FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 33-16453
MICRONETICS WIRELESS, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2063614
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
26 Hampshire Drive, Hudson NH 03051
(Address of principal executive offices)
(Zip Code)
(603) 883-2900
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities and Exchange Act of
1934 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
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical date:
As of February 4, 1999, 3,769,138 shares of the Issuer's
common stock, par value $.01 per share were outstanding.
Transitional Small Business Disclosure Format (check one);
Yes No X
MICRONETICS WIRELESS, INC.
INDEX
Page No.
Part I. Financial Information.
Item 1. Financial Statements.
Condensed Balance Sheets -
December 31, 1998 and March 3-4
31, 1998
Condensed Statements of Operations-
Three Months Ended December 31, 1998
and 1997 5
Condensed Statements of Operations - 6
Nine Months Ended December 31, 1998
and 1997
Condensed Statement of Cash Flows - 7-8
Nine Months Ended December 31, 1998
and 1997
Notes to Condensed Financial 9
Statements
Item 2. Management's Discussion and Analysis 10-11
of Financial Condition and
Results of Operations.
Part II. Other Information.
Item 2. Changes in Securities and Use of Proceeds. 12
Item 6. Exhibits and Reports on Form 8-K. 12
Signature 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
MICRONETICS WIRELESS, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
Assets
-----------------------------
December 31, March 31,
1998 1998
----------- -----------
Current assets:
Cash $ 1,167,355 $ 1,031,625
Receivables (net of
allowance for doubtful
accounts) 962,297 1,010,219
Inventories 1,471,349 1,421,685
Prepaid expenses and other
current assets 85,403 37,238
Deferred tax asset - 43,302
Other current assets 78,028 57,338
----------- -----------
Total current assets 3,764,432 3,601,407
Fixed assets:
Land 162,000 162,000
Building and improvements 857,462 850,009
Furniture, fixtures and
equipment 1,353,223 1,324,586
Capitalized leases 82,990 82,990
----------- -----------
Gross fixed assets 2,455,675 2,419,585
Accumulated depreciation and
amortization (1,005,365) (898,516)
----------- -----------
Total (net) fixed assets 1,450,310 1,521,069
Other assets:
Deposits 1,683 4,479
Intangibles (net of amortization) 58,793 86,936
----------- -----------
Total other assets 60,476 91,415
----------- -----------
Total assets $ 5,276,218 $ 5,213,891
=========== ===========<PAGE>
MICRONETICS WIRELESS, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
Liabilities and Shareholders' Equity
------------------------------------
December 31, March 31,
1998 1998
----------- -----------
Current liabilities:
Short-term loans and capitalized
leases $ 118,803 $ 106,471
Accounts payable 179,405 321,713
Accrued expenses and taxes, other
than income taxes 177,968 248,620
Subordinated debentures 0 25,000
Income taxes payable 44,163 17,810
----------- -----------
Total current liabilities 520,339 719,614
Long-term debt:
Capitalized leases 16,388 40,308
Notes payable - bank 804,780 868,720
----------- -----------
Total long-term debt 821,168 909,028
Shareholders' equity:
Common stock 34,529 34,153
Additional paid - in capital 2,540,324 2,535,137
Retained earnings 1,358,858 1,015,959
----------- -----------
Total shareholders' equity 3,933,711 3,585,249
----------- -----------
Total liabilities and
shareholders' equity $ 5,275,218 $ 5,213,891
=========== ===========<PAGE>
MICRONETICS WIRELESS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
-----------------------------------
Nine Months Ended December 31,
1998 1997
---------- -----------
Operating revenues $3,297,823 $ 3,455,412
Cost of operations 1,989,724 2,007,230
--------- ---------
Gross profit 1,308,099 1,448,182
--------- ---------
Selling, general and
administrative expenses 799,528 875,388
Research and development 109,705 196,339
expense --------- ---------
Operating income 398,866 376,457
Other income (expense):
Rental income 46,504 45,187
Interest income 28,265 27,796
Interest (expense) (58,855) (58,729)
Other income (expense) (15,585) 15,770
--------- ---------
Total 31,499 30,024
--------- ---------
Income before taxes 430,365 406,481
Provision for income taxes 87,466 88,105
--------- ---------
Net income $ 342,899 $ 318,376
========= =========
Net income per share $ 0.10 $ 0.09
========= =========
Weighted average number
of shares outstanding 3,403,688 3,370,753
========= =========<PAGE>
MICRONETICS WIRELESS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
-----------------------------------
Three Months Ended December 31,
1998 1997
---------- ----------
Operating revenues $1,095,089 $1,243,281
Cost of operations 675,522 681,847
--------- ---------
Gross profit 419,567 561,434
Selling, general and
administrative expenses 277,923 337,683
Research and development expense 21,027 83,727
--------- ---------
Operating income 120,617 140,024
Other income (expense):
Rental income 16,050 15,062
Interest income 8,949 9,482
Interest (expense) (19,054) (21,077)
Other income (expense) 3,821 (2,259)
--------- ---------
Total 9,766 1,208
--------- ---------
Income before taxes and
extraordinary item 130,383 141,232
Provision for income taxes 15,470 29,755
--------- ---------
Net income $ 114,913 $ 111,477
========= =========
Net income per share $ 0.03 $ 0.03
========= =========
Weighted average number
of shares outstanding 3,403,688 3,370,753
========= =========<PAGE>
MICRONETICS WIRELESS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
--------------------------
Nine Months Ended December 31,
1998 1997
---------- ----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS:
Cash Flows from Operating
Activities:
Net income $ 342,899 $ 206,898
Adjustments to reconcile net
income to net cash provided
by operating activities:
Decrease in deferred tax asset 43,302 39,755
Depreciation and amortization 134,991 89,994
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable, inventories, prepaid
expenses and other current assets (70,597) (67,823)
(Increase) decrease in security
deposits 2,796 (4,391)
(Decrease) increase in accounts
payable accrued liabilities,
notes payable and other current
liabilities (199,275) (94,003)
--------- ---------
Net cash provided (utilized)
by operating activities $ 254,116 $ 170,430
========= =========
<PAGE>
MICRONETICS WIRELESS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
--------------------------
Nine Months Ended December 31,
1998 1997
------------ -----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS:
Cash Flows from Investment
Activities:
(Additions) to fixed assets $ (36,090) $ (42,853)
-------- ---------
Net cash provided (used) by
investment activities $ (36,090) $ (42,853)
-------- ---------
Cash Flows from Financing
Activities:
(Reduction) increase of debt
and capitalized leases $ (87,860) $ (42,190)
Proceeds from stock options
exercised 5,564 3,125
Proceeds from issuance of
common stock 0 0
Proceeds from issuance of
subordinated convertible
debentures 0 0
-------- ---------
Net cash provided (used)
by financing activities $ (82,296) (39,065)
-------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 135,730 $ 88,512
Cash and cash equivalents, at
beginning of year 1,031,625 961,314
--------- ---------
CASH AND CASH EQUIVALENTS, AT
END OF QUARTER $1,167,355 $1,049,826
========= =========
<PAGE>
MICRONETICS WIRELESS, INC.
