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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549





FORM 10-Q







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

For the quarterly period ended September 27, 2008

OR



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

For the transition period from  to
.

Commission file number 0-17966





MICRONETICS, INC.

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







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



|                                         |  |           
|---------------------------------------- |  | ----------
|26 Hampshire Drive, Hudson NH            |  | 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, a non-accelerated filer or a smaller reporting company. See definitions
of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  | x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).    Yes   ̈    No  x

As of October 31, 2008, the issuer had 5,391,217 shares of common stock, par value $.01 per share, outstanding.









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MICRONETICS, INC.

INDEX



|                               |  |          |  |                                                                                                          |  |   
|------------------------------ |  | -------- |  | -------------------------------------------------------------------------------------------------------- |  | --
|                               |  | Page No.
|Part I. Financial Information: |  |         
|                               |  |          | 
|                               |  | Item 1.  |  | Financial Statements (unaudited).                                                                        |  |   
|                               |  |          | 
|                               |  |          |  | Consolidated Balance Sheets  September 27, 2008 and March 31, 2008                                      |  | 3 
|                               |  |          | 
|                               |  |          |  | Consolidated Statements of Operations  Thirteen Weeks Ended September 27, 2008 and September 30, 2007   |  | 4 
|                               |  |          | 
|                               |  |          |  | Consolidated Statements of Operations  Twenty-six Weeks Ended September 27, 2008 and September 30, 2007 |  | 5 
|                               |  |          | 
|                               |  |          |  | Consolidated Statement of Shareholders Equity  Twenty-six Weeks Ended September 27, 2008               |  | 6 
|                               |  |          | 
|                               |  |          |  | Consolidated Statements of Cash Flows  Twenty-six Weeks Ended September 27, 2008 and September 30, 2007 |  | 7 
|                               |  |          | 
|                               |  |          |  | Notes to Consolidated Financial Statements                                                               |  | 8 
|                               |  |          | 
|                               |  | Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                    |  | 18
|                               |  |          | 
|                               |  | Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                               |  | 23
|                               |  |          | 
|                               |  | Item 4.  |  | Controls and Procedures                                                                                  |  | 23
|                               | 
|Part II. Other Information:    |  |         
|                               |  |          | 
|                               |  | Item 1.  |  | Legal Proceedings                                                                                        |  | 24
|                               |  |          | 
|                               |  | Item 1A. |  | Risk Factors                                                                                             |  | 24
|                               |  |          | 
|                               |  | Item 2.  |  | Unregistered Sales of Equity Securities And Use of Proceeds                                              |  | 24
|                               |  |          | 
|                               |  | Item 3.  |  | Defaults Upon Senior Securities                                                                          |  | 24
|                               |  |          | 
|                               |  | Item 4.  |  | Submission of Matters to Vote of Security Holders                                                        |  | 24
|                               |  |          | 
|                               |  | Item 5.  |  | Other Information                                                                                        |  | 24
|                               |  |          | 
|                               |  | Item 6.  |  | Exhibits                                                                                                 |  | 24



2



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MICRONETICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)



|                                                                                                                                              |  |                    |            |   |                |   |            |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ---------- | - | -------------- | - | ---------- | -
|                                                                                                                                              |  | September 27, 2008 |            |   | March 31, 2008 |  
|ASSETS                                                                                                                                        |  |                    |            |   |                |   |            |  
|Current assets:                                                                                                                               |  |                    |            |   |                |   |            |  
|Cash and cash equivalents                                                                                                                     |  | $                  | 1,589,909  |   |                | $ | 3,163,415  |  
|Short-term investment                                                                                                                         |  |                    | 250,000    |   |                |   | 400,000    |  
|Accounts receivable, net of allowance for doubtful accounts of $378,336 and $364,981 at September 27, 2008 and March 31, 2008,
respectively   |  |                    | 3,523,689  |   |                |   | 4,861,780  |  
|Inventories, net                                                                                                                              |  |                    | 8,960,993  |   |                |   | 7,316,246  |  
|Deferred tax asset                                                                                                                            |  |                    | 576,170    |   |                |   | 576,170    |  
|Prepaid expenses and other current assets                                                                                                     |  |                    | 1,658,615  |   |                |   | 306,159    |  
|                                                                                                                                              |  |                    |            |   |                |   |            |  
|Total current assets                                                                                                                          |  |                    | 16,559,376 |   |                |   | 16,623,770 |  
|                                                                                                                                              |  |                    |            |   |                |   |            |  
|Property, plant and equipment, net                                                                                                            |  |                    | 4,141,295  |   |                |   | 4,159,963  |  
|Other assets:                                                                                                                                 |  |                    |            |   |                |   |            |  
|Security deposits                                                                                                                             |  |                    | 24,659     |   |                |   | 24,659     |  
|Long-term investments                                                                                                                         |  |                    |           |   |                |   | 250,000    |  
|Other long term assets                                                                                                                        |  |                    | 30,912     |   |                |   | 35,034     |  
|Intangible assets, net                                                                                                                        |  |                    | 3,023,235  |   |                |   | 3,361,200  |  
|Goodwill                                                                                                                                      |  |                    | 8,911,422  |   |                |   | 8,931,944  |  
|                                                                                                                                              |  |                    |            |   |                |   |            |  
|Total other assets                                                                                                                            |  |                    | 11,990,228 |   |                |   | 12,602,837 |  
|                                                                                                                                              |  |                    |            |   |                |   |            |  
|TOTAL ASSETS                                                                                                                                  |  | $                  | 32,690,899 |   |                | $ | 33,386,570 |  
|                                                                                                                                              |  |                    |            |   |                |   |            |  
|                                                                                                                                              |  |                   
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                          |  |                    |            |   |                |   |            |  
|Current liabilities:                                                                                                                          |  |                    |            |   |                |   |            |  
|Current portion of long-term debt                                                                                                             |  | $                  | 1,402,688  |   |                | $ | 1,434,193  |  
|Accounts payable                                                                                                                              |  |                    | 808,285    |   |                |   | 1,284,567  |  
|Accrued expenses                                                                                                                              |  |                    | 2,382,889  |   |                |   | 2,707,769  |  
|Deferred revenue                                                                                                                              |  |                    | 382,052    |   |                |   |           |  
|                                                                                                                                              |  |                    |            |   |                |   |            |  
|Total current liabilities                                                                                                                     |  |                    | 4,975,914  |   |                |   | 5,426,529  |  
|Long-term debt, net of current portion                                                                                                        |  |                    | 3,579,512  |   |                |   | 4,226,342  |  
|Other long-term liability                                                                                                                     |  |                    | 9,000      |   |                |   | 80,000     |  
|Deferred tax liability                                                                                                                        |  |                    | 1,245,052  |   |                |   | 1,245,052  |  
|                                                                                                                                              |  |                    |            |   |                |   |            |  
|Total liabilities                                                                                                                             |  |                    | 9,809,478  |   |                |   | 10,977,923 |  
|                                                                                                                                              |  |                    |            |   |                |   |            |  
|Shareholders equity:                                                                                                                         |  |                    |            |   |                |   |            |  
|Preferred stock, $0.10 par value; 100,000 shares authorized; no shares issued or outstanding                                                  |  |                    |           |   |                |   |           |  
|Common stock, $0.01 par value; 10,000,000 shares authorized; 5,391,217 shares issued and outstanding at September 27, 2008 and
March 31, 2008 |  |                    | 53,912     |   |                |   | 53,912     |  
|Additional paid-in capital                                                                                                                    |  |                    | 11,990,304 |   |                |   | 11,608,536 |  
|Retained earnings                                                                                                                             |  |                    | 12,569,404 |   |                |   | 12,478,398 |  
|                                                                                                                                              |  |                    |            |   |                |   |            |  
|                                                                                                                                              |  |                    | 24,613,620 |   |                |   | 24,140,846 |  
|Treasury stock at cost, 383,475 shares at September 27, 2008 and March 31, 2008                                                               |  |                    | (1,732,199 | ) |                |   | (1,732,199 | )
|                                                                                                                                              |  |                    |            |   |                |   |            |  
|Total shareholders equity                                                                                                                    |  |                    | 22,881,421 |   |                |   | 22,408,647 |  
|                                                                                                                                              |  |                    |            |   |                |   |            |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                    |  | $                  | 32,690,899 |   |                | $ | 33,386,570 |  
|                                                                                                                                              |  |                    |            |   |                |   |            |  

