MIKROS SYSTEMS CORPORATION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1995. Commission file
number 2-67918
MIKROS SYSTEMS CORPORATION
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(Exact name of Registrant as specified in charter)
Delaware 14-1598-200
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3490 U.S. Route 1 Building #5 Princeton, New Jersey 08540
(Address of principal executive offices, Including Zip Code)
Registrant's Telephone Number, including area code: 609-987-1513
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Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: None
Common Stock, $.01 par value
Convertible Preferred Stock, $.01 par value
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 by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of Form 10-K or any amendment to this Form
10-K. [ X ]
<PAGE>
The aggregate market value of the voting stock held by
nonaffiliates of Registrant as of March 1, 1996, was
approximately $1,169,000, computed by multiplying the average of
the bid and asked price quoted by National Quotation Bureau, Inc.
for such stock times the amount by which the total shares
outstanding exceeded the shares beneficially owned by officers,
directors and the principal shareholders of the registrant. Such
determination shall not, however, be deemed to be an admission
that any such shareholders are "affiliates" as defined in Rule
405 under the Securities act of 1933. The number of shares
outstanding of the Registrant's $.01 par value common stock as of
March 1, 1996 was 7,367,108.
<PAGE>
PART I
Item 1. Description of Business
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Introduction
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Mikros Systems Corporation was founded in 1978 in Albany, New
York to exploit microprocessor technology developed at the
General Electric Research and Development Center. The Company was
incorporated under the laws of the State of Delaware in 1978 and
acquired all rights of General Electric Venture Capital Corp., a
subsidiary of General Electric Company, to certain microcomputer
technology. The Company's headquarters are located at 3490 US
Route 1, Princeton, New Jersey 08540, telephone (609) 987-1513.
Offices are also located in New Canaan, Connecticut and in the
Washington, D.C. area.
During the first half of the 1980s, Mikros specialized in
applying microprocessor technology to the development of military
computers. The Company designed and sold MIL-STD-1750A chip
sets, circuit boards and development systems, to a number of
major defense contractors. Since 1986, the Company has focussed
on improving the performance of digital communication systems
used by the U.S. Navy, particularly the "Link-11" digital radio
network. More recently, Mikros has begun to diversify and
explore the application of "dual-use" technologies to commercial
wireless communications applications.
Programs active at Mikros during 1995 fall into several
categories:
- Link-11
- Underwater communications
- Commercial wireless communications
Link-11
- -------
Link-11 is a radio network used primarily by the U.S. Navy, but
also by the Allies and other services which allows computers in
ships and aircraft to exchange data from radars or other sensors.
The network was first introduced in the 1960s. The Link-11
system includes ultra-high frequency (UHF) and high frequency
(HF) radios connected to Data Terminal Sets, which are connected
in turn to cryptographic devices and computers. Most ships today
continue to use original, single-frequency, Link-11 equipment
that is bulky and not highly reliable.
The Company's role in Link-11 began in 1987 as part of a
feasibility study on the application of 1750A technology to the
Link-11 Data Terminal Set. All of the Company's subsequent work
on Link-11 has involved the Data Terminal Sets, which operate as
"modems", modulating signals for transmission and demodulating
received signals. The Data Terminal Sets also act as
controllers, determining the order in which data are reported and
processed.
<PAGE>
In 1988, under a development contract with the Johns Hopkins
University Applied Physics Laboratory, the Company began research
to develop Multi-Frequency Link-11 ("MF Link-11") Data Terminal
Sets, to improve performance by transmitting simultaneously over
several radio frequencies. In 1990 the U.S. Navy performed
at-sea testing of prototype Mikros MF Link-11 terminals which
demonstrated dramatic improvements in network efficiency.
Through December 31, 1995 funding on Link-11 related programs
aggregated $4.61 million, of which $511,000 was funded in 1995.
Because of the Multi-Frequency success, Mikros was awarded a $1
million contract in November 1993 with The Applied Physics
Laboratory to develop a dual net version which would enable U.S.
Navy ships to operate simultaneously in two different Link-11
battlegroup networks. This contract, later increased to $1.5
million, was completed in October 1995.
In May 1990, the U.S. Navy awarded an additional contract to
design and implement a pre-production version of the Company's
"Fleet Link-11" Data Terminal Set, based on digital signal
processing technology previously developed by the Company while
development on the MF Link-11 system continued. This contract,
later increased to $2.6M for additional options, was completed in
April 1993.
During November 1991, the U.S. Navy awarded the Company a $6.1
million multi-year follow-on contract to produce initial
production versions of the enhanced Multi-Frequency Link-11
equipment, designated the AN/USQ-120, for new U.S. Navy cruisers
and destroyers. Contract value has since increased to $6.7
million. Production of the AN/USQ-120 continued throughout 1995.
Underwater Communications Programs
- ----------------------------------
The sea has proven to be an extremely difficult medium for data
communications given current technology. During the last half of
1993, Mikros was awarded two Small Business Innovation Research
(SBIR) Phase II contracts to initiate development of underwater
communications systems. Under the Enhanced Signal Processing
Program, Mikros developed an underwater communications system to
provide reliable communications between land-based sites and
deployed stationary equipment; the Underwater Data Link Program
confirmed the feasibility of long range communications of
tactical data from a surface battlegroup to a submarine at ranges
of 50 to 100 nautical miles and interfaces with existing
transmitters and receivers. The Underwater Data link was
recently approved by the U.S. Navy as a FY97 Advanced Technology
Demonstration Program.
Commercial Wireless Communications
- ----------------------------------
During 1995 Mikros expanded its initiatives in wireless
communications to provide technology which significantly raises
spectrum efficiency in current and emerging radio data
broadcasting and personal communications services.
<PAGE>
Mikros core technology provides higher-speed, higher-quality
transmission of digital data in wireless and broadcast networks.
Digital signal processing (DSP) methods once reserved for
high-end military systems are now available for commercial
applications, and these techniques are increasingly being used in
cellular telephone, digital radio and other wireless networks.
Opportunities exist within the emerging "Information
Infrastructure" for DSP techniques to provide faster, flexible,
adaptable, more reliable, and cost-effective services.
Mikros is focussing initially on two segments: radio data
broadcasting and personal communication services. Many existing
wireless data services use regular FM radio stations to provide
subscribers with real-time stock quotes, mobile paging, and
specialized wireless on-line services. Under current Federal
Communications Commission (FCC) regulations, unused portions of
the FM radio broadcast spectrum, known as subcarriers, are used
to transmit data in addition to the regular radio station
programs. Listeners (as a subscriber) with properly equipped FM
radios can decode the subcarrier data while other FM radios
continue to receive regular station programming. In a typical
business arrangement a third-party content provider, such as a
financial information service, leases the FM subcarrier spectrum
from radio stations and provides subscribers with special FM
radios to receive and process the subcarrier data.
In the radio data broadcast area, Mikros currently has ongoing
relationships with several of the leading data services using FM
subcarriers. In 1995, Mikros unequivocally demonstrated that its
DSP-based technology provides more than four times the data rate
of the existing service in the same bandwidth. The Company
believes this to be typical of the performance improvements
achievable with its DSP technology. Activities in 1995 focussed
on data broadcasters already using FM radio subcarriers for "last
mile" transmission, including mobile paging and specialized data
networks.
In March, 1996, the Company entered into an agreement with Data
Broadcasting Corporation, the industry leader in wireless on-line
stock market and sports data services, providing for the
development by the Company of high speed wireless data equipment,
including handheld and desktop receiver/modems and transmission
equipment.
Department of Defense Contracts
- -------------------------------
The Company is dependent on Department of Defense contracts and
could be vulnerable to future budget cuts by the U.S. 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.
<PAGE>
Marketing
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In 1995, revenues from Link-11 programs and underwater
communications amounted to 70% and 17%, respectively, of total
revenues. In 1994, revenues from Link-11 programs and underwater
communications amounted to 88% and 10%, respectively, of total
revenues.
The Company, like many small businesses, relies heavily on its
major customers and programs. During 1995, the loss of any of
the Company's prime contracts would have significantly slowed the
Company's growth and the Company believes that such a loss would
have materially adversely affected the Company's results of
operations.
The Company does all its marketing using its own employees.
Backlog
- -------
As of December 31 1995, the Company had a backlog of $50,000,
compared to $550,000, at December 31, 1994 and $859,000 at
December 31, 1993. The December 31, 1995 backlog will all be
billed in 1996.
Engineering
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Engineering is a critical factor in the development of the
Company's present and future products. The Company currently
employs four full-time engineers/programmers, two executives and
three technicians to work on design, development and production.
At present, the Company engages independent technical consultants
in its development effort from time to time. Each independent
technical consultant, as a condition of engagement, executes a
confidentiality agreement. The Company will continue to rely on
independent consultants for support in the development of
additional products. The Company intends to add to its
engineering staff as its needs grow.
Manufacturing
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A microcomputer generally consists of integrated circuits,
whether assembled on circuit boards or incorporated into medium
or large scale integrated chips which are then assembled on
circuit boards, and of peripheral equipment and software for
making the circuits function for particular applications. The
Company uses subcontractors for the manufacturing of integrated
circuit chips and of printed circuit cards. Final assembly and
production testing of products are performed within the Company.
In addition, the Company integrates peripheral equipment
manufactured by others into its microcomputer systems.
The Company has agreements with several of its suppliers to
purchase critical components for its circuit cards. Many of the
Company's products are compatible with the industry-standard VME
bus interconnection scheme, and more than 100 different vendors
supply peripheral equipment compatible with this standard.
<PAGE>
Research and Development
- ------------------------
In 1994, the Company began research on a method of optimizing
spectrum efficiency for wireless communications in radio data
broadcasting and personal communications services (PCS) markets
and continued this effort through 1995.
Patents
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In addition to an already existing patent, the Company in 1994
filed a patent application on certain digital signal processing
technology.
