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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-Q



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|x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------

For the quarterly period ended September 30, 2007

OR



| ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------

For the transition period fromto
.

Commission file number 0-17966



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MICRONETICS,
INC.

(Exact name of small business issuer as specified in its charter)



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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                       |  | 22-2063614                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|26 Hampshire Drive, Hudson NH            |  | 03051     
|(Address of principal executive offices) |  | (Zip Code)

(603) 883-2900

(Issuers 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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act. (Check one):

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  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 November 7, 2007, the issuer had 5,366,217
shares of common stock, par value $.01 per share, outstanding.



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##### Table of Contents

MICRONETICS, INC.

INDEX



|                               |  |          |  |                                                                                                                      |  |         
|------------------------------ |  | -------- |  | -------------------------------------------------------------------------------------------------------------------- |  | --------
|                               |  |          |  |                                                                                                                      |  | Page No.
|Part I. Financial Information:
|                               |  |          | 
|                               |  | Item 1.  |  | Financial Statements.                                                                                                |  |         
|                               |  |          | 
|                               |  |          |  | Consolidated Balance Sheets  September 30, 2007 (unaudited) and March 31, 2007 (audited)                            |  | 3       
|                               |  |          | 
|                               |  |          |  | Consolidated Statements of Income - Three and Six Months Ended September 30, 2007 and September 30, 2006 (unaudited) |  | 4-5     
|                               |  |          | 
|                               |  |          |  | Consolidated Statement of Shareholders Equity  September 30, 2007 (unaudited)                                      |  | 6       
|                               |  |          | 
|                               |  |          |  | Consolidated Statements of Cash Flows - Six Months Ended September 30, 2007 and September 30, 2006 (unaudited)       |  | 7       
|                               |  |          | 
|                               |  |          |  | Notes to Interim Consolidated Financial Statements (unaudited)                                                       |  | 8-16    
|                               |  |          | 
|                               |  | Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                |  | 17-23   
|                               |  |          | 
|                               |  | Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                           |  | 24      
|                               |  |          | 
|                               |  | Item 4.  |  | Controls and Procedures                                                                                              |  | 24      
|                              
|Part II. Other Information:   
|                               |  |          | 
|                               |  | Item 1.  |  | Legal Proceedings                                                                                                    |  | 25      
|                               |  |          | 
|                               |  | Item 1A. |  | Risk Factors                                                                                                         |  | 25-30   
|                               |  |          | 
|                               |  | Item 2.  |  | Unregistered Sales of Equity Securities And Use of Proceeds                                                          |  | 31      
|                               |  |          | 
|                               |  | Item 3.  |  | Defaults Upon Senior Securities                                                                                      |  | 31      
|                               |  |          | 
|                               |  | Item 4.  |  | Submission of Matters to Vote of Security Holders                                                                    |  | 31      
|                               |  |          | 
|                               |  | Item 5.  |  | Other Information                                                                                                    |  | 31      
|                               |  |          | 
|                               |  | Item 6.  |  | Exhibits                                                                                                             |  | 31      



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##### Table of Contents

MICRONETICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                          |  |                    |            |   |                |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ---------- | - | -------------- | - | ---------- | -
|                                                                                                                                                                          |  | September 30, 2007 |            |   | March 31, 2007 |  
|                                                                                                                                                                          |  | (Unaudited)        |            |   | Audited        |  
|ASSETS                                                                                                                                                                    |  |                    |            |   |                |   |            |  
|Current assets:                                                                                                                                                           |  |                    |            |   |                |   |            |  
|Cash and cash equivalents                                                                                                                                                 |  | $                  | 1,631,624  |   |                | $ | 7,058,524  |  
|Marketable securities                                                                                                                                                     |  |                    | 500,000    |   |                |   |           |  
|Accounts receivable, net of allowance for doubtful accounts of $351,142 and $297,886 in September 30, 2007 and March 31, 2007,
respectively                               |  |                    | 5,909,822  |   |                |   | 3,932,029  |  
|Inventories, net                                                                                                                                                          |  |                    | 6,794,178  |   |                |   | 5,548,691  |  
|Deferred tax asset                                                                                                                                                        |  |                    | 153,316    |   |                |   |           |  
|Prepaid expenses and other current assets                                                                                                                                 |  |                    | 622,928    |   |                |   | 784,649    |  
|                                                                                                                                                                          |  |                    |            |   |                |   |            |  
|Total current assets                                                                                                                                                      |  |                    | 15,611,868 |   |                |   | 17,323,893 |  
|                                                                                                                                                                          |  |                    |            |   |                |   |            |  
|Property, plant and equipment, net                                                                                                                                        |  |                    | 4,081,521  |   |                |   | 4,017,465  |  
|Other assets:                                                                                                                                                             |  |                    |            |   |                |   |            |  
|Security deposits                                                                                                                                                         |  |                    | 23,384     |   |                |   | 12,302     |  
|Other long term assets                                                                                                                                                    |  |                    | 41,216     |   |                |   | 138,493    |  
|Intangible assets, net of accumulated amortization                                                                                                                        |  |                    | 3,727,915  |   |                |   | 2,344,364  |  
|Goodwill                                                                                                                                                                  |  |                    | 8,924,325  |   |                |   | 5,982,709  |  
|                                                                                                                                                                          |  |                    |            |   |                |   |            |  
|Total other assets                                                                                                                                                        |  |                    | 12,716,840 |   |                |   | 8,477,868  |  
|                                                                                                                                                                          |  |                    |            |   |                |   |            |  
|TOTAL ASSETS                                                                                                                                                              |  | $                  | 32,410,229 |   |                | $ | 29,819,226 |  
|                                                                                                                                                                          |  |                    |            |   |                |   |            |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                      |  |                    |            |   |                |   |            |  
|Current liabilities:                                                                                                                                                      |  |                    |            |   |                |   |            |  
|Line of credit                                                                                                                                                            |  | $                  | 372,149    |   |                | $ |           |  
|Current portion of long-term debt                                                                                                                                         |  |                    | 1,440,882  |   |                |   | 1,449,443  |  
|Accounts payable                                                                                                                                                          |  |                    | 757,382    |   |                |   | 695,142    |  
|Accrued expenses                                                                                                                                                          |  |                    | 2,303,189  |   |                |   | 3,342,365  |  
|Current portion of deferred tax liability                                                                                                                                 |  |                    | 52,502     |   |                |   |           |  
|                                                                                                                                                                          |  |                    |            |   |                |   |            |  
|Total current liabilities                                                                                                                                                 |  |                    | 4,926,104  |   |                |   | 5,486,950  |  
|Long-term debt, net of current portion                                                                                                                                    |  |                    | 4,939,021  |   |                |   | 5,633,386  |  
|Non-current income taxes payable                                                                                                                                          |  |                    | 99,243     |   |                |   |           |  
|Deferred tax liability                                                                                                                                                    |  |                    | 1,421,917  |   |                |   | 721,917    |  
|                                                                                                                                                                          |  |                    |            |   |                |   |            |  
|Total liabilities                                                                                                                                                         |  |                    | 11,386,285 |   |                |   | 11,842,253 |  
|                                                                                                                                                                          |  |                    |            |   |                |   |            |  
|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; 5,358,217 and 5,025,457 shares issued and outstanding at September 30, 2007
and March 31, 2007, respectively |  |                    | 53,582     |   |                |   | 50,255     |  
|Additional paid-in capital                                                                                                                                                |  |                    | 11,083,293 |   |                |   | 8,541,274  |  
|Retained earnings                                                                                                                                                         |  |                    | 11,619,268 |   |                |   | 10,912,458 |  
|                                                                                                                                                                          |  |                    |            |   |                |   |            |  
|                                                                                                                                                                          |  |                    | 22,756,143 |   |                |   | 19,503,987 |  
|Treasury stock at cost, 383,475 and 358,541 shares at September 30, 2007 and March 31, 2007                                                                               |  |                    | (1,732,199 | ) |                |   | (1,527,014 | )
|                                                                                                                                                                          |  |                    |            |   |                |   |            |  
|Total shareholders equity                                                                                                                                                |  |                    | 21,023,944 |   |                |   | 17,976,973 |  
|                                                                                                                                                                          |  |                    |            |   |                |   |            |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                |  | $                  | 32,410,229 |   |                | $ | 29,819,226 |  
|                                                                                                                                                                          |  |                    |            |   |                |   |            |  

The accompanying notes are an integral part of these consolidated financial statements.



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##### Table of Contents

MICRONETICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)



|                                           |  |                                  |           |   |      |   |           |  
|------------------------------------------ |  | -------------------------------- | --------- | - | ---- | - | --------- | -
|                                           |  | Three months ended September 30, |          
|                                           |  | 2007                             |           |   | 2006 |  
|Net sales                                  |  | $                                | 9,762,964 |   |      | $ | 5,061,326 |  
|Cost of sales                              |  |                                  | 6,111,204 |   |      |   | 3,313,253 |  
|                                           |  |                                  |           |   |      |   |           |  
|Gross profit                               |  |                                  | 3,651,760 |   |      |   | 1,748,073 |  
|                                           |  |                                  |           |   |      |   |           |  
|Operating expenses:                        |  |                                  |           |   |      |   |           |  
|Research and development                   |  |                                  | 158,600   |   |      |   | 224,431   |  
|Selling, general and administrative        |  |                                  | 1,991,673 |   |      |   | 1,136,540 |  
|Amortization of intangible assets          |  |                                  | 183,357   |   |      |   | 178,295   |  
|                                           |  |                                  |           |   |      |   |           |  
|Total operating expenses                   |  |                                  | 2,333,630 |   |      |   | 1,539,266 |  
|                                           |  |                                  |           |   |      |   |           |  
|Income from operations                     |  |                                  | 1,318,130 |   |      |   | 208,807   |  
|                                           |  |                                  |           |   |      |   |           |  
|Other (expense) income                     |  |                                  |           |   |      |   |           |  
|Interest income                            |  |                                  | 18,943    |   |      |   | 45,790    |  
|Interest expense                           |  |                                  | (162,100  | ) |      |   | (112,015  | )
|Loss on sale of assets                     |  |                                  | (17,760   | ) |      |   |          |  
|Other (expense) income                     |  |                                  | (76,118   | ) |      |   | 14,007    |  
|                                           |  |                                  |           |   |      |   |           |  
|Total other expense                        |  |                                  | (237,035  | ) |      |   | (52,218   | )
|                                           |  |                                  |           |   |      |   |           |  
|Income before provision for income taxes   |  |                                  | 1,081,095 |   |      |   | 156,589   |  
|Provision for income taxes                 |  |                                  | 462,936   |   |      |   | 115,309   |  
|                                           |  |                                  |           |   |      |   |           |  
|Net income                                 |  | $                                | 618,159   |   |      | $ | 41,280    |  
|                                           |  |                                  |           |   |      |   |           |  
|Earnings per common share                  |  |                                  |           |   |      |   |           |  
|Basic                                      |  | $                                | 0.12      |   |      | $ | 0.01      |  
|                                           |  |                                  |           |   |      |   |           |  
|Diluted                                    |  | $                                | 0.12      |   |      | $ | 0.01      |  
|                                           |  |                                  |           |   |      |   |           |  
|Weighted average common shares outstanding |  |                                  |           |   |      |   |           |  
|Basic                                      |  |                                  | 4,974,742 |   |      |   | 4,642,041 |  
|Diluted                                    |  |                                  | 5,012,526 |   |      |   | 4,808,262 |  

The accompanying notes are an integral part of these consolidated financial statements.



