-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B4/ZUElGZ5+Gmw163l0JGNOu1IIv+tD6tiNQQRn4unGC+Xh40cjJ4Ve/+4GwMWLM C9dzES+/N8f6xqpXiSmuMQ== 0000317340-99-000006.txt : 19990517 0000317340-99-000006.hdr.sgml : 19990517 ACCESSION NUMBER: 0000317340-99-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MIKROS SYSTEMS CORP CENTRAL INDEX KEY: 0000317340 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 141598200 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14801 FILM NUMBER: 99621600 BUSINESS ADDRESS: STREET 1: P O BOX 7189 STREET 2: 707 ALEXANDER RD STE 208 BLDG 2 CITY: PRINCETON STATE: NJ ZIP: 08540 BUSINESS PHONE: 6099871513 MAIL ADDRESS: STREET 1: P O BOX 7189 STREET 2: S VAUGHN DRIVE CITY: PRINCETON STATE: NJ ZIP: 08540 10-Q 1 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: March 31, 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 March 31, 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 March 31, 1999 and December 31, 1998 (Unaudited)................................................. 1 Statements of Operations for the Three Months Ended March 31, 1999 and 1998 (Unaudited) ........................ 3 Statements of Shareholders' Equity for the Years ended 1997 and 1998 and Three Months Ended March 31, 1999 (Unaudited)................................................. 4 Statements of Cash Flows for the Three Months Ended March 31, 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......................... 11 PART II - OTHER INFORMATION.................................... 13 MIKROS SYSTEMS CORPORATION BALANCE SHEETS (UNAUDITED) MARCH 31, DECEMBER 31, ASSETS 1999 1998 - ------------------------------ ------------ ------------ CURRENT ASSETS Cash $ 20,565 $ 100,983 Trade Accounts Receivable 15,233 22,023 Prepaid Engineering Services 14,961 234,722 Other Current Assets 12,615 7,148 ------------ ------------ TOTAL CURRENT ASSETS 63,374 364,876 ------------ ------------ EQUIPMENT 71,170 71,170 Less: Accumulated Depreciation (41,080) (36,080) ------------ ------------ EQUIPMENT, NET 30,090 35,090 ------------ ------------ PATENT COST, NET 29,109 29,648 ------------ ------------ TOTAL ASSETS $ 122,573 $ 429,614 ============ ============ See Notes to Financial Statements MIKROS SYSTEMS CORPORATION BALANCE SHEETS (UNAUDITED) MARCH 31, DECEMBER 31, LIABILITIES AND SHAREHOLDERS' DEFICIENCY 1999 1998 - ----------------------------------------- ----------- ------------ CURRENT LIABILITIES Accounts Payable $ 49,132 $ 69,173 Notes Payable Related Parties 72,500 72,500 Other 35,000 105,000 Obligations under Capital Leases 26,063 26,063 Accrued Payroll and Payroll Taxes 27,108 25,932 Accrued Expenses 16,517 48,220 Deferred Contract Credits 14,961 234,722 Unliquidated Progress Payments and Other Customer Advances 15,000 15,000 ------------ ------------ TOTAL LIABILITIES 256,281 596,610 ------------ ------------ 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 28,588,963 shares in 1999 and 27,42,296 in 1998 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 (11,526,066) (11,489,354) ------------ ------------ TOTAL SHAREHOLDERS' DEFICIENCY ( 214,158) ( 247,446) ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY $ 122,573 $ 429,614 ============ ============ See Notes to Financial Statements MIKROS SYSTEMS CORPORATION STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended, March 31, 1999 March 31, 1998 -------------- -------------- Revenues: Equipment Sales $ - $ 333,592 Contract Research and Development - 46,874 Royalties 5,650 - ----------- -------- Total Revenues 5,650 380,466 Cost of Sales: Equipment Sales - 317,618 Contract Research and Development 4,500 41,914 ----------- -------- Total Cost of Sales 4,500 359,532 ----------- -------- Gross Margin 1,150 20,934 ----------- ------- Expenses: Research & Development 219,761 98,647 General & Administrative 39,936 143,870 Interest - 32,431 ----------- ---------- Total Expenses 259,697 274,948 ----------- ---------- Net Loss before Extraordinary Items (258,547) (254,014) Gain on the Sale of Contracts 219,761 - Gain on the Settlement of Accounts Payable Obligations 2,074 - ----------- ---------- Total Extraordinary Items 221,835 - ----------- ---------- Net Loss (36,712) (254,014) =========== ========== Basic Loss per share $(0.01) $(0.02) Basic Income per share - Extraordinary 0.01 - ---------- ---------- Basic Loss per share-net $ 0.00 $(0.02) ========== ========== Weighted average number of shares outstanding 13,451,452 13,451,452 =========== =========== See Notes to Financial Statements MIKROS SYSTEMS CORPORATION STATEMENTS OF SHAREHOLDERS DEFICIENCY (UNAUDITED)
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 --------- ------- --------- -------- --------- -------- Balance-December 31, 11,846,952 $118,470 1,005,000 $10,050 1,131,663 $11,316 1996 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 Stock 800,000 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 Three Months Ended March 31, 1999 Conversion of Secured Debt 1,166,667 11,667 Net Loss --------- ------- --------- -------- ------ -------- Balance March 31, 199928,588,963 $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) Three Months Ended March 31, 1999 Conversion of Secured Debt 58,333 Net Loss (36,712) --------- ------- ------------ ------------ Balance March 31, 1999 690,000 $ 6,900 $(11,005,252) $(11,526,066) ======== ===== ========== =========
