U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
Commission File No. 2-67918
Mikros Systems Corporation
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 14-1598200
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
707 Alexander Road, Building Two, Suite 208, Princeton, New Jersey 08540
(Address of Principal Executive Offices)
(609) 987-1513
(Issuer's Telephone Number,
Including Area Code)
(Former Address, If Changed Since Last Report)
Check whether the Issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
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.
Yes: X No:
State the number of shares outstanding of each of the Issuer's classes
of common stock, as of June 30, 2000:
Class Number of Shares
Common Stock, Par Value $.01 29,230,790
Transitional Small Business Disclosure Format (check one):
Yes: X No:
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements..................................... 3
CONDENSED BALANCE SHEET
as of June 30, 2000............................................. 4
CONDENSED STATEMENTS OF OPERATIONS
For the Three Months Ended and the Six Months Ended June 30, 2000
.................................................................. 6
CONDENSED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2000 and 1999
.................................................................. 7
NOTES TO THE CONDENSED FINANCIAL STATEMENTS)...................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 10
Results of Operations.............................................. 11
Liquidity and Capital Resources.................................... 11
PART II OTHER INFORMATION
Item 5. Other Information.......................................... 13
Item 6. Exhibits and Reports on Form 8-K........................... 13
SIGNATURES......................................................... 14
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted from the
following consolidated financial statements pursuant to the rules
and regulations of the Securities and Exchange Commission, although
Mikros Systems Corporation (the "Company") believes that such
financial disclosures are adequate to assure that the information
presented is not misleading in any material respect. The
following financial statements should be read in conjunction with the
year-end financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999.
The results of operations for the interim periods presented herein are not
necessarily indicative of the results to be expected for the entire
fiscal year.
MIKROS SYSTEMS CORPORATION
CONDENSED BALANCE SHEET
(UNAUDITED)
JUNE 30,
ASSETS 2000
---------------------------- ---------------
CURRENT ASSETS
Cash $ 22,465
Accounts Receivable, net of
Allowances 49,972
Other Current Assets 3,509
------------
TOTAL CURRENT ASSETS 75,946
------------
EQUIPMENT 59,722
Less: Accumulated Depreciation 51,255
------------
EQUIPMENT, NET 8,467
PATENT COSTS, NET 26,434
------------
TOTAL ASSETS $ 110,847
============
See Notes to Financial Statements
MIKROS SYSTEMS CORPORATION
CONDENSED BALANCE SHEET
(UNAUDITED)
JUNE 30,
LIABILITIES AND SHAREHOLDERS' DEFICIENCY 2000
-----------------
CURRENT LIABILITIES
Accounts Payable $ 67,421
Notes Payable
Related Parties 72,500
Other 35,000
Accrued Payroll and Payroll Taxes 25,240
Accrued Expenses 10,264
Advances from related party 82,101
Unliquidated Progress Payments and Other
Customer Advances 15,000
----------
TOTAL LIABILITIES 307,526
----------
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 2000 and 1999 80,450
-----------
SHAREHOLDERS' DEFICIENCY
Preferred Stock, convertible,
par value $.01 per share, authorized 2,000,000
shares, issued and outstanding 255,000 shares
in 2000 and 1999 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 2000 and 1999 11,316
Preferred Stock, Series D, par value $.01 per
share, 690,000 shares authorized, issued and
outstanding in 2000 and 1999 6,900
Common Stock, par value $.01 per share,
authorized 60,000,000 shares, issued and
outstanding 29,245,213 shares in 2000 and
28,588,963 in 1999 292,452
Capital in excess of par 11,232,448
Accumulated deficit (11,822,795)
---------------
TOTAL SHAREHOLDERS' DEFICIENCY ( 277,129)
---------------
TOTAL LIABILITIES AND SHAREHOLDERS'
DEFICIENCY $ 110,847
============
See Notes to Financial Statements
MIKROS SYSTEMS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended, Six Months Ended,
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- --------------- -------------
Revenues:
Royalties $ 17,232 $ 12,743 $ 23,614 $ 18,393
-------------- ------------- ------------- -------------
Total Revenues 17,232 12,743 23,614 18,393
Cost of Sales:
Contract Research
and Development - 4,509 - 9,009
-------------- -------------- ------------- --------------