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##### Table of Contents

MICRONETICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)



|                                           |  |                                |            |   |      |   |            |  
|------------------------------------------ |  | ------------------------------ | ---------- | - | ---- | - | ---------- | -
|                                           |  | Six months ended September 30, |           
|                                           |  | 2007                           |            |   | 2006 |  
|Net sales                                  |  | $                              | 16,073,629 |   |      | $ | 11,867,764 |  
|Cost of sales                              |  |                                | 10,028,279 |   |      |   | 7,083,872  |  
|                                           |  |                                |            |   |      |   |            |  
|Gross profit                               |  |                                | 6,045,350  |   |      |   | 4,783,892  |  
|                                           |  |                                |            |   |      |   |            |  
|Operating expenses:                        |  |                                |            |   |      |   |            |  
|Research and development                   |  |                                | 312,464    |   |      |   | 411,934    |  
|Selling, general and administrative        |  |                                | 3,630,328  |   |      |   | 2,836,361  |  
|Amortization of intangible assets          |  |                                | 366,450    |   |      |   | 356,590    |  
|                                           |  |                                |            |   |      |   |            |  
|Total operating expenses                   |  |                                | 4,309,242  |   |      |   | 3,604,885  |  
|                                           |  |                                |            |   |      |   |            |  
|Income from operations                     |  |                                | 1,736,108  |   |      |   | 1,179,007  |  
|                                           |  |                                |            |   |      |   |            |  
|Other (expense) income                     |  |                                |            |   |      |   |            |  
|Interest income                            |  |                                | 59,774     |   |      |   | 86,387     |  
|Interest expense                           |  |                                | (276,846   | ) |      |   | (227,847   | )
|Gain on sale of assets                     |  |                                | 44,749     |   |      |   |           |  
|Other (expense) income                     |  |                                | (67,665    | ) |      |   | 32,830     |  
|                                           |  |                                |            |   |      |   |            |  
|Total other (expense)                      |  |                                | (239,988   | ) |      |   | (108,630   | )
|                                           |  |                                |            |   |      |   |            |  
|Income before provision for income taxes   |  |                                | 1,496,120  |   |      |   | 1,070,377  |  
|Provision for income taxes                 |  |                                | 692,867    |   |      |   | 480,824    |  
|                                           |  |                                |            |   |      |   |            |  
|Net income                                 |  | $                              | 803,253    |   |      | $ | 589,553    |  
|                                           |  |                                |            |   |      |   |            |  
|Earnings per common share:                 |  |                                |            |   |      |   |            |  
|Basic                                      |  | $                              | 0.16       |   |      | $ | 0.13       |  
|                                           |  |                                |            |   |      |   |            |  
|Diluted                                    |  | $                              | 0.16       |   |      | $ | 0.12       |  
|                                           |  |                                |            |   |      |   |            |  
|Weighted average common shares outstanding |  |                                |            |   |      |   |            |  
|Basic                                      |  |                                | 4,874,142  |   |      |   | 4,626,732  |  
|Diluted                                    |  |                                | 4,910,823  |   |      |   | 4,883,862  |  

The accompanying notes are an integral part of these consolidated financial statements.



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CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

(Unaudited)



|                                                                       |  |              |  |            |        |                |   |                  |  |   |               |   |  |       |            |   |  |   |            |  
|---------------------------------------------------------------------- |  | ------------ |  | ---------- | ------ | -------------- | - | ---------------- |  | - | ------------- | - |  | ----- | ---------- | - |  | - | ---------- | -
|                                                                       |  | Common Stock |  | Additional |        |                |   |                  |  |   |               |   | 
|                                                                       |  | Shares       |  | ParValue   |        | Paid-InCapital |   | RetainedEarnings |  |   | TreasuryStock |   |  | Total |           
|Balance at March 31, 2007                                              |  | 5,025,457    |  | $          | 50,255 |                | $ | 8,541,274        |  | $ | 10,912,458    |   |  | $     | (1,527,014 | ) |  | $ | 17,976,973 |  
|                                                                       |  |              |  |            |        |               
|Exercise of stock options                                              |  | 84,625       |  |            | 846    |                |   | 268,019          |  |   |              |   |  |       |           |   |  |   | 268,865    |  
|Issuance of common stock for MICA acquisition                          |  | 248,135      |  |            | 2,481  |                |   | 1,997,487        |  |   |              |   |  |       |           |   |  |   | 1,999,968  |  
|Stock based compensation                                               |  |             |  |            |       |                |   | 148,972          |  |   |              |   |  |       |           |   |  |   | 148,972    |  
|Cumulative effect of the recognition of uncertain income tax positions |  |             |  |            |       |                |   |                 |  |   | (96,443       | ) |  |       |           |   |  |   | (96,443    | )
|Purchase of treasury stock                                             |  |             |  |            |       |                |   |                 |  |   |              |   |  |       | (205,185   | ) |  |   | (205,185   | )
|Net income                                                             |  |             |  |            |       |                |   |                 |  |   | 185,094       |   |  |       |           |   |  |   | 185,094    |  
|                                                                       |  |              |  |            |        |                |   |                  |  |   |               |   |  |       |            |   |  |   |            |  
|Balance at June 30, 2007                                               |  | 5,358,217    |  | $          | 53,582 |                | $ | 10,955,752       |  | $ | 11,001,109    |   |  | $     | (1,732,199 | ) |  | $ | 20,278,244 |  
|Stock based compensation                                               |  |             |  |            |       |                |   | 127,541          |  |   |              |   |  |       |           |   |  |   | 127,541    |  
|Net income                                                             |  |             |  |            |       |                |   |                 |  |   | 618,159       |   |  |       |           |   |  |   | 618,159    |  
|                                                                       |  |              |  |            |        |                |   |                  |  |   |               |   |  |       |            |   |  |   |            |  
|Balance at September 30, 2007                                          |  | 5,358,217    |  | $          | 53,582 |                | $ | 11,083,293       |  | $ | 11,619,268    |   |  | $     | (1,732,199 | ) |  | $ | 21,023,944 |  
|                                                                       |  |              |  |            |        |                |   |                  |  |   |               |   |  |       |            |   |  |   |            |  

The accompanying notes are an integral part of these consolidated financial statements.



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##### Table of Contents

MICRONETICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                  |  |                                |            |   |      |   |            |  
|--------------------------------------------------------------------------------- |  | ------------------------------ | ---------- | - | ---- | - | ---------- | -
|                                                                                  |  | Six Months Ended September 30, |           
|                                                                                  |  | 2007                           |            |   | 2006 |  
|Cash flow from operating activities:                                              |  |                                |            |   |      |   |            |  
|Net income                                                                        |  | $                              | 803,253    |   |      | $ | 589,553    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                |            |   |      |   |            |  
|Depreciation and amortization                                                     |  |                                | 850,511    |   |      |   | 814,027    |  
|Stock-based compensation                                                          |  |                                | 276,513    |   |      |   | 338,236    |  
|Unrealized gain from marketable securities                                        |  |                                |           |   |      |   | (17,436    | )
|Net gain on sale of assets                                                        |  |                                | (44,749    | ) |      |   |           |  
|Provision for allowances on accounts receivable                                   |  |                                | 53,256     |   |      |   | (8,926     | )
|Provision for inventory obsolescence and losses                                   |  |                                | 202,424    |   |      |   | 197,384    |  
|Non-cash charges for options issued for services                                  |  |                                |           |   |      |   | 7,480      |  
|Changes in operating assets and liabilities, net of acquisition:                  |  |                                |            |   |      |   |            |  
|Accounts receivable                                                               |  |                                | (1,355,142 | ) |      |   | 1,409,523  |  
|Inventories                                                                       |  |                                | (139,332   | ) |      |   | (347,771   | )
|Other long term assets                                                            |  |                                | 97,276     |   |      |   |           |  
|Income taxes payable                                                              |  |                                |           |   |      |   | (1,008,901 | )
|Prepaid expenses, other current assets, and other assets                          |  |                                | 57,125     |   |      |   | (145,956   | )
|Accounts payable                                                                  |  |                                | (315,217   | ) |      |   | (221,024   | )
|Accrued expenses and deferred revenue                                             |  |                                | 134,626    |   |      |   | (739,419   | )
|                                                                                  |  |                                |            |   |      |   |            |  
|Net cash provided by operating activities                                         |  |                                | 620,544    |   |      |   | 866,770    |  
|                                                                                  |  |                                |            |   |      |   |            |  
|Cash flows (used in) provided by investing activities                             |  |                                |            |   |      |   |            |  
|Sale of building                                                                  |  |                                | 461,898    |   |      |   |           |  
|Purchase of marketable securities                                                 |  |                                | (500,000   | ) |      |   | (500,000   | )
|Purchase of equipment                                                             |  |                                | (482,612   | ) |      |   | (451,549   | )
|Additional cash paid for Stealth acquisition                                      |  |                                | (1,500,000 | ) |      |   | (92,455    | )
|Cash paid for MICA acquisition, net of cash acquired                              |  |                                | (3,112,814 | ) |      |   |           |  
|                                                                                  |  |                                |            |   |      |   |            |  
|Net cash used in investing activities                                             |  |                                | (5,133,528 | ) |      |   | (1,044,004 | )
|                                                                                  |  |                                |            |   |      |   |            |  
|Cash flows (used in) provided by financing activities:                            |  |                                |            |   |      |   |            |  
|Repayment of the line of credit                                                   |  |                                | (356,379   | ) |      |   | (475,972   | )
|Proceeds from line of credit                                                      |  |                                | 728,528    |   |      |   |           |  
|Repayments on mortgages and term loan                                             |  |                                | (701,415   | ) |      |   | (427,400   | )
|Repayments of MICA debt                                                           |  |                                | (646,820   | ) |      |   |           |  
|Repayments of capital leases                                                      |  |                                | (1,510     | ) |      |   | (11,053    | )
|Purchase of treasury stock                                                        |  |                                | (205,185   | ) |      |   |           |  
|Proceeds from the issuance of common stock                                        |  |                                | 268,865    |   |      |   | 212,559    |  
|                                                                                  |  |                                |            |   |      |   |            |  
|Net cash used in financing activities                                             |  |                                | (913,916   | ) |      |   | (701,866   | )
|                                                                                  |  |                                |            |   |      |   |            |  
|Net decrease in cash and cash equivalents                                         |  |                                | (5,426,900 | ) |      |   | (879,100   | )
|                                                                                  |  |                               
|Cash and cash equivalents at beginning of period                                  |  |                                | 7,058,524  |   |      |   | 5,266,580  |  
|                                                                                  |  |                                |            |   |      |   |            |  
|Cash and cash equivalents at end of period                                        |  | $                              | 1,631,624  |   |      | $ | 4,387,480  |  
|                                                                                  |  |                                |            |   |      |   |            |  
|Supplemental disclosure of cash flow information:                                 |  |                                |            |   |      |   |            |  
|Cash paid during the period for:                                                  |  |                                |            |   |      |   |            |  
|Interest                                                                          |  | $                              | 128,999    |   |      | $ | 226,526    |  
|                                                                                  |  |                                |            |   |      |   |            |  
|Income taxes                                                                      |  | $                              | 737,000    |   |      | $ | 1,600,228  |  
|                                                                                  |  |                                |            |   |      |   |            |  
|Supplemental disclosure of non-cash financing activities:                         |  |                                |            |   |      |   |            |  
|Shares issued to MICA stockholders                                                |  | $                              | 1,999,968  |   |      | $ |           |  
|                                                                                  |  |                                |            |   |      |   |            |  

The accompanying notes are an integral part of these consolidated financial statements.