Competition
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High technology products such as microcomputers often require
large investments of both money and talent. Many large companies
with greater financial and human resources than the Company are
currently investing heavily in products that compete directly
with the Company's products. There is no assurance that the
Company's products can be successfully marketed against such
competition.
Being first in the market with new high technology is a critical
factor in a company's success in the market. There is no
assurance that the Company will be able to introduce new products
to the market before any of its competitors.
Employees
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As of March 1, 1996, the Company had nineteen full time
employees, including five executives, six administrative, seven
engineers/programmers and one technician.
None of the Company's employees is represented by a union, and
the Company believes its relations with its employees are
satisfactory. Employees having access to proprietary information
have executed nondisclosure agreements.
Warranty
- --------
The Company warrants that the equipment made by it will be free
from defects of material and workmanship. The Company normally
provides a limited warranty of 90 days from the date of shipment.
If during the warranty period any component part of the equipment
becomes defective by reason of material or workmanship and the
purchaser immediately notifies the Company of such defect, the
Company is obliged, at its option, either to supply a replacement
part, to request that such part be returned to the plant for
repair or to perform necessary repair at the purchaser's
location.
The Company's warranty expense has been minimal over the past
three years.
<PAGE>
Inventories
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The Company's inventory at December 31, 1995 had an aggregate
value of approximately $76,000 and consisted primarily of raw
materials and work-in-process. This compares to inventories of
approximately $139,000 at December 31, 1994, which was
comprised totally of raw materials and work-in-process.
Source of Supply
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The Company purchases all components and supplies for the
manufacture of its products from a variety of sources, domestic
and foreign.
Changing the supplier of a component may result in additional
cost and production delays. The Company has agreements with
several key suppliers for critical components for its circuit
cards.
Item 2. Properties
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The Company owns no real property. The Company leases facilities
in Princeton, New Jersey totalling approximately 10,200 square
feet which contain all of the Company's administrative offices
and research facilities. The lease agreement for such facilities
expires in March, 1998 and the monthly rental is $13,780. The
Company also leases, on an annual basis, office space in the
Washington, D.C. area for $1,000 per month, and in New Canaan,
Connecticut.
Item 3. Legal Proceedings
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Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders
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Inapplicable.
<PAGE>
PART II
Item 5. Market for the Registrants' Common Equity and Related
Stockholder Matters
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The following table sets forth the range of high and low closing
bid prices of the Common Stock for the periods indicated by the
National Quotation Bureau, Inc. The quoted prices represent only
prices between dealers on each trading day as submitted from time
to time by certain of the securities dealers wishing to trade in
the Company's Common Stock, do not reflect retail mark-ups,
mark-downs or commissions, and may differ substantially from
prices in actual transactions.
Bid
High Low
1995
First Quarter $ .15 $ .05
Second Quarter .5625 .07
Third Quarter .875 .25
Fourth Quarter .875 .25
1994
First Quarter $ .10 $ .0625
Second Quarter .12 .05
Third Quarter .15 .08
Fourth Quarter .1875 .10
1993
First Quarter $ .10 $ .02
Second Quarter .12 .08
Third Quarter .125 .10
Fourth Quarter .125 .0625
The Company has never paid cash dividends on its Common Stock.
Any payment of cash dividends in the future will depend upon the
Company's earnings (if any), financial condition, and capital
requirements.
In addition, the Company has executed certain loan agreements
which prohibit the payment of a dividend on the Common Stock as
long as such agreements are in place. (see "Item 7. Management's
Discussion and Analysis of Financial Conditions and Results of
Operations - 1992-1993 Financing" below).
As of March 1, 1996, the Company had 507 holders of record of its
Common Stock.
<PAGE>
Item 6. Selected Financial Data (1)
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<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993 1992 1991
------------------------------------------------------
<C> <C> <C> <C> <C>
INCOME STATEMENT
Total Revenue $3,379,897 $4,445,468 $2,909,202$2,899,810 $2,787,054
Net Income(Loss) (647,673) 151,635 447,140 116,636 114,899
Income (Loss) per
common share-Primary (.10) .01 .09 .02 .03
Fully Diluted - - - - -
Weighted average
number of common
shares outstanding-
Primary 7,285,441 7,135,441 4,371,011 4,357,108 3,975,546
Weighted average
number of common
shares outstanding-
Fulled Diluted 12,880,930 8,415,576 5,376,011 5,362,108 4,980,546
BALANCE SHEET
Current Assets 283,309 1,405,554 518,289 647,639 400,728
Current Liabilities 604,527 1,118,537 304,246 1,026,009 1,356,255
Total Assets 546,995 1,641,001 806,006 912,492 628,076
Long-Term Liabilities 342,869 287,692 419,873 500,526 2,500
Total liabilities 947,396 1,406,229 724,119 1,526,535 1,358,755
Shareholders' Equity
(Capital Deficiency) (480,851) 154,322 1,437 (688,843) (785,379)
<FN>
(1) The above data should be read in conjunction with the
financial statements of the Company included elsewhere
herein.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
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Results of Operations, General: The Company since 1990 has
derived a significantly greater percentage of its revenue from
government R & D contracts. Once a contract is signed, the
government can not reduce the contract price. The government
may, however upon notice and for cause, terminate a contract at
any time. The government remains liable for all costs the
Company incurred in performing the contract through the date of
termination. All proprietary knowledge gained, even if the
contract is terminated, is retained by the Company and can be
used for future R & D contracts or production contracts. The
Company believes that as the application of the Company's R & D,
technology and expertise to production and manufacturing
continues to broaden, the effect of a termination, completion, or
non-renewal of a specific R & D contract on the Company's
financial or operational condition lessens.
<PAGE>
The Company includes inflation and changing price provisions in
its contracts and the Company intends to continue to seek such
provisions in future contracts.
1995 vs. 1994:
- --------------
Total revenues in 1995 were approximately $3,380,000 compared to
$4,445,000 in 1994, a decrease of 24.0%.
In 1995, revenues from research and development contracts was
approximately $1,990,000 or 58.9% of total revenues as compared
to $3,048,000 or 68.6% of total revenues in 1994. Revenues from
equipment sales in 1995 were approximately $1,390,000 or 41.1% of
total revenues compared to $1,397,000 or 31.4% of total revenues
in 1994. The decrease in contract research and development
revenues in 1995 versus 1994 is due primarily to a reduction in
U.S. Navy funding for such efforts.
Total cost of sales in 1995 was approximately $2,876,000 or 85.1%
of total revenues as compared to $3,383,000 or 76.1% of total
revenues in 1994. Contract R & D cost of sales in 1995 was
approximately $1,796,000 or 90.2% of Contract R & D revenues
compared to $2,341,000 or 76.8% in 1994. The higher cost of
sales ratio and resulting decreased gross margin in 1995 is
because approximately 12.9% of Contract R & D revenues resulted
from a development program on which cost was shared equally with
a commercial customer and a lower volume of orders received from
the U.S. Navy which resulted in an unfavorable absorption of
fixed overhead costs.
General and Administrative expenses were approximately $860,000
in 1995 compared to $850,000 in 1994. Interest expense in 1995
amounted to approximately $53,000 in 1995 versus approximately
$61,000 in 1994.
In 1995, the Company incurred $238,000, or 7.0% of total
revenues, for research and development in the area of optimizing
spectrum efficiency for wireless communications related to the
Company's expanded initiatives in commercial wireless
communications. Any such expenses incurred in 1994 were minimal.
There was a net loss for 1995 of approximately $648,000 compared
to net income in 1994 of approximately $152,000. The loss in
1995 is due to the lower revenue volume in 1995 for Contract R &
D and increased expenses for research and development related to
commercial wireless communications.
1994 vs 1993:
- -------------
Total revenues in 1994 were approximately $4,445,000 compared to
$2,909,000 in 1993, an increase of 52.8%.
<PAGE>
In 1994, revenues from research and development were
approximately $3,048,000 or 68.6% of total revenues compared to
$2,845,000 in 1993, or 97.8% of total revenues. Equipment
revenues in 1994 were $1,397,000 or 31.4% of total revenues
compared to $64,000 or 2.2% of total revenues in 1993. The
increase in equipment revenues in 1994 is due mainly to revenues
from a contract from the U.S. Navy for production of data
terminal sets; whereas in 1993 equipment sales consisted of SO5
computer boards to Bendix Test Systems Division.
Total cost of sales in 1994 was approximately $3,383,000 or 76.1%
of revenues versus $2,054,000 or 70.6% of revenue in 1993. R&D
cost of sales in 1994 was approximately $2,341,000 76.8% of R&D
revenue compared to $2,031,000 or 71.4% in 1993. Cost of sales
for equipment was $1,041,000 or 74.5% of equipment revenue in
1994 compared to $23,000 or 35.9% in 1993.
The decrease in the total gross margin and for equipment sales in
1994 is due to the higher costs of the data terminal sets sold in
1994 which comprised 100% of Equipment Sales as compared to the
SO5 computer boards sold in 1993 which comprised 100% of
Equipment Sales.
General and administrative expenses were approximately $850,000
in 1994 or 19.1% of revenue versus $679,000 or 23.3% of revenue.
Interest expense in 1994 was approximately $61,000 or 1.4% of
revenue compared to $25,000 in 1993 or 0.8% of revenue. Although
total debt outstanding during 1994 was less than in 1993, a debt
restructuring in 1993 called for a reduction in interest actually
owed and paid.
Net Income in 1994 was $151,635 or 3.4% of revenue versus
$447,140 or 15.4% of revenue in 1993. The difference is because
1993 included a gain of $295,893 from a restructuring of debt.
Without such gain, Net Income in 1993 would have been $151,245.
1993 vs 1992:
- -------------
Total Revenues in 1993 were slightly higher than 1992 at
approximately $2,909,000, and $2,900,000 respectively.
Revenues from research and development contracts were
approximately $2,845,000 in 1993 or 97.8% of total revenues,
compared to $2,567,000 in 1992 or 88.5% of total revenue in 1992.
