Reply by Peter Atherton

The following are some questions I raised with Mikoh, and the response from Peter Atherton.

Email to Mikoh:

I have followed the progress of Mikoh Corporation for several years and have
recently become a shareholder. To say Mikoh has struggled to get where it
is, is a major understatement. Whether this has been a function of the
executives running the company or the technology Mikoh is trying to sell,
well I wish I was in a better position to make that judgement. The progress
as it stands appears to be very good, in reference to the last shareholder
update. I have followed Mikoh closely enough to know that this is not
uncommon ground being crossed. Several times in the past the optimism
esposued by management has fallen flat leaving shareholders wondering what
questions to ask next.

I could ask many questions of you, but I am sure they would have all been
asked before and no doubt would have all been answered with unbridled
optimism. Many years on though, it appears Mikoh is only just starting to
make real inroads into commercializing what I think is an incredible
technology that could have major ramifications in the niches being targeted.

I have some questions though that are asked with honest concern and a
constructive bent:

1) If Mikoh achieves 100% success in attracting commercial orders for all
the pilot programs underway and from all the parties Mikoh is currently in
discussion with, does Mikoh have the capacity to produce this many labels
with it's current production facility ? This may seem like a dumb question
as one would surely have to assume this would be foremost in managements
planning but given the track record of Mikoh I need to ask the question and
more so, need a confirmatory reply. If the technology is as good as slated
and Mikoh does achieve significant commercial orders this surely could be
the only thing that could derail Mikoh's success.

2) Assuming Mikoh does have the capacity to start immediate production for
one or many orders what quality assurance has been done on the production
facility, that is, do the labels produced in a mass production run, work
identically to those produced in small runs ? This is a very subtle point
and one I expect you to consider seriously. Assuming that the 100,000th
label will work identically to the 100th label produced, is an assumption
that could destroy Mikoh's credibility and viability, because the 100,000th
label produced might not work. Has this been tested, checked or verified.
Can you prove to me that this quality assurance has been undertaken ?

3) Has Mikoh investigated the use of RFID labels for use with goods on
supermarket shelves ? I am aware that Mikoh believes RFID labels will not
supercede bar coding as bar coding is cheaper and is entrenched. An
application I can see that may attract interest from supermarkets is being
able to eliminate the manual check out process. Is it possible that RFID
labels and the products they are attached to could be identified
simultaneously when passed by a RFID reader. I can envisage a time when a
trolley full of goods could be wheeled past an RFID reader and the contents
itemised and a total charge instantly produced. Is it possible in the
foreseeable future that the technology could do this ?

Reply:

Thanks for your e-mail, and my apologies for the delayed response (due to
travel commitments).

In response to your questions:

(i) and (ii) We don't foresee any difficulties producing Smart&Secure in the
required volumes. As you know, MIKOH contracts each stage of the production
process to an established third party manufacturer. Each of the
manufacturing processes (chip production, transponder production, and
label/tag production) is designed for high volumes. Similarly in relation to
the quality control issue. We have spent a great deal of time working with
our suppliers to ensure product quality and reliability will be unaffected
as we move from pilot projects to large-scale implementations. (For example,
we have developed certification procedures for label converters who want to
convert Smart&Secure labels.) Since the production processes are
intrinsically geared for high volumes, quality and reliability are likely to
improve, rather than deteriorate, as volumes increase.

(ii) The use of RFID with supermarket goods has been technologically
possible for some time, but the costs are prohibitive and will remain so for
some time yet. If this application ever becomes feasible from a cost
standpoint, I am sure Smart&Secure will have a role in preventing label
transfer from item to item. In the meantime, we are focused on those
applications that will justify the actual current costs of RFID.

Thanks again for your e-mail. Please feel free to contact me by phone or
e-mail with further questions.