UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 33-16453
MICRONETICS WIRELESS, INC.
(Name of small business issuer in its charter)
Delaware 22-2063614
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
26 Hampshire Drive, Hudson, New Hampshire 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)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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 [ ].
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this
form, and no disclosure will 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-
KSB or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were
$3,686,479.
The aggregate market value of the shares of Common Stock held
by non-affiliates of the issuer was approximately $4,989,182
based on the closing price of the issuer's Common Stock, par value
$.01 share, as reported by NASDAQ on June 26, 1996.
On June 20, 1996, there were 3,116,638 shares of the issuer's
Common Stock outstanding.
The Proxy Statement of the registrant to be filed on or before
July 29, 1996 is incorporated herein by reference.
<PAGE>
Part I
ITEM 1. Description of Business.
Business Development
The Company was incorporated under the laws of the State of
New Jersey in 1975. In May 1987, Micronetics, Inc. (NJ) merged
with and into Micronetics, Inc. (Del) and in April 1988, the
Company completed an initial public offering of its Common Stock
(the "Common Stock"). It changed its name to Micronetics Wireless,
Inc. in September 1995.
Business of Issuer
The Company is a manufacturer of specialized radio frequency
(RF) components and test equipment which are designed to provide
solutions for its customers, original equipment manufacturers
(OEMs) of wireless communication systems and communication service
providers, to enable them to deliver high quality communication
systems or offer high quality communication services. The
Company's products are used in cellular, microwave, satellite,
radar and communications systems around the world.
Industry Overview. Wireless service providers compete in
dynamic markets characterized by evolving industry standards,
technologies and applications. In recent years, there has been a
significant increase in the demand for wireless telecommunications
services from business and consumer users worldwide. This trend
has been driven by lower overall subscriber costs made possible by
changes in the regulatory environment that encourage competition
and the emergence of new enabling technologies. Wireless service
providers are seeking to increase system capacity in order to
accommodate the growing number of subscribers. To increase
capacity, these service providers are investing in infrastructure
equipment that provides greater efficiency in the management of the
limited spectrum licensed to them.
Cellular service has been one of the fastest growing segments
of the wireless telecommunications market. The U.S. Department of
Commerce estimates that there were approximately 52 million
cellular subscribers worldwide at year-end 1994, as compared to
approximately 33 million at year-end 1993. The growth in cellular
communications has required, and will continue to require,
substantial investment by cellular service providers in wireless
infrastructure equipment. Moreover, intensified competition among
cellular service providers is resulting in declining costs to-
end-users as well as new types of service offerings. In response
to the increase in subscribers, cellular service providers are
taking steps to expand the capacity of their existing systems, such
as incorporating microcellular networks, converting from analog to
digital protocols and implementing adaptive channel allocation.
Partially in resonse to concerns about the limited capacity of
existing cellular networks, the FCC began to allocate spectrum for
new wireless services in 1989. This has led to the auctioning of
spectrum for PCS, a new licensed wireless telecommunications
service. PCS proponents believe that increased competition,
brought about by the availability of additional spectrum, will
significantly lower rates, leading to an increase in demand for
wireless service. PCS applications may include mobile telephone
services, personal digital services and long distance carrier
bypass of local exchange carriers. Service providers bid over 12
Billion Dollars for spectrum auctioned by the FCC for use in PCS
applications. The Company believes that these bidders, driven by
the high acquisition cost of spectrum, will rapidly deploy
infrastructure in order to begin offering service from which to
recover their investment.
In many developing countries, where access to the public
switch telephone network ("PSTN") by the general population is
significantly less than in developed countries, the Company
believes that wireless telecommunications systems are the most
economic means to provide basic telephone service. The expense,
difficulty and time requirements of building and maintaining a
cellular network is generally less than the cost of building and
maintaining a comparable wireline network. Thus, in many less
developed countries, wireless service may provide the primary
service platform for both mobile and fixed telecommunications
applications. In a wireless local loop system, channels use radio
systems instead of wireline networks to connect telephone
subscribers to the PSTN. The Company believes that the potential
opportunities for wireless communications in countries without
reliable or extensive wireline systems may be even greater than in
countries with developed telecommunications systems. The Company
also believes that in developed countries, market trends such as
deregulation and increased competition for subscribers are leading
to the increased use of wireless local loop systems as an
alternative to the existing wireline network.
The same factors which are driving the growth of wireless
telecommunications services and equipment sales are also creating
new market dynamics for industry participants. The Company
believes that competition among service providers for subscribers
will intensify and that future market growth will be realized
primarily through the penetration of the consumer market. The
shift of the customer base from relatively high-usage price-
insensitive business subscribers to price-sensitive consumer
subscribers is expected to lead to reduced revenue per subscriber.
The Company also expects that increasing competition for
subscribers and decreasing revenue per subscriber will cause
wireless service providers to seek the most cost-effective
infrastructure available without sacrificing quality. In addition,
the uncertainty surrounding analog and emerging digital protocols
provides an incentive for service providers to minimize platform
and protocol selection risk. These changing market conditions, the
emergence of open hardware standards and protocols and new market
entrants in the form of PCS and wireless local loop providers
create a significant opportunity for the Company.
Technical Overview. Wireless communication is the
transmission of voice and data signals through the air, without a
physical connection, such as metal wire or fiberoptic 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 which is used in all wireless
communications. Radio Frequency ("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 telephones and base stations,
wireless cable, satellite communications, global positioning
systems, direct broadcast satellites, local area networks, as well
as radar systems. Currently in the development stage are personal
communications systems. The Company's products are designed for
use in these applications.
Products The Company's products are divided into three
groups: (i) Building Block Components; (ii) Design, Production
Test and Installation Support Equipment and (iii) Monitoring and
Quality Assurance Products.
Building Block Components
The Company offers several types of Building Block Components.
One of its product offerings, Voltage Controlled Oscillators
(VCO's), are components which provide a precise signal source
within a frequency range. They are widely used in transmitting and
receiving equipment. The Company offers two lines of VCOs:
MicroSource. MicroSource VCOs are extremely low phase noise
VCOs, engineered to deliver high performance and solid reliability
by reducing phase noise to the lowest possible level in both
digital wireless and personal communication systems.
VCOs are used in these systems essentially as wireless channel
changers that direct RF frequencies to the appropriate channels
during voice, data or video transmission. In the process, they
generate phase noise, which is any unwanted noise like hissing,
crackling or static. When there is too much phase noise on one
channel, it negatively impacts adjacent channels, causing signal
degradation and ultimately a reduction in the overall capacity and
quality of the wireless system itself. The lower the phase noise,
the higher and clearer the quality of signal transmission in a
wireless system. This is where MicroSource VCOs offer an advantage
- - they offer extremely low phase noise in a small size, low cost
VCO, that is capable of tuning in the cellular frequency range.
MicroSource VCOs are available in both pin type and surface
mount packages. Inexpensive, surface mount ceramic packaging (less
than .5" square) is also available on tape and reel for high volume
applications.
M3500 VCOs. The M3500 Series features 13 different standard
VCOs covering a broad spectrum of the frequency range - from 100
MHz to 3.5 GHz.
With their rugged design and reliable performance
characteristics, these VCOs are designed for use in everything from
synthesizers and digital modems to direct broadcast, spread
spectrum and wireless communication systems. Each M3500 VCO is
electrically identical to the next, with very consistent
performance.
The M3500 VCO Series was designed, developed and tested at
QUALCOMM, Inc. - an engineering company widely known for its
advanced communications systems and products based on digital
wireless technologies. QUALCOMM engineers designed these VCOs with
an overall systems perspective, focusing on a wide range of
parameters that have a large, although indirect, impact on system
noise performance. On November 1, 1994, the Company acquired the
sole rights to manufacture and distribute the QUALCOMM VCOs, adding
them to its existing MicroSource family of VCOs.
During its fiscal year ended March 31, 1996 ("Fiscal 1996"),
the Company expanded its line of M3500 VCOs to include surface
mount packaging and smaller sizes.
Discrete Components. The Company produces a line of
microwave signal processing components which are primarily used in
military applications. Among these products are solid state
switches which are used to change the direction or timing of RF and
microwave signals. The Company also produces phase detectors which
are used to convert RF and microwave signals into usable
information and data.
