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, 1997
[ ] 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
$3,770,398.
The aggregate market value of the shares of Common Stock held
by non-affiliates of the issuer was approximately $3,967,982 based
on the closing price of the issuer's Common Stock, par value $.01
share, as reported by NASDAQ on June 26, 1997.
On June 20, 1997, there were 3,188,658 shares of the issuer's
Common Stock outstanding.
The Proxy Statement of the registrant to be filed on or before
July 29, 1997 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 response 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 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 used in wireless
communications and radar systems as part of built-in test equipment
to continuously monitor the receiver. Impulses of noise are
applied to the receiver to measure the sensitivity, signal gain and
frequency bandwidth. Noise is also used as a reference to set the
threshold of the light intensity on the 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 is 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 the effects of 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
$80,000 per unit.
<PAGE>
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 1996 and Fiscal 1997 the
approximate mix of customer orders was 50% for commercial
applications and 50% 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 1997 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 NEC, L3, Lucent, EF Data,
Dacom, 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., Hewlett Packard and
Telecom Analysis Systems.
<PAGE>
Research and Development
The Company maintains an engineering staff of individuals as
of June 30, 1997, 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 $203,493 and $157,408
for the years ended March 31, 1997 and 1996, 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, 1997, the Company had 47 full-time employees
including five engaged in management and administration, 8 in
engineering, 28 in production and testing, and 6 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.
<PAGE>
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
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, 1995
until June 23, 1997 as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"), were as
follows:
Bid Prices
High Low
Quarter Ended
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 1/8 2 1/4
Second Quarter 2 3/4 1 3/4
Third Quarter 2 3/8 1 3/8
Fourth Quarter 2 1/2 1 3/8
Fiscal 1998
First Quarter 2 3/8 1 1/2
(through June 23, 1997)
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 24, 1997 was 304. 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, 1997
("Fiscal 1997") were $3,770,398 as compared to net sales of
$3,686,479 for its fiscal year ended March 31, 1996 ("Fiscal 1996),
an increase of $83,919 or 2.3%. This was primarily due to increased
sales of the Company's Building Block Components.
Gross profit as a percentage of net sales increased to 42.8%
in Fiscal 1997 from 40.5% in Fiscal 1996. 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 26.2% from 25.8% in Fiscal 1996. 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
increased to $203,493 from $157,408 due to the increase of
development expenditures to develop the Company's testing
equipment. These costs are expected to increase during the
Company's current fiscal year.
The Company had net income for Fiscal 1997 of $395,470 or $.12
per share. This compared to net income of $325,694 or $.10 per
share during Fiscal 1996. Fiscal 1997 net income included a
$70,987, or $.02 per share, gain on insurance settlement. Fiscal
1996 net income included a $22,575 income tax credit as compared to
a $62,998 income tax expense incurred in Fiscal 1997.
(b) Liquidity and Capital Resources.
On March 31, 1997, the Company's working capital was
$2,357,699 as compared with working capital of $1,828,582 at March
31, 1996. This reflects a current ratio of 4.47 to 1 at March 31,
1997 as compared to 4.76 to 1 at March 31, 1996.
Net cash of $969,161 was provided by operating activities
during Fiscal 1997 as compared to $28,154 during Fiscal 1996. This
was largely due to the insurance settlement completed during 1997
and the increase in accounts payable at year end. Net cash used by
investing activities during Fiscal 1997 was $198,751 as compared to
net cash used by investing activities of $1,065,368 during Fiscal
1996. 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 1997 was $44,230 as
compared to $895,873 during Fiscal 1996. This was primarily due to
the Company's refinancing and borrowing of an aggregate of
$805,000 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. In October 1996, the Company repaid this loan by
borrowing from the Bank $270,000 on substantially the same terms.
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. The Company 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 loans from the Bank, 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 year ended March 31, 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-15
hereof.
