<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-KSB
-----------
ANNUAL OR TRANSITIONAL REPORT
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-15486
MIKRON INSTRUMENT COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY 22-1895668
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
16 THORNTON ROAD, OAKLAND, NJ 07436
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 405-0900
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
------------------- ----------------
<S> <C>
Common Stock, one-third cent par value Nasdaq Small-Cap Market
</TABLE>
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities and Exchange Act of 1934 during the 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
-- --
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Revenues for the most recent fiscal year were $7,135,353.
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of January 17, 1997, based upon the average bid and asked prices
of such stock on that date was $9,592,275.
The number of shares of the registrant's Common Stock outstanding as of January
17, 1997 was 3,654,200.
Transitional Small Business Disclosure Format Yes No X
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PART I
ITEM 1. BUSINESS.
GENERAL
Mikron Instrument Company, Inc. (the "Company") a New Jersey
corporation organized in 1969, develops, manufactures, markets and services
equipment and instruments for non-contact temperature measurement. The
Company's products are typically used to measure the temperature of moving
objects, or stationary objects in environments or situations where contact
temperature measurement would be difficult, hazardous or impracticable, and
wherever rapid temperature changes must be accurately tracked instantaneously.
The predominant market for the Company's hand-held infrared thermometers is
industrial quality control applications and maintenance. The Company also
markets its products to laboratories and original equipment manufacturers,
both domestic and foreign, where "fixed" infrared thermometers are incorporated
as integral components of production equipment.
The Company also manufactures high resolution thermal imaging products
under the name of Pyrovision(R), and manufactures and/or markets calibration
sources and a variety of accessories and optional equipment for its infrared
thermometers. Pyrovision(R) is a registered trademark of the Company.
PRODUCT DESIGN
Although the Company has developed a line of infrared thermometry
products for many scientific and industrial applications, all such products
operate in essentially the same way. All physical objects emit infrared
radiation. The amount of such radiation is a function of the surface
temperature of each such object. The Company's infrared thermometry products
detect and measure such radiation, convert it into an electrical signal and
translate the signal into a temperature reading of the target surface of the
object, all without contact with the object. The basic components of a Company
infrared thermometer consist of a lens and mirrors or a fiber optic assembly
for focusing on the object, an infrared detector head which converts the
infrared radiation emitted from the surface of the focused object into an
electrical signal, electrical circuitry, a meter or output indicator, and the
housings for these components.
The Company sells two basic kinds of infrared thermometers: "portable"
units and "fixed" units and product sales are a mix of portable and fixed
infrared thermometers and calibration sources. The different models in the
Company's product line have each been designed with different focusing methods,
detectors, electrical circuitry, indicators and housings so as to optimize
performance under different applications, sets of conditions or temperature
ranges.
The portable units are battery-powered with digital meters and are
hand-held for temperature measurement of target surfaces typically in a
laboratory or industrial facility. The price range of the Company's portable
units is between $1,275 and $5,000.
The fixed units are externally powered, have electrical outputs
instead of meters and are permanently incorporated as an integral component of
a machine or on a production line. The price range of the fixed units
manufactured by the Company is between $225 and $7,000.
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CURRENT PRODUCT OFFERINGS
The Company has introduced a number of new products in the past few
years, and continues to expand existing product lines, that management believes
will contribute to its sales.
In September 1996, the Company introduced the Mikron Model M385, an
ultra-precision, low temperature blackbody calibration standard. This
calibration source is designed for applications in metrology laboratories as
well as medical, life sciences and environmental science disciplines.
In October 1995, the Company introduced the Mikron Model M68L, a new
product line of fiber optic infrared sensors. This unit offers two high
temperature spectral response ranges and offers dual temperature ranges in each
unit. They are excellent for applications in the glass industry, induction
heating and in hazardous environments. Pricing starts at approximately $1,990.
In October of 1995, the Mikron Model M9000 Pyrovision(R) Thermal
Imaging system was formally introduced to the marketplace. This high
temperature thermal imaging system operates in the range of 600 degrees C to
2400 degrees C. Its unique near infrared imaging, high speed and excellent
spatial resolution offer significant advantages over conventional imagers.
Price range of this product is between $25,000 and $50,000.
In 1994, the Company introduced the Mikron M100 IR-Man, a hand-held
series of non-contact infrared thermometers with precision laser sighting. The
principal application of this product is in preventative maintenance. IR-Man(R)
is a registered trademark of the Company.
The Mikron M380 Series of freezing point blackbody calibration sources
was introduced in 1993. It is used for setting and verifying the accuracy of
calibration of infrared equipment to national standards.
The Model M190-TS was introduced in 1995 as a transfer standard for
calibration laboratories. It allows laboratories and national standards
laboratories to accurately transfer the calibration of one blackbody source to
another. It has been sold to national standards laboratories around the world.
The Company designs, assembles and/or markets accessories and optional
equipment for its infrared thermometers, such as lenses, fiber optic
assemblies, calibration equipment, mounts, protective jackets and cases,
batteries, chargers and camera adapters.
The Company also services its products during and after the expiration
of the applicable warranty period, which is from one to two years, depending on
the model. These services also include re-calibration of instruments and
blackbody sources that are traceable to NIST. With the growing requirement for
traceable calibration throughout the industry, the company has expanded its
capacity in service.
PRINCIPAL MARKETS, MARKETING AND CUSTOMERS
The Company's infrared thermometry products and accessories are used
industrially (i) in manufacturing processes to measure the process temperature
of metals, wood, plastics, paper, textiles, rubber, glass, ceramics, food and
chemicals, (ii) for maintenance purposes to check temperatures of kiln walls,
heat exchangers, boilers, engines, compressors, transmissions, bearings, gears,
pumps, steam lines and traps, transformers, electrical switch gear and heat
loss prevention; and (iii) for quality control to test the temperature and
integrity of electronic equipment, electrical components and circuitry,
insulation, and cooling and heating systems. The Company has
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initiated efforts to expand the sales of its products into a variety of
non-industrial industries including, among others, scientific research
laboratories.
The Company's products are sold through a network of approximately 85
independent sales representatives and distributors worldwide. The sales
activities of such sales representatives and distributors are coordinated by
five employees of the Company, who are also directly responsible for the
balance of the Company's sales. The Company promotes its products through
printed advertisements in selected industrial and trade journals. The Company
also promotes its products by participating in national and international trade
shows. In fiscal year 1996, the Company continued its marketing program by
maintaining promotional and sales campaigns to increase market awareness of the
use of non-contact thermometry devices.
During each of its fiscal years 1995 and 1996, the Company had
approximately 1,000 customers, none of which accounted for more than 10% of its
sales. The Company estimates that it currently has an active customer base of
3,000 customers. The loss by the Company of any single customer would not have
a materially adverse effect on the Company.
In fiscal 1996, approximately 18% of the Company's sales were to
customers outside of the United States, as compared to approximately 20% in
fiscal 1995. The Company has taken steps to strengthen its sales outside the
United States through appointment of sales representatives, additional
promotional activities and technical training of representatives. As a
significant portion of the business is done through known accounts, in dollars,
and the balance is sold on letter of credit terms, there is little credit or
currency risk associated with this business. International exchange rates have
made exports from the United States more viable than in the past, and the
Company intends to take advantage of this situation.
COMPETITION
Infrared thermometry equipment and instruments similar to the
Company's products are currently available from other manufacturers, some of
whom are larger and have greater financial and technological resources than the
Company.
The Company believes that its sales constitute a small percentage of
the worldwide market for infrared thermometry products. The primary competitive
factors with respect to infrared thermometry products are accuracy,
sensitivity, response time, quality control and the availability of products
which optimize performance in specific applications, conditions and temperature
ranges. Although the Company believes its products compete favorably with
respect to such factors, there can be no assurance that the Company can
maintain its competitive position against current and potential competitors.
In the past two years there have been a number of new products and
competitors entering the low price hand held infrared thermometer market. The
Company believes that this trend will continue as this market grows and that
higher capabilities at stable or reduced pricing will be critical for process
or fixed infrared systems in the next few years. Consequently, strategic
marketing and focus will be critical for growth within these product lines.