NOTES TO BE CONDENSED FINANCIAL STATEMENTS
Note 1. In the opinion of the Company, the accompany-
ing unaudited consolidated condensed financial
statements contain all adjustments (consisting
of only normal recurring adjustments) necessary
to present fairly the financial position as of
December 31, 1998 and 1997, the results of
operations for the three and nine month periods
ended December 31, 1998 and 1997 and cash flows
for the nine month periods ended December 31,
1998 and 1997.
While the Company believes that the disclosures
presented are adequate to make the information
not misleading, it is suggested that these
consolidated condensed financial statements be
read in conjunction with the Company's Annual
Report on Form 10-KSB for its fiscal year ended
March 31, 1998.
The results of operations for the three and nine
month periods ended December 31, 1998 are not
necessarily indicative of the results of the
full year.
Note 2. Inventories are summarized below:
December 31, 1998 March 31, 1998
Raw materials and
work-in-process 1,153,133 1,064,264
Finished goods 318,216 357,421
Total 1,471,349 1,421,685
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
The Company had revenues of $1,095,089 and $1,243,281 for the
three months ended December 31, 1998 and 1997, respectively. For the
three months ended December 31, 1998, sales of VCOs and control
components were up, but sales of equipment were down, as compared to
the prior period. The Company's net income increased to $114,913, or
$.03 per share, as compared with net income of $111,477, or $.03 per
share, for the three month periods ended December 31, 1998 and 1997,
respectively.
The Company had revenues of $3,297,823 and $3,455,412 for the
nine months ended December 31, 1998 and 1997, respectively. For the
nine months ended December 31, 1998, sales of VCOs and control
components were up, but equipment sales were down. The Company had
net income of $342,899, or $.10 per share, and $318,376 or $.09 per
share, for the nine month periods ended December 31, 1998 and 1997,
respectively.
Gross profit as a percent of net sales for the three and nine
month periods ended December 31, 1998 was 38.4% and 39.7%,
respectively, as compared to 45.1% and 41.9%, respectively, during
the corresponding periods of the prior fiscal year. This was largely
due to product mix. Selling, general and administrative ("SGA")
expenses as a percent of net sales for the three months ended
December 31, 1998 was 25.4% as compared to 25.3% in the prior year.
For the nine month period ended December 31, 1998, SGA as a percent
of net sales was 24.2% as compared to 25.3% for the prior period.
Research and development ("R&D") expense declined to under 2% of net
sales from over 6% of net sales for the three months ended December
31, 1998 as compared to the prior year. For the nine month period
ended December 31, 1998, R&D expenses were over 3.3% of net sales as
compared to 5.6% of net sales in the corresponding period of the
prior year.
Financial Condition
The Company's working capital at December 31, 1998 was
$3,244,000. It was $2,882,000 at March 31, 1998. The Company's
current ratio at December 31, 1998 was 7.2 to 1, and at March 31,
1998 it was 5.0 to 1.
Net cash provided by operations in the nine months ended
December 31, 1998 was $254,116 as compared to $170,430 in the prior
year. Net cash utilized from investment activities was $36,090
during the nine months ended December 31, 1998 as compared to $42,853
used in the prior year. This was primarily due to the purchase of
new equipment. Net cash used by financing activities during the nine
months ended December 31, 1998 was $82,296, as compared to $39,065
used during the prior year. This was largely due to the repayment of
debt during both periods.
Safe Harbor Statement
Statements which are not historical facts, including statements
about the Company's confidence and strategies and its expectations
about new and existing products, technologies and opportunities,
market and industry segment growth, demand and acceptance of new and
existing products are forward looking statements that involve risks
and uncertainties. These include, but are not limited to, product
demand and market acceptance risks; the impact of competitive
products and pricing; the results of financing efforts; the loss of
any significant customers of any business; the effect of the
Company's accounting policies; the effects of economic conditions and
trade, legal, social, and economic risks, such as import, licensing,
and trade restrictions; the results of the Company's business plan
and the impact on the Company of its relationship with its lenders.
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
(c) Recent Sales of Unregistered Securities.
In January 1999, the Company issued an aggregate of 271,250
unregistered shares of its Common Stock to Floyd S. Parin
and Mark B. Goldman (collectively, the "Sellers") in
connection with payment of $308,594 of the purchase price
by the Company for all of the outstanding capital stock of
Microwave & Video Systems, Inc. These shares were issued
pursuant to the exemption from registration provided under
Regulation D promulgated pursuant to the Securities Act of
1933.
