UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x
|
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended September 26, 2009
OR
¨
|
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, INC.
(Exact name of small business
issuer as specified in its charter)
|
|
|
Delaware
|
|
22-2063614
|
(State or other jurisdiction of
incorporation or organization)
|
|
(IRS Employer
Identification No.)
|
|
|
|
26 Hampshire Drive, Hudson NH
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03051
|
(Address of principal executive offices)
|
|
(Zip Code)
|
(603) 883-2900
(Issuers telephone number)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes
¨
No
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
|
|
|
|
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Large accelerated filer
|
|
¨
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|
Accelerated filer
|
|
¨
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|
|
|
|
Non-accelerated filer
|
|
¨
(Do not check if a smaller reporting company)
|
|
Smaller reporting company
|
|
x
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
¨
No
x
As of October 31, 2009, the issuer had 4,553,635 shares of common stock, par value $.01 per share, outstanding.
MICRONETICS, INC.
INDEX
2
MICRONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
September 26, 2009
|
|
|
March 31, 2009
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
542,761
|
|
|
$
|
620,259
|
|
Accounts receivable, net of allowance for doubtful accounts of $511,763 and $449,799 at September 26, 2009 and
March 31, 2009, respectively
|
|
|
6,335,915
|
|
|
|
4,980,924
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|
Inventories, net
|
|
|
9,722,254
|
|
|
|
9,436,210
|
|
Deferred tax asset
|
|
|
1,464,958
|
|
|
|
1,464,958
|
|
Prepaid income taxes
|
|
|
462,750
|
|
|
|
1,068,832
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|
Prepaid expenses and other current assets
|
|
|
271,599
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|
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276,222
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
18,800,237
|
|
|
|
17,847,405
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
4,852,807
|
|
|
|
4,703,529
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Security deposits
|
|
|
98,309
|
|
|
|
86,839
|
|
Other long term assets
|
|
|
22,669
|
|
|
|
26,791
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|
Intangible assets, net
|
|
|
1,570,643
|
|
|
|
1,744,691
|
|
Goodwill
|
|
|
1,117,197
|
|
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|
1,117,197
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|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
2,808,818
|
|
|
|
2,975,518
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
26,461,862
|
|
|
$
|
25,526,452
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|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
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Current liabilities:
|
|
|
|
|
|
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Current portion of long-term debt
|
|
$
|
1,460,061
|
|
|
$
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1,588,175
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|
Line of credit
|
|
|
4,231,478
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|
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|
3,502,620
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|
Accounts payable
|
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|
1,590,353
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|
|
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1,070,831
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|
Accrued expenses and other current liabilities
|
|
|
3,123,295
|
|
|
|
3,141,424
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|
Deferred revenue
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|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
10,605,187
|
|
|
|
9,303,050
|
|
Long-term debt, net of current portion
|
|
|
2,390,746
|
|
|
|
3,085,290
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|
Other long-term liability
|
|
|
6,333
|
|
|
|
6,200
|
|
Deferred tax liability
|
|
|
901,722
|
|
|
|
901,722
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
13,903,988
|
|
|
|
13,296,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.10 par value; 100,000 shares authorized; no shares issued or outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 10,000,000 shares authorized; 5,391,217 issued, 4,553,635 outstanding at September 26, 2009
and March 31, 2009
|
|
|
53,912
|
|
|
|
53,912
|
|
Additional paid-in capital
|
|
|
12,395,746
|
|
|
|
12,242,320
|
|
Retained earnings
|
|
|
3,088,729
|
|
|
|
2,914,471
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|
|
|
|
|
|
|
|
|
|
|
|
|
15,538,387
|
|
|
|
15,210,703
|
|
Treasury stock at cost, 837,582 shares at September 26, 2009 and March 31, 2009
|
|
|
(2,980,513
|
)
|
|
|
(2,980,513
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
12,557,874
|
|
|
|
12,230,190
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
|
$
|
26,461,862
|
|
|
$
|
25,526,452
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial
statements.
3
MICRONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
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|
|
|
|
Thirteen Weeks Ended
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|
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September 26, 2009
|
|
|
September 27, 2008
|
|
Net sales
|
|
$
|
8,820,211
|
|
|
$
|
6,545,453
|
|
Cost of sales
|
|
|
5,938,582
|
|
|
|
4,475,991
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,881,629
|
|
|
|
2,069,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
539,640
|
|
|
|
388,473
|
|
Selling, general and administrative
|
|
|
1,812,821
|
|
|
|
1,707,000
|
|
Amortization of intangible assets
|
|
|
87,023
|
|
|
|
160,857
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,439,484
|
|
|
|
2,256,330
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
442,145
|
|
|
|
(186,868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
34
|
|
|
|
14,707
|
|
Interest expense
|
|
|
(138,213
|
)
|
|
|
(91,790
|
)
|
Unrealized gain on interest rate swap
|
|
|
18,927
|
|
|
|
11,067
|
|
Miscellaneous income
|
|
|
157
|
|
|
|
5,031
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
(119,095
|
)
|
|
|
(60,985
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
323,050
|
|
|
|
(247,853
|
)
|
Provision (benefit) for income taxes
|
|
|
136,727
|
|
|
|
(181,253
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
186,323
|
|
|
$
|
(66,600
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) per common share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.04
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.04
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
4,553,635
|
|
|
|
5,005,214
|
|
Diluted
|
|
|
4,553,956
|
|
|
|
5,005,214
|
|
The accompanying notes are an integral part of these consolidated financial
statements.
4
MICRONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Weeks Ended
|
|
|
|
September 26, 2009
|
|
|
September 27, 2008
|
|
Net sales
|
|
$
|
16,733,167
|
|
|
$
|
13,632,110
|
|
Cost of sales
|
|
|
11,375,053
|
|
|
|
8,584,478
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
5,358,114
|
|
|
|
5,047,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
846,062
|
|
|
|
730,566
|
|
Selling, general and administrative
|
|
|
3,836,564
|
|
|
|
3,906,587
|
|
Amortization of intangible assets
|
|
|
174,046
|
|
|
|
337,963
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
4,856,672
|
|
|
|
4,975,116
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
501,442
|
|
|
|
72,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
68
|
|
|
|
28,661
|
|
Interest expense
|
|
|
(268,443
|
)
|
|
|
(190,657
|
)
|
Unrealized gain on interest rate swap
|
|
|
54,610
|
|
|
|
113,868
|
|
Miscellaneous income
|
|
|
14,742
|
|
|
|
11,386
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
(199,023
|
)
|
|
|
(36,742
|
)
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
302,419
|
|
|
|
35,774
|
|
Provision (benefit) for income taxes
|
|
|
128,161
|
|
|
|
(55,232
|
)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
174,258
|
|
|
$
|
91,006
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.04
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.04
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
4,553,635
|
|
|
|
5,002,742
|
|
Diluted
|
|
|
4,553,981
|
|
|
|
5,007,849
|
|
The accompanying notes are an integral part of these consolidated financial
statements.
5
MICRONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Treasury
Stock
|
|
|
Total
|
|
|
Shares
|
|
Par
Value
|
|
|
|
|
Balance at March 31, 2009
|
|
4,553,635
|
|
$
|
53,912
|
|
$
|
12,242,320
|
|
$
|
2,914,471
|
|
$
|
(2,980,513
|
)
|
|
$
|
12,230,190
|
Stock based compensation
|
|
|
|
|
|
|
|
153,426
|
|
|
|
|
|
|
|
|
|
153,426
|
Net income
|
|
|
|
|
|
|
|
|
|
|
174,258
|
|
|
|
|
|
|
174,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 26, 2009
|
|
4,553,635
|
|
$
|
53,912
|
|
$
|
12,395,746
|
|
$
|
3,088,729
|
|
$
|
(2,980,513
|
)
|
|
$
|
12,557,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial
statements.