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



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MICRONETICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                                |  |                      |           |   |                    |   |           |  
|----------------------------------------------- |  | -------------------- | --------- | - | ------------------ | - | --------- | -
|                                                |  | Thirteen Weeks Ended |          
|                                                |  | September 27, 2008   |           |   | September 30, 2007 |  
|Net sales                                       |  | $                    | 6,545,453 |   |                    | $ | 9,762,964 |  
|Cost of sales                                   |  |                      | 4,475,991 |   |                    |   | 6,111,204 |  
|                                                |  |                      |           |   |                    |   |           |  
|Gross profit                                    |  |                      | 2,069,462 |   |                    |   | 3,651,760 |  
|                                                |  |                      |           |   |                    |   |           |  
|Operating expenses:                             |  |                      |           |   |                    |   |           |  
|Research and development                        |  |                      | 388,473   |   |                    |   | 158,600   |  
|Selling, general and administrative             |  |                      | 1,696,401 |   |                    |   | 1,991,673 |  
|Loss on sale of property and equipment          |  |                      |          |   |                    |   | 17,760    |  
|Amortization of intangible assets               |  |                      | 171,456   |   |                    |   | 183,357   |  
|                                                |  |                      |           |   |                    |   |           |  
|Total operating expenses                        |  |                      | 2,256,330 |   |                    |   | 2,351,390 |  
|                                                |  |                      |           |   |                    |   |           |  
|(Loss) income from operations                   |  |                      | (186,868  | ) |                    |   | 1,300,370 |  
|                                                |  |                      |           |   |                    |   |           |  
|Other income (expense):                         |  |                      |           |   |                    |   |           |  
|Interest income                                 |  |                      | 14,707    |   |                    |   | 18,943    |  
|Interest expense                                |  |                      | (91,790   | ) |                    |   | (162,100  | )
|Unrealized gain (loss) on interest rate swap    |  |                      | 11,067    |   |                    |   | (70,068   | )
|Miscellaneous income (expense)                  |  |                      | 5,031     |   |                    |   | (6,050    | )
|                                                |  |                      |           |   |                    |   |           |  
|Total other expense                             |  |                      | (60,985   | ) |                    |   | (219,275  | )
|                                                |  |                      |           |   |                    |   |           |  
|(Loss) income before provision for income taxes |  |                      | (247,853  | ) |                    |   | 1,081,095 |  
|(Benefit) provision for income taxes            |  |                      | (181,253  | ) |                    |   | 462,936   |  
|                                                |  |                      |           |   |                    |   |           |  
|Net (loss) income                               |  | $                    | (66,600   | ) |                    | $ | 618,159   |  
|                                                |  |                      |           |   |                    |   |           |  
|(Loss) income per common share                  |  |                      |           |   |                    |   |           |  
|Basic                                           |  | $                    | (0.01     | ) |                    | $ | 0.12      |  
|                                                |  |                      |           |   |                    |   |           |  
|Diluted                                         |  | $                    | (0.01     | ) |                    | $ | 0.12      |  
|                                                |  |                      |           |   |                    |   |           |  
|Weighted average common shares outstanding      |  |                      |           |   |                    |   |           |  
|Basic                                           |  |                      | 5,005,214 |   |                    |   | 4,974,742 |  
|Diluted                                         |  |                      | 5,005,214 |   |                    |   | 5,012,526 |  

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



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MICRONETICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                             |  |                        |            |   |                    |   |            |  
|-------------------------------------------- |  | ---------------------- | ---------- | - | ------------------ | - | ---------- | -
|                                             |  | Twenty-Six Weeks Ended |           
|                                             |  | September 27, 2008     |            |   | September 30, 2007 |  
|Net sales                                    |  | $                      | 13,632,110 |   |                    | $ | 16,073,629 |  
|Cost of sales                                |  |                        | 8,584,478  |   |                    |   | 10,028,279 |  
|                                             |  |                        |            |   |                    |   |            |  
|Gross profit                                 |  |                        | 5,047,632  |   |                    |   | 6,045,350  |  
|                                             |  |                        |            |   |                    |   |            |  
|Operating expenses:                          |  |                        |            |   |                    |   |            |  
|Research and development                     |  |                        | 730,566    |   |                    |   | 312,464    |  
|Selling, general and administrative          |  |                        | 3,895,988  |   |                    |   | 3,630,328  |  
|Gain on sale of property and equipment       |  |                        |           |   |                    |   | (44,749    | )
|Amortization of intangible assets            |  |                        | 348,562    |   |                    |   | 366,450    |  
|                                             |  |                        |            |   |                    |   |            |  
|Total operating expenses                     |  |                        | 4,975,116  |   |                    |   | 4,264,493  |  
|                                             |  |                        |            |   |                    |   |            |  
|Income from operations                       |  |                        | 72,516     |   |                    |   | 1,780,857  |  
|                                             |  |                        |            |   |                    |   |            |  
|Other income (expense):                      |  |                        |            |   |                    |   |            |  
|Interest income                              |  |                        | 28,661     |   |                    |   | 59,774     |  
|Interest expense                             |  |                        | (190,657   | ) |                    |   | (276,846   | )
|Unrealized gain (loss) on interest rate swap |  |                        | 113,868    |   |                    |   | (70,068    | )
|Miscellaneous income                         |  |                        | 11,386     |   |                    |   | 2,403      |  
|                                             |  |                        |            |   |                    |   |            |  
|Total other expense                          |  |                        | (36,742    | ) |                    |   | (284,737   | )
|                                             |  |                        |            |   |                    |   |            |  
|Income before provision for income taxes     |  |                        | 35,774     |   |                    |   | 1,496,120  |  
|(Benefit) provision for income taxes         |  |                        | (55,232    | ) |                    |   | 692,867    |  
|                                             |  |                        |            |   |                    |   |            |  
|Net income                                   |  | $                      | 91,006     |   |                    | $ | 803,253    |  
|                                             |  |                        |            |   |                    |   |            |  
|Earnings per common share                    |  |                        |            |   |                    |   |            |  
|Basic                                        |  | $                      | 0.02       |   |                    | $ | 0.16       |  
|                                             |  |                        |            |   |                    |   |            |  
|Diluted                                      |  | $                      | 0.02       |   |                    | $ | 0.16       |  
|                                             |  |                        |            |   |                    |   |            |  
|Weighted average common shares outstanding   |  |                        |            |   |                    |   |            |  
|Basic                                        |  |                        | 5,002,742  |   |                    |   | 4,874,142  |  
|Diluted                                      |  |                        | 5,007,849  |   |                    |   | 4,910,823  |  

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



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MICRONETICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

(Unaudited)



|                              |  |              |  |                          |        |                  |   |               |  |   |            |  |   |            |   |  |   |           
|----------------------------- |  | ------------ |  | ------------------------ | ------ | ---------------- | - | ------------- |  | - | ---------- |  | - | ---------- | - |  | - | ----------
|                              |  | Common Stock |  | AdditionalPaid-InCapital |        | RetainedEarnings |   | TreasuryStock |  |   | Total     
|                              |  | Shares       |  | ParValue                 |        |                  |   |              
|Balance at March 31, 2008     |  | 5,391,217    |  | $                        | 53,912 |                  | $ | 11,608,536    |  | $ | 12,478,398 |  | $ | (1,732,199 | ) |  | $ | 22,408,647
|Stock based compensation      |  |             |  |                          |       |                  |   | 381,768       |  |   |           |  |   |           |   |  |   | 381,768   
|Net income                    |  |             |  |                          |       |                  |   |              |  |   | 91,006     |  |   |           |   |  |   | 91,006    
|                              |  |              |  |                          |        |                  |   |               |  |   |            |  |   |            |   |  |   |           
|Balance at September 27, 2008 |  | 5,391,217    |  | $                        | 53,912 |                  | $ | 11,990,304    |  | $ | 12,569,404 |  | $ | (1,732,199 | ) |  | $ | 22,881,421
|                              |  |              |  |                          |        |                  |   |               |  |   |            |  |   |            |   |  |   |           