(a) (1) Financial Statements Page
Report of Independent Auditor. . . . . . . . . . . . . . . . .F-1
Balance Sheets - March 31, 1997 and 1996 . . . . . . . .F-2 - F-3
Statements of Income, Years
ended March 31, 1997 and 1996. . . . . . . . . . . . . .F-4 - F-5
Statements of Changes in Shareholders'
Equity, Years ended March 31, 1997 and 1996. . . . . . . . . .F-6
Statements of Cash Flows,
Years ended March 31, 1997 and 1996. . . . . . . . . . .F-7 - F-8
Notes to Financial Statements,
March 31, 1997 and 1996. . . . . . . . . . . . . . . . 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, 1997.
<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 Stock Option Plan approved by the Board of Directors
of the Company incorporated by reference to Exhibit
10.8 of the 1994 10-K.
10.4 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.
10.5 Authorization and Debenture Guaranty Agreement dated
February 2, 1996 between the Company and the U.S.
Small Business Administration incorporated by
reference to Exhibit 10.8 of the 1996 10-K.
10.6 Fourth Amendment to Sublease Agreement dated February
3, 1995 assigned to the Company between Jokah Realty,
L.L.C and Ames Textile Corporation.
10.7 Promissory Note dated October 2, 1996 between the
Company and Bank of New Hampshire.
(b) Reports on Form 8-K
None.
<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, 1997 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, 1997
Richard S. Kalin (principal executive
and financial officer)
s/David Siegel Director June 26, 1997
David Siegel
s/Roy L. Boe Director June 26, 1997
Roy L. Boe
Director June 26, 1997
Barbara Meirisch
s/Donna Hillsgrove Treasurer and June 26, 1997
Donna Hillsgrove Secretary
(principal accounting
officer)
micronet\10K.97
<PAGE>
PAUL C. ROBERTS
Certified Public Accountant
23 Meeting House Village Way
Edgartown, MA 02539
(508) 627-3384
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, 1997 and 1996 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, 1997.
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, 1997 and 1996 and the
results of its operations and its cash flows for each of the two
years in the period ended March 31, 1997 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 25, 1997
F-1
<TABLE>
<CAPTION>
MICRONETICS WIRELESS, INC.
BALANCE SHEETS
MARCH 31, 1997 AND 1996
ASSETS
(Note 3b)
1997 1996
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 961,314 $ 146,674
Accounts receivable, net of
allowance for doubtful accounts
of $23,488 and $33,437 at March 31,
1997 and 1996, respectively 755,716 688,828
Inventories 1,151,640 834,209
Insurance claim receivable - 596,376
Prepaid expenses 43,318 23,793
Deferred tax asset 118,481 25,000
Other current assets 6,250 -
--------- ----------
Total current assets 3,036,719 2,314,880
--------- ---------
Property and Equipment:
Furniture, fixtures and equipment 1,269,938 988,624
Equipment held under capital leases 33,500 102,535
Building and improvements 846,547 840,247
Land 162,000 162,000
--------- ---------
2,311,985 2,093,406
Less: accumulated depreciation
and amortization 800,030 (674,128)
--------- ---------
1,511,955 1,419,278
--------- ---------
Other assets:
Security deposits 1,102 5,086
Intangibles, net of accumulated
amortization of $26,086 and 98,375 109,814
$14,647 at March 31, 1997 and
March 31, 1996, respectively
Deferred tax asset - 151,391
--------- ---------
99,477 266,291
--------- ---------
$4,648,151 $4,000,449
========= =========
See accompanying notes to financial statements.
F-2
<PAGE>
<CAPTION>
MICRONETICS WIRELESS, INC.
BALANCE SHEETS
MARCH 31, 1997 AND 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
1997 1996
-------- ---------
<S> <C> <C>
Current liabilities:
Note payable - bank, current
portion $ 78,856 $ 77,431
Current portion - capital leases
payable 12,847 13,551
Convertible debenture payable 25,000 25,000
Accounts payable 374,746 218,046
Accrued expenses and taxes, other 155,953 148,455
than income taxes
Income taxes payable 31,618 3,815
---------- ----------
Total current liabilities 679,020 486,298
---------- ----------
Long-term debt -- Net of current
portion
Note payable - bank 948,022 947,089
Capitalized lease obligations 7,616 7,978
--------- ---------
955,638 955,067
--------- ---------
Commitments and contingencies
Shareholders' equity:
Preferred stock - $.10 par value;
authorized - 100,000 shares;
issued and outstanding - 0 shares
at March 31, 1997 and 1996
Common stock - $.01 par value;
authorized - 10,000,000 shares;
issued and outstanding - 3,188,658
and 3,116,638 shares at March 31,
1997 and 1996, respectively 31,887 31,166
Additional paid - in capital 2,393,748 2,335,530
Retained earnings (deficit) 587,858 192,388
--------- ---------
3,013,493 2,559,084
--------- ---------
$4,648,151 $4,000,449
========= =========
See accompanying notes to financial statements.