6
MICRONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Weeks Ended,
|
|
|
|
September 26, 2009
|
|
|
September 27, 2008
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
174,258
|
|
|
$
|
91,006
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
760,151
|
|
|
|
873,601
|
|
Stock-based compensation
|
|
|
153,426
|
|
|
|
381,768
|
|
Unrealized gain on interest rate swap
|
|
|
(54,610
|
)
|
|
|
(113,868
|
)
|
Provision for allowances on accounts receivable
|
|
|
61,965
|
|
|
|
13,354
|
|
Provision for inventory obsolescence and losses
|
|
|
136,299
|
|
|
|
118,487
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,416,954
|
)
|
|
|
1,324,737
|
|
Inventories
|
|
|
(422,343
|
)
|
|
|
(1,763,234
|
)
|
Other long term assets
|
|
|
4,122
|
|
|
|
4,122
|
|
Prepaid income taxes
|
|
|
606,215
|
|
|
|
(1,436,260
|
)
|
Prepaid expenses, other current assets, and other assets
|
|
|
(6,848
|
)
|
|
|
12,806
|
|
Accounts payable
|
|
|
519,521
|
|
|
|
(476,281
|
)
|
Accrued expenses
|
|
|
36,481
|
|
|
|
(211,012
|
)
|
Deferred revenue
|
|
|
200,000
|
|
|
|
382,052
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
751,683
|
|
|
|
(798,722
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds from sale of investments
|
|
|
|
|
|
|
400,000
|
|
Purchase of equipment
|
|
|
(735,382
|
)
|
|
|
(464,754
|
)
|
MICA acquisition, net of cash acquired
|
|
|
|
|
|
|
20,522
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(735,382
|
)
|
|
|
(44,232
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from line of credit
|
|
|
728,858
|
|
|
|
|
|
Repayments on term loan and mortgages
|
|
|
(650,000
|
)
|
|
|
(719,551
|
)
|
Repayments of capital leases
|
|
|
(172,657
|
)
|
|
|
(11,001
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(93,799
|
)
|
|
|
(730,552
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
(77,498
|
)
|
|
|
(1,573,506
|
)
|
Cash at beginning of period
|
|
|
620,259
|
|
|
|
3,163,415
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
542,761
|
|
|
$
|
1,589,909
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid (received) during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
226,697
|
|
|
$
|
199,959
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
(478,054
|
)
|
|
$
|
1,402,000
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash financing activities:
|
|
|
|
|
|
|
|
|
Equipment acquired under capital leases
|
|
$
|
|
|
|
$
|
58,241
|
|
The accompanying notes are an integral part of these consolidated financial
statements.
7
MICRONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) for interim financial information and the rules of the Securities and Exchange Commission for quarterly
reports on Form 10-Q. It is suggested that these consolidated condensed financial statements be read in conjunction with the Companys Annual Report on Form 10-K for its fiscal year ended March 31, 2009. In the opinion of management, the
statements contain all adjustments, including normal recurring adjustments necessary in order to present fairly the financial position as of September 26, 2009 and the results of operations for the thirteen and twenty-six weeks ended
September 26, 2009 and September 27, 2008.
The Company reports its fiscal quarters using the 13-week period ending
on the Saturday nearest June 30, September 30 and December 31. As a result, the first and fourth quarter may be more or less than 13 weeks, by 1 to 6 days, which can affect comparability between periods. The second quarter of Fiscal
2010 has 91 days as compared to 91 in the second quarter of Fiscal 2009. The Companys fiscal year end is March 31.
The results of operations for the thirteen and twenty-six weeks ended September 26, 2009 are not necessarily indicative of the results to be expected for the full year ended March 31, 2010.
2. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Summary of operations and basis of consolidation
Micronetics, Inc. and subsidiaries (collectively the Company or
Micronetics) are engaged in the design, development, manufacturing and marketing of a broad range of high performance wireless components, test equipment and integrated multifunction subassemblies used in cellular, microwave, satellite,
radar and communication systems around the world.
The consolidated financial statements include the accounts of Micronetics,
Inc. (Micronetics) and its wholly-owned subsidiaries, Microwave & Video Systems, Inc. (MVS), Microwave Concepts, Inc. (MicroCon), Stealth Microwave, Inc. (Stealth) and MICA Microwave
Corporation (MICA). All intercompany activity has been eliminated.
Use of estimates
The preparation
of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates and judgments include revenue recognition, assumptions used in stock option and
goodwill valuations, reserves for accounts receivable and inventories, useful lives of property, plant and equipment, purchase price allocation, intangibles, accrued liabilities, and deferred income taxes and various other assumptions that it
believes are reasonable under the circumstances. Actual results could differ from those estimates.
Revenue
recognition
The Company generates revenue from the sale of products, technology development, and licensing. Revenue is recognized when persuasive evidence of an arrangement exists, delivery of product has occurred or services have been
rendered, the price to the customer is fixed or determinable, collection is reasonably assured, and no future services are required. The Companys products are primarily hardware components, and to a lesser extent integrated assembly which
includes microwave hardware and embedded software, that are delivered to original equipment manufacturers (OEMs) of telecommunication and networking products who are considered to be end users.
The Company enters into contracts for production of highly customized microwave and radio frequency components and integrated sub-assemblies
which it records revenue based on the percentage of completion method (assuming all other requirements for revenue recognition have been satisfied) typically using labor hours to measure progress toward completion of the contract as the Company has
determined this methodology best reflects the fundamentals of the contract. If estimates to complete the contract change materially from one period to the next, profit levels could significantly vary. Deferred revenue represents billings in excess
of revenue recognized.
The Company sells its products using a direct sales force and sales representatives. Contracts with
customers do not include product return rights or price protection. The estimated costs of product warranties are accrued based on historical experience at the time the revenue is recognized. Unless customers purchase an extended warranty,
Micronetics offers a one-year warranty.
8
MICRONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(Continued)
Recently adopted accounting pronouncements
On April 1, 2009, the Company
implemented the provisions ASC 820, Fair Value Measurements and Disclosures (ASC 820). ASC 820 provides a consistent definition of fair value that focuses on exit price, prioritizes the use of market-based inputs over
entity-specific inputs for measuring fair value and establishes a three-level hierarchy for fair value measurements. The Provisions of ASC 820, as issued, are effective for the fiscal years beginning after November 15, 2007. In February 2008, the
Financial Accounting Standards Board, or FASB delayed the effective date for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (that
is, at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope. The adoption of this standard did not have any effect on the Companys consolidated financial
statements.
On April 1, 2009, the Company implemented the provisions of ASC 805 Business Combinations (ASC
805) which provides revised guidance for recognizing and measuring identifiable assets and goodwill acquired. The standard now requires the assets acquired, liabilities assumed, and any non-controlling interest to be measured at their fair
values as of the acquisition date. ASC 805 also requires expensing of acquisition related costs and restructuring costs, and re-measurement of earn out provisions at fair value. This standard is effective for any of the Companys business
combinations on or after April 1, 2009. The adoption of this standard did not have any effect on the Companys consolidated financial statements.
On April 1, 2009, the Company implemented the provisions of ASC 810-10-65-1 Consolidation (ASC 810-10-65-1). This standard clarifies the accounting and reporting standards for the
non-controlling interest in a subsidiary, including classification as a component of equity. The adoption of this standard did not have any effect on the Companys consolidated financial statements.
On April 1, 2009, the Company implemented the provisions of ASC 815-10-65 Derivatives and Hedging (ASC 815-10-65),
which expands the disclosure requirements about an entitys derivative instruments and hedging activities. This standard is effective for fiscal years and interim periods beginning after November 15, 2008. The adoption of this standard did not
have any effect on the Companys consolidated financial statements.
On April 1, 2009, the Company implemented the
provisions ASC 350 Intangibles-Goodwill and Other (ASC 350), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible. The
intent of the amendment is to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset. This amendment is effective for fiscal years beginning
after December 15, 2008. The adoption of this amendment which did not have any effect on the Companys consolidated financial statements.