Hardware revenues was approximately $64,000 in 1993 or 2.2% of
total revenue versus approximately $333,000 in 1992 or 11.5% of
total revenue. This decrease is due primarily to a reduction in
sales of SO5 computer boards to Bendix Test Systems Division.
Total cost of sales in 1993 was approximately $2,053,000 or 70.6%
of sales, versus $1,962,000 or 67.6% of sales in 1992. R & D
cost of sales in 1993 was approximately 71% of R & D revenue in
1993 compared to 72% in 1992. Hardware cost of sales was 36% of
hardware revenue or $23,000 compared to 31% in 1992, or $102,000.
<PAGE>
General and administrative expenses were approximately $679,000
in 1993 or 23.3% of sales compared to $684,000 in 1992 or 23.5%
of sales. Interest expense was approximately $25,000 in 1993
versus $138,000 in 1992. The lower amount in 1993 is a result of
a debt restructuring in 1993 which reduced the amounts of
principal and interest due to creditors. (see "Liquidity and
Capital Resources" and "1992-93 Financing").
Net Income in 1993 was $447,141 (15.4% of sales) versus $116,636
in 1992 (4.0% of sales). This increase in net income was due
primarily to a gain of $295,893 from the restructuring of debt.
Liquidity and Capital Resources
- -------------------------------
Since its inception, the Company has financed its operations
through debt, private and public offerings of equity securities
and cash generated by operations.
In 1995, the Company had negative cash flow from operations of
approximately $51,000 compared to positive cash flow from
operations of $224,000 in 1994 and $50,000 in 1993. There was
negative working capital of $321,000 at December 31, 1995 and
working capital of $287,000 and $214,000 at December 31, 1994 and
1993, respectively.
A substantial portion of the Company's costs and expenses is
represented by labor and related benefits. Such costs are
recovered against R & D contracts with the government. They are
paid by the Company monthly prior to the submission of invoices
to the Federal government. Historically, any delays have not
been significant and have not had a detrimental effect on the
Company's operations. The Company believes that this will
continue to be the case. In 1995, the Company reduced its number
of employees from 31 to 19, primarily because of attrition.
The Company is dependent on Department of Defense contracts and
could be vulnerable to future budget cuts by the U.S. 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.
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.
<PAGE>
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 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. 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 January 1997.
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 promisorry notes are for a term of approximately eighteen
months and include an interest rate of 12% on the unpaid balance.
The first interest payment is due on June 15, 1996 and quarterly
thereafter. The prinicipal 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.
<PAGE>
Item 8. Financial Statements and Supplementary Data
- -----------------------------------------------------
The financial statements required to be filed pursuant to this
Item 8 are appended to this report on Form 10-K. A list of the
financial statement schedules filed herewith is found at "Item 14
Exhibits, Financial Statement Schedules and Reports on Form 8-K".
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure
- ----------------------------------------------------------
Not Applicable
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Company
- ---------------------------------------------------------
Election of Directors
- ---------------------
At the Meeting six Directors are to be elected to hold office until
the next Annual Meeting of Stockholders and until their successors
shall have been elected and qualified.
The number which constitutes the entire Board of Directors of the
Company is seven. There is one vacancy on the Board of Directors.
As described below, certain debt and equity holders of the Company
have the right to designate 2/7ths of the Board of Directors of the
Company. Proxies cannot be voted for a greater number of persons
than the number of nominees named in this Proxy Statement.
It is the intention of the persons named in the enclosed form of
proxy to vote the stock or Warrants represented thereby, unless
otherwise specified in the proxy, for the election as Directors of
the persons whose names and biographies appear below. Except for
Mr. Tecce, all of the persons whose names and biographies appear
below are at present Directors of the Company.
In the event any of the nominees named below should become
unavailable or unable to serve as a director, it is intended that
votes will be cast for a substitute nominee designated by the Board
of Directors. The Board of Directors has no reason to believe that
the nominees named will be unable to serve if elected. Each of the
nominees has consented to being named in this Proxy Statement and
to serve if elected.
The nominees for election to the Board of Directors of the Company
are as follows:
SERVED AS
A DIRECTOR
NAME AGE SINCE POSITION(S) WITH THE COMPANY
- --------------- --- ---------- --------------------------
Joseph R. Burns 58 1984 Senior Vice President, Chief
Scientist and Director
William V. Goodwin 71 1991 Director
Thomas J. Meaney 61 1986 President, Chief Executive
Officer and Director
Wayne E. Meyer 70 1988 Director and Chairman of the
Board
Frederick C. Tecce 60 -- --
John B. Torkelsen 50 1985 Director
The principal occupation and business experience, for at least the
past five years, of each nominee is as follows:
<PAGE>
Joseph R. Burns was a Director and President of the Company from May
1984 until July 1986. From July 1986 until December 1986, Dr. Burns
was Chairman of the Company. From January 1987 until April 1988,
Dr. Burns was a consultant to the Company. In April 1988, Dr. Burns
became Senior Vice President and Chief Scientist of the Company as
well as a Director.
William V. Goodwin has been a Director of the Company since June
1991. He is, and has been since 1987, the President of WVG
Corporation, a system engineering management consulting firm. He
has provided management consulting services to the Company and other
companies such as General Electric Company, General Dynamics
Corporation, and Martin Marietta Corporation. Prior to his work
with WVG Corporation, he served as Division Vice President and
General Manager of the RCA Missile and Surface Radar Division until
his retirement from RCA in 1987.
Thomas J. Meaney has been a Director of the Company since July 1986.
From February 1983 to his appointment as President of the Company in
June 1986, Mr. Meaney was Senior Vice President and Director of
Robotic Vision Systems Incorporated ("RVSI"), a manufacturer of
robotic vision systems. Mr. Meaney served as a Director of RVSI
until 1991 when he resigned from the post. Prior to 1983 and for
more than five years, he was Vice President - Business Development,
International of Norden Systems and President - Norden Systems
Canada, both divisions of United Technologies Corporation and
developers of computer and electronic products and systems.
Wayne E. Meyer has been a Director of the Company since April 1988
and Chairman of the Board since April 1990. From 1986 to present he
has been the Founder and President of the W.E. Meyer Corporation
which provides consulting and advice to industry, government and
academic institutions in matters of system engineering, project
management, strategic planning and military and electronic designs.
He enlisted in the U.S. Navy as an Apprentice Seaman in 1943 and
retired in 1985 in the rank of Rear Admiral.
Frederick C. Tecce has been of Counsel to Pepper, Hamilton and
Scheetz since 1993. Since 1995, he has served as Co-Chairman of the
Executive Committee of the Eastern Technology Council. In 1996, Mr.
Tecce was named Chairman of the Finance Committee of the Pennsylvania
Schools Employees Retirement Systems. Mr. Teccee continues to serve
as Chairman of Militran, Inc.
John B. Torkelsen has been a Director of the Company since June 1985
and has served as Secretary of the Corporation from June 1985 until
April 25, 1996. Mr. Torkelsen has been President of Princeton Venture
Research, Inc., a financial research and consulting firm located in
Princeton, New Jersey from November 1984 to the present. He is also
a Director of Voice Control Systems, Inc., a voice recognition
technology company.
None of the Company's Directors or executive officers is related to
any other Director or executive officer of the Company. In connection
with the acquisition of certain debt and equity instruments of the
Company from third parties, Messrs. Burns, Meaney, Meyer, Torkelsen
and Tecce ((collectively, the "Investors") have the right to
designate 2/7ths of the Board of Directors of the Company. See
"Certain Relationships and Related Transactions." There are
currently five members of the Board.
<PAGE>
The Board of Directors recommends that Stockholders and Warrantholders vote
FOR each of the nominees for the Board of Directors.
Committees and Meetings of the Board
- ------------------------------------
The Board of Directors has a Compensation Committee which makes recommendations
concerning salaries and incentive compensation for employees of and consultants
to the Company. The current members of the Compensation Committee are Messrs.
Meaney, Goodwin and Torkelsen. The Compensation Committee was established in
December 1992 and held one meeting in 1995. There were three meetings of the
Board of Directors in 1995, not including written consents of the Directors.
Messrs. Meaney and Burns attended all three meetings of the Board of Directors
in 1995, while Messrs. Torkelsen, Meyer and Goodwin each attended two of such
meetings.
Compensation of Directors
- -------------------------
In December 1994, the Board of Directors authorized the payment to each outside
Director of $500 for each Board meeting attended in person and $150 for each
Board meeting attended telephonically. See "Certain Relationships and Related
Transactions".
Executive Officers
- ------------------
The following table identifies the current executive officers of the Company:
CAPACITIES IN IN CURRENT
NAME AGE WHICH SERVED POSITION SINCE
- ---------------- --- ------------- --------------
Thomas J. Meaney 61 President,
Chief Executive Officer
and Director June 1986
Joseph R. Burns 58 Senior Vice President,
Chief Scientist
and Director April 1988
Deborah A. Montagna 44 Executive Vice President,
Chief Operating Officer April 1996
Joseph R. Benek 61 Vice President Finance
and Treasurer June 1992
Patricia A Bird 29 Secretary April 1996
Item 11. Executive Compensation
- --------------------------------
The following Summary Compensation Table sets forth information concerning
compensation for services in all capacities awarded to, earned by or paid to
the Company's Chief Executive Officer and the four most highly compensated
executive officers of the Company whose aggregate cash compensation exceeded
$100,000 (collectively, the "Named Executives") during the years ended December
31, 1993, 1994 and 1995.
<PAGE>
Summary of Compensation in Fiscal 1995, 1994 and 1993
Annual Compensation(1)
Name and Principal Position Year Salary ($)
(a) (b) (c)
Thomas J. Meaney,
President
and Chief Executive Officer 1995 $149,550
1994 152,247(2)
1993 139,962
Joseph R. Burns,
Senior Vice President
and Chief Scientist 1995 $116,313
1994 118,026(3)
1993 107,768
- -------------------------------------------
(1) The costs of certain benefits are not included because they did
not exceed, in the case of each Named Executive, the lesser of
$50,000 or 10% of the total of annual compensation reported in
the above table.
