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EX-32.2 - EX-32.2 - MICRON SOLUTIONS INC /DE/micr-20191231xex32_2.htm
EX-32.1 - EX-32.1 - MICRON SOLUTIONS INC /DE/micr-20191231xex32_1.htm
EX-31.2 - EX-31.2 - MICRON SOLUTIONS INC /DE/micr-20191231xex31_2.htm
EX-31.1 - EX-31.1 - MICRON SOLUTIONS INC /DE/micr-20191231xex31_1.htm
EX-10.80 - EX-10.80 - MICRON SOLUTIONS INC /DE/micr-20191231xex10_80.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C.  20549

________________________________________________

FORM 10-K

________________________________________________



          Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2019 



           Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

001-9731

(Commission file number)

MICRON SOLUTIONS, INC.

(Name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation of organization)

 

72-0925679

(IRS Employer Identification Number)

25 Sawyer Passway,  Fitchburg,  MA

(Address of principal executive offices)

 

01420

(Zip Code)



(978)  345-5000

(Registrant's telephone number)

________________________________________________



Securities registered pursuant to Section 12(b) of the Act:



SES

 

 



 

 

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock, $0.01 par value

MICR

NYSE AMERICAN



Securities Registered pursuant to Section 12 (g) of the Act:

None

________________________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 if the Securities Act.  Yes     No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  Yes     No 

Indicate by check mark whether the registrant (1) 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     No 

Indicate by check mark whether the registrant has submitted electronically every interactive data file required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes     No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large Accelerated filer         Accelerated filer        Non‑Accelerated filer        Smaller reporting company 

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was $7,063,813.

On March 30, 2020, there were 2,906,609 shares of the registrant's common stock, par value $.01, outstanding, which is the only class of common or voting stock of the issuer.



DOCUMENTS INCORPORATED BY REFERENCE

None

 


 

Micron Solutions, Inc. and Subsidiary



TABLE OF CONTENTS    





 

 

 

 



 

Part I

Item 1

Business

 

 

Item 1A

Risk Factors

 

 

Item 1B

Unresolved Staff Comments

 

 

Item 2

Properties

 

 

Item 3

Legal Proceedings

 

 

Item 4

Mine Safety Disclosures

 

Part II

Item 5

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

 

Item 6

Selected Financial Data

 

 

Item 7

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

Item 7A

Quantitative and Qualitative Disclosures about Market Risk

 

 

Item 8

Financial Statements and Supplementary Data

 

 

Item 9

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

 

 

Item 9A

Controls and Procedures

 

 

Item 9B

Other Information

 

10 

Part III

Item 10

Directors, Executive Officers and Corporate Governance

 

11 

 

Item 11

Executive Compensation

 

14 

 

Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

17 

 

Item 13

Certain Relationships and Related Transactions and Director Independence

 

19 

 

Item 14

Principal Accounting Fees and Services

 

20 

Part IV

Item 15

Exhibits, Financial Statement Schedules

 

21 



Item 16

Form 10-K Summary

 

21 

 

 

Signatures

 

22 

Exhibit Index

 

 

23 



Micron Solutions®, Micron Products® and our other registered or common law trademarks, service marks or trade names appearing in this Annual Report on Form 10-K are the property of Micron Solutions, Inc. and/or Micron Products, Inc..  Other trademarks and trade names referred to in this annual report on Form 10-K are the property of their respective owners.

 



 

 


 

PART I



Item 1. BUSINESS



Overview



Micron Solutions®, Inc., a Delaware corporation ("Micron Solutions”), through its wholly-owned Massachusetts operating subsidiary, Micron Products®, Inc. (“Micron” and together with Micron Solutions, the "Company"), is a diversified contract manufacturing organization (“CMO”) that produces medical device,  military, and automotive components and assemblies requiring precision machining and custom injection molding.

 

Micron provides design, engineering, quality and regulatory expertise across the Company’s three product lines, machining, thermoplastic injection molding and sensors, with fulfillment systems using proprietary manufacturing processes to enable the Company’s customers to be competitive. The Company competes globally, with approximately 37% of its revenue derived from exports.



Contract Manufacturing



Machining



The Company is a contract manufacturer of machined components, primarily for original equipment manufacturers (OEMs) in the medical device industry as well as the defense industry.  The Company machines components for implants and instruments for medical devices including large joint replacements, wrist plates, rib fixation plates, and screws. Specialized components used in Total Knee Arthroscopy including femoral surface replacements, tibia trays, ultra-high-molecular-weight polyethylene (“UHMWPE”) inserts, trials and instrumentation as well as hip stems and fixation plates used in rib and wrist fractures are fabricated, machined and polished, heat treated and passivated at Micron.  The manufacturing process includes computer aided design ("CAD"), computer-aided manufacturing (“CAM”), and computer numerical controlled ("CNC") machining.  The Company deploys the latest technologies in computer-aided design, computer aided manufacturing (CAD/CAM) methodology, and up to 11-axis CNC vertical milling, mill-turning and wire electrical discharge machining (“EDM”).   Additional capabilities include laser marking, automated polishing, passivation, and coatings.  The Company also offers contract inspection and packaging in its own clean room facilities.



Thermoplastic Injection Molding



The Company's custom thermoplastic injection molding services meet the needs of customers who require very high quality parts, clean room molding, in-cycle vision inspection, assembly and packaging to tight tolerances using engineered materials. The Company adds value with highly repeatable and reliable manufacturing with ongoing innovations for cost improvements. 



Other Products and Services



The Company provides its customers with key value added services, including the design, manufacture, and rehabilitation of injection molding tools. These capabilities leverage significant cost savings and speed by vertically integrating mold making and repair into the Company’s sensor and thermoplastic injection molding businesses. The Company’s engineers and mold designers work with customers’ product development engineers to design and produce unique tooling for their products.



Other value added services include pad printing, ultrasonic welding, stamping, laser marking, clean room molding, clean room assembly, specialty coatings, plastic machining, and high-precision optical and CMM metrology.



Sensors



Micron is a leading manufacturer and distributor of silver-plated and non-silver plated conductive resin sensors for use in the manufacture of disposable electrodes for electrocardiogram ("ECG") diagnostic, monitoring and related instrumentation. Micron's sensors consist of a molded plastic substrate plated with a silver/silver chloride surface, which is a highly sensitive conductor of electrical signals. Silver/silver chloride-plated disposable electrodes are utilized in coronary care units, telemetry units, and for other monitoring purposes.



Micron also manufactures sensors and conductive plastic studs used in the manufacture of radio translucent electrodes. The radio translucent conductive plastic studs are manufactured with uniquely engineered resin to enable electrical conductivity between the sensor and the recording instrument without the use of a metal snap. Other custom designed sensors are manufactured for specific unique applications in the electroencephalogram (EEG), electro-muscular stimulation (EMG) or thermo-electrical neural stimulation (TENS) markets.



1


 

Customers and Net Sales



The Company offers its products and services to customers of all sizes, including large OEM’s and other contract manufacturing organizations.  The Company manufactures products upon receipt of purchase orders. 

 

During the year ended December 31, 2019, the Company had net sales to two customers constituting 18% and 10% of total net sales. During the year ended December 31, 2018,  the Company had net sales to three customers constituting 18%, 12% and 10%, respectively, of total net sales.



During the year ended December 31, 2019 approximately 69% of the Company’s net sales were to customers in the medical device industry.  During the year ended December 31, 2018, medical device net sales were approximately 75% of total net sales. The Company also had net sales to customers in the automotive, industrial, consumer products, and military and law enforcement industries. 



The Company competes globally, with approximately 37% of its revenue derived from exports in 2019.  While some risks exist in foreign markets, the Company’s customers have historically been based in stable regions.   The Company has agreements with certain foreign customers to hold inventory at customer locations where title transfers and revenue is recognized when the product is consumed by the customer.  Accounts receivable insurance is used where available and appropriate to reduce risk in these markets.



The extent of the impact of COVID-19 on our customers, we believe, will depend largely on future developments, including new information that may emerge concerning the severity and actions taken to contain or prevent further spread both within the United States and globally.



Marketing and Competition 



The Company's U.S. based contract manufacturing capabilities are offered globally to the medical, defense and automotive markets. Core competencies include, FDA, ITAR PPAP, ATF compliance, speed to market for high precision, tight tolerance injection molded parts, molding tools, CNC machining, assembly service and specialty packaging. The Company develops long-term value-based relationships based upon highly personalized interactions with our clients. The Company utilize a proprietary process for new product launches for complex engineered products. Many of these products require specialty material, such as engineered resins, exotic metals, secondary coatings and polishing processes, complex automation and metrology equipment. The Company has an experienced engineering and technical team that leverages decades of process knowledge and lean manufacturing principles. To remain competitive, the Company continuously invests in training and education for its workforce, in automation and specialty software for enterprise resource planning and in quality systems management.



The Company's sales force is comprised of direct sales and independent sales representatives. As part of a total marketing and sales strategy the Company continually invests in website enhancements, social media campaigns and software tools together with a variety of internet marketing and lead generation programs.



The Company competes primarily against one other manufacturer in the sensors market and against a multitude of contract manufacturers for its other product lines.    



Manufacturing and Suppliers



The Company has registered its facilities with the U.S. Food and Drug Administration ("FDA") and has an ITAR registration with the U.S. State Department.  It is ISO 13485:2003 registered and compliant to 21CFR part 820The Company is also a licensed ATF manufacturer with the Bureau of Alcohol, Tobacco, Firearms and Explosives.  Injection molding capabilities  include ISO class 7 clean room manufacturing. Machining, mold making and tooling capabilities include up to 11 axis CNC machining, wire electrical discharge machining ("EDM"), milling, turning, grinding, polishing, cleaning, passivation, assembly and packaging. Surface coating capabilities include electroless and electrolytic silver plating.  A skilled employee base provides expertise in engineering, complex manufacturing, materials, process control, quality and automation.



The Company uses commodity raw materials as the basis for its value-added manufacturing operations. Many of these commodities are widely available from multiple sources. The Company monitors the supply chain for commodity materials to manage availability in case of breaks in the global supply chain.  



Due to the outbreak of the COVID-19 virus, we are closely watching lead times and availability of material, especially those materials that our suppliers purchase from outside the United States.



Patents and Proprietary Technology



The Company develops and utilizes proprietary manufacturing processes to establish and maintain a competitive advantage. With internal engineering, mold making, automation and manufacturing expertise, the Company has developed specialized processes

2


 

throughout the product development and product manufacturing cycle.  In July 2018, the Company was awarded a U.S. Patent for an invention which improves the high-low pressure system in 40MM M212 casing used in military, law enforcement and other markets.  Under a multi-year exclusive supply agreement with a Company’s customer, the patent rights and obligations are shared equally.