On April 1, 2009, the Company implemented the provisions of ASC 260-10 Earnings Per Share (ASC 260-10), which provides that unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. This standard is effective for fiscal
years beginning after December 15, 2008. Upon adoption, a company is required to retrospectively adjust its earnings per share data, including any amounts related to interim periods, summaries of earnings and selected financial data, to conform to
the provisions of the new standard. The adoption of this standard did not have any effect on the Companys consolidated financial statements.
On April 1, 2009, the Company implemented the provisions of ASC 350-30 Intangibles-Goodwill and Other (ASC 350-30), which clarifies the accounting for certain separately
identifiable intangible assets which an acquirer does not intend to actively use but intends to hold to prevent its competitors from obtaining access to them. This standard requires an acquirer in a business combination to account for a defensive
intangible asset as a separate unit of accounting which should be amortized to expense over the period the asset diminishes in value. This standard is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. The
adoption of this standard which did not have any effect on the Companys consolidated financial statements.
In April
2009, the FASB issued ASC 825-10-65-1 Financial Instruments, which requires an entity to provide disclosures about fair value of financial instruments in interim financial information. This standard is to be applied prospectively and is
effective for interim and annual periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. On April 1, 2009 the Company adopted this standard which did not have any effect on the Companys
consolidated financial statements. See Note 11, Fair Value Measurements.
In May 2009, the FASB issued ASC 855-10
Subsequent Events. This ASC establishes general standards of accounting and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The adoption of this ASC
requires us to evaluate all subsequent events that occur after the balance sheet date through the date and time our financial statements are issued. This standard is effective for financial statements issued for interim and annual periods ending
after June 15, 2009. The Company evaluated its September 26, 2009 financial statements for subsequent events through November 6, 2009, the date the financial statements were available to be issued. The Company is not aware of any subsequent events
which would require recognition or disclosure in the financial statements.
In June 2009, the FASB, issued ASC 105 which is
the single source of authoritative nongovernmental U.S. generally accepted accounting principles, or GAAP, superseding existing FASB, American Institute of Certified Public Accountants, or AICPA, Emerging Issues Task Force, or EITF, and related
accounting literature. This standard reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent structure. Also included is relevant Securities and Exchange Commission guidance organized
using the same topical structure in separate sections. This standard will be effective for financial statements issued for reporting periods that end after September 15, 2009. The Company adopted this standard for the interim period ending September
26, 2009. The adoption of this standard did not have a material impact on our financial statements. However, it did change our references to GAAP in our consolidated financial statements.
9
MICRONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(Continued)
Recently issued accounting pronouncements
In June 2009, the FASB
issued Statement of Financial Accounting Standards (SFAS) No. 166, Accounting for Transfers of Financial Assets. SFAS No. 166 is a revision to SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, and amends the guidance on accounting for transfers of financial assets, including securitization transactions, where entities have continued exposure to risks related to transferred
financial assets. SFAS No. 166 also expands the disclosure requirements for such transactions. SFAS No. 166 is currently not included in the Codification. This standard will become effective for us on April 1, 2010. We are currently
evaluating the impact of this standard on our consolidated financial statements.
In June 2009, the FASB issued SFAS
No. 167, Amendments to FASB Interpretation No. 46(R). SFAS No. 167 is a revision to FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, and amends the guidance for consolidation of
VIEs primarily related to the determination of the primary beneficiary of the VIE. This statement will become effective for us on April 1, 2010. SFAS No. 167 is currently not included in the Codification. We are currently evaluating the
impact of this standard on our consolidated financial statements.
In August 2009, the FASB issued ASU No. 2009-05,
Measuring Liabilities at Fair Value. ASU 2009-05 amends ASC 820, Fair Value Measurements, by providing additional guidance on determining the fair value of liabilities when a quoted price in an active market for an identical
liability is not available. This ASU will become effective for us on October 1, 2009 and is not expected to have a significant impact on the measurement of our liabilities as of that date.
In September 2009, the FASB issued ASU No. 2009-12, Fair Value Measurements and Disclosures (Topic 820): Investments in
Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), which amends ASC 820-10, Fair Value Measurements and DisclosuresOverall. ASU No. 2009-12 permits a reporting entity to measure the fair value
of certain alternative investments that do not have a readily determinable fair value on the basis of the investments net asset value per share or its equivalent. This ASU also requires expanded disclosures. This guidance will become effective
for us October 1, 2009 and will not have a material impact on our consolidated financial statements.
In
October 2009, the FASB issued ASU No. 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (a consensus of the FASB Emerging Issues Task Force), which amends ASC 605-25, Revenue Recognition:
Multiple-Element Arrangements. ASU No. 2009-13 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how to allocate consideration to each unit of accounting in the
arrangement. This ASU replaces all references to fair value as the measurement criteria with the term selling price and establishes a hierarchy for determining the selling price of a deliverable. ASU No. 2009-13 also eliminates the use of the
residual value method for determining the allocation of arrangement consideration. Additionally, ASU No. 2009-13 requires expanded disclosures. This ASU will become effective for us for revenue arrangements entered into or materially modified
on or after April 1, 2011. Earlier application is permitted with required transition disclosures based on the period of adoption. We are currently evaluating the application date and the impact of this standard on our consolidated financial
statements.
In October 2009, the FASB issued ASU No. 2009-14, Software (Topic 985): Certain Revenue
Arrangements That Include Software Elements (a consensus of the FASB Emerging Issues Task Force). ASU No. 2009-14 amends ASC 985-605, Software: Revenue Recognition, such that tangible products, containing both software and
non-software components that function together to deliver the tangible products essential functionality, are no longer within the scope of ASC 985-605. It also amends the determination of how arrangement consideration should be allocated to
deliverables in a multiple-deliverable revenue arrangement. This ASU will become effective for us for revenue arrangements entered into or materially modified on or after April 1, 2011. Earlier application is permitted with required transition
disclosures based on the period of adoption. We are currently evaluating the application date and the impact of this standard on our consolidated financial statements. Both ASU No. 2009-13 and ASU No. 2009-14 must be adopted in the same
period and must use the same transition disclosures.
10
MICRONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(Continued)
3. INVENTORIES, NET
At September 26, 2009 and March 31, 2009, inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
September 26, 2009
|
|
|
March 31, 2009
|
|
Raw materials
|
|
$
|
6,451,747
|
|
|
$
|
6,222,709
|
|
Work in process
|
|
|
3,521,936
|
|
|
|
3,588,857
|
|
Finished goods
|
|
|
1,385,015
|
|
|
|
1,164,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,358,698
|
|
|
|
10,976,467
|
|
Less: allowance for obsolescence
|
|
|
(1,636,444
|
)
|
|
|
(1,540,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,722,254
|
|
|
$
|
9,436,210
|
|
|
|
|
|
|
|
|
|
|
4. PROPERTY, PLANT AND EQUIPMENT, NET
At September 26, 2009 and March 31, 2009, property, plant and equipment, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
September 26, 2009
|
|
|
March 31, 2009
|
|
Land
|
|
$
|
162,000
|
|
|
$
|
162,000
|
|
Buildings and leasehold improvements
|
|
|
2,049,616
|
|
|
|
1,317,657
|
|
Machinery and equipment
|
|
|
10,412,990
|
|
|
|
10,409,567
|
|
Furniture, fixtures and other
|
|
|
244,171
|
|
|
|
244,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,868,777
|
|
|
|
12,133,395
|
|
Less: accumulated depreciation
|
|
|
(8,015,970
|
)
|
|
|
(7,429,866
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,852,807
|
|
|
$
|
4,703,529
|
|
|
|
|
|
|
|
|
|
|
5. INTANGIBLE ASSETS AND GOODWILL
In accordance with Goodwill-Intangibles and Other standards the Company tests goodwill for impairment annually and when an event occurs or
circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.