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



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MICRONETICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                  |  |                         |            |   |                    |   |            |  
|--------------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ------------------ | - | ---------- | -
|                                                                                  |  | Twenty-Six Weeks Ended, |           
|                                                                                  |  | September 27, 2008      |            |   | September 30, 2007 |  
|Cash flow from operating activities:                                              |  |                         |            |   |                    |   |            |  
|Net income                                                                        |  | $                       | 91,006     |   |                    | $ | 803,253    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                         |            |   |                    |   |            |  
|Depreciation and amortization                                                     |  |                         | 873,601    |   |                    |   | 850,511    |  
|Stock-based compensation                                                          |  |                         | 381,768    |   |                    |   | 276,513    |  
|Gain on sale of property and equipment                                            |  |                         |           |   |                    |   | (44,749    | )
|Unrealized (gain) loss on interest rate swap                                      |  |                         | (113,868   | ) |                    |   | 70,068     |  
|Provision for allowances on accounts receivable                                   |  |                         | 13,354     |   |                    |   | 53,256     |  
|Provision for inventory obsolescence and losses                                   |  |                         | 118,487    |   |                    |   | 202,424    |  
|Changes in operating assets and liabilities, net of acquisition:                  |  |                         |            |   |                    |   |            |  
|Accounts receivable                                                               |  |                         | 1,324,737  |   |                    |   | (1,355,142 | )
|Inventories                                                                       |  |                         | (1,763,234 | ) |                    |   | (139,332   | )
|Other long term assets                                                            |  |                         | 4,122      |   |                    |   | 97,276     |  
|Prepaid expenses, other current assets, and other assets                          |  |                         | (1,423,454 | ) |                    |   | 57,125     |  
|Accounts payable                                                                  |  |                         | (476,281   | ) |                    |   | (315,217   | )
|Accrued expenses                                                                  |  |                         | (211,012   | ) |                    |   | 64,558     |  
|Deferred revenue                                                                  |  |                         | 382,052    |   |                    |   |           |  
|                                                                                  |  |                         |            |   |                    |   |            |  
|Net cash (used in) provided by operating activities                               |  |                         | (798,722   | ) |                    |   | 620,544    |  
|                                                                                  |  |                         |            |   |                    |   |            |  
|Cash flows from investing activities:                                             |  |                         |            |   |                    |   |            |  
|Proceeds from sale of property and equipment                                      |  |                         |           |   |                    |   | 461,898    |  
|Proceeds from sale of investments                                                 |  |                         | 400,000    |   |                    |   |           |  
|Purchase of marketable securities                                                 |  |                         |           |   |                    |   | (500,000   | )
|Purchase of equipment                                                             |  |                         | (464,754   | ) |                    |   | (482,612   | )
|Stealth acquisition, net of cash acquired                                         |  |                         |           |   |                    |   | (1,500,000 | )
|MICA acquisition, net of cash acquired                                            |  |                         | 20,522     |   |                    |   | (3,112,814 | )
|                                                                                  |  |                         |            |   |                    |   |            |  
|Net cash used in investing activities                                             |  |                         | (44,232    | ) |                    |   | (5,133,528 | )
|                                                                                  |  |                         |            |   |                    |   |            |  
|Cash flows from financing activities:                                             |  |                         |            |   |                    |   |            |  
|Proceeds from line of credit                                                      |  |                         |           |   |                    |   | 728,528    |  
|Repayments on line of credit                                                      |  |                         |           |   |                    |   | (356,379   | )
|Repayments on mortgages and term loan                                             |  |                         | (719,551   | ) |                    |   | (701,415   | )
|Repayments of MICA debt                                                           |  |                         |           |   |                    |   | (646,820   | )
|Repayments of capital leases                                                      |  |                         | (11,001    | ) |                    |   | (1,510     | )
|Proceeds from the issuance of common stock                                        |  |                         |           |   |                    |   | 63,680     |  
|                                                                                  |  |                         |            |   |                    |   |            |  
|Net cash used in financing activities                                             |  |                         | (730,552   | ) |                    |   | (913,916   | )
|                                                                                  |  |                         |            |   |                    |   |            |  
|Net change in cash and cash equivalents                                           |  |                         | (1,573,506 | ) |                    |   | (5,426,900 | )
|Cash and cash equivalents at beginning of period                                  |  |                         | 3,163,415  |   |                    |   | 7,058,524  |  
|                                                                                  |  |                         |            |   |                    |   |            |  
|Cash and cash equivalents at end of period                                        |  | $                       | 1,589,909  |   |                    | $ | 1,631,624  |  
|                                                                                  |  |                         |            |   |                    |   |            |  
|Supplemental disclosure of cash flow information:                                 |  |                         |            |   |                    |   |            |  
|Cash paid during the period for:                                                  |  |                         |            |   |                    |   |            |  
|Interest                                                                          |  | $                       | 199,959    |   |                    | $ | 128,999    |  
|                                                                                  |  |                         |            |   |                    |   |            |  
|Income taxes                                                                      |  | $                       | 1,402,000  |   |                    | $ | 737,000    |  
|                                                                                  |  |                         |            |   |                    |   |            |  
|Supplemental disclosure of non-cash financing activities:                         |  |                         |            |   |                    |   |            |  
|Property and equipment acquired under capital leases                              |  | $                       | 58,241     |   |                    | $ |           |  
|Treasury stock purchase from stock option exercise                                |  | $                       |           |   |                    | $ | 205,185    |  
|Shares issued to MICA stockholders                                                |  | $                       |           |   |                    | $ | 1,999,968  |  
|Recognition of uncertain tax positions                                            |  | $                       |           |   |                    | $ | 96,443     |  

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



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##### Table of Contents

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-K for its fiscal year ended March 31, 2008. 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 27, 2008, the results of operations for the thirteen and twenty-six weeks ended September 27, 2008 and September 30, 2007, and the cash flows for
the twenty-six weeks ended September 27, 2008 and September 30, 2007.

As of April 1, 2008 the Company changed its fiscal
quarters to the 13-week period ending on the Saturday nearest June 30, September 30 and December 31. As a result, the first and fourth quarter may be more or less than 13 weeks, by 1 to 6 days, which can affect comparability
between periods. The second quarter of Fiscal 2009 has 91 days versus 92 in the second quarter of Fiscal 2008. The Companys fiscal year end is still March 31, 2009.

The results of operations for the thirteen and twenty-six weeks ended September 27, 2008 are not necessarily indicative of the results to be
expected for the full year ended March 31, 2009. The Company has reclassed certain prior period amounts to conform with the current period presentation.

2. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Summary of operations and basis of
consolidationMicronetics, Inc. and subsidiaries (collectively the Company or Micronetics) are engaged in the design, development, manufacturing and marketing of a broad range of high performance wireless components,
test equipment and integrated multifunction subassemblies used in cellular, microwave, satellite, radar and communication systems around the world.

The consolidated financial statements include the accounts of Micronetics, Inc. (Micronetics) and its wholly-owned subsidiaries, Microwave & Video Systems, Inc. (MVS), 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). In September 2007, the Enon subsidiary was dissolved and its operations were merged with and into the Micronetics operations. All material intercompany
balances and transactions have been eliminated in consolidation.

Use of estimatesThe preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America (US 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, valuation of investments, 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.

InvestmentsThe Companys investments consist of auction rate securities (ARS) with varying maturities. The Companys ARS are issued by a closed-end fixed income investment fund that holds auctions every 28
days to reset the dividend rates for the next period. The Company has classified the $250,000 ARS as a short-term investment based on the redemption of all outstanding amounts for par value in October 2008.

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 integrated assembly which includes microwave hardware and embedded software, that are delivered to original equipment manufacturers (OEMs) of telecommunication and
networking products who are considered to be end users. The Company enters into contracts for production of highly customized microwave and radio frequency components and integrated sub-assemblies which it accounts for in accordance with SOP 81-1,
Accounting for Performance of Construction-Type and Certain Production-Type of Contracts. For these types of contracts, the Company records revenue based on the percentage of completion method (assuming all other requirements for revenue
recognition have been satisfied) typically using labor hours to measure progress toward completion of the contract as the Company has determined this methodology best reflects the fundamentals of the contract. If estimates to complete the contract
change materially from one period to the next, profit levels could significantly vary. Deferred revenue represents billings in excess of revenue recognized.

The Company sells its products using a direct sales force and sales representatives. Contracts with customers do not include product return rights or price protection. The estimated costs of product warranties are
accrued based on historical experience at the time the revenue is recognized. Unless customers purchase an extended warranty, Micronetics offers a one-year warranty.



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Recent accounting pronouncementsIn September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements(SFAS No. 157). SFAS 157 clarifies the principle that fair value should be used on the assumptions market participants would use when pricing an asset or liability and establishes a fair
value hierarchy that prioritizes the information used to develop those assumptions. Under SFAS 157, fair value measurements would be separately disclosed by level within the fair value hierarchy. The Provisions of SFAS 157, as issued, are effective
for the fiscal years beginning after November 15, 2007. However, in February 2008, the FASB issued FASB Staff Position No. 157-2, Effective Date of FASB Statement No. 157, (FSP 157-2) that amended SFAS
157 to delay the effective date for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually). FSP 157-2 defers
the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope. The Companys partial adoption of SFAS No. 157 on April 1, 2008 with
respect to financial assets and financial liabilities recognized or disclosed at fair value in the financial statements on a recurring basis did not have a material impact on the Companys consolidated financial statements. See Note 12 for the
fair value measurement disclosures for these assets and liabilities. The Company is in the process of analyzing the potential impact of SFAS No. 157 relating to its planned April 1, 2009 adoption of the remainder of the standard.

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. Although the Company adopted SFAS 159 as of April 1, 2008, the Company has
not elected the fair value options for any items permitted under SFAS 159.

