<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, 1997
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
---------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
16 THORNTON ROAD, OAKLAND, NJ 07436
- ----------------------------- -----
(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 $6,816,206.
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of January 16, 1998, based upon the average bid and asked prices
of such stock on that date was $6,522,747.
The number of shares of the registrant's Common Stock outstanding as of January
16, 1998 was 3,654,200.
Transitional Small Business Disclosure Format Yes No X
-- -
<PAGE> 2
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.
- 2 -
<PAGE> 3
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 January, 1998, the Company commenced distribution of the Mikron
TH5104 IR-Man(R) Portable Thermal Imager which is manufactured by NEC San-ei
Instrument Ltd. ("NEC"). This high resolution, high sensitivity product was
designed for plant and equipment preventative and predictive maintenance and
condition monitoring applications. Typical applications include monitoring
electrical panels, components, transformers and motors as well as energy
auditing of buildings and HVAC equipment. IR-Man(R) is a registered trademark
of the Company.
In January, 1998, the Company introduced the Mikron M680
Infraducer(R). A multi-channel fiber optic infrared thermometer. This product
features exceptionally broad temperature spans and selected spectral responses
and was designed for applications requiring accurate temperature measurement at
multiple locations such as monitoring rapid thermal processing in the
semiconductor manufacturing process. Other applications include crystal
growing, heat treatment and fabrication of metals, vacuum metal melting and
automatic induction heating. Infraducer(R) is a registered trademark of the
Company.
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.
Pyrovision(R) is a registered trademark of the Company. 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.
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.
- 3 -
<PAGE> 4
The Company designs, assembles and/or markets accessories and optional
equipment for its infrared thermometers, such as its Infracouple(R) infrared
temperature sensors, 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 condition monitoring and preventative and predictable
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;
(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 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 1997, 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 1996 and 1997, 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 1997, approximately 29% of the Company's sales were to
customers outside of the United States, as compared to approximately 18% in
fiscal 1996. 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.
- 4 -
<PAGE> 5
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
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, such as the Mikron M680
- 5 -
<PAGE> 6
Infraducer(R) for semiconductor industry applications, as well as 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.
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), IR-Man(R), Pyrovision(R), Infraducer(R) and Infracouple(R)
are trademarks of the Company which has been registered with the United States
Patent and Trademark Office.
EMPLOYEES
As of October 31, 1997, the Company's staff was comprised of 58
persons, 55 of whom were full time and 3 of whom were part time. Of the total
number of employees, 8 are engaged in design engineering and research and
development, 29 in manufacturing and production, 6 in marketing and sales, 8 in
administration and finance, 2 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.
- 6 -
<PAGE> 7
CERTAIN CONTRACTUAL ARRANGEMENTS
The Company also has a variety of agreements with 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."
The Company has recently entered into a sales representation agreement
with Anritsu Meter Co., Ltd. ("Anritsu"). Pursuant to the agreement, the
Company was granted the exclusive, except as to Anritsu, right to promote and
sell Anritsu products in North America. The agreement, which commences as of
March 1, 1998, has a five year term with a one year notice period for
termination thereafter. Anritsu manufactures a full line of lower cost contact
temperature probes, indicators and calibrators.
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.
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 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.
- 7 -
<PAGE> 8
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>
1998:
- -----
First Quarter through
January 16, 1998 $1.63 $1.94
1997:
- -----
First Quarter $1.88 $2.63
Second Quarter $1.00 $1.88
Third Quarter $1.00 $1.75
Fourth Quarter $1.00 $2.75
1996:
- -----
First Quarter $2.00 $3.88
Second Quarter $2.50 $3.88
Third Quarter $3.56 $5.13
Fourth Quarter $2.63 $3.56
</TABLE>
On January 16, 1998, the closing bid and asked price quotations for
the Company's Common Stock were $1.63 and $1.94, 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.
- 8 -
<PAGE> 9
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. Recently, the
Company has began to augment their own product development activities by
distributing certain compatible and strategic products of other manufacturers
of both contact and non-contact temperature measurement instruments and
accessories such as NEC and Anritsu.
RESULTS OF OPERATIONS
Year Ended October 31, 1997 Compared To Year Ended October 31, 1996
Net sales for the fiscal year ended October 31, 1997 were $6,618,513,
as compared to sales of $6,943,309 for the fiscal year ended October 31, 1996.
The decrease was primarily attributable to the delays associated with a
reorganization of the Company's sales and marketing staff. 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 1997 period was 45.5% as compared to 48.1% for the comparable
1996 period. The decrease was principally the result of the competitive market
for the materials the Company purchases for use in its manufacturing operations
and a greater efficiency in its purchasing and production activities.
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, 1997 selling, general and administrative expenses were
$3,192,219 as compared to $3,193,336 for the same period in 1996.
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 $658,070 in fiscal year 1997 as compared with $582,711 for research
and development in its 1996 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 accelerated effort to develop the Company's M680
Infraducer(R), which has just been introduced to the market.
- 9 -
<PAGE> 10
The net loss for the fiscal year ended October 31, 1997 was $36,251 as
compared to net income of $18,589 for the same period in 1996. The loss in 1977
was due primarily to an increase in expenses associated with the Company's
aggressive research and development program for fiscal 1997 as well as a
decline in sales revenue associated with delays occasioned by a reorganization
of the Company's sales and marketing staff.
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.
LIQUIDITY AND CAPITAL RESOURCES
As of October 31, 1997, the Company had cash, cash equivalents and
short-term investments of $547,995 as compared to $206,364 at October 31, 1996.
In addition, the Company had accounts receivable of $910,835 at October 31,
1997 compared to $1,248,776 at October 31, 1996.
As of October 31, 1997, the Company had working capital of $3,109,263
and a backlog of $1,046,521. 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.