INVENTORY, SUPPLIES AND MANUFACTURING
The Company subcontracts the manufacture of almost all of the
components that go into its products. The Company's manufacturing operations
primarily involve the assembly, testing, quality control, calibration and
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packaging of materials and components, which are generally available in the
marketplace from numerous suppliers and sources. Since the components are
readily available from other suppliers and since there are several electronic
assembly firms available, a change in suppliers would not have a material
effect on the Company's operations. Materials and components necessary for the
Company's manufacturing activities have always been available in the past and
the Company does not anticipate any future shortages or unavailability in the
supply of such materials and components.
The Company attempts to maintain a sufficient inventory of materials
and components so as to be able to fill orders for its products within six
weeks after receipt of an order. Its inventory stock is closely monitored by
computer, which enables the Company to be consistent in its order response time
and to maintain its inventory at desired levels.
QUALITY ASSURANCE
In May 1996, the Company secured ISO 9001 certification of its Quality
Assurance systems. This international customer driven certification,
encompasses all operating aspects of the Company's business including sales and
marketing, design and engineering, manufacturing, testing and calibration. ISO
9001 certification brings the Company's quality systems and operating systems a
level of recognition from most domestic and international customers.
The Company's principal products have also been tested and certified
to meet or exceed CE sensitivity and emissions standards for electro-magnetic
interference.
RESEARCH AND DEVELOPMENT
The Company conducts product development activities to increase the
size of its available market through broader product offerings and to cost
reduce its products resulting in more competitive pricing and/or better
operating margins. For the past year, the Company's research and development
activities has been primarily devoted to the development of new infrared
thermometry products and the adaptation and enhancement of existing products
for new applications.
The Company believes that its ability to maintain a technological edge
in infrared technology and to achieve early market entry with new infrared
thermometry products are critical factors to its business. Accordingly, it has
been increasing its research and development budget in recent years. The new
products introduced by the Company over the last several years, were a direct
outgrowth of its research and development program. See "Current Product
Offerings."
INTELLECTUAL PROPERTY
The Company owns two patents covering technology related to its
infrared thermometry products, and derives royalty payments from one of its
patents. Although neither of these patents is material to the Company's overall
business, and there can be no assurance that the Company's patents will provide
an adequate measure of protection against competitive technology which could
circumvent such patent or that an issued patent would withstand review and be
held valid by a court of competent jurisdiction. No other patents have been
issued or applied for with respect to any of the Company's products or other
proprietary technical information and there is no assurance that any products
of the Company will be patentable.
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The protection of proprietary technology and information developed by
the Company will be limited to such protection as the Company may be able to
secure pursuant to trade secret or copyright laws or under any confidentiality
agreements which it may enter. The Company has filed trademarks and trade names
for certain of its product names and marks, however, there is no assurance as
to the validity, enforceability or lack of infringement of such trade names and
trademarks.
The Company is a party to confidentiality agreements with key
personnel and third parties. There can be no assurance that the scope of any
such protection the Company is able to secure will be adequate to protect its
proprietary information, or that the Company will have the financial resources
to engage in litigation against parties who may infringe such proprietary
technology or copyrights. In addition, there can be no assurance that others
will not develop similar technology independently of the Company. The Company,
however, believes that the limited protection of its proprietary technology
will not materially affect its business or future prospects. The Company
believes that its products do not infringe the proprietary rights of third
parties. There can be no assurance, however, that third parties will not assert
infringement claims in the future.
Mikron(R) is a trademark of the Company which has been registered with
the United States Patent and Trademark Office.
EMPLOYEES
As of October 31, 1996, the Company's staff was comprised of 65
persons, 63 of whom were full time and 2 of whom were part time. Of the total
number of employees, 10 are engaged in design engineering and research and
development, 33 in manufacturing and production, 5 in marketing and sales, 9 in
administration and finance, 3 in customer service and 5 in general office. None
of Company's employees are represented by unions. The Company has not
experienced any strikes or work stoppages and, in the opinion of the Company's
management, has good working relations with its employees.
CERTAIN CONTRACTUAL ARRANGEMENTS
The Company also has a variety of agreements with Anritsu, Chori and
an affiliate of Chori, Chori of America, Inc. ("Chori-America") which includes
the transfer of certain technology, the cross-licensing of each other's
technology, the marketing of each other's products, and the collection of
proceeds from the Company's foreign sales. See "Certain Relationships and
Related Transactions."
FORWARD-LOOKING STATEMENTS
Some of the statements made in this Form 10-KSB are forward-looking in
nature, including but not limited to the Company's business strategy, marketing
assumptions, product development, plans concerning the commercialization of
products, certain financial information and other statements that are not
historical facts. The occurrence of the events described, and the achievement
of the intended results are subject to the future occurrence of certain events
and scientific results, some or all of which are not predictable or within the
Company's control; therefore, actual results may differ materially from those
anticipated in any forward-looking statements.
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ITEM 2. PROPERTIES.
The Company maintains its corporate and administrative facilities at
16 Thornton Road, Oakland New Jersey. The building has approximately 26,397
square feet and is also used for the Company's production and warehouse
facilities. The lease, which expires on December 31, 2000, requires the Company
to pay real estate taxes, insurance, maintenance and other operating costs. The
lease, provides for rent to commence March 1, 1996 at a fixed annual amount of
approximately $191,380 payable in equal monthly installments. The Company has
an option to renew the lease for an additional five year period with the rent
to be paid during the option period to be the fair market rental value of the
property as determined by an independent M.A.I. appraiser.
ITEM 3. LEGAL PROCEEDINGS.
There are no pending material legal proceedings to which the Company is
a party or to which any of its properties is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to the vote of security holders,
through the solicitation of proxies or otherwise, during the fourth quarter of
the fiscal year covered by this report.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED MATTERS.
The Company's Common Stock, is traded on the Nasdaq Small-Cap market
under the symbol "MIKR." The following table sets forth the range of high and
low closing bid prices for the Company's Common Stock as reported by the Nasdaq
Stock Market for the last two fiscal years. These quotations represent
inter-dealer prices, without adjustment for retail mark-ups, mark-downs or
commissions and do not necessarily represent actual transactions:
<TABLE>
<CAPTION>
Fiscal Years Bid Price
- ------------ ---------
Low High
--- ----
<S> <C> <C>
1997:
- -----
First Quarter through
January 17, 1997 $2.38 $2.87
1996:
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First Quarter $2.00 $3.88
Second Quarter $2.50 $3.88
Third Quarter $3.56 $5.13
Fourth Quarter $2.63 $3.56
1995:
- -----
First Quarter $1.63 $ 2.50
Second Quarter $1.50 $ 2.00
Third Quarter $1.63 $ 2.38
Fourth Quarter $2.00 $ 2.31
</TABLE>
On January 17, 1997, the closing bid and asked price quotations for
the Company's Common Stock were $2.38 and $2.87, respectively. The Company
believes that its Common Stock is held of record by approximately 72 persons,
including several brokerage firms holding shares in street name for more than
400 beneficial owners.
DIVIDEND POLICY
The Company has not, to date, paid nor declared any cash or other
dividends on its shares of Common Stock since its inception. The Company has no
current plans to pay dividends on its Common Stock and intends to retain
earnings, if any, for working capital purposes. Any future determination as to
the payment of dividends on the Common Stock will depend upon the results of
operations, capital requirements, the financial condition of the Company and
other relevant factors.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. This discussion should
be read in conjunction with the financial statements and notes thereto
appearing elsewhere herein. See also "Business."
OVERVIEW
The Company, develops, manufactures, markets and services equipment
and instruments, including hand-held infrared thermometers, for non-contact
temperature measurement. The Company's products are typically used to measure
the temperature of moving objects, or stationary objects in environments or
situations where contact temperature measurement would be difficult, hazardous
or impracticable, and wherever rapid temperature changes must be accurately
tracked instantaneously. The Company's predominant markets include industrial
quality control applications and maintenance, as well as laboratories and
original equipment manufacturers where "fixed" infrared thermometers are
incorporated as integral components of production equipment.
