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: March 31, 1996 COMMISSION FILE #: 2-67918-NY
MIKROS SYSTEMS CORPORATION
--------------------------
(Exact Name of Registrant as Specified in Charter)
DELAWARE 14-1598-200
-------- -----------
(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 March 31, 1996
---------------------------- ----------------
COMMON STOCK, PAR VALUE $.01 7,367,108 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 March 31, 1996 and December 31, 1995
(Unaudited)................................................. 1
Statements of Operations for the Three Months Ended
March 31, 1996 and 1995 (Unaudited) ........................ 3
Statements of Shareholders' Equity for the Years ended
1994 and 1995 and Three Months Ended March 31, 1996
(Unaudited)................................................. 4
Statements of Cash Flows for the Three Months Ended
March 31, 1996 and 1995 (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.................................... 9
<PAGE>
MIKROS SYSTEMS CORPORATION
BALANCE SHEETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
ASSETS 1996 1995
------------------------------ ------------ ------------
CURRENT ASSETS
Cash $ 80,070 $ 77,276
Accounts Receivable
Government 31,389 65,186
Trade 17,550 52,967
Inventories 116,133 76,321
Other Current Assets 16,469 11,559
------------ ------------
TOTAL CURRENT ASSETS 261,611 283,309
------------ ------------
FIXED ASSETS
Equipment 574,397 574,397
Furniture and Fixtures 59,207 59,207
Leasehold Improvements 3,408 3,408
------------ ------------
637,012 637,012
Less: Accumulated Depreciation
and Amortization (481,024) (465,955)
------------ ------------
FIXED ASSETS, NET 155,988 171,057
------------ ------------
SECURITY DEPOSITS 801 1,001
UNBILLED RECEIVABLES 58,999 58,681
PATENT COSTS, NET 32,311 32,947
------------ ------------
TOTAL ASSETS $ 509,710 $546,995
============ ============
See Notes to Financial Statements
<PAGE>
MIKROS SYSTEMS CORPORATION
BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND MARCH 31, DECEMBER 31,
SHAREHOLDERS' EQUITY (DEFICIENCY) 1996 1995
------------------------------------------ ----------- ------------
CURRENT LIABILITIES
Accounts Payable $ 279,972 $ 268,933
Notes Payable
Bank 134,271 134,271
Related Parties and Others 107,250 30,000
Obligations under Capital Leases 5,870 6,403
Accrued Payroll and Payroll Taxes 33,926 14,308
Accrued Interest 1,343 11,442
Accrued Vacations 50,037 49,188
Accrued Expenses 199,457 89,982
------------ ------------
TOTAL CURRENT LIABILITIES 812,126 604,527
------------ ------------
NOTES PAYABLE
Bank 16,992 18,542
Related Parties and Others 473,250 312,500
OBLIGATIONS UNDER CAPITAL LEASES-NONCURRENT 11,102 11,827
------------ ------------
TOTAL LIABILITIES 1,313,470 947,396
------------ ------------
COMMITMENTS AND CONTINGENCIES
MANDATORILY REDEEMABLE SERIES C PREFERRED STOCK
par value $.01 per share, authorized 150,000
shares, issued and outstanding 5,000 shares
in 1996 and 1995 80,450 80,450
------------ ------------
SHAREHOLDERS' EQUITY (DEFICIENCY)
Common Stock, par value $.01 per share,
authorized 25,000,000 shares, issued and
outstanding 7,367,108 shares in 1996 and
7,352,108 in 1995 73,671 73,521
Preferred Stock, convertible,
par value $.01 per share, authorized 2,000,000
shares, issued and outstanding 1,005,000 shares
in 1996 and 1995 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 1996 and 1995 11,316 11,316
Preferred Stock, Series D,
par value $.01 per share 690,000 shares authorized,
issued and outstanding in 1996 and 1995 6,900 6,900
Capital in excess of par 9,248,589 9,248,364
Accumulated deficit (10,234,736) (9,831,002)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIENCY) (884,210) (480,851)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 509,710 $546,995
============ ============
See Notes to Financial Statements
<PAGE>
MIKROS SYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended,
March 31, 1996 March 31, 1995
-------------- --------------
Revenues:
Equipment Sales $ 35,995 $ 507,393
Contract Research and Development 107,680 747,978
----------- ----------
Total Revenues 143,675 1,255,371
----------- ----------
Cost of Sales:
Equipment Sales 32,312 366,782
Contract Research and Development 300,226 639,842
----------- ----------
Total Cost of Sales 332,538 1,006,624
----------- ----------
Gross Margin (188,863) 248,747
----------- ----------
Expenses:
Selling, General and Administrative 197,953 218,578
Interest 16,918 12,148
----------- ----------
Total Expenses 214,871 230,726
----------- ----------
Net Income (Loss) ($403,734) $ 1 8,021
=========== ==========
Net Income (Loss) per share ($0.05) $0.00
=========== ==========
Weighted average number of
shares outstanding 7,357,108 7,152,108
=========== ===========
See Notes to Financial Statements
<PAGE>