The
following table presents details of the Companys finite-lived intangible assets as of September 26, 2009 and March 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful
Life
(years)
|
|
September 26, 2009
|
|
March 31, 2009
|
Intangible Assets
|
|
|
Gross
Value
|
|
Accumulated
Amortization
|
|
Net
Value
|
|
Gross
Value
|
|
Accumulated
Amortization
|
|
Impairment
Charge
|
|
Net
Value
|
Customer relationships (non-contractual)
|
|
3-10
|
|
$
|
2,956
|
|
$
|
1,829
|
|
$
|
1,127
|
|
$
|
4,251
|
|
$
|
1,728
|
|
$
|
1,295
|
|
$
|
1,228
|
Trade name
|
|
10
|
|
|
260
|
|
|
60
|
|
|
200
|
|
|
260
|
|
|
47
|
|
|
|
|
|
213
|
Developed technology-drawings
|
|
5
|
|
|
513
|
|
|
269
|
|
|
244
|
|
|
513
|
|
|
209
|
|
|
|
|
|
304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangibles
|
|
|
|
$
|
3,729
|
|
$
|
2,158
|
|
$
|
1,571
|
|
$
|
5,024
|
|
$
|
1,984
|
|
$
|
1,295
|
|
$
|
1,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
MICRONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(Continued)
During the third quarter of Fiscal 2009, the Company recorded an impairment charge of
$1,295,000 related to the customer relationship intangible asset of its high performance amplifier business.
The Company
amortizes intangible assets with finite lives over the estimated useful lives of the respective assets. The following is a summary of estimated aggregate amortization expense for each of the five succeeding fiscal years:
|
|
|
|
|
|
(in thousands)
|
Remainder of 2010
|
|
$
|
174
|
2011
|
|
|
321
|
2012
|
|
|
314
|
2013
|
|
|
163
|
2014
|
|
|
144
|
Thereafter
|
|
|
455
|
|
|
|
|
Total
|
|
$
|
1,571
|
|
|
|
|
Changes in the carrying amount of goodwill at September 26, 2009 and
March 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
September 26, 2009
|
|
March 31, 2009
|
|
Balance at the beginning of the period
|
|
$
|
1,117,197
|
|
$
|
8,931,944
|
|
Impairment charges
|
|
|
|
|
|
(7,964,916
|
)
|
Purchase accounting adjustments
|
|
|
|
|
|
150,169
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period
|
|
$
|
1,117,197
|
|
$
|
1,117,197
|
|
|
|
|
|
|
|
|
|
During the third quarter of Fiscal 2009, the Company recorded impairment charges of
$7,964,916 related to the goodwill for its high performance amplifier and mixer/ferrite reporting units.
6. ACCRUED EXPENSES
At September 26, 2009 and March 31, 2009 accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
September 26, 2009
|
|
March 31, 2009
|
Unbilled payables
|
|
$
|
1,155,989
|
|
$
|
1,125,365
|
Professional fees
|
|
|
24,339
|
|
|
7,607
|
Payroll, benefits and related taxes
|
|
|
1,135,195
|
|
|
1,373,688
|
Warranty
|
|
|
182,827
|
|
|
136,763
|
Unrealized loss on interest rate swap
|
|
|
226,040
|
|
|
280,650
|
Miscellaneous
|
|
|
398,905
|
|
|
217,351
|
|
|
|
|
|
|
|
|
|
$
|
3,123,295
|
|
$
|
3,141,424
|
|
|
|
|
|
|
|
Included in accrued payroll are bonuses of $376,924 and $403,322 at
September 26, 2009 and March 31, 2009.
12
MICRONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(Continued)
7. LONG-TERM DEBT
At September 26, 2009 and March 31, 2009 long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
September 26, 2009
|
|
|
March 31, 2009
|
|
Term loan
|
|
|
3,575,000
|
|
|
|
4,225,000
|
|
Capital leases
|
|
|
275,807
|
|
|
|
448,465
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,850,807
|
|
|
|
4,673,465
|
|
Less current portion
|
|
|
(1,460,061
|
)
|
|
|
(1,588,175
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
$
|
2,390,746
|
|
|
$
|
3,085,290
|
|
|
|
|
|
|
|
|
|
|
Term Loan and Revolver
In March 2007, the Company entered into a credit facility which consists of a $6.5 million five year secured term loan and a $5.0 million
three year revolving line of credit, which expires in March 2012. The term loan is guaranteed by the Companys subsidiaries and secured by substantially all of the Companys assets. The term loan is payable in quarterly principal
installments of $325,000 plus accrued interest at the rate of 5.2% plus the applicable margin. At September 26, 2009, our interest rate was 8.95%. The final payment for the term loan is in April 2012. The revolving line of credit bears interest
at LIBOR plus the applicable margin. At September 26, 2009, our interest rate was 4.51%. The Company had $768,000 available under the line at September 26, 2009.
The Company entered into an interest rate swap agreement with a notional amount of $6.5 million in April 2007 to mitigate the effect of
interest rate fluctuations on the term loan. The interest rate swap was not designated as a hedging instrument at the initiation of the swap, and therefore the Company has not applied hedge accounting. As a result, at the end of each reporting
period, the change in value of the interest rate swap is recorded on the consolidated balance sheet, with any related gains or losses charged to earnings. For the twenty-six weeks ended September 26, 2009 and September 27, 2008, the
Company recorded an unrealized gain of $54,610 and $113,868, respectively in the statement of operations to reflect the change in estimated fair value for the interest rate swap. The net unrealized loss on the interest rate swap amounted to
approximately $226,000 at September 26, 2009.
Under the terms of the term loan and the revolver, The Company is required
to maintain certain financial covenants on a quarterly and annual basis, including total funded debt to EBITDA not exceeding 2.25:1, minimum debt service coverage of 1.25:1, a minimum current ratio of 1.25:1 and minimum tangible net worth of $7.5
million. The Company obtained an amendment to the term loan and revolver agreements to include the goodwill and intangible asset impairment charges as an add-back to the EBITDA covenants. The Company also obtained an Amendment and Waiver Agreement
to the term loan and revolver agreements to waive the EBITDA covenants and to substitute modified quarterly EBITDA covenants through March 31, 2010. Under the terms of the amendment, the interest rate increased from a maximum of LIBOR plus 2.5% to a
maximum of LIBOR plus 4.25% for the revolving line of credit and a maximum adjusted LIBOR plus 3.75% for the term loan. The rate decreases to a minimum of LIBOR plus 2.5% based upon future performance. The Company does not expect the change in rate
will have a material adverse affect on its cash flows for Fiscal 2010. In October 2009 the Company obtained an additional waiver and amendment to the quarterly EBITDA covenants and remain in compliance with the amended bank covenants. The Company
obtained the additional waiver and amendment because the second quarter EBITDA test did not anticipate an acceleration of EBITDA into the first quarter and out of the second quarter.
Capital leases
Commercial capital leases payable are reflected at their present value based upon interest rates that range from 6.4% to 10.6% per annum, and are secured by the underlying assets. The assets are
depreciated over their estimated useful lives. Included in the current portion of long-term debt is $160,061 for capital lease obligations. Included in long-term debt net of current portion is $115,747 for capital lease obligations. The remaining
interest associated with the Companys capital lease obligations amounts to approximately $18,000 over the lease terms.
13
MICRONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(Continued)
8. STOCK OPTION PLANS AND STOCK-BASED COMPENSATION
At September 26, 2009, the Company had two stock option plans under which grants were outstanding. The stock options outstanding are for
grants issued under the Companys 2003 Stock Option Plan and the 2006 Equity Incentive Plan.
The 2003 Stock
Incentive Plan
During the fiscal year ended March 31, 2004, the Company adopted a stock option plan entitled
The 2003 Stock Incentive Plan (the 2003 Plan) under which the Company may grant options to purchase up to 900,000 shares of common stock plus any shares of common stock remaining available for issuance as of
July 22, 2003 under the 1996 Stock Option Plan. In July 2006, the Board of Directors determined that it would not issue any new option awards under the 2003 Plan. As of September 26, 2009, there were 385,300 options outstanding under the
2003 Plan.
The 2006 Equity Incentive Plan
During the fiscal year ending March 31, 2007, the Company adopted a stock option plan entitled The 2006 Equity Incentive
Plan (the 2006 Plan) under which the Company may grant shares of restricted stock or options to purchase up to 1,000,000 shares of common stock. As of September 26, 2009 there were 209,500 options outstanding under the 2006
Plan.