Noise Sources. The Company offers numerous sizes, styles and
models with varying degrees of capabilities that can be customized
to meet particular customer requirements. They may be incorporated
directly into the electronic equipment concerned or may be stand
alone components or devices that are connected to, or used in
conjunction with, such equipment operating from an external site,
in the factory or in the field. The Company's noise source
products range from relatively simple items with no control
mechanisms or auxiliary components to complex, automated components
containing computerized or microprocessor based controls. Prices
of noise source devices range from approximately $200 to $25,000
per unit, with most sales occurring between $700 and $2,500 per
unit.
The Company's noise source products are widely used in radar
systems as part of built-in test equipment to continuously monitor
the radar receiver. Impulses of noise are applied to the receiver
to measure the radar sensitivity, signal gain and frequency
bandwidth. Noise is also used as a reference to set the threshold
of the light intensity on the radar display. Most of the radar
applications are for aircraft, airport ground controls, collision
avoidance systems and ships.
Design, Production Test and Installation Support
Equipment
The Company's Design, Production Test and Installation Support
Equipment are primarily used to determine if wireless
communications systems are capable of intelligently receiving the
information being transmitted and whether the information so
received can be manipulated so as to ensure quality reception in
the form of voice quality, efficient hand-off and other factors
that a subscriber would believe important so that he believed he
was receiving a quality service.
Modern technology in communications is placing increasing
demands on test and measurement instrumentation. Complex
measurements must be taken at increasing speeds to enhance
productivity, offer better accuracy, provide wider performance
ranges, present repeatable results, and to assist in permitting a
reliable life cycle at a cost-effective price. The Company's
products are designed to respond to the increased demands for this
type of equipment.
The widest application is to measure unwanted noise and
interference in devices and components used in communications
equipment. This is done at the design stage, during production of
the communication system and during installation of the
communications system in the field. This is generally accomplished
by comparing a signal with known characteristics to the unwanted
noise found in the communications system or on the environment
being tested. By generating a random noise signal, in combination
with a live transmission signal, a carrier to noise instrument or
noise generator simulates real world signals and allows the
designer, manufacturer or installer to determine if its product is
performing to specifications. Testing is generally more cost-
efficient, faster and more accurate than alternative methods.
The Company's instruments generally include noise sources and
incorporate state-of-the-art software and hardware, encompassing
RF, analog, and digital signal processing. Many types of tests are
able to be performed by these instruments, including distortion
measurements of transmitters and receivers which operate in high
density signal environments, noise figure measurements, bit error
rate testing and precision carrier to noise generation. The
selling prices for these new products range from $10,000 to over
$40,000 per unit.
Monitoring and Quality Assurance Products.
The Company's Monitoring and Quality Assurance products are
marketed under the Company's MicroCal trademark.
Micro-Cal was designed by the Company to respond to perceived
needs following management's discussions with operators of cellular
base stations. The Company became aware that failed radios were
something that would be quickly noticed and corrected. There were,
however, many other subtle, often undetectable failures that were
having a negative impact on wireless system performance, such as
co-channel interference, noise, inadequate radio gain and
bandwidth reduction, that were more difficult to identify. Service
providers advised the Company that these subtle failures were the
source of the problem approximately 90 percent of the time, and
often required field technicians to spend most of their time
tracking them down.
The MicroCal Test Module was designed to instantaneously
capture subtle breakdowns in system performance before they can
affect the quality of wireless service. Generally, wireless
channels are more or less randomly-tested. A test signal is sent
through the middle of the band; and if there is a problem in
another part of the band, it will probably go undetected, or at the
very least, take a while to find. Often a field technician is
required to be dispatched to the cell site to test each band one-
at-a-time, a task that could take hours.
Testing is quicker, more complete and accurate with the
MicroCal module. It covers the complete bandwidth with a broadband
signal, so the system is tested in a fraction of the time it now
takes. In addition, the MicroCal module can be used to isolate
intermittent failures and to measure receiver sensitivity,
bandwidth characteristics and gain - just a few of the subtleties
that can affect wireless system performance.
At only 1/4" square, the MicroCal module can be added to the
front end of a wireless receiver, or incorporated into a customer's
system design. With the MicroCal module built into the
communication system, the Company believes it will dramatically
improve the systems' capability for detecting small errors and
sensitivities that impact performance - whether through a remote
test, computerized test or a test on location at the cell site.
Manufacturing
The Company's Building Block Components that require automated
assembly equipment are generally manufactured by third parties and
tested by the Company for quality assurance. The length of the
production process for these products is usually completed within
two to three weeks. Manufacturing of the Company's other products,
which involve less automated assembly equipment, takes place at its
New Hampshire facility. The length of the production process for
these products ranges from one to twenty-four weeks. The Company
may maintain inventory of the raw materials required for production
of its products for a period of up to one year or more.
Suppliers
The Company has approximately 300 suppliers, a few of which
are a sole source for some raw materials. Over the past ten years,
the Company has not experienced any unusual supply problems and
does not anticipate any in the foreseeable future. The Company
does not believe there would be any significant business disruption
if it were to lose one of its sole suppliers because it has
sufficient inventory to give it time to develop an alternative.
Sales and Marketing
In the past, the Company's primary business was to engineer,
manufacture and market high performance, high reliability microwave
signal processing components used in military applications like
advanced radar systems. Recently, the Company has shifted its
focus to the increased opportunities available in the commercial
marketplace. As a result of this shift the Company believes that
variances in its business will now be more dependent on general
business cycles, changes in market demand for the commercial
products built with the Company's components, and on technological
innovations. The percentage of the Company's orders attributable
to commercial versus military customers has consistently increased
over the last several years. In Fiscal 1995 the approximate mix of
customer orders was 50% for commercial applications and 50% for
military applications, while in Fiscal 1996 this mix was
approximately 60% for commercial applications and 40% for military
applications of which 10% is directly to the military.
The Company's sales are made through direct sales personnel or
through independent sales representatives who promote and solicit
orders for the Company's products on a commission basis in
exclusive marketing territories. The Company selects its 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, the Company's
products.
The Company also uses various methods to promote its products
including field visits to customers, telephone solicitation, direct
mailing campaigns, advertising in trade journals, and participation
in trade shows. The Company increased its advertising expenditures
during Fiscal 1996 and intends to further expand these activities
in its current fiscal year.
The Company has recently engaged several distributors for its
M3500 line of VCOs. These distributors maintain inventories of the
Company's products for resale to their customers. The Company
recognizes revenues from sales to distributors at the time of
shipment to the distributor. As is common in the industry, the
Company may grant price protection to distributors. Under this
policy, distributors will be granted credits for the difference
between the price they were originally charged for products in
inventory at the time of a price reduction and the reduced price
which the Company subsequently charges distributors. From time to
time, distributors may also be granted credits on an individual
basis for Company-approved price reductions to specific customers
made to meet competition. The Company may also grant distributors
limited rights to return products. The Company maintains a reserve
against which these credits and returns are charged.
Customers
The Company sells primarily to original equipment
manufacturers of communications equipment in either the commercial
or military marketplace. Many of those customers are prime
contractors for military work or larger Fortune 500 companies with
world-wide operations. Management believes it has a strong
reputation for high performance products.
Key customers of the Company include Alcatel, Lucent, EF Data,
Hughes, Loral, and Stanford Telecom in the commercial market, and
Litton Industries, Texas Instruments, General Dynamics and Northrop
Grumman in the military market. The Company's customers buy
products from the Company on the basis of purchase orders, rather
than long-term supply contracts.
Competition
The Company is subject to active competition in the sale of
virtually all of its products. Its competitors, including
divisions of major corporations, have significantly greater
resources than those currently available to the Company.
Additionally, some of the Company's customers compete directly by
manufacturing certain components themselves, rather than purchasing
them from the Company. Large foreign firms, principally Japanese,
manufacture competitive products in larger production runs than
those of the Company.
The Company believes that its VCOs produced for use in
commercial applications compete with other manufacturers' products
manufactured for military applications, compete primarily on the
basis of quality. These products are typically high performance,
high reliability components which are required to meet high quality
standards.
The Company considers Mini-Circuits Laboratory, Var-L Company,
Inc., Z-Com, Inc., Synergy Microwave, Modco, Inc. as competitors in
the VCO market.
Its primary competitors in the noise source and instrument
market are Wireless Telecom Group, Inc. and Hewlett Packard.
Research and Development
The Company maintains an engineering staff of five individuals
as of June 30, 1996, 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, engineering-support personnel and
overhead allocation and were approximately $157,408 and $182,000
for the years ended March 31, 1996 and 1995, respectively.
The Company intends to expand its research and development
activities and considers these efforts to be vital to its future
business expansion and success.