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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 Companys Annual Report on Form 10-KSB for its fiscal year ended March 31, 2007. 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 30, 2007, the results of operations for the three and six months
ended September 30, 2007 and 2006, and the cash flows for the six months ended September 30, 2007 and 2006.

The results of
operations for the three and six months ended September 30, 2007 are not necessarily indicative of the results to be expected for the full year ended March 31, 2008.

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 and test equipment 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), Enon Microwave, Inc.
(Enon), Microwave Concepts, Inc. (MicroCon) Stealth Microwave, Inc. (Stealth) and MICA Microwave Corporation (MICA). The operating results of MICA have been included in the Companys consolidated
financial statements since June 5, 2007, the date of acquisition (See Note 3). All material intercompany balances and transactions have been eliminated in consolidation.

Use of estimatesUS generally accepted accounting principles (GAAP) 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.

Marketable securitiesThe Companys investments in marketable securities are classified as available for sale and are reported at fair value in the Companys consolidated balance
sheets, with net unrealized holding gains or losses recorded in the statement of income.

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 Companys products are primarily hardware components, and to a lesser extent bundled hardware components and software, that are delivered to
original equipment manufacturers (OEMs) of telecommunication and networking products who are considered to be end users.

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.

Recent accounting
pronouncementsIn June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income TaxesAn Interpretation of FASB Statement
No. 109 (FIN No. 48). FIN No. 48 provides guidance with respect to the recognition and measurement in the financial statements of uncertain tax positions taken or expected to be taken in a tax return, and also
provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company adopted the provisions of FIN No. 48 in the first quarter of Fiscal 2008. The adoption of FIN
No. 48 resulted in an adjustment for unrecognized tax benefits of $96,443.



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In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157,
Fair Value Measurements(SFAS 157),which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of SFAS 157 are effective in
the first quarter of Fiscal 2009. The Company is currently evaluating the effect of this statement on its consolidated financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115
(SFAS 159). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted,
provided the Company also elects to apply the provisions of SFAS 157. The Company is currently evaluating the effect that the adoption of SFAS 159 will have on its consolidated results of operations and financial condition.

3. ACQUISITION

On June 5, 2007, the Company
entered into an Agreement of Merger and Plan of Reorganization (the Merger Agreement) with MICA, a California corporation whereby MICA became a wholly-owned subsidiary of Micronetics. Pursuant to the terms and conditions of the Merger
Agreement, the Company acquired all of the common stock of MICA for $3.0 million in cash and $2.0 million in shares of Micronetics common stock (248,135 shares), subject to a post-closing adjustment based upon MICAs net worth on the
closing date.

The acquisition of MICA provides a broader range of RF/Microwave products, including high performance mixers and ferrites to
the Company, and will provide the Company with further integrated microwave sub-systems and systems solutions.

The following table
summarizes the preliminary fair value assigned to the assets acquired and liabilities assumed at the date of acquisition:



|                                             |  |                            |       |  
|-------------------------------------------- |  | -------------------------- | ----- | -
|                                             |  | (Unaudited) (in thousands) |      
|Cash and accounts receivable                 |  | $                          | 773   |  
|Inventory                                    |  |                            | 1,308 |  
|Property, plant and equipment                |  |                            | 483   |  
|Other assets                                 |  |                            | 41    |  
|Development technology drawings              |  |                            | 220   |  
|Customer relationships                       |  |                            | 1,180 |  
|Order backlog                                |  |                            | 90    |  
|Trade name                                   |  |                            | 260   |  
|Goodwill                                     |  |                            | 2,942 |  
|Debt                                         |  |                            | (647  | )
|Deferred taxes                               |  |                            | 101   |  
|Deferred taxes on acquired intangible assets |  |                            | (700  | )
|Income taxes payable                         |  |                            | (137  | )
|Accounts payable and accrued expenses        |  |                            | (704  | )
|                                             |  |                            |       |  
|Subtotal                                     |  |                            | 5,210 |  
|Less: cash assumed                           |  |                            | (97   | )
|                                             |  |                            |       |  
|Net purchase price                           |  | $                          | 5,113 |  
|                                             |  |                            |       |  

The acquisition of MICA was accounted for as a purchase under SFAS No. 141, Business
Combinations. Accordingly, the operating results of MICA have been included in the Companys consolidated financial statements since the June 5, 2007 acquisition date. The Company estimated the useful lives of the acquired other
intangible assets to be one to ten years and has included them in intangible assets, net, in the accompanying consolidated balance sheet as of September 30, 2007. The values assigned to intangible assets were based on an independent appraisal.
The allocation of the purchase price is preliminary and may be subject to adjustments.



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The following table sets forth certain pro forma results for the six months ended September 30, 2007
and 2006 if the acquisition of MICA had taken place on April 1, 2006:



|                              |  |                                          |        |                                          |   |       
|----------------------------- |  | ---------------------------------------- | ------ | ---------------------------------------- | - | ------
|                              |  | Six Months Ended (Unaudited)            
|                              |  | September 30, 2007                       |        | September 30, 2006                      
|                              |  | (in thousands, exceptearnings per share) |        | (in thousands, exceptearnings per share)
|Pro forma revenue             |  | $                                        | 16,874 |                                          | $ | 14,588
|Pro forma net income (1)      |  | $                                        | 811    |                                          | $ | 671   
|Pro forma earnings per share: |  |                                          |        |                                          |   |       
|                              |  |                                         
|Basic                         |  | $                                        | 0.17   |                                          | $ | 0.14  
|Diluted                       |  | $                                        | 0.17   |                                          | $ | 0.14  



|(1) | Amortization costs of approximately $92,000 related to the purchase price in 2007 were assessed to the 2006 income. Management believes that including these adjustments in the above
periods allow investors to better compare results in the future periods.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4. INVENTORIES, NET

At September 30, 2007 and March 31, 2007, inventories consisted of the following:



|                                |  |                    |           |   |                |   |           |  
|------------------------------- |  | ------------------ | --------- | - | -------------- | - | --------- | -
|                                |  | September 30, 2007 |           |   | March 31, 2007 |  
|                                |  | (Unaudited)        |           |   | (Audited)      |  
|Raw materials                   |  | $                  | 4,819,627 |   |                | $ | 4,072,116 |  
|Work in process                 |  |                    | 2,088,389 |   |                |   | 1,339,160 |  
|Finished goods                  |  |                    | 668,705   |   |                |   | 717,534   |  
|                                |  |                    |           |   |                |   |           |  
|                                |  |                    | 7,576,721 |   |                |   | 6,128,810 |  
|Less allowance for obsolescence |  |                    | (782,543  | ) |                |   | (580,119  | )
|                                |  |                    |           |   |                |   |           |  
|                                |  | $                  | 6,794,178 |   |                | $ | 5,548,691 |  
|                                |  |                    |           |   |                |   |           |  

5. PROPERTY, PLANT AND EQUIPMENT, NET

At September 30, 2007 and March 31, 2007, property, plant and equipment, net consisted of the following:



|                                     |  |                    |            |   |                |   |            |  
|------------------------------------ |  | ------------------ | ---------- | - | -------------- | - | ---------- | -
|                                     |  | September 30, 2007 |            |   | March 31, 2007 |  
|                                     |  | (Unaudited)        |            |   | (Audited)      |  
|Land                                 |  | $                  | 162,000    |   |                | $ | 162,000    |  
|Buildings and leasehold improvements |  |                    | 1,105,746  |   |                |   | 1,555,106  |  
|Machinery and equipment              |  |                    | 8,532,534  |   |                |   | 7,877,654  |  
|Furniture, fixtures and other        |  |                    | 242,563    |   |                |   | 286,516    |  
|                                     |  |                    |            |   |                |   |            |  
|                                     |  |                    | 10,042,843 |   |                |   | 9,881,276  |  
|Less accumulated depreciation        |  |                    | (5,961,322 | ) |                |   | (5,863,811 | )
|                                     |  |                    |            |   |                |   |            |  
|                                     |  | $                  | 4,081,521  |   |                | $ | 4,017,465  |  
|                                     |  |                    |            |   |                |   |            |  

In May 2007, the commercial condominium housing Micronetics Enon division was sold. The
proceeds from the sale were $461,898. The Company recorded a gain on the sale of the building of $69,609 in the quarter ended June 30, 2007.



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6. INTANGIBLE ASSETS AND GOODWILL

The Companys finite-lived intangible assets include certain identifiable intangible assets acquired as a result of business combinations, including customer relationships, covenants not to compete, order
backlog, trade name and developed technology.

The following table presents details of the Companys finite-lived intangible assets as
of September 30, 2007 and March 31, 2007 (in thousands):



|                                         |  |                                |       |                          |   |          |  |            |       |                         |   |          |  |   |       |  |   |      
|---------------------------------------- |  | ------------------------------ | ----- | ------------------------ | - | -------- |  | ---------- | ----- | ----------------------- | - | -------- |  | - | ----- |  | - | -----
|                                         |  | September 30, 2007 (Unaudited) |       | March 31, 2007 (Audited)
|Intangible Assets                        |  | GrossValue                     |       | AccumulatedAmortization  |   | NetValue |  | GrossValue |       | AccumulatedAmortization |   | NetValue
|Customer relationships (non-contractual) |  | $                              | 4,130 |                          | $ | 1,013    |  | $          | 3,117 |                         | $ | 2,950    |  | $ | 761   |  | $ | 2,189
|Covenants not to compete                 |  |                                | 480   |                          |   | 480      |  |            |      |                         |   | 480      |  |   | 433   |  |   | 47   
|Order backlog                            |  |                                | 380   |                          |   | 319      |  |            | 61    |                         |   | 290      |  |   | 290   |  |   |     
|Trade name                               |  |                                | 260   |                          |   | 8        |  |            | 252   |                         |   |         |  |   |      |  |   |     
|Developed technology-drawings            |  |                                | 390   |                          |   | 92       |  |            | 298   |                         |   | 170      |  |   | 62    |  |   | 108  
|                                         |  |                                |       |                          |   |          |  |            |       |                         |   |          |  |   |       |  |   |      
|Total intangibles                        |  | $                              | 5,640 |                          | $ | 1,912    |  | $          | 3,728 |                         | $ | 3,890    |  | $ | 1,546 |  | $ | 2,344
|                                         |  |                                |       |                          |   |          |  |            |       |                         |   |          |  |   |       |  |   |      

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 2008 |  | $              | 368  
|2009              |  |                | 660  
|2010              |  |                | 643  
|2011              |  |                | 616  
|2012              |  |                | 618  
|Thereafter        |  |                | 823  
|                  |  |                |      
|Total             |  | $              | 3,728
|                  |  |                |      

Changes in the carrying amount of goodwill at September 30, 2007 and March 31, 2007 are
as follows:



|                                       |  |                    |           |                |   |          
|-------------------------------------- |  | ------------------ | --------- | -------------- | - | ---------
|                                       |  | September 30, 2007 |           | March 31, 2007
|                                       |  | (Unaudited)        |           | (Audited)     
|Balance at the beginning of the period |  | $                  | 5,982,709 |                | $ | 4,390,254
|Acquisitions                           |  |                    | 2,941,616 |                |   |         
|Earnout payment                        |  |                    |          |                |   | 1,500,000
|Purchase accounting adjustments        |  |                    |          |                |   | 92,455   
|                                       |  |                    |           |                |   |          
|Balance at the end of the period       |  | $                  | 8,924,325 |                | $ | 5,982,709
|                                       |  |                    |           |                |   |          

7. ACCRUED EXPENSES

At September 30, 2007 and March 31, 2007 accrued expenses consisted of the following:



|                                    |  |                    |           |                |   |          
|----------------------------------- |  | ------------------ | --------- | -------------- | - | ---------
|                                    |  | September 30, 2007 |           | March 31, 2007
|                                    |  | (Unaudited)        |           | (Audited)     
|Unbilled payables                   |  | $                  | 393,641   |                | $ | 169,755  
|Professional fees                   |  |                    | 215,606   |                |   | 261,372  
|Payroll, benefits and related taxes |  |                    | 1,108,654 |                |   | 1,195,273
|Warranty                            |  |                    | 96,499    |                |   | 100,178  
|Miscellaneous                       |  |                    | 488,789   |                |   | 1,615,787
|                                    |  |                    |           |                |   |          
|                                    |  | $                  | 2,303,189 |                | $ | 3,342,365
|                                    |  |                    |           |                |   |          



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Included in accrued payroll are bonuses of $412,192 and $572,951 at September 30, 2007 and
March 31, 2007. Miscellaneous accrued expenses at March 31, 2007 included $1.5 million in earnout payments due to the former stockholders of Stealth that was paid in April 2007.