Item 6. 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.
3.3 Stock Purchase Agreement between the Company and Floyd S.
Parin and Mark B. Goldman dated as of October 29, 1998.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
During the quarter ended December 31, 1998, the registrant
did not file any reports on Form 8-K.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
MICRONETICS WIRELESS, INC.
(Registrant)
Dated: February 10, 1999 /s/ Richard S. Kalin
Richard S. Kalin,
President
N:\RSKLAW\MICRONET\10Q-JAN.99
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 1,167,355
<SECURITIES> 0
<RECEIVABLES> 962,297
<ALLOWANCES> 0
<INVENTORY> 1,471,349
<CURRENT-ASSETS> 3,764,432
<PP&E> 2,455,675
<DEPRECIATION> (1,005,365)
<TOTAL-ASSETS> 5,276,218
<CURRENT-LIABILITIES> 520,339
<BONDS> 0
0
0
<COMMON> 34,529
<OTHER-SE> 3,899,182
<TOTAL-LIABILITY-AND-EQUITY> 5,275,218
<SALES> 3,297,823
<TOTAL-REVENUES> 3,297,823
<CGS> 1,989,724
<TOTAL-COSTS> 909,233
<OTHER-EXPENSES> 27,936
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (58,855)
<INCOME-PRETAX> 430,365
<INCOME-TAX> 87,466
<INCOME-CONTINUING> 342,899
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 342,899
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
This AGREEMENT (the "Agreement") made as of this 29th day of
October, 1998, by and between MICRONETICS WIRELESS, INC., a
Delaware corporation whose principal place of business is 26
Hampshire Drive, Hudson, NH 03051 (hereinafter referred to as
"Micronetics" or the "PURCHASER"), and FLOYD S. PARIN ("Parin") and
MARK B. GOLDMAN ("Goldman") (Parin and Goldman are collectively
referred to herein as the "Sellers").
The Sellers are the owners of all of the outstanding stock of
MICROWAVE & VIDEO SYSTEMS, INC. ("MVS"), a Connecticut corporation
whose principal office is 87 B Sandpit Road, Danbury, CT 06810 (the
"MVS Stock").
The Sellers desire to sell the MVS Stock, and the Purchaser
desires to purchase the CTAS Stock, all on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, the mutual
covenants and agreements herein contained and other valuable
consideration, the receipt, adequacy and sufficiency whereof is
hereby acknowledged, the Sellers and the Purchaser do hereby
covenant and agree as follows:
1. Consideration and Sale of Shares.
1.1 MVS Stock to be Sold by Sellers. Subject to the
terms, provisions and conditions contained in this Agreement, and
on the basis of the representations and warranties herein set
forth, the Sellers agree to sell to the Purchaser on the date
hereof and the Purchaser agrees to purchase from the Sellers the
CTAS Stock owned by the Sellers.
1.2 Purchase Price. The aggregate purchase price to be
paid for the MVS Stock (the "Purchase Price") shall be (a) the
difference between the book value of all assets of MVS on the
Closing Date minus the liabilities directly related to those assets
of MVS on the Closing Date plus 15% of the book value of the
production and laboratory equipment of MVS on the Closing Date (the
"Book Value") and (b) the after-tax income of MVS for its calendar
year 1998 (determined in accordance with general accounting
principles applied or a consistent basis during the period) (the
"1998 Income") (collectively, the Book Value and the 1998 Income
are referred to as the "Purchase Price"). The final determination
of the Book Value and the 1998 Income shall be made by Micronetics'
independent certified public accountant, which amount, if disputed
by MVS, shall be subject to dispute resolution by each of MVS and
Micronetics designating an arbitrator and the two designees
designating a third arbitrator. The Purchase Price shall be paid
as set forth below in Paragraph 1.5(b).
1.3 Closing. The closing of the transactions
contemplated hereby shall occur on November 11, 1998 at 12:00 P.M.
at the offices of MVS or such other date and location as shall be
agreed to by the parties hereof (the "Closing").
1.4 Transfer of MVS Stock and Payment of Purchase Price
at Closing. At the Closing, subject to the terms of this
Agreement, the following transactions shall occur, and each such
transaction shall be deemed to occur simultaneously with the other
transactions:
(a) MVS Stock Certificates. The Sellers will
deliver certificates to the Purchaser representing the MVS Stock,
duly endorsed in blank, with any required stock transfer and other
documentary stamps affixed;
(b) Payment to Sellers at Closing. Upon the
delivery by the Sellers of certificates representing the MVS Stock,
the Purchaser shall deliver, or cause to be delivered:
(i) Stock Purchase Price. Micronetics shall
issue and deliver to the Sellers, in proportion to their ownership
of MVS (as set forth on Schedule 2.25 attached hereto),
(x) at the Closing (or within 15 days from
the Closing) such number of shares of common stock of Micronetics
(the "Common Stock") equal to fifty percent (50%) of the Book Value
based upon the average of the closing price of the Common Stock for
the trailing 30 days prior to the Closing Date (the "Price"), and
(y) within 30 days following determination
of the 1998 Income such number of shares of Common Stock (the
"Second Closing") based upon the average of the closing price of
the Common Stock for the trailing 30 days prior to the Second
Closing, equal to fifty percent (50%) of the 1998 Income
(collectively the "Stock Purchase Price"). In the event
Micronetics registers its securities under the Securities Act of
1933, as amended (the "Act"), or participates in a public offering
of its securities, Micronetics shall offer the Sellers the
opportunity to register their securities from the Stock Purchase
Price on the same terms and conditions as applicable to any other
shareholder participating in such registration. This registration
right shall not apply to any shares which may be sold pursuant to
Rule 144 promulgated under the Act; and
(ii) Cash Purchase Price. Micronetics shall
pay the Sellers, in proportion to their ownership of MVS (as set
forth on Schedule 2.25 attached hereto), the Cash Purchase Price,
as follows:
(w) on the Closing Date, Micronetics shall
pay the Sellers, in proportion to their ownership of MVS, twenty
five percent (25%) of the Book Value by check, subject to
collection;
(x) on the Closing Date, Micronetics shall
execute a note payable to each of the Sellers, in proportion to
their ownership of MVS, for twenty five percent (25%) of the Book
Value payable in two equal annual installments, which note shall
bear interest at a rate of 6% per annum (the "Note"), a copy of
which is attached hereto as Exhibit 1.5(b)(ii)(x); provided,
however, that the amount of the Notes shall be reduced by an amount
equal to (i) any accounts receivable listed on Schedule 2.11
annexed hereto not collected by Micronetics within six months of
the Closing Date and (ii) the value of any inventory set forth on
Schedule 2.18 annexed hereto not sold within one year of the
Closing Date.
