a Collateral Source from any payment required from an Indemnifying Party hereunder is determined after payment by the Indemnifying Party of any amount otherwise required to be paid to an Indemnified Party pursuant to this Article VI, the Indemnified Party shall repay to the Indemnifying Party, promptly after such determination, any amount that the Indemnifying Party would not have had to pay pursuant to this Article VI had such determination been made at the time of such payment, and any excess recovery from a Collateral Source shall be applied to reduce any future payments to be made by the Indemnifying Party pursuant to this Agreement. Notwithstanding anything herein to the contrary, in no event shall “Losses” be calculated based upon any multiple of lost earnings or other similar methodology used to value the Assets or the Business or based on the financial performance or results of operations of the Business.

Section 6.8 Sole Remedy/Waiver. The Parties acknowledge and agree that the remedies provided for in this Agreement shall be the Parties’ sole and exclusive remedy for any misrepresentation or breach of the warranties or covenants contained in this Agreement. In furtherance of the foregoing, the Parties hereby waive, effective upon the occurrence of the Closing, to the fullest extent permitted by applicable Law, any and all other rights, claims and causes of action (including rights of contribution, if any, and claims for rescission) for breach of the warranties or covenants contained in this Agreement; provided, however, that the foregoing shall not apply to fraud, intentional misconduct or deliberate misrepresentations by any Party or any of its Affiliates.

ARTICLE VIA

CLOSING DELIVERIES

Section 6A.1 Purchaser’s Closing Deliveries. Purchaser shall deliver the following to Seller and Shareholder at the Closing:

(a) Payment of Purchase Price. The Purchase Price payable pursuant to Section 2.4.

(b) Range Time Services Agreement. The Range Time Services Agreement described in Section 5.10.

(c) Purchaser Secretary’s Certificate. Seller, CDES and the Shareholder shall have received a certificate from Purchaser’s Secretary, in form and content reasonably satisfactory to Seller, CDES and the Shareholder, certifying (i) to the incumbency of Purchaser’s authorized officers executing this Agreement and related documents; (ii) to the good standing of Purchaser in the state of its incorporation and attaching a recently issued good standing certificate for Purchaser issued by the Secretary of State of such state; (iii) that all necessary Board of Director authorization and approval has been obtained by Purchaser for the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereunder (and including copies of resolutions adopted by Purchaser’s Board of Directors in connection therewith); and (iv) that the execution of this Agreement by Purchaser and the consummation of the transactions contemplated hereunder will not violate the provisions of Purchaser’s Articles of Incorporation or By-Laws or any other agreement to which Purchaser is a party or by which it is bound.

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(d) Assignment and Assumption Agreement. The Assignment and Assumption Agreement set forth in Section 2.10(a).

Section 6A.2 Closing Deliveries of Seller, Shareholder and CDES. Seller, CDES and the Shareholder, as the case may be, shall deliver the following to Purchaser at Closing:

(a) Transfer of Assets. All of the Assets to be transferred to Purchaser at the Closing.

(b) Range Time Services Agreement. The Range Time Services Agreement described in Section 5.10.

(c) Secretary’s Certificate of Seller, CDES and the Shareholder. Purchaser shall have received a certificate from the Secretary or Clerk of each of Seller, CDES and the Shareholder, in form and content reasonably satisfactory to Purchaser, certifying (i) to the incumbency of the authorized officers executing this Agreement and related documents on behalf of Seller, CDES and the Shareholder; (ii) to the good standing of Seller, CDES and the Shareholder in the states of their incorporation and attaching a recently issued good standing certificate for Seller, CDES and the Shareholder issued by the Secretary of State of such states; (iii) that all necessary Board of Director and shareholder authorization and approval has been obtained by Seller for the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereunder (and including copies of resolutions adopted by Seller’s Board of Directors and shareholder in connection therewith); and (iv) that the execution of this Agreement by Seller, CDES and the Shareholder and the consummation of the transactions contemplated hereunder will not violate the provisions of their Articles of Incorporation or By-Laws or any other agreement to which Seller, CDES or the Shareholder is a party or by which either of them is bound.

(d) Assignment and Assumption Agreement. The Assignment and Assumption Agreement.

(e) Bill of Sale and Assignment. The Bill of Sale and Assignment.

(f) Intellectual Property Assignment. The Intellectual Property Assignment.

ARTICLE VII

MISCELLANEOUS

Section 7.1 Notices. Except as otherwise expressly provided in this Agreement, any notice or other communication required or permitted under this Agreement shall be in writing and deemed to have been duly given (i) five (5) Business Days following deposit in the mail if sent by registered or certified mail, postage prepaid, (ii) when sent, if sent by

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facsimile transmission and if receipt thereof is confirmed by machine generated receipt, (iii) when delivered, if delivered personally to the intended recipient and (iv) two (2) Business Days following deposit with a nationally recognized overnight courier service, in each case addressed as follows:

To Seller or the Shareholder:

M/A-COM RFID Inc. or Cobham Defense Electronic Systems – M/A-COM Inc.

(as applicable)

c/o Cobham Defense Electronic Systems Corporation

58 Main Street, Route 117

Bolton, Massachusetts 01740

Attn: David L. Fuller

Facsimile: (978) 779-2906

with a copy (which shall not constitute notice) to:

Cobham plc

Brook Road

Wimborne

Dorset BH21 2BJ

ENGLAND

Attn: Chief Legal Officer

Facsimile: 011 44 1202 840523

with a copy (which shall not constitute notice) to:

Jaeckle Fleischmann & Mugel, LLP

12 Fountain Plaza

Suite 800

Buffalo, New York 14052

Attn: Joseph P. Kubarek, Esq.

         Kristen M. Birmingham, Esq.

Facsimile: (716) 856-0432

To Shareholder:

Cobham Defense Electronic Systems Corporation

58 Main Street, Route 117

Bolton, Massachusetts 01740

Attn: David L. Fuller

Facsimile: (978) 779-2906

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with a copy (which shall not constitute notice) to:

Jaeckle Fleischmann & Mugel, LLP

12 Fountain Plaza

Suite 800

Buffalo, New York 14052

Attn: Joseph P. Kubarek, Esq.

         Kristen M. Birmingham, Esq.

Facsimile: (716) 856-0432

To Purchaser:

Micronetics, Inc.

26 Hampshire Drive

Hudson, New Hampshire 03051

Attn: Carl L. Lueders

Facsimile: (603) 882-8987

with a copy (which shall not constitute notice) to:

Morse, Barnes-Brown & Pendleton, P.C.

Reservoir Place

1601 Trapelo Road

Waltham, Massachusetts 02451

Attn: Joseph C. Marrow, Esq.

Facsimile: (781) 622-5933

Section 7.2 Amendment; Waiver. Except as otherwise expressly provided in this Agreement, any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by Purchaser and Seller or, in the case of a waiver, by the Party against whom the waiver is to be effective. No failure or delay by any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

Section 7.3 Assignment. No Party to this Agreement may assign any of its rights or obligations under this Agreement without the prior written consent of the other Party.

Section 7.4 Entire Agreement. This Agreement (including all Schedules) contains the entire agreement between the Parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters except for any written agreement of the Parties that expressly provides that it is not superseded by this Agreement.

Section 7.5 Parties in Interest. This Agreement shall inure to the benefit of and be binding upon the Parties and their respective successors and permitted assigns. Nothing in this Agreement, express or implied, is intended to confer upon any Person other than Purchaser, Seller or their successors or permitted assigns any rights or remedies under or by reason of this Agreement.

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Section 7.6 Public Disclosure. Notwithstanding anything herein to the contrary, each of Purchaser and Seller agrees that, except as may be required to comply with the requirements of any applicable Laws and the rules and regulations of each stock exchange upon which the securities of such Party is listed, if any, no press release or similar public announcement or communication shall be made concerning the execution or performance of this Agreement unless the Parties shall have consulted in advance with respect thereto.

Section 7.7 [Intentionally Omitted]

Section 7.8 Governing Law; Jurisdiction; Waiver of Jury Trial. (a) This Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware, without regard to the conflicts of law principles of such state.

(b) With respect to any suit, action or proceeding relating to this Agreement (each, a “Proceeding”), each Party irrevocably (i) agrees and consents to be subject to the exclusive jurisdiction of the United States District Court for the District of Delaware or any Delaware State court sitting in Wilmington, Delaware and (ii) waives any objection which it may have at any time to the laying of venue of any Proceeding brought in any such court, waives any claim that such Proceeding has been brought in an inconvenient forum and further waives the right to object, with respect to such Proceeding, that such court does not have any jurisdiction over such Party. The foregoing consent to jurisdiction shall not constitute general consent to service of process in the State of Delaware for any purpose except as provided above and shall not be deemed to confer rights on any Person other than the respective Parties to this Agreement. Each of Seller and Purchaser irrevocably agrees that service of any process, summons, notice or document by United States registered mail to such Party’s address set forth above shall be effective service of process for any action, suit or proceeding in Delaware with respect to any matters for which it has submitted to jurisdiction pursuant to this Section 7.8(b).

(c) EACH PARTY HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION AS BETWEEN THE PARTIES DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR DISPUTES RELATING HERETO. EACH PARTY (I) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (II) ACKNOWLEDGES THAT IT AND THE OTHER PARTY HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.8(c).

(d) The Parties agree that the prevailing party or parties, as the case may be, in any suit, action or proceeding relating to this Agreement shall be entitled to reimbursement of all costs of litigation, including reasonable attorneys’ fees, from the non-prevailing party. For purposes of this Section 7.8(d), each of the “prevailing party” and the “non-prevailing party” in any suit, action or proceeding shall be the party designated as such by the court or other

33

appropriate official presiding over such suit, action or proceeding, such determination to be made as a part of the judgment rendered thereby.

Section 7.9 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which shall constitute one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party, it being understood that all Parties need not sign the same counterpart.

Section 7.10 Headings. The heading references herein and the table of contents hereto are for convenience purposes only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

Section 7.11 No Strict Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by all Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provision of this Agreement.

