UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________.
Commission File Number 0-17966
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 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. [ ]
Issuer's revenues for its most recent fiscal year were $6,205,513.
The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the issuer was approximately $29,012,520
based on the closing price of $10.875 of the issuer's Common Stock, par
value $.01 share, as reported by Nasdaq on June 14, 2000.
On June 14, 2000, there were 3,944,442 shares of the issuer's Common
Stock outstanding.
The Proxy Statement of the registrant to be filed on or before July
29, 2000 is incorporated by reference to Part III herein.
Transitional Small Business Disclosure Format: Yes No X
Page 1 of 40
Part I
ITEM 1. Description of Business.
Business Development
The Company was incorporated under the laws of the State of
New Jersey in 1975 and reincorporated in Delaware in 1987. In
January 1999, the Company acquired all of the outstanding capital
stock of Microwave & Video Systems, Inc. ("MVS") and in February
1999, the Company acquired the business assets of Vectronics
Microwave Corporation ("Vectronics"). Micronetics and its wholly-owned
subsidiaries, MVS and Vectronics, are collectively referred
to herein as the "Company".
Business of Issuer
Headquartered in Hudson, NH, Micronetics manufactures and
designs innovative test equipment and components that are used to
test the strength, durability and integrity of communication
signals in communications and Internet infrastructure equipment.
Micronetics also manufactures microwave and radio frequency (RF)
components and integrated subassemblies used in a variety of
commercial wireless and military products. Micronetics' products,
some of which are patented, are used in or to test communication
and Internet infrastructure equipment (including wireless base
stations, repeaters, and cable modem equipment), fixed terminal
point-to-point/multi-point data radios, consumer subscriber
products (cellular/PCS/satellite handsets), home networking
equipment and military/aerospace platforms (satellite
communications, electronic warfare and electronic counter-measures).
Industry Overview.
The demand for wireless communications services has grown
significantly in recent years. This increase in usage has been
driven by an increased number of subscribers, lower prices and
expanded availability of existing services. In addition to these
factors, the emergence of new data and Internet-oriented wireless
services is expected to contribute to the increase in subscriber
usage in the future. The price of wireless services has decreased
significantly in recent years with multiple wireless network
operators competing in most U.S. markets, competitive pricing
strategies, such as discounted and fixed rate plans, have resulted
in a greater number of wireless subscribers, as well as a
substantial increase in subscriber usage. In addition, the greater
supply of commercially available wireless frequencies due to
increased government allocation of spectrum to wireless network
operators has resulted in increased competition among existing and
new wireless network operators, further reducing costs to
subscribers.
Due to the high initial fixed costs involved, early wireless
deployments were limited to urban centers and major traffic
corridors. To meet increased demands for ubiquitous wireless
services, wireless network operators continued to build out cell
sites and upgrade their networks. This increased coverage has
enabled wireless network operators to reach new subscribers and
provide a higher level of service to existing subscribers.
Consumer demand for "any time, anywhere" access to the Internet and
data services, such as email and Instant Messaging, has created a
demand for delivery of these services over a wireless network.
Devices with wireless access, such as mobile phones, palm computers
and laptop computers with wireless modems, continue to evolve,
providing applications and ease of use that increase wireless data
usage. Additionally, standard protocols such as Wireless
Application Protocol, or WAP, have emerged and are designed to
create interoperability of wireless equipment and Internet-based
products. These protocols are expected to further drive consumer
demand for wireless access to the Internet and data services.
There is also growth in various wireless methods to support
home networking. This is currently being supported through radio
frequency (RF) transmission, through home phone lines (HOMEPNA) and
through home electricity lines.
With the growth in wireless usage has come growth in
traditional wire-line communications network usage, both through
phone lines and network lines, driven largely by the data traffic
demands resulting from the dramatic growth of the Internet.
Various approaches are being developed and implemented to respond
to this need, including satellite transmission, digital subscriber
line (DSL), cable modem through cable infrastructure and fiber
optic, largely, at present, for the backbone layer. Each of these
transmission mechanisms require extensive testing for standards
compliance and offers opportunities to utilize components and test
equipment manufactured by 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. RF indicates lower frequencies, while "microwave"
refers to relatively higher frequencies in the spectrum.
Different types of wireless communications systems utilize
different frequencies in the spectrum. Frequency is measured in
cycles per second, or Hertz. The spectrum currently in use by all
types of wireless communications equipment ranges from 1 kilohertz
(1 thousand cycles per second) to 20 gigahertz (20 billion cycles
per second). The Federal Communications Commission ("FCC")
allocates portions of the spectrum for the various types of
wireless communication systems. Wireless communications systems
currently in use include cellular and PCS telephones and base
stations, wireless cable, satellite communications, global
positioning systems, direct broadcast satellites, local area
networks, as well as radar systems. Non-wireless communications
systems are also concerned whether there is unwanted noise in the
line that could disrupt the integrity of the communicating signals.
The Company's products are designed for use in these applications.
A key driver of demand for the Company's products is the
pervasive transformation of information from the analog domain to
the digital domain. Because digital technologies require greater
degrees of precision and rely more on miniature circuits than
analog technologies, the role of test is critical for the rapid
commercialization of reliable products required for the increased
demands necessitated by broadband and wireless communication
technologies. As the speed to market challenge increase, larger
companies are relying increasingly on other companies to
manufacture a module or integrated subassembly. This module or
subassembly is then assembled by the larger company into an
integrated piece of equipment and sold to a customer. Micronetics
has been aggressively seeking to capitalize on this trend by
increasing its capability of marketing integrated subassemblies in
both its noise-based test components line and its control
components and integrated subassembly product lines.