(y) at the Second Closing, Micronetics
shall pay the Sellers twenty five percent (25%) of the 1988 Income
by check, subject to collection; and
(z) at the Second Closing, Micronetics
shall deliver a second set of Notes payable to the order of the
Sellers in proportion to their ownership of MVS, for twenty five
percent (25%) of the 1998 Income.
2. Representations and Warranties of MVS and the Sellers.
MVS and the Sellers each hereby warrants and represents to
Micronetics as follows:
2.1 Organization and Good Standing of MVS. MVS is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Connecticut, and has the full
corporate power to carry on its business as now conducted. MVS is
entitled to own or lease and to operate the Assets now owned or
operated by it directly, and has the requisite power and authority
to consummate the transactions contemplated by this Agreement. MVS
is duly qualified to do business and is in good standing under the
laws of each jurisdiction in which its ownership of property or
assets or the nature of business conducted therein requires such
qualification, possesses all licenses and franchises required under
Federal, state or local law to conduct its businesses in the manner
in which it is presently conducted, all of which are freely
assignable to Micronetics without the consent of any other party.
2.2 No Breach. Except as set forth on Schedule 2.2,
neither the execution or delivery of this Agreement by MVS or the
Sellers, nor performance hereunder will result in a violation or
breach of any term or provision, or constitute a default under any
indenture, mortgage, deed of trust or other contract, agreement,
authorization or permit to which MVS or the Sellers is a party or
is subject.
2.3 Litigation and Claims; Compliance with Applicable
Law.
(i) There is no litigation, claim,
governmental or other proceeding or investigation pending or, to
the knowledge of MVS, threatened or in prospect which will have an
adverse effect on (a) the Assets (defined below) or (b) the subject
matter of this Agreement or any action contemplated hereby or
incidental hereto.
(ii) To the best of MVS and Sellers' knowledge,
MVS is not in violation of any, and has been and will be as of the
Closing Date in compliance with, all provisions of any law, decree,
order or regulation applicable to the operation of its business,
including, without limitation those relating to environmental
requirements (such as air, water and noise pollution) and to
employment practices (such as discrimination, health and safety),
nor is MVS subject to any requirements to take remedial action by
reason of any violation (or to avoid in the future a violation) of
any such provision relating to the Assets.
2.4 Properties and Assets. MVS has good and marketable
title to the Assets subject to no liens or adverse claims. Assets
means all properties, assets and rights of any kind, to the extent
of MVS's right, title and interest therein, (i) reflected on the
balance sheet on the Closing Date or (ii) otherwise held or used in
connection with the business including but not limited to the
following: all tangible and intangible property, whether real,
personal, or mixed; all production, test, research and development
and office equipment and fixtures; all raw materials, work-in-
process, finished goods inventories, and packaging materials; all
contracts, leases, franchises, sale and purchase orders, and other
agreements; all transferable government licenses, permits, and
approvals; all technology know-how, trade secrets, patents,
trademarks, service marks, trade names, and copyrights and
applications therefor, and renewals, modifications and extensions
thereof (collectively, "Intellectual Property"); all licenses of
Intellectual Property; all books, records, files, software media,
advertising materials, customer lists, drawings, specifications,
and other documents as more specifically set forth on Schedule 2.4
annexed hereto. Schedule 2.4 is a complete list of all tangible
properties and assets included within the Assets other than the
accounts receivable which are scheduled on Schedule 2.11 and
inventory which is scheduled on Schedule 2.18. There shall be a
minimum of $175,000 in cash maintained by MVS at the Closing.
Micronetics shall have the right to inspect, at reasonable times,
the Assets during the period between execution of this Agreement
and the Closing Date.
2.5 List of Customer Accounts. Schedule 2.5 contains a
true, correct and complete list of all customers of MVS.
2.6 No Defaults or Undisclosed Liabilities. MVS is not
in default with respect to any material indebtedness or liability
and does not know of any event which has occurred which upon the
passage of time would result in any such default. There are no
facts in existence on the date hereof and known to MVS or the
Sellers which might reasonably serve as a basis for any material
liabilities or obligations not disclosed in this Agreement or in
schedules attached hereto, incorporated herein by reference or
previously delivered to Micronetics as herein provided. Except as
provided herein, in a schedule attached hereto or a document
delivered hereunder, no consent of any party to any agreement or
document is required for the execution, delivery or performance of
this Agreement, and the consummation of the transactions
contemplated hereby will not result in a breach of, or give rise to
the right of cancellation of, any such agreement or document.