Section 7.12 Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any term or other provision of this Agreement, or the application thereof to any Person or any circumstance, is invalid, illegal or unenforceable, (a) a suitable and equitable provision shall be substituted therefore in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected by such invalidity, illegality or unenforceability, nor shall such invalidity, illegality or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.

Section 7.13 Specific Performance. The Parties hereto agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof in the United States District Court for the District of Delaware or any Delaware State court sitting in Wilmington, Delaware, in addition to any other remedy to which they are entitled at law or in equity.

*    *    *    *    *

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IN WITNESS WHEREOF, the Parties have executed or caused this Agreement to be executed as of the date first written above.

M/A-COM RFID INC.
By:	/s/ David L. Fuller
	Name: Title:	David L. Fuller Secretary
MICRONETICS, INC.
By:	/s/ Kevin Beals
	Name: Title:	Kevin Beals President
Solely for the purpose of Section 5.3 and Section 5.9
COBHAM DEFENSE ELECTRONIC SYSTEMS CORPORATION
By:	/s/ David L. Fuller
	Name: Title:	David L. Fuller Treasurer/Clerk
Solely for the purpose of Article VI and Section 5.10
COBHAM DEFENSE ELECTRONIC SYSTEMS – M/A-COM INC.
By:	/s/ David L. Fuller
	Name: Title:	David L. Fuller CFO & Secretary

(Signature page for Asset Purchase Agreement)

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EX-10.8

Exhibit 10.8

AMENDMENT AND WAIVER

TO

COMMERCIAL LOAN AGREEMENT AND LOAN DOCUMENTS

THIS AMENDMENT AND WAIVER TO COMMERCIAL LOAN AGREEMENT AND LOAN DOCUMENTS (this “Amendment”), made effective as of June 26, 2009 (the “Effective Date”), is by and among RBS CITIZENS NATIONAL ASSOCIATION, a national banking association and successor by merger to Citizens Bank New Hampshire with a place of business at 875 Elm Street, Manchester, New Hampshire 03101 (the “Bank”); MICRONETICS, INC., a Delaware corporation with an executive office at 26 Hampshire Drive, Hudson, New Hampshire 03051 (the “Borrower”); MICROWAVE & VIDEO SYSTEMS, INC., a Connecticut corporation with an executive office at 160B Shelton Road, Monroe, Connecticut 06468, MICROWAVE CONCEPTS, INC., and STEALTH MICROWAVE, INC., each a Delaware corporation, and all with an executive office at 26 Hampshire Drive, Hudson, New Hampshire 03051; and MICA MICROWAVE CORPORATION, a Delaware corporation with an executive office at 1096 Mellon Avenue, Manteca, California 95337 and formerly known as “Del Merger Subsidiary, Inc.” (individually, a “Guarantor”, and collectively, the “Guarantors”).

R E C I T A L S:

WHEREAS, the Bank has extended to the Borrower certain credit facilities consisting of a revolving line of credit loan in the principal amount of up to Five Million Dollars ($5,000,000.00) (the “Revolving Line of Credit Loan”), and a term loan in the original principal amount of Six Million Five Hundred Thousand Dollars ($6,500,000.00) (the “Term Loan”), all pursuant to a certain Commercial Loan Agreement dated March 30, 2007 by and among the Bank, the Borrower and the Guarantors, as amended to date (the “Loan Agreement”) and the Loan Documents as defined therein;

WHEREAS, the Borrower would be in default in the performance of certain of its obligations under the Loan Agreement in that it has violated its financial covenants under Sections III. A. (i.e., Debt Service Coverage) and B. (i.e., ratio of Total Funded Debt to EBITDA) of Schedule B of the Loan Agreement for the fiscal quarter ending March 31, 2009 (collectively, the “Covenant Defaults”); and

WHEREAS, the Bank, at the request of the Borrower and the Guarantors, has agreed to (i) waive the Covenant Defaults, (ii) suspend the testing of the financial covenants under Sections III. A. and B. of Schedule B of the Loan Agreement until the fiscal quarter ending March 31, 2010, and (iii) amend said financial covenants in certain respects, all upon and subject to the terms and conditions of this Amendment. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Loan Agreement.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants, agreements and promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

1. Waiver of Covenant Defaults. The Bank hereby acknowledges the Borrower’s Covenant Defaults under the Loan Agreement as of the fiscal quarter ending March 31, 2009. The Bank hereby waives the Covenant Defaults by the Borrower solely as of the fiscal quarter ending March 31, 2009 (the “Waiver”). The Waiver applies only to Borrower’s compliance with the financial covenants under Sections III. A. and B. of Schedule B of the Loan Agreement as of the Fiscal Quarter ending March 31, 2009. The Bank does not waive compliance by the Borrower with any of its other covenants under the Loan Agreement or Loan Documents or for any other dates or for any other periods.

2. Amendments to Loan Agreement.

(a) Section III.A.2 of the Loan Agreement shall be, and hereby is, deleted in its entirety and replaced with the following new Section II.A.2:

“2. Applicable Margin. The term “Applicable Margin” means the annual percentage rate to be added to the Bank’s prime rate to determine the Prime Rate under this Agreement and LIBOR to determine the LIBOR Rate under this Agreement. The Applicable Margin shall be 4.25% per annum with respect to the Revolving Line of Credit Loan, and 3.75% with respect to the Term Loan, until a determination is made otherwise in accordance with this Agreement based upon the ratio of Total Funded Debt to EBITDA as of the Fiscal Quarter ending March 31, 2010. The Applicable Margin for both the Revolving Line of Credit Loan and the Term Loan will be adjusted (up or down) on a quarterly basis as determined by Borrower’s Total Funded Debt to EBITDA ratio beginning with the Fiscal Quarter ending March 31, 2010. Adjustments in the Applicable Margin will be determined by reference to the following grid:

If Total Funded Debt to EBITDA Ratio is:	Then Applicable Margin is:
Greater than or equal to 2.0:1	4.25% with respect to the Revolving Line of Credit Loan and 3.75% with respect to the Term Loan
Greater than 1.25:1 but less than 2.0:1	3.50%
Less than or equal to 1.25:1	2.50%

Within forty-five (45) days of the end of each Fiscal Quarter, beginning with the Fiscal Quarter ending March 31, 2010, of Borrower (provided that Borrower shall have ninety (90) days after the end of each Fiscal Year thereafter), Borrower shall (a) deliver to the Bank its Financial Statements covering such Fiscal Quarter (which shall be management prepared financial statements for purposes hereof), (b) deliver to the Bank the quarterly financial covenant compliance certificate of Borrower, and (c) certify to Bank the then Total Funded Debt to EBITDA ratio of Borrower and Borrower’s determination of Applicable Margin therefrom on such

2

form as the Bank may from time to time specify. Borrower shall also provide to the Bank such other reasonable information as the Bank may request of Borrower to verify its determination of the Applicable Margin. As of the tenth (10th) Business Day after the Borrower’s delivery of all of the above-referenced items to the Bank, the Bank shall notify Borrower of its determination of the Applicable Margin. The new Applicable Margin as so determined by the Bank shall be effective as to all then outstanding LIBOR Advances and all new LIBOR Advances thereafter made, and such new Applicable Margin shall remain in effect through the next date upon which the determination of a new Applicable Margin becomes effective in accordance with the above provisions. Notwithstanding the foregoing, upon any Event of Default, the Applicable Margin with respect to the Revolving Line of Credit Loan shall be 4.25% and the Applicable Margin with respect to the Term Loan shall be 3.75%.”

(b) Section III.A.14 of the Loan Agreement shall be, and hereby is, deleted in its entirety and replaced with the following new Section III.A.14:

“14. Prime Rate. The term “Prime Rate” means the variable per annum rate of interest so designated from time to time by Bank as its prime rate plus the Applicable Margin. The Bank’s prime rate is a reference rate and does not necessarily represent the lowest or best rate being charged to any customer. Changes in the Prime Rate resulting from changes in the Bank’s prime rate shall take place immediately without notice or demand of any kind.”

(c) Section III.A.16 of the Loan Agreement shall be, and hereby is, added a new section of the Loan Agreement immediately after Section III.A.15 of the Loan Agreement:

“16. LIBOR Definitions for LIBOR Advantage Program. Revolving Credit Advances to the Borrower under the Bank’s automated sweep program shall bear interest under, and in accordance with, the Bank’s LIBOR Advantage Program. The Bank shall designate all Revolving Credit Advances which are subject to the LIBOR Advantage Program. Notwithstanding anything to the contrary in this Agreement, including the provisions of Section III.B. hereof regarding selection of interest rates, automatic Revolving Credit Advances to the Borrower under the Bank’s automated sweep program are subject to the provisions of the Bank’s LIBOR Advantage Program and do not require any notice from Borrower. Notwithstanding the definitions set forth in this Section III.A., solely for purposes of such Revolving Credit Advances under the LIBOR Advantage Program, the following definitions shall apply in lieu of the definitions provided for such terms set forth above in this Section III.A.:

“Interest Payment Date” means (a) as to any Prime Rate Advance, the first Business Day of each January, April, July, and October while such Advance is outstanding, and (b) as to any LIBOR Advance under the LIBOR Advantage Program, initially, June 26, 2009, and thereafter the day of each succeeding month which numerically corresponds to such date or, if a month does not contain a day that numerically corresponds to such date, the Interest Payment Date shall be the last day of such month.

3

“Interest Period” means with respect to each LIBOR Advance under the LIBOR Advantage Program, the period commencing on (and including) June 26, 2009 (the “Start Date”) and ending on (but excluding) the date which numerically corresponds to such date one (1) month later, and thereafter, each one (1) month period ending on the day of such month that numerically corresponds to the Start Date. If an Interest Period with respect to a LIBOR Advance under the LIBOR Advantage Program is to end in a month for which there is no day which numerically corresponds to the Start Date, then such Interest Period will end on the last day of such month. Notwithstanding the date of commencement of any Interest Period with respect to a LIBOR Advance under the LIBOR Advantage Program, interest shall only begin to accrue as of the date the initial LIBOR Advance subject to the LIBOR Advantage Program is made hereunder.