Government Regulation
In many instances, the Company has been required to obtain
export licenses before filling foreign orders. United States
Export Administration regulations control high tech exports like
the Company's 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 the
Company's products requiring export licenses must comply with these
general policies. Although the Company has not experienced any
significant export licensing problems to date, such problems may
arise in the future, since many of the Company's products have
military and other governmental applications.
Employees
As of June 21, 1996, the Company had 40 full-time employees
including four engaged in management and administration, five in
engineering, 25 in production and testing, and six in sales. The
Company believes that its employee relations are good.
Patents and Trademarks
The Company has been granted U.S. patents on products in its
Building Blocks Product line (MicroSource VCOs) and its Monitoring
and Quality Assurance (MicroCal) product line. In the absence of
patents, the Company relies upon trade secret laws to protect its
confidential and proprietary information. Due to the rapid rate of
technological change in its market, the Company believes that the
ability to innovate is of greater importance to its business than
availability of patents and proprietary rights. Other barriers to
competitor entry include the time and expense of new competitors to
design and manufacture components and the difficulty of selling to
an established customer who has already designed the Company's
products into its equipment.
The Company has registered "Micronetics," "The Noise Line,"
and "The Noise Source" as trademarks with the U.S. Patent and
Trademark Office. It has applied for registration of the
trademarks "PocketSource", "Intelligent Components for a Wireless
World", "MicroSource" and "MicroCal", but there is no assurance
that these applications will be accepted.
Warranty and Service
The Company generally provides one year warranties on all of
its products covering both parts and labor. The Company, at its
option, repairs or replaces products that are defective during the
warranty period if the proper preventative maintenance procedures
have been followed by its customers. Repairs that are necessitated
by misuse of such products or are required outside the warranty
period are not covered by the Company's warranty.
In cases of defective products, the customer typically returns
them to the Company's facility. The Company's service personnel
replace or repair the defective items and ship them back to the
customer. Generally, all servicing is done at the Company's plant,
and it charges its customers a fee for those service items that are
not covered by warranty. It does not offer its 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
the Company by end-users of any of the Company's products. The
Company maintained product liability insurance coverage with an
aggregate annual liability coverage limit, regardless of the number
of occurrences, of $2,000,000. 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 the Company, lack or insufficiency of
insurance coverage could have a material adverse effect on it.
ITEM 2. Description of Property.
The Company operates out of 15,500 square feet of general
office, warehouse and manufacturing space in a 31,000 square foot
building that it acquired during Fiscal 1996, which is located at
26 Hampshire Drive, Hudson, New Hampshire 03051. The building is
located in an industrial park and the Company believes its premises
are in good condition. The Company presently leases out 15,500
square feet of this facility pursuant to a lease with an
unaffiliated entity.
ITEM 3. Legal Proceedings.
The Company is not engaged in any material legal proceedings.
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
<PAGE>
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
(a) The Common Stock is traded on the over-the-counter
market under the symbol NOIZ. The closing high and low bid prices
for the Common Stock for each fiscal quarter from April 1, 1994
until June 26, 1996 as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"), were as
follows:
Bid Prices
High Low
Quarter Ended
Fiscal 1995
First Quarter 2 5/16 1 1/4
Second Quarter 1 7/16 1 1/4
Third Quarter 1 13/16 1 5/8
Fourth Quarter 2 3/16 1 5/16
Fiscal 1996
First Quarter 3 1/16 1 9/16
Second Quarter 4 3/4 2 7/16
Third Quarter 2 3/4 2
Fourth Quarter 3 5/8 1 3/4
Fiscal 1997
First Quarter 3 7/16 2 1/4
(through June 26, 1996)
These over-the-counter market quotations reflect inter-
dealer prices, without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.
(b) The number of recordholders of the Common Stock as of
June 26, 1996 was 320. The Company believes that there are a
substantially greater number of beneficial owners of shares of its
Common Stock who maintain their shares in "street" name.
(c) The Company has not paid any cash dividends during its
two most recent fiscal years, nor any subsequent interim period.
Under the Company's loan agreement with Bank of New Hampshire (the
"Bank"), it is restricted from paying dividends without the consent
of the Bank.
<PAGE>
ITEM 6. Management's Discussion and Analysis.
(a) Results of Operations.
Net sales for the Company's fiscal year ended March 31, 1996
("Fiscal 1996") were $3,686,479 as compared to net sales of
$2,548,093 for its fiscal year ended March 31, 1995 ("Fiscal 1995),
an increase of $1,138,386 or 45%. This was primarily due to
increased sales of the Company's Building Block Components.
Gross profit as a percentage of net sales increased to 40.5%
in Fiscal 1996 from 33.2% in Fiscal 1995. Gross profit has
increased and is expected to further increase as the Company
continues to expand its commercial wireless activities. Selling,
general and administrative expenses ("SG&A") as a percentage of net
sales increased to 25.8% from 21.5% in Fiscal 1995. The increase
in SG&A was attributable primarily to higher advertising and
marketing expenses. As the Company's commercial activities
increase, the Company expects to continue to increase its marketing
and advertising activities. Research and development expenses
decreased to $157,408 from $181,551 due to a somewhat lessening of
development expenditures to develop the Company's MicroSource,
M3500 and MicroCal product lines. These costs are expected to
increase during the Company's current fiscal year.
The Company had net income for Fiscal 1996 of $325,694 or $.10
per share. This compared to net income of $239,541 or $.08 per
share, including an extraordinary item gain on lease improvements
of $51,283, or $.02 per share, and an extraordinary gain from the
cumulative effect of accounting change for income taxes of
$150,000, or $.05 per share, during Fiscal 1995.
(b) Liquidity and Capital Resources.
On March 31, 1996, the Company's working capital was
$1,828,582 as compared with working capital of $1,646,010 at March
31, 1995. This reflects a current ratio of 4.76 to 1 at March 31,
1996 as compared to 4.16 to 1 at March 31, 1995.
Net cash of $28,154 was provided by operating activities
during Fiscal 1996 as compared to $49,856 during Fiscal 1995. Net
cash used by investing activities during Fiscal 1996 was $1,065,368
as compared to net cash used by investing activities of $194,991
during Fiscal 1995. The Company purchased a 31,000 square foot
facility during Fiscal 1996, 50% of which it uses as its primary
manufacturing facility. Otherwise the use of cash during each
period was primarily due to the Company's purchase of equipment.
Net cash provided by financing activities during Fiscal 1996 was
$895,873 as compared to $241,176 during Fiscal 1995. This was
primarily due to the Company's refinancing and borrowing of an
aggregate of $1,030,000 to purchase its facility in February 1996.
In February 1996, the Company refinanced its outstanding bank
loan with a $225,000 loan from the Bank. This term loan requires
monthly principal repayments of $5,000 plus accrued interest
thereon. This loan bears interest at the Bank's Prime Rate plus
1.0% and is secured by substantially all of the assets of the
Company. In February 1996, the Company also borrowed $440,000 from
the Bank and granted the Bank a first mortgage on its new facility.
This loan bears interest at the Bank's Prime Rate plus 1.0% and the
final payment is due in February 2006. It also borrowed $365,000
from the SBA and granted the SBA a second mortgage on this
facility. This loan bears interest at 6.763% and is due on March
1, 2016.
In accordance with the Bank's loan, the Company is required to
maintain a minimum net worth of at least $2,000,000, a ratio of
total debt to net worth not exceeding 1.25:1, and a debt coverage
ratio of not less than 1.25:1. At present, the Company does not
anticipate failing to comply with any of these financial ratios.
The Company issued $225,000 of 8% Convertible Subordinated
Debentures during the Fiscal 1995. The debentures were due on
April 30, 1996 and, until then, were convertible into Common Stock
at $1.67 per share. Of the debentures issued, $50,000 were to
related parties. During Fiscal 1996, holders of $200,000 of the
debentures converted their debentures into 119,760 shares of Common
Stock.
<PAGE>
ITEM 7. Financial Statements.
This information is contained on pages F-1 through F-18
hereof.
(a) (1) Financial Statements Page
Report of Independent Auditor. . . . . . . . . . . . . . . . .F-1
Balance Sheets - March 31, 1996 and 1995.. . . . . . . .F-2 - F-3
Statements of Income, Years
ended March 31, 1996 and 1995. . . . . . . . . . . . . .F-4 - F-5
Statements of Changes in Shareholders'
Equity, Years ended March 31, 1996 and 1995. . . . . . . . . .F-6
Statements of Cash Flows,
Years ended March 31, 1996 and 1995. . . . . . . . . . .F-7 - F-8
Notes to Financial Statements,
March 31, 1996 and 1995. . . . . . . . . . . . . . . . F-9 - F-18
(a) (2) Financial Statement Schedules
Schedule 8 - Valuation and Qualifying Accounts . . . . . . . .S-1
ITEM 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.