In June 2007, the FASB ratified Emerging Issues Task Force
(EITF) 07-03, Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities (EITF 07-03). EITF 07-03 requires companies to defer and capitalize
prepaid nonrefundable advance payments for goods or services that will be used for future research and development activities over the period that the research and development activities are performed or the services are provided, subject to an
assessment of recoverability. The provisions of EITF 07-3 were effective beginning April 1, 2008. The adoption of EITF 07-03 did not have any effect on the Companys financial statements

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(Revised), Business Combinations(SFAS 141(Revised)), which replaces Statement of Financial Accounting Standards No. 141, Business Combinations(SFAS 141). SFAS 141(Revised) requires the assets acquired, liabilities
assumed, and any non-controlling interest to be measured at their fair values as of the acquisition date. SFAS 141(Revised) also requires expensing of acquisition related costs and restructuring costs, and re-measurement of earn out provisions at
fair value. SFAS 141(Revised) is effective for any of the Companys business combinations on or after April 1, 2009. SFAS 141 (Revised) will have an impact on accounting for business combinations once adopted but the effect is dependent
upon acquisitions at the time.

In April 2008, the FASB issued Staff Position No. FAS 142-3, Determination of the Useful Life of
Intangible Assets (FSP FAS 142-3). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142,
Goodwill and Other Intangible Assets (SFAS 142). The intent of FSP FAS 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the
fair value of the asset under SFAS 141(Revised) and other applicable accounting literature. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the effect that the adoption of FSP
FAS 142-3 will have on its consolidated results of operations and financial condition.

In December 2007, the FASB issued Statement of
Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements(SFAS 160). SFAS 160 clarifies the accounting and reporting standards for the noncontrolling interest in a
subsidiary, including classification as a component of equity. SFAS 160 is effective for the Company on April 1, 2009. The Company is currently evaluating the effect that the adoption of SFAS 160 will have on its consolidated results of
operations and financial condition.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161,
Disclosures About Derivative Instruments and Hedging Activities, an Amendment of Statement No. 133 (SFAS 161). SFAS 161 expands the disclosure requirements in Statement 133 about an entitys derivative
instruments and hedging activities. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The Company is currently evaluating the effect that the adoption of SFAS 161 will have on its consolidated
financial statements.



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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). A post-closing
adjustment of $20,522 was recorded during the thirteen weeks ended June 28, 2008 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 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                                     |  |                           | 2,930 |  
|Debt                                         |  |                           | (647  | )
|Deferred taxes                               |  |                           | 101   |  
|Deferred taxes on acquired intangible assets |  |                           | (700  | )
|Income taxes payable                         |  |                           | (137  | )
|Accounts payable and accrued expenses        |  |                           | (704  | )
|                                             |  |                           |       |  
|Subtotal                                     |  |                           | 5,198 |  
|Less: cash assumed                           |  |                           | (97   | )
|                                             |  |                           |       |  
|Net purchase price                           |  | $                         | 5,101 |  
|                                             |  |                           |       |  

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 June 28, 2008. The values and useful lives assigned to intangible assets were based on management
estimates and guidance from an independent appraisal.

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



|                              |  |                                           |       
|----------------------------- |  | ----------------------------------------- | ------
|                              |  | Twenty-Six Weeks Ended(Unaudited)        
|                              |  | September 30, 2007                       
|                              |  | (in thousands, except earnings per share)
|Pro forma revenue             |  | $                                         | 16,874
|Pro forma net income (1)      |  | $                                         | 811   
|Pro forma earnings per share: |  |                                           |       
|Basic                         |  | $                                         | 0.17  
|Diluted                       |  | $                                         | 0.17  



|(1) | Amortization costs of approximately $92,000 related to the purchase price in 2007 were assessed to the twenty-six weeks ended September 30, 2007 income. Management believes
that including these adjustments allows investors to better compare results in the future periods.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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4. INVENTORIES, NET

At September 27, 2008 and March 31, 2008, inventories consisted of the following:



|                           |  |                    |           |   |                |   |           |  
|-------------------------- |  | ------------------ | --------- | - | -------------- | - | --------- | -
|                           |  | September 27, 2008 |           |   | March 31, 2008 |  
|Raw materials              |  | $                  | 5,109,528 |   |                | $ | 4,549,171 |  
|Work in process            |  |                    | 3,297,870 |   |                |   | 2,346,513 |  
|Finished goods             |  |                    | 1,137,170 |   |                |   | 885,650   |  
|                           |  |                    |           |   |                |   |           |  
|                           |  |                    | 9,544,568 |   |                |   | 7,781,334 |  
|                           |  |                   
|Less:                      |  |                    |           |   |                |   |           |  
|                           |  |                   
|Allowance for obsolescence |  |                    | (583,575  | ) |                |   | (465,088  | )
|                           |  |                    |           |   |                |   |           |  
|                           |  | $                  | 8,960,993 |   |                | $ | 7,316,246 |  
|                           |  |                    |           |   |                |   |           |  

5. PROPERTY, PLANT AND EQUIPMENT, NET

At September 27, 2008 and March 31, 2008, property, plant and equipment, net consisted of the following:



|                                     |  |                    |            |   |                |   |            |  
|------------------------------------ |  | ------------------ | ---------- | - | -------------- | - | ---------- | -
|                                     |  | September 27, 2008 |            |   | March 31, 2008 |  
|Land                                 |  | $                  | 162,000    |   |                | $ | 162,000    |  
|Buildings and leasehold improvements |  |                    | 1,119,628  |   |                |   | 1,105,745  |  
|Machinery and equipment              |  |                    | 9,482,248  |   |                |   | 8,979,161  |  
|Furniture, fixtures and other        |  |                    | 242,563    |   |                |   | 242,563    |  
|                                     |  |                    |            |   |                |   |            |  
|                                     |  |                    | 11,006,439 |   |                |   | 10,489,469 |  
|Less accumulated depreciation        |  |                    | (6,865,144 | ) |                |   | (6,329,506 | )
|                                     |  |                    |            |   |                |   |            |  
|                                     |  | $                  | 4,141,295  |   |                | $ | 4,159,963  |  
|                                     |  |                    |            |   |                |   |            |  

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

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 27, 2008 and March 31, 2008 (in thousands):



|                                         |  |                    |  |                |       |                         |   |          |  |            |       |                         |   |          |  |   |       |  |   |      
|---------------------------------------- |  | ------------------ |  | -------------- | ----- | ----------------------- | - | -------- |  | ---------- | ----- | ----------------------- | - | -------- |  | - | ----- |  | - | -----
|                                         |  | September 27, 2008 |  | March 31, 2008
|Intangible Assets                        |  | UsefulLife(years)  |  | GrossValue     |       | AccumulatedAmortization |   | NetValue |  | GrossValue |       | AccumulatedAmortization |   | NetValue
|Customer relationships (non-contractual) |  | 7-10               |  | $              | 4,130 |                         | $ | 1,552    |  | $          | 2,578 |                         | $ | 4,130    |  | $ | 1,282 |  | $ | 2,848
|Covenants not to compete                 |  | 2                  |  |                | 480   |                         |   | 480      |  |            |      |                         |   | 480      |  |   | 480   |  |   |     
|Order backlog                            |  | 1                  |  |                | 380   |                         |   | 380      |  |            |      |                         |   | 380      |  |   | 364   |  |   | 16   
|Trade Name                               |  | 10                 |  |                | 260   |                         |   | 34       |  |            | 226   |                         |   | 260      |  |   | 21    |  |   | 239  
|Developed technology- drawings           |  | 5                  |  |                | 390   |                         |   | 171      |  |            | 219   |                         |   | 390      |  |   | 132   |  |   | 258  
|                                         |  |                    |  |                |       |                         |   |          |  |            |       |                         |   |          |  |   |       |  |   |      
|Total intangibles                        |  |                    |  | $              | 5,640 |                         | $ | 2,617    |  | $          | 3,023 |                         | $ | 5,640    |  | $ | 2,279 |  | $ | 3,361
|                                         |  |                    |  |                |       |                         |   |          |  |            |       |                         |   |          |  |   |       |  |   |      



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##### Table of Contents

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 2009 |  | $              | 322  
|2010              |  |                | 643  
|2011              |  |                | 616  
|2012              |  |                | 609  
|2013              |  |                | 234  
|Thereafter        |  |                | 599  
|                  |  |                |      
|Total             |  | $              | 3,023
|                  |  |                |      