(2) Includes $5,247 of compensation deferred from prior years.
(3) Includes $4,826 of compensation deferred from prior years.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and
Management
- -------------------------------------------------------------
Common Stock
- ------------
The following table sets forth certain information, as of May 17,
1996, with respect to holdings of the Company's Common Stock by (i)
each person known by the Company to be the beneficial owner of more
than 5% of the total number of shares of Common Stock outstanding as
of such date, (ii) each of the nominees (which includes all current
directors and Named Executives), and (iii) all current directors and
officers as a group.
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
- ------------------------ ----------------- --------
(i) Certain Beneficial Owners:
Transitions Two,
Limited Partnership
920 Hopmeadow Street
Simsbury, Connecticut 06070 2,137,775(2) 21.9
(ii) Nominees:
Joseph R. Burns 1,113,081(3) 14.4
William V. Goodwin 56,250(4) *
Thomas J. Meaney 1,934,500(5) 23.7
Wayne E. Meyer 1,133,750(6) 14.1
Frederick C. Tecce 835,000(7) 9.9
John B. Torkelsen 1,878,383(8) 22.0
(iii) All Current Directors and Officers
as a Group (eight persons) 6,482,119 66.8
- -------------------------------------------
* Less than 1%
(1) Except as otherwise indicated, all shares are beneficially
owned and the sole investment and voting power is held by the
persons named.
(2) Includes 250,000 shares issuable upon conversion of Convertible
Preferred Stock plus 1,750,275 shares issuable upon conversion
of Series B Stock.
(3) Includes 14,748 shares issuable upon conversion of Series B
Stock and 100,000 shares issuable upon the exercise of warrants.
(4) Includes 56,250 shares issuable upon the exercise of options.
(5) Includes 50,000 shares issuable upon conversion of Convertible
Preferred Stock plus 199,500 shares issuable upon conversion of
Series B Stock and 275,000 shares issuable on the exercise of
warrants.
(6) Includes 30,000 shares issuable upon conversion of Series B
Stock and 75,000 shares issuable upon the exercise of options
and 318,750 shares issuable upon the exercise of warrants.
(7) Includes 275,000 shares issuable upon the exercise of warrants.
<PAGE>
(8) Includes 130,000 shares held of record by Princeton Venture
Research, Inc., a corporation wholly owned by Mr. Torkelsen.
Also includes 202,500 shares issuable upon conversion of
Convertible Preferred Stock and 695,883 shares issuable upon
conversion of Series B Stock. The Series B Stock is held of
record by Princeton Venture Research, Inc.
<PAGE>
Convertible Preferred Stock
- ---------------------------
The following table sets forth certain information, as of May 17,
1996, with respect to holdings of the Company's Convertible
Preferred Stock by (i) each person known by the Company to be the
beneficial owner of more than 5% of the total number of shares of
Convertible Preferred Stock outstanding as of such date, (ii) each
of the nominees (which includes all current directors and Named
Executives), and (iii) all current directors and officers as a group.
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
- ------------------------ ----------------- --------
(i) Certain Beneficial Owners:
Allen & Company
711 Fifth Avenue
New York, New York 10022 50,000 5.0
American Diversified Enterprise, Inc.
711 Fifth Avenue
New York, New York 10022 50,000 5.0
Lazard Brothers & Co., Limited
21 Moorfields
London EC2P 2HT 200,000 19.9
Tektronix Development Company
P.O Box 500
Beaverton, Oregon 97077 200,000 19.9
Transitions Two, Limited Partnership
920 Hopmeadow Street
Simsbury, Connecticut 06070 250,000 24.9
(ii) Nominees:
Joseph R. Burns -- --
William V. Goodwin -- --
Thomas J. Meaney 50,000 5.0
Wayne E. Meyer -- --
Frederick C. Tecce -- --
John B. Torkelsen 202,500 20.1
(iii) All Current Directors and Officers
as a Group (eight persons) 252,500 25.1
- -----------------------------------------
(1) Except as otherwise indicated, all shares are beneficially owned
and the sole investment and voting power is held by the persons
named.
<PAGE>
Series B Stock
- --------------
The following table sets forth certain information, as of May 17,
1996, with respect to holdings of the Company's Series B Stock by (i)
each person known by the Company to be the beneficial owner of more
than 5% of the total number of shares of Series B Stock outstanding
as of such date, (ii) each of the nominees (which includes all
current directors and Named Executives), and (iii) all current
directors and officers as a group.
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
- ------------------------ ----------------- --------
(i) Certain Beneficial Owners:
The Mercantile & General
Reinsurance Company, PLC
Moorfields House
Moorfields
London EC2Y 9AL 91,342 8.1
Transitions Two, Limited Partnership
920 Hopmeadow Street
Simsbury, Connecticut 06070 583,425 51.6
(ii) Nominees:
Joseph R. Burns 4,916 *
William V. Goodwin -- --
Thomas J. Meaney 66,500 5.9
Wayne E. Meyer 10,000 *
Frederick C. Tecce -- --
John B. Torkelsen 231,961(2) 20.5
(iii) All Current Directors and Officers
as a Group (eight persons) 324,024 28.6
- ----------------------------------------
* Less than 1%
(1) Except as otherwise indicated, all shares are beneficially owned
and the sole investment and voting power is held by the persons
named.
(2) Held of record by Princeton Venture Research, Inc., a
corporation wholly owned by Mr. Torkelsen.
<PAGE>
Series C Stock
- --------------
The following table sets forth certain information, as of May 17,
1996, with respect to holdings of the Company's Series C Stock by
(i) each person known by the Company to be the beneficial owner of
more than 5% of the total number of shares of Series C Stock
outstanding as of such date, (ii) each of the nominees (which
includes all current directors and Named Executives), and (iii) all
current directors and officers as a group.
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
- ------------------------ ----------------- --------
(i) Certain Beneficial Owners:
Transitions Two, Limited Partnership
920 Hopmeadow Street
Simsbury, Connecticut 06070 5,000 100.0
(ii) Nominees:
Joseph R. Burns 19,500(2) 79.6
William V. Goodwin -- --
Thomas J. Meaney 19,500(2) 79.6
Wayne E. Meyer 19,500(2) 79.6
Frederick C. Tecce 19,500(2) 79.6
John B. Torkelsen 19,500(2) 79.6
(iii) All Current Directors and Officers
as a Group (eight persons) 97,500(2) 95.1
- -----------------------------------------
(1) Except as otherwise indicated, all shares are beneficially owned
and the sole investment and voting power is held by the persons
named.
(2) This number reflects warrants to purchase Series C Stock.
<PAGE>
Series D Stock
- --------------
The following table sets forth certain information, as of May 17,
1996, with respect to holdings of the Company's Series D Stock by (i)
each person known by the Company to be the beneficial owner of more
than 5% of the total number of shares of Series D Stock outstanding
as of such date, (ii) each of the nominees (which includes all
current directors and Named Executives), and (iii) all current
directors and officers as a group.
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
- ------------------------ ----------------- --------
(i) Certain Beneficial Owners:
(ii) Nominees:
Joseph R. Burns 138,000 20.0
William V. Goodwin -- --
Thomas J. Meaney 138,000 20.0
Wayne E. Meyer 138,000 20.0
Frederick C. Tecce 138,000 20.0
John B. Torkelsen 138,000 20.0
(iii) All Current Directors and Officers
as a Group (eight persons) 552,000 100.0
- ----------------------------------------
(1) Except as otherwise indicated, all shares are beneficially owned
and the sole investment and voting power is held by the persons
named.
<PAGE>
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
In a series of transactions consummated on October 27, 1992 and April
27, 1993, Joseph R. Burns, Thomas J. Meaney, Wayne E. Meyer and John
B. Torkelsen, each a Director of the Company, and Frederick C. Tecce
(collectively, the Investors") acquired all of the loan and equity
interests in the Company from certain third parties. Pursuant to
such transactions, each of the Investors acquired, in consideration
of $50,000 each, 20% of (i) 50,000 shares of Common Stock, (ii)
promissory notes of the Company in the aggregate principal amount of
$916,875 (collectively, the "Investor Notes"), (iii) warrants to
purchase 97,500 shares of Series C Stock (the "Series C Warrants"),
and (iv) certain other loan and equity rights in the Company,
including the right to designate 2/7ths of the Board of Directors of
the Company. See "Election of Directors."
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 capital stock issued by the Company. In
return for a reduction in principal 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 Stock. The Investor Notes were modified
to provide for 16 quarterly payments of principal beginning January
1, 1994 and ending October 1, 1997. Interest on the unpaid
principal balance is payable quarterly commencing 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.
On May 31, 1989, the Company retained the services of the W.E. Meyer
Corporation to provide engineering and management consulting
services to the Company. Under the agreement, the Company paid
$9,000 (plus reasonable travel expenses) to the W.E. Meyer Corporation
in 1995 for services rendered. Wayne E. Meyer, a Director of the
Company, is president of the W.E. Meyer Corporation.
On April 15, 1991, the Company retained the services of WVG
Corporation, of which William V. Goodwin, a Director of the Company,
is President, to provide operations management and technical
consulting services. During 1995, the Company paid $8,400 to WVG
Corporation under this agreement.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
- -----------------------------------------------------------------
(a) 1. Reference is made to financial statements included under
Item 8.
2. Reference is made to financial statements included under
Item 14(c).
3. Description of Exhibits (Pursuant to Item 601 of
Regulation S-K).
Note: All exhibits that were filed as exhibits (i) to the
Company's Registration Statement on Form S-18, File No.
2-67918-NY, as amended, (ii) or, if so specified, to previously
filed Annual Reports on Form 10-K or to previously filed Current
Reports on Form 8-K, are indicated by a parenthesis setting forth
the exhibit number by which the exhibits were identified in said
Registration Statement and are hereby incorporated by reference.