“LIBOR” means, relative to any Interest Period for a LIBOR Advance under the LIBOR Advantage Program, the offered rate for delivery in two (2) London Banking Days of deposits of U.S. Dollars for a term coextensive with the designated Interest Period for such LIBOR Advance which the British Bankers’ Association fixes as its LIBOR rate as of 11:00 a.m. London time on the day on which such Interest Period commences. If the first day of any Interest Period for a LIBOR Advance under the LIBOR Advantage Program is not a day which is both a (a) Business Day, and (b) a London Banking Day, then LIBOR shall be determined by reference to the next preceding day which is both a Business Day and a London Banking Day. If for any reason LIBOR is unavailable and/or the Bank is unable to determine LIBOR for any Interest Period for a LIBOR Advance under the LIBOR Advantage Program, then the Bank may, at its discretion, either: (i) select a replacement index based on the arithmetic mean of the quotations, if any, of the interbank offered rate by first class banks in London or New York for deposits with comparable maturities, or (ii) accrue interest at a rate per annum equal to the Prime Rate plus the Applicable Margin as of the first day of any Interest Period with respect to any Advance for which LIBOR is unavailable or cannot be determined.”

(d) The definitions of “Adjusted EBITDA”, “Current Portion of Long Term Debt”, “Debt Service” and “EBITDA” contained in Schedule A of the Loan Agreement shall be, and hereby are, deleted in their entirety and replaced with their following new respective definitions:

“Adjusted EBITDA” shall mean consolidated EBITDA of Borrower and the Guarantors, minus Capital Expenditures, cash payments of taxes, and dividends paid, for the three (3) or twelve (12) month period, as the case may be, ending on the date of determination and as determined in accordance with GAAP on a consistent basis.

“Current Portion of Long Term Debt” shall mean, for any period, all principal

4

obligations of Borrower and each Guarantor for borrowed money (including but not limited to, any amounts due with respect to Capital Lease Obligations) which by the terms thereof required repayment within the immediately preceding three (3) or twelve (12) month period, as the case may be.

“Debt Service” shall mean the sum of Current Portion of Long Term Debt due within the immediately preceding three (3) or twelve (12) month period, as the case may be, plus all interest for such period on all Indebtedness.

“EBITDA” shall mean an amount equal to (a) consolidated Net Income of the Borrower and Guarantors for the three (3) or twelve (12) month period, as the case may be, ending on the date of determination, plus (b) the sum of (i) income taxes, (ii) Interest Expense, and (iii) the amount of non-cash charges (including depreciation and amortization) for such period, in each case to the extent included in the calculation of consolidated Net Income of Borrower and Guarantors for such period in accordance with GAAP, but without duplication. For purposes of the calculation of consolidated Net Income of Borrower and Guarantors for such period, income, gain, or loss from extraordinary items for such period shall be excluded from the calculation. For the avoidance of doubt, any non-cash charges associated with charging off of goodwill and intangible assets shall be excluded from the calculation of Net Income and EBITDA for the Fiscal Quarters ending December 31, 2008 through September 30, 2009 and the Fiscal Years ending March 30, 2009 and March 30, 2010.

(e) Section II.C. of Schedule B of the Loan Agreement shall be, and hereby is, deleted in its entirety and replaced with the following new Section II.C.:

“C. Borrower shall report and certify to Bank its compliance as of each Fiscal Quarter end with its financial covenants in Section III below, as applicable, by execution and delivery of a Compliance Certificate within forty-five (45) days after the end of such Fiscal Quarter.”

(f) Section III.A. of Schedule B of the Loan Agreement shall be, and hereby is, deleted in its entirety and replaced with the following new Section III.A.:

“A. Borrower shall have Debt Service Coverage of not less than 1.15:1 as of the Fiscal Quarter ending March 31, 2010 for the twelve (12) month period then ending. Borrower shall have Debt Service Coverage of not less than 1.25:1 as of the end of each Fiscal Quarter thereafter for the twelve (12) month period then ending.”

(g) Section III.B. of Schedule B of the Loan Agreement shall be, and hereby is, deleted in its entirety and replaced with the following new Section III.B.:

“B. Beginning with the Fiscal Quarter ending March 31, 2010 and thereafter, Borrower shall have a ratio of Total Funded Debt to EBITDA for the twelve (12) month period then ending of not greater than 2.5:1 at all times.”

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(h) Section III.E. of Schedule B of the Loan Agreement shall be, and hereby is, added a new section of Schedule B of the Loan Agreement immediately after Section III.D. of Schedule B of the Loan Agreement:

“E. Borrower shall have EBITDA of not less than negative $175,000.00 for the Fiscal Quarter ending June 30, 2009. Borrower shall have EBITDA of not less than $1,346,000.00 for the Fiscal Quarter ending September 30, 2009. Borrower shall have EBITDA of not less than $850,000.00 for the Fiscal Quarter ending December 31, 2009.”

(i) Section III.F. of Schedule B of the Loan Agreement shall be, and hereby is, added a new section of Schedule B of the Loan Agreement immediately after Section III.E. of Schedule B of the Loan Agreement:

“F. Borrower shall have Debt Service Coverage of not less than 2.3:1 as of the Fiscal Quarter ending September 30, 2010 for the three (3) month period then ending. Borrower shall have Debt Service Coverage of not less than 1.05:1 as of the Fiscal Quarter ending December 31, 2010 for the three (3) month period then ending.”

3. Mortgage. Contemporaneously with the execution of this Amendment, the Borrower shall execute and deliver to the Bank for its benefit a first priority mortgage and security agreement on the real estate commonly known as 26 Hampshire Drive, Hudson, Hillsborough County, New Hampshire (the “Premises”) in substantially the form attached hereto as Exhibit A (the “Mortgage”). The Borrower and the Guarantors’ agree that (a) the interest in the Premises granted by the Mortgage shall be considered “Collateral” under the Loan Agreement, and (b) the Mortgage shall be considered a “Loan Document” under the Loan Agreement. Subject to the results of the Field Examination, the Bank may, in its sole discretion, have the Premises appraised (the “Appraisal”) and subject to an environmental review (the “Environmental Review”).

4. Reaffirmation of Representations and Warranties. The Borrower and the Guarantors hereby confirm, reassert, and restate all of their respective representations and warranties under the Loan Agreement and the Loan Documents as of the date hereof.

5. Reaffirmation of Affirmative Covenants. The Borrower and the Guarantors hereby confirm, reassert, and restate all of their respective affirmative covenants as set forth in the Loan Agreement and the Loan Documents as of the date hereof.

6. Reaffirmation of Negative Covenants. The Borrower and the Guarantors hereby confirm, reassert, and restate all of their respective negative covenants as set forth in the Loan Agreement and the Loan Documents as of the date hereof.

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7. Further Representation and Warranties. The Borrower and the Guarantors, jointly and severally, further represent and warrant to the Bank as follows:

(a) The execution, delivery and performance of this Amendment and the documents executed and delivered pursuant hereto (collectively, the “Amendment Documents”) are within the power of the Borrower and the Guarantors and are not in contravention of law, the Borrower’s or the Guarantor’s Articles or Certificates of Incorporation or By-laws, or the terms of any other documents, agreements or undertaking to which the Borrower or the Guarantors are a party or by which any of the Borrower or the Guarantors are bound. No approval of any person, corporation, governmental body or other entity not provided herewith is required as a prerequisite to the execution, delivery and performance by any of the Borrower and the Guarantors of the Amendment Documents or any of the documents submitted to the Bank in connection with the Amendment Documents to ensure the validity or enforceability thereof.

(b) All necessary corporate and other action has been taken by each of the Borrower and the Guarantors to authorize the execution, delivery and performance of this Amendment and the Amendment Documents to which each is a party which, when executed on behalf of the Borrower and/or the Guarantors, as the case may be, will constitute the legally binding obligations of the Borrower and the Guarantors, enforceable in accordance with their respective terms.

8. No Other Modifications. Except as specifically modified or amended herein or hereby, all of the terms and conditions of each of the Loans, the Loan Agreement, and the Loan Documents, remain otherwise unchanged, and in full force and effect, all of which are hereby confirmed and ratified by the parties hereto.

9. Bank Fee. For and in consideration of the Bank entering into this Amendment, the Borrower shall pay to the Bank a fee in the amount of $40,000.00, due, payable in full, and earned in full on the Effective Date. The Borrower consents to the Bank charging Borrower’s Revolving Line of Credit Loan account for such fee.

10. Costs and Expenses of Bank. The Borrower agrees to reimburse the Bank for all reasonable costs, expenses, and fees, including attorneys’ fees, associated with the documentation of this Amendment, including without limitation, any costs, expenses and fees attributable to any of the Field Examination, the recording of, and title insurance with respect to, the Mortgage, the Appraisal or the Environmental Review. The Borrower consents to the Bank charging the Borrower’s Revolving Line of Credit Loan account for any such costs, expenses and fees.

11. Counterparts. This Amendment may be executed in several counterpart copies. Each such counterpart copy shall be deemed an original, but all of such copies together shall constitute one and the same agreement.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the parties have executed and delivered this Amendment effective as of the Effective Date.

		BANK: RBS CITIZENS NATIONAL ASSOCIATION
	By:
Witness		Timothy J. Whitaker, Senior Vice President

		BORROWER: MICRONETICS, INC.
	By:
Witness		David Robbins, Chief Executive Officer

		GUARANTORS: MICA MICROWAVE CORPORATION MICROWAVE & VIDEO SYSTEMS, INC. MICROWAVE CONCEPTS, INC.
	By:
Witness		David Robbins, President

		STEALTH MICROWAVE, INC.
	By:
Witness		David Robbins, Vice President

Amendment and Waiver to Commercial Loan Agreement and Loan Documents

Signature Page

EXHIBIT A

Mortgage (see attached)

Amendment and Waiver to Commercial Loan Agreement and Loan Documents

Exhibit A

EX-10.9

Exhibit 10.9

Recording requested by

and when recorded mail to:

Jason J. Oster, Esq.

Cook, Little, Rosenblatt & Manson, P.L.L.C.

