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, 1999 COMMISSION FILE #: 2-67918-NY
MIKROS SYSTEMS CORPORATION
--------------------------
(Exact Name of Registrant as Specified in Charter)
DELAWARE 14-1598200
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification#)
Incorporation or Organization)
707 Alexander Road, Suite 208, 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, 1999
- ---------------------------- ------------------
COMMON STOCK, PAR VALUE $.01 28,588,963 SHARES
MIKROS SYSTEMS CORPORATION
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page #
ITEM I - FINANCIAL STATEMENTS
Balance Sheets at September 30, 1999 and December 31, 1998
(Unaudited)................................................. 1
Statements of Operations for the Three Months ended and the
Nine Months ended September 30, 1999 and 1998 (Unaudited)... 3
Statements of Shareholders' Equity for the Years ended
1997 and 1998 and Nine Months ended September 30, 1999
(Unaudited)................................................. 4
Statements of Cash Flows for the Three Months ended and
the Nine Months ended September 30, 1999 and 1998 (Unaudited)5
Notes to the Financial Statements........................... 6
ITEM II
Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 10
PART II - OTHER INFORMATION.................................... 12
MIKROS SYSTEMS CORPORATION
BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
ASSETS 1999 1998
- ------------------------------ ------------ ------------
CURRENT ASSETS
Cash $ 28,110 $ 100,983
Accounts Receivable
Government - -
Trade - 22,023
Prepaid Engineering Services - 234,722
Other Current Assets 2,446 7,148
------------ ------------
TOTAL CURRENT ASSETS 30,556 364,876
------------ ------------
EQUIPMENT 71,170 71,170
Less: Accumulated Depreciation 56,080 36,080
------------ ------------
EQUIPMENT, NET 15,090 35,090
------------ ------------
PATENT COST, NET 28,032 29,648
------------ ------------
TOTAL ASSETS $ 73,678 $ 429,614
============ ============
See Notes to Financial Statements
MIKROS SYSTEMS CORPORATION
BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
LIABILITIES AND SHAREHOLDERS' DEFICIENCY 1999 1998
- ----------------------------------------- ----------- ------------
CURRENT LIABILITIES
Accounts Payable $ 48,358 $ 69,173
Notes Payable
Related Parties 72,500 72,500
Other 35,000 105,000
Obligations under Capital Leases - 26,063
Accrued Payroll and Payroll Taxes 25,240 25,932
Accrued Expenses 189,054 48,220
Deferred Contract Credits - 234,722
Advance from Mobile Broadcasting 89,468 -
Other Customer Advances 15,000 15,000
------------ ------------
TOTAL LIABILITIES 474,620 596,610
------------ ------------
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 1999 and 1998 80,450 80,450
------------ ------------
SHAREHOLDERS' DEFICIENCY
Common Stock, par value $.01 per share,
authorized 60,000,000 shares, issued and
outstanding 27,422,296 shares in 1998 and
28,588,963 in 1999 285,890 274,223
Preferred Stock, convertible,
par value $.01 per share, authorized 2,000,000
shares, issued and outstanding 255,000 shares
in 1999 and 1998 2,550 2,550
Preferred Stock, Series B convertible, par value
$.01 per share, authorized 1,200,000 shares, issued
and outstanding 1,131,663 shares in 1999 and 1998 11,316 11,316
Preferred Stock, Series D, par value $.01 per
share, 690,000 shares authorized, issued and
outstanding in 1999 and 1998 6,900 6,900
Capital in excess of par 11,005,252 10,946,919
Accumulated deficit (11,793,300) (11,489,354)
------------ ------------
TOTAL SHAREHOLDERS' DEFICIENCY ( 481,392) ( 247,446)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY $ 73,678 $ 429,614
============ ============
See Notes to Financial Statements
<PAGE>
<PAGE>
MIKROS SYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended, Nine Months Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
---------- --------- ---------- ----------
Revenues:
Equipment Sales $ - $ - $ - $ 333,592
Contract Research
and Development - - - 46,874
Royalties 23,258 3,583 41,651 7,760
----------- ---------- ---------- --------
Total Revenues 23,258 3,583 41,651 388,226
Cost of Sales:
Equipment Sales - - - 321,787
Contract Research
and Development 10,000 8,233 19,009 52,662
---------- ----------- ---------- --------
Total Cost of Sales 10,000 8,233 19,009 374,449
Gross Margin 13,258 (4,650) 22,642 13,777
Expenses:
Research &
Development 58,721 332,130 459,268 660,096
General & Admin. 33,799 48,603 110,934 268,257