3.1 Certificate of Incorporation [Exhibit 2(i)]
3.2 By-laws [Exhibit 2(ii)]
3.3 Form of Certificate of Amendment to Certificate of
Incorporation [Exhibit 2(iii)]
3.4 Form of Certificate of Amendment of Incorporation with
respect to increase of authorized shares [Exhibit 2iv)]
4.1 Certificate of Designations of Series B Preferred Stock
and Series C Preferred Stock [Exhibit 4.1 to Form 8-K
filed September 12, 1988]
4.2 Revised form of Series C Preferred Stock Purchase
Warrant issued to Bishop Capital, L.P. as assigned to
the Investors.
4.3 Form of Series C Preferred Stock Purchase Warrant
issued to Unicorn Ventures, Ltd., Renaissance Holdings
PLC and Gartmore Information and Financial Trust PLC.
[Exhibit 4.5 to Form 10-K for 1988 filed May 15, 1989]
4.4 Form of Series C Preferred Stock Purchase Warrant
assigned to the Investors. [Exhibit 4.10 to Form 10-K
for 1990 filed April 12, 1991]
4.5 Form of Series C Preferred Stock Purchase Warrant
assigned to the Investors [Exhibit 4.11 to Form 10-K
for 1990 filed April 12, 1991]
4.6 Assignment and Sale Agreement dated October 27, 1992 by
and among Renaissance Holdings PLC, acting by its
Receivers, the Company, and each of the Investors and,
as to Section 1.1 thereof only, the Chartfield Group,
acting by its Receivers [Exhibit 4.1 to Form 8-K filed
October 27, 1992]
4.7 Loan Modification and Intercreditor Agreement dated
October 27, 1992 by and among the Company and the
Investors [Exhibit 4.2 to Form 8-K filed October 27,
1992]
4.8 Certificate of Designations of Serial Preferred Stock
[Exhibit 4.16 to Form 10-K for 1993 filed March 30,
1994]
<PAGE>
10.1 Loan Agreement dated April 26, 1988 between the Company
and Bishop Capital, L.P. as assigned to the Investors
[Exhibit 10.1 to Form 8-K filed September 12, 1988].
10.2 Security Agreement dated April 26, 1988 between the
Company and Bishop Capital, L.P. as assigned to the
Investors [Exhibit 10.2 to Form 8-K filed September 12,
1988]
10.3 Amendment to Loan Agreement and Promissory Note dated
as of January 27, 1989 between Bishop Capital, L.P. as
assigned to the Investors and the Company. [Exhibit
10.4 to Form 10-K for 1988 filed May 15, 1989]
10.4 Investment Agreement dated as of June 30, 1988 between
Unicorn Ventures, Ltd., Unicorn Ventures II, L.P., as
assigned to the Investors and the Company [Exhibit 10.6
to Form 8-K filed September 12, 1988]
10.5 Security Agreement dated June 30, 1988 from the Company
to Unicorn Ventures, Ltd. and Unicorn Ventures II, L.P.
as assigned to the Investors [Exhibit 10.9 to Form 8-K
filed September 12, 1988]
10.6 Registration Agreement dated as of June 30, 1988
between Unicorn Ventures, Ltd., Unicorn Ventures II,
L.P., as assigned to the Investors and the Company
[Exhibit 10.10 to Form 8-K filed September 12, 1988]
10.7 Consent and Amendment Agreement dated March 31,1989 as
assigned to the Investors. [Exhibit 10.10 to Form 10-K
for 1988 filed May 15, 1989]
10.8 1988 Restricted Stock Award Plan. [Exhibit 10.20 to
Form 10-K for 1988 filed May 15, 1989]
10.9 Form of Restricted Stock Agreement. [Exhibit 10.21 to
Form 10-K for 1988 filed May 15, 1989]
10.10 Lease agreement with RUJIM, Inc. [Exhibit 10.25 to Form
10-K for 1988 filed May 15, 1989]
10.11 Incentive Stock Option [Exhibit 10(c)(iii) to Form 10-K
for the year ended December 13, 1981]
10.12 Amended and Restated Stock Option Plan (1988)[Exhibit
10.27 to Form 10-K for 1989 filed April 3, 1990]
10.13 Security Agreement dated April 19, 1990 from Mikros
to Bishop Capital, L.P. as assigned to the Investors
[Exhibit 10.35 to Form 10-K for 1990 filed April 12,
1991]
10.14 Security Agreement dated April 19, 1990 from Mikros to
Renaissance Holdings PLC as assigned to the Investors.
[Exhibit 10.36 to Form 10-K for 1990 filed April 12,
1991]
10.15 Consent and Amendment Agreement dated as of April 19,
1990 as assigned to the Investors. [Exhibit 10.37 to
Form 10-K for 1990 filed April 12, 1991]
10.16 Note Modification and Stock Purchase Agreement dated
December 31, 1993. [Exhibit 10.47 to Form 10-K for
1993 filed March 30, 1994]
10.17 Promissory Notes dated December 31, 1993 in the amount
of $100,000 to each of the Investors. [Exhibit 10.17 to
Form 10-K for 1994 filed March 29, 1995]
10.18 Authorizations for deferral of principal payments by
each of the Investors
11.0 Computation of earnings per share
(b) Not Applicable
(c) Financial Statement Schedules
<PAGE>
The following financial statements are incorporated herein:
Independent Auditors' Report
Balance Sheets at December 31, 1994 and 1995
Statements of Operations for the years ended December 31, 1993,
1994, and 1995
Statements of Shareholders' Equity (Deficiency) for the years
ended December 31, 1993, 1994, and 1995
Statements of Cash Flows for the years ended December 31, 1993,
1994, and 1995
Notes to Financial Statements
<PAGE>
SIGNATURE PAGE
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.
MIKROS SYSTEMS CORPORATION
--------------------------
(Registrant)
Dated: May 15, 1996
By: /s/ Thomas J. Meaney
--------------------------------
Thomas J. Meaney, President and
Chief Executive Officer
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 indicated and
on the date indicated.
Signatures Date
/s/ Thomas J. Meaney May 15, 1996
- ------------------------------
Thomas J. Meaney, President, Chief
Executive Officer and Director
/s/ Joseph R. Burns May 15, 1996
- ------------------------------
Joseph R. Burns, Senior Vice President
and Director
/s/ William V. Goodwin May 15, 1996
- ------------------------------
William V. Goodwin, Director
/s/ Wayne E. Meyer May 15, 1996
- ------------------------------
Wayne E. Meyer, Chairman and Director
/s/ John B. Torkelsen May 15, 1996
- ------------------------------
John B. Torkelsen, Director
/s/ Joseph R. Benek May 15, 1996
- ------------------------------
Joseph R. Benek, Vice President, Treasurer,
and Assistant Secretary
<PAGE>
DRUKER, RAHL & FEIN
Business Consultants
Certified Public Accountants
200 Canal Pointe Boulevard
Princeton, NJ 08540-5998
(609) 243-9700
FAX (609) 243-9799
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Mikros Systems Corporation
Princeton, New Jersey
We have audited the balance sheets of Mikros Systems Corporation
("The Company") as of December 31, 1995 and 1994 and the related
statements of operations, shareholders' equity (deficiency) and cash
flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Mikros
Systems Corporation as of December 31, 1995 and 1994, and the results
of its operations, shareholders' equity (deficiency) and its cash
flows for each of the three years in the period ended December 31,
1995 in conformity with generally accepted accounting principles.