The 2003 Plan and the 2006 Plan are administered by the Board of Directors or a Committee of the Board of Directors
which has the authority to determine the persons to whom the options may be granted, the number of shares of common stock to be covered by each option grant, and the terms and provisions of each option grant. Options granted under the 2003 Plan and
the 2006 Plan may be incentive stock options or non-qualified options, and may be issued to employees, consultants, advisors and directors of the Company and its subsidiaries. The exercise price of options granted under the 2003 Plan and the 2006
Plan may not be less than the fair market value of the shares of common stock on the date of grant, and may not be granted more than ten years from the date of adoption of each respective plan or exercised more than ten years from the date of grant.
The following table sets forth the Companys stock option activity during the twenty-six weeks ended September 26,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Underlying
options
|
|
|
Weighted
Average
Exercise
price
|
|
Weighted
Average
Remaining
Contractual
life
|
|
Aggregate
Intrinsic
Value
|
Outstanding at March 31, 2009
|
|
699,125
|
|
|
$
|
7.78
|
|
|
|
$
|
|
Granted
|
|
72,000
|
|
|
|
2.81
|
|
|
|
|
41,610
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
(176,325
|
)
|
|
|
7.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 26, 2009
|
|
594,800
|
|
|
$
|
7.15
|
|
3.26
|
|
$
|
41,610
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 26, 2009
|
|
436,550
|
|
|
$
|
7.70
|
|
1.40
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the status of the Companys non-vested stock
options as of September 26, 2009:
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
|
Weighted-Average
Grant-Date
Fair Value
|
Non-vested as of March 31, 2009
|
|
314,500
|
|
|
$
|
4.61
|
Granted
|
|
72,000
|
|
|
|
1.80
|
Forfeited
|
|
(126,000
|
)
|
|
|
5.00
|
Vested
|
|
(102,250
|
)
|
|
|
4.63
|
|
|
|
|
|
|
|
Non-vested as of September 26, 2009
|
|
158,250
|
|
|
$
|
3.35
|
|
|
|
|
|
|
|
During the fiscal year ended March 31, 2008, the Company granted options to
purchase 10,000 shares of common stock with an exercise price of $8.40 to a former employee. In the fourth quarter of Fiscal 2008, 5,000 options vested and the remaining options vested on July 31, 2008. The options have a contractual life of 10
years. The Company valued the options at the fair value on the date of grant using the Black-Scholes options-pricing model. The Company recorded $32,150 in compensation expense for the twenty-six weeks ended September 27, 2008 related to the
non-employee options.
14
MICRONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(Continued)
The following table summarizes the effects of stock-based compensation for the thirteen
weeks ended September 26, 2009 and September 27, 2008:
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
September 26, 2009
|
|
September 27, 2008
|
Cost of sales
|
|
$
|
10,005
|
|
$
|
15,373
|
Selling, general and administrative
|
|
|
37,476
|
|
|
156,849
|
|
|
|
|
|
|
|
Stock-based compensation effect in income before taxes
|
|
$
|
47,481
|
|
$
|
172,222
|
|
|
|
|
|
|
|
The following table summarizes the effects of stock-based compensation for the
twenty-six weeks ended September 26, 2009 and September 27, 2008:
|
|
|
|
|
|
|
|
|
Twenty-Six Weeks Ended
|
|
|
September 26, 2009
|
|
September 27, 2008
|
Cost of sales
|
|
$
|
20,700
|
|
$
|
29,903
|
Selling, general and administrative
|
|
|
132,726
|
|
|
351,865
|
|
|
|
|
|
|
|
Stock-based compensation effect in income before taxes
|
|
$
|
153,426
|
|
$
|
381,768
|
|
|
|
|
|
|
|
Unrecognized stock-based compensation expense related to the unvested options is
approximately $355,000, and will be recorded over the remaining vesting periods of 2.98 years. This estimate is based on the number of unvested options currently outstanding and could change based on the number of options granted or forfeited in the
future.
The Company granted 25,000 shares of restricted stock to an employee under the 2006 Equity Incentive Plan on
November 14, 2007. The shares were issued at a purchase price of $.01 per share. The fair value of the restricted stock was determined based on the fair value of the Companys common stock on the grant date. Upon issuance of the restricted
stock 10,000 shares vested, with the remaining 15,000 shares to vest twenty percent upon the completion of each quarterly period thereafter. The stock fully vested on August 14, 2008. As a result of the issuance of the restricted stock, the
Company recognized $59,250 in compensation expense during the twenty-six weeks ended September 27, 2008.
There were
3,000 options granted during the thirteen weeks ended September 26, 2009 and 3,000 options granted during the thirteen weeks ended September 27, 2008. The fair value of options issued were estimated at the date of grant with the following
weighted-average assumptions for the thirteen weeks ended September 26, 2009 and September 27, 2008.
|
|
|
|
|
|
|
|
|
September 26, 2009
|
|
|
September 27, 2008
|
|
Risk free interest rate
|
|
2.81
|
%
|
|
3.23
|
%
|
Expected life
|
|
6.25 years
|
|
|
6.13 years
|
|
Expected volatility
|
|
70.04
|
%
|
|
58.9
|
%
|
Forfeiture rate
|
|
2.92
|
%
|
|
2.92
|
%
|
Expected dividend yield
|
|
0
|
%
|
|
0
|
%
|
The per share fair value of stock options granted for the thirteen weeks ended
September 26, 2009 and September 27, 2008 was $2.41 and $3.95, respectively.
9. INCOME TAXES
The Companys effective tax rate was 42% and 44% for the thirteen weeks ended September 26, 2009 and September 27, 2008.
The amount of uncertain tax benefits as of September 26, 2009 was $6,333, which, if ultimately recognized, will reduce
the Companys annual effective tax rate. The Companys policy is to recognize interest and penalties accrued on any uncertain tax position as a component of income tax expense, if any.
As of April 1, 2009, the Company is subject to tax in the U.S. Federal and various state jurisdictions. The Company is open to
examination for tax years March 31, 2006 through 2008.
15
MICRONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(Continued)
10. EARNINGS PER SHARE
Basic earnings (loss) per share, or EPS, is computed based on the net income or loss for each period divided by the weighted average actual
shares outstanding during the period. Diluted earnings (loss) per share is computed based on the net income or loss per period divided by the weighted average number of common shares and common equivalent shares outstanding during each period unless
the effect would be anti-dilutive. Common stock equivalents represent the dilutive effect of the assumed exercise of certain outstanding stock options using the treasury stock method. The computations of basic and diluted EPS for the thirteen weeks
ended September 26, 2009 and September 27, 2008 are:
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
September 26, 2009
|
|
September 27, 2008
|
|
Net income (loss)
|
|
$
|
186,323
|
|
$
|
(66,600
|
)
|
Weighted average shares outstanding
|
|
|
4,553,635
|
|
|
5,005,214
|
|
Basic earnings (loss) per share
|
|
$
|
0.04
|
|
$
|
(0.01
|
)
|
Common stock equivalents
|
|
|
321
|
|
|
|
|
Weighted average common and common equivalent shares outstanding
|
|
|
4,553,956
|
|
|
5,005,214
|
|
Diluted earnings (loss) per share
|
|
$
|
0.04
|
|
$
|
(0.01
|
)
|
The computations of basic and diluted EPS for the twenty-six weeks ended
September 26, 2009 and September 27, 2008 are:
|
|
|
|
|
|
|
|
|
Twenty-Six Weeks Ended
|
|
|
September 26, 2009
|
|
September 27, 2008
|
Net income
|
|
$
|
174,258
|
|
$
|
91,006
|
Weighted average shares outstanding
|
|
|
4,553,635
|
|
|
5,002,742
|
Basic earnings per share
|
|
$
|
0.04
|
|
$
|
0.02
|
Common stock equivalents
|
|
|
346
|
|
|
5,107
|
Weighted average common and common equivalent shares outstanding
|
|
|
4,553,981
|
|
|
5,007,849
|
Diluted earnings per share
|
|
$
|
0.04
|
|
$
|
0.02
|
11. FAIR VALUE MEASUREMENTS
The Company assesses fair value as an exit price representing the amount that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for
considering such assumptions, this standard establishes a three-tier value hierarchy, which prioritizes, in descending order, the inputs used in measuring fair value as follows:
|
|
|
Level 1 Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or
liabilities as of the reporting date.