F-3
<CAPTION>
MICRONETICS WIRELESS, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
1997 1996
---------- -----------
<S> <C> <C>
Net sales $3,770,398 $ 3,686,479
Cost of sales 2,156,520 2,195,847
--------- ----------
Gross profit 1,613,878 1,490,632
--------- ----------
Selling, general and administrative
expenses 987,293 950,189
Research and development expenses 203,493 157,408
Legal fees - related party 26,462 42,289
--------- ----------
1,217,248 1,149,886
--------- ----------
Income from operations 396,630 340,746
--------- ----------
Other income (expense):
Interest income 21,306 3,172
Interest expense (90,705) (54,299)
Rental income 60,250 13,500
--------- ----------
(9,149) (37,627)
--------- ----------
Income before provision for income
taxes and extraordinary item 387,481 303,119
Provision for income taxes 62,998 (22,575)
--------- ---------
Income before extraordinary item 324,483 325,694
Extraordinary item - Gain on
inventory from flood, net of
taxes 70,987 -
--------- ---------
Net income $ 395,470 $ 325,694
========= =========
See accompanying notes to financial statements.
F-4
<CAPTION>
<PAGE>
MICRONETICS WIRELESS, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
(continued)
1997 1996
-------- -----------
<S> <C> <C>
Primary and fully diluted earnings
per common share:
Income before extraordinary item $.10 $.10
Extraordinary item - Gain on
inventory .02 -
--------- ---------
Net income $.12 $.10
========= =========
Weighted average shares outstanding
Primary 3,370,753 3,288,374
Fully diluted 3,370,753 3,288,374
========= =========
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, 1997 AND 1996
Common Stock Additional
Par Paid-In Retained
Shares Value Capital Earnings Total
<S> <C> <C> <C> <C> <C>
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 - - - 325,694 325,694
--------- ------- ---------- ---------- ---------
Balance -
March 31, 1996 3,116,638 31,166 2,335,530 192,388 2,559,084
Shares issued upon
conversion of
options 72,020 721 58,218 - 58,939
Net income - - - 395,470 395,470
Balance -
March 31, 1997 3,188,658 $31,887 $2,393,748 $ 587,858 $3,013,493
========= ======= ========== ======= =========
See accompanying notes to financial statements.
F-6
<CAPTION>
MICRONETICS WIRELESS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1997 AND 1996
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 395,470 $ 325,694
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 137,498 105,459
(Gain) on sale of assets - (13,500)
Shares issued for services - 1,215
Deferred tax asset 57,910 (26,391)
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable (66,888) (133,582)
(Increase) decrease in inventories (317,431) (130,968)
(Increase) decrease in insurance
claim receivable 596,376 (21,714)
(Increase) decrease in prepaid
expenses and other current
assets (25,775) 333
(Increase) decrease in other
assets - (2,643)
Increase (decrease) in accounts
payable 156,700 (70,276)
Increase (decrease) in accrued expenses
and taxes, other than
income taxes 7,498 13,885
Increase (decrease) in income taxes
payable 27,803 (158)
Increase (decrease) in deferred sales - (19,200)
--------- --------
Net cash provided by operating
activities 969,161 28,154
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (202,735) (1,070,340)
Purchase of patents and licenses - (8,528)
Proceeds from sale of assets - 13,500
Proceeds from security deposits 3,984 -
--------- --------
Net cash (used) by investing activities (198,751) (1,065,368)
-------- ---------
See accompanying notes to financial statements.