RESULTS OF OPERATIONS
Year Ended October 31, 1996 Compared To Year Ended October 31, 1995
Net sales for the fiscal year ended October 31, 1996 were $6,943,309,
as compared to sales of $6,326.397 for the fiscal year ended October 31, 1995.
The increase was attributable to an increasingly aggressive sales effort. The
cost of goods consists primarily of the costs of materials associated with the
sales and support of the Company's products. The cost of goods as a percentage
of net sales for the 1996 period was 48.1% as compared to 42.7% for the
comparable 1995 period. The increase was principally the result of a write off
of obsolete inventory, increased materials costs and the hiring of additional
personnel in order to reduce backlog and improve delivery time.
Selling, general and administrative expenses consist primarily of the
costs of sales, marketing, finance, management and administrative personnel,
advertising, promotions, trade shows and facilities expense. For the fiscal
year ended October 31, 1996 selling, general and administrative expenses were
$3,193,336 as compared to $3,181,441 for the same period in 1995.
Research and development expenses consist principally of the costs of
research and development personnel and other expenses associated with the
development of new products and enhancement of existing products. The Company
expended $582,711 in fiscal year 1996 as compared with $419,851 for research
and development in its 1995 fiscal year. Such expenditures covered both
research and development conducted by the Company as well as the costs for
contracted research and development. The dollar increase was principally
attributable to an increase in the number of personnel associated with the
Company's technical development efforts
Net income for the fiscal year ended October 31, 1996 was $18,589 as
compared to $196,338 for the same period in 1995. The decrease was due
primarily to the increased cost of goods as a result of the obsolete inventory
write off as well as an increase in expenses associated with the Company's
aggressive research and development program for fiscal 1996.
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Year Ended October 31, 1995 Compared To Year Ended October 31, 1994
Net sales for the fiscal year ended October 31, 1995 were $6,326.397,
as compared to sales of $5,457,422 for the fiscal year ended October 31, 1994.
The increase was attributable to an increasingly aggressive sales effort. The
cost of goods as a percentage of net sales for the 1995 period was 42.7% as
compared to 47.6% for the comparable 1994 period. The decrease was principally
the result of an increasingly competitive market for the materials the Company
purchases and greater efficiency in production operations.
Selling, general and administrative expenses for the fiscal year ended
October 31, 1995 were $3,181,441 as compared to $2,670,156 for the same period
in 1994. The increase was due primarily to higher payroll and related employee
benefits, an increase in the reserve for doubtful debt, and higher advertising
and promotional costs.
The Company expended $419,851 in fiscal year 1995 as compared with
$366,215 and $366,571 for research and development in its 1994 and 1993 fiscal
years, respectively. Such expenditures covered both research and development
conducted by the Company as well as the costs for contracted research and
development.
Net income for the fiscal year ended October 31, 1995 was $196,338 as
compared to $162,064 for the same period in 1994. The increase was due
primarily to increase in sales and more efficient operations.
The Company's backlog of unfilled orders totaled approximately
$722,809 at October 31, 1994 and $948,964 at October 31, 1995. Most of the
Company's backlog at October 31, 1995 has been shipped. It is the Company's
practice to attempt to ship most orders within six weeks after the date they
are received.
LIQUIDITY AND CAPITAL RESOURCES
In 1996, the Company's cash requirements exceeded cash flow from
operations. The Company's cash requirements included equipment needs, furniture
and fixtures, and leasehold improvements. The Company's cash deficiency was
made up by sales of short term investments and bank borrowing.
As of October 31, 1996, the Company had cash, cash equivalents and
short-term investments of $206,364 as compared to $863,832 at October 31, 1995.
In addition, the Company had accounts receivable of $1,248,776 at October 31,
1996 compared to $1146,121 at October 31, 1995.
As of October 31, 1996, the Company had working capital of $3,115,374
and a backlog of $829,464. Management believes that the Company has adequate
resources to meet expected needs and to fund its anticipated research and
development efforts for the next 12 months. In the event additional capital is
required in excess of cash generated by operations, the Company presently
intends to raise such additional capital by continued borrowing arrangements
and/or the sale of additional equity securities, although there can be no
assurance that the Company will be successful in obtaining additional operating
capital on terms acceptable to it.
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ITEM 7. FINANCIAL STATEMENTS
The Company's balance sheets at October 31, 1996 and 1995 and the
related statements of operations, stockholders' equity and statement of cash
flows for each of the fiscal years ended October 31, 1996 and 1995 and the
report of the independent certified public accountants thereon and financial
statement schedules required under Regulation S-X are submitted herein as a
separate section starting at Page F-1 following Item 13 of this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- ---- --------
<S> <C> <C>
Keikhosrow Irani 60 President, Chief
Executive Officer and
Director
Douglas Frank 48 Vice President and Sales
Manager, Director
Alex Wu 50 Treasurer
Sydney V. Stoldt, Jr. 63 Secretary
Steven N. Bronson 31 Director
Alvin Katz 67 Director
</TABLE>
Set forth below is a biographical description of each director and
executive officer of the Company based on information supplied by each of them.
Keikhosrow Irani is a founder of the Company and was its Vice
President and a director since its organization in 1969. On August 31, 1995 he
became the Company's President and Chief Executive Officer and continues as a
Director of the Company. Mr. Irani holds the degree of Master of Science in
Electrical Engineering from the University of Missouri.
Douglas Frank joined the Company in July, 1995 and has been Vice
President and Sales Manager of the Company since August 31, 1995. Mr. Frank
holds BS and MBA degrees from Fairleigh Dickenson University. From 1986 to 1995
he was Vice President and General Manager of Thermo Electric Co. Inc., an
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international temperature instrumentation company where he also had
responsibility for subsidiaries in Canada and Europe. He was Vice President of
Sales and Marketing for Thermo Electric from 1984 to 1986.
Alex Wu joined the Company in January, 1995 and has been its Treasurer
since August 31, 1995. Mr. Wu holds a BS - Accounting degree from Tom Koung
University of Taipei, Taiwan. From December, 1992 to August, 1994, he was the
general operations manager of a luggage importer and manufacturer. From 1988 to
1992, he was a sales representative and investment consultant to a commercial
real estate company.
Sydney V. Stoldt, Jr. served as a director of the Company from 1969
to 1988 and continues to serve as Secretary. Mr. Stoldt is a partner of the
New Jersey law firm of Stoldt & Horan, general counsel to the Company.
Steven N. Bronson was appointed to the Company's Board of Directors
in September 1996. Mr. Bronson is the President of Barber & Bronson
Incorporated, a full service securities brokerage and investment banking firm
and has held that position since 1991. Mr. Bronson also sits on the Board of
Directors of the Regional Investment Bankers Association, an industry
association engaged in capital formation and the distribution of securities. In
addition, Steven N. Bronson presently serves as a National Trustee for the Boys
and Girls Club of America.
Alvin Katz was appointed to the Company's Board of Directors in
September 1996. Since 1981, he has served as an adjunct professor of business
management at Florida Atlantic University. From 1957 to 1976, Mr. Katz was
employed by United Parcel Service holding various managerial positions,
including District Manager and Corporate Manager of Operations, Planning,
Research and Development. Mr. Katz serves on the Board of Directors of Blimpie
International, Inc., which is engaged in the franchising and marketing of quick
service sandwich restaurants; Amtech Systems, Inc., which is engaged in the
semi-conductor industry; BCT International, Inc., a franchisor of thermo
graphic printing plants; Ozo Diversified Inc., a manufacturer of depaneling
equipment for the computer chip industry and Nastech Pharmaceutical Company
Inc., which is engaged in the development, manufacture and marketing of nasally
delivered pharmaceuticals. Mr. Katz holds a B.S. in Business Administration
degree from New York University and has done graduate work at C.U.N.Y.- Baruch
School.
The Board of Directors of the Company is divided into three classes:
Class A directors, Class B directors and Class C directors. Mr. Irani, a Class
A director, was elected for a term expiring in 1989. Since there have been no
subsequent elections, Mr. Irani remains in office until his successor shall be
elected and duly qualified. Mr. Bronson is also a Class A director. Mr. Katz is
a class B director and Mr. Frank is a class C director. The successors to the
present directors, when elected, will be elected for staggered three-year
terms.