Changes in the carrying amount of goodwill at September 27, 2008 and March 31, 2008 are
as follows:



|                                       |  |                    |           |   |                |   |          
|-------------------------------------- |  | ------------------ | --------- | - | -------------- | - | ---------
|                                       |  | September 27, 2008 |           |   | March 31, 2008
|Balance at the beginning of the period |  | $                  | 8,931,944 |   |                | $ | 5,982,709
|Acquisitions                           |  |                    |          |   |                |   | 2,949,235
|Purchase accounting adjustments        |  |                    | (20,522   | ) |                |   |         
|                                       |  |                    |           |   |                |   |          
|Balance at the end of the period       |  | $                  | 8,911,422 |   |                | $ | 8,931,944
|                                       |  |                    |           |   |                |   |          

7. ACCRUED EXPENSES

At September 27, 2008 and March 31, 2008 accrued expenses consisted of the following:



|                                      |  |                    |           |                |   |          
|------------------------------------- |  | ------------------ | --------- | -------------- | - | ---------
|                                      |  | September 27, 2008 |           | March 31, 2008
|Unbilled payables                     |  | $                  | 795,895   |                | $ | 370,541  
|Professional fees                     |  |                    |          |                |   | 30,000   
|Payroll, benefits and related taxes   |  |                    | 1,011,883 |                |   | 1,453,369
|Warranty                              |  |                    | 128,573   |                |   | 119,252  
|Unrealized loss on interest rate swap |  |                    | 166,997   |                |   | 280,865  
|Miscellaneous                         |  |                    | 279,541   |                |   | 453,742  
|                                      |  |                    |           |                |   |          
|                                      |  | $                  | 2,382,889 |                | $ | 2,707,769
|                                      |  |                    |           |                |   |          

Included in accrued payroll are bonuses of $216,032 and $646,630 at September 27, 2008 and
March 31, 2008.

8. LONG-TERM DEBT

At September 27, 2008 and March 31, 2008 long-term debt consisted of the following:



|                                            |  |                    |            |   |                |   |            |  
|------------------------------------------- |  | ------------------ | ---------- | - | -------------- | - | ---------- | -
|                                            |  | September 27, 2008 |            |   | March 31, 2008 |  
|Term loan                                   |  |                    | 4,875,000  |   |                |   | 5,525,000  |  
|Mortgage payable, NH                        |  |                    | 61,286     |   |                |   | 130,837    |  
|Capital leases                              |  |                    | 45,914     |   |                |   | 4,698      |  
|                                            |  |                    |            |   |                |   |            |  
|Total                                       |  |                    | 4,982,200  |   |                |   | 5,660,535  |  
|Less current installments                   |  |                    | (1,402,688 | ) |                |   | (1,434,193 | )
|                                            |  |                    |            |   |                |   |            |  
|Long-term debt, net of current installments |  | $                  | 3,579,512  |   |                | $ | 4,226,342  |  
|                                            |  |                    |            |   |                |   |            |  

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. 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 1.5%, which at
September 27, 2008 was 5.38%.



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##### Table of Contents

The Company entered into an interest rate swap agreement with a notional amount of $6.5 million in April
2007 to mitigate the effect of interest rate fluctuations on the term loan. The interest rate swap was not designated as a hedging instrument at the initiation of the swap, and therefore the Company has not applied hedge accounting. As a result, at
the end of each reporting period, the value of the interest rate swap is recorded as an accrued expense on the consolidated balance sheet, with any related gains or losses charged to earnings. As of September 27, 2008, the Company recorded an
unrealized gain of $113,868 to reflect the change in estimated fair value for the interest rate swap in the consolidated statement of operations.

The revolving line of credit bears interest at the current prime rate, which at September 27, 2008 was 5%. The Company had an entire line of $5.0 million available at September 27, 2008.

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 27, 2008, the Company was in compliance with all financial debt covenants.

Mortgage payable, NH

In February
2004, Micronetics refinanced the mortgage on its headquarters by 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
10.6% per annum, and are secured by the underlying assets. The assets are depreciated over their estimated useful lives.

9. STOCK OPTION PLANS AND
STOCK- BASED COMPENSATION

At September 27, 2008, the Company had two stock option plans under which grants were outstanding. The
stock options outstanding are for grants issued under the Companys 2003 Stock Option Plan and the 2006 Equity Incentive Plan.

The 2003 Stock
Incentive Plan

During the fiscal year ended March 31, 2004, the Company adopted a stock option plan entitled The 2003 Stock
Incentive Plan (the 2003 Plan) under which the Company may grant options to purchase up to 900,000 shares of common stock plus any shares of common stock remaining available for issuance as of July 22, 2003 under the 1996
Stock Option Plan. In July 2006 the Board of Directors determined that it would not issue any new option awards under the 2003 Plan. As of September 27, 2008, there were 464,125 options outstanding under the 2003 Plan.

The 2006 Equity Incentive Plan

During the fiscal
year ending March 31, 2007, the Company adopted a stock option plan entitled The 2006 Equity Incentive Plan (the 2006 Plan) under which the Company may grant shares of restricted stock or options to purchase up to 1,000,000
shares of common stock. As of September 27, 2008 there were 299,000 options and 25,000 shares of restricted stock outstanding under the 2006 Plan.

The 2003 Plan and the 2006 Plan are administered by the Board of Directors or a Committee of the Board of Directors which has the authority to determine the persons to whom the options may be granted, the number of
shares of common stock to be covered by each option grant, and the terms and provisions of each option grant. Options granted under the 2003 Plan and the 2006 Plan may be incentive stock options or non-qualified options, and may be issued to
employees, consultants, advisors and directors of the Company and its subsidiaries. The exercise price of options granted under the 2003 Plan and the 2006 Plan may not be less than the fair market value of the shares of common stock on the date of
grant, and may not be granted more than ten years from the date of adoption of each respective plan or exercised more than ten years from the date of grant.



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##### Table of Contents

The following table sets forth the Companys stock option activity during the twenty-six weeks ended
September 27, 2008:



|                                  |  |                         |   |  |                              |      |                                         |     
|--------------------------------- |  | ----------------------- | - |  | ---------------------------- | ---- | --------------------------------------- | ----
|                                  |  | SharesUnderlyingoptions |   |  | WeightedAverageExerciseprice |      | WeightedAverageRemainingContractuallife
|Outstanding at March 31, 2008     |  | 755,825                 |   |  | $                            | 7.75 |                                         |     
|Granted                           |  | 18,000                  |   |  |                              | 7.57 |                                         |     
|Exercised                         |  |                        |   |  |                              |     |                                         |     
|Canceled                          |  | (10,700                 | ) |  |                              | 8.02 |                                         |     
|                                  |  |                         |   |  |                              |      |                                         |     
|Outstanding at September 27, 2008 |  | 763,125                 |   |  | $                            | 7.74 |                                         | 4.22
|                                  |  |                         |   |  |                              |      |                                         |     
|Exercisable at September 27, 2008 |  | 380,500                 |   |  | $                            | 7.60 |                                         | 1.74
|                                  |  |                         |   |  |                              |      |                                         |     

There was no aggregate intrinsic value for outstanding and exercisable options at
September 27, 2008 based on the Companys closing stock price of Common Stock on that date of $5.94.

The following table sets
forth the status of the Companys non-vested stock options as of September 27, 2008:



|                                    |  |                  |   |  |                                      |     
|----------------------------------- |  | ---------------- | - |  | ------------------------------------ | ----
|                                    |  | Number ofOptions |   |  | Weighted-AverageGrant-DateFair Value
|Non-vested as of March 31, 2008     |  | 433,475          |   |  | $                                    | 4.30
|Granted                             |  | 18,000           |   |  |                                      | 4.12
|Forfeited                           |  | (3,850           | ) |  |                                      | 3.50
|Vested                              |  | (65,000          | ) |  |                                      | 3.40
|                                    |  |                  |   |  |                                      |     
|Non-vested as of September 27, 2008 |  | 382,625          |   |  | $                                    | 4.45
|                                    |  |                  |   |  |                                      |     

During the year ended March 31, 2008, the Company granted options to purchase 10,000 shares
of common stock with an exercise price of $8.40 to a former employee. In the fourth quarter of Fiscal 2008, 5,000 options vested and the remaining options vested on July 31, 2008. The options have a contractual life of 10 years. The Company
valued the options under SFAS 123(R) at the fair value on the date of grant using the Black-Scholes options-pricing model. The Company recorded $32,150 in compensation expense for the twenty-six weeks ended September 27, 2008 related to the
non-employee options.