|
|
|
|
Level 2 Inputs used to measure fair value, other than quoted prices included in Level 1, are either directly or indirectly observable as of the
reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using
models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets
for substantially the full term of the financial instrument.
|
|
|
|
Level 3 Inputs used to measure fair value are unobservable inputs that are supported by little or no market activity and reflect the use of
significant management judgment. These values are generally determined using pricing models for which the assumptions utilize managements estimates of market participant assumptions.
|
This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when
determining fair value. Assets and liabilities measured at fair value on a recurring basis, include the following as of September 26, 2009.
16
MICRONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at September 26, 2009 Using
|
|
|
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total Fair
Value as of
September 26,
2009
|
Money market fund
|
|
|
|
$
|
475,000
|
|
|
|
$
|
475,000
|
Interest rate swap
|
|
|
|
$
|
226,000
|
|
|
|
$
|
226,000
|
The following provides a summary of the change in fair value for the interest rate
swap as of September 26, 2009:
|
|
|
|
|
Balance at March 31, 2009
|
|
$
|
280,000
|
|
Unrealized gain
|
|
|
(54,000
|
)
|
|
|
|
|
|
Balance at September 26, 2009
|
|
$
|
226,000
|
|
|
|
|
|
|
The fair value of the money market fund was determined by using available market
prices for the underlying securities. There has been no change in the fair value of the money market fund since March 31, 2009. The fair value of the interest rate swap was determined by using a market driven valuation model using the LIBOR
rate forecast applied to common intervals for the remaining term of the interest rate swap.
The carrying amounts reported in
the consolidated balance sheet for cash, investments, trade receivables, accounts payable, and accrued expenses approximate fair value because of the relatively short maturity of these instruments.
12. RELATED PARTY TRANSACTION
On September 4, 2008, Micronetics, Inc. entered into a lease with SBJ Development, LLC (the Landlord) for a new headquarters for Stealth Microwave, Inc, its subsidiary. The property is located in the Township of Ewing, New
Jersey. The lease has an initial term of five years and contains three options to extend the lease, each for a term of five years. The annual rent for the initial term of the lease is $225,600.
Both Stephen N. Barthelmes, Jr., a director of Micronetics and President of Micronetics subsidiary Stealth Microwave, Inc., and Kevin
Beals, President of Micronetics, are members of the Landlord. Mr. Barthelmes and Mr. Beals own twenty-one percent and sixteen percent, respectively, of the outstanding units of membership interest of the Landlord.
The Audit Committee of the Board of Directors of Micronetics reviewed and approved the terms of the lease prior to its execution.
17
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations.
|
Forward Looking Statements
Certain statements in this report contain words such as could, expects, may, anticipates, believes, intends, estimates,
plans, envisions, and other similar language and are considered forward-looking statements. These statements are based on our expectations, estimates, forecasts and projections about the operating environment, economies and
markets in which we operate and are merely our current predictions of future events. In addition, other written or oral statements which are considered forward-looking may be made by us or others on our behalf. These statements are subject to
important risks, uncertainties and assumptions, which are difficult to predict and the actual outcome may be materially different. Some of the factors which could cause results or events to differ from current expectations include, but are not
limited to, the factors described here, in our Annual Report on Form 10-K for the fiscal year ended March 31, 2009, and in the other documents that we file with the Securities and Exchange Commission. We assume no obligation to update our
forward-looking statements to reflect new information or developments.
An investment in our common stock involves a high
degree of risk. We urge readers to review carefully the risk factors described herein, in our Annual Report on Form 10-K for the fiscal year ended March 31, 2009, and in the other documents that we file with the Securities and Exchange
Commission. You can read these documents at www.sec.gov. If any of these risks, or other risks not presently known to us or that we currently believe are not significant, develops into an actual event, then our business, financial condition and
results of operations could be adversely affected. If that happens, the market price of our common stock could decline.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and
the results of operations are based on our consolidated financial statements and the data used to prepare them. Our consolidated financial statements have been prepared based on accounting principles generally accepted in the United States of
America. On an on-going basis, we evaluate our judgments and estimates including those related to revenue recognition, allowances for doubtful accounts, inventory valuation and obsolescence, long-lived assets, business combination purchase price
allocation for acquired businesses and goodwill impairment, stock-based compensation, warranty obligations, and the valuation allowance on our deferred tax asset. These estimates and judgments are based on historical experience and various other
assumptions that are believed to be reasonable under current business conditions and circumstances. Actual results may differ from these estimates under different assumptions or conditions.
There have been no changes to our critical accounting policies from those described in our annual report on Form 10-K for the fiscal year
ended March 31, 2009.
Recent Accounting Pronouncements
We discuss recently adopted and issued accounting standards in Item 1. Notes to Consolidated Financial Statements Note 2.
Overview
Micronetics designs and manufactures high performance microwave and radio frequency (RF) components and integrated multifunction subassemblies used in a variety of commercial wireless, defense and
aerospace products, including satellite communications, electronic warfare and electronic counter-measures. We also manufacture and design test equipment, subassemblies and components used to test the strength, durability and integrity of signals in
communications equipment. Our products are embedded in a variety of radars, electronic warfare systems, guidance systems, wireless telecommunications and satellite equipment.
We sell our products primarily to original equipment manufacturers of communications equipment in either the commercial or the defense
electronic marketplace. Many of our customers are prime contractors for defense applications and/or Fortune 500 companies with world-wide operations.
A key driver of demand for our products is the pervasive transformation of information from the analog domain to the digital domain. Because digital technologies require greater degrees of precision and
rely more on miniature circuits than analog technologies, testing is critical for the rapid commercialization of reliable products necessitated by broadband and wireless communication technologies. As the speed to market challenges increase, larger
companies are relying increasingly on other companies to manufacture a module or an integrated subassembly. This module or subassembly is then integrated by the larger company into a piece of equipment and sold to a customer. Micronetics has been
seeking to capitalize on this trend by increasing its capability to manufacture integrated subassemblies. Our goal is to leverage our high power and noise technology to continue to be a highly reliable supplier of integrated microwave subsystems.
18
Results of Operations
Thirteen Weeks Ended September 26, 2009 compared to September 27, 2008
Net sales
Net sales for the thirteen weeks ended September 26, 2009 (Q2 FY 10) were $8,820,211, an increase of $2,274,758, or 35% as compared to $6,545,453 for the thirteen weeks ended September 27, 2008 (Q2 FY 09).
Approximately $0.7 million of the increase is due to our recently acquired RFID technology and is for the beta test portion of a purchase agreement containing an option for full scale production roll-out upon successful completion of this phase. The
beta test is currently underway. Approximately $0.6 million of the increase is due to a contract for components for a space based application. We expect this contract to be largely completed by the fourth quarter of Fiscal 2010. Approximately $0.6
million of the increase is due to an increase in sales of integrated component sub-systems for defense jamming and electronic system modernization applications. Approximately $0.4 million of the increase is due to component sales.
Gross margin
Gross margin for Q2 FY 10 was approximately 33% as compared to 32% for Q2 FY 09. The gross margin increased due to improved margins in commercial components and was offset to some degree by start-up costs to support our growing backlog
related to integrated component sub-systems.