F-7
<CAPTION>
<PAGE>
MICRONETICS WIRELESS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1997 AND 1996
(continued)
1997 1996
-------- ---------
<S> <C> <C>
Cash flows from financing activities:
Repayment of bank loans $ (267,642) $ (240,480)
Borrowings of long-term debt 270,000 1,030,000
Net proceeds from stock options
exercised 58,938 122,250
Principal payments on capital lease
obligations (17,066) (15,897)
------- ---------
Net cash provided by financing
activities 44,230 895,873
------- ---------
Net increase (decrease) in cash and
cash equivalents 814,640 (141,341)
Cash and cash equivalents, begin-
ning of year 146,674 288,015
------- ---------
Cash and cash equivalents,
end of year $ 961,314 $ 146,674
======= =========
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the years for:
Interest $ 99,794 $ 48,776
Income taxes $ 8,667 $ 3,974
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 years ended March 31, 1997 and 1996, the Company acquired
equipment through a capital lease obligation in the amount of $16,000 and
$17,500, respectively.
See accompanying notes to financial statements.
F-8
</TABLE>
<PAGE>
MICRONETICS WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
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 expended for the years ended March 31, 1997
and 1996 were approximately $203,000 and $157,000, respectively.
F-9
<PAGE>
MICRONETICS WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
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.
2--INVENTORIES
Inventories consist of the following:
March 31, March 31,
1997 1996
--------- ---------
Raw materials and
work-in-process $974,337 $649,657
Finished goods 177,303 184,552
---------- --------
$1,151,640 $834,209
========== ========
F-10
<PAGE>
MICRONETICS WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
3--LONG-TERM DEBT
The following table summarizes the Company's long-term debt:
March 31, March 31,
1997 1996
-------- --------
Debentures
8% Debentures due
April 30, 1996 (c) $ 25,000 $ 25,000
Notes
Prime plus 1% note due
February, 2006 (b) 431,432 439,520
Prime plus 1% note due
November, 1999 (b) - 220,000
6.763% note due March, 2016 (b) 355,143 365,000
Prime plus 1% note due
April, 2001 (b) 240,000 -
Capital lease obligations (d) 20,766 21,529
------- -------
Total 1,072,341 1,071,049
Less current maturities 116,703 115,982
------- --------
Total long-term debt $ 955,638 $ 955,067
======= ========
(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 and refinanced its equipment loan, with
three new loans, one of which was refinanced by the SBA Loan
defined below. 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, which bears
interest at prime plus 1% requiring principal payments of $5,000
monthly plus accrued interest. In October 1996, the Company
refinanced the $225,000 loan (from the same bank) and borrowed
$270,000 at prime plus 1%, with payments due in $5,000 monthly
installments with the final payment due on April 2, 2001.
These two loans contain certain covenants pertaining to financial
ratios and payment of dividends. At March 31, 1997 the Company is
not in violation of these covenants.
F-11
<PAGE>
MICRONETICS WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
3--LONG-TERM DEBT (CONTINUED)
The Company borrowed $365,000 from the Small Business
Administration (the "SBA Loan"), and bears interest at 6.763% per
annum. Payments are due in monthly installments of 2,777 through
March 1, 2016 when the 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, 1997 and 1996 depreciation of assets
under capital leases is included in depreciation expense.
As of March 31, 1997 and 1996, property held under capital leases
was as follows:
March 31, March 31,
1997 1996
--------- -------
Machinery and equipment $ 33,500 $102,535
Less: accumulated depreciation 5,388 42,958
------- --------
$ 28,112 $ 59,577
======== ========
Annual maturities of long term debt due in the next five years will
approximate $117,000 (1998), $85,500 (1999), $83,500 (2000),
$83,500 (2001), $85,300 and $618,000 thereafter.
F-12
<PAGE>
MICRONETICS WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
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, 1997, 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, 1997 the Company has a net operating loss carryover
for tax purposes of approximately $288,000 and tax credit
carryovers of $20,000 for federal tax purposes, which losses and
credits can be used to offset future income and credits through the
year ending March 31, 2011.
