SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED: September 30, 1995 COMMISSION FILE #: 2-67918-NY
MIKROS SYSTEMS CORPORATION
--------------------------
(Exact Name of Registrant as Specified in Charter)
DELAWARE 141598200
-------- ---------
(State or Other Jurisdiction of (I.R.S. Employer Identification#)
Incorporation or Organization)
3490 U.S. Route 1, Princeton, NJ 08540
--------------------------------------
(Address of Principal Executive Offices, Including Zip Code)
Registrant's Telephone Number, Including Area Code: 609-987-1513
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X]Yes [ ]No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
OUTSTANDING AT
CLASS September 30, 1995
- - ------------------------------------ ------------------
COMMON STOCK, PAR VALUE $.01 7,352,108 SHARES
CONVERTIBLE PREFERRED STOCK, 1,005,000 SHARES
PAR VALUE $.01
SERIES B PREFERRED STOCK 1,131,663 SHARES
PAR VALUE $.01
SERIES C PREFERRED STOCK 5,000 SHARES
PAR VALUE $.01
SERIES D PREFERRED STOCK 690,000 SHARES
PAR VALUE $.01
- - -----------------------------------------------------------------------
<PAGE>
MIKROS SYSTEMS CORPORATION
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page #
------
ITEM I - FINANCIAL STATEMENTS
Balance Sheets at September 30, 1995 (Unaudited)
and December 31, 1994.......................................... 1
Statements of Shareholders' Equity for the Years ended
1993 and 1994 and Nine Months Ended September 30, 1995
(Unaudited).................................................... 3
Statements of Operations for the Three and Nine Months Ended
September 30, 1995 and 1994 (Unaudited) ....................... 4
Statements of Cash Flows for the Three and Nine Months Ended
September 30, 1995 and 1994 (Unaudited)........................ 5
Notes to the Financial Statements.............................. 6
ITEM II
Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 8
PART II - OTHER INFORMATION....................................... 11
<PAGE>
MIKROS SYSTEMS CORPORATION
BALANCE SHEETS
(Unaudited)
SEPTEMBER 30 DECEMBER 31
ASSETS 1995 1994
- - ------------------------------------ ----------- -------------
CURRENT ASSETS:
Cash $5,687 $118,593
Accounts Receivable 313,590 1,119,971
Inventories 219,815 139,146
Other Current Assets 37,158 27,844
----------- -------------
TOTAL CURRENT ASSETS: 576,250 1,405,554
----------- -------------
FIXED ASSETS
Equipment 572,357 516,875
Furniture and Fixtures 59,207 56,910
Leasehold Improvements 23,043 19,635
----------- -------------
654,607 593,420
Less: Accumulated Depreciation (465,997) (419,493)
----------- -------------
FIXED ASSETS, NET 188,610 173,927
----------- -------------
OTHER ASSETS:
SECURITY DEPOSITS 1,001 426
UNBILLED RECEIVABLES 160,041 32,088
PATENT COSTS, NET 33,637 29,006
----------- -------------
TOTAL OTHER ASSETS 194,679 61,520
----------- -------------
----------- -------------
TOTAL ASSETS $959,539 $1,641,001
=========== =============
See Notes to Financial Statements
1
<PAGE>
MIKROS SYSTEMS CORPORATION
BALANCE SHEETS
(Unaudited)
LIABILITIES AND SEPTEMBER 30 DECEMBER 31
SHAREHOLDERS' EQUITY (DEFICIENCY) 1995 1994
- - --------------------------------------------------- ------------- -----------
CURRENT LIABILITIES:
Accounts Payable $262,314 $354,639
Notes Payable-Current 253,976 165,888
Obligations under Capital Leases 11,113 5,534
Accrued Payroll and Payroll Taxes 58,821 54,385
Accrued Expenses 112,240 538,091
------------ -------------
TOTAL CURRENT LIABILITIES 698,464 1,118,537
------------ -------------
NOTES PAYABLE-NONCURRENT 176,336 270,400
OBLIGATIONS UNDER CAPITAL LEASES -
NONCURRENT 12,365 17,292
------------ -------------
TOTAL LIABILITIES 887,165 1,406,229
------------ -------------
MANDATORILY REDEEMABLE SERIES C PREFERRED STOCK
par value $.01 per share, authorized 150,000
shares, issued and outstanding 5,000 shares
in 1995 and 1994 80,450 80,450
------------ -------------
SHAREHOLDERS' EQUITY (DEFICIENCY)
Common Stock, par value $.01 per share,