8. LONG-TERM DEBT

At September 30, 2007 and
March 31, 2007 long-term debt consisted of the following:



|                                      |  |                    |            |   |                |   |            |  
|------------------------------------- |  | ------------------ | ---------- | - | -------------- | - | ---------- | -
|                                      |  | September 30, 2007 |            |   | March 31, 2007 |  
|                                      |  | (Unaudited)        |            |   | (Audited)      |  
|Term loan                             |  |                    | 6,175,000  |   |                |   | 6,500,000  |  
|Mortgage payable, MA                  |  |                    |           |   |                |   | 310,531    |  
|Mortgage payable, NH                  |  |                    | 198,443    |   |                |   | 264,076    |  
|Capital leases                        |  |                    | 6,460      |   |                |   | 8,222      |  
|                                      |  |                    |            |   |                |   |            |  
|Total                                 |  |                    | 6,379,903  |   |                |   | 7,082,829  |  
|Less current portion                  |  |                    | (1,440,882 | ) |                |   | (1,449,443 | )
|                                      |  |                    |            |   |                |   |            |  
|Long-term debt net of current portion |  | $                  | 4,939,021  |   |                | $ | 5,633,386  |  
|                                      |  |                    |            |   |                |   |            |  

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 replaced the then existing $6.0
million term loan entered into in June 2005.

The Company 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 the Company records the current fair value of the interest rate swap on the balance sheet. Any unrealized gain or loss is charged to earnings.

The term loan is guaranteed by the Companys subsidiaries and secured by substantially all of the Companys assets. The term loan is payable in
quarterly principal installments of $325,000 plus accrued interest at the 3 Month LIBOR rate plus 1.8%, which at September 30, 2007 was 7.16%. The term loan expires in June 2012.

The revolving line of credit bears interest at the current 30 day LIBOR rate plus 1.8%, which at September 30, 2007 was 6.93%. The company had $4.6
million available under the line at September 30, 2007.

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, and minimum tangible net worth of $7.5 million. At September 30, 2007,
the Company was in compliance with all financial debt covenants.

Mortgage payable, NH

In February 2004, Micronetics refinanced the mortgage on its headquarters, entering into a new five-year mortgage payable for $630,000. The note bears
interest at 5.75% per annum and is payable in monthly installments, including interest, of $12,107. This loan is secured by the land and building of Micronetics headquarters.

Mortgage payable, MA

In March 2003, in connection with the purchase of a portion of a commercial
condominium housing Micronetics Enon division, Micronetics entered into a mortgage payable for $352,750. In May 2007, the commercial condominium was sold and the remaining mortgage was settled.

Capital leases

Commercial capital leases payable are reflected at
their present value based upon interest rates that range from 8.67% to 8.88% per annum, and are secured by the underlying assets. The assets are depreciated over their estimated useful lives.

9. STOCK- BASED COMPENSATION

On April 1, 2006, the Company
adopted the provisions of SFAS 123R, Share-Based Payment, a revision of SFAS 123, Accounting for Stock-Based Compensation and superseding Accounting Principles Board (APB) Opinion 25, Accounting for Stock
Issued to Employees. SFAS 123R requires the Company to recognize the cost of employee services received in exchange for grants issued under stock option and employee stock purchase plans, based on the fair value of the



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##### Table of Contents

awards, and recognized over the vesting period of the plans, using the modified-prospective transition method. Prior to April 1, 2006 the Company
measured employee stock-based compensation cost under the provisions of APB Opinion 25 as permitted by SFAS 123, Accounting for Stock-Based Compensation. APB Opinion 25 provided for compensation cost to be recognized over the vesting
period of the options based on the difference, if any, between the fair market value of the Companys stock and the option price on the grant date. As the Company only issued fixed term stock option grants at or above the quoted market price on
the date of grant, no compensation expense was recognized in the consolidated statements of income prior to April 1, 2006.

Under the
modified-prospective method, the Company recognized compensation expense in the financial statements issued subsequent to April 1, 2006 for all stock-based payments granted, modified or settled subsequent to April 1, 2006 as well as for
any awards that were granted prior to April 1, 2006 which were not fully vested as of that date. Compensation expense for those awards issued prior to April 1, 2006 was recognized using the fair values determined for the pro forma
disclosures on stock-based compensation. The amount of stock based compensation expense recognized on awards that have not fully vested excludes the compensation expense for vested options recognized in the pro forma disclosures for stock-based
compensation.

The following table summarizes the effects of stock-based compensation resulting from the application of SFAS
No. 123(R) for the three months ended September 30, 2007 and September 30, 2006:



|                                                                       |  |                               |         |   |                               |   |         |  
|---------------------------------------------------------------------- |  | ----------------------------- | ------- | - | ----------------------------- | - | ------- | -
|                                                                       |  | Three Months Ended            |        
|                                                                       |  | September 30, 2007(unaudited) |         |   | September 30, 2006(unaudited) |  
|Cost of sales                                                          |  | $                             | 16,762  |   |                               | $ | 5,624   |  
|Selling, general and administrative                                    |  |                               | 110,779 |   |                               |   | 114,212 |  
|Research and development                                               |  |                               |        |   |                               |   | 51,406  |  
|                                                                       |  |                               |         |   |                               |   |         |  
|Stock-based compensation effect in income before taxes                 |  |                               | 127,541 |   |                               |   | 171,242 |  
|Income taxes                                                           |  |                               | (18,502 | ) |                               |   | (31,022 | )
|                                                                       |  |                               |         |   |                               |   |         |  
|Net stock-based compensation effect on basic earnings per common share |  | $                             | 109,039 |   |                               | $ | 140,220 |  
|                                                                       |  |                               |         |   |                               |   |         |  
|Stock-based compensation effect on basic earnings per common share     |  | $                             | 0.02    |   |                               | $ | 0.03    |  
|Stock-based compensation effect on diluted earnings per common share   |  | $                             | 0.02    |   |                               | $ | 0.03    |  

The following table summarizes the effects of stock-based compensation resulting from the
application of SFAS No. 123(R) for the six months ended September 30, 2007 and September 30, 2006:



|                                                                       |  |                               |         |   |                               |   |         |  
|---------------------------------------------------------------------- |  | ----------------------------- | ------- | - | ----------------------------- | - | ------- | -
|                                                                       |  | Six Months Ended              |        
|                                                                       |  | September 30, 2007(unaudited) |         |   | September 30, 2006(unaudited) |  
|Cost of sales                                                          |  | $                             | 33,374  |   |                               | $ | 58,435  |  
|Selling, general and administrative                                    |  |                               | 215,919 |   |                               |   | 228,395 |  
|Research and development                                               |  |                               | 27,220  |   |                               |   | 51,406  |  
|                                                                       |  |                               |         |   |                               |   |         |  
|Stock-based compensation effect in income before taxes                 |  |                               | 276,513 |   |                               |   | 338,236 |  
|Income taxes                                                           |  |                               | (41,957 | ) |                               |   | (57,490 | )
|                                                                       |  |                               |         |   |                               |   |         |  
|Net stock-based compensation effect on basic earnings per common share |  | $                             | 234,556 |   |                               | $ | 280,746 |  
|                                                                       |  |                               |         |   |                               |   |         |  
|Stock-based compensation effect on basic earnings per common share     |  | $                             | 0.05    |   |                               | $ | 0.06    |  
|Stock-based compensation effect on diluted earnings per common share   |  | $                             | 0.05    |   |                               | $ | 0.06    |  

Unrecognized stock-based compensation expense related to the unvested options is approximately
$1.4 million, and will be recorded over the remaining vesting periods of one to ten 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.

In accordance with SFAS No. 123(R), the Company adjusts share-based compensation on an annual basis for changes to the
estimate of expected equity award forfeitures based on actual forfeiture experience. The effect of adjusting the forfeiture rate for all expense amortization after April 1, 2006 will be recognized in the period the forfeiture estimate is
changed.

There were no options granted in the second quarter of Fiscal 2008 and Fiscal 2007. The fair value of options issued in the first
quarter of Fiscal 2008 was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions (unaudited):



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|                        |  |                    |  
|----------------------- |  | ------------------ | -
|                        |  | September 30, 2007 |  
|Risk Free Interest Rate |  | 4.98               | %
|Expected Life           |  | 3.97 years         |  
|Expected Volatility     |  | 60                 | %
|Expected Dividend Yield |  | 0                  | %

The per share weighted average fair value of stock options granted for the six months ended
September 30, 2007 was $4.08.

At September 30, 2007, the Company had three stock option plans under which grants were
outstanding. The stock options outstanding are for grants issued under the Companys 1996 Stock Option Plan, the 2003 Stock Option Plan and the 2006 Equity Incentive Plan.

The 1996 Stock Option Plan

During the fiscal year ended March 31, 1997, the Company adopted a
stock option plan, entitled the 1996 Stock Option Plan (the 1996 Plan), under which the Company may grant options to purchase up to 300,000 shares of common stock. During the fiscal year ended March 31, 2002, the
Board of Directors amended the 1996 Plan to increase the number of shares of common stock that may be granted under the Plan to 900,000. As of September 30, 2007, there were 2,500 options outstanding under the 1996 Plan. In 2003, the Board of
Directors determined that it would not issue any new option awards under the 1996 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 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 30, 2007, there were 511,825 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 options to purchase up to 1,000,000 shares of common stock. As of
September 30, 2007 there were 236,000 options outstanding under the 2006 Plan.