Interest - 24 - 49,125
----------- ----------- ---------- ---------
Total Operating
Expenses 92,520 380,757 570,202 977,478
----------- ---------- ---------- ---------
Net Loss before
Extraordinary Items ( 79,262) (385,407) (547,560) (963,701)
Gain on the Sale of
Government Contracts - 332,130 234,722 1,096,085
Gain on Settlment of
Accounts Payable Debt 6,818 31,957 8,892 318,597
----------- ----------- ----------- ---------
Net Loss $ ( 72,444) $ (21,320) $(303,946) $ 450,981
============ ========== ========== ==========
Basic Loss per share $ (0.00) $ (0.03) (0.02) (0.07)
Basic Income per share
- Extraordinary 0.00 0.03 0.01 0.10
----------- ----------- ---------- ---------
Basic Loss per share $ (0.00) (0.00) (0.01) 0.03
============ ========== ========== =========
Weighted average number of
shares outstanding 28,588,963 13,451,452 28,259,903 13,451,452
=========== =========== =========== ==========
See Notes to Financial Statements
<PAGE>
MIKROS SYSTEMS CORPORATION
STATEMENTS OF SHAREHOLDERS 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,
1996 11,846,952 $118,470 1,005,000 $10,050 1,131,663 $11,316
Year Ended December 31, 1997:
Issuance of Common
Stock 854,500 8,545
Conversion of Preferred
Stock 750,000 7,500 (750,000) (7,500)
Net Loss
---------- ------- --------- ------- --------- -------
Balance-December 31,
1997 13,451,452 134,515 255,000 2,550 1,131,663 11,316
Year Ended December 31, 1998:
Issuance of Common Stock800,000 8,000
Conversion of Secured
Debt 13,170,844 131,708
Net Income
---------- ------- --------- ------- --------- -------
Balance-December 31,
1998 27,422,296 274,223 255,000 2,550 1,131,663 11,316
Nine Months Ended
September 30, 1999
Conversion of Secured
Debt 1,166,667 11,667
Net Loss
---------- ------- --------- -------- --------- -------
Balance September 30,
1999 28,588,963 $285,890 255,000 $2,550 1,131,663 $11,316
========== ======= ======== ======== ========= =======
Preferred
Stock D Capital
$.01 PAR in excess Accumulated
VALUE of Par Deficit
--------- ------- ------------ -----------
PAR
SHARES VALUE
--------- ------- ------------ -----------
Balance-December 31,
1996 690,000 $6,900 $10,218,548 $(11,278,643)
Year Ended December 31, 1997:
Issuance of Common Stock 29,830
Conversion of Preferred Stock
Net Loss ( 604,550)
-------- ------- ----------- ------------
Balance-December 31,
1997 690,000 6,900 10,248,378 (11,883,193)
Year Ended December 31, 1998:
Issuance of Common Stock 40,000
Conversion of Secured Debt 658,541
Net Income 393,839
--------- ------- ----------- ------------
Balance-December 31,
1998 690,000 6,900 10,946,919 (11,489,354)
Nine Months Ended
September 30, 1999
Conversion of Secured Debt 58,333
Net Loss (303,946)
--------- ------- ------------ ------------
Balance September 30,
1999 690,000 $ 6,900 $ 11,005,252 $(11,793,300)
======== ======== ============= ============
</TABLE> See Notes to Financial Statements
<PAGE>
MIKROS SYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
The Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
Cash Flows
Provided (Used) by Operating
Activities:
Net Income
(Loss) $( 72,444) $ (21,320) $ (303,946) $ 450,981
Adjustments to reconcile Net Loss
to Net Cash Provided (Used) by Operating
Activities:
Gain from Sale of Defense Contracts,
net of Engineering Credit and
Equipment sold - - - (575,662)
Settlement of
Accounts Payable (6,818) (31,957) (8,892) (318,697)
Depreciation and
Amortization 10,539 7,022 21,616 11,711
Net Changes in Operating Assets and
Liabilities:
Accounts Receivable - (3,583) 22,023 447,224
Unbilled Receivables - - - 3,837
Inventories - - - 5,293
Other Current Assets 1,200 (3,444) 4,702 (154)
Other Assets - (66) - (447)
Increase (Decrease) in:
Accounts Payable 4,067 (39,124) (18,741) (312,424)
Accrued Payroll
and Payroll Taxes(740) - (692) (2,905)
Unliquidated Progress Billings and
Other
Customer Advances18,727 (15,000) 89,468 (122,849)
Other Liabilities
and Interest 34,843 (14,741) 140,834 (90,469)
--------- --------- -------- ---------
Net Cash
Used by Operations (10,626) (122,213) (53,628) (504,561)
Cash Flows Provided by Investing
Activities:
Sale of Government
Contracts - - - 600,000
--------- ---------- --------- ----------
Net Cash Used by Financing
Activities:
Repayment of Debt (19,245) (19,825) (19,245) (24,475)
--------- ---------- ---------- ----------
Net Increase (Decrease)
in Cash (29,871) (142,038) (72,873) 70,964
Cash at Beginning of
Period 57,981 298,694 100,983 85,592