Products: Micronetics' products may be classified into four
product groups: (1) Noise-based Test Equipment; (2) Noise-based
Test Components; (3) Control Components and Integrated
Subassemblies; and (4) Voltage Controlled Oscillators (VCOs):
(1) Noise-based Test Equipment. Micronetics offers several
noise-based test instrument platforms specifically designed to
serve the wireless telecommunications and satellite communication
markets employing such application standards as TDMA, CDMA, GSM,
PCS, and other markets employing cable modem transmission and other
internet infrastructure applications. Instruments based on these
platforms perform a variety of tests which are used in performance
verification and the emulation of impairments in cellular/PCN/PCS,
satellite and cable modem communication systems. The Company's
equipment is substantially based on the following three platforms:
(1) Carrier-to-Noise ("CNG"); (2) Integrated Multipath Fading
Emulator/CNG and (3) Noise Generators.
A. Carrier to Noise Instrument CNG-100 Platform. This
is a fully-automated platform for test equipment used to set
accurate carrier to noise (C/N) ratios over a wide range of signal
power and frequency ranges. The CNG-100 sets C/N ratios, on demand
to provide precision bit-error-rate and sensitivity testing. The
Company markets several models of equipment on this platform,
including CNG-CATV-Cable Modem Tester; CNG-2700-W-CDMA-Signal
Tester; CNG-892/1850-CDMA Signal Tester, CNG-2105-Wireless Local
Loop Signal Tester, as well as other models for other
communications protocol platforms. Product advantages include
accuracy, self-test power meter calibration, long-term accuracy and
an active matrix color display.
B. Multipath Fading Emulators/CNG Platform. Instruments
based on this platform and are able to emulate a wireless
communications channel with a multitude of reflected RF signal
paths and perform many different testing scenarios based on path
fading, delay spread and other parameters. This is the Company's
newest product and is directed toward developing wireless
communication standards. The Company believes this will be the
first instrument to include in one instrument equipment capable of
performing these two functions. It was first displayed at the
Cellular Telephone Industry Association (CTIA) trade show in March
2000. The CNG-FS Fading Emulator Signal Tester is currently being
demonstrated for several potential customers.
C. Noise Generators. (i) NOD 5000 Series. This test
instrument platform consists of 15 models that selectively address
frequency bands from 10Hz to 18GHz. This platform is designed to
provide low cost accurate noise levels, useful and performing
carrier to noise measurements. The equipment has been approved for
standard testing on certain commercial wireless network platforms.
(ii) MX-5000 Series. This testing platform consists of a
programmable multi-purpose micro-processor controlled noise
generator that is designed for bench-top and automated test
equipment applications.
(2) Noise-based Test Components. Noise-based test components
are employed as a method of testing and measuring sophisticated
radar and communications systems to determine the quality of the
reception and transmission of information being transmitted. The
widest application for the Company's noise-based test components
are as reference standards in test instruments which measure
unwanted noise in devices and components. This is accomplished by
comparing a known noise reference to the unwanted noise found in
the radar or communication system being tested. By generating a
random noise signal, in combination with a live transmission
signal, a noise generator simulates signals the receiver will
encounter in the real world and allows a manufacturer to determine
if its product is performing to specifications. Noise source
testing is often more cost-efficient, faster and more accurate than
alternative methods using discrete signal generators.
These test components can be incorporated into electronic
equipment or may serve as stand-alone components or devices that
are connected to, or used in conjunction with, operating equipment.
Complex measurements may be taken at increasing speeds to enhance
productivity, offer improved accuracy, provide wider performance
ranges, and present repeatable uniformity in results.
The Company's noise-based test components are used in wireless
communication systems as part of built-in test equipment to
continuously monitor the receiver. The major application of the
noise source products involves some function of detection,
calibration, simulation, security and statistical analysis.
Impulses of noise are applied to the receiver to measure the radar
sensitivity, signal gain, and frequency bandwidth. The products
used in conjunction with other electronic components are an
effective means of jamming, blocking and disturbing hostile radar
and other communications, as well as insulating and protecting
friendly communications. The Company's noise source components are
also used to test satellite communications receivers for video,
telephony and datacom.
The Company is capable of calibrating White Gaussian Noise
(AWGN) up to 3 Watts peak over frequency ranges which extend from
10Hz to 99GHz utilizing PIN and Schottky-Barrier diodes packaged in
chip and wire assemblies or packaged parts mounted on soft/hard
substrates.
Another important application for the Company's noise-based
test components is to develop integrated subassemblies for
companies developing automated test equipment. Increasingly,
analog or mixed signal integrated circuits require testing of noise
figure. The Company has developed a noise figure subassembly for
use in analog and mixed signal automated test equipment.
(3) Control Components and Integrated Subassemblies.
Micronetics designs solid-state control components for the control
of RF signals in level, direction or phase shift in frequencies up
to 26.5 GHz. The products consist of switches, attenuators, and
phase shifters and subassemblies including combinations of these
items, including switch filter assemblies. These products
incorporate either silicon PIN diodes, or GaAs MESFETs packaged in
chip and wire assemblies. Micronetics' PIN designs cover the
frequency range of 10MHz to 26.5GHz, with strong expertise in
controlling switching transients in 50 to 200MHz bandwidths;
reducing inter-modulation distortion by a factor of 100 over
conventional PIN switching designs; and linear switching capability
with RF power levels up to 10 Kwatt. With GaAs MESFET designs, the
product capability extends from DC to 18GHz, with expertise in
controlling rise/fall times and high isolation characteristics.