Government Regulation



The Company's operations are subject to government regulations which establish compliance standards.  The FDA and the European Union equivalent ("CE Mark") promulgate quality systems requirements under which a medical device is to be developed, validated and manufactured. The DOD, Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) and the State Department impose regulations on the production and transfer of certain goods and technical data.  The development or manufacture of such products must be managed in accordance with applicable regulatory requirements and special controls required by customers. The Company's manufacturing facilities are subject to periodic inspections by the FDA and other agencies to determine compliance with regulations and other requirements.



Environmental Regulation



The Company's operations involve use of hazardous and toxic materials and generate hazardous, toxic and other regulated wastes.  Its operations are subject to federal, state and local laws, regulations and directives governing the use, storage, handling and disposal of such materials and certain waste products.  Micron has developed an internal system of compliance as well as retained independent environmental consulting firms to regularly review, monitor and upgrade its air and waste water treatment facilities.  The Company has introduced several new initiatives including the use of solar energy and energy efficient machinery and lighting to benefit from renewable energy generation and reduce overall costs associated with production. The Company employs best practices to reduce waste from its manufacturing operations and reclaims, recovers, and reuses materials to reduce pollutants and to minimize the impact on the environment. 



Employees



As of December 31, 2019, the Company had a total of 86 employees, of which 82 were full time employees.



Available Information



The Company was originally incorporated under the name Arrhythmia Research Technology, Inc. under the laws of the State of Louisiana in 1981 and reincorporated under the laws of the State of Delaware in 1987. The Company makes available through its website the annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports as soon as reasonably practical after filing with the SEC. The Company’s website address is http://www.micronsolutionsinc.com. Information on the Company's website is not part of this Annual Report on Form 10-K.



Item 1A. RISK FACTORS



Smaller reporting companies are not required to provide the information required by this item.



Item 1B. UNRESOLVED STAFF COMMENTS



Smaller reporting companies are not required to provide the information required by this item.



Item 2. PROPERTIES



The manufacturing facilities and offices of the Company are located in two buildings in an industrial area in Fitchburg, Massachusetts. The first building consists of approximately 22,000 square feet on six stories. The second building is over 94,000 square feet.  The property on which the two buildings are situated is subject of a mortgage in favor of the Company’s asset based lender entered into in December 2017.  See Note 7 to the consolidated financial statements.  The Company believes its current facilities are sufficient to meet current and future production needs. 



Item 3. LEGAL PROCEEDINGS



None.



Item 4. MINE SAFETY DISCLOSURES



Not applicable.

 

3


 

PART II



Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES



Market Information



The Company's common stock has been listed on the NYSE American since 1992 and currently trades under the ticker symbol MICR.  On March 16, 2020, the Company notified the NYSE American of its intent to delist from the NYSE American.  On March 26, 2020, the Company filed a Form 25 with the SEC seeking to voluntarily delist from the NYSE American and anticipates that it will be delisted from the NYSE American on or about April 6, 2020 and begin trading on the OTCQB under the symbol “MICR”.



Holders



As of March 11, 2020, the number of record holders of the Company's common stock was 180.



Item 6. SELECTED FINANCIAL DATA



Smaller reporting companies are not required to provide the information required by this item.

 

4


 

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The following discussion of the Company’s results of operations and financial condition should be read in conjunction with the consolidated financial statements and notes pertaining to them that appear elsewhere in this Form 10-K. Any forward-looking statements made herein are based on current expectations of the Company that involve a number of risks and uncertainties and should not be considered as guarantees of future performance.  These statements are made under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements may be identified by the use of words such as “expect,” “anticipate,” “believe,” “intend,” “plans,” “predict,” or “will”. Although the Company believes that expectations are based on reasonable assumptions, management can give no assurance that the expectations will materialize.  Many factors could cause actual results to differ materially from the Company’s forward-looking statements.  These factors include the following, among other matters:  the Company's ability to obtain and retain order volumes from customers who represent high proportions of revenue; the Company's ability to maintain the pricing model, offset higher costs with price increases and/or decrease the cost of sales; the variability of customer delivery requirements and the ability of the Company to anticipate and respond thereto; the level of sales of higher margin products and services and the Company's ability to increase such sales; volatility in commodity and energy prices; the Company's level of debt and provisions in its credit agreement which could limit the Company's ability to react to changes in the economy or its industry; the Company's ability to comply with the financial and other covenants contained in its credit agreement, including as a result of events beyond its control, which could result in an event of default; the Company’s reliance on revenue from exports and the impact on the Company’s financial results due to economic uncertainty and disruption including, but not limited to, recent events concerning COVID-19, changes in trade policy and tariffs, tax laws and regulations, or downturns in foreign and domestic markets; and continued availability of supplies or materials used in manufacturing at competitive prices.  The Company is under no obligation and does not intend to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of any unanticipated events.



Results of Operations



The following table sets forth, for the periods indicated, the percentages of the net sales represented by certain items reflected in the Company's consolidated statements of operations.







 

 

 

 

 

 



 

Year Ended



 

December 31,



 

2019 

 

 

2018 

 

Net sales 

 

100.0 

%

 

100.0 

%

Cost of sales 

 

89.9 

 

 

88.1 

 

Gross profit 

 

10.1 

 

 

11.9 

 

Selling and marketing 

 

3.6 

 

 

3.7 

 

General and administrative 

 

15.8 

 

 

11.5 

 

Research and development 

 

0.5 

 

 

0.5 

 

Other expense

 

2.4 

 

 

1.7 

 

Loss before income tax provision (benefit)

 

(12.2)

 

 

(5.5)

 

Income tax provision (benefit)

 

 —

 

 

 —

 

Net income (loss)

 

(12.2)

%

 

(5.5)

%



Net Sales







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Net sales

 

2019

 

2018

 

$ Change

 

% Change

Twelve months ended December 31,

 

$

17,499,364 

 

$

19,564,981 

 

$

(2,065,617)

 

(10.6)%



The decrease in consolidated net sales for 2019 versus 2018 was due primarily to decreased net sales of sensors and thermoplastic injection molding (“injection molding”) partly offset by increases in net sales of tooling and of machined components. 



Net sales of sensors decreased approximately 21.7% for the year ended December 31, 2019, as compared to the prior year, primarily due to decreased sales to three customers.



Net sales of injection molding declined approximately 10.3% for the year ended December 31, 2019, as compared to the prior year, largely due to decreases in sales to two medical device customers and a decrease in sales to an automotive parts customer.  The medical device declines were the result of decreased product demand.



5


 

Net sales of machining components increased by 7.7% for the year ended December 31, 2019, as compared to the prior year, primarily due to increased sales of military parts, partially offset by a decrease in medical parts sales for one customer for whom there was unusually high volume in 2018 related to relocation logistics.



 Net sales of tooling increased 95.7% for the year ended December 31, 2019, as compared to the prior year, due to the completion of more major tooling projects in 2019 than in 2018.



Gross Profit







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

2019

 

2018

 

$ Change

 

% Change

Twelve months ended December 31,

 

$

1,761,895 

 

$

2,323,692 

 

$

(561,797)

 

(24.2)%

As a percentage of sales

 

 

10.1% 

 

 

11.9% 

 

 

 

 

 



The decrease in consolidated gross profit for the year ended December 31, 2019 versus 2018 was primarily due to the $2.065M overall sales decrease.  Gross profit margins declined slightly for sensors, injection molding, and machining and increased significantly for tooling. The margin decrease was primarily due to product mix for machining and primarily due to a decline in absorbed overhead, related to the decline in sales, for both sensors and custom molding.



Selling and Marketing



The Company's consolidated selling and marketing expenses decreased to $636,170 (3.6% of net sales) in 2019 from $730,863 (3.7% of net sales) in 2018, a 13% decrease of $94,692.  For the year ended December 31, 2019, the decrease was primarily due to decreased trade show presence and sales prospecting services.  Outside sales representatives have replaced these activities as a  means of sourcing new business.



General and Administrative Expenses



The Company's consolidated general and administrative expenses increased to $2,760,786  (15.8% of net sales) in 2019 compared to $2,243,595 (11.5% of net sales) in 2018, a  23% increase of $517,192 year over year.  Approximately $200,000 of the increase relates to new management team salaries, including a new position of Vice President of Operations.  An additional $130,000 was for severance related costs.  Additional general and administrative expense increases include costs of financial consulting, legal costs related to the sale of two buildings, SEC matters, and increased stock compensation costs.    

 

Research and Development



The Company's consolidated research and development expenses decreased to $80,357 (0.5% of net sales) in 2019 from $106,814 (0.5% of net sales) in 2018,  a decrease of $26,457, or 25.8%, due to organizational restructuring. 



Other Income (Expense)



Other expense, net, was $425,718 in 2019 compared to $338,559 in 2018, an increase of $87,161.  Interest expense was $431,544 in 2019 compared to $391,437 in 2018, an increase of $40,107.  Interest expense on subordinated promissory notes, issued in July 2019, was $25,206.  Interest expense on the Revolving Line of Credit (“Revolver”) increased $22,085 and interest expense for the Company’s term loans decreased $11,456.  Deferred Financing amortization costs were $67,723 in 2019 compared to $62,120 in 2018, an increase of $5,602.  Other income was $22,500 in 2019 compared to $45,991 in 2018, the decrease primarily due to the elimination of fees collected for the costs of maintenance on two buildings that were sold during 2019.



Income Tax Provision



The tax provisions for the years ended December 31, 2019 and 2018 are attributable to the U.S. federal and state income taxes. The Company’s combined federal and state effective income tax rate was 0% in 2019 and 2018 due to the impact of deferred tax assets reserved for with a valuation allowance.



Earnings Per Share



Consolidated basic and diluted loss per share for the year ended December 31, 2019 was $0.74 per share compared with a loss per share of $0.39 per share for the year ended December 31, 2018, an increase in loss per share of $0.35.  The change in loss per share for the year ended December 31, 2019, is due largely to the sales decrease of $2,065,617 and a $517,192 increase in general and administrative expenses as compared to the prior year period. 