- 10 -
<PAGE> 11
ITEM 7. FINANCIAL STATEMENTS
The Company's balance sheets at October 31, 1997 and 1996 and the
related statements of operations, stockholders' equity and statement of cash
flows for each of the fiscal years ended October 31, 1997 and 1996 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 61 President, Chief
Executive Officer and Director
Alex Wu 51 Vice President and Treasurer
Sydney V. Stoldt, Jr. 64 Secretary
Steven N. Bronson 32 Director
Alvin Katz 68 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.
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.
- 11 -
<PAGE> 12
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; Nastech Pharmaceutical Company Inc., which is engaged
in the development, manufacture and marketing of nasally delivered
pharmaceuticals and is Chairman of Ozo Diversified Inc., a manufacturer of
depaneling equipment for the computer chip industry. 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 there is currently a vacancy for 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, 1997:
- 12 -
<PAGE> 13
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, 1997 $127,000 -- -- --
President/Chief Executive
Officer 1996 $127,000 -- -- --
1995 $112,008 -- -- --
</TABLE>
In addition to salary, Mr. Irani has Company paid life insurance and
incidental personal use of a Company-leased automobile. In each of fiscal years
1997, 1996, and 1995, the aggregate value of these benefits was less than 10%
of the salary of the named executive.
The Company provides hospitalization, major medical and dental
insurance to all employees eligible under a group plan. Premium costs under
such group plan attributable to the officer named above are not included in the
table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides the specified information concerning
grants of options to purchase the Company's Common Stock during the fiscal year
ended October 31, 1997, to the person named in the Summary Compensation Table:
<TABLE>
<CAPTION>
Individual Grant in Last Fiscal Year
------------------------------------
% of Total
Options
Granted to
Options Employees Exercise or
Granted in Fiscal Base Price Expiration
Name (Shares) Year ($/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 October 31, 1997 Options at October 31, 1997
--------------------------- ---------------------------
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 $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.
- 14 -
<PAGE> 15
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.
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
January 20, 1998 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>
Percentage of
-------------
Amount and Nature Outstanding Shares
of Beneficial ------------------
Name of Beneficial Owner (1) Ownership (1) Owned (2)
---------------------------- ------------- ---------
<S> <C> <C>
Steven N. Bronson (3)(4) 1,518,060 41.5%
Long Term Growth Associates (3) 1,200,000 32.8%
Keikhosrow Irani (5) 565,587 15.5%
Chori Co., Ltd. (6) 350,000 9.6%
Sidney V. Stoldt, Jr.(7) 14,706 (9)
Alvin Katz (8) 45,000 (9)
Alex Wu (5) ----- (9)
All Officers and
Directors as a Group
(5 persons) 2,143,353 58.6%
</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 address of this stockholder is c/o the Company.
(6) The address of this stockholder is 4-7 Kawaramachi, 2-chome, Chuo-ku,
Osaka 541, Japan.
(7) The address of this stockholder is Stoldt & Horan, 401 Hackensack
Avenue, Hackensack, New Jersey 07601.
(8) 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.
(9) 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, and Chori-America.
Chori is an owner of more than five percent (5%) of the Common Stock of the
Company. During fiscal year 1997, the Company purchased approximately $195,600
of products from or through Chori. The Company paid Chori and Chori-America
approximately $68,000, in commissions during fiscal year 1997.
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
(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.
- 16 -
<PAGE> 17
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
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,
- 17 -
<PAGE> 18
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 Employment Agreement between the Company and Keikhosrow Irani,
dated as of December 20, 1996, filed as Exhibit 10 to the
Company's Report on Form 10-KSB dated November 24, 1995 and is
hereby incorporated by reference.
10.11 Settlement Agreement between the Company and Raytek Corporation
10.12 Sales Representation Agreement between the Company and
Anritsu Meter Co., Ltd.
(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.
REPORT ON AUDIT OF FINANCIAL
STATEMENTS
YEARS ENDED
OCTOBER 31, 1997 and 1996
<PAGE> 20
MIKRON INSTRUMENT COMPANY, INC.
FINANCIAL STATEMENTS
INDEX
<TABLE>
<CAPTION>
Page
Number
---------------
<S> <C>
INDEPENDENT AUDITORS' REPORT F - 2
FINANCIAL STATEMENTS:
Balance Sheet - October 31, 1997 and 1996 F - 3
Statement of Operations - Years ended
October 31, 1997 and 1996 F - 4
Statement of Stockholders' Equity - Years ended
October 31, 1997 and 1996 F - 5
Statement of Cash Flows - Years ended
October 31, 1997 and 1996 F - 6
Notes to Financial Statements F - 7 - 15
</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> 21
[FELDMAN RADIN & CO., P.C. LETTERHEAD]
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, 1997 and 1996 and the related statements of
operations, stockholders' equity and cash flows for each of the years in the
two-year period ended October 31, 1997. 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, 1997 and 1996 and the results of its operations and its cash flows for
each of the years in the two-year period ended October 31, 1997 in conformity
with generally accepted accounting principles.
/s/ FELDMAN RADIN & CO., P.C.