--------- --------- ---------- ----------
Cash at End of Period $28,110 $ 156,656 $ 28,110 $ 156,556
========== ============ ============= ==========
Supplemental disclosure of cash flow
information:
Cash paid for
interest $ - $ 20,332 $ - $ 95,508
========== ============= ============= ==========
Supplemental disclosure of non-cash
information:
Credit for Engineering Services from
Sale of Government
Contracts $ - $ - $ - $1,000,000
Engineering Services
Utilized $ - $ 332,130 $ 234,722 561,549
Stock Issued from Conversion of
Secured Debt $ - $ - $ 70,000 $ -
See Notes to Financial Statements
<PAGE>
MIKROS SYSTEMS CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
- ------------------------------
The Company's financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates the continuation
of the Company as a going concern. The Company has sustained substantial
operating losses in recent years. In addition, the Company has utilized
substantial amounts of working capital in its operations. Further, at September
30, 1999, its current liabilities exceed its current assets by $444,064 and at
December 31, 1998 exceeded its current assets by $231,734.
As shown in the accompanying financial statements, the Company recorded a net
operating loss before extraordinary items of $79,262 for the quarter ended
September 30, 1999, and a year to date net operating loss of
$547,560. The net loss after extraordinary gains was $72,444 and $303,946
for the quarter and year to date as of September 30, 1999, respectively. As
of September 30, 1999, the Company had an accumulated deficit of $11,793,300.
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 on the Company being able to obtain
financing to support further development for its commercial wireless business
and continuing operations. Management believes that actions presently being
taken to revise the Company s operating and financial requirements provide the
opportunity to continue as a going concern.
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 1998 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, 1999, the changes in deficiency in assets, and the
results of operations, and cash flows for the nine-month periods ended
September 30, 1999 and 1998.
The results disclosed in the Statements of Operations for the nine months
ended September 30, 1999 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:
09/30/99 12/31/98
-------- --------
Related Parties 72,500 72,500
Other Notes Payable 35,000 105,000
-------- --------
Total $105,500 $177,500
======== ========
2) Financing Transactions
- --------------------------
1996 Financing
- --------------
In a series of transactions from February through May 1996, the Company issued
secured promissory notes and warrants to raise an aggregate of $641,500
(including $122,500 from officers and directors). The promissory notes were
for a term of approximately eighteen months, bearing interest at 12% on the
unpaid balance, and were secured by certain assets of the Company. In
addition, the Company issued warrants to purchase five (5) shares of Common
Stock at $0.01 per share for each dollar of debt. The value of the warrants
was immaterial, and no accounting recognition was given to their issuance.
In October 1996, all of the note holders of the 1996 and the 1992-93 financings
agreed to a deferral of principal payments in exchange for the right to convert
outstanding debt to Common Stock of the Company at a rate of one (1) share of
stock for $1.00 of debt. The Company determined that the fair value of the
conversion feature was immaterial. Accordingly, no accounting recognition has
been given to this modification of terms.
During 1998, the Company paid the investors all of the interest accrued on
promissory notes payable through May 15, 1998. No additional interest accrued
after that date. At that time, it offered to convert the notes at face value to
stock valued at $.06 per share in order to restructure its debt. Most of the
investors elected to convert. As a result, 8,504,177 shares of common stock were
issued. Three of its investors (not related parties) chose not to convert notes
totalling $105,000.
In February 1999, two of the remaining three investors converted their debt,
totalling $70,000, under the same terms as debt exchanged in 1998. As a result,
1,166,167 shares were issued in March, 1999. There is one remaining investor
(not related party) who has not converted as of September 30, 1999. The note is
included in Notes Payable.