6


 

Commitments and Contingencies



No lease assets or liabilities have been recognized under ASC 842 in these financial statements as management has determined the individual leases to be immaterial.  Lease expense under all operating leases was $20,613 and $24,033 for the years ended December 31, 2019 and 2018, respectively.  Future minimum lease payments for the years ending December 31 are as follows:





 

 

2020

$

18,851

2021

$

10,996



 

Liquidity and Capital Resources



Working capital was a deficit position of $1,182,868 at December 31, 2019 compared to a positive working capital of $2,455,498 at December 31, 2018, a decrease of $3,638,366.  The decrease is primarily due to reclassification of approximately $3,100.000 of term notes payable from long-term to current liabilities, a $1,216,411 decrease in inventory, a $688,750 decrease due to the 2019 sale of two buildings classified as held-for-sale, a $173,550 decrease in accounts receivable and a $131,026 decrease in pre-paid expenses,  partially offset by a $751,293 decrease in the Revolver, a $555,329 decrease in contract liabilities, and a $371,833 decrease in accounts payable. 

 

Cash on hand was $503 and $1,715  at December 31, 2019 and 2018, respectively.  Cash on hand is kept low due to the Company’s credit agreement providing that deposits be swept daily against the revolver.

 

Trade accounts receivable, net of allowance for doubtful accounts were $2,152,254 and $2,325,804 at December 31, 2019 and December 31, 2018, respectively, a decrease of $173,550.  The decrease is primarily due to lower sales in the fourth quarter of 2019 when compared to the fourth quarter of 2018



Inventories were $2,468,648 at December 31, 2019 as compared to $3,685,059 at December 31, 2018,  a decrease of $1,216,411 due largely to a decrease in work-in-process inventory related to closed tooling projects, overall decreased sales, and procedures implemented to tighten inventory levels



Accounts payable decreased by $359,230 for the year ended December 31, 2019 as compared to December 31, 2018, primarily due to reductions in inventory purchases with the decrease in sales.  Accrued expenses and other current liabilities decreased $83,367 primarily related to compensation related accruals.  Contract liabilities decreased $555,530 due to the closing of several tooling projects.



Capital equipment expenditures were $169,131 in 2019 as compared to $801,884 in 2018. 2019 capital purchases were primarily for manufacturing robotics, automated quality systems, and Company-owned sensors tooling.  2018 capital purchases were primarily for replacement equipment, robotics upgrades and new equipment for machining operations.



On December 29, 2017, the Company entered into a three-year $9,500,000 credit agreement (the “Credit Agreement”) with  Rockland Trust Company, replacing the credit facility and forbearance agreement with the Company’s previous lender.  The Credit Agreement includes a revolving line of credit of up to $5.0 million (“Revolver”), a machinery and equipment term loan of $2.5 million (“Equipment Loan”) and a real estate term loan of $2.0 million (“Real Estate Loan” and together with the “Equipment Loan” the “Term Loans”). 



At December 31, 2019, the Company’s total debt, net of debt issuance costs, was $5,301,909 as compared to  $5,972,470 at December 31, 2018, a decrease of $670,561 or 11.2%.  The total outstanding debt at December 31, 2019 and 2018 was comprised of outstanding principal amounts of $3,557,458 and $3,946,878 of Term Loans, net of debt issuances costs, respectively, and $1,274,299 and $2,025,592 due on the Revolver, respectivelyApproximately $3,100,000 of long-term notes payable converted to short-term with balloon payments due and payable in full upon maturity on December 29, 2020.

Additionally, the Company entered into subordinated debt agreements in July 2019, receiving proceeds in the amount of $500,000.    See Note 6 to the consolidated financial statements.



No dividends were declared or paid in 2019 or 2018.



Cash flows from operations, together with existing working capital, booked orders, expense management, the Revolver and alternative financing options, which may include a sale/leaseback of certain real estate and equipment, or the sale of other assets, will be sufficient to fund operations at current and projected levels and to repay debt obligations over the next twelve months. However, there can be no assurance that the Company will be able to do so.



7


 

Summary of Changes in Cash Position



At December 31, 2019, the Company had cash on hand of $503, a decrease of $1,212 from December 31, 2018. The Company’s credit agreement provides for daily sweeps of cash on hand against the revolver.   Net cash provided by operating activities in 2019 totaled $180,419. Net cash provided by investing activities in 2019 was $526,805, primarily the result of the sale of two buildings. Net cash used in financing activities in 2019 totaled $708,436. The net cash flows for the year ended December 31, 2019 are discussed in further detail below.



Operating Cash Flows



Net cash provided by operating activities in 2019 was $180,419, a result of the net loss, changes in working capital components and non-cash add-backs, primarily depreciation and amortization.  Net cash provided by operating activities in 2018 was $505,803.  The decrease from year to year was primarily attributable to the increased net loss.    



Investing Cash Flows



Net cash provided by investing activities in 2019 was $526,805.  $169,131 was spent on capital equipment investments, including robotics, automated quality systems and sensors tooling.  Proceeds of $663,334 were received upon the sale of two buildings.  Net cash used in investing activities in 2018 was $796,185, primarily for capital expenditures of machining operations equipment and sensors molding tools.  



Financing Cash Flows



Net cash used in financing activities in 2019 was $708,436.  Cash used in financing activities was for $457,143 in payments on term loans and the $673,029 reduction of the Revolver balance, partially offset by $500,000 in proceeds from subordinated notes payable. 



COVID-19



On January 30, 2020, the World Health Organization declared that the recent coronavirus disease (“COVID-19”) outbreak was a global health emergency.  On March 11, 2020 the World Health Organization raised the COVID-19 outbreak to pandemic status.  Management is actively monitoring the global situation on its financial condition, liquidity, operations, customers, supplies and workforce and, given the daily evolution of COVID-19 and the global and local responses to curb its spread, the Company is uncertain as to what effects COVID-19 will have on its customers, suppliers, and workforce and the Company’s results of operations, financial condition, or liquidity. 



Inflation



The Company believes that inflation in the United States or international markets has not had a significant effect on its results of operations for the fiscal years ended 2019 and 2018.  However, there has been considerable volatility in both energy and commodity prices, particularly the cost of silver.



Critical Accounting Policies



The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported.  Note 2 to the consolidated financial statements describes the significant accounting policies used in the preparation of the consolidated financial statements.  Some of these significant accounting policies are considered to be critical accounting policies, as defined below.



A critical accounting policy is defined as one that is both material to the presentation of the Company’s financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on the Company’s financial condition and results of operations.  Specifically, critical accounting estimates have the following attributes: 1) the Company is required to make assumptions about matters that are highly uncertain at the time of the estimate; and 2) different estimates the Company could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on the Company’s financial condition or results of operations. Estimates and assumptions about future events and their effects cannot be determined with certainty.  The Company bases its estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances.  These estimates may change as new events occur, as additional information is obtained and as the Company’s operating environment changes.  These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known.  In addition, management is periodically faced with uncertainties, the outcomes of which are not within its control and will not be known for prolonged periods of time.  Based on a critical assessment of its accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes

8


 

that the Company’s consolidated financial statements are fairly stated in accordance with generally accepted accounting principles, and present a meaningful presentation of the Company’s financial condition and results of operations.



Management believes that the following are critical accounting policies.  See Note 2 to the consolidated financial statements for application and impact of these accounting policies to the Company.



·

Revenue recognition

·

Inventory valuation; and

·

Deferred tax assets.

 

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Smaller reporting companies are not required to provide the information required by this item.



Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



The information required by this item may be found on pages F-1 through F-20 of this Annual Report on Form 10-K.



Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES



None.



Item 9A. CONTROLS AND PROCEDURES



Evaluation of Disclosure Controls and Procedures



As of the end of the period covered by this annual report  the Company's management, with the participation of the Company's principal executive officer and principal financial officer (“the Certifying Officers”), conducted evaluations of the Company's disclosure controls and procedures as defined under Rules 13a-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon the evaluations, the Certifying Officers have concluded that as of December 31, 2019, the Company's disclosure controls and procedures were effective.



Management’s Report on Internal Control Over Financial Reporting



The Company's Certifying Officers are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15(d)-15(f) of the Exchange Act.



Internal control over financial reporting is a process designed by, or under the supervision of, the Certifying Officers and effected by the Company's Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

·

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company's assets;

·

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Company's receipts and expenditures are being made only in accordance with authorizations of the Company's management and directors; and

·

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition or disposition of the Company's assets that could have a material effect on the financial statements.



Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations.  It is a process that involves human diligence and compliance and is subject to lapses in judgment or breakdowns resulting from human failures.  Internal control over financial reporting also can be circumvented by collusion or improper management override.  While process safeguards can reduce risks, because of inherent limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



The Company, under the supervision and with the participation of the Certifying Officers, has evaluated the effectiveness of the Company's internal control over financial reporting as of December 31, 2019 based upon the framework in Internal Control

9


 

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on such evaluations, the Certifying Officers have concluded that the Company's internal control over financial reporting was effective as of December 31, 2019.  



Changes in Internal Control Over Financial Reporting



During the three months ended December 31, 2019, there have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 



Item 9B. OTHER INFORMATION



None.

10


 

PART III



Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE



Directors and Executive Officers 

The current directors and executive officers of the Company are as follows:



 

irector

 

 

 

 

Name

 

Age

 

Title

Jason R. Chambers

 

42

 

Director

William J. Laursen

 

49

 

President, Chief Executive Officer and Director

Marco F. Benedetti

 

60

 

Director

Rodd E. Friedman

 

53

 

Director

Robert A. Mello

 

66

 

Director

Andrei Soran

 

60

 

Chairman of the Board

Wayne M. Coll

 

56

 

Chief Financial Officer, Treasurer and Secretary



Set forth below are descriptions of the backgrounds of the executive officers and directors of the Company and their principal occupations for the past five years.

Jason R. Chambers.  Mr. Chambers has served as a director of the Company since 2006.  He served as Chairman of the Board from July 2016 through May 2019.  Mr. Chambers has served as VP Business Development for DS Services of America, Inc. from January 2020 to present.  Mr. Chambers previously served as President of Mountain Brook Water, a water bottling and distribution company, from 2002 to 2019, and from 2001 to present has served as a consultant assisting The Chambers Medical Foundation, a private foundation (the "Foundation"), in assessing medical grant applications. Mr. Chambers was appointed Trustee of the Foundation in 2011.  Mr. Chambers holds a Bachelor of Science degree from Vanderbilt University School of Engineering and a Masters of Business Administration degree from Owen Graduate School of Management, Vanderbilt University with a concentration in finance and marketing.  Mr. Chambers is a member of Vanderbilt’s School of Engineering Board of Visitors. 

Mr. Chambers brings over 15 years of practical business and finance experience as a  president and vice president of growing enterprises, with knowledge of and relationships with the medical community through his non-profit activities.  His advanced degree in business administration and finance experience qualify him to serve on the Company's Audit Committee.