Certified Public Accountants
New York, New York
December 21, 1997
F-2
<PAGE> 22
MIKRON INSTRUMENTS COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
October 31,
---------------------------
1997 1996
----------- -----------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 547,995 $ 206,364
Trade accounts receivable, less allowance for
doubtful accounts of $83,000 and $137,000 910,835 1,248,776
Inventories 2,258,447 2,255,277
Prepaid expenses and other current assets 88,712 73,337
----------- -----------
TOTAL CURRENT ASSETS 3,805,989 3,783,754
PROPERTY AND EQUIPMENT, net 272,025 293,117
OTHER ASSETS 37,500 87,500
----------- -----------
$ 4,115,514 $ 4,164,371
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 692,944 $ 515,057
Short-term notes payable - 100,000
Current portion of long-term debt - 50,000
Current portion of capital lease obligation 3,782 3,323
----------- -----------
TOTAL CURRENT LIABILITIES 696,726 668,380
----------- -----------
LONG-TERM LIABILITIES:
Long-term debt - 37,500
Capital lease obligation 10,793 14,245
----------- -----------
TOTAL LONG-TERM LIABILITIES 10,793 51,745
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $.003 par value;
authorized - 15,000,000 shares; issued
and outstanding 3,654,200 shares in 1997
and 1996 12,181 12,181
Additional paid-in capital 3,151,831 3,151,831
Retained earnings 243,983 280,234
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 3,407,995 3,444,246
----------- -----------
$ 4,115,514 $ 4,164,371
=========== ===========
</TABLE>
See notes to financial statements
F-3
<PAGE> 23
MIKRON INSTRUMENTS COMPANY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended October 31,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
REVENUES:
Net sales $ 6,618,513 $ 6,943,309
Royalties 197,693 176,973
----------- -----------
TOTAL REVENUES 6,816,206 7,120,282
----------- -----------
COSTS AND EXPENSES:
Cost of goods sold 3,013,404 3,340,717
Selling, general and administrative 3,192,219 3,193,336
Research and development 658,070 582,711
----------- -----------
TOTAL COSTS AND EXPENSES 6,863,693 7,116,764
----------- -----------
INCOME (LOSS) FROM OPERATIONS (47,488) 3,518
OTHER INCOME:
Investment and interest income 8,659 15,071
Gain on currency translation 2,578 -
----------- -----------
NET INCOME (LOSS) $ (36,251) $ 18,589
=========== ===========
NET INCOME (LOSS) PER SHARE $ (0.01) $ 0.00
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES 3,654,200 3,824,775
=========== ===========
</TABLE>
See notes to financial statements
F-4
<PAGE> 24
MIKRON INSTRUMENT COMPANY, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------------- Paid-In Retained Stockholders,
Shares Amount Capital Earnings Equity
----------- ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
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
Net loss - - - (36,251) (36,251)
----------- ---------- ----------- ----------- -----------
Balance October 31, 1997 3,654,200 $ 12,181 $ 3,151,831 $ 243,983 $ 3,407,995
=========== ========== =========== =========== ===========
</TABLE>
See notes to financial statements
F-5
<PAGE> 25
MIKRON INSTRUMENT COMPANY, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended October 31,
------------------------
1997 1996
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (36,251) $ 18,589
---------- ---------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 58,084 55,935
Amortization 50,000 50,000
Realized loss on available-for-sale securities - 755
Changes in assets and liabilities:
(Increase) decrease in trade accounts receivable 337,941 (102,655)
(Increase) decrease in inventories (3,170) (184,912)
(Increase) decrease in prepaid and other current assets (15,375) (45,195)
(Decrease) increase in accounts payable and accrued liabilities 28,345 (265,629)
---------- ---------
455,826 (491,701)
---------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 419,575 (473,112)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (36,992) (221,101)
Proceeds from sale of available-for-sale securitie - 399,245
---------- ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (36,992) 178,144
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in long-term debt (40,952) 37,500
---------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (40,952) 37,500
---------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 341,631 (257,468)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 206,364 463,832
---------- ---------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 547,995 $ 206,364
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Assumption of capital lease obligation $ - $ 20,000
========== =========
</TABLE>
See notes to financial statements
F-6
<PAGE> 26
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. Inventories. Inventories are stated at the lower of cost
(first-in, first-out method) or market.
d. 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.
e. Amortization of Covenant Not To Compete. The Covenant Not To
Compete is amortized on a straight-line basis over 36 months.
f. Revenues. Net sales are recognized at the time of shipment.
Royalties are recorded as earned in accordance with specific
terms of each license agreement.
g. Research and Development Costs. Research and development
costs are expensed as incurred.
h. Advertising costs. The costs of advertising are expensed as
incurred.
i. 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 3,654,200 and 3,824,775, for the years
ended October 31, 1997, and 1996.
F-7
<PAGE> 27
MIKRON INSTRUMENT COMPANY, INC.,
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
j. 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.
k. Fair value of financial instruments. Effective October 31,
1996, the Company adopted SFAS No. 107, "Disclosures About
Fair Value of Financial Instruments", that requires
disclosures of fair value information about financial
instruments whether or not recognized in the balance sheet.
The carrying amounts reported in the balance sheet for cash,
trade receivables, accounts payable and accrued expenses
approximate fair value based on the short term maturity of
these instruments.
l. Accounting for long lived assets. The company reviews
long-lived assets and certain identifiable assets for
impairment whenever circumstances and situations change such
that there is an indication that the carrying amount may not be
recoverable. At October 31, 1997, the Company believes that
there has been no impairment of its long -lived assets.
2. INVENTORIES
The components of inventories are summarized as follows:
<TABLE>
<CAPTION>
October 31,
---------------------------------------
1997 1996
---------------- ---------------
<S> <C> <C>
Materials and parts $ 1,135,101 $ 1,657,512
Work in process 401,217 278,523
Finished goods 722,129 319,242
----------------- -----------------
$ 2,258,447 $ 2,255,277
================= =================
</TABLE>
Inventories secure any obligations under a bank line of credit.
F-8
<PAGE> 28
MIKRON INSTRUMENT COMPANY, INC.,
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment, net, consists of the following:
<TABLE>
<CAPTION>
October 31,
---------------------------------------------
1997 1996
------------------ -----------------
<S> <C> <C>
Machinery and equipment $ 843,941 $ 806,949
Furniture and fixtures 49,273 49,273
Leasehold improvements 64,445 64,445
------------------ -----------------
957,659 920,667
Less: accumulated depreciation (685,634) (627,550)
------------------ -----------------
$ 272,025 $ 293,117
================== =================
</TABLE>
Property and equipment secure any obligations under a bank line of
credit.