Druker, Rahl & Fein
Princeton, New Jersey
February 13, 1996
(except for Note T, as to
which the date is May 3, 1996)
<PAGE>
MIKROS SYSTEMS CORPORATION
BALANCE SHEETS
DECEMBER 31,
ASSETS 1995 1994
- ------------------------------ ------------ ------------
CURRENT ASSETS
Cash $ 77,276 $ 118,593
Accounts Receivable
Government 65,186 1,079,971
Trade 52,967 40,000
Inventories 76,321 139,146
Other Current Assets 11,559 27,844
------------ ------------
TOTAL CURRENT ASSETS 283,309 1,405,554
------------ ------------
FIXED ASSETS
Equipment 574,397 516,875
Furniture and Fixtures 59,207 56,910
Leasehold Improvements 3,408 19,635
------------ ------------
637,012 593,420
Less: Accumulated Depreciation
and Amortization (465,955) (419,493)
------------ ------------
FIXED ASSETS, NET 171,057 173,927
------------ ------------
SECURITY DEPOSITS 1,001 426
UNBILLED RECEIVABLES 58,681 32,088
PATENT COSTS, NET 32,947 29,006
------------ ------------
TOTAL ASSETS $ 546,995 $1,641,001
============ ============
See Notes to Financial Statements
<PAGE>
MIKROS SYSTEMS CORPORATION
BALANCE SHEETS
LIABILITIES AND DECEMBER 31,
SHAREHOLDERS' EQUITY (DEFICIENCY) 1995 1994
- ---------------------------------- ----------- ------------
CURRENT LIABILITIES
Accounts Payable $ 268,933 $ 354,639
Notes Payable
Bank 134,271 36,200
Related Parties 30,000 129,688
Obligations under Capital Leases 6,403 5,534
Accrued Payroll and Payroll Taxes 14,308 54,385
Accrued Interest 11,442 -
Accrued Vacations 49,188 52,599
Accrued Expenses 89,982 485,492
------------ ------------
TOTAL CURRENT LIABILITIES 604,527 1,118,537
----------- ------------
NOTES PAYABLE
Bank 18,542 20,400
Related Parties 312,500 250,000
OBLIGATIONS UNDER CAPITAL LEASES-NONCURRENT 11,827 17,292
------------ ------------
TOTAL LIABILITIES 947,396 1,406,229
------------ ------------
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 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 (9,831,002) (9,183,329)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIENCY) (480,851) 154,322
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 546,995 $1,641,001
============ ============
See Notes to Financial Statements
<PAGE>
MIKROS SYSTEMS CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION> Common Preferred Preferred
Stock Stock Stock B
$.01 $.01 $.01
Par Value Par Value Par Value
----------------------------------------------------------
Number Par Number Par Number Par
of shares Value of shares Value of shares Value
<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
Issuance of Common Stock 2,775,000 27,750
Issuance of Preferred Stock
Series D
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
Year Ended December 31, 1995:
Issuance of Common Stock 200,000 2,000
Net Loss
--------- ------- --------- ------- --------- -------
Balance-December 31, 1995 7,352,108 $73,521 1,005,000 $10,050 1,131,663 $11,316
========= ======= ========= ======= ========= =======
Preferred
Stock D Capital in
$.01 excess of Accumulated
Par Value Par Value Deficit
------------------------------------------------
Number Par
of shares Value
<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 (5,650)
Issuance of Common Stock 247,875
Issuance of Preferred Stock
Series D 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)
Year Ended December 31, 1995:
Issuance of Common Stock 10,500
Net Loss (647,673)
--------- ------- ----------- ------------
Balance-December 31, 1995 690,000 $6,900 $9,248,364 ($9,831,002)
========= ======= =========== ============
</TABLE>
See Notes to Financial Statements
<PAGE>
MIKROS SYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
For the Year Ended December 31,
1995 1994 1993
------------ ---------- ----------
Revenues:
Equipment Sales $1,390,085 $1,397,000 $ 63,952
Contract Research and Development 1,989,812 3,048,468 2,845,250
------------ ---------- ----------
Total Revenues 3,379,897 4,445,468 2,909,202
------------ ---------- ----------
Cost of Sales:
Equipment Sales 1,079,873 1,041,195 22,914
Contract Research and Development 1,796,168 2,341,474 2,030,939
------------ ---------- ----------
Total Cost of Sales 2,876,041 3,382,669 2,053,853
------------ ---------- ----------
Gross Margin 503,856 1,062,799 855,349
------------ ---------- ----------
Expenses:
Research and Development 238,120 - -
General and Administrative 855,925 850,091 678,900
Interest 57,334 60,973 25,152
------------ ---------- ----------
Total Expenses 1,151,379 911,064 704,052
------------ ---------- ----------
Income (Loss) before Taxes
and Extraordinary Item (647,523) 151,735 151,297
Provision for Income Taxes 150 100 50
------------ ---------- ----------
Income (Loss) before
Extraordinary Item (647,673) 151,635 151,247
Extraordinary Item:
Gain from Debt Restructure - - 295,893
------------ ---------- ----------
Net Income (Loss) ($647,673) $151,635 $447,140
============ ========== ==========
Earnings per share:
Primary:
Net Income (Loss) Before
Extraordinary Item ($0.10) $0.01 $0.02
Extraordinary Item - - 0.07
----------- ---------- ----------
Net Income (Loss) per share ($0.10) $0.01 $0.09
=========== ========== ==========
Fully Diluted:
Net Income (Loss) Before
Extraordinary Item ($0.10) $0.01 $ -
Extraordinary Item - - 0.05
----------- ---------- ----------
Net Income (Loss) per share ($0.10) $0.01 $0.05
============ ========== ==========
See Notes to Financial Statements
<PAGE>
MIKROS SYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION> For the Year Ended December 31,
1995 1994 1993
---------- ----------- -----------
<C> <C> <C>
Cash Flow From Operating Activities:
Net Income (Loss) ($ 647,673) $151,635 $ 447,140
Adjustments to reconcile Net Income (Loss)
to Cash Provided (Used) by Operations:
Depreciation and Amortization 70,385 69,571 54,039
Gain from Debt Restructure - - (295,893)
Provision for Inventory Obsolescence 15,000 - -
Net Changes in Operating Assets and Liabilities
(Increase) Decrease in:
Accounts Receivable 1,001,818 (836,766) 110,978
Unbilled Receivables (26,593) 92,108 (54,570)
Inventories 47,825 (83,128) 6,129
Other Current Assets 16,285 (5,028) (4,672)
Other Assets (575) 1,503 (381)
Increase (Decrease) in:
Accounts Payable (85,706) 319,137 (131,685)
Accrued Payroll and Payroll Taxes (40,077) 40,091 (13,024)
Other Liabilities and Interest (401,465) 475,353 (68,042)
----------- --------- ----------
Net Cash Provided (Used) by Operations (50,776) 224,476 50,019
----------- --------- ----------
Cash Flows From Investing Activities:
Patents (6,541) (2,072) (7,180)
Fixed Asset Purchases (64,915) (108,840) (14,769)
----------- ---------- ----------
Net Cash Used by Investing Activities: (71,456) (110,912) (21,949)
----------- ---------- ----------
Cash Flows from Financing Activities:
Proceeds from Loans 210,603 21,600 35,000
Proceeds from Issuance of Common Stock 12,500 1,250 625
Repayment of Debt (142,188) (139,063) (46,875)
----------- ---------- ----------
Net Cash Provided (Used) by
Financing Activities 80,915 (116,213) (11,250)
----------- ---------- ----------
Net Increase (Decrease) in Cash (41,317) (2,649) 16,820
Cash at Beginning of Year 118,593 121,242 104,422
----------- ---------- ----------
Cash at End of Year $ 77,276 $118,593 $121,242
=========== ========== ==========
Supplemental disclosure of cash flow
information:
Cash paid during the year for interest $ 41,231 $75,465 $ 27,831
=========== =========== ==========
Non Cash Financing Activities:
Accretion on Preferred Stock Series C - - $ 5,650
=========== =========== ==========
Common Stock Issued in Debt Restructuring - - $ 27,750
=========== =========== ==========
Preferred Stock Issued in Debt
Restructuring - - $ 6,900
=========== =========== ==========
See Notes to Financial Statements
</TABLE>
<PAGE>
MIKROS SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
A. COMPANY OVERVIEW
- ---------------------
1. THE COMPANY
- ----------------
Mikros Systems Corporation (the "Company") was founded in 1978 as
a spin-off of the General Electric Corporate Research and
Development Center in upstate New York. In the early 1980's the
Company focused on the development and application of proprietary
microprocessor technology, in particular the Department of
Defense's Military Standard "1750A" computer. Since 1986 the
Company has specialized in technology insertion, applying
advanced microprocessor and signal processing techniques to
defense communications and control applications.
Since 1987 the Company has been working closely with the U.S.
Navy on improvements to the "Link-11" communications system, used
by ships in a naval battle group to exchange digital tactical
information by radio. In conjunction with the Johns Hopkins
University Applied Physics Laboratory, Mikros has developed the
"Multi-Frequency" Link-11 system, which improves the performance
of the network. The Multi-Frequency system was deployed at-sea
during Operation Desert Storm.
Ongoing Link-11 work at Mikros, funded by the U.S. Navy, is
concentrated on continuing enhancement and performance
improvement of the Link-11 system. As an outgrowth of this
development, Mikros has also produced standard Link-11 modem
equipment products which offer cost and performance benefits over
the competition.
During 1995 Mikros expanded its initiatives in commercial
wireless communications to provide technology which optimize
spectrum efficiency for wireless communications in current and
emerging radio data broadcasting and personal communications
services markets. As part of its strategy to apply elements
of the technology which is has developed for the military to
the commercial sector, Mikros has successfully secured its
first customer for its leading edge FM data transmission
technology. In March 1996, Data Broadcasting Corporation, the
industry leader in wireless on-line stock market and sports data
services, announced that it is adopting Mikros' FM technology
for its next generation of products and services. Mikros is
actively marketing this technology to other data broadcasting
companies which use FM frequencies and anticipates adding two
to three substantial customers in 1996. In parallel, Mikros is
furthering the development of its AM data transmission technology
for which the marketplace has shown substantial interest. Mikros
plans to extend the scope of its research to include all areas
which transmit data over AM and FM frequencies, including PCS.
It is Mikros' intention to develop application specific integrated
circuits (ASICs) for its wireless data transmission technology as
soon as it is justified by the volume of customer orders.
The Company's U.S. Navy related business originates in the
Baltimore/Washington area while commercial marketing is
nationwide.
<PAGE>
The Company's financial statements for the year ended December
31, 1995 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 $648,000 for the year ended
December 31, 1995, and as of December 31, 1995 had an accumulated
deficit of $9,831,000. 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.
2. SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------
1. Basis of Presentation
--------------------------
The Company's financial statements have been prepared
on a historical cost basis which assumes the Company's
assets will be realized and its liabilities settled in the
normal course of business.
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles,
which contemplates continuation of the Company as a going
concern. However, the Company has sustained substantial
operating losses in recent years. In addition, the Company
has used substantial amounts of working capital in its
operations. Further, at December 31, 1995, current
liabilities exceed current assets by $321,000, and total
liabilities exceed total assets by $400,400.
<PAGE>
In view of these matters, realization of a major portion of
the assets in the accompanying balance sheet is dependent
upon continued operations of the Company, which in turn is
dependent upon the Company's ability to meet its financing
requirements, and the success of its future operations.
Management believes that actions presently being taken to
revise the Company's operating and financial requirements
provide the opportunity for the company to continue as a
going concern.
2. Inventories
----------------
Inventories are stated at the lower of cost or market,
computed on the first-in, first-out method.
3. Fixed Assets
-----------------
Fixed Assets are stated at cost. Depreciation is computed
using the straight-line method based on estimated useful
lives which range from 3 to 7 years. Depreciation expense
amounted to $67,785, $67,414, and $52,047 for 1995, 1994,
and 1993, respectively.
4. Accounts and Unbilled Receivables
--------------------------------------
Unbilled Receivables represent revenue recognized, which
primarily because of retainage provisions on certain
government contracts, are not billed until completion of the
contracts or until year end defense contract audits are
performed.