The Company's solid-state control components and subassemblies
are used widely in military (MIL) ground-based, shipboard and
airborne radar for tracking and simulation, phased array radar,
electronic warfare systems, ELINT and tactical/satellite
communications systems. To a lesser extent, Micronetics' solid-state
control components have commercial applications such as
wireless communications, radar surveillance and test equipment
support systems. Typical functions include pulse shaping,
attenuating, automatic gain control, duplexing and receiver
protection. Much of Micronetics' product success has been
identified with the high end radar simulation and electronic
intelligence (ELINT) markets. The Company's products are typically
designed to handle 100 watts average power, with peak power levels
to 10KW. Micronetics offers a range of package styles, in both
connectorless and connectorized types, including surface mount,
drop-in and microstrip. It also manufactures subassemblies
encompassing products in each of these categories.
Micronetics diode phase shifters offer several advantages over
the more conventional electro-mechanical or ferrite phase shifters;
namely, low drive requirements, fast switching speed, low
intermodulation distortion, low temperature sensitivity, high
reliability and repeatability. 2 and 6-Bits designs are available
for the cellular and PCN/PCS commercial bands. 5-Bit versions are
offered in the 6 to 18GHz bands and 6-Bits in the 1.2 to 1.5GHz and
9 to 1GHz frequency bands. Variable types are offered in octave
bandwidths from 2GHz to 18GHz.
With the acquisition of MVS and Vectronics during Fiscal 1999,
the Company shifted its sales and marketing strategy toward seeking
orders to manufacture complex microwave integrated modules ("MIMs")
that perform many functions, primarily relating to switching
microwave signals. This also enables the Company to utilize its
expanded technical capabilities of the Micronetics/Components
Group, MVS and Vectronics. During Fiscal 2000, the Company's
strategy was rewarded as it began to receive orders for these MIMS
and began manufacturing MIMs. The Company believes that the
manufacture and design of MIMs will be an increasing portion of the
business of its Micronetics/Components Group over the next few
years.
(4) Voltage Controlled Oscillators ("VCOs"). Micronetics
designs, manufactures and markets a series of VCOs which provide a
precise signal source within a given frequency range. The output
frequency of the oscillator is determined by a direct current
("DC") control voltage. This applied voltage tunes the oscillator
over a specified range. The Company's products generate sinusoidal
signals in frequency ranges from 100MHz to over 5GHz, utilizing
packaged silicon bipolar transistors which are controlled by an
input voltage signal. Most of the uses of those frequency ranges
are identified with wireless applications including some MIL
communications and satellite voice/messaging. Products are offered
in a series of narrow-band, wide-band and selective octave tuning
bandwidths. Depending on the series, packaging configurations for
MIL and commercial applications include PIN types, SMT, hermetic
and miniature packages.
Manufacturing
The Company's 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 or Danbury facilities. The length of the production
process for these products ranges from one to twenty-four weeks.
The Company generally maintains 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
The Company's sales are made primarily through six 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, participation in
trade shows and maintenance of a website. The Company increased
its advertising expenditures during Fiscal 2000 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.
In Fiscal 1999 and Fiscal 2000 the approximate mix of customer
orders was 65% and 50%, respectively, for commercial applications
and 35% and 50%, respectively, for MIL applications, of which
approximately 10% is directly to the MIL.
Customers
The Company sells primarily to original equipment
manufacturers of communications equipment in either the commercial
or MIL marketplace. Many of those customers are prime contractors
for MIL 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 Adtran, Airspan, Alcatel,
Cisco, Comsat, Daimler Benz Aerospace, Datron, Ericsson, Hughes, L-3
Communications, Lockheed Martin, Lucent Technologies, Metricom,
Motorola, NEC, Newbridge Networks, Northrop Grumman, Raytheon and
Teradyne. 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.
In the commercial VCO area, 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 primarily on the basis of price and quality. Its
VCOs produced for use in 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 and
Modco, Inc. as competitors in the VCO market.
Its primary competitor in the noise-based test component
market is Wireless Telecom Group, Inc. In the noise-based test
instrument market, the Company's primary competitors are Telecom
Analysis Systems, Inc. and Hewlett Packard.
Research and Development
The Company maintains an engineering staff of seven
individuals as of May 31, 2000, 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. The Company also has engaged two
independent consultants, including John Vogler, formerly President
and owner of Vectronics, to assist in its research and development
activities. 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 $165,000 and $225,000
for the years ended March 31, 2000 and 1999, 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 May 31, 1999, the Company had 61 full-time employees
including eight engaged in management and administration, seven in
engineering, 40 in production and testing and six in sales. It
also periodically engages consultants to assist it in various
engineering-related activities. The Company believes that its
employee relations are good.
Patents and Trademarks
The Company has been granted U.S. patents on certain of its
designs, its MicroCal test components, and its SmartAntenna Test
instrument. 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 also filed an application for "Innovation
For the Future" with the U.S. Patent and Trademark office.
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 maintains 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.
Environmental Laws
The costs and effects of compliance with federal, state and
local environmental laws were not material.
ITEM 2. Description of Property.
The Company's principal manufacturing facility consists of a
15,500 square feet of general office, warehouse and manufacturing
space in a 31,000 square foot building that it owns, which is
located at 26 Hampshire Drive, Hudson, NH. The building is located
in an industrial park and 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.
The Company operates MVS out of a 5,000 square foot facility
located in Danbury, CT, which it leases from an unaffiliated
entity.
The Company operates its Micronetics/VCO Products Group out of
a 2,500 square foot facility located at 14 Friars Drive, Hudson,
NH. The building is located in an industrial park, is in good
condition and is leased from an unaffiliated party.
ITEM 3. Legal Proceedings.
The Company is not a party to any material legal proceedings.