4. EMPLOYEE BENEFIT PLAN
The Company sponsors a 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 $14,935 and $13,483 for the
years ended October 31, 1997, and 1996 respectively.
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
October 31,
------------------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Trade accounts payable $ 417,364 $ 358,294
Commissions 71,686 86,898
</TABLE>
F-9
<PAGE> 29
MIKRON INSTRUMENT COMPANY, INC.,
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<S> <C> <C>
Accrued warranty costs - 10,000
Accrued payroll 80,467 36,854
Payroll taxes 1,245 -
Covenant payable 37,500 -
Accrued expenses 21,058 17,076
Other * 63,624 5,935
------------------ -------------------
$ 692,944 $ 515,057
================== ===================
</TABLE>
* Consists mostly of customer prepayments for merchandise in 1997
6. CAPITAL LEASE OBLIGATION
The Company has leased equipment under non-cancelable lease agreements
which expire at December 2000. As of October 31, 1997 minimum annual
lease commitments under capital leases with tems in excess of one year
are as follows:
<TABLE>
<S> <C>
1998 $ 5,616
1999 5,616
2000 5,616
2001 1,404
-------------
Total future minimum lease payments 18,252
Less amounts representing interest (3,712)
-------------
Present value of minimum lease payments 14,540
Less: Current portion of obligations under capital lease (5,616)
Long-term obligations under capital lease, net of current portion -------------
$ 8,924
=============
</TABLE>
F-10
<PAGE> 30
MIKRON INSTRUMENT COMPANY, INC.,
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
7. 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, 1997, and 1996, was approximately $191,378, and
$156,100 respectively. Prior to January 1996, the Company was subleasing
a portion of its previous location. Such rental income approximated
$11,100 in the year ended October 31, 1996.
At October 31, 1997, the minimum future rental commitments under this
lease are as follows:
<TABLE>
<CAPTION>
Year Ending October 31,
-----------------------------
<S> <C>
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 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 $37,500 is included in other assets at October 31,
1997.
The Company has an employment agreement with an executive officer
expiring
F-11
<PAGE> 31
MIKRON INSTRUMENT COMPANY, INC.,
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 2001. The agreement provides for compensation as follows:
<TABLE>
<CAPTION>
Year Ending October 31,
-----------------------
<S> <C>
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 fair market value of the
Company's stock at October 31, 1997 was $1.75. 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 $600,000 at the prime interest rate
and a foreign exchange line's daily settlement of $200,000. As of
October 31, 1997 the prime rate was 8.50%. This agreement runs through
January 31, 1998, and is secured by all of the present and future
accounts receivable, inventory and fixed assets of the Company.
8. STOCKHOLDERS' EQUITY
As of December 31, 1996 and 1997, there was 400,000 warrants to purchase
common stock issued by the Company. 200,000 of these warrants will
expire on December 31, 1998 and 200,000 will expire on September 30,
2000.
F-12
<PAGE> 32
MIKRON INSTRUMENT COMPANY, INC.,
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
9. 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,
---------------------------------------
1997 1996
--------------- -----------------
<S> <C> <C>
Net operating loss carryforwards $ 26,200 $ 24,200
Less: valuation allowance (26,200) (24,200)
----------------- -----------------
$ - $ -
================= =================
</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:
<TABLE>
<CAPTION>
Year ended October 31,
-----------------------------------------
1997 1996
------------- ----------------
<S> <C> <C>
Net earnings before income taxes $ (36,251) $ 18,589
=============== ================
Provision (benefit) for income taxes $ (14,478) $ 7,500
Tax benefit not recognized 14,578 -
--------------- ---------------
Benefit provided by net operating - (7,500)
loss carryforwards
$ - $ -
=============== ===============
</TABLE>
Net operating loss carryforwards available for income tax purposes amounted to
F-13
<PAGE> 33
MIKRON INSTRUMENT COMPANY, INC.,
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
approximately $77,000, and $71,000 for the years ended October 31, 1997,
and 1996 respectively. These net operating loss carryforwards will
expire between 2004 and 2012. Carryover of the 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.
10. ADVERTISING COSTS
Advertising costs amounted to approximately $403,571and $264,426 for the
years ended October 31, 1997 and 1996, respectively.
11. 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, 1997, and 1996 were approximately $195,600, and $80,100
respectively. Resales to international customers for items previously
purchased from this company were $416,200, and $355,400 for the years
ended October 31, 1997, and 1996 respectively. 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, 1997,
and 1996, this company received commissions of approximately $68,000,
and $62,000 respectively.
12. 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.
On May 27, 1997 there was a similar settlement agreement with another
company effective January 1, 1996. For the years ended October 31, 1997
and 1996 the Company earned royalties of approximately $197,700 and
$177,000 respectively.
13. EXPORT SALES
For the years ended October 31, 1997 and 1996, approximately $1,903,840
or 29%, and
F-14
<PAGE> 34
MIKRON INSTRUMENT COMPANY, INC.,
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
$1,241,628 or 18% respectively, of the Company's sales were to customers
located outside of the United States.
14. FOURTH QUARTER ADJUSTMENTS (UNAUDITED)
Fourth quarter adjustments included the write off of a customer's
receivable balance of $54,000 and an increase to inventory of $144,000
due to the differences between physical and perpetual inventory records.
F-15
<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, 1998.
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, 1998
KEIKHOSROW IRANI
/s/Alex Wu Treasurer
- -------------------------------- (Principal Financial and
ALEX WU Accounting Officer) January 27, 1998
/s/ Steven N. Bronson Director January 27, 1998
- --------------------------------
STEVEN N. BRONSON
/s/ Alvin Katz Director January 27, 1998
- --------------------------------
ALVIN KATZ
</TABLE>
- 19 -
<PAGE> 36
Index To Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.11 Settlement Agreement between the Company and
Raytek Corporation dated May 27, 1997
10.12 Sales Representation Agreement between the Company
and Anritsu Meter Co., Ltd.