1000 Elm Street, 20^th Floor

Manchester, New Hampshire 03101

MORTGAGE AND SECURITY AGREEMENT

KNOW ALL MEN BY THESE PRESENTS that MICRONETICS, INC., a Delaware corporation, with a principal place of business at 26 Hampshire Drive, Hudson, NH 03051 (hereinafter individually and collectively with its successors and assigns referred to as “Mortgagor”) for consideration paid by RBS CITIZENS NATIONAL ASSOCIATION, a national banking association with a place of business at 875 Elm Street, Manchester, New Hampshire 03101 (hereinafter collectively with its successors, assigns and participants, if any, referred to as “Mortgagee”), the receipt and sufficiency of which Mortgagor does hereby acknowledge, hereby grants, bargains, sells, conveys and assigns to Mortgagee, with MORTGAGE COVENANTS:

The premises located in the Town of Hudson, County of Hillsborough, State of New Hampshire, as more particularly described in Schedule A attached hereto and made a part hereof; together with all buildings, structures, replacements, and other improvements now or hereafter situated thereon; together with all rents, issues, profits, privileges, easements, rights, covenants, rights of way, licenses, appurtenances, and any and all other appurtenant rights thereto of all kind and nature whatsoever; all right, title and interest of Mortgagor in and to any vacated or hereafter vacated streets or roads adjoining the subject property; and all right, title and interest of Mortgagor in and to all air and riparian rights associated with, belonging to or inuring to the benefit of the subject property (all of the foregoing collectively, the “Premises”);

AND transfers, assigns, sets over and grants a first priority security interest in the following (collectively, the “Personal Property”);

(1) All fixtures, machinery and all other tangible personal property used in the buildings and other improvements on the Premises, now or hereafter owned by the Mortgagor and now affixed or hereafter affixed to the Premises, including all appurtenant easements. The foregoing shall include, without limitation, all machinery, plant, plumbing, heating, lighting, refrigerating, ventilating and air conditioning apparatus and equipment, elevators and elevator machinery, boilers, tanks, motors, sprinkler and fire extinguishing systems, alarm systems, screens, awnings, screen doors, storm and other detachable windows and doors, perennial

flowers, signage, irrigation systems, and other equipment, machinery, furniture and furnishings, fixtures, and articles of personal property now and hereafter owned by the Mortgagor and now and hereafter affixed to, placed upon or used in connection with the operation of the Premises, and all other purposes whether or not included in the foregoing enumeration, together with cash proceeds and non-cash proceeds of all of the foregoing, all of which are covered by this Mortgage, whether or not such property is subject to prior conditional sales agreements, chattel mortgages or other liens, excepting inventory and personal property to be consumed or sold in the normal course of business of the Mortgagor. If the lien hereof on any fixtures or personal property is subject to a conditional sales agreement or chattel mortgage or security agreement covering such property, then upon the occurrence of an Event of Default hereunder all the rights, title and interest of the Mortgagor in and to any and all deposits made thereon or therefor are hereby assigned to the Mortgagee, together with the benefit of any payments now or hereafter made thereon. There are also transferred, set over and assigned to the Mortgagee, its successors and assigns, all conditional sales agreements, leases, and use agreements of machinery, equipment and other personal property of the Mortgagor in the categories hereinabove set forth and now and hereafter affixed to, placed upon or used in connection with the operation of the Premises under which the Mortgagor is the owner, lessee, or licensee of, and the Mortgagor agrees to execute and deliver to the Mortgagee specific separate assignments thereof to the Mortgagee of such leases and agreements when requested by the Mortgagee; and nothing herein shall obligate the Mortgagee to perform any obligations of the Mortgagor under such leases or agreements, unless it so chooses, which obligations the Mortgagor hereby covenants and agrees to well and punctually perform;

(2) All of the Mortgagor’s right, title and interest in and to any governmental approvals, licenses, franchises, permits, grants, etc. with respect to the Premises, including, but not limited to, all approvals, licenses, and permits for the use and occupancy of the Premises;

(3) All eminent domain awards made and insurance proceeds paid with respect to the Premises;

(4) All trade names of Mortgagor associated with the use or occupancy of the Premises;

(5) All books, records, contracts, management contracts, and other general intangibles relating to Mortgagor’s operation of the Premises;

(6) All plans, specifications, contracts, warranties and survey plans relating to the construction, use or occupancy of the Premises;

(7) Any and all additions, accessions, substitutions or replacements to or for any of the foregoing;

(8) Any and all products and proceeds of any or all of the foregoing, including, without limitation, cash and cash equivalents, tax refunds and the proceeds, including interest, of insurance policies providing coverage against the loss or destruction of or damage to any of such collateral;

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(9) All of the Mortgagor’s after-acquired property of the kinds and types described in the foregoing paragraphs;

(10) All rents, instruments, security deposits, issues and profits, revenues, royalties, bonuses, rights and benefits under any and all leases or tenancies now existing or hereafter created with respect to the Mortgaged Property or any part thereof and all contracts, agreements, deposits, proceeds and rights with respect to any disposition, transfer or sale of the Mortgaged Property;

(11) All judgments, awards of damages, insurance proceeds and settlements hereafter made as a result or in lieu of any taking of the Mortgaged Property or any interest therein or part thereof under the power of eminent domain or for any damage or casualty (whether caused by such taking or otherwise) to the Mortgaged Property or any part thereof, including any award for change of grade of streets; and

(12) All right, title and interest of Mortgagor in any ISDA Master Agreement between Mortgagor and Mortgagee (including any replacement or successor interest rate swap agreements or other interest rate protection instruments, individually or collectively, the “Swap Agreement”), and each transaction entered into thereunder (including, without limitation, all amounts payable or deliverable thereunder, and the benefit of any guarantee or other credit support in connection therewith);

(collectively, the Premises and the Personal Property are hereinafter sometimes referred to as the “Mortgaged Property”);

FOR THE PURPOSE OF SECURING the following obligations of Mortgagor to Mortgagee:

(1) The payment of (a) $5,000,000.00 together with interest thereon, all as provided in the Revolving Credit Note dated March 30, 2007 of Mortgagor to Mortgagee in such principal amount (as amended, extended, modified or renewed, the “RLOC Note”), and (b) $6,500,000.00 together with interest thereon, all as provided in the Term Note dated March 30, 2007 of Mortgagor to Mortgagee in such principal amount as amended, extended, modified or renewed, the “Term Note” and together with the RLOC Note, individually or collectively, the “Note”), which Note has been issued subject and pursuant to the provisions of the Commercial Loan Agreement dated March 30, 2007 by and among Mortgagor, Mortgagee, and the Guarantors (as defined therein) (as amended, extended, modified or renewed, the “Loan Agreement”), and

(2) Payment of such sums expended or advanced by Mortgagee in accordance herewith to protect the security, priority or validity of this Mortgage;

(3) Due, prompt and complete observance, performance, fulfillment and discharge by Mortgagor of each and every obligation, covenant, condition, warranty, agreement and representation of Mortgagor contained in the Loan Agreement, the Note and this Mortgage, and any other document, instrument or agreement given by Mortgagor as additional security for the

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payment of the indebtedness hereby secured, or otherwise executed in connection therewith (all of the foregoing, together with any extensions, renewals, modifications, amendments, substitutions or replacements thereof, are hereinafter collectively referred to as the “Loan Documents”); and

(4) Payment of any obligations owed by the Mortgagor to Mortgagee pursuant to the Swap Agreement.

PROVIDED, NEVERTHELESS, and this Mortgage is granted upon the express condition, that if the Mortgagor pays to the Mortgagee all amounts due under the Note, this Mortgage and the other Loan Documents, complies with and performs fully all terms and obligations as set forth in this Mortgage, the Note and the other Loan Documents, then this Mortgage shall be void. Otherwise it shall remain in full force and effect.

1. Representations, Warranties, and Covenants of the Mortgagor. In addition to the MORTGAGE COVENANTS, the Mortgagor represents, warrants, covenants, and agrees with the Mortgagee as follows:

(a) Power and Authority. The Mortgagor is duly organized and validly existing under the laws of its state of formation, and has full power, authority, and legal right to execute and deliver the Mortgage and the other Loan Documents and to consummate the transactions contemplated herein without the consent or approval of any third party, court or governmental body or other third party; and, the execution and delivery of the Mortgage and the other Loan Documents and the consummation of the transactions contemplated herein will not conflict with or result in a breach of the terms of any agreement or law or order of any court or governmental body;

(b) Title. Upon the recording hereof, Mortgagor is the lawful owner of the Mortgaged Property seized and possessed thereof in its own right in fee simple or in easements as specified in Schedule A, has full power and lawful authority to grant and convey the same in manner aforesaid; the Mortgaged Property is free and clear from any encumbrance whatsoever, except for the exceptions identified in the Mortgagee’s title insurance commitment issued to and accepted by Mortgagee insuring this Mortgage (the “Permitted Encumbrances”); Mortgagor shall warrant and defend the same to the Mortgagee against the lawful claims and demands of any person or persons whatsoever; Mortgagor will not cause or permit any lien to arise against the Mortgaged Property which is superior to the lien or security interest granted herein;

(c) Payment and Performance. Mortgagor shall pay the Note hereby secured and interest thereon as the same shall become due and payable, and also any other indebtedness that may accrue to the Mortgagee under the terms of this Mortgage and the other Loan Documents, and shall perform all other covenants, undertakings and agreements set forth herein and in the other Loan Documents;

(d) Insurance. Mortgagor shall obtain and keep in force, with one or more insurers acceptable to Mortgagee, such insurance as Mortgagee may from time to time specify by notice to Mortgagor, including, as a minimum, insurance providing (i) commercial general liability

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(including death or bodily injury and property damage coverage) with a broad form coverage endorsement and a combined single limit of at least $2,000,000, and (ii) protection against fire, “extended coverage” and other “All Risk” perils, including, if specifically required by Mortgagee, flood, if in a flood hazard area, with a full replacement cost endorsement (such cost to be subject to annual review and increased if necessary so as to provide coverage at all times in an amount necessary to restore the Mortgaged Premises to the condition existing just prior to the destruction or damage). All fire and casualty insurance policies shall include the standard mortgagee clause for the State of New Hampshire naming Mortgagee as the first mortgagee with loss payable to Mortgagee as such mortgagee and all other policies shall include Mortgagee as its interest may appear. All insurance policies shall not be cancelable or modifiable without thirty (30) days prior written notice to Mortgagee and shall not have more than a $25,000.00 deductible for any single Casualty (as defined below). Mortgagor shall provide Mortgagee with evidence of compliance with this Paragraph as required from time to time by Mortgagee, such evidence to include insurance certificates and, upon Mortgagee’s written request, copies of policies, each bearing notations evidencing the prior payment of premiums or accompanied by other evidence satisfactory to Mortgagee that such payment shall be delivered by Mortgagor to Mortgagee.

