SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED: September 30, 1996 COMMISSION FILE #: 2-67918-NY
MIKROS SYSTEMS CORPORATION
--------------------------
(Exact Name of Registrant as Specified in Charter)
DELAWARE 14-1598-200
-------- -----------
(State or Other Jurisdiction of (I.R.S. Employer Identification#)
Incorporation or Organization)
3490 U.S. Route 1, Princeton, NJ 08540
--------------------------------------
(Address of Principal Executive Offices, Including Zip Code)
Registrant's Telephone Number, Including Area Code: 609-987-1513
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. [X]Yes [ ]No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
OUTSTANDING AT
CLASS September 30, 1996
- ---------------------------- ----------------
COMMON STOCK, PAR VALUE $.01 8,803,775 SHARES
CONVERTIBLE PREFERRED STOCK, 1,005,000 SHARES
PAR VALUE $.01
SERIES B PREFERRED STOCK 1,131,663 SHARES
PAR VALUE $.01
SERIES C PREFERRED STOCK 5,000 SHARES
PAR VALUE $.01
SERIES D PREFERRED STOCK 690,000 SHARES
PAR VALUE $.01
- --------------------------------------------------------------------
<PAGE>
MIKROS SYSTEMS CORPORATION
BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
ASSETS 1996 1995
- ------------------------------ ------------ ------------
CURRENT ASSETS
Cash $ 29,682 $ 77,276
Accounts Receivable
Government 68,923 65,186
Trade 21,056 52,967
Inventories 531,194 76,321
Other Current Assets 47,724 11,559
------------ ------------
TOTAL CURRENT ASSETS 698,579 283,309
------------ ------------
FIXED ASSETS
Equipment 628,511 574,397
Furniture and Fixtures 59,207 59,207
Leasehold Improvements 3,408 3,408
------------ ------------
691,126 637,012
Less: Accumulated Depreciation
and Amortization (513,562) (465,955)
------------ ------------
FIXED ASSETS, NET 177,564 171,057
------------ ------------
SECURITY DEPOSITS 426 1,001
UNBILLED RECEIVABLES 59,330 58,681
PATENT COSTS, NET 33,150 32,947
------------ ------------
TOTAL ASSETS $ 969,049 $546,995
============ ============
See Notes to Financial Statements
<PAGE>
MIKROS SYSTEMS CORPORATION
BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND SEPTEMBER 30, DECEMBER 31,
SHAREHOLDERS' EQUITY (DEFICIENCY) 1996 1995
- ------------------------------------------ ----------- ------------
CURRENT LIABILITIES
Accounts Payable $ 444,378 $ 268,933
Notes Payable
Bank 130,270 134,271
Related Parties and Others 951,500 30,000
Obligations under Capital Leases 23,889 6,403
Accrued Payroll and Payroll Taxes 21,155 14,308
Accrued Interest 2,883 11,442
Accrued Vacations 47,923 49,188
Accrued Expenses 189,552 89,982
Unliquidated Progress Billings 512,599 - 0 -
------------ ------------
TOTAL CURRENT LIABILITIES 2,324,149 604,527
------------ ------------
NOTES PAYABLE
Bank 12,342 18,542
Related Parties and Others 61,250 312,500
OBLIGATIONS UNDER CAPITAL LEASES-NONCURRENT 8,000 11,827
------------ ------------
TOTAL LIABILITIES 2,405,741 947,396
------------ ------------
COMMITMENTS AND CONTINGENCIES
MANDATORILY REDEEMABLE SERIES C PREFERRED STOCK
par value $.01 per share, authorized 150,000
shares, issued and outstanding 5,000 shares
in 1996 and 1995 80,450 80,450
------------ ------------
SHAREHOLDERS' EQUITY (DEFICIENCY)
Common Stock, par value $.01 per share,
authorized 25,000,000 shares, issued and
outstanding 8,803,775 shares in 1996 and
7,352,108 in 1995 88,038 73,521
Preferred Stock, convertible,
par value $.01 per share, authorized 2,000,000
shares, issued and outstanding 1,005,000 shares
in 1996 and 1995 10,050 10,050
Preferred Stock, Series B convertible,
par value $.01 per share, authorized 1,200,000
