10QSB 1 juneqtr.txt U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 --------------------------------------- FORM 10QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2003 Commission File No. 2-67918 Mikros Systems Corporation and Subsidiaries ------------------------------------------- (Exact Name of Small Business Issuer as Specified in its Charter) Delaware 14-1598200 -------- ---------- (State of Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification No.) 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, 2003: Class Number of Shares ----- ---------------- Common Stock, Par Value $.01 31,566,753 Transitional Small Business Disclosure Format (check one): Yes:___ ___ No:____X___ TABLE OF CONTENTS PART I. CONSOLIDATED FINANCIAL STATEMENTS PAGE # Item 1. Consolidated Financial Statements 3 CONDENSED CONSOLIDATED BALANCE SHEET As of June 30, 2003 4 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months Ended and Six Months Ended June 30, 2003 and 2002 6 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months and Six Months Ended March 31, 2003 and 2002 7 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Results of Operations 13 Liquidity and Capital Resources 13 PART II OTHER INFORMATION Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 16 CERTIFICATIONS 17 PART I. FINANCIAL INFORMATION Item 1. Financial Statements. Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted from the following 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 10K-SB for the fiscal year ended December 31, 2002. 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 CONSOLIDATED BALANCE SHEET (UNAUDITED) June 30, ASSETS 2003 ------ -------- CURRENT ASSETS Cash $ 25,950 Accounts Receivable 9,982 Other Current Assets 4,217 -------- TOTAL CURRENT ASSETS 40,149 -------- FIXED ASSETS EQUIPMENT 67,738 Less: Accumulated Depreciation (54,151) -------- FIXED ASSETS, NET 13,587 -------- OTHER ASSETS Patent Costs, Net 20,075 -------- 20,075 -------- TOTAL ASSETS $ 73,811 ========= See Accompanying Notes MIKROS SYSTEMS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) June 30, LIABILITIES AND SHAREHOLDERS' DEFICIENCY 2003 --------- CURRENT LIABILITIES Accrued Directors Fees $28,074 Accrued Payroll and Payroll Taxes 23,136 Accrued Expenses 28,682 Customer Advances 15,000 --------- TOTAL CURRENT LIABILITIES $ 94,892 -------- COMMITMENTS AND CONTINGENCIES MANDATORILY REDEEMABLE SERIES C PREFERRED STOCK par value $.01 per share, authorized 150,000 shares, issued and outstanding 5,000 shares 80,450 ------- SHAREHOLDERS' DEFICIENCY Preferred Stock, convertible, par value $.01 per share, authorized 2,000,000 shares, issued and outstanding 255,000 shares 2,550 Preferred Stock, Series B convertible, par value $.01 per share, authorized 1,200,000 shares, issued and outstanding 1,102,433 shares 11,024 Preferred Stock, Series D, par value $.01 per share, 690,000 shares authorized, issued and outstanding 6,900 Common Stock, par value $.01 per share, authorized 60,000,000 shares, issued and outstanding 31,566,753 315,668 Capital in excess of par 11,418,976 Accumulated deficit (11,856,649) ----------- TOTAL SHAREHOLDERS' DEFICIENCY ( 101,531) ----------- TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY $ 73,811 ============ See Accompanying Notes MIKROS SYSTEMS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Six Months Ended June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002 Revenues: Royalties $ - $ 34,268 $ - $ 56,213 Contract Revenues 29,947 11,667 29,947 11,667 248: ------------- ------------ ------------- ------------- Total Revenues 29,947 45,935 29,947 67,880 ------------- ------------- -------------- ------------- Cost of Sales: Contract Research & Development 8,142 9,156 8,142 9,156 254: ------------- ------------ ------------- -------------- Total Cost of Sales 8,142 9,156 8,142 9,156 256: ------------- ------------ ------------- -------------- Gross Margin 21,805 36,779 21,805 58,724 258: ------------- ------------- ------------- --------------- Expenses: General & Administrative 46,929 49,970 102,295 96,605 261: ------------- ------------- ------------- ------------- (46,929) (49,970) (102,295) (96,605) 263: ------------- ----------- ------------- ------------- Net Loss $ (25,124) $ (13,191) $(80,490) $(37,881) 265: ============ ============ ============= ============= See Accompanying Notes MIKROS SYSTEMS CORPORATION CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) The Three Months Ended The Six Months Ended June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002 284: -------------- -------------- ------------- ------------- Cash Flow From Operating Activities: Net Loss $(25,124) $ (13,191) $(80,490) $(37,881) Adjustments to reconcile Net (Loss) to Net Cash Provided (Used) by Operating Activities: Depreciation and Amortization 1,155 597 2,308 1,194 Common Stock Issued for Services Rendered - 11,200 - 11,200 Net Changes in Operating Assets and Liabilities (Increase) Decrease in: Accounts Receivable (9,982) 6,404 (9,982) 24,425 - - 41,661 - Other Current Assets 2,474 9,085 (3,717) 16,925 Increase (Decrease) in: Accrued Expenses 6,896 - 19,204 - Accrued Payroll and Payroll Taxes 847 (529) 1,605 211 Other Liabilities - 5,684 - 17,813 -------- -------- -------- ------- Net Cash Provided by(Used In) Operations (23,734) 19,250 (29,411) 33,937 --------- -------- --------- -------- Cash Flows from Investing Activities: Acquisition of Equipment - (6,675) - (6,675) -------- -------- --------- -------- Cash Flows from Financing Activities: Advance (repayment) from/to related party - (350) - (221) -------- -------- --------- -------- Net increase (decrease) in cash (23,734) 12,225 (29,411) 27,041 109,968 55,361 94,252 -------- -------- --------- --------- Cash at the end of the period $ 25,950 $121,293 $ 25,950 $121,293 ======== ========= =========== ======== Supplemental Disclosure of Non-Cash Financing Activites: During 2003 the Company received a contribution of all outstanding stock of two affiliates. The Company now controls each of these companies and has received additional paid in capital on this transaction of $48,704. See Accompanying Notes MIKROS SYSTEMS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2003 342: Note 1 Basis of Presentation: The consolidated 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 accounting principles generally accepted in the United States of America 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 10K-SB for the year ended December 31, 2002. 