No family relationship exists between any of the persons described
above. The Company's Certificate of Incorporation contains provisions
indemnifying its officers, directors, employees and agents against certain
liabilities.
ITEM 10 - EXECUTIVE COMPENSATION.
The following table sets forth certain information regarding
compensation paid by the Company during each of the Company's last three fiscal
years to the Company's Chief Executive Officer and to each of the Company's
executive officers who received salary and bonus payments in excess of $100,000
during the fiscal year ended October 31, 1996:
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- Awards
Name and Principal Position ------
-------- Options All other
Year Salary Bonus (Shares) Compensation
---- ------ ----- -------- ------------
<S> <C> <C> <C> <C> <C>
Keikhosrow Irani, 1996 $127,000 __ __ __
President/Chief Executive
Officer 1995 $112,008 __ __ __
1994 $112,000 __ __ __
</TABLE>
In addition to salary, Mr. Irani has Company paid life insurance and
incidental personal use of a Company-leased automobile. In each of fiscal years
1994, 1995, and 1996, the aggregate value of these benefits was less than 10%
of the salary of the named executive.
The Company provides hospitalization, major medical and dental
insurance to all employees eligible under a group plan. Premium costs under
such group plan attributable to the officer named above are not included in the
table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides the specified information concerning
grants of options to purchase the Company's Common Stock during the fiscal year
ended October 31, 1996, to the person named in the Summary Compensation Table:
<TABLE>
<CAPTION>
Individual Grant in Last Fiscal Year
------------------------------------
% of Total
Options
Granted to
Options Employees Exercise or
Granted in Fiscal Base Price Expiration
Name (Shares) Year ($/Sh) Date
- ---- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Keikhosrow
Irani None __ __ __
</TABLE>
- 13 -
<PAGE> 14
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table provides information related to the number and
value of stock options and stock appreciation rights held at fiscal year end by
the named executive officer:
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-the Money
Options at June 30, 1996 Options at June 30, 1996
------------------------ ------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Keikhosrow Irani None None None None
</TABLE>
COMPENSATION OF DIRECTORS
The Company has not paid and does not presently propose to pay
compensation to any director for acting in such capacity, except for nominal
sums for attending Board of Directors meetings and reimbursement for reasonable
expenses in attending those meetings.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
In December, 1996, the Company and Keikhosrow Irani, the Company's
President and Chief Executive Officer entered into a five year employment
agreement Pursuant to this agreement, Mr. Irani will receive compensation at
the rate of $127,000 for calendar year 1997, $130,000 in 1998, $135,000 in
1999, $140,000 in 2000 and $150,000 in 2001. The agreement also provides Mr.
Irani with the use of an automobile. Mr. Irani's employment agreement also
provide for disability income equal to his base salary for up to six (6) months
of disability and, in the event of disability lasting beyond six (6) months or
in the event of death of Mr. Irani, the agreement requires a payment of fifty
(50%) percent of the total amount of his last three years' salary over a term
of three years. The agreement also requires the Company to provide disability
and life insurance to Mr. Irani.
Donald S. Michael, a director of the Company until July 21, 1995 and
its President and Chief Executive Officer until August 31, 1995, continues as a
part-time employee of the Company and is expected to continue making
significant contributions to the Company. Mr. Michael has an employment
agreement expiring August 31, 2000 which provides for compensation of $75,000
during the period September 1, 1995 to August 31, 1996, such compensation
reducing by 20% per year thereafter. In addition, the agreement prevents Mr.
Michael from competing with the Company, or disclosing any proprietary
information, for which the Company has agreed to pay him $150,000 in twelve
quarterly payments of $12,500. The first quarterly payment under this agreement
was made on November 1, 1995. Mr. Michael's employment agreement also provide
for disability income equal to his base salary for up to six (6) months of
disability and, in the event of disability lasting beyond six (6) months or in
the event of death of Mr. Michael, the agreement requires a payment of his
unpaid compensation over a term of three years. If Mr. Michael retires during
the term of this agreement, the Company is required to pay to him 30% of his
unpaid compensation over a term of three years. Since August, 1992, the Company
has provided $500,000 of life insurance for each of Messrs. Michael and Irani.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors does not have a separate compensation
committee. All matters of executive compensation are dealt with by the entire
board.
- 14 -
<PAGE> 15
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Company's Compensation Committee made no discretionary
recommendations regarding executive compensation in the last fiscal year.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who beneficially own more
than 10% of the Company's Common Stock to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission
("SEC"). Such persons are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms filed by such persons.
Based solely on the Company's review of such forms furnished to the
Company and written representations from certain reporting persons, the Company
believes that such filing requirements were not complied with by its executive
officers and directors. However, Steven N. Bronson and Long Term Growth
Associates were in compliance with the filing requirements of Section 16(a).
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Set forth below is information concerning the Common Stock ownership as of
September 5, 1996 by (i) each person who is known by the Company to own
beneficially 5% or more of its outstanding Common Stock, (ii) each director,
and (iii) all directors and officers of the Company as a group:
<TABLE>
<CAPTION>
Amount and
Nature Percentage of
Name of Beneficial Owner (1) of Beneficial Outstanding Shares
---------------------------- Ownership (1) Owned (2)
------------- ---------
<S> <C> <C>
Steven N. Bronson (3)(4) 1,118,060 28.1%
Long Term Growth Associates (3)(5) 800,000 21.9%
Keikhosrow Irani (6) 565,587 15.5%
Arthur L. Stern, III Trustee(7) 400,000 10.9%
Chori Co., Ltd. (8) 350,000 9.6%
Sidney V. Stoldt, Jr.(9) 68,845 (13)
Alvin Katz (10) 45,000 (13)
Douglas Frank (11) _____ (13)
Alex Wu (12) _____ (13)
All Officers and
Directors as a Group
(6 persons) (12) 3,347,492 91.6%
</TABLE>
- 15 -
<PAGE> 16
- -----------------------------------------------------
(1) All shares are owned beneficially and of record unless indicated
otherwise.
(2) Does not give effect to 400,000 shares of Common Stock reserved for
issuance pursuant to Warrants issued to Barber & Bronson Incorporated.
See "Certain Relationships and Related Transactions."
(3) Mr. Bronson is a principal of Long Term Growth Associates. The address
of both of these stockholders is 2101 West Commercial Blvd., Suite
1500, Fort Lauderdale, FL 33309. Information is based upon a Schedule
13D, as amended.
(4) Includes 318,060 shares issuable pursuant to warrants held by Mr.
Bronson, which may be exercised within 60 days of the date of this
Report. The balance of the shares indicated as owned beneficially by
him are shares owned of record by Long Term Growth Associates.
(5) The shares indicated as owned beneficially by Long Term Growth
Associates include 400,000 shares held of record and 400,000 shares
which this shareholder has an option to purchase from the Donald S.
and Jacqueline P. Michael Charitable Remainder Trust.
(6) The address of this stockholder is c/o the Company.
(7) The address of this stockholder is c/o Katz, Kutter, Haigler, Aderman,
Marks & Bryant, P.C. 106 East College Avenue, Suite 1200, Tallahassee,
FL 32301. These shares are subject to the option referred to in Note 5
above.
(8) The address of this stockholder is 4-7 Kawaramachi, 2-chome, Chuo-ku,
Osaka 541, Japan.
(9) The address of this stockholder is Stoldt & Horan, 401 Hackensack
Avenue, Hackensack, New Jersey 07601.
(10) The address of this stockholder is 301 N. Birch Rd., Fort Lauderdale,
FL 33309. The wife of Mr. Katz owns approximately a 6% equity interest
in Long Term Growth Associates.
(11) The address of this stockholder is c/o the Company.
(12) The address of this stockholder is c/o the Company.
(13) Represents less than 1% of the outstanding shares of the Company's
Common Stock.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has retained Barber & Bronson Incorporated, a
broker-dealer of Fort Lauderdale, Florida and one of the existing market makers
in the Company's Common Stock, ("Barber & Bronson"), its exclusive investment
banker until September 30, 1998. Under this agreement, Barber & Bronson will
provide the Company with standard investment banking and financial advisory
services. The Company will pay Barber & Bronson $1,000 per month and has issued
to certain principals of Barber & Bronson warrants to purchase 400,000 shares
of the Company's Common Stock, under this and a predecessor agreement, at
prices varying from $0.81 per share to $2.50 per share. The Agreement also
provides for additional compensation to Barber & Bronson in the event it, at
the request of the Company, provides additional services. Steven N. Bronson, a
director of the Company is a principal of Barber & Bronson Incorporated.