Mortgagor shall keep, observe and satisfy, and not suffer violations of, the requirements of insurance companies and any bureau or agency which establishes standards of insurability affecting the Mortgaged Property, and pertaining to acts committed or conditions existing thereon.

Upon foreclosure of this Mortgage or other transfer of title or assignment of the Mortgaged Property in discharge, in whole or part, of the indebtedness secured hereby, all right, title and interest of Mortgagor in and to all policies of insurance required by this Paragraph shall inure to the benefit of and pass to Mortgagee;

(e) Taxes and Assessments. The Mortgagor will pay, before the same become delinquent or any penalty attached thereto for nonpayment, all taxes, condominium association assessments, and other assessments and charges of every nature that may now or hereafter be levied or assessed, upon the Premises or any part thereof, or upon the rents, issues, income or profits thereof, whether any or all of said taxes, assessments or charges be levied directly or indirectly, and will pay, before the same become delinquent or any penalty attached thereto for the nonpayment, all taxes which by reason of nonpayment create a lien prior to the lien of the Mortgage; and will thereupon submit to the Mortgagee such evidence of the due and punctual payment of such taxes, etc. as the Mortgagee may require;

(f) Maintenance of the Premises. The Personal Property is in good working order and condition, and to the best of Mortgagor’s knowledge, the Premises are free from structural defects. The Mortgagor will keep the Mortgaged Property protected in good order, repair and condition (reasonable wear and tear and casualty insured against excepted) at all times, promptly replacing any part thereof which may become lost, destroyed or unsuitable for use; and will not commit or suffer any strip or waste of the Mortgaged Property, or any violation of any law, regulation, ordinance or contract affecting the Mortgaged Property, will not commit or suffer any demolition, removal or material alteration of the Mortgaged Property without the written consent of the Mortgagee, which consent shall not be unreasonably withheld. Mortgagor will afford the

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Mortgagee the opportunity to inspect the Mortgaged Property at any time upon reasonable prior notice; and Mortgagor, its officers, agents, and representatives shall fully cooperate with Mortgagee, its agents, and representatives in conducting such inspection. The Mortgagor shall maintain and preserve the parking areas, passageways and drives, now or hereafter existing on the Premises, and, without prior written consent of the Mortgagee, which shall not be unreasonably withheld, no building or other structure other than those currently in existence on the Premises shall be erected thereon and no additions to existing buildings shall be erected, except as contemplated by the Loan Agreement, without the prior written consent of the Mortgagee, which consent shall not be unreasonably withheld;

(g) Real Estate Tax and Insurance Escrow. The Mortgagor shall, following the occurrence of an Event of Default and after request therefor by the Mortgagee, which request may be withdrawn and remade from time to time at the discretion of the Mortgagee, pay to the Mortgagee on a monthly basis as hereafter set forth a sum equal to the municipal and other governmental real estate taxes, personal property taxes, other assessments next due on the Mortgaged Property and all premiums next due for fire and other casualty insurance required of the Mortgagor hereunder, less all sums already paid therefor, divided by the number of months to lapse not less than one (1) month prior to the date when said taxes and assessments will become delinquent and when such premiums will become due. Such sums as estimated by the Mortgagee shall be paid with monthly payments of principal and/or interest due pursuant to the terms of the Note and such sums shall be held by the Mortgagee to pay said taxes, assessments and premiums before the same become delinquent. The Mortgagor agrees that should there be insufficient funds so deposited with the Mortgagee for said taxes, assessments and premiums when due, it will upon demand by the Mortgagee promptly pay to the Mortgagee amounts necessary to make such payments in full; any surplus funds may be applied toward the payment of principal and/or interest on the Note (such payment shall not be subject to any prepayment penalty or premium) or credited toward future such taxes, assessments and premiums. If the Mortgagee shall have commenced foreclosure proceedings, the Mortgagee may apply such funds toward the payment of the Mortgage indebtedness without causing thereby a waiver of any rights, statutory or otherwise, and specifically such application shall not constitute a waiver of the right of foreclosure hereunder. The Mortgagor hereby assigns to the Mortgagee all the foregoing sums so held hereunder for such purposes;

(h) Books and Records. The Mortgagor shall maintain full and correct books and records showing in detail the earnings and expenses of the Mortgaged Property in accordance with generally accepted accounting principles, and full and accurate entries of all dealings and transactions relating to the Mortgaged Property, and will permit the Mortgagee and its agents, accountants and representatives to examine said books and records and all supporting vouchers and data any time from time to time upon request by the Mortgagee;

(i) Financial Statement and Reports. Mortgagor shall furnish to Mortgagee such financial statements and other information required pursuant to Section II of Schedule B of the Loan Agreement;

(j) Other Proceedings. If any action or proceeding shall be commenced, excepting an action to foreclose the Mortgage or to collect the debt hereby secured, to which action or

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proceeding the Mortgagee is made a party by reason of the execution of the Mortgage or the Note, or in which it becomes necessary to defend or uphold the lien of the Mortgage, all reasonable sums paid by the Mortgagee for the expense of any litigation to prosecute or defend the rights and lien created hereby, including attorneys’ fees, shall be paid by the Mortgagor on demand, together with interest thereon from date of demand at the rate specified in the Note, and any such sum, and the interest thereon, shall be immediately due and payable and be secured hereby, having the benefit of the lien hereby created, as a part thereof and of its priority. The Mortgagee shall give the Mortgagor prompt notice of the initiation of any such action or proceeding;

(k) Consent to Release, Etc. Without affecting the liability of the Mortgagor or any other person (except to the extent such liability is expressly modified in writing or except for any person expressly released in writing) for payment of any indebtedness secured hereby or for performance of any obligation contained herein or in the other Loan Documents, and without affecting the rights of the Mortgagee with respect to any security not expressly released in writing, the Mortgagee may at any time and from time to time, either before or after the maturity of the Note and without notice or consent:

(i) Release any person liable for payment of all or any part of the indebtedness evidenced by the Note or for performance of any obligation contained in the other Loan Documents;

(ii) Make any agreement extending the time or otherwise altering the terms of payment of all or any part of the Note indebtedness, or modifying or waiving any obligation in the Loan Documents, or subordinating, modifying or otherwise dealing with the lien or charge hereof;

(iii) Exercise or refrain from exercising or waive any right the Mortgagee may have hereunder, in the other Loan Documents, or by law;

(iv) Accept additional security of any kind; or

(v) Release or otherwise deal with any property, real or personal, securing the indebtedness, including all or any part of the Premises;

(l) Leases. The terms and conditions pursuant to which any leases respecting the Premises are assigned to Mortgagee may be set forth in the assignment of leases and rents from Mortgagor to Mortgagee;

(m) Due on Sale. This Mortgage is not assignable or assumable and if all or any part of the Mortgaged Property is sold, transferred, or otherwise conveyed, then the Mortgagee may, at its option, require immediate payment in full of all sums secured by this Mortgage (for purposes of this paragraph, a net lease having a term of ten (10) years or more shall constitute a sale);

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(n) Liens and Other Mortgages. The Mortgagor shall not grant any other mortgage, lien or security interest in the Mortgaged Property;

(o) Underground Tanks. The Mortgagor will comply with applicable laws and regulations relating to the inspection and replacement of underground fuel storage tanks located on the Premises including without limitation; New Hampshire Water Supply and Pollution Control Commission Regulation WS-411, et seq.

(p) Flood Hazard; Hazardous Materials. None of the buildings located on the Premises are located in an “area of Special Flood Hazard”, as that term is defined in the National Flood Insurance Act of 1968 (as amended and supplemented by the Flood Disaster Protection Act of 1973), and, to the Mortgagor’s knowledge as of the date hereof, except as used in the ordinary course of Mortgagor’s or any occupant’s business and then in accordance with applicable law in all material respects, the Premises do not contain any oil, hazardous wastes, hazardous substances, hazardous materials, toxic substances or toxic pollutants (collectively, “Hazardous Materials”), as those terms are used in the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Hazardous Materials Transportation Act and the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, or any similar applicable state or local law, (including, but not limited to, New Hampshire Revised Statutes Annotated Chapters 147-A, 147-B, and 147-C et seq.), or in any regulations promulgated pursuant thereto, or in any other applicable law (collectively, “Hazardous Waste Laws”), or any asbestos, in violation of Hazardous Waste Laws. The Mortgagor covenants to comply with the requirements of all Hazardous Waste Laws and to promptly notify the Mortgagee of the commencement or threat to commence any enforcement action by any federal or state environmental agency relative to the presence in or on the Premises of any materials, the use, storage, transportation or disposal of which is regulated by the Hazardous Waste Laws (and immediately to notify Mortgagee if at any future time there is a discharge, deposit, injection, dumping, spilling, leaking, incineration or placing of any Hazardous Materials into or on the Premises or if, at any time, the use, generation, storage, treatment, disposal, or transportation of any Hazardous Materials in, on, to, or from the Premises is in violation of any law). The Mortgagor hereby covenants to protect, indemnify, and hold the Mortgagee harmless from and against all loss, cost, damage and liability, including attorneys’ fees and costs of litigation, suffered or incurred by the Mortgagee on account of the presence of any Hazardous Materials in, on, or under the Premises, including, without limitation, any such loss, cost, damage or liability arising from a violation of any Hazardous Waste Laws, except for fines or penalties incurred by Mortgagee for its failure to comply with any lawful order from an environmental agency directed to Mortgagee. The Mortgagor covenants not to permit any tenants or other occupants of the Premises to use any portion or all of the Premises for the use, generation, treatment, storage, disposal, or transportation of Hazardous Materials, except with the prior written consent of the Mortgagor, which consent shall not be unreasonably withheld, and in compliance with all applicable laws and regulations. The Mortgagee, at its election and in its sole discretion but upon notice to Mortgagor, may (but shall not be obligated to) cure any failure on the part of Mortgagor or any occupant of the Premises so as to comply with the foregoing and any all applicable laws in furtherance thereof following notification from any federal or state environmental agency of a violation and intent to commence an enforcement action, including, without limitation (i) arrange for the clean up or containment of Hazardous