authorized 25,000,000 shares,
issued and outstanding 7,352,108 shares
in 1995, and 7,152,108 in 1994 73,521 71,521
Preferred Stock, convertible,
par value $.01 per share, authorized
2,000,000 shares, issued and outstanding
1,005,000 shares in 1995 and 1994 10,050 10,050
Preferred Stock, Series B convertible,
par value $.01 per share, authorized 1,200,000
shares, issued and outstanding
1,131,663 shares in 1995 and 1994 11,316 11,316
Preferred Stock, Series D
par value $.01 per share, 690,000 shares
authorized, issued, and outstanding in 1995
and 1994 6,900 6,900
Capital in excess of Par 9,248,364 9,237,864
Accumulated deficit (9,358,227) (9,183,329)
------------ -------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIENCY) (8,076) 154,322
------------ -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $959,539 $1,641,001
============ =============
See Notes to Financial Statements
2
<PAGE>
<TABLE><CAPTION>
MIKROS SYSTEMS CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
(Unaudited)
Common Stock Preferred Stock Preferred Stock B
$.01 Par Value $.01 Par Value $.01 Par Value
--------------------------- --------------------------- -------------------------
Number Par Number Par Number Par
of shares Value of shares Value of shares Value
------------- ----------- ------------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1992 4,357,108 $43,571 1,005,000 $10,050 1,131,663 $11,316
Year ended December 31, 1993:
Accretion on Preferred Stock
Series C (Note K)
Issuance of Common Stock 2,775,000 27,750
Issuance of Preferred Series D
Stock
Net Income
------------- ----------- ------------- ------------ ------------- -----------
Balance - December 31, 1993 7,132,108 71,321 1,005,000 10,050 1,131,663 11,316
Year ended December 31, 1994:
Issuance of Common Stock 20,000 200
Net Income
------------- ----------- ------------- ------------ ------------- -----------
Balance - December 31, 1994 7,152,108 71,521 1,005,000 10,050 1,131,663 11,316
Nine Months ended September 30, 1995:
Issuance of Common Stock 200,000 2,000
Net Income (Loss)
------------- ------------ ------------- ------------ ------------- -----------
Balance - September 30, 1995 7,352,108 $73,521 1,005,000 $10,050 1,131,663 $11,316
============== ============ ============= ============ ============= ===========
<CAPTION>
Preferred Stock D
$.01 Par Value
--- --------------------
Number Par Capital in Accumulated
of shares Value excess of Par Deficit
------------- --------- ---------------- ------------
<S> <C> <C> <C> <C>
Balance - December 31, 1992 - $- $8,994,589 ($9,782,104)
Year ended December 31, 1993:
Accretion on Preferred Stock
Series C (Note K) (5,650)
Issuance of Common Stock 247,875
Issuance of Preferred Series D
Stock 690,000 6,900
Net Income 447,140
------------ ----------- ------------- --------------
Balance - December 31, 1993 690,000 6,900 9,236,814 (9,334,964)
Year ended December 31, 1994:
Issuance of Common Stock 1,050
Net Income 151,635
------------ ----------- ------------- --------------
Balance - December 31, 1994 690,000 6,900 9,237,864 (9,183,329)
Nine Months ended September 30, 1995:
Issuance of Common Stock 10,500
Net Income (Loss)
(174,898)
Balance - September 30, 1995 ------------- ------------ -------------- ---------------
690,000 $6,900 $9,248,364 ($9,358,227)
============= ============ ============== ===============
</TABLE>
See Notes to the Financial Statements
3
<PAGE>
<TABLE><CAPTION>
MIKROS SYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- -----------------------------
9/30/95 9/30/94 9/30/95 9/30/94
Revenues: ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Equipment Sales $146,031 $409,436 1,136,708 658,333
Contract Research and Development 525,517 716,583 1,885,501 2,289,105
------------ ------------ ------------- -------------
Total Revenues 671,548 1,126,019 3,022,209 2,947,438
Cost of Sales:
Equipment Sales 106,794 305,545 810,500 487,480
Contract Research and Development 559,415 564,742 1,689,468 1,709,251
