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: June 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 June 30, 1996
- ---------------------------- ----------------
COMMON STOCK, PAR VALUE $.01 7,894,608 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)
JUNE 30, DECEMBER 31,
ASSETS 1996 1995
- ------------------------------ ------------ ------------
CURRENT ASSETS
Cash $ 48,072 $ 77,276
Accounts Receivable
Government 216,744 65,186
Trade 27,549 52,967
Inventories 75,979 76,321
Other Current Assets 27,760 11,559
------------ ------------
TOTAL CURRENT ASSETS 396,104 283,309
------------ ------------
FIXED ASSETS
Equipment 624,512 574,397
Furniture and Fixtures 59,207 59,207
Leasehold Improvements 3,408 3,408
------------ ------------
687,127 637,012
Less: Accumulated Depreciation
and Amortization (496,093) (465,955)
------------ ------------
FIXED ASSETS, NET 191,034 171,057
------------ ------------
SECURITY DEPOSITS 426 1,001
UNBILLED RECEIVABLES 75,207 58,681
PATENT COSTS, NET 33,785 32,947
------------ ------------
TOTAL ASSETS $ 696,556 $546,995
============ ============
See Notes to Financial Statements
<PAGE>
MIKROS SYSTEMS CORPORATION
BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND JUNE 30, DECEMBER 31,
SHAREHOLDERS' EQUITY (DEFICIENCY) 1996 1995
- ------------------------------------------ ----------- ------------
CURRENT LIABILITIES
Accounts Payable $ 269,006 $ 268,933
Notes Payable
Bank 133,271 134,271
Related Parties and Others 678,667 30,000
Obligations under Capital Leases 23,717 6,403
Accrued Payroll and Payroll Taxes 33,556 14,308
Accrued Interest 2,883 11,442
Accrued Vacations 49,219 49,188
Accrued Expenses 262,882 89,982
------------ ------------
TOTAL CURRENT LIABILITIES 1,455,201 604,527
------------ ------------
NOTES PAYABLE
Bank 14,667 18,542
Related Parties and Others 304,333 312,500
OBLIGATIONS UNDER CAPITAL LEASES-NONCURRENT 7,120 11,827
------------ ------------
TOTAL LIABILITIES 1,781,321 947,396
------------ ------------
COMMITMENTS AND CONTINGENCIES
MANDATORILY REDEEMABLE SERIES C PREFERRED STOCK
par value $.01 per share, authorized 150,000
shares, issued and outstanding 5,000 shares
in 1996 and 1995 80,450 80,450
------------ ------------
SHAREHOLDERS' EQUITY (DEFICIENCY)
Common Stock, par value $.01 per share,
authorized 25,000,000 shares, issued and
outstanding 7,894,608 shares in 1996 and
7,352,108 in 1995 78,946 73,521
Preferred Stock, convertible,
par value $.01 per share, authorized 2,000,000
shares, issued and outstanding 1,005,000 shares
in 1996 and 1995 10,050 10,050
Preferred Stock, Series B convertible,
par value $.01 per share, authorized 1,200,000
shares, issued and outstanding 1,131,663 shares
in 1996 and 1995 11,316 11,316
Preferred Stock, Series D,
par value $.01 per share 690,000 shares authorized,
issued and outstanding in 1996 and 1995 6,900 6,900
Capital in excess of par 9,248,589 9,248,364
Accumulated deficit (10,521,016) (9,831,002)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIENCY) (1,165,215) (480,851)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $696,556 $546,995
============ ============
See Notes to Financial Statements
<PAGE>
MIKROS SYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION> Three Months Ended, Six Months Ended,
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
<C> <C> <C> <C>
------------- ------------- ------------- -------------
Revenues:
Equipment Sales $ 214 483 $ 483,284 $ 250,478 $ 990,677
Contract Research and Development 212,446 612,006 320,126 1,359,984
----------- ---------- ---------- -----------
Total Revenues 426,929 1,095,290 570,604 2,350,661
----------- ---------- ---------- -----------
Cost of Sales:
Equipment Sales 90,583 336,227 122,895 703,009
Contract Research and Development 392,429 490,908 692,655 1,130,750
----------- ---------- ---------- -----------
Total Cost of Sales 483,012 827,135 815,550 1,833,759
----------- ---------- ---------- -----------
Gross Margin (56,083) 268,155 (244,946) 516,902
----------- ---------- ---------- -----------
Expenses:
Selling, General and Administrative 199,843 237,354 397,796 455,932
Interest 30,354 13,865 47,272 26,013
----------- ---------- ---------- -----------
Total Expenses 230,197 251,219 445,068 481,945
----------- ---------- ---------- -----------
Net Income (Loss) ($286,280) $ 16,936 ($690,014) $ 34,957