</TABLE>
<PAGE> 1
EXHIBIT 10.11
SETTLEMENT AGREEMENT
THIS AGREEMENT is made this 27 day of May, 1997, as of January 1,
1996 (the "Effective Date") by and between MIKRON INSTRUMENT CO., INC., a
corporation of the State of New Jersey (hereafter referred to as "Mikron"), and
Raytek Corporation a corporation of the State of California (hereafter referred
to as "Raytek").
BACKGROUND OF THIS AGREEMENT
Mikron is the owner of United States Patent No. 4,527,896 (hereafter
referred to as the "`896 Patent"), issued July 9, 1985, in the names of Irani et
al, and directed to a remote reading infrared thermometer with a built in
two-wire transmitter;
Raytek is in the business of manufacturing and selling thermometers
and has been manufacturing and selling, among other products, an infrared
two-wire temperature transmitter with linear 4-20 milliamp output, which have
been alleged by Mikron to be covered by claims of the `896 Patent; and
Mikron and Raytek wish to resolve any differences there may be between
them and to state by this Agreement the terms of the resolution, without thereby
admitting any infringement or any violation of any rights of any kind.
NOW, THEREFORE, intending that they be legally bound, Mikron and
Raytek agree as follows:
- 1 -
<PAGE> 2
1. Definitions.
As used in this Agreement:
(a) "Licensed Patent" means the `896 Patent and any and
all continuations, divisionals, continuations-in-part, reexaminations and
reissues.
(b) "Licensed Product" (or "Licensed Products") means:
(i) the infrared two-wire temperature transmitter
with linear 4-20 milliamp output made or sold by
Raytek as the Thermalert TX Series and listed on the
Schedule attached to this Agreement (and made a part
hereof); and (ii) without limiting the above, any and
all new or products introduced by Raytek after the
Effective Date, which, as made, used, sold, or
otherwise disposed of (as hereinafter defined), are
covered by any claim of the Licensed Patent while
such claim subsists.
(c) "Raytek" means Raytek Corporation, its divisions and
any subsidiary in which Raytek Corporation, directly
or indirectly holds a controlling interest. For the
purposes of this definition, a controlling interest
shall be one sufficient to allow appointment of the
majority of the Board of Directors or other
controlling body.
- 2 -
<PAGE> 3
2. Grant of License.
Mikron grants to Raytek, in and for the whole of the United
States, its territories and possessions, and throughout the world a
non-exclusive license under the Licensed Patent, to make, use, have made, sell
and offer for sale the Licensed Products.
3. Royalties.
In consideration of the license granted to Raytek with respect
to the Licensed Patent, Raytek shall pay to Mikron the following:
(a) the sum of ten thousand dollars ($10,000); and
(b) for Licensed Products manufactured, sold or otherwise disposed
of within the United States, its territories and possessions on or after January
1, 1996, six percent (6%) of the aggregate Net Sales by Raytek of Licensed
Products.
"Net Sales" with respect to Licensed Products sold means the invoice
price to Raytek's customers, F.O.B. factory, less cash discounts actually given
thereon, and credits actually allowed for returns of Licensed Products in the
ordinary course of business, but without any other deductions. Where Licensed
Products are not sold, but are otherwise disposed of by rental or lease, "Net
Sales" for the purpose of computing royalties shall be the fees actually
received by Raytek in relation to such rental or lease. Where Licensed Products
are not sold or otherwise disposed of separately, but are sold or otherwise
disposed of in combination with or as parts of other products, the "Net Sales"
of the Licensed Products sold or otherwise disposed of shall be calculated for
the purpose of computing royalties due by applying to the total "Net Sales"
price (as hereinafter defined)
- 3 -
<PAGE> 4
of the combined or composite products, a fractional multiplier having as its
denominator the total manufacturing cost of the combined or composite products
(determined in accordance with Raytek's customary accounting procedures) and as
its numerator the manufacturing cost of the included Licensed Products
(similarly determined). Licensed Products other than those rented or leased by
Raytek to others shall be considered to have been "sold" when billed out, or
when paid for, whichever shall occur first, provided, however, that upon
expiration of the Licensed Patent, or upon any termination of this Agreement,
Licensed Products made on or prior to the date of such expiration or termination
but which have not been billed out prior thereto shall be considered to have
been "sold," and shall therefore be subject to royalty. Licensed Products rented
or leased by Raytek to others shall be considered to have been "sold," and the
fees actually received thereon subject to royalty, when such fees have been
received by Raytek. As used herein, Licensed Products "otherwise disposed of"
means (i) Licensed Products not sold, but delivered by Raytek to others in the
expectation that they will be sold (including, by way of illustration, and no
limitation, deliveries on consignment, or memorandum, or for export), regardless
of the basis for compensation, if any; (ii) Licensed Products not sold as such,
but sold by Raytek as components or constituents of other products or of any
systems sold as such; (iii) Licensed Products put into use by Raytek for any
purpose other than routine testing; and (iv) Licensed Products not sold, but
rented or leased by Raytek to
- 4 -
<PAGE> 5
another. Where Licensed Products are not sold, but are manufactured and put into
use by Raytek for any purpose other than routine testing, the Net Sales" of such
Licensed Products shall be the price at which Raytek, at the time such Licensed
Products are put into use, would invoice such Licensed Products to purchasers
dealing at arms length with Raytek. Such Licensed Products shall be considered
to have been "otherwise disposed of" at the date on which they are put into use
by Raytek.
(c) Anything in this Agreement to the contrary notwithstanding,
royalties with respect to all Licensed Products sold or otherwise disposed of by
Raytek to an :Affiliate" (as hereafter defined) of Raytek or to any purchaser
which otherwise does not deal at arms length with Raytek, shall be computed for
the purpose of determining "Net Sales" on the basis of an amount equal to the
price at which Raytek, at the time of such sales or other disposals, would
invoice such Licensed Products to purchaser dealing at arms length with Raytek.