------------ ------------ ------------- -------------
Gross Margin 5,339 255,732 522,241 750,707
Operating Expenses:
Selling, General & Administrative 203,054 212,152 658,986 586,130
------------ ------------ ------------- -------------
Total Operating Expenses 203,054 212,152 658,986 586,130
------------ ------------ ------------- -------------
Operating Income (Loss) (197,715) 43,580 (136,745) 164,577
Interest Expense 12,140 14,641 38,153 47,672
------------ ------------ ------------- -------------
Net Income (Loss) ($209,855) $28,939 ($174,898) $116,905
============ ============ ============= =============
Net Income (Loss) per Share ($0.03) $0.00 ($0.02) $0.02
============ ============ ============= =============
Weighted average number
of shares outstanding 7,352,108 7,132,108 7,263,219 7,132,108
============ ============ ============= =============
</TABLE>
See Notes to Financial Statements
4
<PAGE>
<TABLE><CAPTION>
MIKROS SYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended Nine Months Ended
------------------------- --------------------------
9/30/95 9/30/94 9/30/95 9/30/94
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income(Loss) ($209,855) $28,939 ($174,898) $116,905
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH
PROVIDED BY OPERATIONS:
Depreciation & Patent Amortization $16,609 $7,855 $48,413 $36,112
NET CHANGES IN OPERATING ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN:
Accounts Receivable $82,539 ($222,402) $678,428 ($224,893)
Inventory ($73,833) ($55,796) ($80,669) ($45,863)
Other Current Assets $14,257 ($3,382) ($9,312) ($18,771)
Other Assets $0 $0 ($575) $0
(DECREASE) INCREASE IN:
Accounts Payable ($15,036) ($42,361) ($92,326) $8,702
Accrued Payroll & Payroll Taxes ($25,684) $49,900 $4,436 $44,695
Accrued Expenses ($107,643) $93,075 ($425,851) $295,638
Leases Payable ($5,622) ($1,638) $652 $1,983
----------- ------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATIONS: (324,268) (145,810) (51,702) 214,508
----------- ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed Asset Purchases ($1,011) $1,929 ($61,187) ($53,928)
Patents ($6,541) $0 ($6,541) $0
----------- ------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (7,552) 1,929 (67,728) (53,928)
----------- ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Bank Loan $90,000 $0 $90,000 $0
Proceeds from Issuance of Common Stock $0 $0 $12,500 $0
Repayment of Debt $0 ($42,969) ($95,976) ($97,412)
----------- ------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES: 90,000 (42,969) 6,524 (97,412)
----------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH (241,820) (186,850) (112,906) 63,168
CASH AT THE BEGINNING OF THE PERIOD $247,507 $371,260 $118,593 $121,242
----------- ------------ ------------ ------------
CASH AT THE END OF THE PERIOD $5,687 $184,410 $5,687 $184,410
=========== ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest $12,751 $14,641 $38,199 $54,578
=========== ============ ============ ============
</TABLE>
See Notes to the Financial Statements
5
<PAGE>
MIKROS SYSTEMS CORPORATION
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION:
As permitted by rules of the Securities and Exchange Commission applicable to
quarterly reports on Form 10-Q, these notes are condensed and do not contain all
disclosures required by generally accepted accounting principles. Reference
should be made to the financial statements and related notes included in the
Company's 1994 Annual Report on Form 10-K.
In the opinion of the management of Mikros Systems Corporation, the accompanying
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the Company's financial position
at September 30, 1995, the changes in deficiency in assets, and the results of
operations, and cash flows for the three and nine-month periods ended September
30, 1995 and 1994.
The results disclosed in the Statements of Operations for the three and nine
months ended September 30, 1995 are not necessarily indicative of the results to
be expected for the full year.