The following sets forth the provision for income taxes:
March 31, March 31,
1997 1996
________ _________
Federal tax on income $156,735 $ 99,978
State tax provided for 38,667 3,816
Stock option compensation (a) (33,975) (86,563)
Deferred tax benefit 57,910 (34,368)
------- -------
219,337 (17,137)
Less: Benefit from net operating
loss carryforward 119,760 5,438
------- -------
Taxes attributable to extra- 99,577 (22,575)
ordinary item $ 36,579 $ -
Provision for income taxes -------- ---------
$ 62,998 $ (22,575)
======== =========
F-13
<PAGE>
MICRONETICS WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
4--INCOME TAXES (CONTINUED)
(a) With the exercise of 72,000 and 150,680 of options, the
Company derived a permanent difference for tax purposes of
approximately $100,000 and $265,000 for the years ended March
31, 1997 and 1996, respectively.
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 year ended March
31, 1996 was $32,953.
6--MAJOR CUSTOMERS
Approximately 50% of the Company's net sales for each of the years
ended March 31, 1997 and 1996, 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) 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).
F-14
<PAGE>
MICRONETICS WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
7--CAPITAL STOCK, OPTIONS AND WARRANTS - (CONTINUED)
(a)(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.
(a)(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.
(a)(i)(3):
During the year ended March 31, 1997, the Company adopted a stock
option plan, "1996 Stock Option Plan", pursuant to which the
Company may grant options to purchase up to 300,000 shares of
Common Stock.
The following tables summarize the activity in options under the
stock option plans:
Price
ISOP Plan Shares Range
- --------- ------ ------------
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
Granted 32,500 $1.87 - $2.13
Exercised 10,800 $ .63 - $1.25
------- -------------
Outstanding at March 31, 1997 123,150 $ .63 - $2.13
Exercisable at March 31, 1997 66,000 $ .63 - $1.87
------- ------------
F-15
<PAGE>
MICRONETICS WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
7--CAPITAL STOCK, OPTIONS AND WARRANTS (CONTINUED)
Price
ESOP Plan Shares Range
- --------- ------ ------------
Outstanding at March 31, 1995 100,000 1.06
------- ------------
Outstanding at March 31, 1996 100,000 1.06
Exercised 5,000 1.06
------- ------------
Outstanding at March 31, 1997 95,000 1.06
------- ------------
Exercisable at March 31, 1997 95,000 1.06
------- ------------
Other Options
- -------------
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
Expired 15,000 $ .75
Granted 79,000 $1.88 - $2.50
Exercised 48,720 $ .63
------- -------------
Outstanding at March 31, 1997 304,000 $ .63 - $2.88
Exercisable at March 31, 1997 250,000 $ .63 - $2.88
------- ------------
F-16
<PAGE>
MICRONETICS WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
7--CAPITAL STOCK, OPTIONS AND WARRANTS (CONTINUED)
Price
Other Options Shares Range
- ------------- ------ ------------
1994 Stock Option Plan:
- ----------------------
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
Exercised 7,500 $2.125
------- -------------
Outstanding at March 31, 1997 246,250 $1.25 - $2.41
------- --------------
Exercisable at March 31, 1997 100,875 $1.25 - $2.41
------ -------------
1996 Stock Option Plan:
- ----------------------
Granted 82,500 $1.875
Outstanding at March 31, 1997 82,500 $1.875
Exercisable at March 31, 1997 30,000 $1.875
------ --------------
In October 1995, the FASB issued Statement of Financial
Accounting Standards No. 123 "Accounting and Disclosure of Stock-
Based Compensation" (Statement 123). Statement 123 is effective
for fiscal years beginning after December 15, 1995, and allows for
the option of continuing to follow Accounting Principles Board
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees"
and the related interpretations of selecting the fair value method
of expense recognition as described in Statement 123. The Company
has elected to follow APB 25 in accounting for its employees' stock
options. Under APB 25, because the exercise price of the Company's
stock options is equal to or less than the market price of the
underlying stock on the date of grant, no compensation expense is
recognized.
Pro forma net income, had Statement 123 been applied, would have
resulted in net income, net of taxes, of approximately $31,000 and
$33,000 for the years ended March 31, 1997 and March 31, 1996,
respectively.
F-17
MICRONETICS WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
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 $.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.