The Company has a variety of agreements with Chori, Anritsu and
Chori-America. Chori is an owner of more than five percent (5%) of the Common
Stock of the Company. During fiscal year 1996, the Company purchased
approximately $80,100 of products from or through Chori. The Company paid Chori
and Chori-America approximately $62,000, in commissions during fiscal year
1996.
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-B
3.1 The Certificate of Incorporation of the Company as amended
effective September 29, 1989., filed as Exhibit (3)-2 to
Registration No. 33-2653-NY under the Securities Act of 1933
- 16 -
<PAGE> 17
(the "1933 Act"), is hereby incorporated by reference.
3.2 The Certificate of Incorporation of the Company as amended
effective October 13, 1989, filed as Exhibit (3)-3 to
Registration No. 33-2653-NY under the 1933 Act, is hereby
incorporated by reference.
4.1 Specimen of amended certificate representing the Company's
Common Stock, one-third cent per value, filed as Exhibit (4)-1
to Registration No. 33-2653-NY under the 1933 Act, is hereby
incorporated by reference.
4.2 Mikron Instrument Company, Inc. Common Stock Purchase Warrants,
dated as of January 1, 1994, held by Barber & Bronson
Incorporated, filed as Exhibit 4(c) to the Company's 10-K Report
dated January 27, 1994 and is hereby incorporated by reference.
10.1 Agency Agreement, dated as of April 15, 1992, between Mikron
Instrument Company, Inc. and Chori America, Inc., filed as
Exhibit 10-B to the Company's Form 8-K Report dated April 15,
1992, as amended in an amendment dated July 10, 1992, is hereby
incorporated by reference.
10.2 License and Technical Assistance Agreement, dated as of April
15, 1992, between Mikron Instrument Company, Inc. and Anritsu
Meter Company, Ltd., filed as Exhibit 10-D to the Company's Form
8-K Report dated April 15, 1992, as amended in an amendment
dated July 10, 1992, is hereby incorporated by reference.
10.3 Mikron Instrument Company, Inc. Amended and Restated Profit
Sharing Plan and Trust Agreement, dated November 1, 1980, filed
as Exhibit 10 (g) to the Company's 10-K Report dated January 28,
1991 and is hereby incorporated by reference.
10.4 Settlement Agreement dated as of July 1, 1992 between Mikron
Instrument Co., Inc. and Square D Company, filed as Exhibit 10
(i) to the Company's 10-K Report dated January 25, 1993 and is
hereby incorporated by reference.
10.5 Mikron Instrument Company, Inc. 401(K) Profit-Sharing Plan dated
January 1, 1993, filed as Exhibit 10(j) to the Company's 10-K
Report dated January 27, 1994 and is hereby incorporated by
reference.
10.6 Investment Banking Agreement dated as of January 1, 1994
- 17 -
<PAGE> 18
between Mikron Instrument Company and Barber & Bronson
Incorporated, filed as Exhibit 10(k) to the Company's 10-K
Report dated January 27, 1994 and is hereby incorporated by
reference.
10.7 Settlement Agreement dated as of March 31, 1994 between Mikron
Instrument Company, Inc. and Land Instrument International,
Inc., filed as Exhibit 10 to the Company's 8-K Report dated
March 31, 1994, as awarded by an Amendment dated June 20, 1994,
and is hereby incorporated by reference.
10.8 Amended and Restated Employment Agreement and Covenant Not to
Compete between Mikron Instrument Company, Inc. and Donald S.
Michael dated as of July 24, 1995, filed as Exhibit 10 to the
Company's 8-K Report dated November 24, 1995 and is hereby
incorporated by reference.
10.9 Investment Banking Agreement dated as of October 1, 1995 between
Mikron Instrument Company, Inc. and Barber & Bronson
Incorporated, filed as Exhibit 10 to the Company's 8-K Report
dated January 3, 1996 and is hereby incorporated by reference.
10.10 Mikron Instrument Company, Inc. 401(K) Profit-Sharing Plan, as
restated January 1, 1995.
10.11 Employment Agreement between the Company and Keikhosrow Irani,
dated as of December 20, 1996
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the last
quarter of the period covered by this Report.
- 18 -
<PAGE> 19
MIKRON INSTRUMENT COMPANY, INC.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INDEX
-----
Page Number
------------------
<S> <C>
INDEPENDENT AUDITORS' REPORT F - 2
FINANCIAL STATEMENTS:
Balance Sheet - October 31, 1996 and 1995 F - 3
Statement of Operations - Years ended
October 31, 1996, 1995 and 1994 F - 4
Statement of Stockholders' Equity - Years ended
October 31, 1996, 1995 and 1994 F - 5
Statement of Cash Flows - Years ended
October 31, 1996, 1995 and 1994 F - 6
Notes to Financial Statements F - 7-16
</TABLE>
All schedules are omitted because they are inapplicable, not required, or the
information is included elsewhere in the financial statements or notes thereto.
F - 1
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
Board of Directors
Mikron Instrument Company, Inc.
Oakland, New Jersey
We have audited the accompanying balance sheet of Mikron Instrument Company,
Inc. as of October 31, 1996 and 1995 and the related statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended October 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
the financial position of Mikron Instrument Company, Inc. as of October 31,
1996 and 1995 and the results of its operations and its cash flows for each of
the years in the three-year period ended October 31, 1996 in conformity with
generally accepted accounting principles.