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 June 31,2003 and the results of its operations and its cash flows for the six months ended June 30, 2003. Interim results are not necessarily indicative of results for the full fiscal year. The Company's consolidated 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. 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. The Company's ability to continue as a going concern is dependent upon its ability to generate sufficient cash flows to meet its obligations as they come due. The Company is seeking additional financing to fund its operating and capital requirements through 2003. If cash flows are insufficient or the Company is unable to raise funds on acceptable terms, there would be a material adverse effect on the Company's financial position and operations and its ability to continue as a going concern. This would force the Company to further reduce its expenditures, reduce its workforce, sell certain assets or possibly explore additional alternatives including seeking bankruptcy protection. The Company cannot be certain that additional debt or equity financing will be available when required or, if available, that it can secure it on terms satisfactory to the Company. In view of these matters, realization of a major portion of the assets in the accompanying business 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 Principles of Consolidation In January 2003 certain of the Company's stockholders Contributed their ownership interests in Mobile Broadcasting Corporation (MBC) and Data Design and Development (3D) to the Company, making each entity a wholly owned subsidiary of Mikros Systems Corporation. Accordingly, the 2003 financial statements include the accounts of the Company, MBC and 3D. All intercompany balances and transactions have been eliminated in the consolidation. 419: The 2002 information includes only the accounts of Mikros Systems Corporation. Proforma information for 2002 has not been presented because the transaction described above was not deemed significant to warrant such presentation. Note 3 Stockholder's 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 holders 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 holder of Series B Preferred Stock will be entitled to be paid, after all distributions of payments are made upon the Series C Preferred Stock and before any payment is made upon the Company's Convertible Preferred Stock, an amount in cash equal to $1.00 for each share of Series B Preferred Stock held, and such holders will not be entitled to any further payment. 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 payment. 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 Related Party Transaction: In January 2003, Paul G. Casner, Thomas Lynch, Thomas J. Meaney, Wayne E. Meyer and Tom L. Schaffnit each contributed certain equity interests of Mobile Broadcasting Corporation and Data Design and Development Corporation to the capital of the Company. Upon this contribution, MBC and 3D became wholly owned subsidiaries of the Company. These equity interests were acquired by such individuals from Safeguard Scientifics (Delaware), Inc. in November 2002. Each of Messrs. Casner, Lynch, Meaney, Meyer and Schaffnit is a Director of the Company. Mr. Meaney also is President, Chief Executive Officer and Chief Financial Officer of the Company. Item 2. Management's Discussion and Analysis of Financial Condition and Result 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's headquarters are located at 707 Alexander Road, Suite 208, Princeton, New Jersey; telephone (609)987-1513. The Company supplied technology and products to the Department of Defense for military applications through March 1998. The knowledge base and proprietary technology developed were recognized as applicable to the rapidly expanding commercial wireless business. In 1995, the Company decided to also pursue a business plan 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. Mikros owned a majority interest in MBC, with the balance of MBC ownership held by Safeguard Scientifics. Data Design and Development Corporation (3D) was also founded in 1996 as part of the Safeguard Scientific agreement to own the AM and FM technology. 3D licensed the FM technology rights in North America to Mikros and the AM technology rights in North America to MBC. Mikros owned two-thirds of the equity of 3D, and Safeguard owned the remaining one-third interest. In November 2002, Safeguard Scientifics sold its equity interests in MBC, 3D and the Company to Paul G. Casner, Thomas Lynch, Thomas J. Meaney, Wayne E. Meyer and Tom L. Schaffnit, each of whom is a Director of the Company. Mr. Meaney also is President, Chief Executive Officer and Chief Financial Officer of the Company. Each of such individuals acquired from Safeguard Scientifics (Delaware), Inc. 382,400 shares of the Company's Common Stock and warrants to purchase 1,091,800 shares of Common Stock. In January 2003, Messrs. Casner, Lynch, Meaney, Meyer and Schaffnit each contributed the equity interests of MBC and 3D to the capital of the Company. Upon this contribution, MBC and 