FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended July 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number: 0-15486
MIKRON INSTRUMENT COMPANY, INC.
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(Exact Name of Registrant as Specified in its Charter)
NEW JERSEY 22-1895668
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
16 Thornton Road, Oakland, New Jersey 07436
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(Address of Principal Executive Office) (Zip Code)
(201) 405-0900
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(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities 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 |_|
The number of shares of registrant's Common Stock, $.003 par value, outstanding
as of September 14, 2000 was 4,288,200 shares.
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MIKRON INSTRUMENT COMPANY, INC.
INDEX
Page No.
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PART I - FINANCIAL INFORMATION:
Balance Sheet - July 31, 2000 3
Statement of Operations - Three and nine months ended July 31,
2000 and 1999 4
Statement of Cash Flows - Nine months ended July 31,
2000 and 1999 5
Notes to Financial Statements 6
Management's Discussion And Analysis Of
Financial Condition And Results Of Operations 7
PART II - OTHER INFORMATION 9
SIGNATURES 10
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MIKRON INSTRUMENT COMPANY, INC.
BALANCE SHEET
July 31, 2000
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(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 855,367
Trade accounts receivable, less allowance for
doubtful accounts of $91,896 1,474,444
Inventories 2,812,309
Prepaid expenses and other current assets 95,402
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TOTAL CURRENT ASSETS 5,237,522
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PROPERTY AND EQUIPMENT, net 323,119
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OTHER ASSETS 791,498
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TOTAL ASSETS $6,352,139
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 819,949
Current portion of long term debt 335,094
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TOTAL CURRENT LIABILITIES 1,155,043
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LONG TERM LIABILITIES 693,774
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TOTAL LIABILITIES 1,848,817
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STOCKHOLDERS' EQUITY
Common stock, $.003 par value;
Authorized - 15,000,000 shares; issued and
Outstanding - 4,288,200 shares 12,865
Additional paid-in capital 4,054,510
Retained earnings 435,947
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TOTAL STOCKHOLDERS' EQUITY 4,503,322
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $6,352,139
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See notes to financial statements
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MIKRON INSTRUMENT COMPANY, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
------------------------------ ------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 2,536,857 $ 1,800,113 $ 7,546,063 $ 4,971,653
Royalties 39,297 24,993 133,534 98,993
----------- ----------- ----------- -----------
TOTAL REVENUES 2,576,154 1,825,106 7,679,597 5,070,646
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of goods sold 1,152,533 803,052 3,766,422 2,329,736
Selling, general and administrative 1,021,634 839,810 2,684,902 2,510,781
Research and development 309,299 144,147 795,162 496,456
----------- ----------- ----------- -----------
TOTAL COSTS AND EXPENSES 2,483,466 1,787,009 7,246,486 5,336,973
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 92,688 38,097 433,111 (266,327)
----------- ----------- ----------- -----------
OTHER INCOME:
Interest income (expense) (10,105) 9,295 14,769 18,405
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION
FOR TAXES (Note 3) 82,583 47,392 447,880 (247,922)
PROVISION FOR INCOME TAXES 33,194 -- 85,312 --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 49,389 $ 47,392 $ 362,568 $ (247,922)
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE - BASIC $ 0.01 $ 0.01 $ 0.08 $ (0.06)
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE - FULLY DILUTED $ 0.01 $ 0.01 $ 0.08 $ (0.06)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES 4,288,200 4,274,830 4,287,005 3,921,152
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
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MIKRON INSTRUMENT COMPANY, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
July 31,
-------------------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 362,568 $ (247,922)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation 66,101 57,860
Amortization 31,095 --
Changes in assets and liabilities:
(Increase) decrease in trade accounts receivable (360,688) 131,180
(Increase) decrease in inventories (391,271) 159,362
(Increase) decrease in prepaid and other current assets (14,693) 56,852
(Increase) decrease in other assets (106,944) (63,982)
(Decrease) in accounts payable and accrued liabilities (103,767) (100,103)
NET CASH USED IN OPERATING ACTIVITIES (517,599) (6,753)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (37,254) (10,686)
Net assets acquired (844,873) --
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NET CASH USED IN INVESTING ACTIVITIES (882,127) (10,686)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capital lease obligation (4,765) (10,835)
Principal payment (fleet loan) (55,554) --
Proceeds from issuance of capital stock 3,124 750,000
Proceeds from loans 1,082,662 --
Sale of stock pursuant to exercise of stock options -- 150,239
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NET CASH PROVIDED BY FINANCING ACTIVITIES 1,025,467 889,404
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (374,259) 871,965
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 1,229,626 415,400
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CASH AND CASH EQUIVALENTS - END OF PERIOD $ 855,367 $ 1,287,365
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</TABLE>
See notes to financial statements
5
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MIKRON INSTRUMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
July 31, 2000
(Unaudited)
1. BASIS OF PRESENTATION
Our unaudited interim financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial statements and
should be read in conjunction with our October 31, 1999 Annual Report on Form
10-KSB.