As used herein, "Affiliate" means (i) any entity in which Raytek or any of its
stockholders, directors or officers has a direct or indirect ownership interest
(other than insubstantial interests in publicly held companies) or (ii) any
entity which directly or indirectly controls, is controlled by or is under
common control with, Raytek. Only one royalty payment shall be due Mikron for
each Licensed Product, regardless of the number of times that Licensed Product
is sold.
- 5 -
<PAGE> 6
4. Payments to Mikron
Raytek shall make payments to Mikron as follows:
(a) The payment pursuant to subparagraph 3 (a) above
shall be made by Raytek upon execution of this Agreement by the parties;
(b) Raytek shall make quarterly written statements to
Mikron within thirty (30) days after the end of each calendar quarter ending the
last day of September, December, March and June of each year during the Term of
this Agreement (as hereafter defined), and as of such dates, setting forth in
each such statement the number and description of Licensed Products sold or
otherwise disposed of during the period to which the statement relates and upon
which royalties are payable as provided in subparagraph 3 (b) above, the Net
Sales amount of the invoice prices and description of deductions from the
invoice prices of Licensed Products, and the amount of the royalty due. The
first such statement shall include Licensed Products sold or otherwise disposed
of between January 1, 1996 and the end of the quarter to which such statement
relates. Raytek shall also make such a written statement to Mikron within thirty
(30) days after the date of expiration or any termination of this Agreement, in
relation to Licensed Products sold or otherwise disposed of and upon which
royalties not previously reported and paid to Mikron are payable.
Payment of the royalty due shall accompany each statement provided for herein.
- 6 -
<PAGE> 7
5. Late Payments.
Raytek shall pay interest to Mikron upon any and all amounts of
royalties or other payments that are at any time overdue. Such interest shall be
payable to Mikron computed using an annual rate of seven and one-half percent
(7 1/2%) from the date when such royalties or other payments are due and payable
to the date of payment.
6. Records and Books of Account.
Raytek shall keep true and accurate records and books of
account showing the quantity of all Licensed Products sold or otherwise disposed
of under this Agreement, and such records shall be in sufficient detail to
enable the royalties payable to Mikron to be ascertained. Within sixty (60) days
after the end of each fiscal year of Raytek, currently December 31, during the
term of this Agreement, and within sixty (60) days after expiration or any
termination of this Agreement, Raytek shall furnish to Mikron a statement of the
aggregate amount of royalties due to Mikron for such fiscal year (or, as the
case may be, part thereof), which statement shall be certified by a certified
public accountant to be an accurate reflection of the records of Raytek for such
period. Mikron shall have the option and right at any reasonable time to
commission an independent third party agreeable to Raytek to examine and audit
such records and books of account to the extent necessary to verify the
statements provided for in this Paragraph 6, such examination to be made at the
expense of Mikron. Raytek's agreement to such independent third party auditor
shall not be unreasonably held.
- 7 -
<PAGE> 8
7. Term.
The term (the "Term") of this Agreement shall begin on the
Effective Date and continue for the life of the Licensed Patent unless sooner
terminated in accordance with the provisions of this Agreement.
8. Termination.
This Agreement may be terminated prior to expiration of the
Term as follows:
(a) If Raytek shall fail to make payment or to provide
any statement in regard to royalties when due, Mikron may give notice to Raytek
of such default and of Mikron's intention to terminate this Agreement if payment
is not made or such statement provided within fifteen (15) days, and if payment
is not made or such statement provided within ten (10) days after the giving of
such notice, this Agreement may then be terminated by Mikron by giving notice to
Raytek, termination to be effective upon the giving of such notice.
(b) If Raytek shall commit a default other than of the
kind referred to in subparagraph (a) of this paragraph 8, Mikron may give notice
to Raytek of such default and of its intention to terminate this Agreement.
Raytek shall then have a period of thirty (30) days within which to remedy the
default and if such default is not remedied within such thirty (30) days period,
this Agreement may be terminated by Mikron by signing notice to Raytek,
termination to be effective upon the giving of such notice.
- 8 -
<PAGE> 9
(c) This Agreement shall not preclude Licensee from contesting the
validity of the Licensed Patent, but in the event that Raytek shall assert
invalidity of any claim of the Licensed Patent and shall couple with or follow
such assertion by:
(i) withholding, or notice of intention to withhold, or
denial of obligation to pay, royalties otherwise payable under this Agreement
with respect to Raytek's operations under such claim, or
(ii) initiation or participation in a suit challenging or
denying the validity of such claim with respect to Raytek's operations under
this agreement, Mikron shall have the right to terminate the license as to such
claim by giving notice to Raytek, termination to be effective upon the giving of
such notice.
The remedies provided in subparagraphs (a), (b) and (c) of this
paragraph 8 shall be in addition to, and not exclusive of, any and all other
remedies available to either party under the law, and the pursuit of one or more
remedies shall not be construed as a waiver of any right to pursue any other
remedy or remedies. No failure on the part of either party to exercise any right
of termination hereunder shall be construed to prejudice such right or any
subsequent right of termination.
9. Effect of Termination.
The word "termination" and cognate words, such as "Term" and
"terminate", used in paragraph 8 above and elsewhere in this Agreement are to be
read, except where the contrary is specifically indicated, as omitting from
their effect the following rights and obligations, all of which shall survive
termination to the degree necessary to permit their complete fulfillment or
discharge;
- 9 -
<PAGE> 10
(a) The obligation of Raytek to supply a statement upon
termination as provided in paragraph 4 (b) above of this Agreement;
(b) Mikron's right to receive or recover and the
obligation of Raytek to pay royalties accrued or accruable for payment at the
time of any termination;
(c) The obligation of Raytek to maintain records and
books of account, and Mikron's right to examine and audit them as provided in
paragraph 6 above;
(d) Any cause of action of claim of either party, accrued
or to accrue, because of any breach or default by the other party.