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
ITEM 5. Market for Common Equity and Related Stockholder Matters.
(a) The Common Stock is traded on the Nasdaq Small Cap Market
under the symbol NOIZ. "The Nasdaq Stock Market" or "Nasdaq" is a
highly-regulated electronic securities market comprised of
competing market makers whose trading is supported by a
communications network linking them to quotation dissemination,
trade reporting, and order execution systems. This market also
provides specialized automation services for screen-based
negotiations of transactions, online comparison of transactions,
and a range of informational services tailored to the needs of the
securities industry, investors and issuers. The Nasdaq Stock
Market consists of two distinct market tiers: the Nasdaq National
Market and The Nasdaq SmallCap Market. The Nasdaq Stock Market is
operated by The Nasdaq Stock Market, Inc., a wholly-owned
subsidiary of the National Association of Securities Dealers, Inc.
The closing high and low bid prices for the Common Stock for
each fiscal quarter from April 1, 1998 until June 14, 2000 as
reported by Nasdaq, were as follows:
Bid Prices
High Low
Quarter Ended
Fiscal 1999
First Quarter 2 5/32 2 1/4
Second Quarter 2 13/16 1 3/8
Third Quarter 2 1/2 1 1/2
Fourth Quarter 2 3/16 1 1/4
Fiscal 2000
First Quarter 2 5/8 1 1/16
Second Quarter 5 11/16 1 1/4
Third Quarter 8 11/16 2 1/4
Fourth Quarter 50 1/32
Fiscal 2001
First Quarter 16 1/4 1 1/2
(through June 14, 2000)
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 14, 2000 was 278. 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.
ITEM 6. Management's Discussion and Analysis or Plan of Operation.
(a) Results of Operations.
Net sales for the Company's fiscal year ended March 31, 2000
("Fiscal 2000") were $6,205,513 as compared to net sales of
$4,547,087 for its fiscal year ended March 31, 1999 ("Fiscal 1999),
an increase of $1,658,426 or 36.5%. This was primarily due to
increased sales from MVS and the Micronetics/Equipment Group,
offset by a reduction in sales from Micronetics/VCO Products Group.
Gross profit as a percentage of net sales decreased to 37.4%
in Fiscal 2000 from 41.6% in Fiscal 1999. This was largely due to
the development of new products (with shorter production runs),
product mix and the write-down of over $100,000 of inventory at
year-end. Selling, general and administrative expenses ("SG&A") as
a percentage of net sales decreased to 25.9% from 30.5% in Fiscal
1999. This decrease in SG&A was attributable primarily to the
increase in sales in Fiscal 2000 and the integration of Vectronics
sales activities into the Micronetics/Components Group. Research
and development expenses decreased to $164,521 from $222,813. This
is a temporary occurrence and these costs are expected to increase
during the Company's current fiscal year.
The Company had net income for Fiscal 2000 of $738,391, or
$.19 per share, basic, and $.18 per share, diluted. This compared
to net income of $276,171 or $.08 per share, basic and diluted,
during Fiscal 1999. This is primarily due to increased sales,
especially at MVS and in the Micronetics/Equipment Group. In
addition, net income for Fiscal 2000 was positively impacted by a
benefit from income taxes as a result of the exercise of stock
options by certain employees during Fiscal 2000. The weighted
average shares outstanding increased to 3,821,352, basic, and
4,201,343, diluted, for Fiscal 2000, as compared to 3,577,293,
basic and diluted, for Fiscal 1999. This was largely due to the
exercise of stock options by employees during Fiscal 2000.
(b) Liquidity and Capital Resources.
On March 31, 2000, the Company's working capital was
$4,077,793 as compared with working capital of $3,271,475 at March
31, 1999. This reflects a current ratio of 6.5 to 1 at March 31,
2000 as compared to 5.8 to 1 at March 31, 1999.
Net cash of $375,597 was provided by operating activities
during Fiscal 2000 as compared to $500,819 during Fiscal 1999.
Cash was generated by larger net income in Fiscal 2000 offset by an
increased inventory level at March 31, 2000. Net cash used by
investing activities during Fiscal 2000 was $145,062 as compared to
net cash used by investing activities of $302,370 during Fiscal
1999. The Company purchased $156,214 of equipment during Fiscal
2000; the Company used more cash in Fiscal 1999 when it acquired
MVS and Vectronics. Net cash generated by financing activities
during Fiscal 2000 was $29,792 as compared to the use of $65,410
during Fiscal 1999. This was largely due to increased repayment of
debt, increased repurchase of shares of Common Stock and increased
exercises of employee stock options, in Fiscal 2000, as compared to
lower repayment of debt, less exercise of stock options and less
repurchase of shares of Common Stock, in Fiscal 1999.
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.
(c) 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 within the meaning of the Private Securities Litigation
Reform Act of 1995 that involve risks and uncertainties. These
risks 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 lender.
<PAGE>
ITEM 7. Financial Statements.
This information is contained on pages F-1 through F-19
hereof.
(a) (1) Financial Statements Page
Report of Independent Auditor F-1
Report of Independent Auditor F-2
Balance Sheets - March 31, 2000 and 1999 F-3 - F-4
Consolidated Statements of Income For the
Years ended March 31, 2000 and 1999 F-5
Consolidated Statements of Changes in Share-
holders' Equity For the Years ended March 31,
2000 and 1999 F-6
Consolidated Statements of Cash Flows For the
Years ended March 31, 2000 and 1999 F-7 - F-8
Notes to Consolidated Financial Statements,
March 31, 2000 and 1999. F-9 - F-19
(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 in Items 9-12 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, 2000.