The following table summarizes the effects of stock-based compensation resulting from the application of SFAS
No. 123(R) for the thirteen weeks ended September 27, 2008 and September 30, 2007:



|                                                       |  |                      |         |                    |   |        
|------------------------------------------------------ |  | -------------------- | ------- | ------------------ | - | -------
|                                                       |  | Thirteen Weeks Ended
|                                                       |  | September 27, 2008   |         | September 30, 2007
|Cost of sales                                          |  | $                    | 15,373  |                    | $ | 16,762 
|Selling, general and administrative                    |  |                      | 156,849 |                    |   | 110,779
|                                                       |  |                      |         |                    |   |        
|Stock-based compensation effect in income before taxes |  | $                    | 172,222 |                    | $ | 127,541
|                                                       |  |                      |         |                    |   |        

The following table summarizes the effects of stock-based compensation resulting from the
application of SFAS No. 123(R) for the twenty-six weeks ended September 27, 2008 and September 30, 2007:



|                                                       |  |                        |         |                    |   |        
|------------------------------------------------------ |  | ---------------------- | ------- | ------------------ | - | -------
|                                                       |  | Twenty-Six Weeks Ended
|                                                       |  | September 27, 2008     |         | September 30, 2007
|Cost of sales                                          |  | $                      | 29,903  |                    | $ | 33,374 
|Selling, general and administrative                    |  |                        | 351,865 |                    |   | 215,919
|Research and development                               |  |                        |        |                    |   | 27,220 
|                                                       |  |                        |         |                    |   |        
|Stock-based compensation effect in income before taxes |  | $                      | 381,768 |                    | $ | 276,513
|                                                       |  |                        |         |                    |   |        

Unrecognized stock-based compensation expense related to the unvested options is approximately
$1.1 million, and will be recorded over the remaining vesting periods of 2.85 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.



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The Company granted 25,000 shares of restricted stock to an employee under the 2006 Equity Incentive Plan
on November 14, 2007. The shares were issued at a purchase price of $.01 per share. The fair value of the restricted stock was determined based on the fair value of the Companys common stock on the grant date. Upon issuance of the
restricted stock 10,000 shares vested, with the remaining 15,000 shares to vest twenty percent upon the completion of each quarterly period thereafter. The stock fully vested on August 14, 2008. As a result of the issuance of the restricted
stock, the Company recognized $59,250 in compensation expense during the twenty-six weeks ended September 27, 2008.

There were 3,000
options granted during the thirteen weeks ended September 27, 2008 and no options granted during the thirteen weeks ended September 30, 2007. The fair value of options issued were estimated at the date of grant with the following
weighted-average assumptions for the thirteen weeks ended September 27, 2008 and September 30, 2007.



|                        |  |                    |   |  |                    |  
|----------------------- |  | ------------------ | - |  | ------------------ | -
|                        |  | September 27, 2008 |   |  | September 30, 2007 |  
|Risk free interest rate |  | 3.23               | % |  | 4.98               | %
|Expected life           |  | 6.13 years         |   |  | 6.75 years         |  
|Expected volatility     |  | 58.9               | % |  | 60                 | %
|Forfeiture rate         |  | 2.92               | % |  | 2.92               | %
|Expected dividend yield |  | 0                  | % |  | 0                  | %

The per share weighted average fair value of stock options granted for the thirteen weeks ended
September 27, 2008 and September 30, 2007 was $3.95 and $4.08, respectively.

10. INCOME TAXES

The Companys effective tax rate was 44% and 43% for the thirteen weeks ended September 27, 2008 and September 30, 2007 as compared to 44%
and 46% for the twenty-six weeks ended September 27, 2008 and September 30, 2007.

During the thirteen week period ended
September 27, 2008, uncertain tax benefits were reduced from $81,000 to $9,000 due to the statute of limitations expiring on the 2004 calendar year tax return for one of the Companys subsidiaries. The recognition of $72,000 of uncertain
tax benefit will reduce the Companys annual effective tax rate and has been recorded as an income tax benefit for the thirteen week period ended September 27, 2008.

As of April 1, 2008, the Company is subject to tax in the U.S. Federal and various state jurisdictions. The Company is open to examination for tax
years March 31, 2005 through 2008.

11. EARNINGS PER SHARE

Basic (loss) earnings per share, or EPS, is computed based on the net loss or income for each period divided by the weighted average actual shares outstanding during the period. Diluted (loss) earnings per share is
computed based on the net loss or 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 using the treasury stock method. The computations of basic and diluted EPS for the thirteen weeks ended September 27, 2008 and September 30, 2007 are:



|                                                                 |  |                      |           |   |                    |   |          
|---------------------------------------------------------------- |  | -------------------- | --------- | - | ------------------ | - | ---------
|                                                                 |  | Thirteen Weeks Ended
|                                                                 |  | September 27, 2008   |           |   | September 30, 2007
|Net (loss) income                                                |  | $                    | (66,600   | ) |                    | $ | 618,159  
|Weighted average shares outstanding                              |  |                      | 5,005,214 |   |                    |   | 4,974,742
|Basic (loss) earnings per share                                  |  | $                    | (0.01     | ) |                    | $ | 0.12     
|Common stock equivalents                                         |  |                      |          |   |                    |   | 37,784   
|Weighted average common and common equivalent shares outstanding |  |                      | 5,005,214 |   |                    |   | 5,012,526
|Diluted (loss) earnings per share                                |  | $                    | (0.01     | ) |                    | $ | 0.12     

For the thirteen weeks ended September 27, 2008 the dilutive effect of 8,255 stocks were not
included in the computation of diluted loss per share as the net loss would have made their effect anti-dilutive.



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The computations of basic and diluted EPS for the twenty-six weeks ended September 27, 2008 and
September 30, 2007 are:



|                                                                 |  |                        |           |                    |   |          
|---------------------------------------------------------------- |  | ---------------------- | --------- | ------------------ | - | ---------
|                                                                 |  | Twenty-Six Weeks Ended
|                                                                 |  | September 27, 2008     |           | September 30, 2007
|Net income                                                       |  | $                      | 91,006    |                    | $ | 803,253  
|Weighted average shares outstanding                              |  |                        | 5,002,742 |                    |   | 4,874,142
|Basic income per share                                           |  | $                      | 0.02      |                    | $ | 0.16     
|Common stock equivalents                                         |  |                        | 5,107     |                    |   | 36,681   
|Weighted average common and common equivalent shares outstanding |  |                        | 5,007,849 |                    |   | 4,910,823
|Diluted income per share                                         |  | $                      | 0.02      |                    | $ | 0.16     

12. FAIR VALUE MEASUREMENTS

As indicated in Note 2, the Company adopted the provisions of SFAS 157 for financial assets and liabilities effective April 1, 2008. SFAS 157 clarifies the definition of fair value as an exit price representing
the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market
participants would use in pricing an asset or liability. As a basis for considering such assumptions, SFAS 157 establishes a three-tier value hierarchy, which prioritizes, in descending order, the inputs used in measuring fair value as follows:



| |  |  | Level 1  Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the
reporting date.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2  Inputs used to measure fair value, other than quoted prices included in Level 1, are either directly or indirectly observable as of the reporting
date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or
other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for
substantially the full term of the financial instrument.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3  Inputs used to measure fair value are unobservable inputs that are supported by little or no market activity and reflect the use of significant
management judgment. These values are generally determined using pricing models for which the assumptions utilize managements estimates of market participant assumptions.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair
value. Assets and liabilities measured at fair value on a recurring basis, consistent with SFAS 157, include the following as of September 27, 2008.



|                        |  |                                                    |  |                                           |         |                                        |   |                                        |   |        
|----------------------- |  | -------------------------------------------------- |  | ----------------------------------------- | ------- | -------------------------------------- | - | -------------------------------------- | - | -------
|                        |  | Fair Value Measurements at September 27, 2008Using |  |                                          
|                        |  | Quoted Pricesin ActiveMarkets(Level 1)             |  | SignificantOtherObservableInputs(Level 2) |         | SignificantUnobservableInputs(Level 3) |   | Total FairValue as ofSeptember 27,2008
|Auction rate securities |  |                                                   |  | $                                         | 250,000 |                                        |  |                                        | $ | 250,000
|Interest rate swap      |  |                                                   |  | $                                         | 178,000 |                                        |  |                                        | $ | 178,000

As of September 27, 2008, the Companys short-term investment consisted of $250,000 of
auction rate securities which were issued by a closed-end fund. Since March 31, 2008, the auction rate securities held by the Company have not been downgraded and have not defaulted on their dividend payments. Additionally, in October 2008, the
issuer of the auction rate securities redeemed 100% of the funds outstanding auction preferred shares that were held by the Company at cost.



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13. RELATED PARTY TRANSACTION

On September 4, 2008, Micronetics, Inc. entered into a lease with SBJ Development, LLC (the Landlord) for a new headquarters for its subsidiary Stealth Microwave, Inc. The property is located in the
Township of Ewing, New Jersey. The lease has an initial term of five years and contains three options to extend the lease, each for a term of five years. The annual rent for the initial term of the lease is $225,600.