None.
PART III
The information to be contained 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, 1996.
<PAGE>
PART IV
ITEM 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Certificate of Incorporation of the Company, as
amended, incorporated by reference to Exhibit 3.1 to
Registration Statement No. 83-16453 (the "Registration
Statement").
3.2 By-Laws of the Company incorporated by reference to
Exhibit 3.2 of the Registration Statement.
10.1 Incentive Stock Option Plan incorporated by reference
to Exhibit 10.1 of the Registration Statement.
10.2 Executive Stock Option Plan incorporated by reference
to Exhibit 10.2 to the Registration Statement.
10.3 Lease Agreement between Tamposi Family Investment
Properties and the Company dated February 1, 1995.
10.5 Form of Subscription Agreement with Supplement and
Convertible Debenture pursuant to private offering
dated incorporated by reference to Exhibit 10.7 of the
1994 10-K.
10.6 Stock Option Plan approved by the Board of Directors
of the Company incorporated by reference to Exhibit
10.8 of the 1994 10-K.
10.7 Loan Agreement dated February 2, 1996 between the
Company and the Bank of New Hampshire incorporated by
reference to Exhibit 7(c)(1) of the Form 8-K filed
with the Securities and Exchange Commission on
February 16, 1996.
10.8 Authorization and Debenture Guaranty Agreement dated
February 2, 1996 between the Company and the U.S.
Small Business Administration.
(b) Reports on Form 8-K
During the last quarter of its fiscal year ended March 31,
1996, the Company filed one report on Form 8-K with the Securities
and Exchange Commission on February 16, 1996 describing the
financing and purchase of the building.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MICRONETICS WIRELESS, INC.
Dated: June 26, 1996 By: s/Richard S. Kalin
Richard S. Kalin,
Chairman and President
In accordance with the Exchange Act this report has been
signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature Title Date
s/Richard S. Kalin Chairman and President June 26, 1996
Richard S. Kalin (principal executive
and financial officer)
s/David Siegel Director June 26, 1996
David Siegel
s/Roy L. Boe Director June 26, 1996
Roy L. Boe
s/Donna Hillsgrove Treasurer and June 26, 1996
Donna Hillsgrove Secretary
(principal accounting
officer)
micronet\10K.96
<PAGE>
PAUL C. ROBERTS
Certified Public Accountant
600 Bedford Road BHA
Pleasantville, NY 10570
(914) 741-1508
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Micronetics Wireless, Inc.
Hudson, New Hampshire
I have audited the accompanying balance sheets of Micronetics
Wireless, Inc. as of March 31, 1996 and 1995 and the related
statements of income, changes in shareholders' equity and cash
flows for each of the two years in the period ended March 31, 1996.
These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these
financial statements based on my audits in connection with my
audits of the financial statements. I have also audited the
financial statement schedules as listed in the accompanying index.
I conducted my audits in accordance with generally accepted
auditing standards. Those standards require that I plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audits provide
a reasonable basis for my opinion.
In my opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
Micronetics Wireless, Inc. as of March 31, 1996 and 1995 and the
results of its operations and its cash flows for each of the two
years in the period ended March 31, 1996 in conformity with
generally accepted accounting principles. Also in my opinion, the
related financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
PAUL C. ROBERTS
Certified Public Accountant
Pleasantville, New York
June 23, 1996
F-1
<PAGE>
<TABLE>
<CAPTION>
MICRONETICS WIRELESS, INC.
BALANCE SHEETS
MARCH 31, 1996 AND 1995
ASSETS
(Note 3b)
1996 1995
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 146,674 $ 288,015
Accounts receivable, net of
allowance for doubtful accounts
of $33,437 and $44,661 at March
31, 1996 and 1995, respectively 688,828 555,246
Inventories 834,209 703,241
Insurance claim receivable 596,376 574,662
Prepaid expenses 23,793 24,126
Deferred tax asset 25,000 21,428
---------- ---------
Total current assets 2,314,880 2,166,718
--------- ---------
Property and Equipment:
Furniture, fixtures and equipment 988,624 849,247
Equipment held under capital leases 102,535 85,035
Building improvements 840,247 71,284
Land 162,000 -
--------- ---------
2,093,406 1,005,566
Less: accumulated depreciation
and amortization (674,128) (579,149)
--------- ---------
1,419,278 426,417
--------- ---------
Other assets:
Security deposits 5,086 2,443
Intangibles, net of accumulated
amortization of $14,647 and 109,814 111,766
4,167 at March 31, 1996 and
March 31, 1995, respectively
Deferred tax asset 151,391 128,572
--------- --------
266,291 242,781
--------- ---------
$4,000,449 $2,835,916
========= =========
See accompanying notes to financial statements.
F-2
<PAGE>
<CAPTION>
MICRONETICS WIRELESS, INC.
BALANCE SHEETS
MARCH 31, 1996 AND 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
1996 1995
-------- ---------
<S> <C> <C>
Current liabilities:
Note payable - bank, current
portion $ 77,431 $ 60,000
Current portion - capital leases
payable 13,551 14,643
Convertible debenture payable 25,000 -
Accounts payable 218,046 288,322
Accrued expenses and taxes, other 148,455 134,570
than income taxes
Income taxes payable 3,815 3,973
Deferred sales - 19,200
---------- -----------
Total current liabilities 486,298 520,708
---------- -----------
Long-term debt -- Net of current
portion
Note payable - bank 947,089 175,000
Capitalized lease obligations 7,978 5,283
Convertible debentures payable - 225,000
--------- -----------
955,067 405,283
--------- -----------
Commitments and contingencies
Shareholders' equity:
Preferred stock - $.10 par value;
authorized - 100,000 shares;
issued and outstanding - 0 shares
at March 31, 1996 and 1995
Common stock - $.01 par value;
authorized - 10,000,000 shares;
issued and outstanding - 3,116,638
and 2,844,698 shares at March 31,
1996 and 1995, respectively 31,166 28,447
Additional paid - in capital 2,335,530 2,014,784
Retained earnings (deficit) 192,388 (133,306)
--------- -----------
2,559,084 1,909,925
--------- -----------
$4,000,449 $ 2,835,916
========= ==========
See accompanying notes to financial statements.
F-3
<PAGE>
<CAPTION>
MICRONETICS WIRELESS, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
1996 1995
---------- -----------
<S> <C> <C>
Net sales $ 3,686,479 $ 2,548,093
Cost of sales 2,195,847 1,701,410
---------- ------------
Gross profit 1,490,632 846,683
---------- ------------
Selling, general and administrative
expenses 950,189 547,024
Research and development expenses 157,408 181,551
Legal fees - related party 42,289 29,324
---------- ------------
1,149,886 757,899
---------- ------------
Income from operations 340,746 88,784
---------- ------------
Other income (expense):
Interest income 3,172 5,609
Interest expense (54,299) (41,535)
(Loss) on investments - (11,600)
Gain on sale of equipment 13,500 -
---------- -----------
(37,627) (47,526)
--------- -----------
Income before provision for income
taxes, extraordinary item and
cumulative effect of accounting
change 303,119 41,258
Provision for income taxes (22,575) 3,000
--------- ----------
Income before extraordinary item 325,694 38,258
Extraordinary item - Gain on lease
improvements from flood - 51,283
Cumulative effect of accounting
change for income taxes - 150,000
--------- -----------
Net income $ 325,694 $ 239,541
========= ===========
See accompanying notes to financial statements.
F-4
<CAPTION>
<PAGE>
MICRONETICS WIRELESS, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
(continued)
1996 1995
-------- -----------
<S> <C> <C>
Primary and fully diluted earnings
per common share:
Income before extraordinary item
and cumulative effect of account-
ing change $.10 $.01
Extraordinary item - Gain on lease
improvements - .02
Cumulative effect of accounting
change - .05
--------- -----------
Net income $.10 $.08
========= ===========
Weighted average shares outstanding
Primary 3,288,374 3,052,831
Fully diluted 3,288,374 3,173,467
========= =========
See accompanying notes to financial statements.