shares, issued and outstanding 1,131,663 shares
in 1996 and 1995 11,316 11,316
Preferred Stock, Series D,
par value $.01 per share 690,000 shares authorized,
issued and outstanding in 1996 and 1995 6,900 6,900
Capital in excess of par 9,251,195 9,248,364
Accumulated deficit (10,884,641) (9,831,002)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIENCY) (1,517,142) (480,851)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $969,049 $546,995
============ ============
See Notes to Financial Statements
<PAGE>
MIKROS SYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION> Three Months Ended, Nine Months Ended,
Sept 30, 1996 Sept 30, 1995 Sept 30, 1996 Sept 30, 1995
<C> <C> <C> <C>
------------- ------------- ------------- -------------
Revenues:
Equipment Sales $ 21 134 $ 146,031 $ 111,259 $1,136,708
Contract Research and Development 197,406 525,517 517,532 1,885,501
----------- ---------- ---------- -----------
Total Revenues 218,540 671,548 628,791 3,022,209
----------- ---------- ---------- -----------
Cost of Sales:
Equipment Sales 13,571 106,794 49,883 810,500
Contract Research and Development 269,722 559,415 925,084 1,689,468
----------- ---------- ---------- -----------
Total Cost of Sales 283,293 666,209 974,967 2,499,968
----------- ---------- ---------- -----------
Gross Margin (64,753) 5,339 (346,176) 522,241
----------- ---------- ---------- -----------
Expenses:
Selling, General and Administrative 228,458 203,054 626,254 658,986
Interest 33,937 12,140 81,209 38,153
----------- ---------- ---------- -----------
Total Expenses 262,395 215,194 707,463 697,139
----------- ---------- ---------- -----------
Net Income (Loss) ($327,148) ($209,855) ($1,053,639) ($174,898)
=========== ========== ========== ===========
Net Income (Loss) per share ($0.04) ($0.03) ($0.13) ($0.02)
=========== ========== ========== ===========
Weighted average number of
shares outstanding 8,349,192 7,352,108 7,854,400 7,263,219
=========== =========== ========== ===========
</TABLE>
See Notes to Financial Statements
<PAGE>
MIKROS SYSTEMS CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
(UNAUDITED)
<TABLE>
<CAPTION> Common Preferred Preferred
Stock Stock Stock B
$.01 PAR $.01 PAR $.01 PAR
VALUE VALUE VALUE
--------- ------- --------- -------- --------- --------
PAR PAR PAR
SHARES VALUE SHARES VALUE SHARES VALUE
--------- ------- --------- -------- --------- --------
<C> <C> <C> <C> <C> <C>
Balance-December 31, 1993 7,132,108 $71,321 1,005,000 $10,050 1,131,663 $11,316
Year ended December 31, 1994:
Issuance of Common Stock 20,000 200
Net Income
--------- ------- --------- -------- --------- --------
Balance December 31, 1994 7,152,108 71,521 1,005,000 10,050 1,131,663 11,316
Year Ended December 31, 1995:
Issuance of Common Stock 200,000 2,000
Net Income (Loss)
--------- ------- --------- -------- --------- --------
Balance-December 31, 1995 7,352,108 73,521 1,005,000 10,050 1,131,663 11,316
Issuance of Common Stock 1,451,667 14,517
Net Income (Loss)
--------- ------- --------- -------- --------- --------
Balance September 30, 1996 8,803,775 $88,038 1,005,000 $10,050 1,131,663 $11,316
========= ======= ========= ======= ========= ========
Preferred
Stock D Capital
$.01 PAR in excess Accumulated
VALUE of Par Deficit
--------- ------- --------- -----------
PAR
SHARES VALUE
--------- ------- --------- -----------
<C> <C> <C> <C>
Balance-December 31, 1993 690,000 $ 6,900 $9,236,814 ($9,334,964)
Year ended December 31, 1994:
Issuance of Common Stock 1,050
Net Income 151,635
--------- ------- ---------- ------------