William J. Laursen.    Mr. Laursen has served as the Company’s President, Chief Executive Officer and Director since November 28, 2018.  From January 2012 to November 2018 he was the Executive Vice President, Sales and Strategy of The Coghlin Companies, Inc., a privately held, time to market services company, offering engineering, prototyping and contract manufacturing of complex electro-mechanical and electro-optical devices and equipment for a variety of markets including military and medical devices.  From April 2003 until October 2009, Mr. Laursen served as President and BOA member for M2 America Corp. an engineering and manufacturing firm focused on Optical media manufacturing equipment. Since 2009, Mr. Laursen has also been a principal of MAKS, LLC, a project oriented company that provides strategic planning, business development and systems implementation.

Mr. Laursen brings over 25 years of experience focused on innovation in highly automated manufacturing environments in many industries such as medical devices, instrumentation, plastics, consumables and consumer products as well as experience in contract manufacturing.  His expertise in business development, sales and marketing, strategic development and operations make him well suited to serve as a member of the Board of Directors.  As the only management representative on the Company's Board, Mr. Laursen provides an insider's perspective to the Board about operations and strategy of the Company.

Marco F. Benedetti.  Mr. Benedetti has served as a director since July 2015.  Mr. Benedetti is currently Vice President for Business & Finance and Treasurer of Canisius College, a private college based in western New York with 4,000 full time students and a $100 million annual operating budget. Prior to joining Canisius College in 2013, Mr. Benedetti served nearly ten years at Greatbatch, Inc., a publicly-traded global manufacturer of components for medical devices for a variety of applications. He held a number of senior financial roles there, including Vice President of Finance - Financial Planning and Analysis, Investor Relations and Treasurer. Before that, Mr. Benedetti held senior finance positions at Ashton-Potter, U.S.A. LTD and International Imaging Materials, Inc. Mr. Benedetti is a certified public accountant and began his career at KPMG, LLP. He received a Masters of Business Administration and a Bachelor of Science in Business Administration from the State University of New York at Buffalo.

Mr. Benedetti brings over 30 years of financial and operational experience from medical device manufacturing, technology printing and public auditing. During that time, he built and led global operational, accounting and finance teams, directed strategic planning initiatives, analyzed and supported multiple acquisitions, identified growth and efficiency opportunities, and drove financial results.  His advanced degree in business administration, and finance experience, qualify him to serve as a member of the Company’s Audit Committee.

11


 

Rodd E. Friedman.  Mr. Friedman has served as a director of the Company since his appointment on July 21, 2017.  Mr. Friedman is the founder and managing member of REF Securities & Co. (“REF”), a private investment firm.  Mr. Friedman, through REF, has been principally engaged in investing in public and private equities and derivatives since 1991.   Prior to founding REF, Mr. Friedman was employed as an options trader at O’Connor and Associates, a market maker on the American Stock Exchange. Mr. Friedman received a Bachelor of Science in Finance from NYU Stern School of Business.

Mr. Friedman brings a background in finance with over 25 years of experience investing in private and publicly traded companies, including conducting due diligence, analyzing financial statements and assessing strategic options, which qualify him to serve as a director of the Company. 

Robert A. Mello. Mr. Mello has served as a director since April 2015. Mr. Mello has served as the Vice President and Chief Operating Officer of Advanced Instruments, Inc., a leading supplier of instrumentation for clinical, pharmaceutical, biotechnology and microbiology laboratories around the world, from July 2013 to December 2018. From April 2000 to July 2013, Mr. Mello was employed as Corporate Vice President of IRIS International, Inc. and President of its IRIS Sample Processing division. Iris International is a leading provider of automated urinalysis instrumentation and bench top centrifuge products for use in major medical institutions, commercial laboratories, clinics, doctors' offices and research institutions. From 1988 to 2000, Mr. Mello was an operations executive with bioMerieux, which designs, manufactures and markets medical instruments and consumables, including from 1996 to 2000 as its Vice President of Operations at their Boston Immunodiagnostics facility and Vice President of Disposables Manufacturing-Clinical Microbiology. Prior to joining bioMerieux, Mr. Mello served as Vice President of Operations for Medical & Scientific Designs, Inc., an in-vitro diagnostics company where he joined the founding team in 1983 and as a Senior Technical Support Engineer at Ortho Diagnostics, Inc., a division of Johnson & Johnson. Mr. Mello is affiliated with the Diagnostics Marketing Association (DXMA), American Management Association (AMA), American Production and Inventory Control Society (APICS), and is certified in Production and Inventory Management (CPIM). He received his Management, B.S. degree from Lesley University, and his Electrical Engineering, ASEE degree from Bristol College.

Mr. Mello brings over 40 years of experience in startup and turn around operations for both small entrepreneurial companies and large public corporations in the medical diagnostics industry including instrumentation and consumables. Throughout his career he has directed all aspects of R&D, marketing, sales, manufacturing, engineering, QA/RA, materials, distribution, finance and facilities management. Mr. Mello has broad M&A experience from due diligence through deal negotiation to successful integration.

Andrei Soran.  Mr. Soran has served as a director of the Company since December 8, 2017.  He was elected to Chairman of the Board at the Company’s May 23, 2019 Annual Meeting.  Mr. Soran served from May 2019 to September 2019 as CEO of Trident USA Health, the largest provider of mobile diagnostic services in Post Acute Care. The company employs Physicians, Nurse Practitioners, Radiology Technicians, and Phlebotomists providing services at the sites where the patients reside.  He served as the CEO of Novaseek Research, Inc. (“Novaseek”), since August 2017.  Novaseek is a provider of cloud-based Clinical Data Network for Research (“CDNR”) services.  Before Novaseek, he served from July, 2016 to July, 2017 as the CEO and from April, 2016 to July, 2016 as the President and Chief Operating Officer of Verity Health Systems, a Redwood City, California multi-facility hospital, and healthcare network.  Mr. Soran previously served from July, 2014 to April, 2016 as COO and Executive VP at Tenet Healthcare Corporation’s (“Tenet”) Detroit Medical Center.  He also served from August, 2013 to June, 2014, as president of Tenet’s, Huron Valley-Sinai Hospital, DMC Surgery Hospital.  Prior to Tenet, from April, 2006 to June, 2013, Mr. Soran served as CEO of Framingham, Massachusetts based MetroWest Medical Center, a Vanguard Health Systems facility.  Vanguard was acquired by Tenet in 2013.  Mr. Soran holds a Bachelor degree in Physical Therapy from Tel Aviv University in Israel and a Master’s degree in Business Administration and Management from Boston University-Metropolitan College.

Mr. Soran brings over 20 years of experience in hospital operations, strategy and long-term planning, with the medical and medical device community, as well as in corporate financial and operational restructuring and private equity, making him well suited to serve as a director of the Company.

Wayne M. Coll.  Mr. Coll has served as the Chief Financial Officer, Treasurer and Principal Accounting and Financial Officer of the Company since July 15, 2019.  Mr. Coll, was engaged from October 2018 to May 2019 as Chief Financial Officer of Keystone Dental, Inc, a privately-held medical device manufacturer. From October 2013 to September 2018, Mr. Coll served as Chief Financial and Operating Officer of Modern Dental Laboratory, USA LLC, a manufacturer of medical devices and the North American unit of the publicly-traded Modern Dental Group Limited (HKEX:3600).  Beginning in November 2011, Mr. Coll served as Chief Financial Officer of Pluromed, Inc. a medical device manufacturer acquired by Genzyme Corporation, where he continued until September 2013. From October 1990 to May 2011 Mr. Coll held a variety of senior financial management roles including Chief Financial Officer at National Dentex Corporation (NASDAQ:NADX).    



Mr. Coll has over 30 years of financial management experience focused on the medical device industry. His expertise in public company governance, mergers and acquisitions and strategy development and execution, qualify him to serve as Chief Financial Officer.





 

12


 

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act requires the Company's executive officers and directors, and persons who own more than ten percent of any publicly traded class of the Company's equity securities, to file reports of ownership and changes in ownership of equity securities of the Company with the SEC and the New York Stock Exchange.  Officers, directors, and greater-than-ten-percent stockholders are required by the SEC's regulations to furnish the Company with copies of all Section 16(a) forms that they file. 



Based solely upon a review of Forms 3 and Forms 4 furnished to the Company during the most recent fiscal year, the Company believes that all such forms required to be filed pursuant to Section 16(a) of the Exchange Act were filed, as necessary, by the executive officers, directors, and security holders required to file the same during the fiscal year ended December 31, 2019. All except the following were filed on a timely basis: (i) Wayne M. Coll had one Form 3 filing that was filed tardy, with respect to one transaction. (ii) a late Form 4 was filed for each of Jason R. Chambers, Rodd E. Friedman, and Andrei Soran for warrants issued to such persons or their affiliates on July 5, 2019.



Code of Conduct and Ethics

The Company has adopted a Code of Conduct and Ethics that applies to all its employees as well as its principal executive, financial and accounting officers.  The current Code can be found on the Company’s website at http://www.micronsolutionsinc.com/investor-relations/corporate-governance/.  The Company intends to satisfy the disclosure requirements regarding any amendments to or waivers from a provision of the Code that applies to its principal executive, financial and accounting officers by posting such information on its website at the address set forth above.



Audit Committee:

The Audit Committee is presently composed of three members of the Board: Mr. Marco F. Benedetti (Chairman) Mr. Robert A. Mello and Mr. Jason R. Chambers. The Audit Committee assists the Board of Directors in the oversight of the audit of the Company’s financial statements and the quality and integrity of its accounting, auditing and financial reporting processes.  The Audit Committee also has the responsibility of reviewing the qualifications, independence and performance of the Company’s independent registered public accounting firm and is responsible for the appointment, retention, oversight and, where appropriate, termination of the independent registered public accounting firm.  The Board of Directors has determined that each of the members of the Audit Committee meets the criteria for independence under the applicable listing standards of the NYSE American. The Company’s Board of Directors has determined that the Audit Committee has two members, each independent, who qualify as an “audit committee financial expert,” as defined by the rules adopted by the SEC, namely, Mr. Benedetti and Mr. Mello. 



13


 

Item 11. EXECUTIVE COMPENSATION

Compensation of Directors and Officers.