2.7 Financial Condition. A copy of the unaudited
financial statements (balance sheet, statements of income and
statements of change in financial position) of MVS for its fiscal
years ended December 31, 1996 and December 31, 1997 and for the
period January 1, 1998 through the latest practical date are or
will be attached hereto as Schedule 2.7. Such financial statements
were true and correct at the dates thereof and were prepared and
present fairly the financial position of MVS as of the dates
thereof and its results of operations for the periods then ended in
accordance with generally accepted accounting principles (except as
to the omission of notes and explanatory comments) applied on a
basis consistent with the prior practice of MVS.
2.8 Insurance. MVS reasonably believes it maintains
adequate insurance on the Assets with respect to risks normally
insured against by companies similarly situated and engaged in
similar business with assets similar to the Assets. All insurance
policies maintained by MVS and the amounts of coverage and
deductible or co-insurance provisions provided in such policies,
are listed in Schedule 2.8 attached hereto, are currently in full
force and effect and are not in default and will be in effect on
the Closing Date. To MVS' knowledge, there has been no failure to
give any notice or present any claim under such policies in timely
fashion. MVS has not received any notice providing for the
termination of such insurance or that insurance upon terms
substantially the same as those currently in effect will not be
reoffered to it. No claim covered by such insurance policies has
arisen prior to the date hereof, the anticipated loss from which is
not adequately insured against (subject to any applicable
deductible or co-insurance provisions). If any of the Assets are
lost, stolen or damaged on or before Closing, which loss, theft,
damage or destruction is covered by insurance, MVS will assign to
Micronetics, at the Closing, the right to receive such insurance
proceeds, subject to a required prepayment of the Note and any
amounts otherwise owed to MVS.
2.9 Brokerage and Finder's Fees. Neither MVS, the
Sellers, nor any affiliate of theirs has employed any broker,
finder or agent, nor has it otherwise dealt with or become in any
way obligated for any finder's, broker's, agent's or similar fee
with respect to the transactions referred to herein.
2.10 Material Misstatements or Omissions. No
representations or warranties by MVS or the Sellers in this
Agreement nor any document, statement, certificate or schedule
furnished or to be furnished to Micronetics pursuant hereto, or in
connection with the transactions contemplated hereby, contains or
will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary to make the statements
of facts contained herein or therein not misleading.
2.11 Accounts Receivable of MVS. Schedule 2.11 attached
hereto contains a true and correct statement of the accounts
receivable of MVS as of the date hereof. The parties agree that
the accounts receivable schedule will be updated on the Closing
Date. Such receivables will be referred to herein as the
"Receivables". If a customer takes a credit, it shall reduce the
Receivables.
2.12 Intangible Property. Schedule 2.12 attached hereto
contains a complete list of all of the patents, patent licenses,
patent applications, trademarks, trademark registrations, and
applications therefor, tradenames, copyrights and copyright
registrations and applications therefor of MVS included in the
Assets (the "Intangible Property"). MVS has not received any
notice of infringement or other complaint that its operations
traverse or infringe the rights of others under patents,
trademarks, tradenames, copyrights, or otherwise relating to the
Assets.
2.13 Conduct of the Business of MVS Prior to the Closing
Date. MVS agrees that at all times after the date hereof and prior
to the Closing Date:
(a) the business of MVS shall be conducted in the
ordinary course of business;
(b) MVS shall not (i) acquire any assets, other
than in the ordinary course of business; (ii) dispose of, encumber
or mortgage any assets or properties; (iii) incur any indebtedness
for borrowed money, discharge or satisfy any lien or encumbrance or
pay any obligation or liability (fixed or contingent), or enter
into any other material transaction, other than in the ordinary
course of business; (iv) waive, release, grant or transfer any
rights of value or modify or change in any material respect any
existing license, lease, contract or other document; or (v) enter
into any contract, agreement, commitment or arrangement with
respect to any of the foregoing;
(c) MVS shall not (i) increase the compensation
payable or to become payable by it to any employee of MVS, or (ii)
pay or provide for any bonus, profit sharing, stock option,
pension, retirement, deferred compensation, employment or other
payment plan, agreement or arrangement for the benefit of employees
of MVS, except in the ordinary course of the administration of its
existing employment agreements and benefit plans;
(d) the properties of MVS shall be maintained in
customary repair, order and condition, reasonable wear and use
excepted, and insurance on such properties and with respect to the
conduct of the business of MVS shall be maintained in such amounts
and of such kinds comparable to the insurance in effect on the date
hereof; and
(e) to the extent that Micronetics desires MVS to
make an expenditure that would not be consistent with MVS's
operation of its business in a limited manner as outlined above,
Micronetics may request MVS to make such expenditure, and such
expenditures, if made, shall be included as prepaid expenses in the
Cash Purchase Price. Whether MVS elects to make any such
expenditures will be determined solely by MVS in its sole and
absolute discretion.
2.14 Representations and Warranties at Closing. Unless
expressly herein otherwise provided or contemplated, the
representations and warranties of MVS set forth in this Agreement
shall be true on and as of the Closing Date as though such
representations and warranties were made on and as of such date and
all such representations and warranties shall survive the Closing.
Nothing in this paragraph shall affect the obligations and
indemnities of the parties with respect to covenants and agreements
contained in this Agreement that are permitted or required to be
performed, in whole or in part, after the Closing Date.
2.15 Indemnification. Subject to a limit of the
Purchase Price, and provided any such claim arises on or before one
year from the Closing Date, MVS and the Sellers agree to indemnify,
defend and hold harmless Micronetics, its successors and legal
representatives, from all demands, claims, actions, or causes of
action, losses, damages, suits, judgments, costs and reasonable
attorneys' fees and expenses incurred by or asserted against
Micronetics by reason of any claims, obligations, debts, demands,
or liabilities arising from events occurring prior to the Closing
Date or a breach of any representations, warranties or covenants
contained in this Agreement.