MIKROS SYSTEMS CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
(UNAUDITED)
<TABLE>
<CAPTION> Common Preferred Preferred
Stock Stock Stock B
$.01 PAR $.01 PAR $.01 PAR
VALUE VALUE VALUE
--------- ------- --------- -------- --------- --------
PAR PAR PAR
SHARES VALUE SHARES VALUE SHARES VALUE
--------- ------- --------- -------- --------- --------
<C> <C> <C> <C> <C> <C>
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
Year Ended December 31, 1995:
Issuance of Common Stock 200,000 2,000
Net Income (Loss)
--------- ------- --------- -------- --------- --------
Balance-December 31, 1995 7,352,108 73,521 1,005,000 10,050 1,131,663 11,316
Issuance of Common Stock 15,000 150
Net Income (Loss)
--------- ------- --------- -------- --------- --------
Balance March 31, 1996 7,367,108 $73,671 1,005,000 $10,050 1,131,663 $11,316
========= ======= ========= ======= ========= ========
Preferred
Stock D Capital
$.01 PAR in excess Accumulated
VALUE of Par Deficit
--------- ------- --------- -----------
PAR
SHARES VALUE
--------- ------- --------- -----------
<C> <C> <C> <C>
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)
Year Ended December 31, 1995:
Issuance of Common Stock 10,500
Net Income (Loss) (647,673)
--------- ------- ---------- ------------
Balance-December 31, 1995 690,000 6,900 9,248,364 ( 9,831,002)
Issuance of Common Stock 225
Net Income (Loss) (403,734)
--------- ------- ---------- ------------
Balance March 31, 1996 690,000 $ 6,900 $9,248,589 ($10,234,736)
========= ======= ========== ============
</TABLE>
See Notes to Financial Statements
<PAGE>
MIKROS SYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
The Three Months Ended
March 31, 1996 March 31, 1995
-------------- --------------
Cash Flows Provided (Used) by Operating
Activities:
Net Income (Loss) ($403,734) $ 18,021
Adjustments to reconcile Net Income (Loss)
to Net Cash Provided (Used) by Operating
Activities:
Depreciation and Amortization 15,704 16,750
Net Changes in Operating Assets and
Liabilities:
(Increase) Decrease in:
Accounts Receivable 69,214 674,708
Unbilled Receivables (318) (192,474)
Inventories (39,812) 26,799
Other Current Assets (4,910) (4,235)
Other Assets 200 (575)
Increase (Decrease) in:
Accounts Payable 11,039 (147,495)
Accrued Payroll and Payroll Taxes 5,706 37,413
Other Liabilities and Interest 112,880 (228,295)
--------- ---------
Net Cash Provided (Used) by Operations (234,031) 200,617
--------- ---------
Cash Flows Provided (Used) by Investing
Activities:
Fixed Asset Purchases 0 (31,440)
Patents 0 0
--------- ---------
Net Cash (Used) by Investing Activities: 0 (31,440)
Cash Flows Provided (Used) by Financing
Activities:
Proceeds from Bank Loan 0 46,212
Proceeds from Current Financing 238,000 0
Proceeds from Issuance of Common Stock 375 0
Payments on Long Term Debt (1,550) (68,594)
--------- ---------
Net Cash Provided (Used) by Financing
Activities: 236,825 (22,382)
--------- ---------
Net Increase (Decrease) in Cash 2,794 146,795
Cash at Beginning of Period 77,276 118,593
--------- ---------
Cash at End of Period $ 80,070 $265,388
========= =========
Supplemental disclosure of cash flow
information:
Cash paid during the quarter for interest $ 27,061 $12,715
========= =========
See Notes to Financial Statements
<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 1995 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 March 31,
1996, the changes in deficiency in assets, and the results of
operations, and cash flows for the three-month periods ended
March 31, 1996 and 1995.
The results disclosed in the Statements of Operations for the
three months ended March 31, 1996 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:
03/31/96
12/31/95
--------
--------
Notes Payable to Banks $151,263
$152,813
Other Notes Payable 580,500
342,500
--------
--------
$731,763
$495,313
========
========
<PAGE>
2) 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 certain loan and equity interests in the
Company from other debt and equity holders.
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 (ii) promissory notes of the Company in the
aggregate principal amount of $916,875 (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 and (iv) certain 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.
Pursuant to such loan documents, among other things, the Company
is prohibited from paying dividends on its Common Stock, the
Company has granted to the Investors a security interest in all
of the assets of the Company and the Investors have the right to
designate 2/7ths of the Board of Directors of the Company, which
right has not been exercised. Each of Messrs. Burns, Meaney,
Meyer and Torkelsen is a Director of the Company.
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 payments in sixteen quarterly installments
beginning January 1, 1994 and ending on October 1, 1997.