Certified Public Accountants
New York, New York
November 27, 1996
F - 2
<PAGE> 21
MIKRON INSTRUMENTS COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
October 31,
--------------------------
1996 1995
--------- -----------
ASSETS
------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 206,364 $ 463,832
Investment securities - 400,000
Trade accounts receivable, less allowance for
doubtful accounts of $137,000 and $107,000 1,248,776 1,146,121
Inventories 2,255,277 2,070,365
Prepaid expenses and other current assets 73,337 28,142
--------- -----------
TOTAL CURRENT ASSETS 3,783,754 4,108,460
PROPERTY AND EQUIPMENT, net 293,117 110,383
OTHER ASSETS 87,500 137,500
--------- -----------
$4,164,371 $ 4,356,343
========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 515,057 $ 780,686
Short-term notes payable 100,000 -
Current portion of long-term debt 50,000 50,000
Current portion of capital lease obligation 3,323 -
--------- -----------
TOTAL CURRENT LIABILITIES 668,380 830,686
--------- -----------
LONG-TERM LIABILITIES:
Long-term debt 37,500 100,000
Capital lease obligation 14,245 -
--------- -----------
TOTAL LONG-TERM LIABILITIES 51,745 100,000
--------- -----------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, $.003 par value;
authorized - 15,000,000 shares; issued and outstanding
3,654,200 shares in 1996 and 1995 12,181 12,181
Additional paid-in capital 3,151,831 3,151,831
Retained earnings 280,234 261,645
--------- -----------
TOTAL STOCKHOLDERS' EQUITY 3,444,246 3,425,657
--------- -----------
$4,164,371 $ 4,356,343
========= ===========
</TABLE>
See notes to financial statements
F-3
<PAGE> 22
MIKRON INSTRUMENTS COMPANY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended October 31,
----------------------------------------------------
1996 1995 1994
--------------- ------------ ------------------
REVENUES:
<S> <C> <C> <C>
Net sales $ 6,943,309 $ 6,326,397 $ 5,457,422
Royalties 176,973 130,372 323,953
Investment income 15,071 43,200 13,487
------------- ----------- --------------
TOTAL REVENUES 7,135,353 6,499,969 5,794,862
------------- ----------- --------------
COSTS AND EXPENSES:
Cost of goods sold 3,340,717 2,702,339 2,596,427
Selling, general and administrative 3,193,336 3,181,441 2,670,156
Research and development 582,711 419,851 366,215
------------- ----------- --------------
TOTAL COSTS AND EXPENSES 7,116,764 6,303,631 5,632,798
------------- ----------- --------------
NET INCOME $ 18,589 $ 196,338 $ 162,064
============= =========== ==============
NET INCOME PER SHARE $ 0.00 $ 0.05 $ 0.04
============= =========== ==============
WEIGHTED AVERAGE NUMBER OF SHARES 3,824,775 3,734,856 3,688,050
============= =========== ==============
</TABLE>
See notes to financial statements
F-4
<PAGE> 23
MIKRON INSTRUMENT COMPANY, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Retained Total
------------------------ Paid-In Earnings Stockholders'
Shares Amount Capital (Deficit) Equity
----------- --------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance October 31, 1993 3,654,200 12,181 3,151,165 (96,757) 3,066,589
Net income - - - 162,064 162,064
----------- --------- ------------ ------------- ---------------
Balance October 31, 1994 3,654,200 12,181 3,151,165 65,307 3,228,653
Issuance of common stock warrants - - 666 - 666
Net income - - - 196,338 196,338
----------- --------- ------------ ------------- ---------------
Balance October 31, 1995 3,654,200 12,181 3,151,831 261,645 3,425,657
Net income - - - 18,589 18,589
----------- --------- ------------ ------------- ---------------
Balance October 31, 1996 3,654,200 $ 12,181 $ 3,151,831 $ 280,234 $ 3,444,246
=========== ========= ============ ============= ===============
</TABLE>
See notes to financial statements
F-5
<PAGE> 24
MIKRON INSTRUMENT COMPANY, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended October 31,
-------------------------------------------------
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES: ----------- ------------ -------------
<C> <C> <C>
Net income $ 18,589 $ 196,338 $ 162,064
---------- ----------- ------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 55,935 136,447 66,467
Amortization 50,000 12,500 -
Unrealized holding loss on available-for-sale securities - - 13,850
Realized loss on available-for-sale securities 755 (267) -
Changes in assets and liabilities:
(Increase) in trade accounts receivable (102,655) (178,013) (43,249)
(Increase) decrease in inventories (184,912) (435,153) 82,372
(Increase) decrease in prepaid and other current assets (45,195) 37,144 (20,601)
Decrease in other assets - 10,360 -
(Decrease) increase in accounts payable and accrued liabilities (265,629) 233,783 80,889
---------- ----------- ------------
(491,701) (183,199) 179,728
---------- ----------- ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (473,112) 13,139 341,792
---------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (221,101) (26,753) (58,577)
Proceeds from sale of available-for-sale securities 399,245 388,623 252,561
Purchase of available-for-sale securities - (401,399) (70,872)
Increase in intangible asset - (150,000) -
Increase in long-term liability 37,500 150,000 -
---------- ----------- ------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 215,644 (39,529) 123,112
--------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock warrants - 666 -
---------- ----------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES - 666 -
---------- ----------- ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (257,468) (25,724) 464,904
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 463,832 489,556 24,652
---------- ----------- ------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 206,364 $ 463,832 $ 489,556
========== =========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Noncash activity:
Purchase of equipment through capital lease obligations $ 20,000 $ - $ -
========== =========== ============
</TABLE>
See notes to financial statements
F-6
<PAGE> 25
MIKRON INSTRUMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
Mikron Instrument Company, Inc. (the "Company") is engaged in designing
and manufacturing a broad range of infrared thermometers for sale to domestic
and foreign markets. The Company also sells a high sensitivity infrared thermal
imager under its name which is manufactured by a Japanese company.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation. Certain items in prior years were
reclassified to conform with the current year's classifications.
b. Cash and Cash Equivalents. Cash equivalents are carried at cost,
which approximates market. The Company considers all highly
liquid investments with a maturity date of three months or less
when purchased to be cash equivalents.
c. Investment Securities. Effective November 1, 1994, the Company
adopted Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities
(FAS 115), which resulted in a change in the accounting for debt
and equity securities held for investment purposes. Prior to
November 1, 1994, the Company carried debt and equity securities
at the lower of cost or market value. In accordance with FAS 115,
the Company's debt and equity securities are now considered as
either held-to-maturity or available-for-sale. Held-to-maturity
securities represent those securities that the Company has both
the positive intent and ability to hold to maturity and are
carried at amortized cost. Available-for-sale securities
represent those securities that do not meet the classification of
held-to-maturity, are not actively traded and are carried at fair
value. Unrealized gains and losses on these securities are
excluded from earnings and are reported as a separate component
of stockholders' equity, net of applicable taxes, until realized.
d. Inventories. Inventories are stated at the lower of cost
(first-in, first-out method) or market. Cost includes material
and conversion costs.
e. Property and Equipment. Property and equipment are stated at
cost. Depreciation and amortization, which includes the
amortization of leasehold improvements are computed principally
using straight-line depreciation over the estimated useful lives
of individual assets or the remaining terms of leases.
F - 7
<PAGE> 26
f. Amortization of Covenant Not To Compete. The Covenant Not To
Compete is amortized on a straight-line basis over 36 months.
g. Revenues. Net sales are recognized at the time of shipment.
Royalties are recorded as earned in accordance with specific
terms of each license agreement.
h. Research and Development Costs. Research and development
costs are expensed as incurred.
i. Advertising costs. The costs of advertising are expensed as
incurred.
j. Earnings per share. Earnings per common and common
equivalent share is based upon the weighted average of common
and common equivalent shares outstanding during the period.
The number of common and common equivalent shares utilized in
the per share computations were 3,824,775, 3,734,856, and
3,688,050, for the years ended October 31, 1996, 1995, and
1994.
k. Accounting estimates. The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
2. INVESTMENT SECURITIES
No investments were held as of October 31, 1996. The amortized cost
and estimated fair value of the investment secuities as of October 31,
1995 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Held-to-maturity
Certificates of deposit $ 300,000 $ - $ - $ 300,000
Available-for-sale
Mutual funds 400,000 - - 400,000
------------ ------------- ------------ -------------
700,000 - - 700,000
Less cash equivalents (300,000) - - (300,000)
------------ ------------- ------------ -------------
Total investment securities $ 400,000 $ - $ - $ 400,000
============ ============= ============ =============
</TABLE>
F - 8
<PAGE> 27
Investment income consists of the following:
<TABLE>
<CAPTION>
Year Ended October 31,
-------------------------------------------------------------------
1996 1995 1994
--------------- -------------- --------------
<S> <C> <C> <C>
Net realized gain (loss) from the
sale of marketable securities $ (755) $ 267 $ -
Interest and dividend income 15,826 42,933 27,337
Net unrealized holding losses - - (13,850)
--------------- -------------- --------------
$ 15,071 $ 43,200 $ 13,487
=============== ============== ==============
</TABLE>
3. INVENTORIES
The components of inventories are summarized as follows:
<TABLE>
<CAPTION>
October 31,
--------------------------------------------
1996 1995
----------------- ----------------
<S> <C> <C>
Materials and parts $ 1,657,512 $ 1,134,598
Work in process 278,523 650,047
Finished goods 319,242 285,720
----------------- ----------------
$ 2,255,277 $ 2,070,365
================= ================
</TABLE>
Inventories secure any obligations under a bank line of credit.
F - 9
<PAGE> 28
4. PROPERTY AND EQUIPMENT
Property and equipment, net, consists of the following:
<TABLE>
<CAPTION>
October 31,
----------------------------------
1996 1995
-------------- -------------
<S> <C> <C>
Machinery and equipment $ 806,949 $ 678,602
Furniture and fixtures 49,273 -
-------------- -------------
Leasehold improvements 64,445 117,001
-------------- -------------
920,667 795,603
Less: accumulated depreciation (627,550) (685,220)
-------------- -------------
$ 293,117 $ 110,383
============== =============
</TABLE>
Property and equipment secure any obligations under a bank line of
credit.
5. EMPLOYEE BENEFIT PLAN
The Company sponsors a profit sharing 401(k) plan (as restated January
1, 1995) covering substantially all full-time employees, which provides
for Company matching of 30% of the participant's elective deferral, but
in no event greater than 1.5% of the participant's compensation. The
Company's matching expense for the plan was $13,993, $12,046 and
$16,598, and for the years ended October 31, 1996, 1995 and 1994,
respectively.