2.16 Acquiring Shares for Investment.
The Sellers represent that they are acquiring shares of Common
Stock for investment and not with a view toward the resale thereof
and the certificates evidencing the shares of Common Stock being
acquired pursuant will be legended in respect of restricted
securities.
2.17 Liabilities. Schedule 2.17(a) annexed hereto
contains a complete and accurate list of all of the liabilities of
MVS as of the date hereof and Schedule 2.17(b) contains a complete
and accurate list of all of the liabilities of MVS which shall not
be liabilities of MVS on the Closing Date. The parties agree that
Schedules 2.17(a) and (b) shall be updated on the Closing Date.
These schedules shall identify any leases (for real estate or
capital equipment) that currently are in place.
2.18 Inventory. Schedule 2.18 annexed hereto contains a
complete and accurate list of all of the inventory of MVS as of the
date hereof.
2.19 Bank Accounts. Schedule 2.19 annexed hereto
contains a complete and accurate list of each of the bank accounts
of MVS as of the date hereof and the authorized signatories to each
of said accounts.
2.20 Backlog. Schedule 2.20 annexed hereto contains a
complete and accurate list of all open orders for shipments
remaining to be made.
2.21 Employees. Schedule 2.21 annexed hereto contains a
complete and accurate list of all employees and consultants and
their current rate of pay and how much pay they received from MVS,
if any, in MVS' fiscal year ended December 31, 1997. MVS has no
pension, profit-sharing, option or other incentive or employee
benefit plan (including obligations to or customary arrangements
with employees for incentive compensation, allowances, vacations,
severance pay or other benefits) except as listed in Exhibit 2.21.
To the knowledge of the MVS and the Sellers, as of the date hereof,
(i) all obligations of MVS pursuant to any pension plan, (the
"Pension Plan"), if any, were fully funded as to past service
benefits under the Pension Plan; (ii) all accrued payments
thereunder had been paid or reserved for; (iii) the Pension Plan
did not have an accumulated funding deficiency, as such term is
defined in Section 3.02 of the Employment Retirement Income
Security Act of 1974, as amended; and (iv) no material liability to
the Pension Benefit Guaranty Corporation had been incurred with
respect to the Pension Plan.
2.22 Taxes. Except as set forth on Schedule 2.22, MVS
has paid all taxes that are due and filed all returns that were
required to be filed, and MVS has not received any notice of
nonpayment or audit with respect to any such taxes.
2.23 Environmental Requirements. Except as set forth in
Schedule 2.23, MVS is in compliance in all material respects with
all laws, governmental standards, rules and regulations applicable
to it or to any of its properties in respect to occupational health
and safety laws and environmental laws and has obtained all
governmental authorizations, kept all records and made all filings
required by applicable environmental laws with respect to emissions
or discharges into the environment and the proper disposal of any
hazardous wastes, hazardous substances, or other hazardous or toxic
materials as defined in the environmental laws. Except as set
forth in Schedule 2.23, none of the properties occupied or used by
MVS has been contaminated with any such hazardous wastes, hazardous
substances or other hazardous or toxic materials as a result of
actions of MVS or, to the knowledge of MVS, as a result of actions
of any other person or entity. Except as set forth in Schedule
2.23, MVS has not received any notices from the United States
Environmental Protection Agency that it is a potentially
responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act ("Superfund Notices"), any citations
from any governmental authority for noncompliance with its
requirements with respect to air, water or environmental pollution,
or the improper storage, use or discharge of any hazardous waste,
other waste or other substance or material pertaining to its
business ("Citations") or any written notice from any private party
alleging any such noncompliance or impropriety; and there are no
pending or unresolved Superfund Notices, Citations or written
notices from private parties alleging any such noncompliance or
impropriety.
2.24 Subsidiaries, Joint Ventures, etc. MVS has no
subsidiaries and does not own or control any stock or other
interest in any enterprise (whether or not such enterprise is a
corporation). The Sellers have no interest in any enterprise
(whether or not such enterprise is a corporation) other than less
than 1% of the outstanding capital stock of a publicly-held
corporation.
2.25 Capitalization. The authorized, issued and
outstanding capital stock of MVS are set forth on Exhibit 2.25.
Each of the outstanding shares of MVS Stock is duly authorized,
validly issued and outstanding, fully paid and nonassessable, and
has not been issued and is not owned or held in violation of any
preemptive right of shareholders. The MVS Stock is owned of record
and beneficially entirely by the Sellers, free and clear of all
liens, adverse claims, and encumbrances. There are no commitments,
plans or arrangements to issue, and no outstanding notes, stock
options, warrants or other rights calling for the issuance by MVS
of any Capital stock of MVS.
3. Representations and Warranties of Micronetics.
Micronetics hereby warrants and represents to and agrees with MVS,
Parin and Goldman as follows:
3.1 Organization and Good Standing of Micronetics.
Micronetics is a corporation duly organized, existing and in good
standing under the laws of the State of Delaware.
3.2 Authority of Micronetics. Micronetics has the
full corporate authority to enter into the Agreement and the Note
and to carry out the terms of the Agreement and Note. Neither the
execution nor delivery of the Agreement or the Note, by
Micronetics, nor performance thereunder will result in a violation
or breach of any term or provision nor constitute a default under
any indenture, mortgage, deed of trust or other contract or
agreement to which Micronetics is a party. Except as provided
herein or in a schedule attached hereto, no consent of any party to
any such agreement or instrument is required for the execution,
delivery or performance of this Agreement, and the consummation of
the transactions contemplated hereby will not result in a breach
of, or give rise to a right of cancellation of, any such agreement
or instrument.