F-5
<PAGE>
<CAPTION>
MICRONETICS WIRELESS, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
Common Stock Additional
Par Paid-In Retained
Shares Value Capital Earnings Total
<S> <C> <C> <C> <C> <C>
Balance -
March 31, 1994 2,747,948 $27,480 $1,925,127 $(372,847) $1,579,760
Shares issued in
private place-
ment 51,750 517 58,857 - 59,374
Shares issued
upon conver-
sion of stock
options 45,000 450 30,800 - 31,250
Net income - - - 239,541 239,541
---------- -------- --------- --------- ----------
Balance -
March 31, 1995 2,844,698 28,447 2,014,784 (133,306) $1,909,925
Shares issued on
conversion of
debentures 119,760 1,197 198,803 - 200,000
Shares issued upon
conversion of
options 150,680 1,507 120,743 - 122,250
Shares issued for
services 1,500 15 1,200 - 1,215
Net income
Balance -
March 31, 1996 - - - 325,694 325,694
--------- ------- ---------- ---------- ---------
3,116,638 $31,166 $2,335,530 $ 192,388 $2,559,084
========= ======= ========== ======= ==========
See accompanying notes to financial statements.
F-6
<PAGE>
<CAPTION>
MICRONETICS WIRELESS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1996 AND 1995
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 325,694 $ 239,541
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 105,459 96,286
(Gain) on sale of assets (13,500) -
Unrealized loss on investments - 11,600
(Gain) on lease improvements from
flood - (51,283)
Inventory reserve - 750,000
Shares issued for services 1,215 -
Deferred tax asset (26,391) (150,000)
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable (133,582) 9,797
(Increase) decrease in inventories (130,968) (421,474)
(Increase) in insurance claim
receivable (21,714) (574,662)
(Increase) decrease in prepaid
expenses and other current
assets 333 (11,567)
(Increase) decrease in security
deposits and other assets (2,643) 600
Increase (decrease) in accounts
payable (70,276) 123,389
Increase (decrease) in accrued expenses
and taxes, other than
income taxes 13,885 8,354
Increase (decrease) in income taxes
payable (158) 75
Increase (decrease) in deferred sales (19,200) 19,200
----------- ---------
Net cash provided by operating
activities 28,154 49,856
----------- ---------
Cash flows from investing activities:
Purchase of property and equipment (1,070,340) (78,978)
Purchase of patents and licenses (8,528) (115,933)
Proceeds from sale of assets 13,500 -
----------- ---------
Net cash (used) by investing activities (1,065,368) (194,911)
----------- ---------
See accompanying notes to financial statements.
F-7
<CAPTION>
<PAGE>
MICRONETICS WIRELESS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1996 AND 1995
(continued)
1996 1995
-------- ---------
<S> <C> <C>
Cash flows from financing activities:
Repayment of bank loans $ (240,480) $ (60,000)
Borrowings of long-term debt 1,030,000 -
Net proceeds from stock options
exercised 122,250 31,250
Principal payments on capital lease
obligations (15,897) (14,448)
Proceeds from issuance of sub-
ordinated convertible debentures - 225,000
Proceeds from private placement - 59,374
----------- ---------
Net cash provided by financing
activities 895,873 241,176
----------- ---------
Net increase (decrease) in cash and
cash equivalents (141,341) 96,121
Cash and cash equivalents, begin-
ning of year 288,015 191,894
----------- ---------
Cash and cash equivalents, end of year $ 146,674 $ 288,015
=========== ========
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the years for:
Interest $ 48,776 $ 37,471
Income taxes $ 3,974 $ 2,925
Supplemental Schedule of Non-Cash Investing
and Financing Activities:
During the year ended March 31, 1996, the Company converted convertible
debentures of $200,000 into 119,760 shares of common stock of the Company
per conversion agreement.
During the year ended March 31, 1996, the Company issued 1,500 shares of
its Common Stock in exchange for services of $1,215.
During the year ended March 31, 1996, the Company acquired equipment
through a capital lease obligation in the amount of $17,500.
See accompanying notes to financial statements.
</TABLE>
F-8
<PAGE>
MICRONETICS WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business:
The Company changed its name in September 1995 from Micronetics,
Inc. to Micronetics Wireless, Inc. The Company is engaged in the
design, development, manufacture and marketing of a broad range of
high performance wireless components and test equipment used in
digital cellular, microwave, satellite, radar and communication
systems around the world. Approximately 25% of the Company's sales
derive from foreign markets.
(b) Inventory Valuation:
Inventory is valued at the lower of cost (first-in, first-out
method) or market.
(c) Depreciation and Amortization:
Fixed assets are reflected at cost.
Depreciation and amortization of fixed assets are computed by both
straight-line and accelerated methods at rates adequate to allocate
the cost of applicable assets over their expected useful lives.
(d) Intangibles:
Patents and licensing agreements are carried at cost less
accumulated amortization which is calculated on a straight-line
basis over the estimated useful lives of the assets. Patents and
licensing agreements are both being amortized over 10 years.
(e) Income taxes:
The financial statements (including the provision for income taxes)
are prepared on an accrual basis. 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. Deferred taxes are provided as a result
of such temporary differences.
(f) Research and Development Costs:
Research and development costs are charged to expense in the year
incurred. The amounts expensed for the years ended March 31, 1996
and 1995 were approximately $157,000 and $182,000, respectively.
F-9
<PAGE>
MICRONETICS WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) Net Income Per Share:
Primary and fully diluted net income per share is calculated based
on the net income for each period divided by the weighted average
number of common shares and common equivalent shares outstanding
during each period. Common stock equivalents represent the
dilutive effect of the assumed exercise of certain outstanding
stock options.
(h) Statement of Cash Flows:
For purposes of the statement of cash flows, the Company considers
all highly liquid investments purchased with an original maturity
of three months or less to be cash equivalents.
(i) Use of Estimates:
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
(j) Vulnerability Due to Certain Concentrations:
All of the Company's assets and operations are located in a single
facility.
(k) Revenue Recognition:
The Company recognizes revenues when goods are shipped.
(l) Reclassification:
For comparative purposes, certain prior year amounts have been
reclassified to conform with current year presentation.
(m) Recent Accounting Pronouncements
In 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of" (SFAS No. 121). This
statement requires that such assets be reviewed for impairment
whenever events or changes in circumstances indicate that their
carrying amount may not be recoverable and that such assets be
reported at the lower of carrying amount or fair value. The
Company will adopt the provisions of this statement in the year
ended March 31, 1997.
Also in 1995, Statement of Finanacial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," was issued, which is
effective for fiscal years beginning after December 15, 1995. This
statement requires footnote disclosure of the pro forma impact on
net earnings and earnings per share of the compensation cost that
would have been recognized if the fair value of all stock-based
F-10
MICRONETICS WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
1-- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
awards was recorded in the income statement. The disclosure
provisions of this statement will be adopted in the year ended
March 31, 1997.
2--INVENTORIES
Inventories consist of the following:
March 31, March 31,
1996 1995
--------- ---------
Raw materials and
work-in-process $649,657 $ 596,095
Finished goods 184,552 107,146
-------- ---------
$834,209 $ 703,241
======== =========
3--LONG-TERM DEBT
The following table summarizes the Company's long-term debt:
March 31, March 31,
1996 1995
-------- --------
Debentures
8% Debentures due
April 30, 1996 (c) $ 25,000 $225,000
Notes
Prime plus 1% note due
February, 1999 (a) - 235,000
Prime plus 1% note due
February, 2006 (b) 439,520 -
Prime plus 1% note due
November, 1999 (b) 220,000
6.763% note due March, 2016 (b) 365,000 -
Capital lease obligations (d) 21,529 19,926
------- -------
Total 1,071,049 479,926
Less current maturities 115,982 74,643
-------- -------
Total long-term debt $ 955,067 $405,283
======== =======
F-11
<PAGE>
MICRONETICS WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
3--LONG-TERM DEBT (CONTINUED)
(a) Note Payable - Bank
During the year ended March 31, 1994 the Company obtained financing
from a bank for $300,000. The agreement calls for payments of
$5,000 per month from March, 1994 through February, 1999. The note
bears interest at the rate of prime plus 1%. During the year ended
March 31, 1996, this note was repaid in full.
(b) During the year ended March 31, 1996 the Company financed the
purchase of its building with three loans. The Company borrowed
from a bank $440,000 which bears interest at prime plus 1% and is
due in equal monthly installments with the final payment due on
February 2, 2006. The Company also borrowed (from the same bank)
$225,000 with interest at prime plus 1% with payments of $5,000
monthly plus accrued interest and final payment is due November 1,
1999. The Company has also negotiated a secured revolving credit
agreement with this bank that permits borrowings of up to $500,000
with interest at prime plus 1%. The revolving line of credit
expires on August 31, 1996. The Company has no amount outstanding
under this line of credit at March 31, 1996.