9--INTANGIBLES
Intangible assets at March 31, 1997 and 1996 are as follows:
1997 1996
----- --------
Licensing agreements $ 100,000 $ 100,000
Patents 24,461 24,461
-------- --------
124,461 124,461
Less accumulated amortization 26,086 14,647
-------- -------
$ 98,375 $ 109,814
======== ========
10--RELATED PARTY TRANSACTIONS
Related party legal fees of $26,462 and $42,289 for the years ended
March 31, 1997 and March 31, 1996, 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. During the year
ended March 31, 1997, the Company received $812,417 from its claim
and reported an extraordinary gain on inventory of $70,987 net of
taxes.
F-18
<TABLE>
<CAPTION>
<PAGE>
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 $33,437 $26,531 - 36,480 $23,488
========= ======== ======= =========== ========
(a) Write off of accounts receivable against reserve.
</TABLE>
S-1
micronet\10k.97
<PAGE>
INDEX
10.6 Fourth Amendment to Sublease Agreement dated February 3, 1995
assigned to the Company between Jokah Realty, L.L.C and Ames
Textile Corporation.
10.7 Promissory Note dated October 2, 1996 between the Company and
Bank of New Hampshire.
EXHIBIT 10.6
FOURTH AMENDMENT TO LEASE
On this 3rd day of February, 1995, Jokah Realty, L.L.C., a New
Hampshire Limited Liability Company with a principal place of
business at 20 Trafalgar Square, Suite 602, Nashua, New Hampshire
03063, successor in interest to Tamposi Family Investment
Properties and Ames Textile Corporation, the Lessor and Lessee,
respectively, under a certain Indenture of Lease dated September
1, 1988 (the "Lease") and Amendments to Lease dated May 10, 1990,
May 30, 1991, and April 12, 1993, for and to a certain premises
identified therein known as 28 Hampshire Drive, Hudson, New
Hampshire (the "Premises") do hereby say as follows:
Whereas, Tamposi Family Investment Properties and Ames Textile
Corporation did enter into the Lease Agreement dated September 1,
1988 which was amended by the Amendment to Lease dated May 10,
1990, and a Second Amendment to Lease dated May 30, 1991, and a
Third Amendment to Lease dated April 12, 1993;
Whereas, Jokah Realty, L.L.C. and Ames Textile Corporation wish
to extend the term of the Lease and enter into a Fourth Amendment
to the Lease.
Now, Therefore, in consideration of Ames Textile Corporation
continuing as a lessee, and Jokah Realty, L.L.C. continuing to
allow occupancy by the lessee, the parties do hereby agree and do
hereby amend the Lease as follows:
1. "Section 1 - Term", be and hereby is amended to include the
following:
"The term of the lease shall be extended for a period of
three years, beginning September 1, 1995 and ending August 31,
1998."
2. "Section 3 - Rent", be and hereby is amended to include the
following:
"The base monthly rent for the leased premises, for the
three year period, beginning September 1, 1995, through August
31, 1998, shall be Four Thousand Five Hundred Twenty Dollars and
83/100 ($4,520.83) per month triple net."
In all other respects, the Lease and Amendments to Lease shall
remain in full force and effect.
In Witness Whereof, we have hereunto set our hands on the day and
year first above written.
LESSOR:
Jokah Realty, L.L.C.
s/ Kelly J. Coter s/ Samuel A. Tamposi, Jr.
Witness By: Samuel A. Tamposi, Jr.,
Managing Member
LESSEE:
Ames Textile Corporation
s/ Lane Whitford s/ Jonathan A. Stevens
Witness By: Jonathan A. Stevens
Its President
EXHIBIT 10.7
Principal $270,000.00
Loan Date 10/02/1996
Maturity 04/02/2001
Loan No. 9301496
Call 3
Collateral 700
Account
Officer 281
Initials
Borrower: MICRONETICS WIRELESS, INC.
26 Hampshire Drive
Hudson, New Hampshire 03051
Lender: BANK OF NEW HAMPSHIRE
300 Franklin Street
Manchester, New Hampshire 03105
Principal Amount: $270,000.00
Initial Rate: 9.250%
Date of Note: October 2, 1996
PROMISE TO PAY. MICRONETICS WIRELESS, INC. ("Borrower") promises
to pay to BANK OF NEW HAMPSHIRE ("Lender"), or order, in lawful
money of the United States of America, the principal amount of
Two Hundred Seventy Thousand and 00/100 Dollars ($270,000.00),
together with interest on the unpaid principal balance from
October 2, 1996, until paid in full.