3.3 Material Misstatements or Omissions. No
representations or warranties by Micronetics in this Agreement, nor
any document, statement, certificate or schedule furnished or to be
furnished MVS pursuant hereto, or in connection with the
transactions contemplated hereby, contains or will contain any
untrue statement of a material fact, or omits or will omit to state
a material fact necessary to make the statement of facts contained
herein or therein nor misleading.
3.4 Brokerage and Finder's Fees. Micronetics has
engaged the services of Heath & Company with respect to the
transactions referred to herein whose fee shall be paid by
Micronetics.
3.5 Representations and Warranties at Closing. Except
as expressly herein otherwise provided or contemplated, the
representations and warranties of Micronetics as set forth in this
Agreement shall be true on and as of the Closing Date as though
such representations and warranties were made on and as of such
date and all such representations and warranties shall survive the
Closing. Nothing in this paragraph shall affect the obligations
and indemnities of the parties with respect to covenants and
agreements contained in this Agreement that are permitted or
required to be performed, in whole or in part, after the Closing
Date.
4. Covenants of MVS, Parin and Goldman. MVS, Parin and
Goldman hereby covenant to Micronetics as follows:
4.1 Subject to Micronetics operating in compliance with
the provisions of this Agreement, Parin and Goldman covenant and
agree that neither of them nor any person, firm or corporation
controlling, controlled by, or under common control with either of
them at any time during the period of two years from and after the
Closing Date within any of the states or countries in which MVS is
doing business on the Closing Date, directly or indirectly, in any
matter or under any circumstances or conditions whatsoever, shall
engage in any activity which is the same or is directly competitive
with the business of MVS on the Closing Date.
4.2 MVS, Parin and Goldman covenant and agree that
neither of them nor any person, firm or corporation controlling,
controlled by, or under common control with either of them shall at
all times hereafter keep secret and retain in strictest confidence,
and shall not to the detriment of Micronetics knowingly use or
disclose any Proprietary Information (as hereinafter defined)
directly or indirectly to any unauthorized person, firm or
corporation. Proprietary Information means any information as to
the business affairs or operations of Micronetics, including,
without limitation, all or part of any "know-how", trade secrets,
client lists, mailing operational methods, marketing plans or
strategies, project development, acquisition or bidding techniques
or plans, business acquisition plans, new personnel acquisition
plans, methods of construction, technical processes, designs,
design projects, inventions, developments, improvements,
statistical data and compilations, trademarks, patents, formulae,
other methods or processes, manuals, and research projects (i) not
generally known in the industry and (ii) acquired, used or
otherwise employed by Micronetics, or any client, or sub-
contractor, consultant, or any other person with which Micronetics
may do business, whether learned by MVS, Parin or Goldman
heretofore or hereafter.
4.3 MVS, Parin and Goldman shall promptly notify
Micronetics, as soon as either of them obtains knowledge thereof,
of any fact, circumstances or occurrences (including without
limitation any actual or threatened legal or other proceeding)
which has materially adversely affected or may materially adversely
affect any of the Assets or which might cause any of MVS's
warranties and representations in this Agreement to be or become
untrue.
4.4 MVS shall arrange to deliver to Micronetics
unaudited financials of MVS for its fiscal years ended December
31, 1996 and December, 1997 and the nine months ended September 30,
1998.
4.5 On the Closing Date, MVS, Parin and Goldman shall do
any and all acts and execute and deliver any and all documents
necessary to effect the assignment of the Intangible Property set
forth on Schedule 2.12 to Micronetics.
4.6 On the Closing Date, each of Parin and Goldman shall
enter into an employment agreement with Micronetics substantially
in the form annexed hereto as Exhibit 7(iv) and Exhibit 7(v),
respectively.
4.7 Parin and Goldman agree to negotiate mutually
acceptable terms of an election to be made under Section 338(h)(10)
under the Internal Revenue Code of 1986 and any corresponding
elections under state laws having the same or similar effects.
5. Covenants of Micronetics. Micronetics covenants and
agrees that all information, documentation and material relating to
MVS supplied to Micronetics in connection with the transactions
contemplated by this Agreement are confidential and proprietary to
MVS, whether or not so specifically legended, and shall not be
disclosed or otherwise be made available to others in the event
that such transactions are not consummated, in which case
Micronetics shall return all such information, documentation and
material to MVS.
6. Conditions Precedent to Micronetics' Obligations.
6.1 The obligations of Micronetics to consummate this
Agreement shall be conditioned upon each of the following:
(i) MVS's representations and warranties
contained in this Agreement shall be true at the Closing Date as
though such representations and warranties were made at such time.
(ii) MVS shall have performed and complied with
all agreements, covenants and conditions required by this Agreement
to be performed or complied with prior to or at the Closing,
including furnishing the Schedules hereto specifically including
delivery of the financial statements required by Paragraph 4.3
hereof.
(iii) The fulfillment by MVS of its obligations
under Section 6 required to be fulfilled on or before the Closing
Date.
6.2 Prior to the Closing, Micronetics shall have the
right to inspect the books and records of MVS relating to the
Assets being conveyed, transferred and delivered hereunder.
6.3 Prior to the Closing, MVS shall use its best efforts
to obtain all consents necessary to consummate this transaction and
shall have taken all other action necessary to transfer, assign,
set over and convey to Micronetics all of the Assets free and clear
of any and all claims, liabilities, liens and encumbrances of any
kind.
7. Sellers' Obligations at Closing. At the Closing or
thereafter as herein required, the Sellers shall deliver to
Micronetics the following:
(i) Certificates representing all of the
outstanding shares of MVS Stock endorsed in blank.
(ii) executed copies of the employment
agreements in the form annexed hereto as Exhibits 8(iv) and 8(v).