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Materials found in, on, or near the Premises and pay for such clean up and containment costs and costs associated therewith; (ii) pay on behalf of Mortgagor or any occupant of the Premises, any fines or penalties imposed on Mortgagor or any occupant by any federal, state, or local governmental agency or authority in connection with such Hazardous Materials; and (iii) make any other payment or perform any other act which may prevent a release of Hazardous Materials, facilitate the clean up thereof, and/or prevent a lien from attaching to the Premises. Any partial exercise by Mortgagee of the remedies hereinabove set forth or any partial undertaking on the part of Mortgagee to cure Mortgagor’s failure or any failure by an occupant of the Premises to comply with all applicable laws, shall not obligate Mortgagee to complete the actions taken or require Mortgagee to expend further sums to cure Mortgagor’s or any such occupants’ non-compliance; neither shall the exercise of any remedy operate to place upon the Mortgagee any responsibility for the operation, control, care, management or repair of the Premises, or make the Mortgagee the “operator” or “owner” of the Premises within the meaning of the Hazardous Waste Laws. The Mortgagee, by making any such payment or incurring any such costs, shall be subrogated to any rights of the Mortgagor or any occupant on the Premises to seek reimbursement from any third parties, including without limitation, the predecessor in interest to the Mortgagor’s title or a predecessor to the occupant’s use of the Premises who may be a “responsible party” under the Hazardous Waste Laws, in connection with the presence of such materials in, on or near the Premises. The Mortgagee, in the reasonable exercise of its discretion and with reasonable notice under the circumstances, may, at any time, without regard to whether Mortgagor is in default, cause one or more environmental assessments of the Premises to be undertaken. The Mortgagor shall be obligated to pay for any such environmental assessment only if conducted following the occurrence of an Event of Default. Environmental assessments may include a detailed visual inspection of the Premises, including, without limitation, all storage areas, storage tanks, drains, drywells, and leaching areas, as well as the taking of soil samples, surface water samples, and ground water samples, and such other investigation or analysis as is necessary or appropriate for a complete assessment of the compliance of the Premises and the use and operation thereof with all Hazardous Waste Laws;

(q) Future Advances. Future advances from the Mortgagee, if any, shall be secured by this Mortgage as evidenced by the Note secured hereby;

(r) Compliance with Laws, Etc. To the best of Mortgagor’s knowledge, the Premises and the Mortgagor’s use and occupancy thereof comply in all material respects with all applicable zoning, building, condominium, environmental, and other laws, ordinances, and regulations. The Mortgagor has no knowledge of any claim of any violation of any such legal requirements. The Mortgagor will comply, and will cause any tenant or person occupying the Premises to comply, in all material respects with all applicable laws, regulations, covenants, rules, ordinances, statutes, codes, permits, orders and decrees applicable to the Mortgagor, the Mortgaged Property, or the use, occupancy or condition of the Premises. The Mortgagor, if an entity other than a natural person, will, so long as the indebtedness secured hereby remains outstanding, do all things necessary to preserve and keep in full force and effect its existence, franchises, rights and privileges as such an entity under the laws of the state of its incorporation or creation including, without limitation, the payment of all fees and other charges required in connection therewith. The Mortgagor shall have the right to contest by appropriate legal proceedings, but without cost or expense to the Mortgagee, the validity of any laws, ordinances,

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orders, rules, regulations and assessments affecting the Mortgagor or the Mortgaged Property if compliance therewith may legally be held in abeyance without the sufferance of any charge, lien or liability against the Mortgaged Property, and the Mortgagor may postpone compliance therewith until the final determination of any such proceedings, provided they shall be prosecuted with due diligence and dispatch, and if any lien or charge is incurred, the Mortgagor may, nevertheless, make the contest and delay compliance, provided the Mortgagee is furnished with security reasonably satisfactory to it against any loss or injury by reason of such noncompliance or delay;

(s) Mechanics Liens, Etc. The Mortgagor will pay or bond off, as the same shall become due, all lawful claims and demands of mechanics, materialmen, laborers and others which, if unpaid, might result in, or permit the creation of, a lien on the Mortgaged Property or on the revenues, rents, issues, income and profits arising therefrom. The Mortgagor will not create or permit to be created and will promptly discharge or bond off any mortgage, lien, or charge on the Mortgaged Property or on the interest of the Mortgagor or the Mortgagee therein, and the Mortgagor will do or cause to be done everything necessary so that the lien hereof shall be fully preserved, at the cost of the Mortgagor, without expense to the Mortgagee;

(t) No Homestead Interest. The Premises are commercial property and there is no homestead interest in the Premises;

(u) Further Assurances. Mortgagor shall promptly upon request of Mortgagee: (i) correct any defect, error or omission which may be discovered in the contents of this Mortgage or any other Loan Document or in the execution or acknowledgment thereof; and/or (ii) execute, acknowledge, deliver and record or file such further instruments and do such further acts, in either case as may be necessary, desirable or proper in Mortgagee’s opinion to (x) protect and preserve the first and valid lien and security interest of this Mortgage on the Mortgaged Property or to subject thereto any property intended by the terms thereof to be covered thereby, including, without limitation, any renewals, additions, substitutions or replacements thereto; or (y) protect the interest and security interest of Mortgagee in the Mortgaged Property against the rights or interests of third parties. Mortgagor hereby appoints Mortgagee as its attorney-in-fact, coupled with an interest, to take the actions described above in this Paragraph and to perform such obligations on behalf of Mortgagor, at Mortgagor’s sole expense, if Mortgagor fails to comply fully with this Paragraph after ten (10) days written notice from Mortgagee to Mortgagor; and

(v) Indemnity. Mortgagor shall indemnify, defend and hold harmless Mortgagee from and against, and, upon demand, reimburse Mortgagee for, all claims, demand, liabilities, losses, damages, judgments, penalties, costs and expenses, including, without limitation, reasonable attorneys’ fees and disbursements, which may be imposed upon, asserted against or incurred or paid by Mortgagee by reason of, on account of or in connection with, any bodily injury or death or property damage occurring in, upon or in the vicinity of the Mortgaged Property through any cause whatsoever, or asserted against Mortgagee on account of any act performed or omitted to be performed under the Loan Documents or on account of any transaction arising out of or in any way connected with the Mortgaged Property or the Loan Documents, except as a result of the willful misconduct or gross negligence of Mortgagee. Mortgagor shall indemnify and repay Mortgagee immediately upon demand for any expenditures or amounts advanced (other than advances of principal under the Note) by Mortgagee at any time under the Loan Documents.

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2. Payments by the Mortgagee. If the Mortgagor shall neglect or refuse to keep the Property in good repair, to maintain and pay the premiums for insurance which may be required under Paragraph 1(d) or to pay and discharge all taxes, assessments, charges and liens of every nature and to whomever assessed, as provided for in Paragraphs 1(e) and 1(s), the Mortgagee may, at its election, cause such repairs to be made, obtain such insurance or pay said taxes, assessments, charges and liens, and any amounts paid as a result thereof, together with interest thereon at the rate of interest specified in the Note secured hereby from the date of payment, shall be immediately due and payable by the Mortgagor to the Mortgagee, and until paid shall be added and become part of the principal debt secured hereby (but shall not be subject to any prepayment penalty or premium if repaid by Mortgagor prior to maturity of the Note), and the same may be collected as a part of said principal debt in any suit herein or upon the Note; or the Mortgagee, by the payment of any tax, assessment or charge, may, if it sees fit if allowed by law, be thereby subrogated to the rights of the state, county, city, town and all political or governmental subdivisions. No such advances shall be deemed to relieve the Mortgagor of any default hereunder or impair any right or remedy consequent thereon, and the exercise of the rights to make advances granted in this Paragraph shall be optional with the Mortgagee and not obligatory, and the Mortgagee shall not in any case be liable to the Mortgagor for a failure to exercise any such right. The Mortgagee shall have no responsibility with respect to the legality, validity and priority of any such claim, lien, encumbrance, tax, assessment and premium, and of the amount necessary to be paid in satisfaction thereof.

3. Casualties and Takings.

(a) Notice to Mortgagee. In the case of any act or occurrence of any kind or nature which results in damage, loss or destruction to the Mortgaged Property (a “Casualty”), or commencement of any proceedings or actions which might result in a condemnation or other taking for public or private use of the Mortgaged Property or which relates to injury, damage, benefit or betterment thereto (a “Taking”), Mortgagor shall immediately notify Mortgagee describing the nature and the extent of the Casualty or the Taking, as the case may be, if in excess of $25,000. Mortgagor shall promptly furnish to Mortgagee copies of all notices, pleadings, determinations and other papers in any such proceedings or negotiations.

(b) Repair and Replacement. In case of a Casualty or Taking, Mortgagor shall promptly restore, repair, replace and rebuild the Mortgaged Property as nearly as possible to its quality, utility, value, condition and character immediately prior to the Casualty or the Taking, as the case may be, provided that Insurance Proceeds or Taking Proceeds (defined below) are sufficient and that the Mortgagee makes available for such purpose any Insurance Proceeds or Taking Proceeds (less the Mortgagee’s costs, if any, of recovery or settlement) on the terms set forth in subparagraph (c), below.

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(c) Proceeds.