The 1996 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 1996 Plan, 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 1996 Plan, 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 Companys stock option activity during the six months ended September 30, 2007 (unaudited):



|                                  |  |                           |   |  |                                 |      |                                             |      |                           |   |          
|--------------------------------- |  | ------------------------- | - |  | ------------------------------- | ---- | ------------------------------------------- | ---- | ------------------------- | - | ---------
|                                  |  | Shares Underlying options |   |  | Weighted Average Exercise price |      | Weighted Average Remaining Contractual life |      | Aggregate Intrinsic value
|Outstanding at March 31, 2007     |  | 796,825                   |   |  | $                               | 7.29 |                                             |      |                           |   |          
|Granted                           |  | 178,000                   |   |  |                                 | 8.06 |                                             |      |                           |   |          
|Exercised                         |  | (84,625                   | ) |  |                                 | 3.18 |                                             |      |                           |   |          
|Canceled                          |  | (139,875                  | ) |  |                                 | 7.86 |                                             |      |                           |   |          
|                                  |  |                           |   |  |                                 |      |                                             |      |                           |   |          
|Outstanding at September 30, 2007 |  | 750,325                   |   |  | $                               | 7.83 |                                             | 4.57 |                           | $ | 1,223,214
|                                  |  |                           |   |  |                                 |      |                                             |      |                           |   |          
|Exercisable at September 30, 2007 |  | 265,600                   |   |  | $                               | 7.63 |                                             | 2.19 |                           | $ | 486,334  
|                                  |  |                           |   |  |                                 |      |                                             |      |                           |   |          



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##### Table of Contents

The following table sets forth the status of the Companys non-vested stock options as of
September 30, 2007 (unaudited):



|                                    |  |                   |   |  |                                        |     
|----------------------------------- |  | ----------------- | - |  | -------------------------------------- | ----
|                                    |  | Number of Options |   |  | Weighted-Average Grant-Date Fair
Value
|Non-vested as of March 31, 2007     |  | 481,025           |   |  | $                                      | 3.48
|Granted                             |  | 178,000           |   |  |                                        | 4.08
|Forfeited                           |  | (72,250           | ) |  |                                        | 3.26
|Vested                              |  | (102,050          | ) |  |                                        | 3.28
|                                    |  |                   |   |  |                                        |     
|Non-vested as of September 30, 2007 |  | 484,725           |   |  | $                                      | 3.77
|                                    |  |                   |   |  |                                        |     

During the year ended March 31, 2004, the Company granted options to purchase an aggregate of
8,000 shares of common stock to consultants for services to be provided. These options are exercisable at $7.12 per share, and vest 25% per year on each anniversary date, with an expiration of five years from the date of grant for all options.
The Company has valued these at their fair value on the date of grant using the Black-Scholes option-pricing model. The consultants have since ceased performance of services. During the fiscal year ended March 31, 2007, the Company expensed the
remaining unamortized amount of $5,940.

10. INCOME TAXES

The Companys effective tax rate was 43% and 74% for the three months ended September 30, 2007 and 2006 as compared to 46% and 45% for the six months ended September 30, 2007 and 2006. The decrease for
the quarter ended September 30, 2007 is primarily a result of the effect of incentive stock option compensation expense in relation to pre-tax income.

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income TaxesAn Interpretation of FASB Statement No. 109
(FIN No. 48), which clarifies the accounting for uncertainty in income taxes by prescribing the minimum recognition threshold and measurement requirements a tax position must meet before recognized a benefit in the financial
statements. FIN No. 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting for interim periods and disclosures for uncertain tax positions. FIN No. 48 is effective for fiscal years
beginning after December 15, 2006.

The Companys adoption of FIN No. 48 on April 1, 2007 resulted in the recognition
of $96,443 of previously unrecognized tax benefits which, in accordance with FIN No. 48, the cumulative amount was accounted for as an adjustment to the April 1, 2007 retained earnings balance in the first quarter of Fiscal 2008. In the
second quarter of Fiscal 2008 the liability for unrecognized tax benefits increased by $2,800, primarily as a result of additional accrued interest and penalties in the period. The Companys policy is to recognize interest and penalties accrued
on any unrecognized tax positions as a component of income tax expense.

As a result of the adoption of FIN No. 48, the Company has
$99,243 of unrecognized tax benefits, substantially all of which, if recognized, would be recorded as a component of the provision for income taxes.

As of April 1, 2007, the Company is subject to tax in the U.S. Federal and various state jurisdictions. The Company is generally open to examination for tax years 2003 through 2006.

11. EARNINGS PER SHARE

Basic earnings per share is computed based on
the net income for each period divided by the weighted average actual shares outstanding during the period. Diluted earnings per share is computed based on the net income per 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. The computations of basic and diluted EPS for the three months ended
September 30, 2007 and 2006 (unaudited) are:



|                                                                 |  |                    |           |                    |   |          
|---------------------------------------------------------------- |  | ------------------ | --------- | ------------------ | - | ---------
|                                                                 |  | Three Months Ended
|                                                                 |  | September 30, 2007 |           | September 30, 2006
|Net income                                                       |  | $                  | 618,159   |                    | $ | 41,280   
|Weighted average shares outstanding                              |  |                    | 4,974,742 |                    |   | 4,642,041
|Basic earnings per share                                         |  | $                  | 0.12      |                    | $ | 0.01     
|Common stock equivalents                                         |  |                    | 37,784    |                    |   | 166,221  
|Weighted average common and common equivalent shares outstanding |  |                    | 5,012,526 |                    |   | 4,808,262
|Diluted earnings per share                                       |  | $                  | 0.12      |                    | $ | 0.01     



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The computations of basic and diluted EPS for the six months ended September 30, 2007 and 2006
(unaudited) are:



|                                                                 |  |                    |           |                    |   |          
|---------------------------------------------------------------- |  | ------------------ | --------- | ------------------ | - | ---------
|                                                                 |  | Six Months Ended  
|                                                                 |  | September 30, 2007 |           | September 30, 2006
|Net income                                                       |  | $                  | 803,253   |                    | $ | 589,553  
|Weighted average shares outstanding                              |  |                    | 4,874,142 |                    |   | 4,626,732
|Basic earnings per share                                         |  | $                  | 0.16      |                    | $ | 0.13     
|Common stock equivalents                                         |  |                    | 36,681    |                    |   | 257,130  
|Weighted average common and common equivalent shares outstanding |  |                    | 4,910,823 |                    |   | 4,883,862
|Diluted earnings per share                                       |  | $                  | 0.16      |                    | $ | 0.12     



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##### Table of Contents

|Item 2. | Managements 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 below. 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 below 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

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 allowances for doubtful accounts and sales returns, inventory valuation and
obsolescence, long-lived assets, business combination purchase price allocation 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.

Revenue Recognition And Product Warranties

We generate revenue from the sale of products, technology development, and licensing. Revenue is recognized when persuasive evidence of a sales 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. Our products are primarily hardware components, and to a lesser extent bundled hardware components and software, that are delivered to
original equipment manufacturers (OEMs) of telecommunication and networking products who are considered to be end users.

Advance payments
received from customers prior to product shipment are recorded as deferred revenue.

We record amounts for shipping and handling fees
billed to customers as revenue. The cost of shipping and handling fees are recorded as a component of cost of sales.

We sell our products
using a direct sales force and sales representatives. Contracts with customers do not include product return rights or price protection. The estimated cost 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.

Accounts Receivable, Net of
Allowance For Doubtful Accounts

Accounts receivable are customer obligations due under normal trade terms, carried at face value less
an allowance for doubtful accounts. We regularly monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon the review of the aging of outstanding accounts, loss experiences, factors related
to specific customers ability to pay, current economic trends and any specific customer collection issues that have been identified. While such credit losses have historically been within our expectations and the provisions established, we
cannot guarantee that we will continue to experience the same credit loss rates that have been experienced in the past. We write off accounts receivable against the allowance in the period that a receivable is determined to be uncollectible.



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Inventories

Inventories are valued at the lower of cost or market, based on the first in, first out method. Inventory items are reviewed regularly for excess and obsolete inventory based on an estimated forecast of product
demand. Inventories that are in excess of future requirements are written down to their estimated value based upon projected demand. Demand for our products can be forecasted based on current backlog, customer options to reorder under existing
contracts, and the need to retrofit older units and parts needed for general repairs. Although management makes every effort to insure the accuracy of its forecasts of future product demand, any significant unanticipated changes in demand or
technological developments could have an impact on the level of obsolete material in our inventories and operating results could be affected accordingly.

Business Combinations

We are required to allocate the purchase price of an acquired company based on
the estimated fair values of assets acquired and liabilities assumed, determined as of the date of acquisition. Micronetics employs independent valuation specialists to determine the fair values of identifiable intangible assets in order to
determine the portion of the purchase price allocable to these assets. The excess of the purchase price over the estimated fair value of the net assets acquired is recorded as goodwill.

Valuation Of Long-Lived Assets, Goodwill And Intangible Assets And Their Impairment

We assess the need to record impairment losses on long-lived assets, including fixed assets, goodwill and other intangible assets, to be held and used in
operations, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, we estimate the
undiscounted future cash flows to result from the use of the asset and its ultimate disposition. If the sum of the undiscounted cash flows is less than the carrying value, we would recognize an impairment loss, measured as the amount by which the
carrying value exceeds the fair value of the asset. Assets to be disposed of are carried at their lower of the carrying value or fair value less costs to sell. Additionally, goodwill is assessed for impairment on an annual basis in accordance with
the provisions of SFAS 142. We completed the annual impairment test for FY 2007 in the fiscal fourth quarter and determined that no impairment exists.

On an on-going basis, management reviews the value and period of amortization or depreciation of long-lived assets. During this review, we evaluate the significant assumptions used in determining the original cost of
long- lived assets. Although the assumptions may vary from transaction to transaction, they generally include revenue growth, operating results, cash flows and other indicators of value. Management then determines whether there has been an
impairment of the value of long-lived assets based upon events or circumstances that have occurred since the acquisition. The impairment policy is consistently applied in evaluating impairment for each of our wholly-owned subsidiaries and
investments.

Stock Compensation Expense

Effective April 1, 2006, we account for stock-based compensation in accordance with the fair value recognition provision of FAS 123R. We use the Black-Scholes option-pricing model, which requires the input of
subjective assumptions. These assumptions include estimates of the length of time employees will retain their vested stock options before exercising them, the volatility of our common stock price over the expected term and the number of options that
will not vest. Changes in these assumptions could materially affect the estimate of fair value stock-based compensation and consequently, the related amount recognized on the consolidated statements of income.

Income Taxes And Valuation Allowances

We recognize income taxes under the asset and liability method. Under this method deferred tax assets and liabilities are established for temporary differences. Temporary differences occur when income and expenses are recognized in
different periods for financial reporting purposes and for purposes for computing income taxes currently payable. A valuation allowance is provided when it is more likely than not that some portion, or all, of the deferred tax asset will not be
realized. No valuation allowance was required at September 30, 2007 and 2006.

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standard Board (FASB) issued FASB Interpretation (FIN) No. 48, Accounting for
Uncertainty in Income TaxesAn Interpretation of FASB Statement No. 109 (FIN No. 48). FIN No. 48 provides guidance with respect to the recognition and measurement in the financial statements of uncertain tax
positions taken or expected to be taken in a tax return, and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We adopted the provisions of FIN No. 48 in
the first quarter of Fiscal 2008. The adoption of FIN No. 48 resulted in an adjustment for unrecognized tax benefits of $96,443 to the April 1, 2007 retained earnings balance.



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In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157,
Fair Value Measurements(SFAS 157),which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of SFAS 157 are effective in
the first quarter of Fiscal 2009. We are currently evaluating the effect of this statement on our consolidated financial statements.

In
February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115(SFAS
159). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted, provided the
Company also elects to apply the provisions of SFAS 157. We are currently evaluating the effect that the adoption of SFAS 159 will have on our consolidated results of operations and financial condition.