3D became wholly owned subsidiaries of the Company. In April 1998, the Company sold its military contracts to an unrelated third party (the Purchaser). The Purchaser entered into a royalty agreement with the Company, and was required to pay a 2% royalty on all data terminal sets over a four-year period that expired in April 2002. In addition, the Purchaser was obligated to supply $1,000,000 in engineering services to the Company, which was expended by the end of 1999 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 was postponed in order to focus on the further development of the AM Radio technology. The digital system Mikros developed for AM radio data transmission allows simultaneous broadcasting of the present radio signal with a digital signal. The Company believes that this is accomplished with minimal disturbance to the existing radio channel. Installation of this system requires minor modifications to the radio station transmitter, which the Company believes will not require new FCC approval since adjacent channel interference is avoided. The Company developed a business model for the AM technology during 1999. This model combined 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 a small portable receiver to be developed based on the prototype used in the Company's experimental trials. During 2001, the Company's Board of Directors decided to explore providing services to the government business sector in order to further leverage its technical knowledge base. During its tenure as a supplier of military applications, Mikros had been successful in securing a number of governmental contracts. For example, Mikros had received over twelve competitive contract awards through the Small Business Innovative Research Program. In May 2002, the U.S. Navy's Dahlgren Division, Naval Surface Warfare Center (NSWCDD) awarded Mikros a Phase I SBIR (Small Business Innovative Research) contract. The contract was valued at $70,000 and represents the first stage in the development of a Multiple Function Distributed Test and Analysis Tool (MFDAT). The MFDAT project is focused on developing standardized test equipment and testing processes, using modern artificial intelligence techniques, to provide a foundation for new, less manpower-intensive methods of system maintenance, alignment, fault detection and isolation. The potential benefits to the U.S. Navy are: (1) increased readiness through reduced maintenance downtime of critical systems; (2) increased system reliability through predictive failure analysis and proactive remediation; and (3) more efficient and effective use of technical manpower through increased automation, distance support, and interactive training. Mikros, in conjunction with Anteon Corporation, as a subcontractor, will initially focus on the development of an intelligent test and maintenance tool for the AN/SPY-1A AEGIS Radar. The objective is to develop a "smart" tool capable of aiding the technician in the troubleshooting, repair, alignment, and maintenance efforts necessary to keep the SPY-1A Radar system in peak operating condition, while at the same time, significantly reducing the downtime currently required for periodic system alignment and calibration. Added benefits include a system measurement data collection capability, and interactive capability for distance support, and an interactive offline training capability. In addition this technology is applicable to most DoD radars such as the SPS-49, SPQ-9B etc. Mikros' current strategy is to build a core of highly specialized people to support the government business, as well as its development in the commercial market. Mikros believes that there are significant opportunities for Mikros' technical team to provide support for many of the larger defense contractors that are required by law to subcontract a significant portion of their governmental business to smaller contractors. Mikros has initiated this strategic plan by contacting various defense contractors that they have successfully assisted in the past. There is no assurance that any of the contemplated services will be established. In February 2003 Mikros was invited by the Navy to submit a Phase II proposal for the MFDAT. The proposal was submitted on March 10, 2003 for $600,000 of funding to the Company and an option for additional funding of $150,000. In addition, in March 2003 the Company was awarded an option for additional funding of $30,000 on the Phase I contract for MFDAT. On August 8, 2003, the U.S. Navy's Dahlgren Division, Naval Surface Warfare Center (NSWCDD) awarded Mikros a Phase II SBIR (Small Business Innovative Research) contract for the continued development of the Multiple Function Distributed Analysis Tool (MFDAT). The contract is valued at approximately $600,000 with a $150,000 option. Such contract is subject to continued funding of the Navy's program. The MFDAT is an intelligent, automated test tool designed to aid in the system maintenance, fault detection & isolation, and alignment of complex electronic equipment such as DoD radars, FAA radars, and military and commercial communication systems. The MFDAT system combines multiple standard test equipment functionality, an easy-to-understand graphical user interface (GUI), modern database techniques, and a neural network engine into a single unit creating a new generation of Automated Test Equipment (ATE). The potential benefits to the U.S. Navy are: (1) increased readiness through reduced maintenance downtime of critical systems; (2) increased system reliability through predictive failure analysis and proactive remediation; and (3) more efficient and effective use of technical manpower through increased automation, distance support, and interactive training. During Phase II Mikros plans to development and build several prototype MFDAT systems targeted for use with the AN/SPY-1A radar system on Aegis Combat Missile Cruisers. For this program Mikros has again teamed with Anteon because of its extensive experience and knowledge on the operation and maintenance of the SPY-1 series radar. The MFDAT has the potential to significantly reduce the maintenance downtime while improving alignment accuracy for the SPY-1A radar. 