(i) Collection. Mortgagor shall use its best efforts to collect the maximum amount of insurance proceeds payable on account of any Casualty (“Insurance Proceeds”) in excess of $10,000.00, and the maximum award or payment or compensation payable on account of any Taking (“Taking Proceeds”) in excess of $10,000.00. In the case of a Casualty, Mortgagee may, at its sole option, make proof of loss to the insurer if not made promptly by Mortgagor. Mortgagor shall not settle or otherwise compromise any claim for Insurance Proceeds or Taking Proceeds in excess of $10,000.00 without Mortgagee’s prior written consent, which consent shall not be unreasonably withheld.

(ii) Assignment to Mortgagee. Mortgagor hereby assigns, sets over and transfers to Mortgagee all Insurance Proceeds and Taking Proceeds and authorizes payment of such Proceeds to be made directly to Mortgagee which shall, upon Mortgagor’s written request, apply such proceeds or portion thereof to the portion or portions of the Premises damaged or destroyed or, if a Taking, such portion or portions not taken (the “Work”), on the following terms and conditions:

(A) Mortgagor shall have provided plans and specifications for the Work which have been approved by Mortgagee, as well as the general contractor and principal subcontractors and suppliers, and the Work shall restore the Premises to at least the same economic value as prior to the Casualty or Taking;

(B) Mortgagee shall be satisfied that the Insurance or Taking Proceeds are sufficient to complete the Work or, if insufficient, Mortgagor has deposited with Mortgagee sufficient additional funds to complete the Work;

(C) The Work can be completed within six (6) months of the Casualty or Taking, but in no event later than the maturity date of the Note; and

(D) The Insurance or Taking Proceeds shall be disbursed as the Work progresses in installments, subject to the requirements that Mortgagee is satisfied at all times that it has sufficient funds remaining from such proceeds to complete the Work, and that such certifications, lien waivers, releases, affidavits, and title updates are delivered to Mortgagee as it may reasonably require. Any portion of Insurance or Taking Proceeds remaining after payment of the costs of the Work may be applied by Mortgagee in its sole discretion to pay down the principal balance of the indebtedness secured hereby, provided such payment shall not be subject to any prepayment premium or penalty contained in the Note. The foregoing notwithstanding, Mortgagee shall not be obligated hereunder to disburse any Insurance or Taking Proceeds to repair, rebuild, or restore the Premises, and may apply such proceeds to payment of the indebtedness secured hereby, either in whole or in part, in an order

12

determined by Mortgagee in its sole unfettered discretion if an Event of Default that cannot be cured by the repair, restoration, and/or rebuilding of the Premises shall have occurred and remains uncured as of the date of the Casualty or Taking or anytime thereafter prior to completion of the Work .

Mortgagee shall not be a trustee with respect to any Insurance Proceeds or Taking Proceeds, but shall hold such funds in a separate interest bearing account. If any portion of the indebtedness secured hereby shall thereafter be unpaid, Mortgagor shall not be excused from the payment thereof in accordance with the terms of the Loan Documents. Mortgagee shall not, in any event or circumstance, be liable or responsible for failure to collect or exercise diligence in the collection of any Insurance Proceeds or Taking Proceeds.

4. Events of Default. The following events shall be deemed “Events of Default” hereunder:

(a) Failure by Mortgagor to make any payment when due or within the applicable grace period, if any, under the Note or under this Agreement, including but not limited to the payment of insurance, taxes and/or assessments;

(b) Mortgagor defaults in the observance or performance of any covenant, warranty, or agreement required to be observed or performed by it under this Mortgage (other than a payment default referenced in subparagraph (a) above) and fails to cure such default within thirty (30) days after written notice from Mortgagee; provided, however, in the event that the cure is of a nature that it cannot be completed within said thirty (30) day period, and Mortgagor begins the cure within said thirty (30) day period and prosecutes such cure to completion with diligence, Mortgagor shall have such additional time as is reasonably necessary to complete the cure;

(c) Any representation or warranty or statement of fact made to Mortgagee at any time by Mortgagor is false or misleading or becomes false or misleading in any material respect when made;

(d) The occurrence of a breach, default or an event of default under the Note, or under any of the other Loan Documents, which is not cured within any applicable grace period;

(e) Uninsured loss, theft, damage, or destruction of any substantial portion of any of the Mortgaged Property which materially impairs its value to the Mortgagor and the Mortgagee either as to any individual piece of Mortgaged Property or in the aggregate;

(f) The Mortgagor shall (i) apply for or consent to the appointment of a receiver, trustee or liquidator of it or any of its property, (ii) make a general assignment for the benefit of creditors, (iii) be adjudicated as bankrupt or insolvent, (iv) file a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation under any law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law or statute, or (v) offer or enter into any composition, extension or arrangement seeking relief or

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extension of its debts; or proceedings shall be commenced or an order, judgment or decree shall be entered, without the application, approval or consent of the Mortgagor, as the case may be, in or by any court of competent jurisdiction, relating to the bankruptcy, dissolution, liquidation, reorganization or the appointment of a receiver, trustee or liquidator of the Mortgagor, or of all or a substantial part of its assets, and such proceedings, order, judgment or decree shall continue undischarged or unstayed for a period of sixty (60) days;

(g) one or more final judgments, decrees or orders in an amount which will materially affect the business of Mortgagor and which is not insured against shall be entered against Mortgagor and all such judgments, decrees or orders shall not have been satisfied, vacated, dismissed, or stayed or bonded pending appeal (or other contest by appropriate proceedings) within thirty (30) days from the entry thereof;

(h) Mortgagor, or any guarantor of the Note, is dissolved, or otherwise ceases to exist; or

(i) pursuant to one or more judgments, decrees, orders, or other proceedings, whether legal or equitable, any attachment, execution or other writ is levied upon any material part of the property or assets of Mortgagor and is not satisfied, dismissed or stayed (including stays resulting from the filing of an appeal) within thirty (30) days;

Upon the occurrence of any Event of Default, then the full principal sum or unpaid balance of the debt secured hereby, together with interest and all advances, if any, shall, at the option of the Mortgagee, or its successors or assigns, immediately become due and payable, whereupon the Mortgagee, or its successors or assigns, may forthwith exercise all of the rights and remedies provided in this Paragraph and Paragraphs 5, 6, and 7 herein below, as well as in any of the other Loan Documents, or available to the Mortgagee at law or in equity, including without limitation the STATUTORY POWER OF SALE. Notwithstanding any other provisions set forth herein and without limitation thereof, this Mortgage is upon the STATUTORY CONDITIONS for any breach of which, not cured within the grace period, if any, provided above for such default, the Mortgagee shall have the STATUTORY POWER OF SALE.

5. Possession by Mortgagee.

(a) If the Mortgagee shall take possession of the Mortgaged Property as permitted hereby, then in addition to, and not in limitation of, the Mortgagee’s STATUTORY POWER OF SALE, the Mortgagee may:

(i) hold, manage, operate, and lease the Mortgaged Property to the Mortgagor or to any other entity on such terms and for such period(s) of time as the Mortgagee may deem proper, and the provisions of any lease made by the Mortgagee pursuant hereto shall be valid and binding upon the Mortgagor notwithstanding the fact that the Mortgagee’s right of possession may terminate or this Mortgage may be satisfied of record prior to the expiration of the term of such lease;

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(ii) make such alterations, additions, improvements, renovations, repairs, and replacements to the Mortgaged Property as the Mortgagee may reasonably deem necessary to preserve and protect the value of its collateral;

(iii) remodel such improvements so as to make the same available in whole or in part for business purposes in order to preserve and protect the value of the Mortgagee’s collateral;

(iv) collect the rents, issues, and profits arising from the Mortgaged Property, past due and thereafter becoming due, and apply the same, in such order of priority as the Mortgagee may determine, to the payment of all charges and commissions incidental to the collection of rents, the management of the Mortgaged Property, and thereafter to the obligations secured hereby, and all sums or charges required to be paid by the Mortgagor hereunder; and

(v) take any other action the Mortgagee deems necessary or appropriate in its sole discretion to preserve, protect, or improve the Mortgaged Property in order to preserve and protect the value of the Mortgagee’s collateral;

(b) All monies advanced by the Mortgagee for the above purposes and not repaid out of the rents collected shall immediately and without demand be repaid by the Mortgagor to the Mortgagee, together with interest thereon at the same rate as provided in the Note, and shall be added to the principal indebtedness secured hereby;

(c) The taking of possession and the collection of rents by the Mortgagee as described above shall not be construed to be an affirmation of any lease of the Mortgaged Property or any part thereof, and the Mortgagee, or any purchaser at any foreclosure sale, may terminate any such lease at any time, whether or not such taking of possession and collection of rents has occurred, except as may be otherwise provided in any subordination, nondisturbance and attornment agreements between tenants and Mortgagee; and

(d) Mortgagor hereby releases Mortgagee from liability for losses or damages which Mortgagor may incur as a result of Mortgagee taking possession of the Mortgaged Property and exercising and performing its rights and duties otherwise set forth in this Paragraph, except for such losses or damages resulting from Mortgagee’s gross negligence or willful misconduct.