10. Assignment; No Sublicensing.
This Agreement and the rights hereunder shall not be
assignable by Raytek without the written consent of Mikron first obtained nor
shall Raytek have the right to grant any sublicenses hereunder. Except as
provided in the preceding sentence of this Paragraph 10, this Agreement shall
inure to the benefit of the parties hereto and their respective successors and
assigns.
In the event that Mikron shall grant a license under the Licensed
Patent on more favorable terms than those set forth in this Agreement, Mikron
shall give Raytek notice of such terms within ninety (90) days and allow Raytek
the benefit of the more favorable terms if Raytek elects to adopt such more
favorable terms.
- 10 -
<PAGE> 11
11. Representation and Warranty of Raytek.
Raytek represents and warrants that the models of infrared
two-wire temperature transmitters with linear 4-20 milliamp output listed in the
Schedule which is a part of this Agreement are all of the models of such
products which have been introduced by Raytek prior to the Effective Date of
this Agreement.
12. Entire Agreement.
This Agreement sets forth the entire agreement and
understanding between the parties as to the subject matter of this Agreement and
merges all prior discussions and writings between them, and neither of the
parties shall be bound by any conditions, definitions, warranties or
representations with respect to the subject matter of this Agreement, other than
as expressly provided in this Agreement, or as duly set forth on or subsequent
to the date hereof in writing and signed by a proper and duly authorized officer
of the party to be bound thereby.
13. Patent Marking.
Raytek shall mark permanently and legibly all Licensed
Products sold or otherwise disposed of by Raytek under this Agreement with the
statutory patent notice: "Patent No. 4,527,896" or its equivalent.
14. Relationship of the Parties.
Nothing in this Agreement shall be construed to make either
party the agent, servant, employee or other representative of, or a joint
venturer or partner with the other, and each party hereto is an independent
contractor, operating for his or its own profit and receiving full
responsibility for the financing, management and operation of its
- 11 -
<PAGE> 12
business. Neither party shall identify or hold himself or itself out in
connection with the performance of any part of this Agreement as other than an
independent contractor, and neither party shall have the power to enter into on
behalf of, or to bind the other, to any contract or agreement, or to commit or
otherwise subject the other to any liability or responsibility of any kind
whatsoever.
15. Applicable Law.
This Agreement shall be governed and construed in accordance
with the laws of the State of New Jersey.
16. Notices.
All notices and communications of any nature referred to in
this Agreement shall be in writing and shall be sent by registered or certified
mail, postage prepaid, addressed in the case of Mikron to:
Mikron Instrument Co., Inc.
16 Thornton Road
Oakland, New Jersey 07436
Attention: Keikhosrow Irani, President
with a copy to:
Louis M. Heidelberger, Esquire
Frank M. Linguiti, Esquire
Reed Smith Shaw & McClay
2500 One Liberty Place
Philadelphia, PA 19103-7301
And in the case of Raytek to:
Mr. Russell N. Bigelow
Raytek, Inc. Corporation
1201 Shaffer Road, Box 1820
Santa Cruz, CA 95061-1820
- 12 -
<PAGE> 13
unless in either case the address is change by like notice to the other party.
Any notice given as above provided shall be deemed to have been given on the
date of receipt by the party for which it is intended.
17. Release.
For and in consideration of the obligations set forth in this
Agreement and conditional upon Raytek's compliance with the terms of Paragraph 3
and Paragraph 4 above, Mikron hereby releases and forever discharges Raytek of
and from any and all demands, actions and causes of action, and any claims for
attorneys' fees in connection therewith, for infringement of the Licensed Patent
which may arise prior to the Effective Date of this Agreement, provided however
that nothing in this release shall apply in any way to the obligations set forth
in Agreement, and Raytek hereby forever releases Mikron of and from any and all
demands, actions and causes of action, damages and any and all claims, demands
and liabilities whatsoever including any claims for attorneys' fees in
connection therewith, provided however that nothing in this release shall apply
in any way to the obligations set forth in this Agreement.
- 13 -
<PAGE> 14
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly
executed in their names by their duly authorized representatives and their
corporate seals to be affixed on the date first above written.
[Corporate Seal] MIKRON INSTRUMENT CO., INC.
<TABLE>
<S> <C>
Attest: By
----------------------- -----------------------------
Alex K. F. Wu Keikhosrow Irani
[Corporate Seal] RAYTEK CORPORATION
Attest: By
----------------------- -----------------------------
James Musbach Russell N. Bigelow
</TABLE>
<PAGE> 15
SCHEDULE
Raytek "Licensed Products" as of January 1, 1996;
Thermalert TX Series: Smart and Basic Models of LTL, LTO, MT, G5, P7, HT
- 15 -
<PAGE> 1
EXHIBIT 10.12
January 15, 1998
Mikron Instrument Company, Inc.
16 Thornton Road
Oakland, New Jersey 07436
Re: Sales Representation Agreement
Gentlemen:
Reference is hereby made to the Sales Representation Agreement dated as of
November 1, 1997 (the "Agreement") by and between Anritsu Meter Co., Ltd. and
Mikron Instrument Company, Inc.
The parties hereby agree that notwithstanding the provisions of Paragraph 14 of
the Agreement, the commencement date for the Agreement shall be March 01, 1998.
All other terms of the Agreement shall continue in full force and effect in
accordance with the provisions thereof and from the date hereof, all references
to the Agreement shall be deemed to be references to the Agreement as amended
hereby.
Please indicate your agreement with the foregoing by signing both copies of
this letter and returning to us one fully executed original copy.
Very truly yours,
ANRITSU METER CO., LTD.