Balance December 31, 1994 690,000 6,900 9,237,864 ( 9,183,329)
Year Ended December 31, 1995:
Issuance of Common Stock 10,500
Net Income (Loss) (647,673)
--------- ------- ---------- ------------
Balance-December 31, 1995 690,000 6,900 9,248,364 ( 9,831,002)
Issuance of Common Stock 2,831
Net Income (Loss) ( 1,053,639)
--------- ------- ---------- ------------
Balance September 30, 1996 690,000 $ 6,900 $9,251,195 ($10,884,641)
========= ======= ========== ============
</TABLE>
See Notes to Financial Statements
<PAGE>
MIKROS SYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION> Three Months Ended Nine Months Ended
Sept 30, 1996 Sept 30, 1995 Sept 30, 1996 Sept 30, 1995
<C> <C> <C> <C>
------------- ------------- ------------- -------------
Cash Flows Provided (Used) by Operating
Activities:
Net Income (Loss) ($327,148) ($209,855) ($1,053,639) ($174,898)
Adjustments to reconcile Net Income (Loss)
to Net Cash Provided (Used) by Operating
Activities:
Depreciation and Amortization 17,469 16,609 48,877 48,413
Net Changes in Operating Assets and
Liabilities:
(Increase) Decrease in:
Accounts Receivable 170,191 82,539 27,525 678,428
Inventories (331,339) (73,833) (454,873) (80,669)
Other Current Assets (19,964) 14,257 (36,165) (9,312)
Other Assets 635 0 1,210 (575)
Increase (Decrease) in:
Accounts Payable 175,372 (15,036) 175,445 (92,326)
Accrued Payroll and Payroll Taxes (6,411) (25,684) 14,837 4,436
Other Liabilities and Interest (234,970) (107,643) 102,363 (425,851)
Leases Payable (6,947) (5,622) (6,947) 652
Unliquidated Progress Billings 512,599 0 512,599 0
--------- --------- --------- ----------
Net Cash Provided (Used) by Operations (50,513) (324,268) (668,768) (51,702)
--------- --------- --------- ----------
Cash Flows Provided (Used) by Investing
Activities:
Fixed Asset Purchases (4,000) (1,011) (54,115) (61,187)
Patents 0 (6,541) (2,109) (6,541)
--------- --------- --------- ---------
Net Cash (Used) by Investing Activities (4,000) (7,552) (56,224) (67,728)
Cash Flows Provided (Used) by Financing
Activities:
Note Proceeds 36,000 90,000 676,500 90,000
Proceeds from Issuance of Common Stock 11,698 0 17,348 12,500
Debt Repayment (11,575) 0 (16,450) (95,976)
--------- --------- --------- ---------
Net Cash Provided (Used) by Financing
Activities: 36,123 90,000 677,398 6,524
--------- --------- --------- ---------
Net Increase (Decrease) in Cash (18,390) (241,820) (47,594) (112,906)
Cash at Beginning of Period 48,072 247,507 77,276 118,593
--------- --------- --------- ---------
Cash at End of Period $ 29,682 $ 5,687 $29,682 $ 5,687
========= ========= ========= =========
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 33,970 $12,751 $89,877 $ 38,199
========= ========= ========= =========
</TABLE>
See Notes to Financial Statements
<PAGE>
MIKROS SYSTEMS CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
- ------------------------------
As permitted by rules of the Securities and Exchange Commission
applicable to quarterly reports on Form 10-Q, these notes are
condensed and do not contain all disclosures required by
generally accepted accounting principles. Reference should be
made to the financial statements and related notes included in
the Company's 1995 Annual Report on Form 10-K.
In the opinion of the management of Mikros Systems Corporation,
the accompanying financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to
present fairly the Company's financial position at September 30,
1996, the changes in deficiency in assets, and the results of
operations, and cash flows for the three and six-month periods
ended September 30, 1996 and 1995.