Acquisition

On June 5, 2007, we entered
into an Agreement of Merger and Plan of Reorganization (the Merger Agreement with MICA Microwave Corporation (MICA), a California corporation, whereby MICA became a wholly-owned subsidiary of Micronetics. Pursuant to the
terms and conditions of the Merger Agreement, the holders of MICA common stock were paid $3.0 million in cash and $2.0 million in shares of Micronetics common stock, subject to a post-closing adjustment based upon MICAs net worth on the
closing date.

The acquisition of MICA provides us with a broader range of RF/Microwave products, including high performance mixers and
ferrites, and will provide us with further integrated microwave sub-systems and systems solutions.

Overview

Micronetics manufactures 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 that are 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. Our microwave devices are used on
subassemblies and integrated systems in addition to being sold on a component basis.

Micronetics operates through its five wholly owned
subsidiaries, Enon, Micro-Con, MVS, Stealth and MICA. These subsidiaries, along with Micronetics NH based facility, manufacture products in three major product categories: RF Microwave Components, Microwave Integrated Multifunction
Subassemblies and Test Solutions.

We sell primarily to original equipment manufacturers of communications equipment in either the
commercial or the defense electronic marketplace. Many of those customers are prime contractors for defense work or larger Fortune 500 companies with world-wide operations.

A key driver of demand for Micronetics 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 to perform such testing. 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 seeking to capitalize on this trend by increasing its capability of manufacturing integrated subassemblies. Our goal is to leverage
our high power and noise technology to continue to be the most reliable microwave subsystem supplier in the merchant marketplace.



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##### Table of Contents

Results of Operations

The Consolidated Statements of Income for the three and six months ended September 30, 2007 include the operations of MICA from the acquisition date of June 5, 2007.

Three Months Ended September 30, 2007 compared to September 30, 2006

Net sales

Net sales for the three months ended September 30, 2007 (Q2 FY 08) were $9,762,964, an increase of $4,701,638, or 93% as compared to
$5,061,326 for the three months ended September 30, 2006 (Q2 FY 07). The increase in net sales for Q2 FY 08 is primarily attributable to an increase in net sales of high performance power amplifiers to the commercial market of $3.0
million and $1.3 million in sales of high performance mixers and ferrites from MICA. As a result, commercial and defense revenues were 74% and 26%, respectively, of the total revenues for Q2 FY 08, as compared to 67% and 33%, respectively, for Q2 FY
07.

Gross profit margin

Gross profit
as a percent of sales increased for Q2 FY 08 to 37% from 35% for Q2 FY 07. The increase is primarily attributable to the volume increase in net sales of high performance power amplifiers, offset in part by lower average selling prices of amplifiers
to a major customer and lower margins on our ferrite products.

Research and development

Research and development (R&D) expense decreased $65,831 for Q2 FY 08 as compared to Q2 FY 07. The decrease is primarily due to the decrease in
R&D salaries and stock-based compensation associated with Stealth. R&D expenses decreased to 1.6% of net sales for Q2 FY 08 as compared to 4% of Q2 FY 07.

Selling, general and administrative

Selling, general and administrative (SG&A) expense decreased to 20% of net sales
for Q2 FY 08 from 22% for Q2 FY 07. SG&A expenses were $1,991,673, an increase of $855,133 or 75%, for the three months ended September 30, 2007, as compared to $1,136,540 for September 30, 2006. The overall increase in spending was
primarily attributable to increases in salaries and benefits of $225,000, bonus expense of $198,000, audit and professional fees of $77,000, commissions of $32,000 and the inclusion of $286,000 in MICA SG&A expenses.

Amortization of intangible assets

Amortization
expense was $183,357 for Q2 FY 08 as compared to $178,295 for Q2 FY 07.

Interest expense

Interest expense increased by $50,085 or 45% for Q2 FY 08 as compared to Q2 FY 07, primarily a result of the effect of incentive stock option compensation
expense in relation to pre-tax income.

Provision for income taxes

Our effective tax rate was 43% for Q2 FY 08 as compared to 74% for Q2 FY 07. The decrease in the effective tax rate for the quarter ended September 30, 2007 is primarily due to an increase in tax benefits from
stock-based compensation expense as compared to the quarter ended September 30, 2006.

In July 2006, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income TaxesAn Interpretation of FASB Statement No. 109 (FIN No. 48), which clarifies the accounting for
uncertainty in income taxes by prescribing the minimum recognition threshold and measurement requirements a tax position must meet before recognized a benefit in the financial statements. FIN No. 48 also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting for interim periods and disclosures for uncertain tax positions. FIN No. 48 is effective for fiscal years beginning after December 15, 2006.

Our adoption FIN No. 48 on April 1, 2007 resulted in the recognition of $96,443 of previously unrecognized tax benefits which, in accordance
with FIN No. 48, the cumulative amount was accounted for as an adjustment to the April 1, 2007 balance of retained earnings. In the second quarter of Fiscal 2008 the liability for unrecognized tax benefits increased by $2,800, primarily as
a result of additional accrued interest and penalties in the period. Our policy is to recognize interest and penalties accrued on any unrecognized tax positions as a component of income tax expense, if any.



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##### Table of Contents

As a result of the adoption of FIN No. 48, the Company has $99,243 of unrecognized tax benefits,
substantially all of which, if recognized, would be recorded as a component of the provision for income taxes.

As of April 1, 2007,
the Company is subject to tax in the U.S. Federal and various state jurisdictions. The Company is generally open to examination for tax years 2003 through 2006.

Six Months Ended September 30, 2007 compared to September 30, 2006

Net sales

Net sales for the six months ended September 30, 2007 were $16,073,629, an increase of $4,205,865, or 35% as compared to $11,867,764 for the six
months ended September 30, 2006. The increase in net sales for the six months ended September 30, 2007 is primarily attributable to a increase in net sales of high performance power amplifiers to the commercial market of $2.2 million and
$1.9 million in sales of high performance mixers and ferrites from MICA. As a result, commercial and defense revenues were 72% and 28%, respectively, as a percent of the total revenues for the six months ended September 30, 2007, as compared to
65% and 35%, respectively, for the six months ended September 30, 2006.

Gross profit margin

Gross profit as a percent of sales decreased for the six months ended September 30, 2007 to 38% from 40% for the six months ended September 30,
2006. The decrease is primarily attributable to the lower average selling prices of power amplifiers to a major customer, and lower margins on our ferrite products.

Research and development

Research and development (R&D) expense decreased $99,470 for the six
months ended September 30, 2007 as compared to the six months ended September 30, 2006. R&D expenses decreased from 3% of net sales for the six months ended September 30, 2006 to 2% of net sales for the six months ended
September 30, 2007.

Selling, general and administrative

Selling, general and administrative (SG&A) expense decreased to 23% of net sales for the six months ended September 30, 2007 from 24% for the six months ended September 30, 2006. SG&A expenses were
$3,630,328 an increase of $793,967 or 28%, for the six months ended September 30, 2007, as compared to $2,836,361 for the six months ended September 30, 2006. The overall increase in spending was primarily attributable to increases in
salaries and benefits of $284,000, bonus expense of $43,000, travel and entertainment expenses of $45,000 and the inclusion of $375,000 in MICA selling expenses.

Amortization of intangible assets

Amortization expense was $366,450 for the six months ended September 30, 2007 as
compared to $356,590 for the six months ended September 30, 2006.

Interest expense

Interest expense increased $48,999 or 22% to $276,846 for the six months ended September 30, 2007 as compared to $227,847 for the six months ended
September 30, 2006.

Provision for income taxes

Our effective tax rate was 46% for the six months ended September 30, 2007 as compared to 45% for the six months ended September 30, 2006.

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
TaxesAn Interpretation of FASB Statement No. 109 (FIN No. 48), which clarifies the accounting for uncertainty in income taxes by prescribing the minimum recognition threshold and measurement requirements a tax
position must meet before recognized a benefit in the financial statements. FIN No. 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting for interim periods and disclosures for uncertain
tax positions. FIN No. 48 is effective for fiscal years beginning after December 15, 2006.



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##### Table of Contents

We adopted FIN No. 48 on April 1, 2007 resulting in the recognition of $96,443 of previously
unrecognized tax benefits which, in accordance with FIN No. 48, the cumulative amount was accounted for as an adjustment to the April 1, 2007 balance of retained earnings. The FIN No. 48 analysis for the six months ended
September 30, 2007 resulted in an additional $2,800 in unrecognized tax benefit.

Following the adoption of FIN No. 48, we had
$99,243 of unrecognized tax benefits, substantially all of which, if recognized, would be recorded as a component of the provision for income taxes. There have been no significant changes to these amounts during the six months ended
September 30, 2007.

Our policy is to recognize interest and penalties accrued on any unrecognized tax positions as a component of
income tax expense, if any. No material amount of such expense was recognized during the six months ended September 30, 2007.

Liquidity and
Capital Resources

We finance our operating and investment requirements primarily through cash flow and borrowings. We had cash and
working capital at September 30, 2007 of $1,631,624 and $10,685,765, respectively, as compared with cash and working capital of $7,058,524 and $11,836,943, respectively at March 31, 2007. Our current ratio was approximately 2.9 to 1 at
September 30, 2007, as compared to 3.2 to 1 at March 31, 2007. The reduction in cash was primarily related to the cash used in connection with the acquisition of MICA, and the increase in working capital other than cash.

Net cash provided by operating activities was $620,544 during the six months ended September 30, 2007 as compared to net cash provided by operating
activities of $866,770 during the six months ended September 30, 2006. Cash provided by operating activities resulted from net income of $803,253, adjusted by non-cash charges for depreciation and amortization of $850,511, stock-based
compensation of $276,513, and a decrease in working capital changes of $1,520,664. Working capital changes primarily resulted from an increase in accounts receivable of $1,355,142 and a decrease in accounts payable of $315,217, offset by an increase
in accrued expenses of $134,626. Accounts receivable increased primarily due to strong sales in the six months ended September 30, 2007.

Net cash used in investing activities was $5,133,528 during the six months ended September 30, 2007 as compared to $1,044,004 during the six months ended September 30, 2006, primarily as a result of the acquisition of MICA of
$3,112,814 and the final earnout payment of $1.5 million to the former stockholders of Stealth in Q1 FY 08. Investing activities incurred by the Company during the six months ended September 30, 2007, also included $482,612 of capital
expenditures and $500,000 of marketable securities offset by $461,898 related to the sale of the Enon condominium in Q1 FY 08.

Net cash
used in financing activities was $913,916 during the six months ended September 30, 2007 as compared to $701,866 during the six months ended September 30, 2006 primarily due to repayments on the mortgages, line of credit and term loans in
the six months ended September 30, 2007.

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 our existing $6.0 million term loan
entered into in June 2005.

The Company 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 the Company records the current fair value of the interest rate swap on the balance sheet. Any unrealized gain or loss is charged to earnings.

The term loan is guaranteed by the Companys 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 3 month LIBOR rate plus 1.8%, which at September 30, 2007 was 7.16%. The term loan expires in June 2012.

The revolving line of credit bears interest at the current 30 day LIBOR rate plus 1.8%, which at September 30, 2007 was 6.93%. We had
$4.6 million available under the line at September 30, 2007.

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, and minimum tangible net worth of $7.5 million. At September 30, 2007,
we were in compliance with all financial debt covenants.