These two loans contain certain covenants pertaining to financial
ratios and payment of dividends. At March 31, 1996 the Company is
not in violation of these covenants.
The Company also borrowed $365,000 from the Small Business
Administration, and bears interest at 6.763% per annum. Payments
are due in monthly installments of 2,777 through March 1, 2016 when
the full and unpaid balance of principal and interest become due.
These loans are secured by substantially all of the assets of the
Company.
(c) Convertible Subordinated Debentures
The Company issued $225,000 of 8% Convertible Subordinated
Debentures during the year ended March 31, 1995. The debentures
were due April 30, 1996. The debentures are convertible into the
Company's common stock at $1.67 per share. Of the debentures
issued, $50,000 were to related parties. During the year ended
March 31, 1996, holders of $200,000 of the debentures converted
into 119,760 shares of the Company's Common Stock.
(d) Obligation Under Capital Leases:
Leases are reflected at their present value based upon an imputed
interest rate of 12% per annum.
The assets are depreciated over their estimated productive lives.
For the years ended March 31, 1996 and 1995 depreciation of assets
under capital leases is included in depreciation expense.
F-12
<PAGE>
MICRONETICS WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
3--LONG-TERM DEBT (CONTINUED)
As of March 31, 1996 and 1995, property held under capital leases
was as follows:
March 31, March 31,
1996 1995
--------- -------
Machinery and equipment $102,535 $85,035
Less: accumulated depreciation 42,958 34,016
-------- -------
$ 59,577 $51,019
======== =======
Annual maturities of long term debt due in the next five years will
approximate $116,000 (1997), $86,000 (1998), $79,000 (1999),
$61,000 (2000), $23,000 (2001), and $706,000 thereafter.
4--INCOME TAXES
The Company adopted SFAS No. 109, "Accounting for Income Taxes."
Under the standard, a deferred tax liability or asset is recognized
for the estimated future tax effects attributable to net operating
loss carry-forwards and to temporary differences between the tax
basis and GAAP basis of an asset or liability. Under this method,
the Company's deferred tax assets and liabilities were determined
by applying federal and state tax rates currently in effect to its
cumulative temporary book/tax differences.
The Company's deferred tax asset relates entirely to its net
operating loss carry-forwards and tax credits.
At March 31, 1996, the Company has recognized a deferred tax asset
attributable to net operating loss carryforwards and tax credits.
A valuation allowance has not been provided since management
believes that all net operating losses and tax credits will be
utilized.
At March 31, 1996 the Company has a net operating loss carryover
for tax purposes of approximately $650,000 and tax credit
carryovers of $28,000 for federal tax purposes, which losses and
credits can be used to offset future income and credits through the
year ending March 31, 2011.
F-13
<PAGE>
MICRONETICS WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
4--INCOME TAXES (CONTINUED)
The following sets forth the provision for income taxes:
March 31, March 31,
1996 1995
________ _________
Federal tax on income $ 99,978 $ 6,200
State tax provided for 3,816 3,000
Stock option compensation (a) (86,563)
Deferred tax benefit (34,368) -
_______ ______
(17,137) 9,200
Less: Benefit from net operating
loss carryforward 5,438 6,200
______ _____
Provision for income taxes $ (22,575) $ 3,000
====== =====
(a) With the exercise of 150,680 of options, the Company derived
a permanent difference for tax purposes of approximately
$265,000.
5--COMMITMENTS
Leases:
The Company had a "triple net" operating lease on real property
with minimum annual rent payments ranging from $50,400 to $62,040
annually over the term of the lease. In addition to fixed rentals,
this lease required the payment of all expenses incurred in
connection with the operation of the leased premises. The lease
was to expire January 31, 2000. During the year ended March 31,
1996 the Company purchased the building and land for a total of
$915,114 which was financed by long-term debt.
Rent expense including real estate taxes, for the years ended March
31, 1996 and 1995 were $32,953 and $92,898, respectively.
F-14
<PAGE>
MICRONETICS WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
6--MAJOR CUSTOMERS
Approximately 50% and 40% of the Company's net sales for each of
the years ended March 31, 1996 and 1995, respectively, are for
military applications of which 10% is directly to U.S. governmental
agencies for both years.
7--CAPITAL STOCK, OPTIONS AND WARRANTS
(a) Common Stock:
(a) Private Placement
During the year ended March 31, 1995, the Company issued 51,750
shares of common stock in connection with a private offering. The
net proceeds to the Company in this offering were $59,374, of
which, $50,000 were from an officer and director of the Company.
(b) Stock Options:
(i) Stock Option Plans:
On August 7, 1987, the Company adopted an Incentive Stock Option
Plan, pursuant to which the Company may grant options to purchase
up to 100,000 shares of common stock in the form of incentive stock
options as defined in Section 422A of the Internal Revenue Code.
In December 1989, an amendment to increase the number of shares of
common stock which may be granted under the plan to 200,000 shares
was approved by the shareholders of the Company. The plan requires
that the exercise price of options granted not be less than the
fair market value at the date of grant. With respect to holders of
more than 10% of the Company's securities, the exercise price of
the option must be equal to 110% of the fair market value at the
date of grant. The maximum exercise period for any option under
the plan is ten years from the date the option is granted (five
years for an optionee who owns more than 10% of the Company's
securities).
(b)(i)(1):
On August 7, 1987, the Company also adopted an Executive Stock
Option Plan, pursuant to which the Company may grant options to
purchase up to 100,000 shares of common stock.
(b)(i)(2):
During the year ended March 31, 1995, the Company adopted a stock
option plan, "1994 Stock Option Plan", pursuant to which the
Company may grant options to purchase up to 300,000 shares of
common stock.
F-15
<PAGE>
MICRONETICS WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
7--CAPITAL STOCK, OPTIONS AND WARRANTS (CONTINUED)
The following tables summarize the activity in options under the
stock option plans:
Price
ISOP Plan Shares Range
- --------- ------ ------------
Outstanding at March 31, 1994 135,500 $ .63 - $2.88
------- ------------
Exercised 20,000 $ .63
Cancelled 29,000 $1.06 - $2.88
Granted 62,200 $1.25 - $2.13
------- ------------
Outstanding at March 31, 1995 148,700 $ .63 - $1.25
------- ------------
Cancelled 6,600 $1.25
Exercised 40,650 $ .63 - $1.25
------- -------------
Outstanding at March 31, 1996 101,450 $ .63 - $1.25
------- -------------
Exercisable at March 31, 1996 75,950 $ .63 - $1.25
------- ------------
ESOP Plan
- ---------
Outstanding at March 31, 1994 100,000 $1.06
------- ------------
Outstanding at March 31, 1995 100,000 1.06
------- ------------
Outstanding at March 31, 1996 100,000 1.06
------- ------------
Exercisable at March 31, 1996 100,000 1.06
------- ------------
F-16
<PAGE>
MICRONETICS WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
7--CAPITAL STOCK, OPTIONS AND WARRANTS (CONTINUED)
Price
Other Options Shares Range
- ------------- ------ ------------
Outstanding at March 31, 1994 330,000 $ .63 - $2.88
------- ------------
Granted 35,000 $ .75 - $1.25
Exercised 25,000 $ .75
Cancelled 10,000 $1.25
------- ------------
Outstanding at March 31, 1995 330,000 $ .63 - $2.88
------- ------------
Granted 60,000 $2.25
Exercised 101,280 $ .63 - $.75
------- ------------
Outstanding at March 31, 1996 288,720 $.63 - $2.88
------- -------------
Exercisable at March 31, 1996 288,720 $ .63 - $2.88
------- ------------
1994 Stock Option Plan:
- ----------------------
Outstanding at March 31, 1994 - -
------- ----
Granted 55,000 $1.25
------- ----
Outstanding at March 31, 1995 55,000 $1.25
------- ----
Granted 207,500 $1.75 - $2.41
------ ------------
Exercised 8,750 $1.25 - $2.125
------- -------------
Outstanding at March 31, 1996 253,750 $1.25 - $2.41
------- -------------
Exercisable at March 31, 1996 69,750 $1.25 - $2.41
------ -------------
F-17
<PAGE>
MICRONETICS WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
8--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 $.01 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.
9--INTANGIBLES
Intangible assets at March 31, 1996 and 1995 are as follows:
1996 1995
--------- --------
Licensing agreements $ 100,000 $ 100,000
Patents 24,461 15,933
-------- --------
124,461 115,933
Less accumulated amortization 14,647 4,167
------- ----------
$ 109,814 $ 111,766
======= ========
10--RELATED PARTY TRANSACTIONS
Related party legal fees of $42,289 and $29,324 for the years ended
March 31, 1996 and March 31, 1995, respectively, were to a firm of
which a member is an officer and shareholder of the Company.