PAYMENT. Subject to any payment changes resulting from changes
in the Index, Borrower will pay this loan in 53 principal
payments of $5,000.00 each and one final principal payment of
$5,039.83. Borrower's first principal payment is due November 2,
1996, and all subsequent principal payments are due on the same
day of each month after that. In addition, Borrower will pay
regular monthly payments of all accrued unpaid interest due as of
each payment date. Borrower's first interest payment is due
November 2, 1996, and all subsequent interest payments are due on
the same day of each month after that. Borrower's final payment
due April 2, 2001, will be for all principal and accrued interest
not yet paid. Interest on this Note is computed on a 365/360
simple interest basis; that is, by applying the ratio of the
annual interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual number of
days the principal balance is outstanding. Borrower will pay
<PAGE>
Lender at Lender's address shown above or at such other place as
lender may designate in writing. Unless otherwise agreed or
required by applicable law, payments will be applied first to
accrued unpaid interest, then to principal, and any remaining
amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is
subject to change from time to time based on changes in an
independent index which is the Bank of New Hampshire Prime Rate
(the "Index"). The index is not necessarily the lowest rate
charged by Lender on its loans. If the Index becomes unavailable
during the term of this Loan, Lender may designate a substitute
index after notice to Borrower. Lender will tell Borrower the
current index rate upon Borrower's request. Borrower understands
that Lender may make loans based on other rates as well. The
interest rate change will not occur more often than each DAY.
The index currently is 8.250% per annum. The interest rate to be
applied to the unpaid principal balance of this Note will be at a
rate of 1.000 percentage point over the Index, resulting in an
initial rate of 9.250% per annum. NOTICE: Under no circumstances
will the interest rate on this Note be more than the maximum rate
allowed by applicable law.
PREPAYMENT. Borrower may pay without penalty all or a portion of
the amount owed earlier than it is due. Early payments will not,
unless agreed to by Lender in writing, relieve Borrower of
Borrower's obligation to continue to make payments under the
payment schedule. Rather, they will reduce the principal balance
due and may result in Borrower making fewer payments.
LATE CHARGE. If a payment is 15 days or more late, Borrower will
be charged 6.000% of the regularly scheduled payment.
DEFAULT. Borrower will be in default if any of the following
happens: (a) Borrower fails to make any payment when due. (b)
Borrower breaks any promise Borrower has made to Lender, or
Borrower fails to comply with or to perform when due any other
term, obligation, covenant, or condition contained in this Note
or any agreement related to this Note, or in any other agreement
or loan Borrower has with Lender. (c) Any representation or
statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect
either now or at the time made or furnished. (d) Borrower
becomes insolvent, a receiver is appointed for any part of
Borrower's property, Borrower makes an assignment for the benefit
of creditors, or any proceeding is commenced either by Borrower
or against Borrower under any bankruptcy or insolvency laws. (e)
Any creditor tries to take any of Borrower's property on or in
which Lender has a lien or security interest. This includes a
garnishment of any of Borrower's account with Lender. (f) Any
guarantor dies or any of the other events described in this
default section occurs with respect to any guarantor of this
Note. (g) A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment
or performance of the indebtedness is impaired. (h) Lender in
good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire
unpaid principal balance on this Note and all accrued unpaid
interest immediately due, without notice, and then Borrower will
pay that amount. Upon default, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted
under applicable law, increase the variable interest rate on this
Note to 18.000% per annum. The interest rate will not exceed the
maximum rate permitted by applicable law. Lender may hire or pay
someone else to help collect this Note if Borrower does not pay.