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 Stock Option Plan approved by the Board of Directors
of the Company incorporated by reference to Exhibit
10.8 of the Company's Annual Report Form 10-KSB for
its fiscal year ended March 31, 1994.
10.2 Loan Agreement dated February 2, 1996 between the
Company and 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.
10.3 Fourth Amendment to Sublease Agreement dated February
3, 1995 assigned to the Company between Jokah Realty,
L.L.C and Ames Textile Corporation to Exhibit 10.6 of
the Company's Annual Report on Form 10-KSB for its
fiscal year ended March 31, 1998.
10.4 1996 Stock Option Plan is incorporated by reference to
Exhibit 4.1 of Registration Statement No. 333-48087
filed on Form S-8.
10.5 Promissory Note dated January 4, 1999 by the Company
to Bank of New Hampshire incorporated by reference to
Exhibit 10.7 of the Company's Annual Report on Form
10-KSB for its fiscal year ended March 31, 1999 (the
"1999 Form 10-KSB").
10.6 Stock Purchase Agreement by and between the Company,
Floyd S. Parin and Mark B. Goldman dated as of October
29, 1998 incorporated by reference to Exhibit 10.9 to
the 1999 Form 10-KSB.
10.7 Asset Purchase Agreement by and between the Company
and Vectronics Microwave Corporation dated as of
February 4, 1999 incorporated by reference to Exhibit
10.12 to the 1999 Form 10-KSB.
ITEM 13. Exhibits and Reports on Form 8-K (Cont'd):
(a) Exhibits (Cont'd).
21 List of Subsidiaries of the Company.
23.1 Consent of Paul C. Roberts, C.P.A. dated June 16,
2000.
23.2 Consent of Trochiano & Daszkowski, LLP dated June 16,
2000.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
On February 14, 2000, the Company filed a Current Report on
Form 8-K to report a change in its certifying accountants.
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 20, 2000 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 20, 2000
Richard S. Kalin (principal executive
and financial officer)
s/David Siegel Director June 20, 2000
David Siegel
s/Roy L. Boe Director June 20, 2000
Roy L. Boe
s/Barbara Meirisch Director June 20, 2000
Barbara Meirisch
s/Donna Hillsgrove Treasurer and June 20, 2000
Donna Hillsgrove Secretary
(principal accounting
officer)
TROCHIANO & DASZKOWSKI LLP
1303 Clove Road
Staten Island, NY 10301
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Micronetics Wireless, Inc.
Hudson, NH
We have audited the accompanying balance sheet of Micronetics
Wireless, Inc. as of March 31, 2000, and the related statements of
income, changes in shareholders' equity and cash flows for the year
then ended. These financial statements are the responsibility of
Micronetics Wireless, Inc.'s management. Our responsibility is to
express an opinion on these financial statements based on our
audit. The financial statements of Micronetics Wireless, Inc. as
of March 31, 1999, were audited by other auditors whose report
expressed an unqualified opinion on those statements. In
connection with our audit of the financial statements, we have also
audited the financial statement schedules as listed in the
accompanying index.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurances 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. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
Micronetics Wireless, Inc. as of March 31, 2000, and the results of
its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles. Also, in
our 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.
/s/Trochiano & Daszkowski, LLP
Trochiano & Daszkowski, LLP
Staten Island, NY
May 19, 2000
PAUL C. ROBERTS
Certified Public Accountant
32 Meadow Lane
Pleasantville, NY 10570
(914) 741-1508
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Micronetics Wireless, Inc.
Hudson, NH
I have audited the accompanying balance sheet of Micronetics
Wireless, Inc. as of March 31, 1999 and the related consolidated
statements of income, changes in shareholders' equity and cash
flows for the year ended March 31, 1999. 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 audit. In connection with my audit of the
financial statements, I have also audited the financial statement
schedules as listed in the accompanying index.
I conducted my audit 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 audit provides
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, 1999 and the results of
its operations and its cash flows for the year ended March 31, 1999
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 12, 1999
MICRONETICS WIRELESS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND 1999
ASSETS
2000 1999
Current assets:
Cash and cash equivalents $1,424,988 $1,164,661
Accounts receivable, net of
allowance for doubtful accounts
of $76,208 and $50,776 at March 31,
2000 and 1999, respectively 1,007,134 913,272
Inventories 2,082,964 1,738,128
Prepaid expenses 52,553 50,144
Deferred tax asset 185,222 18,102
Other current assets 67,911 70,106
Total current assets 4,820,772 3,954,413
Property and Equipment:
Furniture, fixtures and equipment 2,026,007 1,830,908
Equipment held under capital leases 143,703 182,588
Building and improvements 855,969 855,969
Land 162,000 162,000
3,187,679 3,031,465
Less: accumulated depreciation
and amortization 1,591,111 1,376,840
1,596,568 1,654,625
Other assets:
Security deposits 4,488 765
Intangibles, net of accumulated
amortization of $64,048 and
$48,964 at March 31, 2000 and
March 31, 1999, respectively 122,378 75,497
Goodwill, net of accumulated
amortization of $8,435 at
March 31, 2000 328,945 337,380
455,811 413,642
$6,873,151 $6,022,680
See accompanying notes to consolidated financial statements.