Both Stephen N. Barthelmes, Jr., a director of Micronetics and President of Micronetics subsidiary Stealth Microwave, Inc., and Kevin Beals,
President of Micronetics, are members of the Landlord. Mr. Barthelmes and Mr. Beals own twenty-one percent and sixteen percent, respectively, of the outstanding units of membership interest of the Landlord.

The Audit Committee of the Board of Directors of Micronetics reviewed and approved the terms of the lease prior to its execution.

14. SUBSEQUENT EVENT

On November 6, 2008 the
Board of Directors of the Company authorized a share repurchase program to acquire up to 500,000 shares of common stock of Micronetics in the open market or in privately negotiated transactions.



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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 here, in our Annual Report on Form 10-K for the fiscal year ended
March 31, 2008, and in the other documents that we file with the Securities and Exchange Commission. We assume no obligation to update our forward-looking statements to reflect new information or developments.

An investment in our common stock involves a high degree of risk. We urge readers to review carefully the risk factors described herein, in our Annual
Report on Form 10-K for the fiscal year ended March 31, 2008, and in the other documents that we file with the Securities and Exchange Commission. You can read these documents at www.sec.gov. If any of these risks, or other risks not presently
known to us or that we currently believe are not significant, develops into an actual event, then our business, financial condition and results of operations could be adversely affected. If that happens, the market price of our common stock could
decline.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and the results of operations are based on our consolidated financial statements and the data used to prepare them. Our consolidated financial statements have
been prepared based on accounting principles generally accepted in the United States of America. On an on-going basis, we evaluate our judgments and estimates including those related to 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.

During the thirteen weeks ended September 27, 2008, we revised our revenue recognition policy to include the percentage
of completion method for certain types of contracts in accordance with SOP 81-1, Accounting for Performance of Construction-Type and Certain Production-Type of Contracts. For these types of contracts we typically record revenue using
labor hours to measure progress toward completion of the contract as we have determined this methodology best reflects the fundamentals of the contract. If estimates to complete the contract change materially from one period to the next, profit
levels could significantly vary. There have been no other changes to our critical accounting policies from those described in our annual report on Form 10-K for the fiscal year ended March 31, 2008.

Recent Accounting Pronouncements

We discuss
recently adopted and issued accounting standards in Item 1. Notes to Consolidated Financial Statements  Note 2.

Acquisition

On June 5, 2007, we acquired MICA Microwave, Inc. (MICA), a California corporation in a merger transaction
pursuant to which MICA became a wholly-owned subsidiary of Micronetics, and the holders of MICA common stock were paid $3.0 million in cash and $2.0 million in shares of Micronetics common stock. A post closing adjustment of $20,522 was
recorded during the twenty-six weeks ended September 27, 2008 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.



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Overview

Micronetics designs and manufactures high-end 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.

We sell our products primarily to original equipment manufacturers of communications equipment in either the commercial or the defense electronic
marketplace. Many of our customers are prime contractors for defense 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 This module or subassembly is then integrated by the larger company into a piece of equipment and sold to a customer. Micronetics has been seeking to capitalize on
this trend by increasing its capability to manufacture integrated subassemblies. Our goal is to leverage our high power and noise technology to continue to be a highly reliable supplier of integrated microwave subsystems.

Results of Operations

Thirteen Weeks Ended
September 27, 2008 compared to September 30, 2007

Net sales

Net sales for the thirteen weeks ended September 27, 2008 (Q2 FY 09) were $6,545,453, a decrease of $3,217,511, or 33% as compared to
$9,762,964 for the thirteen weeks ended September 30, 2007 (Q2 FY 08). The decrease in net sales for Q2 FY 09 is primarily attributable to a decrease in net sales of high performance amplifiers for commercial WIMAX and public safety
applications. Commercial and defense revenues were 53% and 47%, respectively, of the total revenues for Q2 FY 09, as compared to 74% and 26%, respectively, for Q2 FY 08 primarily due to the reduction in net sales of higher performance power
amplifiers to the commercial market offset by increased spending in the defense market for jamming and electronic system modernization. We expect sales in each of the third and fourth quarters of fiscal year 2009 to increase as compared to Q2 FY 09.

In Q2 FY 09 we have participated in development sales. Development sales consist of small quantities of product engineered for new
applications. We expect these development sales will result in future higher volume sales contracts for such applications.

Backlog

Our backlog has grown to approximately $20 million as of September 27, 2008 as compared to approximately $14 million as of March 31, 2008.
Consistent with our strategy, the increase in our backlog is primarily a result of orders for integrated sub-assemblies. We expect to increase our rate of shipping against our backlog in the second half of fiscal year 2009.

Gross profit margin

Gross profit as a percent of
sales decreased to 32% for Q2 FY 09 from 37% for Q2 FY 08. The decrease is due primarily to lower sales of high power amplifiers without a corresponding decrease in fixed costs. We expect our gross profit as a percent of sales to increase in each of
the third and fourth quarters of fiscal 2009 as compared to Q2 FY 09 as a result of higher sales.

Research and development

Research and development (R&D) expense was $388,473 or an increase of $229,873 for Q2 FY 09 as compared to $158,600 for Q2 FY 08. The
increase was primarily due to development work on an in-flight high-speed internet transceiver product, high power products for defense applications and a new product line for commercial telecom applications. We plan to continue to invest in these
product areas over the remainder of the year

Selling, general and administrative

Selling, general and administrative (SG&A) expense was $1,696,401 for Q2 FY 09 or a decrease of $295,272 as compared to $1,991,673 for Q2
FY 08. Approximately $105,000 of the decrease was due to a reduction in accounting fees incurred in Q2 FY 08 related to the MICA acquisition and FIN 48 adoption. Approximately $61,000 of the decrease was due to a reduction in bad debt expense as a
result of improved accounts receivables collections. The remainder of the decrease was due principally to lower compensation expense associated with lower profitability.



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Amortization of intangible assets

Amortization expense attributable to the intangible assets related to the acquisition of Stealth and MICA was $171,456 for Q2 FY 09 as compared to $183,357 for Q2 FY 08.

Interest expense

Interest expense decreased $70,310
or 43% to $91,790 for Q2 FY 09 as compared to $162,100 for Q2 FY 08 primarily due to lower borrowings during Q2 FY 09 and the change in term loan rates from 3 month libor plus 1.8% to 3 month libor plus 1.5%.

Unrealized gain on interest rate swap

An unrealized
gain of $11,067 was recorded for Q2 FY 09 as compared to an unrealized loss of $70,068 in Q2 FY 08 to reflect the change in fair value of the mark to market valuation for the interest rate swap agreement entered into in April 2007 to mitigate the
interest rate fluctuations on our term loan.

Provision for income taxes

Our effective tax rate was 44% for Q2 FY 09 as compared to 43% for Q2 FY 08. In addition, during Q2 FY 09, $72,000 of uncertain tax benefits were recorded
in the tax provision due to the statute of limitations expiring on the 2004 calendar year tax return filed by one of our subsidiaries.

Twenty-six
Weeks Ended September 27, 2008 compared to September 30, 2007

The Consolidated Statements of Income for the twenty-six weeks ended
September 30, 2007 include the operations of MICA from the acquisition date of June 5, 2007.

Net sales

Net sales for the twenty-six weeks ended September 27, 2008 were $13,632,110, a decrease of $2,441,519, or 15% as compared to $16,073,629 for the
twenty-six weeks ended September 30, 2007. The decrease in net sales is primarily attributable to a decrease in net sales of high performance amplifiers for commercial WIMAX and public safety applications of approximately $4.3 million offset in
part by an increase of $1.0 million in sales of components and $.9 million in sales of integrated component sub-systems for jamming and electronic modernization. Commercial and defense revenues were 54% and 46%, respectively, of the total revenues
for the twenty-six weeks ended September 27, 2008, as compared to 72% and 28%, respectively, for the twenty-six weeks ended September 30, 2007 primarily due to the reduction in net sales of higher performance power amplifiers to the
commercial market offset by increased spending in the defense market for jamming and electronic system modernization. We expect sales to increase in the second half of fiscal year 2009 as compared to the first half of fiscal year 2009.

Over the first half of fiscal year 2009 we have participated in development sales. Development sales consist of small quantities of product engineered
for new applications. We expect these development sales will result in future higher volume sales contracts for such applications.

Backlog

Our backlog has grown to approximately $20 million as of September 27, 2008 as compared to approximately $14 million as of
March 31, 2008. Consistent with our strategy, the increase in our backlog is primarily a result of orders for integrated sub-assemblies. We expect to increase our rate of shipping against our backlog in the second half of fiscal year 2009.

Gross profit margin

Gross profit as a
percent of sales decreased slightly to 37% for the twenty-six weeks ended September 27, 2008 as compared to 38% for the twenty-six weeks ended September 30, 2007. We expect our gross margin percent will increase in the second half of
fiscal year 2009 as compared to the first half of fiscal year 2009 as a result of higher sales.