Total Cost of Sales - 4,509 - 9,009
-------------- -------------- ------------- --------------
Gross Margin 17,232 8,234 23,614 9,384
-------------- ------------- ------------- --------------
Expenses:
Research & Development - 165,825 - 165,825
General & Administrative38,339 37,199 83,897 77,135
------------- ------------- ------------- --------------
Total Operating
Expenses 38,339 203,024 83,897 242,960
------------- ------------- ------------- --------------
Operating Loss (21,107) (194,790) (60,283) (233,576)
Gain from Disposition
of Asset - - 4,377 -
Operating Loss before
Extraordinary Items (21,107) (194,790) (55,906) (233,576)
Extraordinary Items:
Gain from Settlement of
Accounts Payable Debt - - - 2,074
------------- ------------- ------------- ---------------
Net Loss $ (21,107) $ (194,790) $ (55,906) $ (231,502)
============= ============= ============= ===============
Basic Loss
per Share $ - $ - 0 - $ - $ - 0 -
Basic Earnings per
share extraordinary
Items $ - $ - $ - $ - 0 -
-------------- --------------- --------------- --------------
Basic Loss per
share $ - $ - 0 - $ - $ - 0 -
============== ============== =============== ==============
Weighted average number
of shares
outstanding 29,230,790 28,588,963 28,949,135 28,092,646
============== ============== =============== ===============
See Notes to Financial Statements
MIKROS SYSTEMS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
The Three Months Ended The Six Months Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
Cash Flows Provided (Used)
by Operating Activities:
Net Loss $ (21,107) $ (194,790) $ (55,906) $ (231,502)
Adjustments to reconcile Net Loss
to Net Cash Provided (Used) by
Operating Activities:
Gain from Disposition of Asset - - (4,377) -
Settlement of Accounts Payable - (2,074) - (2,074)
Depreciation and Amortization 530 539 1,060 1,078
Asset Impairment - 5,000 - 10,000
Net Changes in Operating Assets and
Liabilities:
(Increase) Decrease in:
Accounts Receivable (14,831) 6,790 8,607 6,790
Other Current Assets 1,049 (5,467) (3,009) (5,467)
Increase (Decrease) in:
Accounts Payable (1,926) (17,967) 14,862 (17,967)
Accrued Payroll and Payroll Taxes - 1,176 - 1,176
Other Liabilities and Accrued
Expenses (15,028) (31,703) 17,218 (31,703)
----------- ---------- ---------- ------------
Net Cash (Used) by
Operations (51,313) (238,496) (21,545) (269,669)
Cash Flows Provided by Investing Activities
Sale of Equipment - - 6,000 -
----------- ---------- ----------- ------------
Cash Flows Provided by
Financing Activities:
Cash Overdraft 137,513 168,686
Advance from Related Party - - 1,432 -
Proceeds from the Exercise of
Warrants and Options 437 - 2,812 -
----------- ----------- ------------ ------------
Net Cash Provided by
Financing Activities: 437 137,513 4,244 168,686
----------- ----------- ------------- -------------
Net (Decrease) in Cash (50,876) (100,983) (11,301) (100,983)
Cash at Beginning of Period 73,341 100,983 33,766 100,983
----------- ----------- ------------- -------------
Cash at End of Period $ 22,465 $ - $ 22,465 $ -
=========== =========== ============= =============
Supplemental disclosure of cash flow
information:
Cash paid during the quarter
for interest $ - $ - $ - $ -
Supplemental disclosure of non-cash
information:
Engineering Services Utilized $ - $ 14,961 $ - $ 234,722
Stock Issued from Conversion of Secured
Debt $ - $ - $ - $ 70,000
Stock Issued from Conversion of Non-
Secured Debt $ - $ - $ 230,946 $ -
See Notes to Financial Statements
MIKROS SYSTEMS CORPORATION
NOTES TO CONDENSED FINANCIAL STATMENTS (UNAUDITED)
JUNE 30, 2000
Note 1 - Basis of Presentation:
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. These financial statements should
be read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
In the opinion of the Company's management the accompanying unaudited
financial statements contain all adjustments, consisting solely of those
which are of a normal recurring nature, necessary to present fairly its
financial position as of December 31, 1999 and the results of its
operations and its cash flows for the six months ended June 30, 2000.
Interim results are not necessarily indicative of results for the full
fiscal year.
Basic loss per common share was calculated based upon the net loss
available to common stockholders divided by the weighted average number of
shares of common stock outstanding during the period.
The Company's financial statements have been prepared assuming that the
Company will be able to continue as a going concern. 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 June 30, 2000 its current liabilities exceed
its current assets by $231,580. These conditions raise substantial
doubt about the Company's ability to continue as a going concern.