MICRONETICS WIRELESS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND 1999
LIABILITIES AND SHAREHOLDERS' EQUITY
2000 1999
Current liabilities:
Note payable - bank, current
portion $ 84,948 $ 85,982
Current portion - capital leases
payable 37,011 58,224
Other notes payable 81,328 81,328
Accounts payable 366,104 196,321
Accrued expenses and taxes, other
than income taxes 166,199 243,930
Income taxes payable 7,389 17,153
Total current liabilities 742,979 682,938
Long-term debt -- net of current
portion
Note payable - bank 703,362 782,450
Capitalized lease obligations 52,053
Notes payable - other 81,328
703,362 915,831
Total liabilities 1,446,341 1,598,769
Shareholders' equity:
Preferred stock - $.10 par value;
authorized - 100,000 shares;
issued and outstanding - 0 shares
at March 31, 2000 and 1999
Common stock - $.01 par value;
authorized - 10,000,000 shares;
issued and outstanding - 3,941,942
and 3,762,825 shares at March 31,
2000 and 1999, respectively 39,419 37,628
Additional paid - in capital 3,356,870 3,094,153
Retained earnings 2,030,521 1,292,130
5,426,810 4,423,911
$6,873,151 $6,022,680
See accompanying notes to consolidated financial statements.
MICRONETICS WIRELESS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
2000 1999
Net sales $6,205,513 $4,547,087
Cost of sales 3,882,334 2,654,238
Gross profit 2,323,179 1,892,849
Selling, general and administrative
expenses 1,551,418 1,341,478
Research and development expenses 164,521 222,813
Legal fees - related party 54,544 45,084
1,770,483 1,609,375
Income from operations 552,696 283,474
Other income (expense):
Interest income 38,550 37,734
Interest expense (77,160) (82,741)
Rental income 59,350 67,404
Gain on sale of equipment 14,875 12,500
35,615 34,897
Income before provision for income
taxes and extraordinary item 588,311 318,371
Provision for (benefit from) income
taxes (150,080) 42,200
Net income $ 738,391 $ 276,171
Basic and diluted earnings
per common share:
Net income - Basic $.19 $.08
Net income - Diluted $.18 $.08
Weighted average shares outstanding:
Basic 3,821,352 3,577,293
Diluted 4,201,343 3,577,293
See accompanying notes to consolidated financial statements.
MICRONETICS WIRELESS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
Common Stock Additional
Par Paid-In Retained
Shares Value Capital Earnings Total
Balance -
March 31, 1998 3,415,298 $34,153 $2,535,137 $1,015,959 $3,585,249
Shares issued upon
exercise of
options 92,590 926 82,762 - 83,688
Net income - - - 276,171 276,171
Shares issued in
connection with
acquisitions 271,250 2,712 505,881 - 508,593
Purchase common
stock (16,313) (163) (29,627) - (29,790)
Balance -
March 31, 1999 3,762,825 $37,628 $3,094,153 $1,292,130 $4,423,911
Shares issued upon
exercise of
options 233,167 2,332 344,003 346,335
Purchase of
Common Stock (54,050) (541) (81,286) (81,827)
Net income 738,391 738,391
Balance -
March 31, 2000 3,941,942 $39,419 $3,356,870 $2,030,521 $5,426,810
See accompanying notes to consolidated financial statements.
MICRONETICS WIRELESS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2000 AND 1999
2000 1999
Cash flows from operating activities:
Net income $ 738,391 $ 276,171
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 237,789 174,865
(Gain) on sale of assets (14,875) (12,500)
Deferred tax asset (167,120) 25,200
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable (93,862) 138,234
(Increase) decrease in inventories (344,836) 105,486
(Increase) decrease in prepaid
expenses and other current
assets (214) (12,906)
(Increase) decrease in other
assets (61,964) (12,768)
Increase (decrease) in accounts
payable 169,783 (152,767)
Increase (decrease) in accrued expenses
and taxes, other than
income taxes (77,731) (27,539)
Increase (decrease) in income taxes
payable (9,764) (657)
Net cash provided by operating
activities 375,597 500,819
Cash flows from investing activities:
Purchase of property and equipment (156,214) (43,783)
Proceeds from sale of assets 14,875 12,500
Proceeds from security deposits (3,723) 3,714
Acquisition of business (274,801)
Net cash (used) by investing activities (145,062) (302,373)
See accompanying notes to consolidated financial statements.
<PAGE>
MICRONETICS WIRELESS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2000 AND 1999
(continued)
2000 1999
Cash flows from financing activities:
Repayment of bank loans $ (80,122) $ (84,253)
Net proceeds from stock options
exercised 346,335 83,688
Principal payments on capital lease
obligations (73,266) (35,055)
Repayment of other loans (81,328)
Purchase of common stock (81,827) (29,790)
Net cash provided by financing
activities 29,792 (65,410)
Net increase in cash and
cash equivalents 260,327 133,036
Cash and cash equivalents,
beginning of year 1,164,661 1,031,625
Cash and cash equivalents,
end of year $1,424,988 $1,164,661
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the years for:
Interest $ 78,222 $ 82,143
Income taxes $ 23,359 $ 16,219
See accompanying notes to consolidated financial statements.
<PAGE>
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 and its subsidiary
are 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) Principles of Consolidation:
The Consolidated Financial Statements include the accounts of the
Company and its wholly-owned subsidiary. All significant
intercompany transactions are eliminated.
(c) Inventory Valuation:
Inventory is valued at the lower of cost (first-in, first-out
method) or market.
(d) 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.
(e) 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 being amortized over 10 and 17 years.
(f) Goodwill:
The excess of the cost of investment in subsidiary over the
carrying value of assets acquired is shown as goodwill, which is
then amortized on a straight-line basis over a maximum of 40 years.
(g) Income taxes:
The financial statements (including the provision for income taxes)
are prepared on an accrual basis. Temporary differences occur when
1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
(h) 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, 2000
and 1999 were approximately $165,000 and $225,000, respectively.
(i) 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.
(j) 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.
(k) 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.