Summary Compensation Table

The following table sets forth information regarding annual and long-term compensation with respect to the fiscal years ended December 31, 2019 and 2018, paid or accrued by the Company to or on behalf of those persons who were, during the fiscal year ended December 31, 2019, the Company's Chief Executive Officer, Chief Financial Officer and the Company's most highly compensated executive officers serving as such as of December 31, 2019 whose compensation was in excess of $100,000 (the “Named Executive Officers”).  The dollar amount of Option Awards reflect the aggregate grant date fair value of option awards computed in accordance with FASB ASC Topic 718. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. A more detailed discussion of the assumptions used in the valuation of option awards made in fiscal year 2019 may be found in Note 11 of the Notes to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Name and Principal Position

Year

Salary
($)

Bonus
($)

Stock
Awards
($)

Option
Awards
($)

 

Non Equity
Incentive Plan
Compensation
($)

Nonqualified
Deferred
Compensation
Earnings ($)

All Other
Compensation ($)

 

Total
($)

William J. Laursen,
President & CEO (1)

2019  280,000 

 —

 —

 —

 

 —

 —

 —

 

280,000 



2018  19,385  12,500 

 —

87,876 

(2)

 —

 —

 —

 

119,761 

Wayne M. Coll, 
Chief Financial Officer,
Treasurer and Secretary (3)

2019  88,461 

 —

 —

39,461 

(4)

 —

 —

 —

 

127,922 

Salvatore Emma, Jr.,
COO (1)

2019  26,922 

 —

 —

 —

 

 —

 —

123,500 

(5)

150,422 

Salvatore Emma, Jr.,
President & CEO (1)

2018  222,032 

 —

 —

29,971 

(6)

 —

 —

 —

 

252,003 

Derek T. Welch, 
Chief Financial Officer,
Treasurer and Secretary (3)

2019  56,231 

 —

 —

 —

 

 —

 —

 —

 

56,231 



2018  159,212 

19,633 

(7)

 

178,845 



(1)

Mr. William J. Laursen was appointed President and CEO effective November 29, 2018, replacing Mr. Salvatore Emma, Jr. in that position.

(2)

Amount reflects the grant date fair value of option awards the were approved by the Board of Directors on October 29, 2018, effective November 29, 2018, using a Black-Scholes value of $0.88 per share.

(3)

Mr. Wayne M. Coll was appointed CFO effective July 15, 2019, replacing Mr. Derek T. Welch. in that position.

(4)

Amount reflects the aggregate grant date fair value of option awards for grants made on July 15, 2019, using a Black-Scholes value of $1.32 per share.

(5)

Amount reflects severance costs incurred upon termination of employment for Mr. Salvatore Emma, Jr.

(6)

Amount reflects the aggregate grant date fair value of option awards for grants made on March 23, 2018, using a Black-Scholes value of $0.98 per share and for grants made on October 29, 2018, using a Black-Scholes value of $0.88 per share.  Mr. Emma’s employment with the Company ended February 8, 2019.  Pursuant to the 2010 Equity Incentive Plan, options expired on May 8, 2019.

(7)

Amount reflects the grant date fair value of option awards that were made on March 23, 2018, using a Black-Scholes value of $0.98 per share.  Mr. Welch’s employment with the Company ended April 23, 2019.  Pursuant to a consulting agreement with Mr. Welch, all options expired on December 31, 2019.

 



Employment Agreements 

On October 29, 2018, the Company entered into an employment agreement with Mr. William Laursen pursuant to which Mr. Laursen will serve as the President and Chief Executive Officer of the Company and its wholly owned subsidiary commencing as of November 29, 2018.  Mr. Laursen’s employment agreement provides for an annualized salary of $280,000.  He may qualify for performance bonuses for an amount up to 50% of his base salary.  Upon entering the employment agreement, Mr. Laursen received a signing bonus of options to purchase 100,000 shares of the Company’s common stock, which options shall vest over a four year period, beginning with a 25% vest on the first anniversary of his start date. The vesting of the options also accelerate upon a change in control.  Mr. Laursen also received a $12,500 cash bonus upon joining the Company.  The agreement contains certain change in control provisions providing for payment of salary to Mr. Laursen for up to 18 months.  Mr. Laursen is also subject to certain non-competition and non-solicitation restrictions. 

On October 29, 2018, the Company entered into a new employment agreement, effective November 29, 2018, with Mr. Salvatore Emma, Jr. pursuant to which Mr. Emma would serve as the Company’s Chief Operating Officer.  The agreement replaced a prior agreement entered into in December 2016 pursuant to which Mr. Emma was employed as the Company’s President and Chief

14


 

Executive Officer.  Mr. Emma’s employment agreement provided for an annualized salary of $200,000 and eligibility for a performance bonus under the Company’s Executive Incentive Plan.  He received options to purchase 5,000 shares of the Company’s common stock, which shares were subject to a one-year vesting period. 

On February 8, 2019, Mr. Emma’s employment with the Company terminated.  On February 28, 2019, the Company and Mr. Emma, entered into an Agreement and Release which entitled Mr. Emma to a severance benefit, $1,187.50 per pay period over 24 months or an aggregate of $123,500.  The agreement also included a general release of claims by Mr. Emma and certain confidentiality, non-competition and non-solicitations and innovations provisions.  

On December 28, 2016, the Board of Directors entered into an at-will employment agreement with Mr. Derek T. Welch, pursuant to which Mr. Welch was to be continued to be employed as the Chief Financial Officer and Secretary of the Company and its wholly- owned subsidiary, Micron Products, Inc. commencing as of January 1, 2017 and continuing thereafter unless terminated by the Company with or without cause, pursuant to the terms of the agreement.  The agreement replaced a prior two-year agreement entered into in January 2015.  Pursuant to the agreement, Mr. Welch was entitled to a base salary at the annualized rate of $170,000, was eligible for compensation under the Executive Incentive Plan adopted in 2016 and to participate in the Company’s other benefit plans.  The agreement contained certain change in control provisions providing for payment equivalent to two years of base salary at the rate then in effect and confidentiality, non-compete and non-solicitation restrictions. 

Mr. Welch resigned from the Company effective April 19, 2019.  Under the terms of a consultant agreement entered into on April 22, 2019 the Company permitted all stock options granted to Mr. Welch during his employment with the Company, whether vested or unvested at the date of separation, to continue to vest and remain exercisable until December 31, 2019.



On July 15, 2019, Mr. Wayne Coll commenced employment with the Company as Chief Financial Officer, Treasurer and Principal Accounting and Financial Officer.  Mr. Coll’s employment agreement provides for an annualized salary of $200,000.  He may qualify for performance bonuses for an amount up to 25% of his base salary.  Upon entering the employment agreement, Mr. Coll received a signing bonus of options to purchase 30,000 shares of the Company’s common stock, which options shall vest over a four year period, beginning with a 25% vest on the first anniversary of the grant date. The vesting of the options also accelerate upon a change in control.  Mr. Coll is also subject to certain non-competition and non-solicitation restrictions.



2019 Equity Incentive Plan

On March 25, 2019, the Company’s Board of Directors adopted the 2019 Equity Incentive Plan (the 2019 Equity Plan”) upon the recommendation of the Compensation Committee.  The 2019 Equity Plan was approved by the stockholders at the 2019 Annual Meeting.  The 2019 Equity Plan authorizes the issuance of an aggregate of 500,000 shares.  All non-issued shares of the 2010 Equity Incentive Plan expired upon the adoption of the 2019 Equity Plan, as approved by the stockholders at the 2019 Annual Meeting.  The 2019 Equity Plan provides the Company flexibility to award a mix of stock options, equity incentive grants, performance awards and other types of stock-based compensation.  

2019 Executive Incentive Compensation Plan

The 2019 Executive Incentive Compensation Plan established cash and equity incentive awards that may be earned by executives approved for participation in the plan, including the Chief Executive Officer (CEO), the Chief Financial Officer (CFO) and other Executives (“Executives” or “Participants”) as may be presented to the Compensation Committee by the CEO for consideration as an Executive.  The Compensation Committee has the sole discretion to determine whether an employee is an Executive, determine their compensation and determine whether the employee is eligible under this Plan.  The Compensation Committee may remove any individual from participation in the plan at any time for cause.



The bonus pool “Pool” for any fiscal year will be determined during the budget process, reviewed by the Compensation Committee and approved by all of the Board of Directors.  Funding of the Pool is scaled relative to the extent of achievement of the plan as follows: 





 

 

 

 



% Plan Achievement

 

% Target Amount Funded

 



<75%

 

0%

 



>75% but <100%

 

Proportionate

 



105%

 

110%

 



110%

 

120%

 



115%

 

130%

 



120%

 

140%

 



125%

 

150%

 



>125%

 

150%

 



15


 

Target awards are determined by the position level and will be typically expressed as a percentage of a Participant’s annual base salary rate as of the last day of the applicable fiscal year.  Annual base salary does not include other forms of compensation (such as, without limitation, bonus payments, long-term incentives, overtime compensation, stock based compensation and other variable compensation).  Target awards may also be a specified fixed dollar amount.

Awards shall be comprised of cash and equity.  Awards, and the split between cash and equity, shall be determined by any employment agreements and the Compensation Committee.  Awards payable in the form of equity may take the form of stock grants, stock options or restricted stock units at the discretion of the Board of Directors, or other forms of stock based compensation in accordance with the Company’s 2019 Equity Incentive Plan.  

The 2019 Plan also contains a long-term incentive plan (LTIP) to reward executives for achievement of the Company’s strategic objectives that lead to maximization of shareholder value by continual improvement in financial performance or strategic initiatives.  The LTIP is in addition to the annual bonus plan.  The Board will approve LTIP grants, if any, on an annual basis.



For the years ended December 31, 2019 and December 31, 2018, no incentive awards were paid or are payable under the 2019 Executive Incentive Compensation Plan.



Outstanding Equity Awards at Fiscal Year End, December 31, 2019 



 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



Option Awards

 

Stock Awards

Name

Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable

Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable

Equity Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)

Option
Exercise
Price ($)

Option
Expiration
Date

 

Number of
Shares or
Units of
Stock That
Have Not
Vested (#)

Market
Value of
Shares or
Units of
Stock That
Have Not
Vested ($)

Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or Other
Rights That Have
Not Vested (#)

Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units or Other
Rights That Have
Not Vested ($)

William J. Laursen

25,000 

(1)

75,000 

(1)

 —

3.50 

10/29/2028

 

 —

 —

 —

 —



 

 

 

 

 

 

 

 

 

 

 

 

Wayne M. Coll

 —

 

30,000 

(2)

 —

2.51 

7/15/2023

 

 —

 —

 —

 —



 

 

 

 

 

 

 

 

 

 

 

 

Derek T.
Welch

10,000 

(3)

 

 

 —

3.67 

12/31/2019

 

 —

 —

 —

 —



6,000 

(3)

4,000 

(3)

 —

7.74 

12/31/2019

 

 —

 —

 —

 —



10,000 

(3)

5,000 

(3)

 —

4.02 

12/31/2019

 

 —

 —

 —

 —



6,666 

(3)

13,334 

(3)

 —

3.81 

12/31/2019

 

 —

 —

 —

 —



 

 

 

 

 

 

 

 

 

 

 

 

(1)

Exercisable as to 25,000 shares on November 29, 2019 and each anniversary until all 100,000 options are exercisable.