NOTE B - NOTES AND LOANS PAYABLE:
(1) Outstanding Debt is summarized as follows:
09/30/95 12/31/94
-------- --------
Notes Payable to Banks $117,812 $ 56,600
Other Notes Payable 312,500 379,688
------- -------
$430,312 $436,288
======= ========
6
<PAGE>
B. FINANCING TRANSACTIONS
----------------------
1992-93 Financing
- - -----------------
In a series of transactions consummated on October 27, 1992 and April 27, 1993,
Joseph R. Burns, Thomas J. Meaney, Wayne E. Meyer, Frederick C. Tecce, and John
B. Torkelsen, individually and not as a group, (collectively referred to herein
as the "Investors") acquired (i) all of the loan and equity interests of
Renaissance Holdings PLC and (ii) all of the equity interests of the Chartfield
Group ("Chartfield") in the Company (in each instance, as set forth below in the
succeeding paragraph).
Pursuant to such transactions, each of the Investors acquired, in consideration
of an aggregate of $250,000 (each of the Investors individually paying $50,000
in cash), twenty percent of (i) 50,000 shares of Common Stock, $.01 par value
("Common Stock"), of the Company previously held by Chartfield, (ii) promissory
notes of the Company in the aggregate principal amount of $916,875 previously
held by Renaissance (collectively, the "Investor Notes"), (iii) warrants
("Series C Warrants") to purchase 97,500 shares of Series C Preferred Stock,
$.01 par value, of the Company previously held by Renaissance, and (iv)
Renaissance's loan and equity rights in the Company, including without
limitation, rights under loan agreements, an investment agreement, a note
purchase agreement, and all documents related to such agreements.
In December 1993, the Investors agreed to reduce the amounts owed by the Company
under the Investor Notes, including unpaid interest, in exchange for shares of
Common Stock and Preferred Stock issued by the Company. In return for a
reduction in debt of $416,875 and accrued interest of $273,125, the Company
issued 2,750,000 shares of Common Stock and 690,000 shares of Series D Preferred
Stock which provides for an annual cumulative dividend of $.10 per share. The
Investor Notes were modified to provide for principal payment in sixteen
quarterly payments beginning January 1, 1994 and ending on October 1, 1997.
Interest on the unpaid principal balance is due in quarterly payments beginning
March 31, 1994. As additional consideration for the modification of such loans,
the Company extended the exercise period for the Series C Warrants until April
25, 1999.
NOTE C - INVENTORIES:
Inventories at September 30, 1995 are stated at the lower of cost or market,
computed on the first-in, first-out method.
7
<PAGE>
Part I. Item II.
- - ----------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REVENUE
- - -------
Total revenues were $671,548 for the quarter ended September 30, 1995 compared
to $1,126,019 for the same period in 1994, a decrease of 40.4%. For the nine
months ended September 30, 1995, total revenues were $3,022,209 compared to
$2,947,438 for the same period in 1994, an increase of 2.5% For the quarter and
nine months ended September 30, 1995 Equipment revenues were $146,031 and
$1,136,708, respectively, compared to $409,436 and $658,333, respectively for
the same periods in 1994. These changes are due mainly to revenue associated
with a large contract from the Applied Physics Laboratory, Johns Hopkins
University.
Contract Research and Development revenues were $525,517 and $716,583 for the
quarters ended September 30, 1995 and 1994, respectively, a decrease of 26.7%.
For the nine months ended September 30, 1995 and September 30, 1994, Contract
Research and Development revenues were $1,885,501 and $2,289,105 respectively, a
decrease of 17.6%. These decreases are primarily due to the higher level in
1994 of revenues from the development phase of a U.S. Navy contract for AN/USQ-
120 data terminal sets which are now in production.
COST OF SALES
- - -------------
Equipment cost of sales for the three months ended September 30, 1995 and 1994
was $106,794 (73.1% of revenue) and $305,545 (74.6% of revenue), respectively.
For the nine months ended September 30, 1995 and September 30, 1994, equipment
cost of sales was $810,500 (71.3% of revenue) and $487,480 (74.0% of revenue),
respectively.
Cost of sales of Contract Research and Development revenues was $559,415 (106.4%
of revenue) and $564,742 (78.8% of revenue) for the quarters ended September 30,
1995 and 1994, respectively. For the nine months ended September 30, 1995 and
September 30, 1994, such cost of sales was $1,689,468 (89.6% of revenue) and
$1,709,251 (74.7% of revenue), respectively. The higher cost of sales ratios in
the 1995 periods are due mainly to unreimbursed costs associated with a
development program, the objective of which is to provide proof of concept of
certain proprietary digital signal processing techniques.