(l) Vulnerability Due to Certain Concentrations:
All of the Company's assets and operations are located in two
facilities.
(m) Revenue Recognition:
The Company recognizes revenues when goods are shipped.
<PAGE>
2--INVENTORIES
Inventories consist of the following:
March 31, March 31,
2000 1999
Raw materials and
work-in-process $1,882,992 $1,517,966
Finished goods 199,972 220,162
$2,082,964 $1,738,128
3--ACQUISITIONS
In January 1999, the Company acquired all of the outstanding stock
of Microwave & Video Systems, Inc. ("MVS") for $270,225 in cash,
issuance of 271,250 shares of Common Stock of the Company and
issuance of a note for $72,656. The total acquisition cost was
$851,475. The acquisition was accounted for using the purchase
method; accordingly the assets and liabilities of the acquired
entity have been recorded at their estimated fair values at the
date of acquisition. The excess of purchase price over estimated
fair value of the net assets acquired (goodwill) is being amortized
on a straight line basis over 40 years. MVS' results of operations
have been included in the Consolidated Statements of Income since
the date of acquisition.
In February 1999, the Company acquired certain assets of Vectronics
Microwave Corporation ("Vectronics") for $197,569 in cash and
issuance of a note for $90,000. The excess of the purchase price
over the fair value of the assets is being amortized on a straight-line
basis over 40 years.
The estimated fair values of all assets and liabilities acquired
are summarized as follows:
Cash $192,992
Accounts Receivable 41,287
Inventories 421,929
Machinery and Equipment 253,199
Liabilities (107,743)
$801,664
4--LONG-TERM DEBT
The following table summarizes the Company's long-term debt:
March 31, March 31,
2000 1999
Notes
Prime plus 1% note due
February, 2006 (a) $ 404,016 $ 413,151
6.763% note due March, 2016 (a) 324,294 335,281
Prime plus 1% note due
April, 2001 (a) 60,000 120,000
7% note due February, 2001 (c) 45,000 90,000
6% note due January, 2001 (c) 36,328 72,656
Capital lease obligations (d) 37,011 110,277
Total 906,649 1,141,365
Less current maturities 203,287 225,534
Total long-term debt $ 703,362 $ 915,831
(a) During the year ended March 31, 1996, the Company financed the
purchase of its headquarter's 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, 2000, the Company is
not in violation of these covenants.
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
4--LONG-TERM DEBT (CONT'D)
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.
(b) In January 1999, the Company issued a note for $72,656 in
connection with its acquisition of MVS. The note bears interest at
6% per annum with $36,328 of principal paid in January 2000 and
$36,328 due in January 2001.
In February 1999, the Company issued a note for $90,000 in
connection with its acquisition of assets of Vectronics. The note
bears interest at 7% per annum with $45,000 of principal paid in
February 2000 and $45,000 due February 2001.
(c) Obligations Under Capital Leases:
Leases are reflected at their present value based upon an imputed
interest rate of 9% per annum.
The assets are depreciated over their estimated productive lives.
For the years ended March 31, 2000 and 1999 depreciation of assets
under capital leases is included in depreciation expense.
As of March 31, 2000 and 1999, property held under capital leases
was as follows:
March 31, March 31,
2000 1999
Machinery and equipment $143,703 $182,588
Less: accumulated depreciation 62,206 61,889
$ 81,497 $120,699
Annual maturities of long term debt due in the next five years will
approximate $203,000 (2001), $30,000 (2002), $32,000 (2003),
$35,000 (2004), $40,000 (2005) and $566,000 thereafter.
5--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, 2000, the Company has recognized a deferred tax asset
attributable to a net operating loss carryforward, created through
the exercise of options by employees. A valuation allowance has
not been provided since management believes that all tax credits
and net operating loss carryforwards will be utilized.
At March 31, 2000, the Company has tax credit carryovers of
approximately $18,000 for Federal tax purposes.
The following sets forth the provision for income taxes:
March 31, March 31,
2000 1999
Federal tax on income $ 212,400 $100,785
State tax provided for 17,040 17,000
Stock option compensation (a) (212,400) (52,427)
Deferred tax benefit (167,120) 25,200
(150,080) 90,558
Less: Benefit from net operating
loss carryforward and
tax credit carryforward - 48,358
Provision for income taxes $(150,080) $ 42,200
(a) With the exercise of options during the fiscal years ended
March 31, 2000 and 1999, respectively, the Company derived a
permanent difference for tax purposes of approximately
$1,116,236 and $134,735 for the years ended March 31, 2000 and
1999, respectively.
6--COMMITMENTS
Leases:
Rent expense including real estate taxes, for the year ended March
31, 2000 was $48,600.
7--MAJOR CUSTOMERS
Approximately 30% of the Company's net sales for each of the years
ended March 31, 2000 and 1999, respectively, are for military
applications, of which 10% is directly to U.S. governmental
agencies for both years.
8--CAPITAL STOCK, OPTIONS AND WARRANTS
On August 7, 1987, the Company adopted an Incentive Stock Option
Plan, pursuant to which the Company was able to 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 required 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 was ten years from
the date the option was granted (five years for an optionee who
owns more than 10% of the Company's securities). All options
granted under this Plan have been exercised, expired or canceled at
March 31, 2000 and March 31, 1999. On August 7, 1987, the Company
adopted an Executive Stock Option Plan, pursuant to which the
Company was able to grant options to purchase up to 100,000 shares
of Common Stock. All options granted under this Plan have been
exercised, expired or canceled at March 31, 2000 and March 31,
1999.
During the year ended March 31, 1995, the Company adopted a stock
option plan, the "1994 Stock Option Plan", pursuant to which the
Company may grant options to purchase up to 300,000 shares of
Common Stock.