(2)

Exercisable as to 7,500 shares on July 15, 2020 and each anniversary until all 30,000 options are exercisable.

(3)

Mr. Welch’s employment with the Company ended April 23, 2019.  Pursuant to a consulting agreement with Mr. Welch, all options expired on December 31, 2019.



Employee Benefit Plans



The Company sponsors an Employee Savings and Investment Plan under Section 401(k) of the Internal Revenue Code covering all eligible employees of the Company.  Employees can contribute up to 90% of their eligible compensation to the maximum allowable by the IRS.  The Company’s matching contributions are at the discretion of the Company.  The Company’s matching contributions in 2019 and 2018 were $40,477 and $39,039, respectively.

16


 

Director Compensation 

For fiscal year 2019, each non-employee director was entitled to receive annual compensation of $30,000 in either cash or the cash equivalent in shares of the Company’s common stock or a combination thereof.  Additionally, the Chairman of the Board received a pro rata portion of an additional $5,000 and the chairman of the audit committee received a pro rata portion of an additional $4,000. Directors who are full time employees receive no compensation for serving as directors.  The non-employee directors who were serving in such capacity in 2019 received the following fees for the year ended December 31, 2019:





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

Name

Fees Earned or
Paid in Cash
($)(1)

 

Stock
Awards
($)(2)

 

Option
Awards
($)(3)

Non-Equity
Incentive Plan
Compensation
($)

Nonqualified
Deferred Compensation
Earnings

All Other
Compensation
($)

Total
($)

Jason R. Chambers

 

32,083 

 

 —

 —

 —

 —

32,083 

Marco F. Benedetti

17,000 

 

17,000 

 

 —

 —

 —

 —

34,000 

Rodd E. Friedman

 —

 

30,000 

 

 —

 —

 —

 —

30,000 

Robert A. Mello

15,000 

 

15,000 

 

 —

 —

 —

 —

30,000 

Andrei Soran

16,458 

 

16,458 

 

 —

 —

 —

 —

32,916 

(1)

Includes amounts earned from the annual retainer and chairperson fees, prorated for partial year service as appropriate. 

(2)

Represents the aggregate grant date fair value computed in accordance with ASC Topic 718 for awards of stock granted under our 2010 Equity Incentive Plan and the 2019 Equity Incentive Plan during 2019.  Fair value of the stock awards was determined using the closing price per share of the Company’s common stock on the grant date. 

(3)

No stock options were awarded to non-employee Directors in 2019.  As of December 31, 2019, each Director held the following number of outstanding options to purchase the Company’s common stock:  Mr. Chambers held 27,500 options; Mr. Benedetti held 7,500 options; Mr. Friedman did not hold any options; Mr. Mello held 7,500 options and Mr. Soran did not hold any options.



Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



Securities Authorized for Issuance under Equity Compensation Plans 

The following table provides information, as of December 31, 2019, with respect to the Company’s equity compensation plans: 



 



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

Plan Category

 

Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights (a)

 

Weighted-average exercise
price of outstanding
options, warrants
and rights (b)

 

Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a)) (c)

Equity compensation plans approved by security holders

 

346,165 

 (1)

$

4.51 

 

439,080 

  (2)

Equity compensation plans not approved by security holders

 

 —

 

 

 —

 

 —

 

Total

 

346,165 

 

$

4.51 

 

439,080 

 



(1)

Options for 308,665 shares under the 2010 Equity Incentive Plan approved by stockholders at the 2010 annual meeting.  Options for 37,500 shares under the 2019 Equity Incentive Plan approved by stockholders at the 2019 annual meeting.

(2)

439,080 shares remain available under the 2019 Equity Incentive Plan.



17


 

Beneficial Owners of at Least Five Percent of the Company’s Common Stock  

The following table shows, to the best of the Company’s knowledge, all persons known to be beneficial owners of five percent or more of the voting securities of the Company as of March 16, 2020. 



 



 

 

 

 

 



 

 

 

 

 

Name and Address of Beneficial Owner

 

Common Stock
Beneficially Owned(1)

 

Percent of Class(1)

REF Securities & Co.

 

341,607 

(2)

 

11.8% 

Rodd Friedman

 

 

 

 

 

12 South Main Street, Suite 203

 

 

 

 

 

Norwalk, CT 06854

 

 

 

 

 

Chambers Medical Foundation

 

296,268 

(3)

 

10.2% 

Edwin K. Hunter, Trustee

 

 

 

 

 

1807 Lake Street

 

 

 

 

 

Lake Charles, LA 70601

 

                

 

 

                      

Steven D. Heineman

 

190,543 

(4)

 

6.8% 

1123789 Indian Road

 

 

 

 

 

North Palm Beach, FL   33408

 

 

 

 

 

Andrei Soran

 

189,232 

(5)

 

6.5% 

MLPF&S Cust FPO Andrei Soran IRA

 

 

 

 

 

The Andrei Soran Trust, Andrei Soran Trustee, Ilana Soran, Trustee, 11/15/2013

 

 

 

 

 

27 Lothrop Street

 

 

 

 

 

Newton, MA 02460

 

 

 

 

 

Jason R. Chambers

 

176,561 

(6)

 

6.1% 

1266 West Paces Ferry RD, NW

 

 

 

 

 

Suite 461

 

 

 

 

 

Atlanta, GA 30327

 

 

 

 

 



(1)

Unless otherwise noted in these footnotes, the Company believes that all shares referenced in this table are owned of record by each person named as beneficial owner and that each person has sole voting and dispositive power with respect to the shares of Common Stock owned by each of them.  In accordance with Rule 13d-3 under the Exchange Act, each person’s percentage ownership is determined by assuming that the options and warrants to purchase common stock that are held by that person, and which are exercisable within 60 days of March 16, 2020, have been exercised.

(2)

Rodd E. Friedman, the managing partner and majority owner of REF Securities, has sole voting and dispositive power over 341,607 shares of common stock including 296,986 shares held in the name of REF Securities and 4,710 shares held in the name of REF Securities Profit Sharing.

(3)

Based on information included in a Schedule 13D/A filed with the SEC on September 21, 2011, by the Chambers Medical Foundation (“Foundation”), such Trustee has sole voting and dispositive power with respect to 276,268 shares of common stock.  In addition, in October 2014, the Foundation exercised warrants to purchase 20,000 shares of the Company’s common stock held by it.

(4)

Based on information included in a Schedule 13G/A filed with the SEC on January 31, 2020 by Steven D. Heinemann.  Mr. Heinemann has sole voting and dispositive power with respect to 190,543 shares of common stock.

(5)

Of the 189,232 shares, 68,100 shares are held by MLPFS Cust FBO Andrei Soran IRA, a self-directed IRA and 121,132 shares are held in The Andrei Soran Trust, Andrei Soran Trustee, Ilana Soran, Trustee, November 15, 2013.  Mr. Soran holds sole voting and dispositive powers to all 189,232 shares.

(6)

Based on a Form 4 filed on November 19, 2019, Mr. Chambers holds sole voting and dispositive powers to 149,061 shares.  Additionally, Mr. Chambers holds 27,500 options to purchase common stock.



18


 

Security Ownership of Directors and Executive Officers 

The following table shows the securities owned by each director, the Named Executive Officers as defined below, and by all of the current executive officers and directors as a group as of March 16, 2020. 



 



 

 

 

 

 



 

 

 

 

 

Name and Address of Beneficial Owner

 

Common Stock
Beneficially Owned(1)

 

Percent of Class(1)

Rodd E. Friedman

 

341,607 

(2)

 

11.8% 

Andrei Soran

 

189,232 

(3)

 

6.5% 

Jason R. Chambers

 

176,561 

(4)

 

6.1% 

Wayne M. Coll

 

 —

 

 

*%

Robert A. Mello

 

35,678 

(5)

 

1.2% 

Marco F. Benedetti

 

24,916 

(6)

 

*%

William J. Laursen

 

25,000 

(7)

 

*%

All Executive Officers and Directors as a Group (7 Persons)

 

792,994 

(8)

 

26.1% 



*Less than 1%

(1)

Unless otherwise noted in these footnotes, the Company believes that all shares referenced in this table are owned by each person named as beneficial owner and that each person has sole voting and dispositive power with respect to the shares of Common Stock owned by each of them.  In accordance with Rule 13d-3 under the Exchange Act, each person’s percentage ownership is determined by assuming that the options and warrants to purchase common stock that are held by that person, and which are exercisable within 60 days of March 16, 2020, have been exercised.  The address of all persons listed above is c/o Micron Solutions, Inc., 25 Sawyer Passway, Fitchburg, MA 01420.

(2)

Rodd E. Friedman, the managing partner and majority owner of REF Securities, has sole voting and dispositive power over 341,607 shares of common stock including the 296,986 held in the name of REF Securities and 4,710 shares held in the name of REF Securities Profit Sharing.

(3)

Of the 189,232 shares, 68,100 shares are held by MLPFS Cust FBO Andrei Soran IRA, a self-directed IRA and 121,132 shares are held in The Andrei Soran Trust, Andrei Soran Trustee, Ilana Soran, Trustee, November 15, 2013.  Mr. Soran holds sole voting and dispositive powers to all 189,232 shares.

(4)

Includes 27,500 shares issuable upon exercise of options.

(5)

Includes 7,500 shares issuable upon exercise of options.

(6)

Includes 7,500 shares issuable upon exercise of options.

(7)

Shares issuable upon exercise of options.

(8)

Includes 67,500 shares of the Company's common stock that executive officers and directors have the right to acquire upon exercise of stock options and warrants that are currently exercisable or exercisable within 60 days of March 16, 2020.



Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Certain Relationships and Related Transactions



Subordinated promissory notes

In June 2019, the Company initiated a private offering to raise up to $500,000 through the sale of subordinated promissory notes (the “Notes”). The subscription for $500,000 was completed on July 5, 2019. The Notes bear interest on the unpaid principal at a simple annual interest rate equal to 10% per annum from the date of issuance. Interest only is payable in cash on a quarterly basis.  The Notes mature on June 28, 2022.  Each investor entered into a Subordination Agreement providing that the indebtedness pursuant to the Notes shall be subordinated to all indebtedness of the Company pursuant to its existing credit agreement.  