=========== ========== ========== ===========
Net Income (Loss) per share ($0.04) $0.00 ($0.09) $ 0.00
=========== ========== ========== ===========
Weighted average number of
shares outstanding 7,630,858 7,352,108 7,537,941 7,252,108
=========== =========== ========== ===========
</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 542,500 5,425
Net Income (Loss)
--------- ------- --------- -------- --------- --------
Balance June 30, 1996 7,894,608 $78,946 1,005,000 $10,050 1,131,663 $11,316
========= ======= ========= ======= ========= ========
Preferred
Stock D Capital
$.01 PAR in excess Accumulated
VALUE of Par Deficit
--------- ------- --------- -----------
PAR
SHARES VALUE
--------- ------- --------- -----------
<C> <C> <C> <C>
Balance-December 31, 1993 690,000 $ 6,900 $9,236,814 ($9,334,964)
Year ended December 31, 1994:
Issuance of Common Stock 1,050
Net Income 151,635
--------- ------- ---------- ------------
Balance December 31, 1994 690,000 6,900 9,237,864 ( 9,183,329)
Year Ended December 31, 1995:
Issuance of Common Stock 10,500
Net Income (Loss) (647,673)
--------- ------- ---------- ------------
Balance-December 31, 1995 690,000 6,900 9,248,364 ( 9,831,002)
Issuance of Common Stock 225
Net Income (Loss) (690,014)
--------- ------- ---------- ------------
Balance June 30, 1996 690,000 $ 6,900 $9,248,589 ($10,521,016)
========= ======= ========== ============
</TABLE>
See Notes to Financial Statements
<PAGE>
MIKROS SYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION> Three Months Ended Six Months Ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
<C> <C> <C> <C>
------------- ------------- ------------- -------------
Cash Flows Provided (Used) by Operating
Activities:
Net Income (Loss) ($286,280) $ 16,936 ($690,014) $ 34,957
Adjustments to reconcile Net Income (Loss)
to Net Cash Provided (Used) by Operating
Activities:
Depreciation and Amortization 15,704 15,745 31,408 32,495
Net Changes in Operating Assets and
Liabilities:
(Increase) Decrease in:
Accounts Receivable (195,354) 13,629 (126,140) 688,337
Unbilled Receivables (16,208) 100,026 (16,526) (92,448)
Inventories 40,154 (33,635) 342 (6,836)
Other Current Assets (11,291) (13,749) (16,201) (17,984)
Other Assets 375 0 575 (575)
Increase (Decrease) in:
Accounts Payable (10,966) 70,205 73 (77,290)
Accrued Payroll and Payroll Taxes 1,630 (7,293) 21,248 30,120
Other Liabilities and Interest 78,012 (83,639) 176,980 (311,934)
--------- --------- --------- ----------
Net Cash Provided (Used) by Operations (384,224) 78,225 (618,255) 278,842
--------- --------- --------- ----------
Cash Flows Provided (Used) by Investing
Activities:
Fixed Asset Purchases (50,115) (28,736) (50,115) (60,176)
Patents (2,109) (6,276) (2,109) (6,276)
--------- --------- --------- ---------
Net Cash (Used) by Investing Activities (52,224) (35,012) (52,224) (66,452)
Cash Flows Provided (Used) by Financing
Activities:
Proceeds from Current Financing 402,500 0 640,500 0
Proceeds from Issuance of Common Stock 5,275 12,500 5,650 12,500
Payments on Long Term Debt (3,325) (73,594) (4,875) (95,976)
--------- --------- --------- ---------
Net Cash Provided (Used) by Financing
Activities: 404,450 (61,094) 641,275 (83,476)
--------- --------- --------- ---------
Net Increase (Decrease) in Cash (31,998) (17,881) (29,204) 128,914
Cash at Beginning of Period 80,070 265,388 77,276 118,593
--------- --------- --------- ---------
Cash at End of Period $ 48,072 $247,507 $48,072 $247,507
========= ========= ========= =========
Supplemental disclosure of cash flow
information:
Cash paid during the quarter for interest $ 28,846 $12,714 $55,907 $ 25,429
========= ========= ========= =========
</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 June 30,
1996, the changes in deficiency in assets, and the results of
operations, and cash flows for the three and six-month periods
ended June 30, 1996 and 1995.
The results disclosed in the Statements of Operations for the
three and six months ended June 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:
06/30/96 12/31/95
-------- --------
Notes Payable to Banks $147,937 $152,813
Other Notes Payable 983,000 342,500
-------- --------
$1,130,937 $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 December 31, 1995, the Company was in
arrears on two quarterly principal payments. The Investors have
authorized deferral of all principal payments until 1997.