Research and development

Research and development (R&D) expense was $730,566 or an increase of $418,102 for the twenty-six weeks ended September 27, 2008 as
compared to $312,464 for the twenty-six weeks ended September 30, 2007. The increase was primarily due to development work on an in-flight high-speed internet transceiver product, high power products for defense applications and a new product
line for commercial telecom applications. We plan to continue to invest in these product areas over the remainder of the year.



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Selling, general and administrative

Selling, general and administrative (SG&A) expense was $3,895,988 or an increase of $265,660 for the twenty-six weeks ended September 27, 2008 as compared to $3,630,328 for the twenty-six weeks
ended September 30, 2007. The increase was primarily attributable to the inclusion of MICAs SG&A expenses for the full twenty-six weeks ended September 27, 2008 as compared to fifteen weeks for the period ended September 30,
2007.

Amortization of intangible assets

Amortization expense attributable to the intangible assets related to the acquisition of Stealth and MICA was $348,562 for the twenty-six weeks ended September 27, 2008 as compared to $366,450 for the twenty-six weeks ended
September 30, 2007.

Interest expense

Interest expense decreased $86,189 or 31% to $190,657 for the twenty-six weeks ending September 27, 2008 as compared to $276,846 for the twenty-six weeks ending September 30, 2007 primarily due to lower borrowings.

Unrealized gain on interest rate swap

An unrealized
gain of $113,868 was recorded for the twenty-six weeks ended September 27, 2008 as compared to an unrealized loss of $70,068 for the twenty-six weeks ended September 30, 2007 to reflect the change in fair value of the mark to market
valuation for the interest rate swap agreement entered into in April 2007 to mitigate the interest rate fluctuations on our term loan.

Provision for
income taxes

Our effective tax rate was 44% for the twenty-six weeks ended September 27, 2008 as compared to 46% for the
twenty-six weeks ended September 30, 2007. In addition, $72,000 in uncertain tax benefits were recorded in the tax provision due to the statute of limitations expiring on the 2004 calendar year tax return filed by one of our subsidiaries.

Financial Condition, Liquidity and Capital Resources

We finance our operating and investment requirements primarily through operating cash flow and borrowings. We had cash and working capital at September 27, 2008 of $1,589,909 and $11,583,462, respectively, as
compared with cash and working capital of $3,163,415 and $11,197,241, respectively at March 31, 2008. Our current ratio was approximately 3.33 to 1 at September 27, 2008, as compared to 3.06 to 1 at March 31, 2008.

Net cash used in operating activities was $798,722 during the twenty-six weeks ended September 27, 2008 as compared to net cash provided by
operating activities of $620,544 during the twenty-six weeks ended September 30, 2007.

In the twenty-six weeks ended
September 27, 2008 cash provided by net income after adjusting for non-cash items was approximately $1.3 million. An additional approximately $1.3 million was provided by accounts receivables due to lower sales and improved collections.
Approximately $1.7 million was used for inventory in anticipation of future sales. Approximately $1.4 million was used for prepaid expenses, principally prepaid income taxes. Approximately $.7 million was used to fund accounts payable and accrued
expenses and approximately $.4 million was provided due to cash received and recorded as deferred revenue.

In the twenty-six weeks ended
September 30, 2007 cash provided by net income after adjusting for non-cash items was approximately $2.2 million. Approximately $1.4 million was used to fund receivables resulting from increased sales. Approximately $.1 million was used to fund
increases in inventory and approximately $.3 million was used to fund accounts payable and accrued expenses. Prepaid expenses and other assets provided approximately $.2 million.

Net cash used in investing activities was $44,232 during the twenty-six weeks ended September 27, 2008 as compared to net cash used in investing
activities of $5,133,528 during the twenty-six weeks ended September 30, 2007. During the twenty-six weeks ended September 27, 2008 we purchased equipment of $464,754 and sold investments of $400,000. We also received $20,522 as an
adjustment to the purchase price of MICA.

During the twenty-six weeks ended September 30, 2007, we acquired MICA for $3,112,814 and
the final earnout payment of $1.5 million was made to the former stockholders of Stealth. Additionally, we purchased equipment of $482,612.

Net cash used in financing activities was $730,552 during the twenty-six weeks ended September 27, 2008 as compared to $913,916 during the twenty-six weeks ended September 30, 2007 primarily due to repayments on our mortgages and
term loans.

Term Loan and Revolver

In
March 2007, the Company entered into a credit facility consisting of a $6.5 million five year secured term loan and a $5.0 million three year revolving line of credit, which replaced the then existing $6.0 million term loan entered into in June
2005.



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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 on the swap 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 1.5%, which at September 27, 2008 was 5.38%. The term loan expires in June 2012.

The revolving line of credit bears interest at the current prime rate, which at September 27, 2008 was 5.0%. We had $5.0 million available
under the line at September 27, 2008. The revolving line of credit expires in March 2010.

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 27, 2008, we were 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 10.6% per annum, and are secured by the underlying assets. The assets are depreciated over their estimated useful lives.

Stock Buyback Plan

On November 6, 2008 our
Board of Directors authorized a share repurchase program to acquire up to 500,000 shares of our common stock in the open market or in privately negotiated transactions.

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

We did not have any off-balance sheet arrangements, other than operating leases, that have or are, in the opinion of management, likely to have a current or future material effect on our financial statements.



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|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 of auction rate securities (ARS). The Companys ARS are
issued by a closed-end fixed income investment fund that holds auctions every 28 days to reset the dividend rates for the next period. The Company has classified the $250,000 ARS as a short-term investment as these ARS were redeemed in October 2008
at par value.

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 27, 2008, the Company carried out an evaluation, under the supervision and with the Companys management, including the Companys Chief Executive Officer and Acting 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
the Acting Chief Financial Officer concluded that the Companys disclosure controls and procedures were effective as of September 27, 2008 to provide reasonable assurance that material information relating to the Company was made known to
them by others within the Company and to enable the Company to record, process, summarize and report information required to be included in its periodic filings with the Securities and Exchange Commission within the required time period.

Changes in internal controlThere were no significant changes in the Companys internal controls over financial reporting that occurred
during the thirteen weeks ended September 27, 2008 that have materially affected or are reasonably likely to materially affect, the Companys internal controls over financial reporting.

Important considerations  The effectiveness of our disclosure controls and procedures is subject to various inherent limitations, including cost
limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Because of these limitations, there can be no assurance that any
system of disclosure controls and procedures will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.



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PART II. OTHER INFORMATION



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

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



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

This report contains forward-looking
statements that involve risks and uncertainties, such as statements of our objectives, expectations and intentions. You should consider carefully all of the material risks described herein, in our Annual Report on Form 10-K for the fiscal year ended
March 31, 2008, and in our other documents filed with the Securities and Exchange Commission, as well as the cautionary statements made elsewhere in the Annual Report and in this report, before making a decision to invest in our securities.
Such cautionary statements are applicable to all forward-looking statements wherever they appear in this report. If any of the events described therein occur, our business, financial conditions and results of operations may be materially adversely
affected. In that event, the trading price of our securities could decline, and you could lose all or part of your investment.

Except as
set forth below, there have been no material changes to the risk factors previously disclosed in the Companys Annual Report on Form 10-K for the fiscal year ended March 31, 2008.

Recent Changes in Economic Conditions May Adversely Affect Our Business.

Recent changes in domestic and global economic conditions could adversely affect our business. In response to such changes we may experience, insolvency of key suppliers resulting in product delays; customer
insolvencies; decreased customer confidence; and decreased customer demand. Any of these events, or any other events caused by the recent changes in economic conditions, may have a material adverse effect on our business, operating results, and
financial condition.

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. Specifically, we obtain certain semi-conductor components for our voltage controlled oscillators from a sole supplier. We have experienced recent disruptions and limitations of these semi-conductor components which
have affected our ability to deliver our products. Additional interruptions in supply of the semi-conductor components or other products from third-party suppliers 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.



|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.
|------- | ---------



|     |  |                                                                                                                    
|---- |  | -------------------------------------------------------------------------------------------------------------------
|10.1 |  | Lease, dated September 4, 2008, by and between Micronetics, Inc. and SBJ Development, LLC.                         
|     | 
|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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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 12, 2008 |  | By:               |  | /s/ DAVID ROBBINS                                                          
|                         |  |                   |  | David Robbins,                                                             
|                         |  |                   |  | Chief Executive Officer (Principal Executive Officer)                      
|                         |  |                  
|Dated: November 12, 2008 |  | By:               |  | /s/ CARL LUEDERS                                                           
|                         |  |                   |  | Carl Lueders,                                                              
|                         |  |                   |  | Acting Chief Financial Officer (Principal Financial and Accounting Officer)



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