For every $50,000 in principal invested in the notes, each investor received a warrant to purchase 10,000 shares of common stock (collectively, the “Warrants”, see Note 10 to the Consolidated Financial Statements).  The Warrants are exercisable at an exercise price equal to $2.90 per share, namely, the average closing market price of the Company’s common stock on the fifteen days prior to the date of the Warrant, plus 12%. The Warrants contain standard provisions relating to anti-dilution adjustments for stock splits and recapitalizations.  The Warrants also provide the investors with standard piggy-back registration rights in the event the Company files a registration statement (other than a registration statement on Form S-4 or S-8) to register the shares of common stock subject to standard limitations in the discretion of any underwriter.

In order to account for the Notes and Warrants, the Company allocated the proceeds between the Notes and Warrants on a relative fair value basis.  As a result, the Company allocated $464,182 to the Notes and $35,818 to the Warrants.  The total discount on the notes is being recognized as non-cash interest expense over the term of the notes.  As of December 31, 2019, there was $5,970 in non-cash interest expense recorded related to the amortization of the discount.



19


 

Related parties participated in the private offering as follows:





 

 

Jason Chambers, Director

$

50,000 

Rodd Friedman, Director

$

100,000 

Andrei Soran, Director

$

50,000 

Director Independence 

The Company's common stock is listed on the NYSE American stock exchange. The Board considers the status of its members pursuant to the independence requirements set forth in the NYSE American Company Guide and applicable federal securities laws. Under these requirements, the Board undertakes a review at least annually of director independence. During this review, the Board considers transactions and relationships between each director or any member of his immediate family and the Company and its affiliates, if any. The purpose of this review is to determine whether any such relationships or transactions exist that are inconsistent with a determination that the director is independent. The following current directors, Mr. Chambers, Mr. Benedetti, Mr. Friedman, Mr. Mello and Mr. Soran are each “independent” in each case as defined in the NYSE American Company Guide. The members of the Compensation Committee, Audit Committee and Nominating and Corporate Governance Committee are also “independent” for purposes of Section 10A-3 of the Exchange Act and NYSE American listing requirements. The Board bases these determinations primarily on a review of the responses of the directors to questions regarding employment and transaction history, affiliations and family and other relationships and on discussions with the directors.



Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Fees billed by Wolf & Company, P.C. (“Wolf”), the Company’s independent accounting firm, for services rendered in connection with the fiscal year ended December 31, 2019 and 2018 are set forth below. All fees earned by Wolf were pre-approved by the Audit Committee.



 



 

 

 

 

 

 



 

 

 

 

 

 



 

2019

 

2018

Audit fees

 

$

162,500 

 

$

159,000 

Audit-related fees

 

 

4,000 

 

 

5,700 

Tax fees

 

 

 —

 

 

 —

All other fees

 

 

 —

 

 

 —



Audit Fees 

Audit fees billed by Wolf for 2019 consist of fees for the audit of the Company’s financial statements for the fiscal year ended December 31, 2019, and the review of the interim financial statements in the Company’s quarterly reports for the quarters ended March 31, 2019, June 30, 2019 and September 30, 2019. Audit fees billed by Wolf for 2018 consist of fees for the audit of the Company’s financial statements for the fiscal year ended December 31, 2018, and the review of the interim financial statements in the Company’s quarterly report for the quarters ended March 31, 2018, June 30, 2018 and September 30, 2018.  

Audit-Related Fees 

Audit-related fees billed by Wolf for 2019 were for their consent of incorporation by reference related to the Company’s S-8 Registration of 500,000 shares of common stock under the provisions of the Company’s 2019 Equity Incentive Plan. Audit-related fees billed by Wolf for 2018 were for audit procedures related to the Company’s implementation of new revenue recognition requirements as further outlined in the Annual Report on Form 10-K filed with the Commission on March 19, 2019. 

Tax Fees 

There were no tax fees billed by Wolf in 2019 or 2018.  

All Other Fees 

There were no other fees billed by Wolf for 2019 or for 2018.



20


 

PART IV



Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



We have filed the following documents as part of this report:



1. Consolidated Financial Statements



 



 



Report of Independent Registered Public Accounting Firm



Consolidated Financial Statements:



Balance sheets



Statements of operations



Statements of changes in shareholders' equity



Statements of cash flows



Notes to consolidated financial statements



2. Financial Statement Schedules



Schedules have been omitted because they are not required, not applicable, or the required information is otherwise included.



3. Exhibits



The Company hereby furnishes the exhibits listed on the attached exhibit index.  Exhibits, which are incorporated herein by reference that are filed electronically with the SEC and are available at http://www.sec.gov.  The Company maintains a web site that contains reports, proxy and information statements and other information electronically at the address http://www.micronsolutionsinc.com.  Information on our website is not a part of this Annual Report on Form 10-K.



Item 16. FORM 10-K SUMMARY



Not applicable.





21


 

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) 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.





 

 



MICRON SOLUTIONS, INC.

 



 

 

March 30, 2020

By:  /s/ William J. Laursen 

 



William J. Laursen

 



President and Chief Executive Officer

 



(principal executive officer)

 

March 30, 2020

By:  /s/ Wayne Coll 

 



Wayne Coll

 



Chief Financial Officer

 



(principal financial and accounting officer)

 



 

 



KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints William J. Laursen and Wayne M. Coll, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K for the year ended December 31, 2019, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.







 

 

 

 

Signature

 

Capacity

 

Date

 

 

 

 

 

/s/ William J. Laursen

 

President and Chief Executive Officer and Director

 

March 30, 2020

William J. Laursen

 

(principal executive officer)

 

 

 

 

 

 

 

/s/ Wayne M. Coll

 

Chief Financial Officer

 

March 30, 2020

Wayne M. Coll

 

(principal financial and accounting officer)

 

 

 

 

 

 

 

/s/ Andrei Soran

 

Chairman of the Board

 

March 30, 2020

Andrei Soran

 

 

 

 

 

 

 

 

 

/s/ Marco F. Benedetti

 

Director

 

March 30, 2020

Marco F. Benedetti

 

 

 

 

 

 

 

 

 

/s/ Rodd E. Friedman

 

Director

 

March 30, 2020

Rodd E. Friedman

 

 

 

 

 

 

 

 

 

/s/ Robert A. Mello

 

Director

 

March 30, 2020

Robert A. Mello

 

 

 

 

 

 

 

 

 

/s/ Jason R. Chambers

 

Director

 

March 30, 2020

Jason R. Chambers

 

 

 

 

 

 

 

 

 

22


 



EXHIBIT INDEX





 

 

 

 



 

 

 

 



 

 

 

 

Exhibit Number

 

Description of Exhibit

 

Page

3.0

 

Certificate of Incorporation (incorporated by reference to the Company’s Registration Statement on Form S-18 as filed with the Commission in April 1988, Registration Statement No. 33-20945-FW).

 

 

3.1

 

Amended and Restated By-laws (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K as filed with the Commission on July 1, 2011).

 

 

3.2

 

Certificate of Amendment of Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q as filed with the Commission on August 13, 2015).

 

 

3.3

 

Certificate of Amendment of Certificate of Incorporation (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K as filed with the Commission on March 14, 2017).

 

 

4.0

 

Form of Certificate evidencing shares of the Company's Common Stock (incorporated by reference to the Company’s Registration Statement on Form S-18 as filed with the Commission in April 1988, Registration Statement No. 33-20945-FW).

 

 

4.1

 

Form of Subordinated Note (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K as filed with the Commission on July 11, 2019).

 

 

4.2

 

Form of Subordination Agreement (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K as filed with the Commission on July 11, 2019).

 

 

4.3

 

Form of Warrant (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K as filed with the Commission on July 11, 2019).

 

 

4.10*

 

2010 Equity Incentive Plan (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8 as filed with the Commission on May 6, 2010, Registration Statement No. 333-166600).

 

 

4.11*

 

2019 Equity Incentive Plan (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8 as filed with the Commission on September 30, 2019, Registration Statement No. 333-234016).

 

 

10.1*

 

Executive Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K as filed with the Commission on November 22, 2019).

 

 

10.66*

 

Employment Agreement between the Company and Salvatore Emma, Jr. dated as of January 1, 2017 (incorporated by reference to Exhibit 10.66 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2016 as filed with the Commission on March 22, 2017).

 

 

10.67*

 

Employment Agreement between the Company and Derek T. Welch dated as of January 1, 2017 (incorporated by reference to Exhibit 10.67 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2016 as filed with the Commission on March 22, 2017).

 

 

10.70

 

Credit and Security Agreement between Micron Products, Inc. and Rockland Trust Company dated December 29, 2017 (incorporated by reference to Exhibit 10.70 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 as filed with the Commission on March 26, 2018).

 

 

10.71

 

General Security Agreement between the Company and Rockland Trust Company dated December 29, 2017 (incorporated by reference to Exhibit 10.71 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 as filed with the Commission on March 26, 2018).

 

 

10.72

 

Mortgage, Security Agreement and Financing Statement entered into by Micron Products, Inc. dated December 29, 2017 (incorporated by reference to Exhibit 10.72 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 as filed with the Commission on March 26, 2018).

 

 

10.73

 

M&E Term Loan Note entered into by Micron Products, Inc. dated December 29, 2017 (incorporated by reference to Exhibit 10.73 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 as filed with the Commission on March 26, 2018).

 

 

10.74

 

Real Estate Term Loan Note entered into by Micron Products, Inc. dated December 29, 2017 (incorporated by reference to Exhibit 10.74 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 as filed with the Commission on March 26, 2018).

 

 

10.75

 

Revolver Note entered into by Micron Products, Inc. dated December 29, 2017 (incorporated by reference to Exhibit 10.75 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 as filed with the Commission on March 26, 2018).

 

 

23


 

10.76

 

General Continuing Guarantee entered into by the Company dated as of December 29, 2017 (incorporated by reference to Exhibit 10.76 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 as filed with the Commission on March 26, 2018).

 

 

10.77

 

First Amendment to the Credit and Security Agreement between Micron Products, Inc. and Rockland Trust Company dated March 7, 2019 (incorporated by reference to Exhibit 10.79 to the Company’s Current Report on Form 8-K filed with the Commission on March 12, 2019).

 

 

10.78

 

Second Amendment and Consent to the Credit Agreement dated as of August 6, 2019 by and among Micron Products, Inc. (as Borrower), the Company (as Guarantor) and Rockland Trust Company (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 10-Q filed with the Commission on November 14, 2019).