11--CONTINGENCY
During the year ended March 31, 1995, the Company suffered damage
to its inventory, lease improvements and equipment due to a flood.
The Company had insurance to cover this contingency and as a
result, wrote down its inventory, lease improvements and equipment
and filed a claim with the insurance company for $962,643. During
the year ended March 31, 1996, the Company accrued an additional
claim for $21,714. At March 31, 1996, the Company, through
arbitration, is negotiating a settlement for the damaged inventory.
F-18
<PAGE>
<TABLE>
<CAPTION>
MICRONETICS WIRELESS, INC.
SCHEDULE 8 - VALUATION AND QUALIFYING ACCOUNTS
Balance Charged Charged
at to Costs to Balance
Beginning and Other at End
Description of Period Expenses Accounts Deductions(a) of Period
- ----------- --------- -------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Reserve for
Bad Debts $44,661 $18,291 - 29,515 $33,437
========= ======== ======= =========== ========
(a) Write off of accounts receivable against reserve.
S-1
<PAGE>
INDEX
10.8 Authorization and Debenture Guaranty Agreement dated February 2,
1996 between the Company and the U.S. Small Business
Administration.
micronet\10k.96c
<PAGE>
EXHIBIT 10.8
SBA DEBENTURE NUMBER
504-887106 30 08-CON
U.S. SMALL BUSINESS ADMINISTRATION
----------------------------------
Concord District Office
----------------------
P.O. Box 1258
-------------
Concord, New Hampshire 03302-1258
----------------------------------
AUTHORIZATION AND DEBENTURE GUARANTY AGREEMENT
CERTIFIED DEVELOPMENT COMPANY
Granite State Economic Development Corporation
- ----------------------------------------------
(Borrower - Certified Development Company (CDC))
P.O. Box 1491
- ------------
(Address)
Portsmouth, New Hampshire 03802-1491
- -------------------------------------
(City, State, Zip)
The Small Business Administration (SBA) hereby authorizes a guaranty of
a Debenture in the amount of $365,000 to CDC to assist Micronetics
Wireless, Inc., a Small Business Concern (SBC) pursuant to Section 504
of the Small Business Investment Act of 1958, as amended, subject to the
following terms and conditions:
1.1. This Authorization is subject to:
- --------------------------------
A. The representations made in the loan application by the CDC and the
SBC, including the supporting documents thereto, the conditions set
forth herein, and any other conditions which may be imposed by SBA not
inconsistent with the Regulations and this Authorization.
B. SBA's determination, in its sole discretion, that there has been no
unremedied adverse change in the financial or any other condition of CDC
and SBC since date of application which would warrant withholding or not
making any such disbursement.
C. CDC and SBC are required to furnish SBA Form 159, Compensation
Agreement" for services in connection with "Application and Debenture
Guaranty."
D. Agreement by CDC and/or SBC to provide additional equity funds to cover
additional project costs incurred as a result of overruns or
unanticipated expenses in financing the project.
E. An agreement executed between the SBC being assisted and the CDC
providing that any and all outstanding obligations may be accelerated
and payments called for by CDC and SBA if the SBC, during the term of
this loan, effects a change of ownership or control of the business
without prior written consent of SBA.
F. Execution of all collateral documents required.
G. In consideration of this agreement, in the event of default by the SBC
on its Promissory Note to the CDC (assigned to SBA) and payment by SBA
(under it guaranty) of the debenture issued by the CDC to the holder of
the debenture, SBA agrees that (except in cases of fraud,
misrepresentation, gross negligence, or payments held by the CDC) it
will limit its recovery to foreclosure of the collateral securing the
Note of the SBC, and an action against such SBC, and any guarantors, for
any deficiency. The CDC and the SBC agrees that the amount due includes
the unpaid principal and accrued interest plus any prepayment penalty.
H. If, during the term of this guaranteed debenture, the SBC or its
affiliates acquires, directly or indirectly, in excess of ten percent
(10%) ownership or interest in the CDC, this Note and Debenture shall
become immediately due and payable.
I. On undisbursed debentures the guaranty commitment shall expire one (1)
year from date of approval unless earlier extended by SBA. Requests for
extension shall not exceed two additional three month periods and must
be fully justified in writing by the CDC.
J. The SBC acknowledges that SBA is to be the ultimate holder of the Note
and collateral documents, and the SBC agrees to repay the Note to the
Central Servicing Agent (CSA) appointed by SBA, or other agents of SBA,
as so notified by SBA in writing.
2. Terms of Debenture
------------------
NOTE: Computation of the actual debenture amount will be made as of the
date of the Debenture Sale. The amounts of the reserve deposit and the
various fees referred to in Paragraph 2.D are subject to change and may
affect the final debenture amount.
A. Repayment terms, interest rate and maturity.
The debenture shall have a maturity of twenty (20) years. The interest
rate will be set at the date the debenture is sold. At that date the
monthly principal and interest installment will be established over the
life of the debenture. Conditions related to prepayment and late
charges are set forth in the "504" Note (SBA Form 1505) and Servicing
Agent Agreement (SBA Form 1506).
B. The CDC must inject $88,000 prior to any disbursement of this
debenture, in the form of cash or kind, acceptable to SBA; if any of
said funds are loaned, repayment terms must be for a term equal, at
least, to the terms of this agreement, and be subordinate to the liens
securing this loan. If any portion of said funds are borrowed, the CDC
will supply to the District Director of SBA copies of debt instruments.
This CDC injection may not be repaid at a rate faster than the SBA
debenture herein authorized and no payments may be made if the 504 note
is in default. Interest on any funds injected by the CDC must be
reasonable, legal and acceptable to the SBA.
C. Debenture proceeds to be used to pay the final forty percent (40%) of
$880,000 which is the total project cost (specific items of the project
cost are set forth below).
(1) $880,000 to purchase existing real estate located at
------- 26 Hampshire Drive, Hudson, New Hampshire.
(2) $880,000 Total Project Cost.
------
D. DEBENTURE RECAP: In addition to the above, the below asterisked listed
items shall be paid as a portion of Debenture Proceeds but are not
considered part of the project cost enumerated above.
(1) $352,000 Proceeds for interim lender (percentage of
project cost mentioned in C above).
(2) $ 1,760 Master Reserve Account Deposit (1/2 of 1% of
2.D.(1)).*
(3) $ 5,280 CDC's Processing Fee (1 1/2% of 2.D.(1)).*
(4) $ 880 Funding Fee (estimated) (1/4 of 1% of
2.D.(1)).*
(5) $ 2,500 Legal Closing Costs (estimated).*
(6) $ 2,282 Underwriter's Fee (estimated).*
(7) $ 298 Rounding to next highest thousand dollar
______ amount.*
(8) $365,000 "Total Debenture"
-------
The Borrower's total monthly obligation shall include a servicing fee
paid to the CDC of not more than 1% per annum of the outstanding balance
of the Note determined at five (5) year anniversary intervals at the
beginning of such interval.
Borrower's total monthly obligation shall include a servicing fee for
the Central Servicing Agent (CSA) at the rate of 1/10 of 1% per annum on
the balance of the Note, such balance to be determined at five (5) year
anniversary intervals at the beginning of such interval.
The Master Reserve Account Deposit is not refundable.
3. Collateral.
----------
Prior to debenture sale, SBA shall be assured of the following lien
positions as collateral for the CDC's assignment to SBA of its rights,
titles, and interests in and to a certain Note (SBA Form 1505) to be
executed by Micronetics Wireless, Inc. in the amount of $365,000 and to
be for a term of twenty (20) years; said Note to be secured by:
A. Second mortgage on real estate located at 26 Hampshire Drive, Hudson,
New Hampshire subject only to a prior lien not in excess of $440,000
held by Bank of New Hampshire. Title to said real estate to be held by
Micronetics Wireless, Inc. Title insurance satisfactory to CDC is
required.
4. Other Provisions agreed to by CDC and SBC:
-----------------------------------------
A. SBC shall provide and maintain hazard insurance in such amounts and for
such coverages as shall be satisfactory in all respects to CDC/SBA.
Policy coverage shall designate SBA as payee under a Lender's Loss
Payable Endorsement and not merely "loss payee" on personal property and
as mortgagee on real estate. Said insurance shall be maintained for the
life of the loan.