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##### Table of Contents

Mortgage payable, NH

In February 2004, Micronetics refinanced the mortgage on its headquarters, entering into a new five-year mortgage payable for $630,000. The note bears interest at 5.75% per annum and is payable in monthly
installments, including interest, of $12,107. This loan is secured by the land and building of Micronetics headquarters.

Mortgage payable, MA

In March 2003, in connection with the purchase of a portion of a commercial condominium housing Micronetics Enon division,
Micronetics entered into a mortgage payable for $352,750. In May 2007, the commercial condominium was sold and the remaining mortgage was settled.

Capital leases

Commercial capital leases payable are reflected at their present value based upon interest rates that range
from 8.67% to 8.88% per annum, and are secured by the underlying assets. The assets are depreciated over their estimated useful lives.

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.

Off-Balance Sheet Arrangements

Micronetics
has no off-balance sheet arrangements.



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##### Table of Contents

|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

We are
exposed to a variety of market risks, including changes in interest rates primarily as a result of our borrowing and investing activities. Our investment portfolio consists entirely of money market funds, which are subject to interest rate risk. Due
to the short duration and conservative nature of these instruments, we do not believe we have a material exposure to interest rate risk on investments.

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 customers 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. | Controls and Procedures
|------- | -----------------------

Evaluation of disclosure controls and
procedures  As of September 30, 2007, the Company carried out an evaluation, under the supervision and with the Companys management, including the Companys Chief Executive Officer and the Companys Chief Financial
Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d- 15(e) of the Securities Exchange Act of 1934). Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures were effective as of September 30, 2007 to provide reasonable assurance that material information relating to the Company was
made known to them by others within the Company.

Changes in internal control There were no significant changes in the Companys
internal controls over financial reporting that occurred during the quarter ended September 30, 2007 that have materially affected or are reasonably likely to materially affect, the Companys 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 certain 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.



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##### Table of Contents

PART II. OTHER INFORMATION



|Item 1. | Legal Proceedings.
|------- | ------------------

The Company is not a party to
any material pending legal proceedings.



|Item 1A. | Risk Factors.
|-------- | -------------

An investment in our common stock
involves a high degree of risk. You should carefully consider the following risk factors in evaluating our business. 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.

We may be materially and adversely affected by reductions in spending by certain of our customers.

The significant slowdown in capital spending by certain of our customers, coupled with existing economic and geopolitical uncertainties and the potential impact on customer demand, has created uncertainty as to market demand. As a result,
revenues and operating results for a particular period can be difficult to predict. In addition, there can be no certainty as to the severity or duration of the current industry adjustment. As a result of changes in industry and market conditions,
many of our customers have significantly reduced their capital spending. Our revenues and operating results have been and may continue to be materially and adversely affected by reductions in capital spending by our customers.

Our operating results have historically been subject to yearly and quarterly fluctuations and are expected to continue to fluctuate.

Our operating results have historically been and are expected to continue to be subject to quarterly and yearly fluctuations as a result of a number of
factors including:



| |  |  | our ability to successfully implement programs to stimulate sales by anticipating and offering the kinds of products and services customers will require in the
future to increase the efficiency and profitability of their products;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to successfully complete programs on a timely basis, to reduce our cost structure, including fixed costs, to streamline our operations and to reduce
product costs;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to focus our business on what we believe to be potentially higher growth, higher margin businesses and to dispose of or exit non-core businesses;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increased price and product competition in our markets;
| | - |  | -------------------------------------------------------



| |  |  | the inherent uncertainties of using forecasts, estimates and assumptions for asset valuations and in determining the amounts of accrued liabilities and other items
in our consolidated financial statements;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to implement our work plan without negatively impacting our relationships with our customers, the delivery of products based on new and developing
technologies, the delivery of high quality products at competitive prices, the maintenance of technological leadership, the effectiveness of our internal processes and organizations and the retention of qualified personnel;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | fluctuations in our gross margins;
| | - |  | ----------------------------------



| |  |  | the development, introduction and market acceptance of new technologies;
| | - |  | ------------------------------------------------------------------------



| |  |  | variations in sales channels, product costs and the mix of products sold;
| | - |  | -------------------------------------------------------------------------



| |  |  | the size and timing of customer orders and shipments;
| | - |  | -----------------------------------------------------



| |  |  | our ability to maintain appropriate inventory levels;
| | - |  | -----------------------------------------------------



| |  |  | the impact of acquired businesses and technologies;
| | - |  | ---------------------------------------------------



| |  |  | the impact of our product development schedules, product quality variances, manufacturing capacity and lead times required to produce our products;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in legislation, regulation and/or accounting rules; the impact of higher insurance premiums and deductibles and greater limitations on insurance coverage;
and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | acts of terrorism or the outbreak of hostilities or armed conflict between countries.
| | - |  | -------------------------------------------------------------------------------------



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There are a number of trends and factors which affect our markets, including economic conditions in the United States,
Europe and globally, and are beyond our control. These trends and factors may result in reduced demand and pricing pressure on our products.

There are trends and factors affecting our markets that are beyond our control and may affect our operations. Such trends and factors include:



| |  |  | adverse changes in the public and private equity and debt markets and our ability, as well as the ability of our customers and suppliers, to obtain financing or to
fund working capital and capital expenditures;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | adverse changes in our current credit condition or the credit quality of our customers and suppliers;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | adverse changes in the market conditions in our markets;
| | - |  | --------------------------------------------------------



| |  |  | the trend towards the sale of integrated products;
| | - |  | --------------------------------------------------



| |  |  | visibility to, and the actual size and timing of, capital expenditures by our customers;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | inventory practices, including the timing of product and service deployment, of our customers;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | policies of our customers regarding utilization of single or multiple vendors for the products they purchase;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | the overall trend toward industry consolidation and rationalization among our customers, competitors and suppliers;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | conditions in the broader market for military and communications products;
| | - |  | --------------------------------------------------------------------------



| |  |  | governmental regulation or intervention affecting our products; and
| | - |  | -------------------------------------------------------------------



| |  |  | the effects of war and acts of terrorism, such as disruptions in general global economic activity, changes in logistics and security arrangements and reduced
customer demand for our products and services.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Economic conditions affecting the industry, which affect market conditions in the
military and communication infrastructure industry in the United States, Europe and globally, affect our business.

Reduced capital
spending and/or negative economic conditions in the United States, Europe as well as other areas of the world have resulted in, and could continue to result in, reduced demand for or increased pricing pressures on our products.

We have made, and may continue to make, strategic acquisitions in order to enhance our business. If we are not successful in operating or integrating these
acquisitions, our business, results of operations and financial condition may be materially and adversely affected.

In the past, we
acquired companies to enhance the expansion of our business and products. We may consider additional acquisitions which could involve significant risks and uncertainties.

These risks and uncertainties include:



| |  |  | the risk that the industry may develop in a different direction than anticipated and that the technologies we acquire do not prove to be those we need to be
successful in the industry;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the risk that future valuations of acquired businesses may decrease from the market price we paid for these acquisitions;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | the generation of insufficient revenues by acquired businesses to offset increased operating expenses associated with these acquisitions;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the potential difficulties in completing in-process research and development projects and delivering high quality products to our customers;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the potential difficulties in integrating new products, businesses and operations in an efficient and effective manner;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | the risk that our customers or customers of the acquired businesses may defer purchase decisions as they evaluate the impact of the acquisitions on our future
product strategy;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the potential loss of key employees of the acquired businesses;
| | - |  | ---------------------------------------------------------------



| |  |  | the risk that acquired businesses will divert the attention of our senior management from the operation of our business; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | the risks of entering new markets in which we have limited experience and where competitors may have a stronger market presence.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------

Our inability to successfully operate and integrate newly-acquired businesses appropriately, effectively and in a timely manner could have a material
adverse effect on our ability to take advantage of further growth in demand for products in our marketplace, as well as on our revenues, gross margins and expenses.



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If we cannot effectively manage our growth, our business may suffer.

We have previously expanded our operations through acquisitions in order to pursue existing and potential market opportunities. If we fail to manage our
growth properly, we may incur unnecessary expenses and the efficiency of our operations may decline. To manage our growth effectively, we must, among other things:



| |  |  | successfully attract, train, motivate and manage a larger number of employees for production and testing, engineering and administration activities;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | control higher inventory and working capital requirements; and
| | - |  | --------------------------------------------------------------



| |  |  | improve the efficiencies within our operating, administrative, financial and accounting systems, and our procedures and controls.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------

We depend on single manufacturing lines for our products, and any significant disruption in production could impair our ability to deliver our products.

We currently manufacture and assemble our products at our various facilities using individual production lines for certain product
categories. We have experienced manufacturing difficulties in the past, and any significant disruption to one of these production lines will require time either to reconfigure and equip an alternative production line or to restore the original line
to full capacity. Some of our production processes are complex, and we may be unable to respond rapidly to the loss of the use of any production line. This could result in delayed shipments, which could result in customer dissatisfaction, loss of
sales and damage to our reputation.

We depend on sole or limited source suppliers, and any disruption in supply could impair our ability to deliver our
products on time or at expected cost.

We obtain many key components for our products from third-party suppliers, and in some cases we
use a single or a limited number of suppliers. Any interruption in supply could impair our ability to deliver our products until we identify a new source of supply, which could take several weeks, months or longer and could increase our costs
significantly. In general, we do not have written long-term supply agreements with our suppliers but instead purchase components through purchase orders, which expose us to potential price increases and termination of supply without notice or
recourse. If we are required to use a new source of materials or components, it could also result in unexpected manufacturing difficulties and could affect product performance and reliability.

Our gross margins may be negatively affected, which in turn would negatively affect our operating results.

Our gross margins may be negatively affected as a result of a number of factors, including:



| |  |  | increased price competition;
| | - |  | ----------------------------



| |  |  | excess capacity or excess fixed assets;
| | - |  | ---------------------------------------



| |  |  | customer and contract settlements;
| | - |  | ----------------------------------



| |  |  | higher product, material or labor costs;
| | - |  | ----------------------------------------



| |  |  | increased inventory provisions or contract and customer settlement costs;
| | - |  | -------------------------------------------------------------------------



| |  |  | warranty costs;
| | - |  | ---------------



| |  |  | obsolescence charges;
| | - |  | ---------------------



| |  |  | loss of cost savings on future inventory purchases as a result of high inventory levels;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | introductions of new products and costs of entering new markets;
| | - |  | ----------------------------------------------------------------



| |  |  | increased levels of customer services;
| | - |  | --------------------------------------



| |  |  | changes in distribution channels; and
| | - |  | -------------------------------------



| |  |  | changes in product and geographic mix.
| | - |  | --------------------------------------

Lower than expected gross margins would negatively affect our operating results.



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We may not be able to attract or retain the specialized technical and managerial personnel necessary to achieve our
business objectives.

Competition for certain key positions and specialized technical personnel in the high-technology industry is
strong. We believe that our future success depends in part on our continued ability to hire, assimilate, and retain qualified personnel in a timely manner, particularly in key senior management positions and in our key areas of potential growth. An
important factor in attracting and retaining qualified employees is our ability to provide employees with the opportunity to participate in the potential growth of our business through programs such as stock option plans. We may also find it more
difficult to attract or retain qualified employees because of our size. In addition, if we have not properly sized our workforce and retained those employees with the appropriate skills, our ability to compete effectively may be adversely affected.
If we are not successful in attracting, retaining or recruiting qualified employees, including members of senior management, in the future, we may not have the necessary personnel to effectively compete in the highly dynamic, specialized and
volatile industry in which we operate or to achieve our business objectives.