 

 

10.79

 

Third Amendment and Consent to the Credit Agreement dated as of August 13, 2019 by and among Micron Products, Inc. (as Borrower), the Company (as Guarantor) and Rockland Trust Company (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 10-Q filed with the Commission on November 14, 2019).

 

 

10.80**

 

Fourth Amendment and Consent to the Credit Agreement dated as of March 12, 2020 by and among Micron Products, Inc. (as Borrower), the Company (as Guarantor) and Rockland Trust Company

 

X-1

10.81*

 

Employment Agreement between the Company and Salvatore Emma, Jr. dated as of October 29, 2018 (incorporated by reference to Exhibit 10.77 to the Current Report on Form 8-K filed with the Commission on November 2, 2018).

 

 

10.82*

 

Employment Agreement between the Company and William J. Laursen dated as of October 29, 2018 (incorporated by reference to Exhibit 10.78 to the Current Report on Form 8-K filed with the Commission on November 2, 2018).

 

 

10.83*

 

Employment Agreement between the Company and Wayne Coll dated as of July 15, 2019 (incorporated by reference to Exhibit 10.80 to the Current Report on Form 8-K filed with the Commission on July 17, 2019).

 

 

21

 

Subsidiaries (incorporated by reference to Exhibit 21.0 to the Company’s Annual Report on Form 10-K for fiscal year ended December 31, 2010 as filed with the Commission on March 23, 2011).

 

 

31.1**

 

Certification of the CEO pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)

 

X-2

31.2**

 

Certification of the CFO pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)

 

X-3

32.1**

 

Certification of the CEO pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

X-4

32.2**

 

Certification of the CFO pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

X-5

101.INS†

 

XBRL Instance Document

 

 

101.SCH†

 

XBRL Taxonomy Extension Schema Document

 

 

101.CAL†

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

101.PRE†

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

101.DEF†

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

*  Indicates a management contract or compensatory plan required to be filed as an exhibit.

**Filed herewith

† XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.



 

24


 



Micron Solutions, Inc.

and Subsidiary



Contents





 

F-1


 

Report of Independent Registered Public Accounting Firm





To the Shareholders and Board of Directors of Micron Solutions, Inc. and Subsidiary



Opinion on the Financial Statements



We have audited the accompanying consolidated balance sheets of Micron Solutions, Inc. and Subsidiary (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of operations, changes in shareholders' equity, and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.



Basis for Opinion



These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. 



We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.



Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.



/s/ WOLF & COMPANY, P.C.



We have served as the Company’s auditor since 2013.



Boston, Massachusetts

March 30, 2020 



 

F-2


 

Micron Solutions, Inc. and Subsidiary

Consolidated Balance Sheets







 

 

 

 

 

 



 

 

 

 

 

 



 

December 31,

 

December 31,



 

2019

 

2018

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

503 

 

$

1,715 

Trade accounts receivable, net of allowance for doubtful accounts of $39,169 at December 31, 2019 and $40,000 at December 31, 2018

 

 

2,152,254 

 

 

2,325,804 

Inventories

 

 

2,468,648 

 

 

3,685,059 

Assets held for sale, net

 

 

 —

 

 

688,750 

Prepaid expenses and other current assets

 

 

257,859 

 

 

389,390 

Total current assets

 

 

4,879,264 

 

 

7,090,718 

Property, plant and equipment, net

 

 

3,801,916 

 

 

5,131,773 

Intangible assets, net

 

 

47,509 

 

 

53,155 

Other assets

 

 

5,645 

 

 

5,140 

Total assets

 

$

8,734,334 

 

$

12,280,786 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Revolving line of credit

 

$

1,274,299 

 

$

2,025,592 

Term notes payable, current portion, net

 

 

3,557,458 

 

 

389,420 

Accounts payable

 

 

841,068 

 

 

1,200,298 

Accrued expenses and other current liabilities

 

 

383,836 

 

 

459,108 

Contract liabilities, current portion

 

 

5,472 

 

 

560,802 

Total current liabilities

 

 

6,062,133 

 

 

4,635,220 

Long-term liabilities:

 

 

 

 

 

 

Term notes payable, non-current portion, net

 

 

 —

 

 

3,557,458 

Subordinated promissory notes, net

 

 

470,152 

 

 

 —

Total long-term liabilities

 

 

470,152 

 

 

3,557,458 

Total liabilities

 

 

6,532,285 

 

 

8,192,678 

Commitments and Contingencies

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value; 2,000,000 shares authorized, none issued

 

 

 —

 

 

 —

Common stock, $0.01 par value; 10,000,000 shares authorized; 3,926,491 issued, 2,906,609 outstanding at December 31, 2019 and 3,926,491 issued, 2,861,008 outstanding at December 31, 2018

 

 

39,265 

 

 

39,265 

Additional paid-in-capital

 

 

11,735,457 

 

 

11,604,817 

Treasury stock at cost, 1,019,882 shares at December 31, 2019 and 1,065,483 shares at December 31, 2018

 

 

(2,783,055)

 

 

(2,907,490)

Accumulated deficit

 

 

(6,789,618)

 

 

(4,648,484)

Total shareholders’ equity

 

 

2,202,049 

 

 

4,088,108 

Total liabilities and shareholders’ equity

 

$

8,734,334 

 

$

12,280,786 



See accompanying notes to consolidated financial statements.

 

F-3


 

Micron Solutions, Inc. and Subsidiary

Consolidated Statements of Operations









 

 

 

 

 

 



 

 

 

 

 

 



 

Year Ended



 

December 31,



 

2019

 

2018

Net sales

 

$

17,499,364 

 

$

19,564,981 

Cost of sales

 

 

15,737,469 

 

 

17,241,289 

Gross profit

 

 

1,761,895 

 

 

2,323,692 



 

 

 

 

 

 

Selling and marketing

 

 

636,167 

 

 

730,863 

General and administrative

 

 

2,760,787 

 

 

2,243,595 

Research and development

 

 

80,357 

 

 

106,814 

Total operating expenses

 

 

3,477,311 

 

 

3,081,272 



 

 

 

 

 

 

Net loss from operations

 

 

(1,715,416)

 

 

(757,580)

Other income (expense):

 

 

 

 

 

 

Interest expense

 

 

(431,544)

 

 

(391,437)

Other income (expense), net

 

 

5,826 

 

 

52,878 

Total other expense, net

 

 

(425,718)

 

 

(338,559)

Net loss before income tax provision

 

 

(2,141,134)

 

 

(1,096,139)

Income tax provision

 

 

 —

 

 

2,168 

Net income (loss)

 

$

(2,141,134)

 

$

(1,098,307)

Loss per share - basic and diluted

 

$

(0.74)

 

$

(0.39)

Weighted average common shares outstanding - basic and diluted

 

 

2,883,861 

 

 

2,850,397 



 

 

 

 

 

 





See accompanying notes to consolidated financial statements.

 

F-4


 

Micron Solutions, Inc. and Subsidiary 

Consolidated Statements of Changes in Shareholders' Equity







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 



 

Common stock

 

paid-in

 

 Treasury stock

 

 

Accumulated

 

 

 



 

Shares

 

Amount

 

capital

 

Shares

 

Amount

 

 

deficit

 

Total

December 31, 2017

 

3,926,491 

 

$

39,265 

 

$

11,532,207 

 

1,087,217 

 

$

(2,966,798)

 

 

$

(3,536,186)

 

$

5,068,488 

Change in Accounting Principle - ASC 606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,991)

 

 

(13,991)

Share based compensation

 

 

 

 

 

 

 

56,168 

 

 

 

 

 

 

 

 

 

 

 

56,168 

Issuance of common stock
from treasury

 

 

 

 

 

 

 

16,442 

 

(21,734)

 

 

59,308 

 

 

 

 

 

 

75,750 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,098,307)

 

 

(1,098,307)

December 31, 2018

 

3,926,491 

 

$

39,265 

 

$

11,604,817 

 

1,065,483 

 

$

(2,907,490)

 

 

$

(4,648,484)

 

$

4,088,108 

Share-based compensation

 

 

 

 

 

 

 

108,716 

 

 

 

 

 

 

 

 

 

 

 

108,716 

Issuance of common stock
from treasury

 

 

 

 

 

 

 

(13,894)

 

(45,601)

 

 

124,435 

 

 

 

 

 

 

110,541 

Issuance of warrants

 

 

 

 

 

 

 

35,818 

 

 

 

 

 

 

 

 

 

 

 

35,818 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,141,134)

 

 

(2,141,134)

December 31, 2019

 

3,926,491 

 

$

39,265 

 

$

11,735,457 

 

1,019,882 

 

$

(2,783,055)

 

 

$

(6,789,618)

 

$

2,202,049 



See accompanying notes to consolidated financial statements.

 

F-5


 

Micron Solutions, Inc. and Subsidiary

Consolidated Statements of Cash Flows

 





 

 

 

 

 

 



 

 

 

 

 

 



 

Year Ended



 

December 31,



 

2019

 

2018

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(2,141,134)

 

$

(1,098,307)

Adjustments to reconcile net loss to net cash provided by
operating activities:

 

 

 

 

 

 

Gain on sale of assets

 

 

(7,602)

 

 

(8,360)

Depreciation and amortization

 

 

1,463,443 

 

 

1,504,037 

Non-cash interest expense

 

 

94,392 

 

 

62,120 

Change in allowance for doubtful accounts

 

 

831 

 

 

 —

Share-based compensation expense

 

 

219,257 

 

 

131,918 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

172,719 

 

 

269,444 

Inventories

 

 

1,258,015 

 

 

(348,121)

Prepaid expenses and other current and non-current assets

 

 

131,026 

 

 

44,389 

Accounts payable

 

 

(371,833)

 

 

(343,038)

Accrued expenses and other current liabilities

 

 

(83,367)

 

 

157,376 

Contract liabilities

 

 

(555,329)

 

 

134,345 

Net cash provided by operating activities

 

 

180,419 

 

 

505,803 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(169,131)

 

 

(801,884)

Proceeds from sale of property, plant and equipment

 

 

32,602 

 

 

8,360 

Proceeds from sale of assets held for sale

 

 

663,334 

 

 

 —

Cash paid for patents and trademarks

 

 

 —

 

 

(2,661)

Net cash provided by (used in) investing activities

 

 

526,805 

 

 

(796,185)

Cash flows from financing activities:

 

 

 

 

 

 

(Borrowings) payments on revolving line of credit, net

 

 

(751,293)

 

 

146,545 

Payments on term notes

 

 

(457,143)

 

 

(419,047)

Payments of debt issuance costs

 

 

 —

 

 

(42,389)

Proceeds from (payments on) subordinated notes payable

 

 

500,000