The results disclosed in the Statements of Operations for the
three and nine months ended September 30, 1996 are not necessarily
indicative of the results to be expected for the full year.
NOTE B - NOTES AND LOANS PAYABLE
- --------------------------------
1) Outstanding Debt is summarized as follows:
09/30/96 12/31/95
-------- --------
Notes Payable to Banks $ 142,612 $152,813
Other Notes Payable 1,012,750 342,500
---------- --------
$1,155,362 $495,313
========== ========
2) Financing Transactions
- ----------------------------
1992-93 Financing
- -----------------
In a series of transactions consummated on October 27, 1992 and
April 27, 1993, Joseph R. Burns, Thomas J. Meaney, Wayne E.
Meyer, Frederick C. Tecce, and John B. Torkelsen, individually
and not as a group, (collectively referred to herein as the
"Investors") acquired certain loan and equity interests in the
Company from other debt and equity holders.
Pursuant to such transactions, each of the Investors acquired, in
consideration of an aggregate of $250,000 (each of the Investors
individually paying $50,000 in cash), twenty percent of (i)
<PAGE>
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 September 30, 1996 Company was in
arrears on two quarterly principal payments. The Investors have
authorized deferral of all principal payments until 1997.
1996 Financing
- --------------
In the first nine months of 1996, the Company raised an aggregate
of $641,500 in debt financing pursuant to the issuance of certain
secured promissory notes.
The promissory notes are for a term of approximately eighteen months
and include an interest rate of 12% on the unpaid balance. The first
interest payment was made on June 15, 1996 and is due quarterly
thereafter. The principal payments will be paid on the fifteenth of
March, June and September 1997. The notes are secured by the assets
of the Corporation. As additional consideration, warrants for the
purchase of common stock were granted (the number of shares were based
on the amount of the promissory note and equal to five shares to each
dollar). The warrant price is $.01 per share.
The following officers and directors participated in the 1996
financing: Wayne E. Meyer, Thomas J. Meaney, Deborah A. Montagna,
and Patricia A. Bird.
NOTE C - INVENTORIES
- --------------------
Inventories at September 30, 1996 are stated at the lower of cost or
market, computed on the first-in, first-out method.
<PAGE>
Part I. Item II.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REVENUE
- -------
Total revenues were $218,540 for the quarter ended September 30, 1996
compared to $671,548 for the same period in 1995. For the nine months ended
September 30, 1996 total revenues were $628,791, compared to $3,022,209 for
the same period in 1995, a decrease of 79.2%. For the quarter and nine months
ended September 30, 1996, equipment revenues were $21,134 and $111,259,
respectively, compared to $146,031 and $1,136,708, respectively, for the same
periods in 1995. These decreases in equipment revenue are due mainly to the
fact that in 1995 the Company had revenues from a large contract from the
Applied Physics Laboratory, Johns Hopkins University. Contract Research and
Development revenues were $197,406 and $525,517 for the quarters ended
September 30, 1996 and 1995, respectively. For the nine months ended
September 30, 1996 and September 30, 1995 Contract Research and
Development revenues were $517,532 and $1,885,501, respectively, a
decrease of 72.6%. These decreases are due primarily to the higher
level in 1995 of revenues from several large development contracts for
the U.S. Navy. In 1996 thus far, the Company has experienced delays
in the placement of orders from the U.S. Navy.
COST OF SALES
- -------------
Equipment cost of sales for the three months ended September 30, 1996 and
1995 was $13,571 (64.2% of revenue) and $106,794 (73.1% of revenue),
respectively. For the nine months ended September 30, 1996 and September 30,
1995 equipment cost of sales was $49,883 (44.8% of revenue) and
$810,500 (71.3% of revenue), respectively.
Cost of sales of Contract Research and Development revenues was
$269,722 (136.6% of revenue) and $559,415 (106.4% of revenue) for the
three months ended September 30, 1996 and 1995, respectively. For the nine
months ended September 30, 1996 and 1995, such cost of sales was $925,084
(178.7% of revenue) and $1,689,468 (89.6% of revenue), respectively.