During the year ended March 31, 1997, the Company adopted a stock
option plan, the "1996 Stock Option Plan", pursuant to which the
Company may grant options to purchase up to 300,000 shares of
Common Stock. During the year ended March 31, 2000, the Board of
Directors amended this Plan to increase the number of shares of
Common Stock that may be granted under the Plan to 600,000.
The following tables summarize the activity in options under the
1994 and 1996 Stock Option Plans:
Shares Price Range
1994 Stock Option Plan:
Outstanding at March 31, 1998 267,750 $1.25 - $2.41
Granted 25,000 $1.75 - $2.31
Exercised 41,250 $1.50 - $1.88
Expired or Canceled 90,000 $1.75 - $2.41
Outstanding at March 31, 1999 161,500 $1.25 - $2.41
Exercisable at March 31, 1999 130,500 $1.25 - $2.41
Granted 89,000 $1.41 - $5.50
Exercised 115,750 $1.75 - $2.38
Expired or Canceled 10,750 $ 1.25
Outstanding at March 31, 2000 124,000 $1.41 - $5.50
Exercisable at March 31, 2000 30,750 $1.41 - $5.50
1996 Stock Option Plan:
Outstanding at March 31, 1998 175,000 $1.88 - $2.13
Granted 74,250 $1.50 - $2.03
Expired or Canceled 39,750 $1.88 - $2.00
Outstanding at March 31, 1999 209,500 $1.50 - $2.13
Exercisable at March 31, 1999 112,500 $1.50 - $2.13
Granted 168,500 $1.32 -$11.00
Exercised 48,375 $1.41 -$11.00
Expired or Canceled 48,750 $1.50 - $2.13
Outstanding at March 31, 2000 280,875 $1.41 -$11.00
Exercisable at March 31, 2000 62,750 $1.41 -$11.00
8--CAPITAL STOCK, OPTIONS AND WARRANTS (CONT'D)
The following sets forth information concerning other outstanding
options to purchase Common Stock:
Other Options: Shares Price Range
Outstanding at March 31, 1998 170,000 $1.78 - $2.25
Granted 80,000 $1.50 - $2.31
Exercised 10,000 $2.125
Outstanding at March 31, 1999 240,000 $1.50 - $2.31
Exercisable at March 31, 1999 240,000 $1.50 - $2.31
Granted 62,500 $1.32 - $1.63
Exercised 70,000 $1.50 - $2.25
Outstanding at March 31, 2000 232,500 $1.32 - $2.31
Exercisable at March 31, 2000 232,500 $1.32 - $2.31
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 (loss) had Statement 123 been applied would
have resulted in a net loss of ($92,000) and net income, net of
taxes, of approximately $220,000 for the years ended March 31, 2000
and 1999, respectively.
9--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.
10--INTANGIBLES
Intangible assets at March 31, 2000 and 1999 are as follows:
2000 1999
Licensing agreements $100,000 $100,000
Patents 86,426 24,461
186,426 124,461
Less accumulated amortization 64,048 48,964
$122,378 $ 75,497
11--RELATED PARTY TRANSACTIONS
Related party legal fees of $54,544 and $45,084 for the years ended
March 31, 2000 and March 31, 1999, respectively, were to a firm of
which a member is an officer and significant shareholder of the
Company.
12--COMMITMENTS
The Company has entered into an employment agreement with a key
employee terminating September 2001, which provides for a base
salary of $58,500 per annum, plus three percent of the Company's
pre-tax profits up to the level reported in the prior fiscal year
and five percent of any such profits in excess of such amount.
The Company entered into a consulting agreement in connection with
the acquisition of assets of Vectronics (Note 3) which expires in
February 2001 and provides for a payment of $5,000 per month, plus
a fee of 5% of sales over $600,000 to existing Vectronics'
customers. The Company entered into two employment agreements with
two employees in connection with the acquisition of MVS. The first
expires in December 2001 and provided for compensation of $85,000
per annum. In January 2000, the Company and this employee amended
this agreement to reduce the salary to $75,000 per annum through
June 30, 2000 and to convert the agreement to a consulting
agreement at an annual fee of $35,000 per annum, from July 1, 2000
through December 31, 2001. The second agreement expires in
December 2000 and provides for a base salary of $72,000 per annum.
In August 1999, the Company entered into a one year employment
agreement with another employee, providing for a base salary of
$105,000 per year. Each of these agreements provides for benefits
and bonuses under certain conditions.
13--IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement No. 129, Disclosure of Information about Capital
Structure (SFAS No. 129). In June 1997, the Financial Accounting
Standards Board issued Statement No. 130, Reporting Comprehensive
Income (SFAS No. 130) and Statement No. 131, Disclosure about
Segments of an Enterprise and Related Information (SFAS No. 131).
The Company is required to adopt these statements in 1998. SFAS
No. 129 consolidates the existing guidance from several other
pronouncements relating to an entity's capital structure. SFAS No.
130 establishes new standards for reporting and displaying
comprehensive income and its components. SFAS No. 131 requires
disclosure of certain information regarding operating segments,
products and services, geographic areas of operation and major
customers. Adoption of these statements has had no impact on the
Company's financial position, results of operations or cash flows.
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
Reserve for
Bad Debts $50,766 $25,442 - - $76,208
(a) Write-off of accounts receivable against reserve.
S-1
EXHIBIT INDEX
21 Subidiaries of the Company
23.1 Consent of Paul C. Roberts, C.P.A. dated June 16, 2000.
23.2 Consent of Trochiano & Daszkowski LLP dated June 16,
2000.
27 Financial Data Schedule.
-40-