B. Prior to sale of the debenture, the CDC must be in receipt of evidence
of the kind described below from an independent authoritative source
which is sufficient to indicate to the CDC that the property is not in
a special flood hazard area(SFHA). Property is defined as the asset(s)
financed as a part of the SBA financial assistance and/or other
collateral deemed necessary by the field office. If such evidence is
not provided to the CDC, the borrower must obtain, and maintain, a
Standard Flood Insurance Policy (SFIP) or other appropriate special
flood hazard insurance in amounts and coverages equal to the lesser of
(1) the insurable value of the property or (2) the maximum amount of
coverage available. Borrower can show that special flood hazard
insurance has been acquired by submitting a copy of the policy or
providing evidence of premium payment for the appropriate coverage to a
licensed insurance agent. Borrower will not be eligible for either any
future disaster assistance or SBA business loan assistance if the
special flood hazard insurance is not maintained as stipulated herein
throughout the entire term of this loan. As evidence that the property
is not located within a special flood hazard area subject to flooding,
mudslides or erosions, the CDC may rely on a determination of special
flood hazard area status by the borrower's property & casualty insurance
company, real estate appraiser, title insurance company, a local
government agency or other authoritative source acceptable to SBA which
would ordinarily have knowledge of the special flood hazard area status
for the property.
C. Terms and conditions of first mortgage note satisfactory to SBA. In
this case the term of the first mortgage is anticipated to be ten (10)
years with a twenty (20) year amortization and the initial interest rate
is understood to be nine and three quarters percent (9 3/4%). Each
subsequent adjustment of the interest rate on the first mortgage note
shall not exceed the lowest Prime Rate of Interest as specified in "The
Wall Street Journal" plus two and three quarters percent (2 3/4%).
D. CDC to obtain written agreement of the first mortgage lender that it
will notify CDC and SBA in writing within 30 days after default and 60
days prior to a foreclosure sale on account of its first mortgage loan
and that it will not, without prior written approval of CDC and SBA,
readvance funds under its note, mortgage, or security agreement.
5. Acceptance and Disbursement Clauses.
-----------------------------------
A. Interim financing is permitted in accordance with Item 7 of this
Authorization.
Prior to any disbursement of Debenture proceeds, SBA must have
documentary evidence satisfactory to it that:
(1) Copy of first mortgage Note and Mortgage for SBA's review.
(2) If real property includes a condominium unit, provide copy
of condominium declaration and by-laws.
(3) The SBC has acquired title to the real property at a cost
not in excess of that referred to under Item 2.c. Debenture
Proceeds, and proof of such title acceptable to SBA and CDC
Counsel has been obtained.
(4) The plant site is adequately serviced by access roads, water
system, sewage disposal system, and all necessary utilities.
(5) All first mortgage (or other monies supported by lien
positions superior to SBA) and CDC funds have been injected
into the project.
(6) SBA may, at its option, conduct a final inspection prior to
disbursement.
(7) Receipt of Certificate of Occupancy from local authorities.
(8) Certificate of Title, corporate authority, compliance with
zoning laws or codes, or other as required by SBA Counsel.
(9) A favorable Phase I environmental audit has been completed
on real estate being pledged as collateral on this loan and
located at 26 Hampshire Drive, Hudson, New Hampshire.
6. Other Provisions Agreed to by CDC and SBC:
-----------------------------------------
A. Prior to any disbursement, CDC must have satisfactory evidence that the
SBC has injected not less than $88,000 of equity to be used toward CDC
injection into project described in Item 2.B.
B. Prior to disbursement, SBC to present satisfactory evidence that all
Federal and State taxes are current.
C. Prior to any disbursement, CDC shall be in receipt of:
(1) Copy of Articles of Incorporation and certificate of Good
Standing in State of New Hampshire of Micronetics Wireless,
Inc.
D. Annual financial statements, consisting of balance sheet and profit and
loss statement, shall be furnished by Micronetics Wireless, Inc. to CDC
and SBA no later than 90 days following close of SBC's fiscal year.
Said financial statements shall be audited and prepared by an
independent Public Accountant.
E. SBA shall have the right to conduct an audit of the books of the SBC
at its discretion.
F. Prior to debenture sale, SBC shall furnish to SBA a signed and dated
balance sheet and profit and loss statement dated within one hundred
twenty (120) days of date of sale.
G. Prior to disbursement, CDC and SBC must have executed Servicing Agent
Agreement (SBA Form 1506).
H. Prior to any disbursement, CDC to be in receipt of SBA Form 1624,
properly executed by SBC. This form should be retained in CDC's file
and should not be submitted to SBA.
I. The SBC agrees, to the extent feasible, to purchase only American-made
equipment and products with he proceeds of this loan.
J. Prior to any disbursement of loan proceeds, CDC must obtain Federal
income tax information on SBC's business directly from the Internal
Revenue Service by submitting IRS Form 4506. The tax data received from
IRS should be compared with that submitted with the loan application.
Any significant differences must be resolved to the satisfaction of CDC
and SBA before loan proceeds can be disbursed.
7. Interim financing.
-----------------
Interim financing for total project cost is to be provided by Bank of
New Hampshire and prior to issuance of the debenture, the CDC and the
SBA must be satisfied that construction has been completed in accordance
with final plans and specifications; that no unpaid labor or material
liens exist; that project costs have not exceeded $880,000 (unless the
SBC has provided additional equity in accordance with Item 1.D); that
there exists a small business concern with the ability to repay its
obligation to the CDC and that such concern has not suffered a material
adverse change since the date of this Authorization (see Item 1.B.);
that the bank is not shown to have participated in any fraud or
misrepresentation; that the bank has not been guilty of negligence; that
the bank has obtained the guaranties, Notes, and collateral positions
required by the CDC and the SBA in the Authorization; and that the
project has been totally funded and completed pursuant to the terms of
the Authorization.
The CDC and SBC acknowledge acceptance of the conditions under which the
debenture will be issued by signing the acceptance of the CDC and SBC on
one of the enclosed copies of this Authorization Guaranty Agreement and
returning it to this office within ten (10) days from date of receipt.
PHILIP LADER
------------
Administrator
December 11, 1995 By: s/Witmer H. Jones
- ------------------ ------------------
Witmer H. Jones, Acting Chief
Finance Division
Concord District Office
<PAGE>
Acceptance of the CDC and SBC
- -----------------------------
In consideration for financial assistance provided by the SBA to the CDC,
to assist the SBC, we (the CDC and SBC) hereby acknowledge the terms and
conditions of this Authorization and Debenture Guaranty Agreement and agree
to comply with the terms and conditions, imposed herein.
Granite State Economic
Development Corporation Micronetics Wireless, Inc.
________________________ (CDC) __________________________ (SBC)
Name Name
P.O. Box 1491 26 Hampshire Drive
________________________ ___________________________
Address Address
Portsmouth, New Hampshire 03802 Hudson, New Hampshire 03051
_______________________________ ___________________________
s/Richard S. Kalin,
s/(illegible) President
BY:_______________________(L.S.) __________________________ (L.S.)
s/(illegible) s/(illegible)
Attest: ___________________(L.S.) __________________________ (L.S.)
Assistant Secretary
Date: February 1, 1996
NOTE: Corporate Borrowers must execute this Authorization, in corporate
name, by duly authorized officer, and if required seal must be affixed and
duly attested; partnership Borrowers must execute in firm name together
with signature of all general partners. Limited liability company
borrowers must execute in name of limited liability company by authorized
member.
READ AND ACKNOWLEDGED:
Bank of New Hampshire
David Saurnstone
By: ________________
(Interim Lender)
February 2, 1996
Date: ________________
SBA Form 1248
micronet\10k.96d
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 146,674
<SECURITIES> 0
<RECEIVABLES> 688,828
<ALLOWANCES> 33,437
<INVENTORY> 834,209
<CURRENT-ASSETS> 2,314,880
<PP&E> 2,093,406
<DEPRECIATION> 674,128
<TOTAL-ASSETS> 4,000,449
<CURRENT-LIABILITIES> 486,298
<BONDS> 0
0
0
<COMMON> 31,166
<OTHER-SE> 2,527,918
<TOTAL-LIABILITY-AND-EQUITY> 4,000449
<SALES> 3,686,479
<TOTAL-REVENUES> 3,686,479
<CGS> 2,195,847
<TOTAL-COSTS> 950,189
<OTHER-EXPENSES> 199,697
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,299
<INCOME-PRETAX> 303,119
<INCOME-TAX> (22,575)
<INCOME-CONTINUING> 325,694
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 325,694
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