8
<PAGE>
INTEREST EXPENSE
- - ----------------
Interest expense was $12,140 versus $14,641 for the quarters ended September 30,
1995 and September 30, 1994, respectively. For the nine months ended September
30, 1995 and September 30, 1994, interest expense was $38,153 and $47,672,
respectively. The lower 1995 amounts are due to a reduction in outstanding debt
in 1995 from 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- - --------------------------------------------
Selling, General and Administrative expenses amounted to $203,054 for the
quarter ended September 30, 1995 compared to $212,152 for the same quarter in
1994 (decrease of 4.3%) due mainly to lower travel and salary expenses in the
1995 period. Selling, General and Administrative expenses were $658,986 and
$586,130 for the nine months ended September 30, 1995 and September 30, 1994,
respectively, (an increase of 12.4%) due mainly to higher travel and salary
expenses.
NET INCOME (LOSS)
- - -----------------
Net Loss for the quarter ended June 30, 1995 was $209,855 compared to net income
of $28,939 for the quarter ended September 30, 1994. For the nine months ended
September 30, 1995 net loss amounted to $174,898 versus net income of $116,905
for the same period in 1994. The lower net income in the 1995 periods versus
1994 is due mainly to the joint development costs mentioned above and higher
selling, general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
1992-93 Financing
- - -----------------
In a series of transactions consummated on October 27, 1992 and April 27, 1993,
Joseph R. Burns, Thomas J. Meaney, Wayne E. Meyer, Frederick C. Tecce, and John
B. Torkelsen, individually and not as a group, (collectively referred to herein
as the "Investors") acquired (i) all of the loan and equity interests of
Renaissance Holdings PLC and (ii) all of the equity interests of the Chartfield
Group ("Chartfield") in the Company (in each instance, as set forth below in the
succeeding paragraph).
Pursuant to such transactions, each of the Investors acquired, in consideration
of an aggregate of $250,000 (each of the Investors
9
<PAGE>
individually paying $50,000 in cash), twenty percent of (i) 50,000 shares of
Common Stock, $.01 par value ("Common Stock"), of the Company previously held by
Chartfield, (ii) promissory notes of the Company in the aggregate principal
amount of $916,875 previously held by Renaissance (collectively, the "Investor
Notes"), (iii) warrants ("Series C Warrants") to purchase 97,500 shares of
Series C Preferred Stock, $.01 par value, of the Company previously held by
Renaissance, and (iv) Renaissance's loan and equity rights in the Company,
including without limitation, rights under loan agreements, an investment
agreement, a note purchase agreement, and all documents related to such
agreements.
In December 1993, the Investors agreed to reduce the amounts owed by the Company
under the Investor Notes, including unpaid interest, in exchange for shares of
Common Stock and Preferred Stock issued by the Company. In return for a
reduction in debt of $416,875 and accrued interest of $273,125, the Company
issued 2,750,000 shares of Common Stock and 690,000 shares of Series D Preferred
Stock which provides for an annual cumulative dividend of $.10 per share. The
Investor Notes were modified to provide for principal payment in sixteen
quarterly payments beginning January 1, 1994 and ending on October 1, 1997.
Interest on the unpaid principal balance is due in quarterly payments beginning
March 31, 1994. As additional consideration for the modification of such loans,
the Company extended the exercise period for the Series C Warrants until April
25, 1999.
For the quarter and nine months ended September 30, 1995, the Company used
$324,268 and $51,702 respectively by operating activities compared to $145,810
used and $214,508 provided, respectively for the same periods in 1994.
The Company is dependent on Department of Defense contracts and could be
vulnerable to future budget cuts by the Navy Department. The Company's present
contracts are for equipment related to ongoing shipbuilding programs and the
Company has no knowledge of budget cuts that would affect its present contracts.
There can be no assurance, however, that such programs will not be subject to
budget cuts.
10
<PAGE>
Part II. OTHER INFORMATION
-----------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
---------------------------------
a) Exhibits. None.
b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
MIKROS SYSTEMS CORPORATION
--------------------------
(Registrant)
Dated: November 3, 1995
/s/ Joseph R. Benek
---------------------------------------
Joseph R. Benek, Vice President Finance
and Chief Accounting Officer