8. Micronetics's Obligations at Closing and Beyond.
(i) Micronetics shall deliver to the Sellers
the portion of the Cash Purchase Price at the Closing and the
Second Closing as specified in Paragraph 1.4 above.
(ii) Micronetics shall execute the Notes to be
delivered at the Closing and the Second Closing as specified in
Paragraph 1.4 above.
(iii) Micronetics shall issue and deliver to
MVS the certificates representing the Stock Purchase Price to be
delivered following the Closing and the Second Closing as specified
in Paragraph 1.4 above.
(iv) Micronetics shall enter into an employment
agreement with Parin substantially in the form annexed hereto as
Exhibit 8(iv).
(v) Micronetics shall enter into employment
agreement with Goldman substantially in the form annexed hereto as
Exhibit 8(v).
(vi) At any time and from time to time at
MVS's reasonable request (whether at or after the Closing and
without further consideration) Micronetics shall take such further
acts as may be required to more fully implement any of the
provisions of this Agreement.
9. Publicity. From the date hereof to the Closing Date,
neither MVS or Micronetics shall issue or make, or cause to have
issued or made, the publication or dissemination of any press
release or other announcement to divulge the existence of this
Agreement or with respect to the transactions contemplated hereby
except after consultation with and prior approval of the other
parties hereto, which approval shall not be unreasonably withheld.
It is understood and agreed that MVS and Micronetics may be
required by law to announce publicly the execution of this
Agreement. The parties agree to cooperate with one another so that
such announcements may be made promptly following the execution
hereof.
10. Fees and Expenses. Each party hereto shall pay all fees
and expenses incurred by it incident to the preparation of this
Agreement, carrying this Agreement into effect, and the
consummation of the transaction contemplated hereby.
11. Notices. Any notice or communication given pursuant
hereto by any party to any party hereto shall be in writing and
delivered or mailed by registered or certified mail, postage
prepaid, as follows:
If to MVS, a copy to the following address:
Microwave & Video Systems, Inc.
87 B Sandpit Road
Danbury Connecticut
CT 06810
Attn: Floyd S. Parin, President
If to Micronetics, a copy to the following:
Micronetics Wireless, Inc.
26 Hampshire Drive
Hudson, NH 03051
Attn: President
with a copy to:
Richard S. Kalin, Esq.
Kalin & Associates, P.C.
One Penn Plaza, Suite 1425
250 West 34th Street
New York, New York 10119
or at such other address as hereafter shall be furnished in writing
by either party to the other party hereto.
12. Entire Agreement. This Agreement and all schedules and
exhibits set forth herein, each of which is expressly incorporated
herein by this reference, constitutes the entire agreement between
the parties relating to the subject matter hereof and supersedes
and replaces all prior agreements or understandings, whether
written or oral, and sets forth all of the representations,
covenants and warranties upon which either party is relying in
entering into this transaction.
13. Original and Counterparts; Binding Effect. This
Agreement may be executed in counterparts, each of which shall be
deemed an original, and all of which together shall constitute one
and the same instrument and shall inure to the benefit of and be
binding upon the parties hereto and their respective legal
representatives, heirs, successors and assigns.
14. Applicable Law. This Agreement shall be construed in
accordance with the laws of the State of New York.
15. Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
16. Severability. If any provision of this Agreement is
found to be void or unenforceable by a court of competent
jurisdiction, the remaining provisions of this Agreement shall be
binding upon the parties with the same force and effect as though
the unenforceable part has been severed and deleted.
17. Survival. All statements contained in certificates or
other instruments delivered by or on behalf of the parties hereto
pursuant to this Agreement or in connection with the transaction
contemplated hereby shall be deemed to be representations or
warranties hereunder. The covenant contained herein and all
representations, warranties, covenants and agreements made by the
parties hereto in connection with the Agreement shall survive the
Closing until December 31, 2000, and shall be unaffected by any
investigations made by the Purchaser or knowledge obtained as a
result thereof or otherwise.
18. Arbitration. Other than injunctive relief or specific
performance as provided in Section 4, any controversy or claim
arising out of or relating to this Agreement, or the breach
thereof, shall be submitted to and settled by arbitration by the
American Arbitration Association in the City of New York in
accordance with its Commercial Arbitration Rules, and judgment upon
the award rendered by the arbitrator(s) may be entered in any court
having jurisdiction thereof. Each party thereto shall separately
bear any costs incurred by its in connection with the prosecution
or defense of the arbitration.
IN WITNESS WHEREOF, the undersigned executed this agreement as
of the date first above written.
MICRONETICS WIRELESS, INC.
By:_____________________________
Richard S. Kalin, President
MICROWAVE & VIDEO SYSTEMS, INC.
By:
Floyd S. Parin, President
Floyd S. Parin
Mark B. Goldman <PAGE>
LIST OF SCHEDULES AND EXHIBITS
Schedule 2.2 Violation or Breach
Schedule 2.4 List of Assets (other than inventory or
accounts receivable)
Schedule 2.5 List of Customers
Schedule 2.7 Financial Statements
Schedule 2.8 Insurance
Schedule 2.11 Accounts Receivable
Schedule 2.12 Intangible Property
Schedule 2.17(a) List of All Liabilities
Schedule 2.17(b) List of Excluded Liabilities
Schedule 2.18 Inventory
Schedule 2.19 List of Bank Accounts
Schedule 2.20 List of Backlog
Schedule 2.21 List of Employees; Pension Obligations
Schedule 2.22 Taxes
Schedule 2.23 Environmental Requirements
Schedule 2.25 Capitalization
Exhibit 1.5(b)(ii)(x)Form of Promissory Note
Exhibit 8(iv) Form of Employment Contract for Floyd S. Parin
Exhibit 8(v) Form of Employment Contract for Mark Goldman
N:\ANNE\MICRO\STOCK-AG.II