See Notes to Financial Statements MIKROS SYSTEMS CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED) The Three Months Ended March 31, 1999 March 31, 1998 -------------- -------------- Cash Flows Provided (Used) by Operating Activities: Net Loss $( 36,712) $ (254,014) Adjustments to reconcile Net Loss to Net Cash Provided (Used) by Operating Activities: Depreciation and Amortization 5,539 2,344 Settlement of Accounts Payable (2,074) - Net Changes in Operating Assets and Liabilities: (Increase) Decrease in: Accounts Receivable 6,790 400,667 Unbilled Receivables - 3,837 Inventories - 5,293 Other Current Assets (5,467) (349) Other Assets - (380) Increase (Decrease) in: Accounts Payable (17,967) (23,925) Accrued Payroll and Payroll Taxes 1,176 9,916 Unliquidated Progress Billings and Other Customer Advances - (107,849) Other Liabilities and Interest (31,703) (3,172) --------- --------- Net Cash Provided (Used) by Operations (80,418) 32,368 Cash Flows Provided (Used) by Financing Activities: Repayment of Debt and Capital Leases - (2,324) --------- ---------- Net Cash Provided (Used) by Financing Activities: - (2,324) --------- --------- Net Increase (Decrease) in Cash ( 80,418) 30,044 Cash at Beginning of Period 100,983 85,592 --------- --------- Cash at End of Period $ 20,565 $ 115,636 ========== ========== Supplemental disclosure of cash flow information: Cash paid during the quarter for interest $ - $ 219 Supplemental disclosure of non-cash information: Engineering Services Utilized $217,961 $ - Stock Issued from Conversion of Secured Debt $ 70,000 $ - See Notes to Financial Statements 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 March 31, 1999, its current liabilities exceed its current assets by $192,907. As shown in the accompanying financial statements, although the Company recorded an operating loss before extraordinary items of $258,547 and a net loss of $36,712 after extraordinary items for the three months ended March 31, 1999. As of March 31, 1999, the Company had an accumulated deficit of $11,526,066. 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 March 31, 1999, the changes in deficiency in assets, and the results of operations, and cash flows for the three-month periods ended March 31, 1999 and 1998. The results disclosed in the Statements of Operations for the three months ended March 31, 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: 03/31/99 12/31/98 -------- -------- Related Parties 72,500 72,500 Other Notes Payable 35,000 105,000 -------- -------- $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 March 31, 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 March 31, 1999. The Company ceased accruing interest on the remaining debt as of May 15, 1998. Part I. Item II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS REVENUE - ------- Total revenues were $5,650 for the first quarter ended March 31, 1999 compared to $380,466 for the same period in 1998. The revenues are 100% from royalties relative to the Company's 1998 divestiture of certain government contracts. In 1999, there were no revenues from equipment sales. In 1998, revenues from equipment sales were $333,592 or 87.7% of total revenue. The 1998 equipment revenues represent the final revenues on the Company s government contracts. In 1999, there were no revenues research and development contracts. Research and development revenues in 1998 were $46,874 or 12.3% for the first quarter. The 1998 research and development revenues represent the revenues on two contracts which were completed in the first quarter. COST OF SALES - ------------- Total Cost of Sales for the quarter ended March 31, 1999 was $4,500 or 90% of revenues compared to $359,532 or 94.5% of total revenue. Equipment Cost of Sales was $0 for the first quarter of 1999 compared to $317,618 in the first quarter of 1998. Cost of Sales for Contract R & D was $4,500 and $41,914 in the first quarter of 1999 and 1998, respectively. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - -------------------------------------------- Selling, General and Administrative expenses for the quarter ended March 31, 1999 was $39,936 versus $143,870 in the quarter ended March 31, 1998, a decrease of $103,934 or 72.2%. This decrease is due mainly to downsizing into 1998. INTEREST EXPENSE - ---------------- No interest expense was recorded during the first quarter of 1999. Interest expense was $32,431 in the quarter ended March 31, 1998. NET LOSS - -------- Net loss for the quarter ended March 31, 1999 was $36,712 versus a net loss of $254,014 for the same period in 1998. Although the level of revenues were significantly less, the increase in the net loss was not proportionately greater due to cost reductions implemented by management. 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 March 31, 1999, the Company had negative cash flow from operations of approximately $80,000 compared to positive cash flow from operations of approximately $32,000 in the first quarter of 1998. There was negative working capital of approximately $193,000 as of March 31, 1999 as compared to negative working capital of approximately $332,000 as of March 31, 1998. As of March 31, 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. In 1998, the Company decreased its number of employees from 19 to 3. 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. 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. 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: May 14, 1999 /s/ Thomas J. Meaney -------------------- Thomas J. Meaney President EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1999 MAR-31-1999 20,565 0 155,544 140,311 0 63,374 71,170 ( 41,080) 122,573 256,281 0 80,450 20,766 285,890 (520,814) 122,573 5,650 5,650 4,500 4,500 259,697 0 0 (258,547) 0 (258,547) 0 221,835 0 (36,712) (.00) (.00)
-----END PRIVACY-ENHANCED MESSAGE-----