Future cash flow fluctuations may affect our ability to fund our working
capital requirements or achieve our business objectives in a timely manner.

Our working capital requirements and cash flows
historically have been, and are expected to continue to be, subject to quarterly and yearly fluctuations, depending on such factors as timing and size of capital expenditures, levels of sales, timing of deliveries and collection of receivables,
inventory levels, customer payment terms and supplier terms and conditions. We believe our cash on hand will be sufficient to fund our current business model, manage our investments and meet our customer commitments for at least the next 12 months.
However, a greater than expected slow down in capital spending by our customers may require us to adjust our current business model. As a result, our revenues and cash flows may be materially lower than we expect and we may be required to reduce our
capital expenditures and investments or take other measures in order to meet our cash requirements. We may seek additional funds from liquidity- generating transactions and other conventional sources of external financing (which may include a
variety of debt, convertible debt and/or equity financings). We cannot provide any assurance that our net cash requirements will be as we currently expect. Our inability to manage cash flow fluctuations resulting from the above factors could have a
material adverse effect on our ability to fund our working capital requirements from operating cash flows and other sources of liquidity or to achieve our business objectives in a timely manner.

Our business may be materially and adversely affected by increased levels of debt.

In order to finance our business or to finance possible acquisitions we may incur significant levels of debt compared to historical levels, and we may need to secure additional sources of funding, which may include
debt or convertible debt financing, in the future. A high level of debt, arduous or restrictive terms and conditions relating to accessing certain sources of funding, failure to meet the financial and/or other covenants in our credit and/or support
facilities and any significant reduction in, or access to, such facilities, poor business performance or lower than expected cash inflows could have adverse consequences on our ability to fund our business and the operation of our business.

Other effects of a high level of debt include the following:



| |  |  | we may have difficulty borrowing money in the future or accessing sources of funding;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | we may need to use a large portion of our cash flow from operations to pay principal and interest on our indebtedness, which would reduce the amount of cash
available to finance our operations and other business activities;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a high debt level, arduous or restrictive terms and conditions, or lower than expected cash flows would make us more vulnerable to economic downturns and adverse
developments in our business; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | if operating cash flows are not sufficient to meet our operating expenses, capital expenditures and debt service requirements as they become due, we may be
required, in order to meet our debt service obligations, to delay or reduce capital expenditures or the introduction of new products, sell assets and/or forego business opportunities including acquisitions, research and development projects or
product design enhancements.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We operate in highly dynamic and volatile industries characterized by changing technologies, evolving
industry standards, frequent new product introductions and relatively short product life cycles.

The markets for our products are
characterized by rapidly changing technologies, evolving industry standards, frequent new product introductions and short product life cycles. We expect our success to depend, in substantial part, on the timely and successful introduction of high
quality, new products and upgrades, as well as cost reductions on current products to address the operational speed, bandwidth, efficiency and cost requirements of our customers. Our success will also depend on our ability to comply with emerging
industry standards, to operate with products of other suppliers, to address emerging market trends, to provide our customers with new revenue-generating opportunities and to compete with technological and product developments carried out by others.
The development of new, technologically advanced products, is a complex and uncertain process requiring high levels of innovation, as well as the accurate anticipation of technological and market trends.



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Investments in such development may result in expenses growing at a faster rate than revenues, particularly since the initial investment to bring a product
to market may be high. We may not be successful in targeting new market opportunities, in developing and commercializing new products in a timely manner or in achieving market acceptance for our new products.

The success of new or enhanced products, depends on a number of other factors, including the timely introduction of such products, market acceptance of
new technologies and industry standards, the quality and robustness of new or enhanced products, competing product offerings, the pricing and marketing of such products and the availability of funding for such networks. Products and technologies
developed by our competitors may render our products obsolete. If we fail to respond in a timely and effective manner to unanticipated changes in one or more of the technologies affecting telecommunications or our new products or product
enhancements fail to achieve market acceptance, our ability to compete effectively in our industry, and our sales, market share and customer relationships could be materially and adversely affected.

We face significant competition and may not be able to increase or maintain our market share and may suffer from competitive pricing practices.

We operate in an industry that is characterized by industry rationalization and consolidation, vigorous competition for market share and rapid
technological development. Competition is heightened in periods of slow overall market growth. These factors could result in aggressive pricing practices and growing competition from niche companies, established competitors, as well as
well-capitalized companies, which, in turn, could have a material adverse effect on our gross margins.

We expect that we will face
additional competition from existing competitors and from a number of companies that have entered or may enter our existing and future markets. Some of our current and potential competitors have greater marketing, technical and financial resources,
including access to capital markets and/or the ability to provide customer financing in connection with the sale of products. Many of our current and potential competitors have also established, or may in the future establish, relationships with our
current and potential customers. Other competitive factors include the ability to provide new technologies and products, end-to-end solutions, and new product features, as well as conformance to industry standards. Increased competition could result
in price reductions, negatively affecting our operating results, reducing profit margins and potentially leading to a loss of market share.

Our
business may suffer if we cannot protect our proprietary technology.

Our ability to compete depends significantly upon our patents and
our other proprietary technology. The steps we have taken to protect our technology may be inadequate to prevent others from using what we regard as our technology to compete with us. Our patents could be challenged, invalidated or circumvented, and
the rights we have under our patents could provide no competitive advantages. Existing trade secrets, copyright and trademark laws offer only limited protection. In addition, other companies could independently develop similar or superior technology
without violating our intellectual property rights. Any misappropriation of our technology or the development of competing technology could seriously harm our competitive position, which could lead to a substantial reduction in net sales.

If we resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome, disruptive and
expensive, distract the attention of management, and there can be no assurance that we would prevail.

Claims by others that we infringe their
intellectual property rights could harm our business and financial condition.

We cannot be certain that our products do not and will
not infringe issued patents, patents that may be issued in the future, or other intellectual property rights of others. We do not conduct exhaustive patent searches to determine whether the technology used in our products infringes patents held by
third parties.

Any claim of infringement could cause us to incur substantial costs defending against the claim, even if the claim is
invalid, and could distract the attention of our management. If any of our products are found to violate third-party proprietary rights, we may be required to pay substantial damages. In addition, we may be required to re-engineer our products or
obtain licenses from third parties to continue to offer our products. Any efforts to re-engineer our products or obtain licenses on commercially reasonable terms may not be successful, which would prevent us from selling our products, and, in any
case, could substantially increase our costs and have a material adverse effect on our business, financial condition and results of operations.



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The market price of our common stock may be volatile.

Our stock price has historically been volatile. From April 1, 2005 to September 30, 2007, the trading price of our common stock ranged from
$23.31 to $6.77. Many factors may cause the market price of our common stock to fluctuate, including:



| |  |  | variations in our quarterly results of operations;
| | - |  | --------------------------------------------------



| |  |  | the introduction of new products by us or our competitors;
| | - |  | ----------------------------------------------------------



| |  |  | the hiring or departure of key personnel;
| | - |  | -----------------------------------------



| |  |  | acquisitions or strategic alliances involving us or our competitors;
| | - |  | --------------------------------------------------------------------



| |  |  | changes in, or adoptions of, accounting principles; and
| | - |  | -------------------------------------------------------



| |  |  | market conditions in our industries.
| | - |  | ------------------------------------

In addition, the stock market can experience extreme price and volume fluctuations. These fluctuations, which are often unrelated to the operating performance of particular companies, may adversely affect the market price of our common
stock.

Declines in the market price of our common stock may negatively impact our ability to make future strategic acquisitions, raise capital, issue
debt or retain employees.

The stock markets have experienced extreme price fluctuations that have affected the market price and
trading volumes of many technology and telecommunications companies in particular, with potential consequential negative effects on the trading of securities of such companies. A major decline in the capital markets generally, or an adjustment in
the market price or trading volumes of our common stock may negatively impact our ability to raise capital, issue debt, retain employees or make future strategic acquisitions. These factors, as well as general economic and political conditions, and
continued negative events within the technology sector, may in turn have a material adverse effect on the market price of our common stock.

The testing
of electronic communications equipment and the accurate transmission of information entail a risk of product liability claims by customers and others.

Claims may be asserted against Micronetics by end-users of any of our products. We maintain product liability insurance coverage with an aggregate annual liability coverage limit, regardless of the number of
occurrences, of $2.0 million. There is no assurance that such insurance will continue to be available at a reasonable cost or will be sufficient to cover all possible liabilities. In the event of a successful suit against us, lack or insufficiency
of insurance coverage could result in substantial cost and could have a material adverse effect on our business.

Our products with military
applications are subject to export regulations, which may be costly.

We are required to obtain export licenses before filling foreign
orders for many of our products with military or other governmental applications. United States Export Administration regulations control high tech exports like our 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 our products requiring export licenses must comply with these general policies. Although
we have not experienced any significant export licensing problems to date, such problems may arise in the future. In addition, these regulations are subject to change, and any such change may require us to improve our technologies, incur expenses or
both in order to comply with such regulations.

We are subject to recently enacted environmental regulation, compliance with which may be costly.

In 2006 the European Union (EU) implemented two new directives known as the Restriction on Certain Hazardous Substances
Directive (RoHS) and the Waste Electrical and Electronic Equipment Directive (WEEE). These directives place restrictions on the distribution within the EU of certain substances, and require a manufacturer to recycle products containing the
restricted substances. We believe that the majority of our products are exempt from the directives because they are used for military purposes rather than by consumers. However, we may not be able to rely on such an exemption until regulators review
documentation and issue a ruling on each product. We are redesigning our products that we believe may not be exempt from the directives in order to be able to continue to offer such products for sale in the EU. We may encounter unanticipated delays
in the completion of the redesign or in the delivery of any products that are not exempt from the directives. In addition certain products that we maintain in inventory may be rendered obsolete if not in compliance with the directives and may have
to be written off. Although we cannot predict the ultimate impact of the directives, they will likely result in additional costs or decreased revenue and could require that we redesign or change how we manufacture our products.



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|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds.
|------- | ------------------------------------------------------------

None.



|Item 3. | Defaults upon Senior Securities.
|------- | --------------------------------

None.



|Item 4. | Submission of Matters to a Vote of Security Holders.
|------- | ----------------------------------------------------

None.



|Item 5. | Other Information.
|------- | ------------------

None.



|Item 6. | Exhibits.
|------- | ---------



|     |  |                                                                                                                    
|---- |  | -------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                            
|     | 
|31.2 |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                            
|     | 
|32.1 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
|     | 
|32.2 |  | 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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##### Table of Contents

SIGNATURE

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                         |  |                   |  |                                             
|------------------------ |  | ----------------- |  | --------------------------------------------
|                         |  | MICRONETICS, INC.
|                         |  |                  
|Dated: November 13, 2007 |  | By:               |  | /s/ DAVID ROBBINS                           
|                         |  |                   |  | David Robbins,                              
|                         |  |                   |  | President and Chief Executive Officer       
|                         |  |                   |  | (Principal Executive Officer)               
|                         |  |                  
|Dated: November 13, 2007 |  | By:               |  | /s/ DIANE BOURQUE                           
|                         |  |                   |  | Diane Bourque,                              
|                         |  |                   |  | Vice President and Chief Financial Officer  
|                         |  |                   |  | (Principal Financial and Accounting Officer)



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