1996 Financing
- --------------
In a series of events from February through May 1996, the Company
raised an aggregate of $605,500 in debt financing pursuant to the
issuance of secured promissory notes.
The promissory notes are for a term of approximately eighteen months
and include an interest rate of 12% on the unpaid balance. The first
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 June 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 $426,929 for the quarter ended June 30, 1996
compared to $1,095,290 for the same period in 1995, a decrease of
61.0%. For the six months ended June 30, 1996 total revenues were
$570,604, compared to $2,350,661 for the same period in 1995, a
decrease of 76.0%. For the quarter and six months ended June 30,
1996, equipment revenues were $214,483 and $250,478, respectively,
compared to $483,284 and $990,677, respectively, for the same periods
in 1995. These decreases 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 $212,446 and $612,006 for the quarters ended
June 30, 1996 and 1995, respectively, a decrease of 65.3%. For the
six months ended June 30, 1996 and June 30, 1995 Contract Research and
Development revenues were $320,126 and $1,359,984, respectively, a
decrease of 76.5%. 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 a delay
in the placement of orders from the U.S. Navy.
COST OF SALES
- -------------
Equipment cost of sales for the three months ended June 30, 1996 and
1995 was $90,583 (42.2% of revenue) and $336,227 (69.6% of revenue),
respectively. For the six months ended June 30, 1996 and June 30,
1995 equipment cost of sales was $122,895 (49.1% of revenue) and
$703,009 (71.0% of revenue), respectively.
Cost of sales of Contract Research and Development revenues was
$392,429 (184.7% of revenue) and $490,908 (80.2% of revenue) for the
three months ended June 30, 1996 and 1995, respectively. For the six
months ended June 30, 1996 and 1995, such cost of sales was $692,655
(216.4% of revenue) and $1,130,750 (83.1% 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
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 $30,354 versus $13,865 for the quarters ended
June 30, 1996 and June 30, 1995, respectively. For the six months
ended June 30, 1996 and June 30, 1995, interest expense was $47,272
and $26,013 respectively. The higher 1996 amounts 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 $199,843 for
the quarter ended June 30, 1996 compared to $237,354 for the same
quarter in 1995 (a decrease of 15.8%) due mainly to lower travel and
salary expenses in the 1996 period. Selling, General and
Administrative expenses were $397,796 and $455,932 for the six months
ended June 30, 1996 and June 30, 1995, respectively, (a decrease of
12.8%) also due mainly to lower travel and salary expenses.
NET INCOME (LOSS)
- -----------------
Net Loss for the quarter ended June 30, 1996 was $286,280 compared to
net income of $16,936 for the quarter ended June 30, 1995. For the
six months ended June 30, 1996 net loss amounted to $690,014 versus
net income of $34,957 for the same period in 1995. The decrease in
the 1996 period versus 1995 is 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 six months
ended June 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 $286,280 and $690,014, respectively, for
the quarter and six months ended June 30, 1996, and at June 30, 1996
had an accumulated deficit of $10,521,016. At June 30, 1996 the
Company had negative working capital of $1,059,097 compared to
negative working capital of $321,218 at December 31, 1995. For the
quarter and six months ended June 30, 1996 the Company used $384,224
and $618,255, respectively, in operating activities. For the same
periods in 1995 the Company provided $78,225 and $278,842,
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 May 1996, the
Company completed a debt financing of $605,500 (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.
<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: August 12, 1996
/s/ Thomas J. Meaney
-----------------------
Thomas J. Meaney
President and
Chief Executive Officer
<PAGE>
[DESCRIPTION] ART. 5 FDS FOR 2ND QUARTER 10-Q
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] JUN-30-1996
[CASH] 48,072
[SECURITIES] 0
[RECEIVABLES] 319,500
[ALLOWANCES] 0
[INVENTORY] 75,979
[CURRENT-ASSETS] 396,105
[PP&E] 684,938
[DEPRECIATION] (493,905)
[TOTAL-ASSETS] 696,555
[CURRENT-LIABILITIES] 1,448,456
[BONDS] 0
[PREFERRED-MANDATORY] 80,450
[PREFERRED] 28,266
[COMMON] 78,946
[OTHER-SE] (1,272,427)
[TOTAL-LIABILITY-AND-EQUITY] 696,555
[SALES] 570,604
[TOTAL-REVENUES] 570,604
[CGS] 815,550
[TOTAL-COSTS] 815,550
[OTHER-EXPENSES] 397,796
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 47,272
[INCOME-PRETAX] (690,014)
[INCOME-TAX] 0
[INCOME-CONTINUING] (690,014)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (690,014)
[EPS-PRIMARY] (.09)
[EPS-DILUTED] (.09)
</TABLE>