Interest on the unpaid principal balance is due in quarterly
installments beginning on 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. As of December 31, 1995, the Company was in
arrears on two quarterly principal payments. The Investors have
authorized deferral of all principal payments until 1997.
<PAGE>
1996 Financing
--------------
In a series of events from February through May 1996, the Company
raised an aggregate of $518,000 in debt financing pursuant to the
issuance of secured promissory notes.
The promissory notes are for a term of approximately eighteen
months and include an interest rate of 12% on the unpaid balance.
The first payment is due on June 15, 1996 and quarterly
thereafter. The principal payments will be paid on the fifteenth
of March, June and September 1997. The notes are secured by the
assets of the Corporation. As additional consideration, warrants
for the purchase of common stock were granted (the number of
shares were based on the amount of the promissory note and equal
to five shares to each dollar). The warrant price is $.01 per
share.
The following officers and directors participated in the 1996
financing: Wayne E. Meyer, Thomas J. Meaney, Deborah A.
Montagna, and Patricia A. Bird.
NOTE C - INVENTORIES
--------------------
Inventories at March 31, 1996 are stated at the lower of cost or
market, computed on the first-in, first-out method.
<PAGE>
Part I. Item II.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REVENUE
-------
Total revenues were $143,675 for the quarter ended March 31, 1996
compared to $1,255,371 for the same period in 1995.
This decrease is due to the U.S. Navy's delaying the placement of
an anticipated order with an approximate value of $2,000,000.
The
Company expectes this order to be placed during the second
quarter, but there can be no assurances in this regard. As a
result of the above, the Company had a minimal backlog of orders
during the first quarter compared to the same period in 1995.
COST OF SALES
-------------
Cost of sales for the quarter ended March 31, 1996 were $332,538
or 231% of revenue, versus $1,006,624 or 80.2% of revenue in the
same quarter of 1995. The increase in cost of sales as a percent
of revenue for Contract Research and Development costs (278.8%
versus 85.5% for the first quarters of 1996 and 1995
respectively) is primarily due to product development costs
associated with commercial programs which are only partially
funded by the Company's customer. The Company expects to begin
booking revenues related to the above mentioned commercial
programs during the second quarter of 1996. The Company cannot
currently estimate the amount of revenue to be derived from such
programs in the second quarter of 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------
Selling, General and Administrative expenses for the quarter
ended March 31, 1996 was $197,953 versus $218,578 in the quarter
ended March 31, 1995, decrease of 9.6%. This decrease is due
mainly to lower costs for travel, payroll and related employee
fringe benefits.
INTEREST EXPENSE
----------------
Interest expense was $16,918 in the quarter ended March 31, 1996
compared to $12,148 for the same quarter in 1994. The increase
is due to an increase in notes payable outstanding during 1995
and 1996 to date.
<PAGE>
NET INCOME (LOSS)
-----------------
Net Loss for the quarter ended March 31, 1996 was $403,734 versus
net income of $18,021 for the same period in 1995. This decrease
is because of the lower revenue and higher interest expense in
the 1996 quarter.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's financial statements for the quarter ended March
31, 1996 have been prepared on a going concern basis which
contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business.
The Company incurred a net loss of $403,734 for the quarter ended
March 31, 1996, and as of March 31, 1996 had an accumulated
deficit of $10,234,736. At March 31, 1996 the Company had
negative working capital of $550,575 compared to negative working
capital of $200,617 at December 31, 1995. For the quarter ended
March 31, 1996 the Company used $234,031 in operating activities.
For the same period in 1995, the Company provided $220,617
through operating activities. The Company expects to incur
substantial expenditures to expand its commercial wireless
communications business. The Company's working capital, plus
revenue from product sales and research contracts from its
military business will not be sufficient to meet such objectives
as presently structured. Management recognizes that the Company
must generate additional resources and consider reduction in
operating costs in order to continue operations with resources
available. Management plans include the issuance of debt
financing, to be completed in May 1996. In addition, the Company
will consider the sale of additional equity securities under
appropriate market conditions, alliances or other partnership
agreements with entities interested in supporting the Company's
commercial and military programs, or other business transactions
which would generate resources sufficient to assure continuation
of the Company's operations and research programs.
The Company has retained investment banking counsel to advise it
on the possible sale of equity securities as well as to introduce
and assist in the evaluation of potential merger and partnering
opportunities. No assurance can be given, however, that the
Company will be successful in raising additional capital beyond
the current debt financing effort. Further, there can be no
assurances, assuming the Company successfully raises additional
funds or enters into a business alliance, that the Company will
achieve profitability or positive cash flow. If the Company is
unable to obtain additional adequate financing or enter into such
business alliance, management will be required to sharply curtail
its operations.
<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.
<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: May 20, 1995
/s/ Thomas J. Meaney
-----------------------
Thomas J. Meaney
President and
Chief Executive Officer