Management's plans and intentions on the going concern issue are discussed
below. These financial statements do not include any adjustments that
would be required if the Company were unable to continue as a going concern.
In order to continue as a going concern, the Company will need to incur
substantial expenditures to develop and market its commercial wireless
communications business.
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 and/or equity capital 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.
Note 2 - Stockholders' Equity:
MANDATORILY REDEEMABLE SERIES C PREFERRED STOCK
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. 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 redemption price for each share
of Series C Preferred Stock held by such holder, and the holder of Series
C Preferred Stock will not be entitled to any further payment. The redemption
price per share is $16.09.
SERIES B CONVERTIBLE PREFERRED STOCK
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.
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 Shareholders.
Upon any liquidation, dissolution, or winding up of the Company, each
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.
MIKROS SYSTEMS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) CONT'D
JUNE 30, 2000
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, 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 payement.
The Company has neither paid nor declared dividends on its Common Stock since
its inception and does not plan to pay dividends on its Common Stock in the
foreseeable future.
The Company expects that any earnings which the Company may realize and
which are not paid as dividends to holders of Preferred Stock will be
retained to finance the growth of the Company.
Note 3 - Financing:
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 inmaterial and no accounting
recognition was given to their issuance.
In October 1996, all of the note holders 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 inmaterial. 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, the Company
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 the note holders (not related parties) chose not to
convert notes totalling $105,000. These are included in the notes payable as
of December 31, 1998. During 1999, two of the remaining three note holders
converted their debt, totalling $70,000, under the 1998 terms.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
Mikros Systems Corporation was founded in 1978 in Albany, New York to
exploit microprocessor technology developed at the General Electric
Research and Development Center for the military defense industry. The
Company was incorporated under the laws of the State of Delaware in 1978
and acquired all rights of General Electric Venture Capital Corporation,
a subsidiary of General Electric Company, to certain microcomputer
technology. The Company's headquarters are located at 707 Alexander
Road, Suite 208, Princeton, New Jersey; phone (609) 987-1513.
The knowledge base and proprietary technology developed were recognized by
the Company as applicable to the rapidly expanding wireless business in the
commercial sector. The rigorous radio transmission environment as well as
the challenges of underwater signal processing required Mikros scientists
to invent new methods for optimizing the bandwidth for a higher data
throughput.
In 1995, the Company decided to also pursue commercial contracts which
would employ these advanced techniques to enhance the data transmission
rates in the AM and FM radio spectrum.
In 1996, Safeguard Scientifics (Delaware), Inc., invested $1 million in
Mikros in exchange for 10% ownership in the Company. At the same time,
Mobile Broadcasting Corporation (MBC) was created to exploit the AM radio
technology, particularly in mobile or portable platforms such as
automobiles. Initially, Safeguard invested $1 million in MBC for 75%
ownership whereas Mikros owned the remaining 25%. Mikros' share in MBC
was subsequently diluted to 18%, as a result of an additional capital
investment of $1,200,000 by Safeguard. In 1998, Mikros' share increased
to 50% as a result of the Company's investment arising from the use of
its engineering credits.
Data Design and Development Corporation (3D) was also founded in 1996 as
part of the Safeguard Scientific agreement and retains ownership of the
AM and FM technology. 3D has licensed the FM technology rights in
North America to Mikros and the AM technology rights in North America to
MBC. Mikros owns 1/3 of 3D, certain Mikros shareholders own another 1/3,
and Safeguard owns the remaining 1/3.
Mikros entered negotiations in late 1997 for the sale of its military
contracts to General Atronics Corporation (GAC). The resulting
transaction was concluded in 1998 and included a $600,000 cash payment
and a 2% royalty to be paid to the Company over four years on all data
terminal set sales. In addition, the purchaser was obligated to
supply $1,000,000 in engineering services to the Company which will
continue to be expended on the AM data program in cooperation with MBC.
Mikros' commercial business assets now consist of both the original FM
technology and the AM Radio technology. Continued development of the FM
technology has been postponed in order to direct all of the Company's
resources to the AM Radio technology.
The digital system Mikros is developing for AM radio data transmission
will allow simultaneous broadcasting of the present radio signal with a
digital signal. This will be accomplished with minimal disturbance to the
existing radio channel. This system will require a minor modification to
the radio station transmitter which is not expected to require new FCC
approval since adjacent channel interference is avoided.
The Company has completed the Alpha Phase of its development program for
the AM data broadcasting. Live on the air tests have demonstrated the
Company's ability to simultaneously broadcast a data signal along with
regular audio programming. The data are received using a prototype
custom data radio that has been developed by the Company.