In the opinion of management, no provision for doubtful
accounts is required in connection with receivables
reflected in the accompanying balance sheets.
5. Earnings per Common Share
------------------------------
Primary Earnings per common share is computed using the
average number of common and dilutive common equivalent
shares outstanding. For purposes of the fully diluted
computation for 1995 and 1994 the number of common shares
that would be issued from the exercise of stock options and
warrants, and the conversion of convertible preferred shares
has been reduced by the number of shares that could have
been purchased from the proceeds at the market price of the
company's stock on December 31, 1995 and December 31, 1994
because those prices were higher than the average market
prices for those years. A similar computation was not made
for 1993 because the average market price for the year was
lower than the exercise prices of stock options and warrants
and the conversion price of convertible preferred shares.
<PAGE>
6. Revenue Recognition
------------------------
Revenues related to long-term fixed-price contracts, which
principally provide for the manufacture and delivery of
finished units, are recognized as shipments are made. The
estimated profits applicable to such shipments are recorded
pro rata based upon estimated total profit at completion of
the contracts.
Revenues on contracts with significant engineering as well
as production requirements are recorded using the
percentage-of-completion method measured by the costs
incurred on each contract to estimated total contract costs
at completion (cost-to-cost) with consideration given for
risk of performance and estimated profit.
7. Patents
------------
Patent costs are amortized over a 17-year life.
Amortization expense amounted to $2,600, $2,157, and $1,992
for 1995, 1994, and 1993, respectively.
8. Warranty Costs
-------------------
The Company currently does not provide for warranty costs.
However, if within a 90-day period from date of shipment the
Company is notified of a component part that is defective
due to material or workmanship, it will repair or replace
the part, at its option.
9. Use of Estimates
---------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
10. Advertising Costs Charged to Expense when Incurred
-------------------------------------------------------
Advertising costs are charged to operations when incurred.
No advertising costs were incurred.
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 certain loan and equity interests in the
Company from other debt and equity holders.
<PAGE>
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.
C. DIVIDENDS
- --------------
As of December 31, 1995 and December 31, 1994 there were
dividends in arrears on shares of Series D Preferred Stock of
$138,000 ($.10 per share) and $69,000, respectively.
<PAGE>
D. NOTES PAYABLE
- ------------------
As of December 31,
1995 1994
--------- ---------
Banks
Principal Payments
One payment made March 1995 $ - $ 35,000
Equipment Loan 36 monthly
payments; starting February
1996; Line of Credit of
$125,000 with payment due
on demand September 1996 152,813 21,600
Related Parties 342,500 379,688
--------- ---------
495,313 436,288
--------- ---------
Less Current Maturities
Banks 134,271 36,200
Related Parties 30,000 129,688
--------- ---------
164,271 165,888
--------- ---------
Notes Payable-Noncurrent $331,042 $270,400
========= =========
Maturities of the Notes Payable are as follows:
1996 $164,271
1997 321,772
Thereafter 9,270
--------
$495,313
========
The Investors have authorized deferral of all principal payments
until 1997. Interest rates on these notes range from 1% over
prime to 14% per annum. $342,500 of the notes are collateralized
by a security interest in all of the assets of the Company (See
Note B). The prime rate at December 31, 1995 and 1994 was 8.5%
and 8.75% respectively.
E. INVENTORIES
- ----------------
December 31,
1995 1994
--------- ---------
Raw materials $ 34,516 $ 46,623
Finished goods 25,067 -
Work-in-process 16,738 92,523
--------- ---------
Total $ 76,321 $139,146
========= =========
F. REVENUES
- -------------
Revenues from two federal government agencies amounted to 76% of
total revenues in 1995, as compared to 96% in 1994, and 69% in
1993.
<PAGE>
G. INCOME TAXES
- -----------------
During 1993 the Company adopted FASB Statement 109 on accounting
for income taxes. There was no material effect on the Company's
financial statement in adopting this pronouncement.
The provision for income taxes before extraordinary items for the
years ended December 31, 1995, 1994, and 1993 is as follows:
1995 1994 1993
--------- --------- ---------
Income Taxes:
Current tax expense-State $ 150 $ 100 $ 50
Deferred tax expense - 45,047 30,400
Deferred tax benefit
Utilization of net
operating loss - (45,047) (30,400)
--------- --------- ---------
Total Provision for
Income Taxes $ 150 $ 100 $ 50
========= ========= =========
The deferred tax asset and deferred tax liability consist of the
following:
Deferred tax asset:
Net operating loss
carry forward $2,869,450 $2,892,570 $3,018,350
Valuation allowance (2,869,450) (2,892,570) (3,018,350)
----------- ----------- -----------
Net deferred tax asset $ - $ - $ -
=========== =========== ===========
Deferred tax liability $ - $ - $ -
=========== =========== ============
The valuation allowance was reduced by utilization of net
operating loss of $166,507 and $158,254 in 1994 and 1993
respectively.
Deferred income tax assets and liabilities are computed annually
for differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable
or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
Total available Net Operating Loss Carryforwards are reflected in
the following schedule:
<PAGE>
YEAR AVAILABLE FOR AVAILABLE FOR
OF FEDERAL STATE
EXPIRATION TAX PURPOSES TAX PURPOSES
1996 $ 938,000 $ 162,000
1997 1,040,000 89,000
1998 587,000 -
1999 830,000 -
2000 1,105,000 -
2001 1,477,000 -
2002 960,000 647,000
2003 606,000 -
2004 162,000 -
2005 89,000 -
2010 647,000 -
---------- ----------
$8,441,000 $ 898,000
========== ==========
H. OBLIGATIONS UNDER CAPITAL LEASES
- -------------------------------------
The Company is the lessee of equipment under capital leases
expiring in 1998. The equipment is recorded on the books at the
present value of the minimum lease payments; the capitalized
value at December 31, 1995 was $17,479. Accumulated amortization
as of December 31, 1995 and 1994 was $15,800 and $11,374,
respectively. Amortization of assets held under capital leases
is included in depreciation expense.
The following is a schedule of minimum lease payments due under
capital leases as of December 31, 1995.
Year Ending December 31,
1996 $ 8,352
1997 7,703
1998 4,459
--------
Total Net Minimum Lease Payments $ 20,514
Less Amounts Representing Interest at 16% 2,284
--------
Present Value of Net Minimum
Lease Payments $ 18,230
========
I. RELATED PARTY TRANSACTIONS
- -------------------------------
On May 31, 1989, the Company retained the services of a director
to provide engineering and management consulting services to the
Company for one year. Under the agreement which was subsequently
renewed, the Company paid $9,000, $15,000, and $18,000 for the
three years ended December 31, 1995, 1994 and 1993, respectively.
In addition, from January 1993 through December 1995, such
director cumulatively received $24,000 from the Company for
office rent expenses.
<PAGE>
In April 1991, the Company retained the services of another
director to provide operations management and technical
consulting services. During 1995, 1994 and 1993, this director
received $8,400, $13,600 and $11,000 respectively, for such
services. As of December 31, 1995 and 1994, accounts payable
owed to related parties amounted to $26,446 and $8,240,
respectively.
J. SERIES B CONVERTIBLE PREFERRED STOCK
- -----------------------------------------
The Series B Preferred Stock, together with the Series C
Preferred Stock, was issued in 1988 in order to satisfy notes
payable and other trade accounts payable pursuant to a debt
restructuring. Each share of Series B Preferred Stock is
convertible into three shares of the Company's common stock at a
price of $.33 per share of common stock to be received upon
conversion and entitles the holder thereof to cast three votes on
all matters to be voted on by the Company's stockholders. Upon
any liquidation, dissolution, or winding up of the Company, each
holder of Series B Preferred Stock will be entitled to be paid,
after all distributions of payments are made upon the Series C
Preferred Stock and before any payment is made upon the Company's
Convertible Preferred Stock, an amount in cash equal to $1.00 for
each share of Series B Preferred Stock held, and such holders
will not be entitled to any further payment.
K. MANDATORILY REDEEMABLE SERIES C PREFERRED STOCK
- ----------------------------------------------------
The Series C Preferred Stock, together with the Series B
Preferred Stock, was issued in 1988 in order to satisfy notes
payable and other trade accounts payable pursuant to a debt
restructuring. The Series C Preferred Stock is not convertible
into any other class of the Company's stock and is subject to
redemption at the Company's option at any time and redemption is
mandatory if certain events occur, such as capital
reorganizations, consolidations, mergers, or sale of all or
substantially all of the Company's assets. Upon any liquidation,
dissolution or winding up of the Company, each holder of Series C
Preferred Stock will be entitled to be paid, before any
distribution or payment is made upon any other class of stock of
the Company, an amount in cash equal to the then effective
redemption price for each share of Series C Preferred Stock held
by such holder, and the holders of Series C Preferred Stock will
not be entitled to any further payment. The redemption price per
share is $16.09.
L. SERIES D PREFERRED STOCK
- -----------------------------
The Series D Preferred Stock was issued in 1993 in order to
partially satisfy notes payable and accrued interest thereon
pursuant to a debt restructuring. The Series D Preferred Stock
provides for an annual cumulative dividend of $.10 per share.
The shares are not convertible into any other class of stock
and are subject to redemption at the Company's option at any time
at a redemption price of $1.00 per share plus all unpaid
cumulative dividends. Upon liquidation, dissolution or winding
up of the Corporation, each holder of Series D Preferred Stock
will be entitled to be paid, after all distributions or payments
are made upon the Corporation's Convertible Preferred Stock,
<PAGE>
Series B Preferred Stock, and Series C Preferred Stock, an amount
in cash equal to the Redemption Price for each share of Series D
Preferred Stock held by such holder. The holders of Series D
Preferred Stock will not be entitled to any further payment.
M. STOCK OPTIONS AND WARRANTS
- -------------------------------
In 1992, the Company adopted the Incentive Stock Option Plan,
replacing the previous plan. The stock option plan, as amended
provides for five-year options to purchase up to 2,000,000 shares
of Common Stock at a price equal to the market price of the
shares on date of grant, exercisable at the cumulative rate of
25% per annum. The following are summaries of stock options and
warrants.