F - 10
<PAGE> 29
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
October 31,
--------------------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
Trade accounts payable $ 358,294 $ 515,835
Accrued contingent legal fees (a) - 80,963
Commissions 86,898 123,806
Accrued warranty costs 10,000 10,000
Accrued payroll 36,854 11,538
Payroll taxes - 18,389
Accrued expenses 17,076 -
Other 5,935 20,155
--------------- ---------------
$ 515,057 $ 780,686
=============== ===============
</TABLE>
(a) Contingent legal fees in connection with royalty litigation
settlements.
7. CAPITAL LEASE OBLIGATION
The Company leases machinery and equipment under non-cancelable lease
agreements which expire at December 2000.
<TABLE>
<S> <C>
Principal portion of capital lease payments $ 17,568
Less: current portion 3,323
-------------
$ 14,245
=============
</TABLE>
F - 11
<PAGE> 30
The future minimum principal payments under capital lease is as
follows:
<TABLE>
<CAPTION>
Year Ended October 31,
----------------------
<S> <C>
1997 $ 3,323
1998 3,489
1999 4,753
2000 4,632
Thereafter 1,371
</TABLE>
8. COMMITMENTS
Operating Leases
The Company has a five year operating lease agreement for its
manaufacturing, warehouse and office facilities, with an option to
extend the lease for an additional five years. The lease expires
December 31, 2000. The lease provides for the Company to pay certain
operating costs of the leased property. Rent expense for the years
ended October 31, 1996, 1995, and 1994 was approximately $156,100,
$106,395 and $103,000, respectively. Prior to January 1996, the Company
was subleasing a portion of its preivous location. Such rental income
approximated $11,100, $33,900 and $29,600 in the years ended October
31, 1996, 1995 and 1994, respectively.
At October 31, 1996, the minimum future rental commitments under this
lease are as follows:
<TABLE>
<CAPTION>
Year Ending October 31,
-------------------------------
<S> <C>
1997 $ 191,378
1998 191,378
1999 191,378
2000 31,897
</TABLE>
Employment Contracts
The Company has entered into an employment agreement expiring August
31, 2000 with an employee/stockholder. The agreement provides for
aggregate compensation of $225,000 during the term of the agreement.
In the event of death or disability of the employee/stockholder, the
agreement calls for payments to the employee's estate, or beneficiary
of his unpaid compensation contemplated under the agreement in equal
annual installments over three years. If the employee/stockholder
retires during the
F - 12
<PAGE> 31
term of the agreement, he shall receive 30% of the unpaid compensation
contemplated under the agreement in equal annual installments over
three years. The agreement contains provisions intended to prevent the
employee/stockholder from entering into any form of competition with
the Company or disclosing any proprietary information for which the
Company has agreed to the pay the employee/stockholder $150,000 in
twelve quarterly payments of $12,500. The net covenant of $87,500 is
included in other assets at October 31, 1996.
The Company has an employment agreement with an executive officer
expiring December 31, 2001. The agreement provides for compensation as
follows:
<TABLE>
<CAPTION>
Year Ending October 31,
-----------------------
<S> <C>
1997 127,000
1998 129,500
1999 134,166
2000 139,167
2001 148,334
</TABLE>
Investment Banking Agreement
On October 1, 1995 the Company entered into a three year agreement with
an investment banking firm to serve as the Company's financial advisor
as to any and all corporate finance matters or other corporate business
that the Company deems appropriate. The investment banking firm's
compensation will be $12,000 per year for three years, as well as
additional compensation of 5% with respect to transactions such as
mergers or acquisitions brought to the Company by the investment
banking firm. In addition, the Company granted the investment banking
firm warrants to purchase a total of 200,000 shares of the Company's
common stock with an exercise price of $2.50 per share for which the
investment banking firm paid the Company $666. The warrants expire on
September 30, 2000.
Credit Agreements
The Company has a commercial line of credit agreement with a bank which
provides a line of credit of up to $800,000 at the prime interest rate.
As of October 31, 1996 the prime rate was 8.25%. This agreement runs
through January 31, 1997, and is secured by all of the present and
future accounts receivable, inventory and fixed assets of the Company.
The Company has borrowed $100,000 under this line of credit at October
31, 1996.
F - 13
<PAGE> 32
9. STOCKHOLDERS' EQUITY
The following table summarizes warrants to purchase common stock issued
by the Company:
<TABLE>
<CAPTION>
Year Ended October 31,
----------------------------------------------
Shares 1996 1995 1994
----------------------------------- -------------- ---------- -------------
<S> <C> <C> <C>
Outstanding beginning of year 400,000 700,000 500,000
Granted per share (a):
$2.50 in 1995 expiring
September 30, 2000 - 200,000 -
$0.81 to $1.50 expiring
December 31, 1998 - - 200,000
Expired May 1995 - (500,000) -
-------------- ---------- -------------
Outstanding end of year 400,000 400,000 700,000
============== ========== =============
</TABLE>
(a) Issued pursuant to Investment Banking Agreements.
10. INCOME TAXES
Income statement presentation of the Company's Income Tax Provision and
Deferred Tax Assets and Liabilities are presented in accordance with
Financial Accounting Standards Board Statement 109, "Accounting for
Income Taxes." Deferred Tax Assets consist of the following:
<TABLE>
<CAPTION>
Year ended October 31,
----------------------------------------------------
1996 1995 1994
------------- ------------- ---------------
<S> <C> <C> <C>
Net operating loss carryforwards $ 24,200 $ 182,000 $ 210,000
Less: valuation allowance (24,200) (182,000) (210,000)
------------- ------------- ---------------
$ - $ - $ -
============= ============= ===============
</TABLE>
Reconciliation of the provision for income taxes shown in the financial
statements and amounts computed by applying the Federal statutory
income tax rates are as follows:
F - 14
<PAGE> 33
<TABLE>
<CAPTION>
Year ended October 31,
------------------------------------------------
1996 1995 1994
---------- ------------ --------------
<S> <C> <C> <C>
Net earnings before income taxes $ 18,589 $ 196,338 $ 162,064
========== ============ ==============
Provision for income taxes $ 7,500 $ 79,000 $ 65,000
Benefit provided by net operating
loss carryforwards (7,500) (79,000) (65,000)
---------- ------------ --------------
$ - $ - $ -
========== ============ ==============
</TABLE>
Net operating loss carryforwards available for Federal Income Tax
purposes amounted to approximately $71,000, $438,000 and $604,000 for
the years ended October 31, 1996, 1995 and 1994, respectively. These
Federal net operating loss carryforwards will expire between 2004 and
2009. Net operating loss carryforwards available for state Corporation
Income Tax purposes amounted to approximately $355,000 and $553,000 for
the years ended October 31, 1995 and 1994, respectively. The Company
ulitized all of its state carryforwards during the year ended October
31, 1995. Carryover of the Federal and State net operating loss
carryforwards are subject to limitations in the event of a change of 50%
or more of the corporate ownership, as defined for tax purposes. If
such a change were to occur, the Company's ability to use the net
operating loss carryforwards may be subject to certain limitations.
11. ADVERTISING COSTS
Advertising costs amounted to approximately $264,426, $341,000 and
$335,000 for the years ended October 31, 1996, 1995, and 1994,
respectively.
12. RELATED PARTY TRANSACTIONS
The Company purchases certain of its products from a Japanese company
that is a stockholder. Purchases from this company, for the years ended
October 31, 1996, 1995, and 1994, were approximately $80,100, $138,300
and $90,000 respectively. Resales to international customers for items
previously purchased from this company were $355,400, $303,300 and
$79,000, respectively, for the years ended October 31, 1996, 1995 and
1994. In addition, under the terms of a distribution agreement, this
company acts as the international sales representative for all of the
Company's products for which it earns a 5% commission. For the years
ended October 31, 1996, 1995, and 1994, this company received
commissions of approximately $62,000, $80,000 and $60,000, respectively.