By:
----------------------------
Koji Hagiwara
Director
Acknowledged and agreed:
MIKRON INSTRUMENT COMPANY, INC.
By:
-----------------------------
Keikhosrow Irani
President
<PAGE> 2
SALES REPRESENTATION AGREEMENT
This Agreement made as of this is 1st. day of November of 1997 by and
between Company.
ANRITSU METER CO., LTD.
2-4-5 Shimomeguro Meguro-ku
Tokyo 153, Japan
and Representative :
MIKRON INSTRUMENT COMPANY, INC.
16 Thornton Road
Oakland, New Jersey 07436
for sales of ANRITSU PRODUCTS. In consideration of the mutual
promises and covenants contained in this Agreement, Company and
Representative agree as follows:
1. Company grants Representative the exclusive right to represent Company
in the following territory;
NORTH AMERICA
Representation shall consist of the right to promote, encourage, offer
for sale Company's Products and secure orders, enter into sales
agreements per Company's usual and ordinary terms and conditions.
All sales of ANRITSU PRODUCTS in the territory shall be for the
account of the Representative.
2. Representative agrees to exercise due diligence and best efforts in
promoting the sale of ANRITSU PRODUCTS within the territory.
Representative agrees to maintain a sales organization adequate to
fulfill this obligation.
a) Representative to provide adequate customer support in the
territory. Representative to follow up on all advertising
leads and advise Company of the results.
b) Representative is responsible for the professional preparation
of all price book quotations. Copies of all quotations are to
be sent to the Company for its approval.
Representative shall assist Company in obtaining information related
to existing and potential applications and markers for ANRITSU
PRODUCTS in the territory. Representative shall advise Company with
respect to competition, competitive advertising, and the results of
competitive bid awards made within
<PAGE> 3
the territory.
3. Representative agrees not to solicit sales for ANRITSU PRODUCTS for
delivery, use or sale outside of the territory, without the prior
written consent of Company.
4. Representative's sales organization shall not engage itself in the
manufacture or sales of products which are in competition with
products of Company.
5. All expenses incurred in connection with the representation,
demonstration and sale of said products in the territory are the
responsibility of Representative.
6. Company agrees to furnish Representative with reasonable quantities of
catalogs, data-sheets, price lists, engineering data and application
data. Company will provide answers to technical and commercial
inquires originating from the territory and other information
required, or helpful to the promotion of ANRITSU PRODUCTS in the
territory.
7. Representative must present the annual sales target of ANRITSU
PRODUCTS to the Company for its approval.
8. All the prices of ANRITSU PRODUCTS are based on the price list which
was decided by Company. All the prices shall be in Japanese YEN on
the basis of F.O.B. Tokyo, Japan.
9. Representative agrees to make a remittance of the payment of products
by T/T or Bank Check within 60 days from the date of Company's
Invoice.
10. Company shall indemnify, protect and save harmless Representative from
and against all claims, demands and proceedings, actions, liabilities
and costs resulting from any actual or alleged infringement of any
patent, industrial and property right, of third parties, related to
the ANRITSU PRODUCTS.
11. Representative acknowledges and agrees that Company may begin
manufacture of ANRITSU PRODUCTS in the territory in the future and
therefore Company reserves the right to sell and/or manufacture
ANRITSU PRODUCTS in the territory.
12. Representative shall not have any right or claims in or to Company's
trademarks or other intellectual property rights except as may be
expressly authorized in writing by Company.
13. Representative shall keep confidential any and all information and
materials it may have regarding ANRITSU PRODUCTS. Immediately upon
termination of this Agreement, Representative shall deliver to
<PAGE> 4
Company any information and materials relating to ANRITSU PRODUCTS
which are in Representative's procession or control.
14. This Agreement shall commence on the date first above listed and shall
continue in effect for a minimum period of FIVE (5) YEARS. After this
period it can be terminated by either Company or Representative, with
ONE (1) YEAR written advance notice sent at any time by mail.
Paragraphs 10, 12, and 13 shall survive the termination of this
Agreement.
15. In the event the Agreement is terminated, for any reason whatever,
Company shall allow Representative to complete all ANRITSU PRODUCTS
orders originated from the territory and dated prior to the effective
date of termination. In the event of termination, the Representative
agrees not to solicit sales from ANRITSU accounts for any competitive
products for a period of one year.
16. This Agreement may not be assigned by either party without the written
consent of the other.
In witness whereof, this Agreement has been executed on the day and the year
first listed above.
<TABLE>
<CAPTION>
COMPANY REPRESENTATIVE
- ------- --------------
<S> <C>
ANRITSU METER CO., LTD. MIKRON INSTRUMENT CO., INC.
2-4-5 Shimomeguro Meguro-ku 16 Thornton Road
Tokyo 153, Japan Oakland, New Jersey 07436
Name: Masatsune Senbokuya Name: Keikhosrow Irani
Title: President Title: President
SIGNATURE: SIGNATURE:
-------------------- -----------------------
DATE: DATE:
-------------------- -----------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT OCTOBER 31, 1997 AND THE STATEMENT OF OPERATIONS FOR THE YEAR ENDED
OCT 31, 1997 AS INCLUDED IN THIS FORM 10KSB FOR THE YEAR ENDED OCTOBER 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<CASH> 547,995
<SECURITIES> 0
<RECEIVABLES> 910,835
<ALLOWANCES> 0
<INVENTORY> 2,258,447
<CURRENT-ASSETS> 126,212
<PP&E> 272,025
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,115,514
<CURRENT-LIABILITIES> 696,726
<BONDS> 10,793
0
0
<COMMON> 12,181
<OTHER-SE> 3,395,814
<TOTAL-LIABILITY-AND-EQUITY> 4,115,514
<SALES> 6,618,513
<TOTAL-REVENUES> 6,816,206
<CGS> 3,013,404
<TOTAL-COSTS> 6,863,693
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (36,251)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (36,251)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