The Company developed a business model during 1999. This model combines
the AM data transmission technology with the operations of a nationwide
or area wide network of AM radio stations equipped with the minor
modifications to the radio station's transmitter. Data could be
broadcast from point to multipoint and the signal received by the
listener who will have a small portable receiver to be developed based
on the prototype presently being used in the Company's experimental trials.
In addition to the AM technology developed by the Company, Mikros entered
into an Memorandum of Understanding with Lucent Digital Radio, Inc.,
a venture owned jointly by Lucent Technologies and Pequot Capital.
Mikros is seeking to license the use of patented Lucent Digital Radio AM
in band on channel technologies. The Company plans to augment its
existing AM Digital Radio technology with the Lucent Digital Radio
technologies. There is no assurance that any of the applications
presently contemplated for datacasting (assuming a network will be
established) will be embraced by potential users.
Certain matters discussed in this Form 10-QSB are "forward-looking
statements" intended to qualify for the safe harbors from liability
established by the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements include, without limitation, statements
regarding technology under development, strategies and objectives.
The forward-looking statements include risks and uncertainties, including,
but not limited to, the anticipated size of and growth in the markets for
the Company's products, the trends favoring the use of the Company's
proposed commercial products, the anticipated demand for the Company's new
products, the timing of development and implementation of the Company's new
product offerings, the utilization of such products by the Company's client
and trends in future operating performance, and other factors not within the
Company's control. The factors discussed herein and expressed from time to
time in the Company's filings with the Securities and Exchange Commission
could cause actual results and development to be materially different from
those expressed in or implied by such statements. The forward-looking
statements made herein are only made as of the date of this report and the
Company undertakes no obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances.
Results of Operations
---------------------
Six Months Ended June 30, 2000
Total revenues were $ 17,232 for the second quarter ended June 30, 2000
and $ 23,614 for the six months ended June 30, 2000 compared to $12,743
for the quarter ended June 30, 1999 and $18,393 for the six months ended
June 30, 1999.
The 2000 revenues represent royalties earned pursuant to the Company's
divestiture of its military contracts. The year to date royalty revenues
of $23,614 represents 100% of the Company's 2000 revenue versus $18,393
in 1999.
General and administrative expenses for the second quarter ended
June 30, 2000 were $38,339 versus $37,199 in the quarter ended June 30,
1999. G & A costs include salaries, payroll taxes, legal and
accounting costs and other miscellaneous expenses.
No interest expense was recorded during the second quarter of 2000 or
during the year 1999.
Net loss for the six months ended June 30, 2000 was $55,906 versus a
net loss of $231,502 for the same period in 1999.
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.
As of December 31, 1998, 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.
At June 30, 2000, the Company had cash and cash equivalents of
approximately $22,465. As of June 30, 2000, the Company had negative
working capital of $231,580.
Net cash provided by operating activities was approximately $33,000
which includes changes in certain of the Company's operating assets
and liabilities and the net loss for the six months ended June 30, 2000.
Commencing April 10, 1998, for a period of four years, the Company is
receiving a royalty of 2% of all data terminal sales by General Atronics
Corporation (GAC). The royalty agreement provides for quarterly reports
and payments based on the GAC shipments and receipts during the quarter.
The cash receipts for royalties for the quarter ended June 30, 2000
were $2,400.
Mikros is presently seeking $5M in financing in order to implement its
business plan. There is no guarantee that the Company will be able to
obtain the necessary financing or that the application contemplated
will be embraced by potential users.
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 resource sufficient to assure continuation of the
Company's operations and research programs. There can be no assurance,
assuming the Company successfully raise 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.
Year 2000 Compliance
--------------------
In prior years, the Company discussed the nature and progress of its plan
to become Year 2000 ready. In late 1999, the Company completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions
in mission critical information technology and non-information technology
systems and believes those systems successfully responded to the Year 2000
date change. The Company is not aware of any material problems resulting
from Year 2000 issues, either with its products, its internal systems, or
the products and services for third parties. The Company will continue to
monitor its mission critical computer applications and those of its suppliers
and vendors throughout the Year 2000 to ensure that any latent Year 2000
matters that may arise are addressed promptly.
PART II. OTHER INFORMATION
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Description of Exhibit
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Mikros Systems Corporation
DATE: August 14, 2000 By:/s/ Thomas J. Meaney
President
<PAGE>