Borrower also will pay Lender that amount. This includes,
subject to any limits under applicable law, Lender's attorney's
fees and Lender's legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceeding (including efforts to modify or vacate any
automatic stay or injunction), appeals, and any anticipated post-
judgment collection services. If not prohibited by applicable
law, Borrower also will pay any court costs, in addition to all
other sums provided by law. This Note has been delivered to
Lender and accepted by Lender in the State of New Hampshire. If
there is a lawsuit, Borrower agrees upon Lender's request to
submit to the jurisdiction of the courts of HILLSBOROUGH County,
the State of New Hampshire. This Note shall be governed by and
construed in accordance with the laws of the State of New
Hampshire.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $18.00
if Borrower makes a payment on Borrower's loan and the check or
preauthorized charge with which Borrower pays is later
dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual
possessory security interest in, and hereby assigns, conveys
delivers, pledges, and transfers to Lender all Borrower's right,
title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else
and all accounts Borrower may open in the future, excluding
however all IRA and Keogh accounts, and all trust accounts for
which the grant of a security interest would be prohibited by
law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note
against any and all such accounts.
<PAGE>
FINANCIAL STATEMENTS. FURNISH LENDER WITH, AS SOON AS AVAILABLE,
BUT IN NO EVENT LATER THAN ONE HUNDRED TWENTY (120) DAYS AFTER
THE END OF EACH FISCAL YEAR, BORROWER'S CORPORATE TAX RETURNS AND
ANNUAL FINANCIAL STATEMENTS AUDITED BY A CERTIFIED PUBLIC
ACCOUNTANT SATISFACTORY TO LENDER.
COLLATERAL. THIS LOAN IS SECURED, IN ADDITION TO ANY OTHER
COLLATERAL, WITH A SECURITY INTEREST IN ALL INVENTORY, CHATTEL
PAPER, ACCOUNTS, EQUIPMENT, AND GENERAL INTANGIBLES. UNLESS
OTHERWISE STATED IN THIS DOCUMENT, ALL THE PREVIOUS TERMS AND
CONDITIONS OF THE SECURITY AGREEMENT WITH RELATED UCC'S ON FILE
ARE HEREBY INCORPORATED AND MADE A PART OF THIS NOTE.
PRIOR NOTE. EQUIPMENT TERM LOAN DATED 2/2/96 AS FURTHER
DESCRIBED IN ARTICLE IV OF THE LOAN AGREEMENT ALSO DATED 2/2/96.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of
its rights or remedies under this Note without losing them.
Borrower and any other person who signs, guarantees or endorses
this Note, to the extent allowed by law, waive presentment,
demand for payment, protest and notice of dishonor. Upon any
change in the terms of this Note, and unless otherwise expressly
stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be
released from liability. All such parties agree that Lender may
renew or extend (repeatedly and for any length of time) this
loan, or release any party or guarantor or collateral; or impair,
fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender
without the consent of or notice to anyone. All such parties
also agree that Lender may modify this loan without the consent
of or notice to anyone other than the party with whom the
modification is made.
Borrower expressly agrees that the interest rates specified in
this Note shall be the applicable interest rates due (a) on
amounts outstanding during the term of this Note, notwithstanding
the rate of interest prescribed by statute from time to time, and
(b) with respect to any amounts outstanding on and after the
maturity date of this Note.
<PAGE>
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE
PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND
ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
MICRONETICS WIRLESS, INC.
By: s/Richard Kalin
RICHARD KALIN, President
LENDER:
BANK OF NEW HAMPSHIRE
By: s/David Savastano
Authorized Officer
c:\wpdocs\data\micro\EXH10-6.M28
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 961,314
<SECURITIES> 0
<RECEIVABLES> 779,204
<ALLOWANCES> 23,488
<INVENTORY> 1,151,640
<CURRENT-ASSETS> 3,036,719
<PP&E> 2,311,985
<DEPRECIATION> 800,030
<TOTAL-ASSETS> 4,648,151
<CURRENT-LIABILITIES> 679,020
<BONDS> 0
0
0
<COMMON> 31,887
<OTHER-SE> 4,616,264
<TOTAL-LIABILITY-AND-EQUITY> 4,648,151
<SALES> 3,770,398
<TOTAL-REVENUES> 3,770,398
<CGS> 2,156,520
<TOTAL-COSTS> 1,217,248
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90,705
<INCOME-PRETAX> 387,481
<INCOME-TAX> 62,998
<INCOME-CONTINUING> 395,470
<DISCONTINUED> 0
<EXTRAORDINARY> 70,987
<CHANGES> 0
<NET-INCOME> 395,470
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