Research and development
Research and development (R&D) expense for Q2 FY 10 was $539,640 as compared to $388,473 for Q2 FY 09 or an increase of
$151,167 or 39%. The increase in R&D spending is due to a new high power, digital pre-distortion amplifier product line for commercial applications and a complex integrated assembly for a defense application which more than offset decreased
spending on an in-flight high-speed internet transceiver product. Our research and development expense varies to a certain degree based upon emerging technologies, shifts in product requirements and our assessment of future business opportunities.
We expect total year research and development expense for Fiscal 2010 to be lower than Fiscal 2009 due to lower spending requirements for in-flight, high-speed internet transceiver and commercial telecom products.
Selling, general and administrative
Selling, general and administrative expense for Q2 FY 10 was $1,812,821 as compared to $1,707,000 for Q2 FY 09, representing a increase of $105,821 or 6%. Stock compensation expense decreased by
approximately $120,000. Approximately half of the decrease is due to forfeitures and the remainder is due primarily to options being fully expensed. Bad debt expense increased by approximately $110,000 and all other expenses increased by
approximately $115,000 as compared to Q2 FY 09.
Amortization of intangible assets
Amortization expense attributable to our intangible assets related to the acquisitions of Stealth, MICA and RFID was $87,023 in Q2 FY 10 as
compared to $160,857 in Q2 FY 09 or a decrease of $73,834. Approximately $104,000 of the decrease was due to an intangible asset impairment charge, which we recorded in the third quarter of Fiscal 2009, which was offset in part by an increase of
approximately $20,000 associated with the acquisition of our RFID product line.
Interest expense
Interest expense for Q2 FY 10 was $138,213 as compared to $91,790 for Q2 FY 09 or an increase of $46,423. The increase was primarily due to
higher average borrowings during Q2 FY 10 and to a lesser degree by slightly higher average borrowings in the first two quarters of Fiscal 2010.
Interest rate swap
An unrealized gain of $18,927 was recorded for
Q2 FY 10 as compared to $11,067 recorded in Q2 FY 09 to reflect the change in fair value of the mark to market valuation for the interest rate swap agreement entered into in April 2007 to mitigate the interest rate fluctuations on our term loan.
Provision for income taxes
Our effective tax rate for Q2 FY 10 was 42% as compared to 44% for Q2 FY 09.
Backlog
Our backlog is approximately $31 million as of September 26, 2009 as compared to
approximately $20 million as of September 27, 2008. The increase in our backlog is primarily a result of orders for integrated sub-assemblies.
19
Twenty-Six Weeks Ended September 26, 2009 compared to September 27, 2008
Net sales
Net sales for the twenty-six weeks ended September 26, 2009 were $16,733,167, an increase of $3,101,057, or 23% as compared to $13,632,110 for the twenty-six weeks ended September 27, 2008. Of
the increase approximately $1.6 million is due to an increase in sales of integrated component sub-systems for defense jamming and electronic system modernization applications. Approximately $0.7 million of the increase is due to our recently
acquired RFID technology and is for the beta test portion of a purchase agreement containing an option for full scale production roll-out upon successful completion of this phase. The beta test is currently underway. Approximately $0.7 million of
the increase is due to a contract for components for a space based application. We expect this contract to be largely completed by the fourth quarter of Fiscal 2010.
Gross margin
Gross margin decreased to 32% for the twenty-six weeks
ended September 26, 2009 as compared to 37% for the twenty-six weeks ended September 27, 2008. The decrease in gross margin was due to lower margins related to weakness in commercial components, start-up costs associated with the March
2009 acquisition of our RFID product line and start-up costs to support our growing backlog related to integrated component sub-systems.
Research and development
Research and development
(R&D) expense was $846,062 an increase of $115,496 for the twenty-six weeks ended September 26, 2009 as compared to $730,566 for the twenty-six weeks ended September 27, 2008. The increase in R&D spending is due to a
new high power, digital pre-distortion amplifier product line for commercial applications and a complex integrated assembly for a defense application which more than offset decreased spending on an in-flight high-speed internet transceiver product.
We expect total year research and development expense for Fiscal 2010 to be lower than Fiscal 2009 due to lower spending requirements for in-flight, high-speed internet transceiver and commercial telecom products.
Selling, general and administrative
Selling, general and administrative expense was $3,836,564 a decrease of $70,023 for the twenty-six weeks ended September 26, 2009 as compared to $3,906,587 for the twenty-six weeks ended
September 27, 2008. Stock compensation decreased by approximately $228,000. Approximately $55,000 of the decrease is due to forfeitures and the remainder is primarily due to options being fully expensed. In addition, bad debt expense increased
by approximately $127,000.
Amortization expense
Amortization expense attributable to the intangible assets related to the acquisition of Stealth, MICA and RFID was $174,046 for the
twenty-six weeks ended September 26, 2009 as compared to $337,963 for the twenty-six weeks ended September 27, 2008 or a decrease of $163,917. Approximately $215,000 of the decrease was due to an intangible asset impairment charge, which
we recorded in the third quarter of Fiscal 2009, which was offset in part by an increase of approximately $40,000 associated with the acquisition of our RFID product line.
Interest rate swap
An unrealized gain of $54,610 was recorded for the twenty-six weeks ended September 26, 2009 as compared to an unrealized gain of $113,868 for the twenty-six weeks ended September 27, 2008 to
reflect the change in fair value of the mark to market valuation for the interest rate swap agreement entered into in April 2007 to mitigate the interest rate fluctuations on our term loan.
Provision for income taxes
Our effective tax rate was 42% for the twenty-six weeks ended September 26, 2009 as compared to 44% for the twenty-six weeks ended September 27, 2008. In addition, we recorded $72,000 in
uncertain tax benefits in the tax provision for the twenty-six weeks ended September 27, 2008 which did not recur in the twenty-six weeks ended September 26, 2009 due to the statute of limitations expiring on the 2004 calendar year tax
return filed by one of our subsidiaries.
20
Financial Condition, Liquidity and Capital Resources
We finance our operating and investment requirements primarily through operating cash flows and borrowings. Cash equivalents and marketable
securities were $542,761 and $620,259, respectively, at September 26, 2009 and March 31, 2009. Working capital defined as accounts receivable, inventory, prepaid expenses, other current assets net of accounts payable and accrued expenses
was $12,078,870 and $11,549,933 at September 26, 2009 and March 31, 2009, respectively. Borrowings under our revolving line of credit were $4,231,478 and $3,502,620 at September 26, 2009 and March 31, 2009, respectively.
Our current ratio was approximately 1.77 at September 26, 2009 as compared to 1.92 at March 31, 2009.
In the twenty-six weeks ended September 26, 2009 net cash provided by operating activities was $751,683 as compared to cash used in
operating activities of $798,722 for the twenty-six weeks ended September 27, 2008.
In the twenty-six weeks ended
September 26, 2009, cash provided by net income after adjusting for non-cash items including depreciation, amortization, stock-based compensation, changes in working capital reserves and an unrealized gain on interest rate swap was
approximately $1.2 million. Approximately $.5 million was used to fund working capital needs. Of the amount, approximately $1.4 million was used to fund receivables as a result of higher sales and approximately $.4 million was used to fund inventory
requirements. A tax refund net of tax payments provided approximately $.6 million, increases in accounts payable and accrued expenses provided approximately $.5 million and cash received and recorded as deferred revenue provided approximately $.2
million
In the twenty-six weeks ended September 27, 2008 cash provided by net income after adjusting for non-cash items
was approximately $1.3 million. An additional approximately $1.3 million was provided by accounts receivables due to lower sales and improved collections. Approximately $1.7 million was used for inventory in anticipation of future sales.
Approximately $1.4 million was used for prepaid expenses, principally prepaid income taxes. Approximately $.7 million was used to fund accounts payable and accrued expenses and approximately $.4 million was provided due to cash received and recorded
as deferred revenue.