Safeguard Scientifics (Delaware) Inc. (SSI)
- -------------------------------------------
On November 15, 1996, the Company, all of its secured creditors from its 1996
and 1992-93 financings and SSI entered into an agreement. Under the agreement
SSI paid $1,000,000 to the Company.
- - SSI received: 1) 1,912,000 shares of Common Stock of the Company; 2) a
warrant to purchase 2,388,000 shares of Common Stock at $0.65 per share; 3)
a warrant to purchase 3,071,000 shares at $0.78 per share; 4) a 75% interest
in an exclusive, royalty-free, perpetual license of the AM technology in
the United States, Canada and Mexico (through SSI's ownership in MBC); and 5) a
33 1/3% interest in the FM and AM technology (through SSI's ownership in 3D).
This transaction is more fully described below.
- - Two (2) new companies were formed, Data Design and Development Corporation
(3D) and Mobile Broadcasting Corporation (MBC). The Company received one-third
of 3D in exchange for certain of its AM and FM technology. SSI received one-
third of 3D in exchange for a commitment to invest up to $1,000,000 in MBC.
The secured creditors received one-third of 3D and released their security
interest in the technology transferred. The Company received 25% of MBC for
$50. SSI received 75% of MBC for $200,000.
- - 3D granted MBC an exclusive, royalty-free, perpetual license to the AM
technology in the United States, Canada and Mexico. 3D granted the Company an
exclusive, royalty-free, perpetual license to the FM technology in the United
States, Canada and Mexico. 3D retained rights to the AM and FM technology in
the rest of the world. The Company and MBC entered into a consulting
arrangement under which the Company was paid for the development of the AM
technology. 3D owns the rights to such technology.
The Company is unable to assign fair values to these transactions. No amount
of cash consideration was considered attributable to a sale of the AM or FM
technology or to the license thereto. No gain was recognized on the transfer
of the technology. The entire amount of the cash consideration received from
SSI was recorded as a sale of Common Stock.
In connection with the sale of the Common Stock and the Warrants, the Company
granted to SSI certain piggyback and demand registration rights with respect to
the Common Stock and the Common Stock underlying the Warrants. In addition,
the Company granted to SSI a right of first refusal pursuant to which, subject
to certain conditions, in the event the Company issues, sells or exchanges any
securities, it must first offer such securities to SSI and such offer must
remain open and irrevocable for 30 days. Such right of first refusal may only be
waived in writing and terminates at such time as SSI owns less than 10% of the
Common Stock.
Pursuant to the Purchase Agreement, as long as SSI owns 1% or more of the
Company's outstanding equity securities, on a fully-diluted basis, the Company
is obligated to, among other things:(i) permit SSI to inspect the operations
and business of the Company; and (ii) fix and maintain the number of Directors
on the Board of Directors at eight members. In addition, the Purchase
Agreement also provides that as long as SSI owns such 1%, the Company is
subject to certain negative covenants, including, among other things,
restrictions on: (i) transactions with affiliates of the Company; (ii) certain
indebtedness; and (iii) amendments to the Company's Certificate of
Incorporation and Bylaws.
In connection with the transaction, the Company entered into a voting agreement
pursuant to which Joseph R. Burns, Thomas J. Meaney, Wayne E. Meyer,
Frederick C. Tecce and John B. Torkelsen, each a director of the Company
(collectively, the "Management Shareholders"), agreed to vote an aggregate of
approximately 6,659,214 votes for the election of two designees of SSI to the
Board of Directors of the Company.
1992-93 Financing
- -----------------
In a series of transactions consummated on October 27, 1992 and April 27, 1993,
Joseph R. Burns, Thomas J. Meaney, Wayne E. Meyer, Frederick C. Tecce, and
John B. Torkelsen, individually and not as a group, (collectively referred to
herein as the "Investors") acquired certain loan and equity interests in the
Company from other debt and equity holders.
Pursuant to such transactions, each of the Investors acquired, in consideration
of an aggregate of $250,000 (each of the Investors individually paying $50,000
in cash), twenty percent of (i) 50,000 shares of Common Stock, $.01 par value
("Common Stock"), of the Company, (ii) promissory notes of the Company in the
aggregate principal amount of $916,875 (collectively, the "Investor Notes"),
(iii) warrants ("Series C Warrants") to purchase 97,500 shares of Series C
Preferred Stock, $.01 par value, of the Company and (iv) certain loan and equity
rights in the Company, including without limitation, rights under loan
agreements, an investment agreement, a note purchase agreement, and all
documents related to such agreements.