F - 15
<PAGE> 34
13. ROYALTIES
In 1992, the Company instituted suits in the Federal District Court for
Eastern Pennsylvania against two companies for infringement of one of
the Company's patents. The Company settled one case effective July 1,
1992, and one case effective March 31, 1994 on terms management
believes are favorable to the Company. The settlements included, among
other terms, payments to the Company of back royalties for sales of
the patented products sold, royalties to the Company for prospective
sales of patented products and a payment for damages by one of the
companies. For the years ended October 31, 1996, 1995, and 1994, the
Company earned royalties of approximately $177,000, $130,000 and
$324,000, respectively.
14. EXPORT SALES
For the years ended October 31, 1996, 1995 and 1994, approximately
$1,241,628 or 18%, $1,290,762 or 20%, and $1,180,000 or 22%,
respectively, of the Company's sales were to customers located outside
of the United States.
15. FOURTH QUARTER ADJUSTMENTS (UNAUDITED)
Fourth quarter adjustments included an increase in the accounts
receivable reserve of $30,000, an increase to inventory of $153,000 due
to the ommission of direct labor and overhead, and an additional
increase in inventory reserve of $181,000.
F - 16
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 27th day of
January, 1997.
MIKRON INSTRUMENT COMPANY, INC.
By: /s/ Keikhosrow Irani
-------------------------------------
Keikhosrow Irani
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ------ -----
<S> <C> <C>
/s/Keikhosrow Irani President, Chief Executive Officer
- ----------------------------- (Principal Executive Officer) January 27, 1997
KEIKHOSROW IRANI
/s/Alex Wu Treasurer
- ----------------------------- (Principal Financial and
ALEX WU Accounting Officer) January 27, 1997
/s/ Douglas Frank Vice President, Director January 27, 1997
- -----------------------------
DOUGLAS FRANK
/s/ Steven N. Bronson Director January 27, 1997
- -----------------------------
STEVEN N. BRONSON
/s/ Alvin Katz Director January 27, 1997
- -----------------------------
ALVIN KATZ
</TABLE>
- 19 -
<PAGE> 36
Index To Exhibits
Exhibit No. Description
- ----------- -----------
10.11 Employment Agreement between the Company and
Keikhosrow Irani dated December 20, 1996
<PAGE> 1
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT BETWEEN
MIKRON INSTRUMENT COMPANY, INC.
AND
KEIKHOSROW IRANI
Agreement dated December 20, 1996 by and between MIKRON INSTRUMENT COMPANY,
INC. (The "Employer") and KEIKHOSROW IRANI (the "Employee").
1. Employment. The Employer employs the Employee and the Employee accepts
employment upon the terms and conditions of this Agreement.
2. Terms. The term of this Agreement shall commence on January 1, 1996 and
shall terminate on December 31, 2001. The Employee shall have the right to
extend this Agreement for an additional period of two years upon written notice
to the Employer given not less than six month prior to December 31, 2001.
3. Compensation. For all services rendered by the Employee, the Employer
shall pay the Employee a salary as follows:
a. For the calendar year 1996: 1st. 10 months, $112,500./year
last 2 months, $127,000./year
b. For the calendar year 1997: $127,000./year
c. For the calendar year 1998: $130,000./year
d. For the calendar year 1999: $135,000./year
e. For the calendar year 2000: $140,000./year
f. For the calendar year 2001: $150,000./year
The aforementioned salaries shall be payable in equal bi-weekly installments.
Such payments shall be subject to withholding and other applicable taxes.
4. Duties. The Employee shall perform such duties as may be prescribed by
the Employer from time to time.
5. Extent of Services. The Employee shall devote his entire time, attention
and energies to the Employer's business and shall not
<PAGE> 2
during the term of this Agreement be engaged in any other business activity
whether or not pursued for gain, profit or pecuniary advantage. However, the
Employer may invest his assets in such form or manner as will not require his
services in the operation of the affairs of the Company in which such
investments are made.
6. Working Facilities. The Employee shall have a private office,
stenographic and other assistants in help and such facilities and services as
are suitable to his position and appropriate for the performance of his duties.
7. Expenses. The Employee may incur reasonable expenses for promoting the
Employer's business including expenses for entertainment, travel and similar
items. The Employer will reimburse the Employee for all such expenses upon the
Employee's periodic presentation of an itemized account of such expenditures.
The Employer shall also authorize the Employee to utilize such credit cards as
may be necessary or required in the pursuit of business expenses which shall be
then paid directly by the Employer.
8. Vacations. The Employee shall be entitled each year to a vacation of no
less than twenty (20) working days during which his compensation shall be paid
in full. The precise duration and timing of said vacation shall be determined
by the Employer and the Employee by mutual agreement. In the event the Employee
would not use his entire four weeks of vacation, Employer will compensate him
monetarily with the same rate as Employee's regular salary.
9. Disability. If the Employee is unable to perform his usual and customary
duties by reason of illness or incapacity for a continuous period of up to 180
days, Employer shall continue to pay to Employee his regular salary as herein
defined. Thereafter,
<PAGE> 3
Employer shall have no additional obligation to pay Employee any salary and may
terminate the obligation to pay salary pursuant to this Employment Agreement.
10. Insurance. The Employer shall furnish to the Employee at no cost, basic
medical and hospital insurance and major medical insurance pursuant to a plan to
be adopted by the Employer. The Employer shall also reimburse to the Employee
any expenses incurred by the Employee or his immediate family for medical,
doctor, hospital, dental or pharmaceutical expenses which are not reimburses or
paid to the Employee or for his benefit by the insurance plans adopted by the
Employer.
Employer shall furnish to the Employee at no additional cost, a prime
contract of disability insurance with 180 days waiting period, to provide
disability income benefits to Employee to age 65 in the amount of no less than
fifty (50%) percent of the annual gross compensation paid by the Employer to
Employee.
Employer shall provide Employee with a life insurance policy or policies
having a total death benefit on One Million Dollars if Employee is not medically
rated. Employee shall have the right to designate and change the beneficiary
thereof from time to time.
11. Vehicles. During the term of this Agreement the Employer shall
furnish for the use of the Employee a suitable automobile for use on Company
business. The Employer may require that the Employee keep the vehicle overnight
at his home in order to afford accessibility to the Employee's duties at the
beginning and termination of each business day. All expenses of the vehicles
shall be billed directly to the Employer and be paid directly by the Employer
from its account.
<PAGE> 4
12. Deferred Compensation. If Employee becomes disabled pursuant to the
terms of paragraph nine (9) and as a result of such disability, Employee retires
or dies at any time during the period of employment covered by this Agreement,
Employer will pay to Employee or his estate fifty (50%) percent of the total
amount of the last three years' salary of Employee in equal annual installments
over a term of three (3) years. The first installment to be paid with ninety
(90) days of the date of the event actuating the payments pursuant to this
paragraph and annually thereafter on the same date.
13. Inventions. If the Employee, through creative thinking, is able to
invent new technique or process using principles of infrared thermometry which
would result in patent application and subsequently successful patent rights
when there exists a substantial marketing potential, Employee will engage with
the Employer in a separate agreement for proper compensation.
14. Performance Review. Employer shall review Employee's performance
annually at the end of each calendar year with a view to authorizing increased
compensation, benefits or bonus to Employee based on the Company and Employee's
performance.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals on this 20th day of December, 1996.
Attest:
/s/ KEIKHOSROW IRANI
------------------------------
KEIKHOSROW IRANI, PRESIDENT
/s/ ALEX WU
-----------------------------------
ALEX WU, TREASURER/ASST. SECRETARY
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<CASH> 206364
<SECURITIES> 0
<RECEIVABLES> 1248776
<ALLOWANCES> 0
<INVENTORY> 2255227
<CURRENT-ASSETS> 3783754
<PP&E> 293117
<DEPRECIATION> 0
<TOTAL-ASSETS> 4164371
<CURRENT-LIABILITIES> 668380
<BONDS> 0
0
0
<COMMON> 12181
<OTHER-SE> 3432065
<TOTAL-LIABILITY-AND-EQUITY> 4164371
<SALES> 6943309
<TOTAL-REVENUES> 7135353
<CGS> 3340717
<TOTAL-COSTS> 3340717
<OTHER-EXPENSES> 582711
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 18589
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18589
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