As of December 31,
Common Stock Options: 1995 1994 1993
------- ------- -------
Options outstanding
beginning of year 997,500 842,500 860,000
Granted 417,500 175,000 7,500
Exercised (200,000) (20,000) (25,000)
Cancelled (127,500) - -
---------- -------- ---------
Options outstanding,
end of year 1,087,500 997,500 842,500
========== ======== ========
Options exercisable,
end of year 431,250 544,375 350,000
========== ======== ========
Exercise price
per option $.025 to $.025 & $.025 &
$.1875 $.0625 $.0625
As of December 31,
Common Stock Warrants: 1995 1994 1993
------- ------- -------
Warrants Outstanding at
beginning of year 187,500 700,000 700,000
Granted 250,000 - -
Exercised - - -
Expired or Terminated - (512,500) -
-------- --------- ---------
Warrants outstanding and
exercisable, end of year 437,500 187,500 700,000
======== ========= =========
Exercise price per warrant $ .001 $.10 $.10
& $.01
<PAGE>
As of December 31,
Series C Preferred
Stock Warrants 1995 1994 1993
------- ------- -------
Warrants Outstanding,
at beginning of year 97,500 104,500 104,500
Granted - - -
Exercised - - -
Expired or Terminated - (7,000) -
------- -------- --------
Warrants outstanding and
exercisable, end of year 97,500 97,500 104,500
======= ======== ========
Exercise price per warrant $1.00 $1.00 $1.00
In October 1995 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation (SFAS 123). SFAS 123 permits a
choice of accounting for transactions with employees that are
within the scope of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APBO 25). The Company
has decided to continue to use the intrinsic value based method
of accounting prescribed by APBO 5. Under this method,
compensation cost generally is the excess, if any, of the quoted
market price of the stock at the grant date over the amount an
employee must pay to acquire the stock. SFAS 123 requires all
companies remaining on APBO 25 to disclose the proforma net
income and earnings per share as if the fair value approach had
been used. The Company will provide such information in its 1996
annual financial statements for all awards granted after December
31, 1994.
N. 1988 RESTRICTED STOCK AWARD PLAN
- -------------------------------------
On September 29, 1988, the Company's Board of Directors awarded
2,035,000 shares of Common Stock under the 1988 Restricted Stock
Agreement to the Company's employees in consideration of services
rendered to the Company. Under the terms of the Agreement, the
recipient shall have all of the rights of a stockholder with
respect to all shares issued to the recipient, or until such time
said shares can be and are disposed of by the recipient or the
Company exercises its right to acquire any of said shares. All
shares issued are vested as of September 30, 1991.
O. COMMITMENTS AND CONTINGENCIES
- ----------------------------------
The Company leases its offices and research facilities in
Princeton, New Jersey and an automobile. The lease for the
facilities is due to expire in March 1998. Rent expense,
including space in Washington and Connecticut, for the years
ended December 31, 1995, 1994, and 1993 was $165,610, $140,873
and $132,900 respectively. The lease for the automobile expires
in December 1996.
Minimum annual lease payments for the next five years are as
follows:
<PAGE>
Year Ended December 31
1996 $ 184,464
1997 177,360
1998 39,560
Thereafter -
---------
$ 401,384
=========
P. PROFIT SHARING PLAN
- ------------------------
The Company maintains a 401(K) Profit Sharing Plan. For eligible
employees, the Company will match employee contributions to the
plan up to a limit of one and one-half percent (1.5%) of annual
compensation.
The Company also provides for a 401(K) profit sharing
contribution which is at the discretion of the Board of
Directors. For 1995 the Company made matching contributions of
$20,246. For 1994 the Company made matching contributions of
$3,100 and profit sharing contributions of $96,900. No such
contributions were made in 1993.
Q. CONCENTRATION OF RISK
- --------------------------
The Company relies heavily on Department of Defense contracts and
could be vulnerable to future budget cuts by the U.S. 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.
However, there can be no assurance that such programs will not be
subject to budget cuts.
The Company maintains bank accounts at one financial institution.
Such accounts are insured by the Federal Deposit Insurance
Corporation for up to $100,000. At December 31, 1995 and 1994
the Company's uninsured balances were $16,050 and $99,650,
respectively.
R. FAIR VALUE OF FINANCIAL INSTRUMENTS
- ----------------------------------------
The carrying amounts reflected in the financial statements for
cash, loans and notes payable approximate the respective fair
values due to the short maturities of those instruments.
Carrying
Amount Fair Value
Assets
Cash $ 77,000 $ 77,000
Unbilled receivables 59,000 see below (A)
Liabilities
Notes payable $164,000 $164,000
Long-term debt 331,000 see below (A)
Mandatorily redeemable
preferred stock 80,000 see below (A)
(A) It is not practicable to estimate the fair value of
unbilled receivables, long-term debt and mandatorily
redeemable preferred stock because of the inability
to estimate fair value without incurring excessive
costs.
<PAGE>
S. RECLASSIFICATIONS
- -----------------------
Certain amounts in the 1993 and 1994 financial statements have
been reclassified to agree with the 1995 presentation.
T. SUBSEQUENT EVENTS
- -----------------------
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 promisorry notes are for a term of approximately eighteen
months and include an interest rate of 12% on the unpaid balance.
The first interest payment is due on June 15, 1996 and quarterly
thereafter. The prinicipal 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.
<PAGE>
EXHIBIT 10.18
AUTHORIZATION FOR DEFERRAL
I, Joseph R. Burns, hereby consent to the deferral to January 1,
1997 of any principal payments due from Mikros Systems
Corporation under that certain Note Modification and
Intercreditor Agreement dated December 31, 1993 including the
promissory note pursuant thereto.
BY: /s/ Joseph R. Burns
----------------------
Joseph R. Burns
DATE: April 2, 1996
---------------------
<PAGE>
EXHIBIT 10.18
AUTHORIZATION FOR DEFERRAL
I, Thomas J. Meaney, hereby consent to the deferral to January 1,
1997 of any principal payments due from Mikros Systems
Corporation under that certain Note Modification and
Intercreditor Agreement dated December 31, 1993 including the
promissory note pursuant thereto.
BY: /s/ Thomas J. Meaney
----------------------
Thomas J. Meaney
DATE: April 2, 1996
---------------------
<PAGE>
EXHIBIT 10.18
AUTHORIZATION FOR DEFERRAL
I, Wayne E. Meyer, hereby consent to the deferral to January 1,
1997 of any principal payments due from Mikros Systems
Corporation under that certain Note Modification and
Intercreditor Agreement dated December 31, 1993 including the
promissory note pursuant thereto.
BY: /s/ Wayne E. Meyer
----------------------
Wayne E. Meyer
DATE: March 27, 1996
---------------------
<PAGE>
EXHIBIT 10.18
AUTHORIZATION FOR DEFERRAL
I, Frederick C. Tecce, hereby consent to the deferral to January
1, 1997 of any principal payments due from Mikros Systems
Corporation under that certain Note Modification and
Intercreditor Agreement dated December 31, 1993 including the
promissory note pursuant thereto.
BY: /s/ Frederick C. Tecce
------------------------
Frederick C. Tecce
DATE: April 12, 1996
---------------------
<PAGE>
EXHIBIT 10.18
AUTHORIZATION FOR DEFERRAL
I, John B. Torkelsen, hereby consent to the deferral to January
1, 1997 of any principal payments due from Mikros Systems
Corporation under that certain Note Modification and
Intercreditor Agreement dated December 31, 1993 including the
promissory note pursuant thereto.
BY: /s/ John B. Torkelsen
----------------------
John B. Torkelsen
DATE: March 23, 1996
---------------------
<PAGE>
EXHIBIT 11.0
COMPUTATION OF EARNINGS PER SHARE
Year Ended December 31,
1995 1994 1993
(000's Omitted)
--------- ---------- --------
Primary
Earnings(Loss)
Income (Loss) extraordinary items ($ 648) $ 152 $ 151
Deduct dividends on preferred shares 69 69 69
--------- --------- ---------
Income (Loss) applicable to common stock
before extraordinary items ( 717) 83 82
Extraordinary items - - 296
--------- --------- ---------
Income (Loss) applicable to common stock ($ 717) $ 83 $ 378
========= ========= =========
Shares
Weighted average number of common
shares outstanding 7,285,441 7,056,536 4,371,011
Add shares issuable from assumed
exercise of options and warrants - 78,905 -
--------- --------- ---------
7,285,741 7,135,441 4,371,011
========= ========= =========
Primary earnings per common share
Income (Loss) before extraordinary items ($ .10) $.01 $ .02
Extraordinary items - - .07
---------- ---------- ----------
Net income (Loss) ($ .10) $ .01 $ .09
========== ========== ==========
Assuming full dilution
Earnings
Income (Loss) before extraordinary items ($ 648) $ 152 $ 151
Extraordinary items - - 296
---------- ---------- ---------
Net income (Loss) ($ 648) $ 152 $ 447
========== ========== =========
Shares
Weighted average number of common
shares outstanding 7,285,441 7,135,441 4,371,011
Assuming conversion of preferred stock 4,399,989 1,005,000 1,005,000
Assuming exercise of options and warrants
reduced by the number of shares which
could have been purchased with the
proceeds from exercise of such options
and warrants 1,195,500 275,135 -
---------- ---------- ----------
Weighted average number of common
shares outstanding as adjusted 12,880,930 8,415,576 5,376,011
=========== ========== ==========
Earnings per common share assuming
full dilution
Income (Loss) before extraordinary items* ($.05)* $.02* $.03
Extraordinary items - - .06
---------- ---------- ---------
Net Income (Loss) ($.05)* $.02* $.09
========== ========== =========
* Earnings (loss) per share with conversion is anti-dilutive and
therefore is not used.