Pursuant to such loan documents, among other things, the Company is prohibited
from paying dividends on its Common Stock, the Company has granted to the
Investors a security interest in all of the assets of the Company and the
Investors have the right to designate 2/7ths of the Board of Directors of the
Company, which right has not been exercised. Each of Messrs. Burns, Meaney,
Meyer and Torkelsen is a Director of the Company.
In December 1993, the Investors agreed to reduce the amounts owed by the Company
under the Investor Notes, including unpaid interest, in exchange for shares of
Common Stock and Preferred Stock issued by the Company. In return for a
reduction in debt of $416,875 and accrued interest of $273,125, the Company
issued 2,750,000 shares of Common Stock and 690,000 shares of Series D
Preferred Stock which provides for an annual cumulative dividend of $.10 per
share. The Investor Notes were modified to provide for principal payments in
sixteen quarterly installments beginning January 1, 1994 and ending on
October 1, 1997.
Interest at 14% per annum on the unpaid principal balance was 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, 1996, the Company
was in arrears on six quarterly principal payments. In October 1996, the
Investors authorized deferral of the remaining $312,500 of principal payments
until 1998.
During 1998, the Company paid the investors all of the interest accrued on these
payable notes through May 15, 1998. At that time, it offered to convert the
notes at face value to stock valued at $.06 per share in order to restructure
its debt. There were 4,166,668 shares issued as a result. One of the investors
chose not to convert his notes which totalled $62,500. This amount is included
in Notes Payable as of September 30, 1999.
The Company ceased accruing interest on the remaining debt as of May 15, 1998.
<PAGE>
<PAGE>
Part I. Item II.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REVENUE
- -------
Total revenues were $23,258 for the quarter ended September 30, 1999 and
$41,651 for the nine months ended September 30, 1999 compared to $3,583 for the
three months ended September 30, 1998 and $388,226 for the nine months ended
September 30, 1998.
The 1999 revenues are related to royalties earned pursuant to the Company's
divestiture of its military contracts. The year to date royalty revenues of
$41,651 represents 100% of the Company's 1999 revenue versus $7,760 or 2.0% in
1998.
In 1999, there were no revenues from equipment sales. In 1998, revenues from
equipment sales were $333,592 or 85.6% of total year to date revenue revenue.
The 1998 equipment revenues represent the final revenues on the Company s
government contracts.
In 1999, there were no revenues on research and development contracts. There
were no research and development revenues for the second quarter of 1998,
although there were $46,874 or 12.1% year to date as of September 30, 1998. The
1998 research and development revenues represent the revenues on two contract
which were completed in the first quarter of 1998.
COST OF SALES
- -------------
Total Cost of Sales for the quarter ended September 30, 1999 was $10,000 or
43.0% of total revenues compared to $6,684 or 1.60% of total revenue for the
quarter ended September 30, 1998. Year to date as of September 30, 1999 total
Cost of Sales was $19,009 or 45.6% of total revenues compared to $374,449 or
96.5% of total revenue year to date.
Equipment Cost of Sales was $0 for the nine months ended
September 30, 1999 compared to $321,787 for the same period in 1998.
Cost of Sales of Contract R & D was $19,009 compared to $52,662 for the nine
months ended September 30, 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, General and Administrative expenses for the nine months ended September
30, 1999 was $110,934 versus $268,257 for the nine months ended September
30, 1998, a decrease of $157,323 or 58.6%. This decrease is due mainly to
downsizing into 1998.
INTEREST EXPENSE
- ----------------
No interest expense was recorded during the third quarter of 1999. Interest
expense was $24 in the quarter ended September 30, 1998. Year to date, no
interest has been recorded in 1999. As of September 30, 1998, interest expense
equaled $49,125.
NET LOSS
- --------
Net loss for the nine months ended September 30, 1999 was $72,444 versus a net
loss of $21,320 for the same period in 1998. Net loss for the nine months
ended September 30, 1999 was $303,946 versus net income of $450,981 for the
same quarter in 1998. Although the level of total revenues is lower in 1999,
the loss is not proportionate to the change in revenues due to the
extraordinary gains recorded during the second and third quarters of 1998.
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.
Year to date as of September 30, 1999, the Company had negative cash flow from
operations of approximately $54,000. This compares to negative cash flow from
operations of approximately $505,000 nine months ended September 30, 1998.
There was negative working capital of approximately $444,000 as of September
30, 1999 as compared to negative working capital of approximately $232,000
as of September 30, 1998.