6. Foreclosure of Premises Pursuant to Statutory Power of Sale.

(a) Upon an Event of Default, the Mortgagee or its legal representatives or assigns may, on such terms and conditions as the Mortgagee deems appropriate in its sole discretion and pursuant to the STATUTORY POWER OF SALE, sell the Premises by public sale as provided herein and in N.H. RSA 479:25-27-a, as such statutes may be amended from time to time;

(b) If the Mortgagee invokes the STATUTORY POWER OF SALE, the Mortgagee shall without further demand upon the Mortgagor, auction the Premises or any estate therein, in

15

one or more parcels, in one or more sales, to the highest or most responsible bidder for cash or other consideration acceptable to the Mortgagee, such auction to be held upon the Premises,

(c) The deed given by reason of a power of sale foreclosure shall convey to the purchaser an indefeasible title to the Premises or tracts, parcels or other interests therein sold, discharged of all rights of redemption with respect to this Mortgage by the Mortgagor, or any person claiming from or under Mortgagor. The Mortgagee shall apply the proceeds of such sale first to any prior encumbrance, then to all costs of notice and sale of the Premises, including reasonable attorneys’, accountants’ and appraisers’ fees, then to any and all accrued but unpaid interest due to the Mortgagee, and thereafter to the principal indebtedness evidenced by the Note and to any other indebtedness secured hereby. Any excess may, unless objected to by the Mortgagor, be paid to others having a lien on the Premises not having priority over this Mortgage and, if none, then to the Mortgagor. If objected to by Mortgagor, Mortgagee may interplead such excess with a court of competent jurisdiction for a judicial determination of the party or parties entitled to payment of such excess, with Mortgagee’s costs of the interpleader action (including attorneys’ fees) to be paid by Mortgagor and secured hereby. The Mortgagor shall be liable for any deficiency;

(d) In the event of foreclosure, at the option of the Mortgagee, the interest of each of the Mortgagor and the Mortgagee herein may be sold as a single unit together with such personal property, furniture, furnishings, fixtures, machinery, and equipment as may secure the Note or be secured by the Loan Documents;

(e) If the provisions of the Uniform Commercial Code as adopted by the State of New Hampshire or by the State in which the Premises are located (“UCC”) apply to any property or security given to secure the indebtedness secured hereby which is sold with or as a part of the Premises, or any part thereof, at one or more foreclosure sales, any notice required under such provisions shall be deemed commercially reasonable and fully satisfied by the notice provided to be given hereby in execution of the POWER OF SALE; and

(f) The Mortgagee may resort to any remedies and the security given by the Loan Documents in whole or in part, and in such portions and in such order as may seem best to Mortgagee in its sole discretion, and Mortgagor waives all rights to a marshalling of its assets.

7. UCC Sale of Personal Property. The Mortgage is intended to be and is a security agreement and financing statement with respect to the Personal Property pursuant to, and in accordance with, the terms of the UCC. Upon an Event of Default, the Mortgagee may, at its discretion, require the Mortgagor to assemble the Personal Property and make it available to the Mortgagee at a place reasonably convenient to both parties to be designated by the Mortgagee. The Mortgagee shall give the Mortgagor notice, by registered mail, postage prepaid, of the time and place of any public sale of any of the Personal Property or of the time any private sale or other intended disposition thereof is to be made by sending notice to the Mortgagor at least ten (10) days before the time of the sale or other disposition or such other time as required by law, which provisions for notice the Mortgagor and the Mortgagee agree are reasonable; provided, however, that nothing herein shall preclude the Mortgagee from proceeding as to both the Personal Property and the Premises, in accordance with the Mortgagee’s rights and remedies in

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respect of the Premises. The Mortgagee shall have all of the remedies of a secured party under the UCC as now in effect, and such further remedies as may from time to time hereafter be provided in New Hampshire for a secured party. The Mortgagor agrees that all rights of the Mortgagee as to the Personal Property and the Premises may be exercised together or separately and further agrees that in exercising its power of sale as to the Personal Property and the Premises, the Mortgagee may sell the Personal Property or any part thereof, either separately from or together with the sale of the Premises or any part thereof, all as the Mortgagee may in its discretion elect.

8. Joint and Several Liability. If the Mortgagor be more than one party, such parties shall be jointly and severally liable under any and all obligations, covenants and agreements of the Mortgagor contained herein or in any of the other Loan Documents, and any reference herein to “Mortgagor” shall mean and refer to such parties individually and collectively.

9. General Provisions. The Mortgagor and the Mortgagee further agree that:

(a) Waivers.

(i) Except as otherwise specifically provided in this Mortgage, the Note and the other Loan Documents, the Mortgagor waives demand, notice of any action taken in reliance on this Mortgage, and all other demands and notices of any description;

(ii) No delay or omission on the part of the Mortgagee in exercising any right or remedy hereunder shall operate as a waiver of such right or remedy or of any other right or remedy under this Mortgage. A waiver on any one occasion shall not be construed as a bar to or waiver of any such right and/or remedy on any future occasion. No single or partial exercise of any power hereunder shall preclude other or future exercise thereof or the exercise of any other right; and

(iii) That receipt and disposition of rents, income of the Mortgaged Property, insurance proceeds, eminent domain awards, or any other sums under the provisions of the Loan Documents by the Mortgagee shall not be a waiver or release of any rights of the Mortgagee, including but not limited to, the right of foreclosure or acceleration of the Note, whether such receipt or disposition shall be before or after exercise of any such rights.

(b) Binding Agreement. This Mortgage shall inure to the benefit of and shall be binding upon the parties hereto and their respective heirs, legal representatives, successors, and permitted assigns; provided, however, that any assumption of any obligations of Mortgagor hereunder shall not constitute a release of the party whose obligation is being assumed without the Mortgagee’s prior written consent.

(c) Amendment. This Mortgage shall not be changed in any respect except by written instrument signed by the parties hereto.

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(d) Governing Law. This Mortgage and all rights and obligations hereunder, including matters of construction, validity, and performance, shall be governed by the laws of the State of New Hampshire.

(e) Severability. If any term, condition, or provision of this Mortgage or the application, thereof to any person or circumstance shall, to any extent, be held invalid or unenforceable according to law, then the remaining terms, conditions, and provisions of this Mortgage, or the application of any such invalid or unenforceable term, condition or provision to persons or circumstances other than those to which it is held invalid or unenforceable, shall not be affected thereby, and each term, condition, and provision of this Mortgage shall be valid and enforced to the fullest extent permitted by law.

(f) Headings. The descriptive headings of the sections of this Mortgage have been inserted for convenience and reference only and shall not control or affect the meaning or construction of any of the contents hereof.

(g) Estoppel Certificate. The Mortgagor, within five (5) days after being given notice as provided below, will furnish to the Mortgagee a written statement duly acknowledged by the Mortgagor or its representative certifying the principal amount then outstanding on the Note and certifying that no offsets or defenses exist against the Mortgage indebtedness or, if there are any alleged offsets or defenses, what are such alleged offsets or defenses.

(h) Notices. All notices, requests, demands and other communications provided for hereunder shall be in writing (including telegraphic communication) and shall be either mailed by certified mall, return receipt requested, or delivered by overnight courier service, to the applicable party at the addresses set forth in this Mortgage.

(i) Gender and Number. All words denoting gender or number shall be construed to include any other gender or number as the context and facts require.

(j) Conflict with other Loan Documents. In the event of any conflict between the terms, covenants, conditions and restrictions contained in the Loan Documents, the term, covenant and condition or restriction which grants the greater benefit upon the Mortgagee shall control. The determination as to which term, covenant, condition or restriction is the more beneficial shall be made by the Mortgagee in its sole discretion.

(k) Waiver of Right of Exemption. The Mortgagor, for the consideration aforesaid, hereby waives all rights of exemption in the Mortgaged Property as the same are now or here after provided by virtue of the Bankruptcy provisions of the United States Code, including, without limitation, 11 U.S.C. 522.

(l) Rights Cumulative. All rights and remedies set forth herein and in the Loan Documents shall be cumulative and concurrent, and may be pursued, singly, successively, or together, at the Mortgagee’s sole discretion, and may be exercised as often as occasion therefor shall occur; Mortgagor expressly waives the application of any doctrine of marshalling of assets.

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(m) Jury Trial Waiver. EACH OF MORTGAGOR AND MORTGAGEE MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS MORTGAGE OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY, INCLUDING, WITHOUT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS OR ACTIONS OF MORTGAGEE RELATING TO THE ADMINISTRATION OF THE LOAN OR ENFORCEMENT OF THE LOAN DOCUMENTS, AND AGREES THAT NEITHER PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. EXCEPT AS PROHIBITED BY LAW, EACH OF MORTGAGOR AND MORTGAGEE HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. EACH OF MORTGAGOR AND MORTGAGEE CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF SUCH PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR EACH PARTY TO ENTER INTO THIS MORTGAGE AND CONSUMMATE THE LOAN TRANSACTION DESCRIBED HEREIN.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the Mortgagor and the Mortgagee have executed and delivered this Mortgage and Security Agreement as of this 26^th day of June, 2009.

	MICRONETICS, INC.
	By:
Witness		David Robbins, Chief Executive Officer

STATE OF NEW HAMPSHIRE

COUNTY OF HILLSBOROUGH

On this the      day of                     , 2009, before me, the undersigned officer, personally appeared David Robbins, who acknowledged himself to be the Chief Executive Officer of MICRONETICS, INC., a Delaware corporation and that he, as such officer, being authorized so to do, executed the foregoing instrument on behalf of said corporation for the purposes therein contained.

Before me,

Notary Public

My Commission Expires:

20

	RBS CITIZENS NATIONAL ASSOCIATION
	By:
Witness		Timothy J. Whitaker, Senior Vice President

STATE OF NEW HAMPSHIRE

COUNTY OF HILLSBOROUGH

On this the      day of                     , 2009, before me, the undersigned officer, personally appeared Timothy J. Whitaker, who acknowledged herself to be a Senior Vice President of RBS CITIZENS NATIONAL ASSOCIATION, a national banking association, and acknowledged that he, as such officer, being authorized so to do, executed the same on behalf of said bank for the purposes therein contained.

Before me,

Notary Public

My Commission Expires:

21

SCHEDULE A

LEGAL DESCRIPTION

[***To be inserted from title commitment.***]

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 29, 2009, 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 29, 2009

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 29, 2009

	/s/    DAVID ROBBINS
Name:	David Robbins
Title:	Chief Executive Officer and Treasurer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

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

I, Carl Lueders, 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 29, 2009

	/s/    CARL LUEDERS
Name:	Carl Lueders
Title:	Acting Chief Financial Officer (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, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), David Robbins, Chief Executive 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 29, 2009		/s/    DAVID ROBBINS
	Name:	David Robbins
	Title:	Chief Executive Officer and Treasurer
		(Principal Executive 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.

EX-32.2

Exhibit 32.2

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, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Carl Lueders, 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 29, 2009		/s/    CARL LUEDERS
	Name:	Carl Lueders
	Title:	Acting Chief Financial Officer
		(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.