Our unaudited financial statements include all adjustments consisting of only
normal recurring accruals which are, in the opinion of our management, necessary
to present a fair statement of financial position as of July 31, 2000 and the
results of operations and cash flows for the period then ended. Results of
operations for the period are not necessarily indicative of the results to be
expected for the full year.
2. EARNINGS PER SHARE
In February 1997, the Financial Standards Accounting Board issued Statement on
Financial Accounting Standards No. 128, "Earnings Per Share" (FAS No. 128) which
became effective for both interim and annual financial statements for the
periods ending December 15, 1997. FAS No. 128 requires a presentation of "basic"
and where applicable "diluted" earnings per share. Generally, basic earnings
per share are computed on only the weighted average number of common shares
actually outstanding during the period and the diluted computation considers
potential shares issuable upon exercise or conversion of other outstanding
instruments where dilution would result.
3. INCOME TAXES
Through January 31, 2000, we recorded a full valuation allowance against
deferred tax assets based upon our management's expectations regarding
realization of the related benefit. As a result of the income generated during
the second quarter of fiscal 2000 and management's projections regarding future
periods, management concluded that there would be sufficient taxable income in
the future to realize the majority of our deferred tax assets (including net
operating loss carryforwards of $235,000). As such, an income tax benefit of
$94,000 was recorded in the second quarter associated with the release of the
valuation allowance.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis provides information which our management
believes is relevant to an assessment and understanding of our results of
operations and financial condition. This discussion should be read in
conjunction with the financial statements and notes thereto appearing elsewhere
herein.
Results of Operations
Net sales for the quarter ended July 31, 2000 were $2,536,857 a 40.9% increase
over our net sales of $1,800,113 for the quarter ended July 31, 1999. For the
nine months ended July 31, 2000 our net sales were $7,546,063 a 51.8% increase
over our net sales of $4,971,653 for the comparable nine months of fiscal 1999.
The increases can be attributed to the successful introduction of two new
thermal imaging products, the fixed high temperature process control camera
(Model 9100) and the portable hand held camera (model 7102). In addition, the
acquisition of E Square Technology in May 2000 contributed $279,000 in net sales
for the three and nine month periods ended July 31, 2000.
Our cost of sales as a percentage of net sales for the three and nine month
periods ended July 31, 2000 were 44.7% and 49.0% respectively, as compared to
44.0% and 45.9% for the three and nine month periods ended July 31, 1999. The
lower margins that we reported during the nine months ended July 31, 2000
reflected the sales transactions of our thermal imaging demonstration units that
we effected at cost with our sales representatives during that period.
Selling, general and administration expenses increased 21.6% and 6.9%,
respectively, to $1,021,634 and $2,684,902 for the three and nine month periods
ended July 31, 2000, as compared to $839,810 and $2,510,781 for the comparable
periods in fiscal 1999. These increases are a direct result of the E Square
Technology acquisition completed in May 2000.
Research and Development expenses for the quarter ended July 31, 2000 increased
by 114.6% to $309,299 as compared to $144,147 for the quarter ended July 31,
1999. The increase was the result of writing off $80,000 of previously
capitalized R&D expenditures as current period expense. The $80,000 adjustment
was necessitated based on management's conclusion that the project may not be
cost effective to pursue at this time. As for the nine month period ended July
31, 2000, Research and Development expenses increased by 60% to $795,162 as
compared to $496,456 for the same period last year. We continue to invest
approximately ten percent of net sales into Research and Development striving to
introduce new products into the market.