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 Company's ability to continue as a going concern, the need for substantial financing to continue operations, 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 clients 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. The discussion and analysis of the Company's financial condition and results of operations are based upon the Company's condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from these estimates. For a more detailed explanation of judgments made in these areas, refer to our Annual Report on Form 10-KSB for the year ended December 31, 2002. Results of Operations --------------------- Six Months Ended June 30, 2003 There were government contract revenues of $29,947 for the second quarter ended June 30, 2003 compared to $45,935 for the same period in 2002. The 2002 revenues represent revenues from an expired royalty agreement with GAC and government contract revenues. General and Administrative expenses for the quarter ended June 30, 2003 were $46,929 versus $49,970 for the quarter ended June 30, 2002. Net loss for the six months ended June 30, 2003 was $80,490 versus a net loss of $37,881 for the same period in 2002. 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. At June 30, 2003, the Company had cash of $25,590. As of June 30, 2003, the Company had negative working capital of $54,743. Net cash used in operating activities was $29,411. which includes changes in certain of the Company's operating assets and liabilities and the net loss of the six months ended June 30, 2003. In January 2003, Paul G. Casner, Thomas Lynch, Thomas J. Meaney, Wayne E. Meyer and Tom L. Schaffnit each contributed certain equity interests of Mobile Broadcasting Corporation and Data Design (MBC) and Data Design and Development Corporation (3D) to the capital of the Company. Upon this contribution, MBC and 3D became wholly owned subsidiaries of the Company. These equity interests were acquired by such individuals from Safeguard Scientifics (Delaware), Inc. in November 2002. Each of Messrs. Casner, Lynch, Meaney, Meyer and Schaffnit is a Director of the Company. Mr. Meaney also is President, Chief Executive Officer and Chief Financial Officer of the Company. Upon such contribution, the advances made by MBC to the Company in the aggregate amount of $48,705 for working capital purposes were settled as an intercompany account. Mikros is presently seeking $5,000,000 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 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. This would force the Company to further reduce its expenditures, reduce its work force, sell certain assets, or possibly explore other alternatives including seeking bankruptcy protection. Failure to obtain additional financing on terms acceptable to the Company may materially adversely affect the Company's ability to continue as a going concern. Changes to Critical Accounting Policies and Estimates 838: ------------------------------------------------------------------ The Company's critical accounting policies and estimates are set forth in the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002. As of June 30, 2003, there have been no changes to such critical accounting policies and estimates. Item 3. Controls and Procedures. The Company's management, with the participation of the Company's chief executive officer, evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2003. In designing and evaluating the Company's disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, the Company's chief executive officer concluded that as of June 30, 2003, the Company's disclosure controls and procedures were (1) designed to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the Company's chief executive officer by others within those entities, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. No change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 30, 2003 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART II. OTHER INFORMATION Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Exhibit 31.1 Certification of principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 32.1 Certification of principal executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350. 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, 2003 By:/s/Thomas J. Meaney ---------------------- President (Chief Executive Officer and Chief Financial Officer) EXHIBIT 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Thomas J. Meaney, President of Mikros Systems Corporation, certify that: 1. I have reviewed this Quarterly Report on Form 10-QSB of Mikros Systems Corporation. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) [Paragraph omitted in accordance with SEC transition instructions contained in SEC Release 34-47986] c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Thomas J. Meaney Dated: August 14, 2003 Thomas J. Meaney President (Principal Executive Officer and Principal Financial Officer) EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-QSB of Mikros Systems Corporation (the "Company") for the quarter ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Thomas J. Meaney, President of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Mikros Systems Corporation. /s/ Thomas J. Meaney* Dated: August 14, 2003 Thomas J. Meaney, President (Principal Executive Officer and Principal Financial Officer) *A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.