As of September 30, 1999, the Company could not meet its remaining principal
repayment obligations under the 1996 Financing and the 1992-93 Financing. The
Company has ceased accruing interest on its notes payable as of May 15, 1998.
Management is attempting to finalize the restructuring of its remaining note
obligations with one related party and other note holders.
A substantial portion of the Company s costs and expenses is represented by
labor, related benefits and subcontractors. From January 1, 1998 to the
present, the Company decreased its number of employees from 19 to 2.
Commencing April 10, 1998, for a period of four years, the Company will
receive a royalty of 2% of all data terminal sales by GAC. The royalty
agreement provides for quarterly reports and payments based on the GAC
shipments and receipts during the quarter.
The Company intends to continue the development and marketing of its commercial
applications of its wireless communications technology both directly and
through its relationship with MBC. In order to continue such development and
marketing, the Company will be required to raise additional funds. The Company
intends to consider the sale of additional debt and equity securities under
appropriate market conditions, alliances or other partnership agreements with
entities interested in supporting the Company s commercial programs, or other
business transactions which would generate resources sufficient to assure
continuation of the Company s operations and research programs. There can be
no assurance, assuming the Company successfully raises additional funds or
enters into business alliances, 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 alliances, management will be required to
sharply curtail its operations. Failure to obtain such additional financing on
terms acceptable to the Company may materially adversely affect the Company s
ability to continue as a going concern.
Based upon the foregoing there is a sufficient risk that the Company will not be
able to continue as a going concern.
The Company anticipates that its existing working capital will be sufficient to
fund the Company's operations through the end of 1999.
<PAGE>
PART II OTHER INFORMATION
Year 2000 Compliance
- --------------------
Assessment. The Company believes that its exposure to Year 2000 problems lies
primarily in three areas: (i) its internal operating systems; (ii) Year 2000
compliance of any products sold to customers; and (iii) non-compliance of third
parties with whom the Company has material relationships. The Company has
completed its assessment with respect to its internal operating systems. The
Company continues to evaluate its exposure with respect to its products sold to
customers and its relationships with third parties.
Internal Operating Systems. The Company believes its internal accounting
system are not currently Year 2000 compliant, The Company does not believe
that there will be future significant costs related to upgrading or replacing
such accounting system.
Products Sold to Customers. The Company is continuing to analyze the extent to
which any products sold to customers are not Year 2000 compliant. The Company
does not believe any required remediation will be significant or will
materially adversely affect the Company's financial condition and results of
operations.
Third Party Relationships. The Company is dependent on third party service
providers and partners such as telephone companies, banks, insurance carriers,
auditors and marketing partners. The failure of such third parties to deliver
Year 2000 compliant products or to remediate their internal systems could
jeopardize the Company's ability to meet its obligations to its customers.
As a result, the Company is presently conducting inquiries of its outside
vendors, suppliers, service providers and marketing partners to identify and
resolve Year 2000 exposure from third parties. Upon completion of the
foregoing, the Company will be able to assess such exposure and financial
impact, if any, should such parties fail to be Year 2000 compliant.
Risks of Year 2000 Issues. The Company expects to identify and resolve all
Year 2000 problems that could materially adversely affect its business,
financial condition or results of operations. However, the Company believes
that it is not possible to determine with complete certainty that all Year
2000 problems affecting the Company have been identified or corrected.
Further, the Company cannot accurately predict how many failures related to the
Year 2000 Problem will occur or the severity, duration or financial
consequences of such failures.
Additionally, the Company cannot guarantee that its products will not be
integrated by customers or interact with non-compliant software or other
products which may expose the Company to claims from its customers.
Costs. Other than time spent by the Company's personnel, the costs associated
with remediating non-compliant products and assessing Year 2000 compliance
issues have not been significant to date. The Company believes that the
continued analysis of compliance of products and evaluation of potential Year
2000 problems will not result in material expenditures.
Contingency Plans. The Company believes its plans for addressing the Year 2000
Problem are adequate. The Company does not believe it will incur a material
financial impact from system failures, or from the costs associated with
assessing the risks of failure, arising from the Year 2000 Problem.
Consequently, the Company does not intend to create a detailed contingency
plan. In the event that the Company does not adequately identify and resolve
its Year 2000 issues, the absence of a detailed contingency plan may materially
adversely affect the Company's business, financial condition and results of
operations.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits. None.
b) Reports on Form 8-K.
c) 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 15, 1999
/s/ Thomas J. Meaney
--------------------
Thomas J. Meaney
President
<PAGE>
<PAGE>
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