Royalty income for the three and nine months ended July 31, 2000, were $39,297
and $133,534 as compared to $24,993 and $98,993 for the three and nine month
periods ended July 31, 1999.
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These increases were due to greater sales of products by third parties which
incorporate technologies licensed by us.
Our income (loss) before the provision for income taxes for the three months and
nine months ended July 31, 2000 was $82,583 and $447,880 respectively. This
compares quite favorably to $47,392 and a loss of $(247,922) for the comparable
periods in fiscal 1999. This increase is a direct result of the 50% increase in
net sales.
Our effective tax rate for the three and nine month periods ended July 31, 2000
were 40% and 19%, respectively, which reflect the benefit of the release of the
$94,000 valuation allowance that we recorded in our second fiscal quarter. Our
effective tax rate for the comparable periods of fiscal 1999 was 0% since no
income tax benefit was recorded on losses.
Liquidity and Capital Resources
At July 31, 2000, we held $855,367 in cash and short term investments, and we
had $1,474,444 in accounts receivable. The decrease in cash and short term
investments resulted primarily from our investment in working capital to support
the continued growth of the Company.
Our working capital as of July 31, 2000 was $4,082,479 as compared to $3,714,400
at year end October 31, 1999. This increase was primarily a result of the
increase in our accounts receivable due to increased sales volume and the
addition of E Square Technology. The increases were partially offset by the
increase in short term portion of long term debt.
On May 4, 2000 we entered into a $1,000,000 term loan agreement with Fleet Bank
for the purpose of financing our acquisition of E Square Technology Corporation.
Under the terms of that agreement, the loan must be repaid in 36 monthly
installments of principal commencing June 1, 2000 and continuing through May 3,
2003.
As collateral security for our indebtedness under the working capital line of
credit and our obligation under the term loan agreement, we have granted a
security interest to the bank which covers virtually all of our assets. The term
loan agreement also contains a number of financial and other covenants which, if
not satisfied, could result in an acceleration of the maturity of our
indebtedness to the bank.
On May 4, 2000, we acquired the outstanding shares of E Square Technology, Inc.
for $1,022,000 in cash which was adjusted post-closing to $844,873. The
acquisition was accounted for as a purchase and cost was assigned to the net
assets acquired based on their estimated fair values at the date of acquisition.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Shareholders
The Company held its annual meeting of shareholders on July 24, 2000. As
of the June 19, 2000 record date of the meeting, there were a total of 4,288,200
shares of the Company's common stock outstanding and entitled to be voted at the
annual meeting. There were 3,997,003 shares (93.3%) present in person or by
proxy at the meeting.
The following directors were elected at the meeting:
Number of Shares
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Against or
Director For Abstained
------------------------- ----------- -----------
Gerald D. Posner 3,835,953 161,000
Dennis Stoneman 3,835,953 161,000
Keikhosrow Irani 3,835,953 161,000
William J. Eckenrode 3,835,953 161,000
Henry M. Rowan 3,835,953 161,000
Lawrence C. Karlson 3,835,953 161,000
Also at the Meeting, the shareholders ratified the selection of Arthur Andersen
L.L.P. as the Company's independent accountants for the fiscal year ending
October 31, 2000 by a vote of 3,837,343 shares (89.5%) in favor.
Item 6 Exhibits and Reports on Form 8-K
a. Exhibits
The following exhibit is filed as part of this report:
Exhibit 27 Financial Data Schedule
b. Reports on Form 8-K
The Registrant filed a Report on Form 8-K dated May 3, 2000 with
regard to its acquisition of E Square Technology, Inc.
The Registrant filed a Report on Form 8-K dated May 24, 2000 with
regard to the change of its accountants
The Registrant filed an amendment dated July 18, 2000 to its Report
on Form 8-K dated May 3, 2000 with regard to its acquisition of E
Square Technology, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
September 20, 2000
MIKRON INSTRUMENT COMPANY, INC.
By: /s/ Michael Brady
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Michael Brady, Chief Financial Officer (as
Registrant's duly authorized officer)
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