Net cash used in investing activities was $735,382 during the twenty-six weeks ended September 26,
2009 as compared to cash used in investing activities of $44,232 in the twenty-six weeks ended September 27, 2008. In the twenty-six weeks ended September 26, 2009 investing activities was solely comprised of purchased equipment. In the
twenty-six weeks ended September 27, 2008, we sold investments of $.4 million offset by purchased equipment of approximately $.5 million.
Net cash used for financing activities was $93,799 during the twenty-six weeks ended September 26, 2009 as compared to net cash used for financing activities of $730,522 during the twenty-six weeks
ended September 27, 2008.
In the twenty-six weeks ended September 26, 2009, we borrowed approximately $.7 million
from our line of credit and repaid term debt and capital lease obligations of approximately $.8 million. In the twenty-six weeks ended September 27, 2008, we repaid mortgage, term debt obligations and capital leases of approximately $.7
million.
We believe that cash and cash equivalents on hand, anticipated future cash receipts, and borrowings available under
our line of credit will be sufficient to meet our obligations as they become due for the next twelve months. However, a decrease in our sales or demand for our products would likely adversely affect our working capital amounts. As part of our
business strategy, we occasionally evaluate potential acquisitions of businesses, products and technologies. Accordingly, a portion of our available cash may be used at any time for the acquisition of complementary products or businesses. These
potential transactions may require substantial capital resources, which, in turn, may require us to seek additional debt or equity financing. There are no assurances that we will be able to consummate any such transaction. There are no current plans
to raise additional debt or equity capital, nor is there a projected need to raise any such capital.
Term Loan and
Revolver
In March 2007, we entered into a credit facility consisting of a $6.5 million five year secured term loan and a
$5.0 million three year revolving line of credit, which replaced the then existing $6.0 million term loan entered into in June 2005.
We entered into an interest rate swap agreement in April 2007 to mitigate interest rate fluctuations on the term loan. At the end of each reporting period we record the current fair value of the interest rate swap on the balance sheet. Any
unrealized gain or loss on the swap is charged to earnings.
The term loan is guaranteed by our subsidiaries and secured by
substantially all of our assets. The term loan is payable in quarterly principal installments of $325,000 plus accrued interest at the rate of 5.2% plus the applicable margin. At September 26, 2009, our interest rate was 8.95%. The final
payment for the term loan is in April 2012.
21
The revolving line of credit bears interest at LIBOR plus the applicable margin. At
September 26, 2009, our interest rate was 4.51%. We had $.8 million available under the line at September 26, 2009. The revolving line of credit expires in March 2012.
Under the terms of the term loan and the revolver, we are required to maintain certain financial covenants on a quarterly and annual basis,
including total funded debt to EBITDA not exceeding 2.25:1, minimum debt service coverage of 1.25:1, a minimum current ratio of 1.25:1 and minimum tangible net worth of $7.5 million. We obtained an amendment to the term loan and revolver agreements
to include the goodwill and intangible asset impairment charges as an add-back to the EBITDA covenants. We also obtained an Amendment and Waiver Agreement to the term loan and revolver agreements to waive our EBITDA covenants and to substitute
modified quarterly EBITDA covenants through March 31, 2010. Under the terms of our amendment, our interest rate increased from a maximum of LIBOR plus 2.5% to a maximum of LIBOR plus 4.25% for our revolving line of credit and a maximum adjusted
LIBOR plus 3.75% for our term loan. The rate decreases to a minimum of LIBOR plus 2.5% based upon future performance. We do not expect the change in rate will have a material adverse affect on our cash flows for Fiscal 2010. In October 2009 we
obtained an additional waiver and amendment to our quarterly EBITDA covenants and remain in compliance with our amended bank covenants. We obtained the additional waiver and amendment because the second quarter EBITDA test did not anticipate an
acceleration of EBITDA into the first quarter and out of the second quarter.
Capital leases
Commercial capital leases payable are reflected at their present value based upon interest rates that range from 6.4% to 10.6% per
annum, and are secured by the underlying assets. The assets are depreciated over their estimated useful lives. Included in the current portion of long-term debt is $160,061 for capital lease obligations. Included in long-term debt net of current
portion is $115,747 for capital lease obligations. The remaining interest associated with our capital lease obligations amounts to approximately $18,000 over the lease terms.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements, other than operating leases that have or are, in the opinion of management, likely to have a current or future material effect on our financial
statements.
22
Item 3.
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Quantitative and Qualitative Disclosures about Market Risk
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We are exposed to a variety of market risks, including changes in interest rates primarily as a result of our borrowing and investing activities.
We are subject to interest rate exposure on our long-term debt. Our long-term borrowings are in variable rate instruments, with interest
rates tied to either the Prime Rate or the LIBOR. We have entered into an interest rate swap agreement to minimize our exposure to interest rate fluctuations on these borrowings. Our interest rate swap has not been designated as a hedging
instrument, therefore changes in fair value are recognized in earnings.
We conduct our transactions with foreign customers in
U.S. dollars. Although we are not subject to the risks of foreign currency fluctuations directly, demand from foreign customers may be affected by the relative change in value of the customers currency to the value of the U.S. dollar. Changes
in the relative value of the U.S. dollar may also change our prices relative to the prices of our foreign competitors.
Item 4.
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Controls and Procedures
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Evaluation of disclosure controls and procedures
As of September 26, 2009, the Company carried out an evaluation, under the supervision and with the Companys management, including the Companys Chief Executive
Officer and Acting Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d- 15(e) of the Securities Exchange Act of 1934 (the
Exchange Act)). Based upon that evaluation, the Chief Executive Officer and the Acting Chief Financial Officer concluded that the Companys disclosure controls and procedures were effective as of September 26, 2009 to provide
reasonable assurance that material information relating to the Company required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules and forms and that such information is accumulated and communicated to management, including the Companys Chief Executive Officer and Acting Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.
Changes in internal control
There were no
significant changes in the Companys internal controls over financial reporting that occurred during the second quarter of Fiscal 2010 that materially affected, or are reasonably likely to materially affect, the Companys internal control
over financial reporting.
Important considerations
The effectiveness of our disclosure controls and procedures is
subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Because
of these limitations, there can be no assurance that any system of disclosure controls and procedures will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of
management.
23
PART II. OTHER INFORMATION
Item 1.
|
Legal Proceedings.
|
The
Company is not a party to any material pending legal proceedings.
This
report contains forward-looking statements that involve risks and uncertainties, such as statements of our objectives, expectations and intentions. You should consider carefully all of the material risks described herein, in our Annual Report on
Form 10-K for the fiscal year ended March 31, 2009, and in our other documents filed with the Securities and Exchange Commission, as well as the cautionary statements made elsewhere in the Annual Report and in this report, before making a
decision to invest in our securities. Such cautionary statements are applicable to all forward-looking statements wherever they appear in this report. If any of the events described therein occur, our business, financial conditions and results of
operations may be materially adversely affected. In that event, the trading price of our securities could decline, and you could lose all or part of your investment.
There have been no material changes to the risk factors previously disclosed in the Companys Annual Report on Form 10-K for the fiscal year ended March 31, 2009.
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds.
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None.
Item 3.
|
Defaults upon Senior Securities.
|
None.
Item 4.
|
Submission of Matters to a Vote of Security Holders.
|
None.
Item 5.
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Other Information.
|
None.
24
|
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31.1
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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31.2
|
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
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32.1
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
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|
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32.2
|
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Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
|
25
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
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|
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MICRONETICS, INC.
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|
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Dated: November 6, 2009
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By:
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/
S
/ D
AVID
R
OBBINS
|
|
|
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David Robbins,
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|
|
|
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Chief Executive Officer and Treasurer
(Principal Executive Officer)
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|
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Dated: November 6, 2009
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By:
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/
S
/ C
ARL
L
UEDERS
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Carl Lueders,
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|
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|
|
Acting Chief Financial Officer
(Principal Financial and Accounting Officer)
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26
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