Equipment cost of sales as a percent of revenue is lower in the 1996
periods than in 1995 because a greater share of development costs is
customer funded in 1996 than in 1995. As a percent of revenue, cost of sales
of Contract Research and Development revenues is higher in 1996 than
in 1995 due to the unabsorption of fixed overhead costs because of the
Company's low order volume during the periods.
INTEREST EXPENSE
- ----------------
Interest expense was $33,937 versus $12,140 for the quarters ended
September 30, 1996 and September 30, 1995, respectively. For the nine months
ended September 30, 1996 and September 30, 1995, interest expense was $81,209
and $38,153 respectively. The higher amounts in 1996 are due to an
increase in outstanding debt in 1996 from 1995.
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, General and Administrative expenses amounted to $228,458 for
the quarter ended September 30, 1996 compared to $203,054 for the same
quarter in 1995 (an increase of 12.5%) due mainly to lower travel and
salary expenses in the 1995 period. Selling, General and Administrative
expenses were $626,254 and $658,986 for the nine months ended September 30,
1996 and September 30, 1995, respectively, (a decrease of 5.0%) also due
mainly to lower travel and salary expenses.
NET INCOME (LOSS)
- -----------------
Net Loss for the quarter ended September 30, 1996 was $327,148 compared to
a net loss of $209,855 for the quarter ended September 30, 1995. For the
nine months ended September 30, 1996 net loss amounted to $1,053,639 versus
a net loss of $174,898 for the same period in 1995. The greater losses in
the 1996 periods versus 1995 are due mainly to the development costs
mentioned above and lower levels of revenue.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's financial statements for the quarter and nine months
ended September 30, 1996 have been prepared on a going concern basis which
contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. The
Company incurred net loss of $327,148 and $1,053,639, respectively, for
the quarter and nine months ended September 30, 1996, and at September 30,
1996 had an accumulated deficit of $10,884,641. At September 30, 1996 the
Company had negative working capital of $1,625,570 compared to
negative working capital of $321,218 at December 31, 1995. For the
quarter and nine months ended September 30, 1996 the Company used $50,513
and $668,768, respectively, in operating activities. For the same
periods in 1995 the Company used $324,268 and $51,702, respectively. The
Company expects to continue 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. In 1996, the Company completed
a debt financing of $641,500 (see 1996 Financing under Note "A" to Financial
Statements). 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. At September 30, 1996, current
notes payable (due in 1997) included $922,750 to creditors who subsequently
authorized deferral to 1998 of any principal repayment.
<PAGE>
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 recent current debt financing effort. Further, there can be no
assurances, assuming the Company successfully raises additional
funds or enters into a business alliance, that the Company will
achieve profitability or positive cash flow. If the Company is
unable to obtain additional adequate financing or enter into such
business alliance, management will be required to sharply curtail
its operations.
<PAGE>
Part II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits. None.
b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the
quarter for which this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
MIKROS SYSTEMS CORPORATION
(Registrant)
Dated: November 13, 1996
/s/ Thomas J. Meaney
-----------------------
Thomas J. Meaney
President and
Chief Executive Officer
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- ------- --------------------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000317340
<NAME> MIKROS SYSTEMS CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 29,682
<SECURITIES> 0
<RECEIVABLES> 89,979
<ALLOWANCES> 0
<INVENTORY> 531,194
<CURRENT-ASSETS> 698,579
<PP&E> 691,126
<DEPRECIATION> (513,562)
<TOTAL-ASSETS> 969,049
<CURRENT-LIABILITIES> 2,288,149
<BONDS> 0
80,450
28,266
<COMMON> 88,038
<OTHER-SE> (1,633,446)
<TOTAL-LIABILITY-AND-EQUITY> 969,049
<SALES> 628,791
<TOTAL-REVENUES> 628,791
<CGS> 974,967
<TOTAL-COSTS> 974,967
<OTHER-EXPENSES> 626,254
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 81,209
<INCOME-PRETAX> (1,053,639)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,053,639)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,053,639)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
